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January 03, 2020

NCLAT went beyond jurisdiction given in Companies Act: Tatas


[ by Legal Era News Network ]

National-Company-Law-Appellate-Tribunal

The extremely strong Tata Sons challenge to the dramatic NCLAT (National Company Law Appellate Tribunal) judgement makes a vituperative attack on its order, reinstating sacked Chairman Cyrus Mistry.

It will make for an exciting case in the Supreme Court as the country’s top senior counsel will argue from both sides of the divide. Tatas reckon that the NCLAT judgment is misdirected in law in as much as it does not even meet the jurisdictional ingredients of Sections 241 and 242 of the Companies Act, 2013 (Act).

The petition says that this is primarily because despite laying down the legal test for exercise of power under Sections 241 & 242 of the Act in paragraphs 105 & 106 that: (i) that the company’s affairs have been or are being conducted in a manner ‘prejudicial’ and ‘oppressive’ to any member or members or prejudicial to public interest or in a manner prejudicial to the interest of the company; and (ii) if that be so, to wind up the company would unfairly prejudice such member or members but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up, the impugned judgment completely misdirects itself in applying this legal test to the facts of the present case.

It goes on to say that before the NCLAT, the parties had joined issue on whether the insertion of the expression ‘prejudicial’ in immediate syntax with ‘oppressive’ in Section 241(1)(a) of the Act had changed the contours for exercise of jurisdiction under Section 241, more specifically whether the Indian law had adopted the doctrine of unfair ‘prejudice’ under English law, and whether mere ‘prejudice’ under the Act (as distinguished from ‘oppression’) now constituted a standalone ground for intervention under Section 241.

While the respondents (including Mistry) had contended that the scope of Section 241 would enable an intervention even if the effect of a legitimate action is prejudicial i.e. causing detriment or injury to a member and thus prejudice constituted a distinct standalone head, the appellant and other respondents (including the Tatas) had disputed this interpretation of the respondents , inter alia pointing out that the Indian law had not adopted the English doctrine of unfair prejudice and thus the retention of the word ‘oppressive’ along with ‘prejudice’ in Section 241(1)(a) of the Act signified that Indian law had not created any new threshold in a form of a standalone head of ‘prejudice’ simpliciter.

According to the petition, despite extensive arguments by both the appellants and respondents on this issue, the impugned judgment has recorded no specific finding on this issue. In other words, it has not delineated the scope of actions which could be classified as prejudicial and/or oppressive and the legal basis for such classification.

It contends further because the NCLAT has simply used the expression ‘prejudicial’ and ‘oppressive’, in the entire body of the impugned judgment interchangeably and/or together, without even examining whether the act complained of satisfied the test of ‘prejudice and/or ‘oppression’. To put it more simply, while the impugned judgment has censured and denounced various acts of the appellant and other respondents as oppressive or prejudicial, there is no legal basis or rationale in the impugned judgment for such censure and eventual countermanding.

Then it says because in the respectful submission of the appellant, this constitutes a serious and fundamental error which pervades the entire impugned judgment, where acts and even the Articles of the Appellant have been declared to be illegal in exercise of purported jurisdiction under Section 241 read with 242 of the Act, without first testing such acts against the parameters laid down in Section 241 and 242 of the Act, and/ or laying down the legal test which occasioned such conclusion. It is submitted that mere use of the words ‘prejudicial’ and ‘oppressive’ with reference to actions complained of in a petition under Section 241 and thereafter countermanding such acts, without even laying down the legal threshold that the actions complained of stood foul of, constitutes a serious error in the exercise of jurisdiction by the NCLAT.

Moreover, it reckons because the National Company Law Tribunal, whose decision has been set aside by the NCLAT, had before examining the merits of the allegations, laid down the legal test for intervention under Section 241, and thereafter embarked on an examination of whether the allegations fulfilled the legal test. The impugned judgment does not even discuss the legal test laid down by the NCLT, much less disagree with or upset the same, but simply proceeds to classify actions as ‘prejudicial’ and ‘oppressive’. The appellant submits that on this short ground alone, the impugned judgment deserves to be set aside by the apex court.



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