National Company Law Appellate TribunalPhoton Infotech Pvt. Ltd vs Medici Holdings Ltd on 24 April, 2018NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
                     Company Appeal (AT) No. 375 of 2017

 (Arising out of order dated 17.10.2017 passed by the National Company Law
 Tribunal, Single Bench, Chennai in CA/90/2017).

IN THE MATTER OF:
1. Photon Infotech Pvt. Ltd.                        ...Appellant No. 1
   No.7, 7th Cross Street, Shastri Nagar,        (Original Respondent no.1)
   Adyar, Chennai- 600020

2. Srinivas Balasubramanian,
   No.7, 7th Cross Street, Shastri Nagar,           ...Appellant No. 2
   Adyar, Chennai- 600020                        (Original Respondent no.2)

3. Mukund Balasubramanian,
   No.7, 7th Cross Street, Shastri Nagar,           ...Appellant No. 3
   Adyar, Chennai- 600020                        (Original Respondent no.3)

4. Latha Balasubramanian,
   No.7, 7th Cross Street, Shastri Nagar,           ...Appellant No. 4
   Adyar, Chennai- 600020                        (Original Respondent no.4)

5. Photon Interactive Private Limited
   Block No.5, Floor No.2, DLF IT Park,             ...Appellant No. 5
   Shivaji Nagar, Adyar, Chennai- 600020.        (Original Respondent no.5)
       Vs
1. Medici Holdings Ltd.                             ...Respondent No. 1
   St. Louis Business Centre, CnrDesroche            (Original Applicant)
   & St.Louis Streets, Port Louis, Mauritius

2. Photon BV, Previously North First Capital
   Schiphol Boulevard, 399, 1118BJ,
   Schiphol, PO Box 75789, 1118ZX                    ...Respondent No. 2
   Schiphol, Netherlands                         (Original Respondent No.6)

3. Amistad Capital Cooperatief U.A.
   Schiphol Boulevard 399, 1118BJ Schiphol           ...Respondent No. 3
   Netherlands.                                  (Original Respondent No.7

4. Amistad Capital Pte Ltd.
   Registered office at 1,North Bridge Road,         ...Respondent No. 4
   #19-04/05, High Street Centre                 (Original Respondent No.8)
                                                  2


  5. Ram Charan
     No.7, 7th Cross Street, Shastri Nagar,                ...Respondent No. 5
     Adyar, Chennai- 600020                            (Original Respondent No.9)


  Present:

  For Appellant:                 Mr. C. S. Vaidyanathan, Senior Advocate with
                                 Mr. R. Anand Padmanabhan, Mr. Goutham
                                 Shivahankar, Mr. Srinath Ra. Iyengar, Ms. Ananya
                                 Mukherjee, and Mr. Akshay Ravi, Advocates.
  For Respondent:                Mr. Sankarnarayanan, Sr. Advocate with Mr. P.
                                 Rajkumar Jhabhak, Mr. Anandh K. Shruti Iyer,
                                 Mr.Shiv Mangal Sharma and Mr. Adhiraj, Advocates
                                 for Respondent No. 1.

                                             With
                         Company Appeal (AT) No. 395 of 2017
  IN THE MATTER OF:
  Ram Charan S.R,
  Previously working as Chief Financial Officer of
  M/s. Photon Infotech Private Limited and
  Currently working as Chief Financial officer of
  M/s. Photon Interactive Private Limited.
  Having his office address at II Floor, block 5
  DLF IT SEZ. 1/124 Mount Poonamallee Road,
  Manapakkam Chennai TN 600089                                     ...Appellants


          Vs
  1. Medici Holdings Ltd.
     having its registered office
     at St. Louis Business Centre, CnrDesroche
     & St.Louis Streets, Port Louis, Mauritius,
     Represented by its Authorized Representative
     And power of Attorney Holder
     Mr. Yashpal Kumar
     Having office at No. 101-B,
     Mittal Towers, Nariman Point Mumbai-400201
  2. Photon Infotech Pvt. Ltd.
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020


Company Appeal (AT) No. 375, 395 & 396 of 2017
                                                  3



  3. Srinivas Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020
  4. Mukund Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020
  5. Latha Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020

  6. Photon Interactive Private Limited
     Block No.5, Floor No.2, DLF IT Park,
     Shivaji Nagar, Adyar, Chennai- 600020.

  7. Photon NV, Previously North First Capital
     Schiphol Boulevard, 399, 1118BJ,
     Schiphol, PO Box 75789, 1118ZX
     Schiphol, Netherlands.
     Through its Director
     Srinivas Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020
  8. Amistad Capital Cooperatief U.A.
     Schiphol Boulevard 399, 1118BJ Schiphol
     Netherlands.
     Srinivas Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020
  9. Amistad Capital Pte Ltd.
     Registered office at 1, North Bridge Road,
     #19-04/05, High Street Centre
     Singapore-179094
     Srinivas Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020                                     ....Respondents

  Present:
  For Appellant:                 Mr. V. Mahesh, Company Secretary.
  For Respondent:                Mr. Sankarnarayanan, Sr. Advocate with Mr. P.
                                 Rajkumar Jhabhak, Mr. Anandh K. Shruti Iyer, Mr.
                                 Shiv Mangal Sharma and Mr. Adhiraj, Advocates for
                                 Respondent No. 1.



Company Appeal (AT) No. 375, 395 & 396 of 2017
                                                  4



                                             With
                         Company Appeal (AT) No. 396 of 2017

  IN THE MATTER OF:
  1. Photon NV, Previously North First Capital & Ors.
     Schiphol Boulevard, 399, 1118BJ,
     Schiphol, PO Box 75789, 1118ZX
     Schiphol, Netherlands.
  2. Amistad Capital Cooperatief U.A.
     Schiphol Boulevard 399, 1118BJ Schiphol
     Netherlands.
  3. Amistad Capital Pte Ltd.
     Registered office at 1, North Bridge Road,
     #19-04/05, High Street Centre
     Singapore-179094                                          ...Appellants

          Vs
  1. Medici Holdings Ltd.
     St. Louis Business Centre, CnrDesroche
     & St.Louis Streets, Port Louis, Mauritius

  2. Photon Infotech Pvt. Ltd.
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020

  3. Srinivas Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020

  4. Mukund Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020

  5. Latha Balasubramanian,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020

  6. Photon Interactive Private Limited
     Block No.5, Floor No.2, DLF IT Park,
     Shivaji Nagar, Adyar, Chennai- 600020.




Company Appeal (AT) No. 375, 395 & 396 of 2017
                                                  5


  7. Ram Charan S.R,
     No.7, 7th Cross Street, Shastri Nagar,
     Adyar, Chennai- 600020                                         ....Respondents

  Present:

  For Appellant:                 Mr. R. Anand Padmanabhan, Advocate.

  For Respondent:                Mr. Sankarnarayanan, Sr. Advocate with Mr. P.
                                 Rajkumar Jhabhak, Mr. Anandh K. Shruti Iyer,
                                 Mr. Shiv Mangal Sharma and Mr. Adhiraj,
                                 Advocates for Respondent No. 1.

                                        JUDGEMENTA.I.S. CHEEMA, J.:These 3 appeals are arising out of same impugned order passed by the

   National Company Law Tribunal single Bench Chennai (NCLT in short) in CA

   90/ 2017 filed by original applicant "Medici holdings Limited & Ors.". By the

   impugned order NCLT has found that the original applicant has made out a

   case for waiver of clause (a) and (b) of section 244 to file petition undersection

   241of the Companies Act, 2013 (new Act in short). Aggrieved by the impugned

   order original respondents 1 to 5 have filed CA 375/ 2017, original respondent

   nos. 6 to 8 have filed CA 396/2017 and original respondent no. 9 has filed CA

   395/2017.2.     We have heard the appeals together. The impugned order is also same

   and thus we are disposing these appeals by this common judgment and order.

   We will be referring to documents and page numbers from the record of CA no.

   375/2017.Company Appeal (AT) No. 375, 395 & 396 of 201763.     The impugned order shows that the learned NCLT considered the CA

   (copy of which is at page 270 in the appeal). The learned NCLT painstakingly

   summarized the averments made in the application for waiver, which we need

   not reproduce. NCLT considered the arguments and counter arguments which

   were made and referred to rulings cited and in Para 13 of the impugned order

   considered the question whether the original applicant has made out case to

   seek waiver of clause (a) and (b) ofsection 244of the new Act. Discussing the

   arguments made, the finding was arrived at that the Legislature has fixed a

   minimum criteriau/s 244for making application undersection 241of the new

   Act but at the same time entrusted the Tribunal with the power to waive the

   criteria of minimum requirement for doing substantial justice. The Tribunal

   found that the power has to be used very carefully and on exceptional basis

   and looking to the concerned matter it was of the opinion that this case is one

   of the exceptional cases where such power should be used to grant waiver in

   the interest of justice.4.     Briefly, the case put up by the Respondent no. 1(original applicant) in

   the application for waiver is that the applicant had acquired 6.62 per cent of

   paid up equity capital of the respondent company "Photon Interactive Private

   Limited". The shares were acquired soon after the company had been

   incorporated. Respondent no. 1 claimed in the application that it is an

   investment holding company. It has 19,69,000 equity shares of Rs. 1 each

   representing 6.62 per cent of the paid-up share capital of the first respondent

   Company (appellant no.1). The application contains particulars regarding the


Company Appeal (AT) No. 375, 395 & 396 of 20177authorized and paid up capital of the appellant no. 1(hereafter referred as

   respondent company). It is shown that the original respondent no.2 is holding

   46.43 per cent of the shares and is also director of original 5th respondent and

   executive director of original 6th and 7th respondents and is also director in

   original 8th respondent. It is stated that the original respondent no. 3 is

   promoter and director of the respondent company having shareholding of 46.43

   per cent of the shares. The original respondent no. 3 is also director in 5th

   respondent and is also director in 8th respondent. As per the application for

   waiver original respondent no. 4 has 0.03 per cent shares in the respondent

   company and she is also director of 5th respondent company. The application

   gives particulars relating to respondents 5 to 9 also and their connection with

   the respondent company. The case put up is that it is on 24.11.2010 the

   company came up with a proposal to allot substantial shares to respondent

   nos. 2 and 3. The original applicant objected and the proposal was given up.

   Some offer was made on 25.01.2011 and that was also given up. On

   25.11.2010 according to the applicant a right offer was given to all the

   shareholders but the offer made to the original applicant came to be

   withdrawn. Similar process was adopted on 10.01.2011 and even that was

   given up. According to the original applicant on 28.10.2011 8,50,000 shares of

   face value of Rs. 1 were issued to original respondent no. 9 as Employee Stock

   Option and on the very day in the same meeting the board of directors passed

   another resolution approving buy-back of the very same shares from

   respondent no. 9 by the respondent company at a price of Rs. 66 per share and



Company Appeal (AT) No. 375, 395 & 396 of 20178respondent no.9 was enriched by a sum of Rs.1,08,37,500 as the differential

   share price.5.      The application for waiver has contents making averments as to how

   there was effort at demerger scheme and even that was abandoned when

   objected and as to how the only business of the respondent company which

   was of software has been sold off to original respondent no. 5, on slump sale

   basis. According to the original applicant on 15.11.2011 several shareholders

   were issued just 1 share each so as to ensure that the original applicant is not

   able to resort to application undersection 399of the companies Act, 1956 (old

   Act in brief) as then applicable. The applicant claimed in the NCLT, that it had

   moved the Central Government for permission to file the petition which was

   granted. The same was challenged by other side in writ petition on the basis

   that the official who heard the matter had not passed the orders. Subsequently

   another order was passed by the official concern but even that was challenged

   in writ petition. According to the applicant Civil Suit no. 887/2013 was filed by

   the applicant as derivative suit to declare the sale of software business as

   illegal and for consequent reliefs. Some of the original respondents objected

   and sought rejection of plaint and the matter is still pending in High Court.

   After coming into force of the new Act, the applicant has been filed for waiver.6.      The original respondents 1 to 5 in CA 325/ 2017 have challenged the

   impugned order and it has been argued by the appellants that before the NCLT

   no special exceptional circumstances were made out for grant of waiver.



Company Appeal (AT) No. 375, 395 & 396 of 20179According to the appellants (original respondents 1 to 5) as held in the matter

   ofCyrus   Investments Pvt. Ltd. & Ors. Vs. Tata Sons Ltd. & Ors.,

   MANU/NL/0100/2017waiver    can     be   granted   only   after   "special   and

   exceptional circumstances are made out". It has been argued that the NCLT

   can only deliberate on the merits of a proposed application undersection 241while deciding the application and for granting waiver NCLT can only look into

   "relevant facts" and record reasons reflecting satisfaction for grant of waiver.

   The argument is that in paragraph 18 to 20 of the impugned judgment and

   order of NCLT the NCLT has discussed the merits of the claim of oppression

   and mismanagement before it and put it on the respondents that they had

   failed to provide explanation as to why reserves/surplus is not used for

   expansion; failure to explain subsequent proposals for share allotments when

   previous allotments were withdrawn; failure to explain buy-back of ESOP

   shares and that respondents failed to explain why decision of buy back of

   shares issued and bought back on 28.10.2011 was taken in the same Board

   meeting. Thus according to the appellants keeping in view the judgment in the

   matter of Cyrus Investments these findings on merits were not relevant for

   considering the waiver. According to the appellants no single "special and

   exceptional circumstances" has been found by the NCLT. The original applicant

   had in written submissions before the NCLT claimed that there was enough

   merit in its application and prima facie case of oppression and mismanagement

   had been made out.Company Appeal (AT) No. 375, 395 & 396 of 2017107.     It has been argued by the appellants that original applicant filed civil suit

   887/2013 before Madras High Court which is pending and the averments in

   the suit are identical to the averments in the application for waiver. The only

   new ground now made was that accounts of financial year 2013-14 and 2014-

   15 had not been filed. According to the appellants the suit has not been

   withdrawn and the remedy of derivative action civil suit and a claim of

   oppression are inconsistent and original applicant must be precluded from

   seeking relief before NCLT.8.     The appellants have further submitted that the Central Government had

   passed order dated 06.05.2015 permitting original applicant to file petition

   undersection 399(4)which was challenged in writ petition no. 17681 of 2015.

   The High Court granted interim stay and the writ petition is pending.

   Thereafter,    Ministry    of   Corporate     Affairs   passed   another   order   dated

   03.07.2015 purportedly correcting a defect which was in the earlier order dated

   06.05.2015 and granted permission to the original applicant to file original

   petition undersection 397and398of the Act, 1956. Even this was challenged

   by the appellants in writ petition 10779 of 2017 before Madras High Court. The

   second order MCA dated 03.07.2015 has not been stayed by the High Court

   but the writ petition is pending. As such, nothing prevented the original

   applicant from filing company petition and only after the new act has come into

   force present application is filed. Thus the application suffered from delay and

   latches.Company Appeal (AT) No. 375, 395 & 396 of 2017119.     According to the appellants the appellant no. 5 has nothing to do with

   the affairs of the appellant no. 1 company. Appellant no. 5 is not a shareholder

   nor involved in management. It is only transferee under a Business Transfer

   Agreement signed by the first appellant company and is 3rd party purchaser of

   first appellant's assets at a fair value. Thus, it is claimed that original appellant

   was bona fide purchaser. Settlement offers were made but the original

   applicant did not accept and is going on litigating.10.    The appellants of company 396/2017 are supporting the appellants of

   CA 325/2017 and raising similar contentions. They claim that when the

   original applicant moved Ministry of Corporate Affairs, they were not made

   parties. According to them there is no cause of action against them and there is

   no act of oppression and mismanagement made out against them. According to

   them they are unnecessary party. There was no exceptional circumstance made

   out for waiver.11.    The original respondent no. 9, appellant of CA 375/2017 is also

   supporting the other Appellants. He claims that he is not shareholder nor

   director of respondent company. He was former employee and resigned in

   February, 2013. It is claimed that ESOP shares granted to him were based on

   evaluation done by SEBI and when option was exercised by this appellant in

   Compensation Committee held on 30.09.2011 the price was fixed at 54.25,

   and, on 28.10.2011 the same shares were brought back at Rs. 66. This




Company Appeal (AT) No. 375, 395 & 396 of 201712appellant is trying to show that the acts would not amount to oppression. He

   also claims that there were no circumstances made out for granting of waiver.12.    Counsel for the original applicant/respondent no. 1 in appeal in his

   argument referred to the various acts of oppression and mismanagement,

   which original applicant made out in the application. According to the counsel

   the judgment in the matter of Cyber Investment came after the arguments were

   completed in the NCLT but still the same was brought to the notice of NCLT

   and it has considered the same. According to the counsel it is admitted fact

   that capital and original applicant/respondent no.1 is having 6.62 per cent of

   the paid up equity capital. According to the counsel the present appellants

   made various efforts to oppress the original applicant and even made efforts at

   demerger of the company and when the original applicant objected to such

   acts, they withdrew from those acts but by a subsequent act whole business of

   the company by an agreement dated 27.03.2013 has been handed over to the

   present appellant no. 5 on slump sale basis which was hugely undervalued and

   when the substratum of the Company which was the business itself has been

   transferred, it is an exceptional circumstance and case for grant of waiver.

   Referring to the judgment of NCLT, it has been argued by learned counsel for

   respondent no. 1 that NCLT took note of the shareholding position of original

   applicant and considered that it was a case of oppression and mismanagement

   and kept in view the judgment in the matter of Cyrus Investment and held

   exceptional circumstance was made out. The Civil Suit filed has been objected

   to by the appellants in the High Court claiming that it was a case of oppression


Company Appeal (AT) No. 375, 395 & 396 of 201713and mismanagement and so the Civil Suit was not maintainable and they had

   sought rejection of plaint. It is argued that the original applicant cannot be left

   without remedy and earlier on two occasions Central Government granted

   permission to file Company Petition but the appellants challenged the same in

   writ petitions and it is settled legal position that in matters relating to members

   of company for oppression and mismanagement proceeding to NCLT is the only

   remedy. He submitted that on the principle of "Ibi Jus Ubi Remedium" the

   applicant cannot be non-suited.13.    We have gone through the application which was filed by the Respondent

   no. 1 before NCLT, the orders passed by NCLT and the rival claims which are

   being put up by these parties. The question is whether the Respondent no. 1-

   original applicant deserves to be granted waiver from the requirements

   specified in clause (a) and (b) ofsection 244(1)to enable the respondent no.1 to

   apply undersection 241of the new Act.14.    This Tribunal has in the matter of "Cyber Investments Private Limited"(referred supra) (to which one of us was member) dealt with the question of

   waiver in some details. It would be appropriate to refer to some of the

   observations and findings.14.1 Before discussing the judgment in the matter of Cyrus Investments,

   it would be appropriate to reproduceSection 244of the new Act which reads as

   under:Company Appeal (AT) No. 375, 395 & 396 of 201714"Right to apply undersection 241-(1)The following members of a

          company shall have the right to apply undersection 241, namely:-(a) in the case of a company having a share capital, not less than

          one hundred members of the company or not less than one-tenth of

          the total number of its members, whichever is less, or any member

          of members holding not less than one-tenth of the issued share

          capital of the company, subject to the condition that the applicant or

          applicants has or have paid all calls and other sums due on his or

          their shares;(b) in the case of a company not having a share capital, not less than

          one-fifth of the total number of its members:Provided that the Tribunal may, on an application made to it

                 in this behalf, waive all or any of the requirements specified in

                 clause (a) or clause (b) so as to enable the members to apply

                 undersection 241.Explanation:- For the purposes of this sub-section, where any share

          or shares are held by two or more persons jointly, they shall be

          counted only as one member.(2) Where any members of a company are entitled to make an

          application under sub-section (1) any one or more of them having




Company Appeal (AT) No. 375, 395 & 396 of 201715obtained the consent in writing of the rest, may make the application

          on behalf and for the benefit of all of them."14.2 in the matter of Cyrus Investments, after referring to the provisions

   ofsection 241to243it was observed:-"135. From plain reading of sub-section (1) ofSection 244, the

          following facts emerges.In the case of a company having a share capital, the following

          member(s) have right to apply undersection 241:(i) not less than one hundred members of the company

                 or not less than one-tenth of the total number of its

                 members, whichever is less; and (ii) any member or

                 members holding not less than one-tenth of the issued

                 share capital of the company, subject to the condition

                 that the applicant or applicants has or have paid all

                 calls and other sums due on his or their shares.136. Apart from two categories of members who have right to apply

          underSection 241, under proviso to sub-Section (1) ofSection 244,

          the Tribunal on an application made to it in this behalf by any

          member, i.e. those who are otherwise not eligible, may waive all or

          any of the requirements specified in clause (a) or clause (b) so as to

          enable the member to apply underSection 241.Company Appeal (AT) No. 375, 395 & 396 of 201716137. From the proviso to sub-section (1) ofsection 244, it is clear that

          till the Tribunal waive all or any of the requirements specified in

          clause (a) or clause (b) of sub-section (1), so as to enable the member(s) to apply underSection 241, no application underSection 241can

          be entertained.138. Therefore, before grant of waiver, the question of forming

          opinion by Tribunal on an application made underSection 241and

          to pass any order as it thinks fit does not arise. If the Tribunal

          intends to decide the application undersection 241on merit, it is

          required to waive the requirement as prescribed under sub-section

          (1) ofsection 244.139. For the reasons aforesaid, we hold that the Tribunal cannot

          deliberate on the merit of a (proposed) application underSection

          241, while deciding an application for 'waiver' under proviso to sub-

          section (1) ofSection 244.Then the judgment considered factors dependent on merit and in Para 140 it

   was observed as follows:-"140. For the aforesaid reasons we hold that the Tribunal while

          deciding an application for 'waiver' under proviso to sub-section (1)

          ofSection 244to enable the members to apply undersection 241cannot decide the following issues:-Company Appeal (AT) No. 375, 395 & 396 of 201717(i) Merit of the case(ii) Issues dependent on merit based on claim and counter claim,

          such as:a. Whether a prima facie case has been made or not


             b. Whether the petition is barred by limitation,


             c. Whether it is a case of arbitration,


             d. Whether allegation relates to/pertains to another company

             (Third Party).e. Whether the allegations are in the nature of directorial

             complaint.f. Whether the applicants' conduct disentitled them from seeking

             relief.g. Whether the proposed application underSection 241is barred

             by acquiescence or waiver or estoppels."14.3. Then reference was made to the old provisions ofSection 397,398and399under the old Act where the Central Government could, if it was of the

   opinion that "circumstances exist which make it just an equitable so to do,"authorize any Member or members of the company to apply to the Company

   Law Board undersection 397or 398. It was observed in Para 143 as under :-Company Appeal (AT) No. 375, 395 & 396 of 201718"143. Under proviso to sub-section (1) ofSection 244now the

          Tribunal is required to decide the question whether application

          merits 'waiver' of all or any of the requirements as specified in

          clauses (a) and (b) of sub-section (1) ofSection 244to enable such

          member(s) to file application underSection 241. Such order of

          'waiver' being judicial in nature, cannot be passed by Tribunal, in a

          capricious or arbitrary manner and can be passed only by a

          speaking and reasoned order after notice to the (proposed)

          respondent(s). The basic principle of justice delivery system is that a

          court or a Tribunal while passing an order is not only required to

          give good reason based on record/evidence but also required to

          show that after being satisfied itself the Court/Tribunal has passed

          such order. To form an opinion as to whether the application merits

          waiver, the Tribunal is not only required to form its opinion

          objectively, but also required to satisfy itself on the basis of

          pleadings/evidence      on    record    as   to   whether   the   proposed

          application underSection 241merits consideration."


          14.4 It has been then observed in the matter of Cyrus Investments that,

   the Tribunal is required "to take into consideration the relevant facts and

   evidence, as pleaded in the application" and " to record reasons reflecting its

   satisfaction". In Para 145 of the judgment it has been held that the Tribunal is

   not required to decide merit of the application undersection 241but "required

   to record grounds to suggest that the applicants have made out some


Company Appeal (AT) No. 375, 395 & 396 of 201719exceptional case for waiver of all or any of the requirements specified in clauses(a) and (b) of sub-section (1) ofSection 244". Para 146 of the judgment reads as

   under:-"Normally, the following factors are required to be noticed by the

          Tribunal before forming its opinion as to whether the application

          merits 'waiver' of all or one or other requirement as specified in

          clauses(a) and (b) of sub-section (1)Section 244:-(i) Whether the applicants are member(s) of the company in

          question? If the answer is in negative i.e. the applicant(s) are not

          member (s), the application is to be rejected outright. Otherwise, the

          Tribunal will look into the next factor.(ii) Whether (proposed) application undersection 241pertains to

          'oppression and mismanagement'? If the Tribunal on perusal of

          proposed application undersection 241forms opinion that the

          application does not relate to 'oppression and mismanagement' of

          the company or its members and/or is frivolous, it will reject the

          application for 'waiver'. Otherwise, the Tribunal will proceed to

          notice the other factors.(iii) Whether similar allegation of 'oppression and mismanagement',

          was earlier made by any other member and stand decided and

          concluded?Company Appeal (AT) No. 375, 395 & 396 of 201720(iv)Whether there is an exceptional circumstance made out to grant

          'waiver', so as to enable members to file application underSection

          241etc.?"14.5 It has been held that aforesaid factors are not exhaustive. Inthe said judgmentof Cyrus Investments this Tribunal then looked into the

   shareholding of the parties in that matter and it was observed in Para 155 to

   158 as under:-"155. From the aforesaid summary of shareholding we find that

          except Mr. Ratan Naval Tata (at serial No. 22) having issued

          shareholding of 31.43% and Mr. Narotam S. Sekhsaria (at serial No.44), having 17.01% shareholding capital of the company, none of the

          49 member(s) are eligible to file an application underSection 241,

          individually having less than 10% of the shareholding.156. That means in the context of present case, except that the

          minority shareholders join together, i.e. either six in numbers or such

          numbers of members whose joint shareholding will come up to 10%

          of the issued share capital of the Company, which will be also not

          less than 3 to 4 members, none of the 49 shareholders can file an

          application    underSection       241alleging   'oppression   and

          mismanagement'. It will remain only in the hands of major

          shareholders, namely Mr. Ratan Naval Tata or Mr. Narotam S.




Company Appeal (AT) No. 375, 395 & 396 of 201721Sekhsaria, who only have right and their prerogative to file such

          application.157. One or the other minority shareholder cannot be asked or

          directed to form a group of 10% of the member(s) that means six

          person(s) in the present case, as it will be dependent on the

          prerogative of the other member(s).158. We are of the view that this is one of the exceptional and

          compelling circumstances, which merit the application for 'waiver'

          subject to the question whether (proposed) application underSection

          241relates to 'oppression and mismanagement'."The judgment then noted the interest of the appellants in the overall

   value of the company and for further reasons recorded the waiver was granted.15.    Coming back to the present matter. Annexure A.13 (page 270) is copy of

   the application for waiver. Para 1 of the same shows original applicant

   (respondent no.1 in appeal) is minority shareholder holding 19,69,000 equity

   shares of Rs. 1 each representing 6.62 per cent of paid up share capital of

   appellant no. 1 company. Paras 3, 4 and 5 show appellants 2 to 4 (original

   respondent nos. 2 to 4) hold 46.93%, 46.43% and 0.03% shares respectively. It

   would be appropriate to reproduce one paragraph from the application for

   waiver which was moved. Para 19 reads as follows:-Company Appeal (AT) No. 375, 395 & 396 of 201722"On or around 15th November, 2011, the 4th Respondent transferred

          15 shares each of 1st Respondent to 1st Respondent's employees.Pertinently, this transfer of shares to the 1st Respondent's

          employees was only to increase the number of members of the 1st

          Respondent, so as to ensure that the Applicant is not able to meet

          the statutory requirement of 1/10th of the total number of the

          members of the company to maintain an action for oppression/

          mismanagement under the old Act. The Applicant had always been

          one of the four shareholders of the 1st Respondent holding 6.62 per

          cent shareholding in the 1st Respondent; but through this stratagem,

          the Respondents nos. 2 to 4 attempted to prevent the Applicant from

          having the capacity (underSection 399of the Old Act) to initiate

          proceedings underSection 397-398of the Old Act against the 1st

          Respondent and/or Respondent Nos. 2 to 4."If the above factor is kept in view and the grounds recorded in the judgment of

   Cyrus Investments which we have been reproduced above are seen, it is

   apparent that except for appellants 2 and 3 none of the other shareholders can

   maintain an application of oppression and mismanagement. As per the

   judgment of Cyrus other minority stake holders cannot be asked or directed to

   form a group of 10% of the members. This is an exceptional factor and we find

   substance in the arguments of the learned counsel for Respondent no.1 that

   the Respondent no.1 (original applicant) has 6.62 per cent shareholding and

   the appellants 2 to 4 have purposely left a minuscule 0.038 per cent in the


Company Appeal (AT) No. 375, 395 & 396 of 201723hands of others and kept rest of the shares with themselves. The argument is

   that the number of Members has been increased by transferring 15 shares to

   employees so thatSection 244could not be satisfied.16.    Going through the application which was filed for waiver by the

   Respondent no.1 we find that the application pertains to 'oppression and

   mismanagement'. We keep in view the pleadings of alleged oppression and

   mismanagement. There is no dispute that the original applicant/ respondent

   no.1 is member of the company. It cannot be said that the application is

   frivolous. It is not a case that similar allegations of 'oppression and

   mismanagement' were earlier made and stood decided or concluded (please see

   Para 146 of the judgment in the matter of Cyrus Investments). It has already

   been held in Para 150 of the judgment in the matter of Cyrus Investments that

   Civil Court has no jurisdiction to entertain any suit or proceeding in respect of

   alleged acts of 'oppression and mismanagement' if it is preferred by any

   member of the company. When any member of the company complaints of

   'oppression and mismanagement' in the company, in view of theCompanies

   Act, the issue has to be decided by NCLT. Thus only because the Respondent

   no. 1 filed suit in the High Court would not be a Bar to present application as

   the question of oppression and mismanagement has to be decided by NCLT.17.    In the present matter Respondent no.1 earlier moved the Central

   Government and the permission was granted by orders dated 06.05.2015 (page

   no. 208) which appear to have been challenged in writ petition. It has been



Company Appeal (AT) No. 375, 395 & 396 of 201724argued that writ petition was filed on the basis that the officer who heard the

   parties did not pass the concerned orders. It appears that subsequently the

   concerned officer passed another order on 03.07.2015 (page no. 232) whereby

   the necessary permission was granted to file petition before Company Law

   Board undersection 397and398. No doubt it is stated that even the second

   order has been challenged in writ petition. We are making reference to these

   orders for the limited purpose that the Respondent no. 1 is not running from

   pillar to post without having a substantial matter. It did have an order in its

   favour undersection 399(4)of the Old Act where the Central Government could

   permit if there were circumstances making it "just an equitable so to do" to

   authorize a Member to file the application to CLB. In fact the present proviso

   undersection 244 (1)is not even circumscribed by any conditions like "just an

   equitable" like insection 399(4)and rather it is open ended giving wide

   discretion to NCLT. Of course all judicial powers and discretions are to be so

   exercised that it should not be arbitrary or whimsical. Interest of justice has

   always been the guiding factor.18.    No doubt in the impugned order NCLT, reading the proviso belowsection

   244as it is, discussed whether prima facie case is made out and observed that

   the respondents had not shown certain factors, but we are ignoring those

   observations in view of judgment in the matter of Cyrus. However we on our

   analysis of the matter find that it is a fit case for grant of waiver.




Company Appeal (AT) No. 375, 395 & 396 of 20172519. In reply to arguments of the Ld. Counsel for respondent no.1 (original

   appellant) it is argued by Appellants (see brief written submissions on behalf of

   the appellants filed on 19.03.2018) that appellant no.5 is not a shareholder of

   the 1st appellant company, nor is it involved in its management; and that

   appellant no.5 is only the transferee under a Business Transfer Agreement

   signed by the 1st appellant company; and that " It is a bona fide third party

   purchaser of the 1st appellant's assets at a fail value". We find that when it is

   shown that substratum itself of the company has been transferred, it is an

   exception circumstance, and waiver as sought should be granted.20.    The contentions raised by the appellants in CA 396/2017 and CA

   395/2017 that they are not necessary party, relates to factors dependent on

   the merits of the matter and need not to be decided at the stage of grant of

   waiver.21.     For above reasons, we do not find any substance in these appeals. All the

   three appeals are dismissed. No orders as to cost.(Justice A.I.S. Cheema)
                                                                 Member (Judicial)




                                                                 (Balvinder Singh)
                                                                Member (Technical)
   New Delhi
   24th April, 2018


   sh/nn



Company Appeal (AT) No. 375, 395 & 396 of 2017