Recently, the National Company Law Appellate Tribunal (NCLAT) held that an appeal under Section 421 of the Companies Act, 2013, against an interlocutory order permitting the holding of an Annual General Meeting (AGM) without affecting substantive rights, is not maintainable. This decision arose from a case involving allegations of oppression and mismanagement against the majority shareholders of a company. Notably, the Tribunal emphasised that procedural orders do not qualify for appeal unless substantive rights are determined.
Brief Facts:
The case originated from a Company Petition under Sections 241, 242 and 128 of the Companies Act, 2013, where the appellants, holding 33.9% shares, alleged oppression and mismanagement by the majority shareholders (holding 51.78%). The appellants contended irregularities in financial practices, including the removal of advances worth ₹52.33 crores, backdating of entries, and denial of access to financial records. During the pendency of the petition, the respondents conducted a Board meeting approving the financial statements for FY 2023-24, the Director’s Report and scheduled the 33rd AGM. The appellants challenged these resolutions before the NCLT, seeking to restrain the respondents from placing the financials for approval at the AGM. The NCLT allowed the AGM to proceed but directed that its outcome on Agenda No.1 (adoption of financials) would be subject to further orders. Dissatisfied, the appellants appealed this decision to the NCLAT.
Contentions of the Appellant:
The Counsel appearing for the appellants argued that the NCLT’s decision violated Section 134 of the Companies Act, 2013, which mandates proper approval of financial statements. They claimed that the respondents’ actions were irregular and against the statutory mandate, necessitating immediate intervention. Additionally, the appellants requested the AGM’s postponement citing their inability to attend on the scheduled date.
Contentions of the Respondent:
The Counsel appearing for the respondent contended that the AGM and its resolutions were within the company’s statutory rights and did not violate the appellants’ rights. They sought time to file replies and assured compliance with the Tribunal’s directions.
Observation of the Court:
The NCLAT observed that the NCLT’s order allowing the AGM while keeping Agenda No.1 in abeyance was procedural and did not affect the substantive rights of the appellants. The Tribunal noted that the impugned order did not adjudicate on the appellant’s rights but merely allowed the AGM to proceed, with the outcome being subject to further orders, noted that “The AGM be held; however, the outcome on Agenda No.1 shall be subjected to the order of this Tribunal”. The Tribunal emphasized that the appellants’ objections were left open for consideration during the final hearing of the main petition, it remarked, “All objections of the appellant have been left open to be considered at the stage of the AGM”.
It was held that the appeal, being against an interlocutory order, was premature as no substantive rights had been affected, it was noted that “The appeal lacks merits as it arises out of an interlocutory order, not adjudicating any material right”.
The decision of the Court:
The NCLAT dismissed the appeal, holding that it was premature and not maintainable under Section 421 of the Companies Act, 2013. However, the Tribunal clarified that all the appellants’ rights and grievances could be agitated at the appropriate stage during the hearing of the main petition.
Case Title: Nagaraj V. Mylandla & Ors. v. Financial Software and Systems Pvt. Ltd. and Ors.
Case No.: Comp App (AT) (CH) No.84/2024
Coram: Justice Sharad Kumar Sharma (Member, Judicial), Jatindranatha Swain (Member, Technical)
Advocate for Appellant: Adv. P.H. Arvindh Pandian (Sr. Adv), Rajkumar Jhabakh,
Advocate for Respondent: Adv. P.S. Raman (Sr. Adv), R. Parthasarathy (Sr. Adv), P. Giridharan, PSS Bhargava, Prabhav Sharoff, Mrudula Dixit, Suhrith Parthasarathy, Amritha Sathyajith, T.K. Bhaskar
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