Waiver from Penalties and Compliances under Section 241-242

Background: The Hon’ble National Company Law Tribunal (NCLT) on March 2, 2021, while exercising its jurisdiction under Section 241-242 of the Companies Act, 2013, allowed waiver/ exemption from the potential penalties and prosecution qua the Company viz. improper share allotment and illegal appointment of Directors of the Company.

1. What was the issue in the matter?

The parties in the matter had filed cross Company Petitions against the same Respondent Company, alleging various instances of oppression and mismanagement against the Respondents. The parties, after arriving at an amicable mutual settlement, had sought the relief of decreeing the Settlement Agreement and the liberty to withdraw the petitions. The Respondent Company relied on Section 241-242 of the Companies Act, 2013, read with Rule 11 & 52 of the NCLT Rules, and the precedents passed under the Companies Act, 1956 in such regard, to argue that power has been conferred to the court “to make such orders as it thinks fit” for the purpose of safeguarding the interests of the Company, including its shareholders and the public in general, and such powers encompass passing of the orders that may include exemption/ waiver from potential prosecution under the Companies Act for defaults that had occurred and were made a subject matter of the petition before the Hon’ble NCLT.

2. What are inherent powers of the Tribunal and what role did it play in the present judgment?

Rule 11 of the NCLT Rules states that “nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.”
In the present matter, it was argued that Rule 11 read with Section 242 of the NCLT Rules supplements extensive powers of the Tribunal to decide applications under Sections 241-242 of the Companies Act, 2013, to safeguard the interests of the Company, including its shareholders and the public in general, and appropriate interim and final orders in matters such as this may not be shackled by other provisions of the Act.
The Tribunal accepted this argument and after taking into record the settlement agreement arrived at between the parties inter se, and the powers of the Tribunal in such matters as enunciated in judicial precedents passed under the Companies Act, 1956, allowed waiver/ exemption to the Respondent Company from the penalty qua any inadvertent violations committed in the share allotments and compounding of irregular appointment of Director of the Company.

3. What is the significance of this judgment?

This judgment is significant because if the Hon’ble NCLT decides to, it could, in the backdrop of this judgment, add another chapter to the evolving jurisprudence of oppression/ mismanagement remedy after reiterating and reaffirming the similar precedents passed under the old Companies Act, 1956 regime.

 

Disclaimer

By proceeding further, you the user acknowledge that you of your own accord wish to know more about UKCA and Partners (“UKCA”) for your own information and use. You further acknowledge that there has been no solicitation, invitation or inducement of any sort whatsoever from UKCA or any of its Employees, Associates, Partners or Attorneys to create an Attorney-Client relationship through this website. You further acknowledge having read and understood the terms and conditions as stated below:

This website is a resource for informational purposes only and is intended, but not promised or guaranteed, to be correct, complete, and up-to-date. UKCA does not warrant that the information contained on this webpage is accurate or complete, and hereby disclaims any and all liability to any person for any loss or damage caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause.

UKCA further assumes no liability for the interpretation and/ or use of the information contained on this webpage, nor does it offer a warranty of any kind, either expressed or implied. UKCA does not intend links from this site to other internet websites to be referrals to, endorsements of, or affiliations with the linked entities. UKCA is not responsible for, and makes no representations or warranties about the contents of Websites to which links may be provided from this Website.

This website is not intended to be a source of advertising or solicitation and the contents of the website should not be construed as legal advice. The reader should not consider this information to be an invitation for an attorney relationship and should not rely on information provided herein and should always seek the advice of competent counsel licensed to practice in the reader’s country/ state. Transmission, receipt or use of this website does not constitute or create a attorney-client relationship. No recipients of content from this website should act, or refrain from acting, based upon any or all of the contents of this page.

Furthermore, UKCA does not wish to represent anyone desiring representation based solely upon viewing this website or in a country/ state where this website fails to comply with all laws and ethical rules of that country/ state. Finally, the reader is warned that the use of Internet e-mail for confidential or sensitive information is susceptible to risks of lack of confidentiality associated with sending email over the Internet.