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.
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