Beneficiaries of a trust can initiate proceedings under the Companies Act when exceptional circumstances exist, despite falling short of the statutory thresholds.

JUDGMENT

(Hybrid Mode)

[Per : Justice Sharad Kumar Sharma, Member (Judicial)]

The instant Company Appeal has been preferred by the Appellant, who is aggrieved by the order dated 06.02.2020, as it was passed in IA No. 887/2019 in the proceedings of CP No. 535/241/HDB/2019, whereby, by virtue of the application filed by the Respondent, the application preferred under Section 244 (1) read with Rule 83A of the Companies Act, 2013 , was allowed. Consequently, a waiver was granted to override the legal and procedural restrictions imposed therein, thereby enabling the Petitioners, Respondents herein to initiate proceedings under Sections 241 & 242 of the Companies Act.

2. Owing to the provisions of Section 244 (1) of the Companies Act, 2013 , in case of a company having share capital, members constituting less than one- tenth of the total number of members or holding less than one-tenth of the total issued share capital of a company are barred from initiating proceedings under Section 241 of the . An exception is, however, carved out by the proviso to sub-section (1) of , which contemplates that the Tribunal, on an application, may grant a waiver of the conditions required under sub-clauses (a) and (b) of sub-section (1) of of the .

3. The Appellant company, in support of its challenge to the impugned order, has submitted that the impugned order reflects a non-application of mind by the Learned NCLT, as it did not consider that Respondent Nos. 2 & 3, who filed the Company Petition, did so in their capacity as beneficiaries of a trust. He contends that a beneficiary of a trust under law, does not have a tangible, legally enforceable right to initiate proceedings against a third party in respect of trust property. Hence, the Appellant submits that Respondent Nos. 2 & 3 could not seek a waiver merely in their capacity as beneficiaries of the trust. Relying on the NCLAT judgment in Cyrus Investments Pvt. Ltd. & Anr. v. Tata Sons Ltd. & Ors., the Appellant further goes on to argue that waiver is to be exercised sparingly and only after prescribed statutory parameters are satisfied. According to the Appellant, the following parameters must be tested independently for each member before granting a waiver under Section 244 (1) of the Companies Act, 2013 :

(i) Whether the applicants are members of the company;

(ii) Whether the applicants have made out a prima facie case under Section 241 of the Companies Act, 2013 , of oppression and mismanagement;

(iii) Whether an earlier, similar proceeding by another member, which has concluded, precludes the present proceedings by Respondent Nos. 2 & 3; and

(iv) Whether exceptional circumstances exist to justify the grant of a waiver.

4. At this juncture, we note that the second question framed by the Appellant whether the applicant has made out a case under Section 241 of the Companies Act, 2013 , need not be examined at the stage of considering an application under Section 244 of the ; the merits under of the , are not to be gone into at this stage. Similarly, the third contention that a concluded proceeding by other members bars the present petition does not automatically prevent Respondent Nos. 2 & 3 from initiating proceedings under Sections 241 & 242 of the ; res judicata will not apply where facts and circumstances differ. The findings required to establish “exceptional circumstances” for the grant of a waiver are not to be construed with rigid precision, nor should the Tribunal decide merits while considering the waiver. The two processes are independent, save that the application may precede grant of waiver where mandatory conditions under (1)(a) and (b) are not fulfil