NCLT Hyderabad: Petitioner Lacks Locus Standi as Valid Share Buy-Back Upheld in Midwest Granite Case - 2025-03-13

NCLT Hyderabad Dismisses Oppression and Mismanagement Petition Against Midwest Granite, Upholds Share Buy-Back

Hyderabad, India – The National Company Law Tribunal (NCLT), Hyderabad Bench-I, has dismissed a company petition (CP No. 25/241/HDB/2024) filed by Mr. M V V Nagi Reddy (H. U. F) against M/s. Midwest Granite Pvt Ltd. and eight others, citing lack of locus standi for the petitioner. The bench, comprising Hon’ble Member (Judicial) Dr. Venkata Ramakrishna Badarinath Nandula and Hon’ble Member (Technical) Sh. Charan Singh , delivered the order on March 10, 2025, effectively concluding a dispute centered around allegations of oppression, mismanagement, and the validity of a share buy-back.

Background of the Case

The petitioner, Mr. Nagi Reddy , approached the NCLT under Sections 241 to 244, Section 59, and Section 213 of the Companies Act, 2013, alleging that Respondents No. 2 to 6 engaged in acts prejudicial to the interests of Midwest Granite and oppressive to him. Key reliefs sought included declarations that actions of respondents were oppressive, a declaration that a share buy-back was illegal, rectification of the Register of Members to reinstate his 7274 shares, and a declaration voiding bonus share issuance.

Mr. Reddy contended that despite being a shareholder holding 7.96% stake, he was unaware of company meetings and dividend policies due to a familial relationship with Respondent No. 2. He claimed a purported share buy-back in 2020, which removed his name from the register, was fraudulent. He argued that he never offered to sell his shares and that documents suggesting otherwise were fabricated by misusing his signatures obtained on blank papers. He further claimed that a sum of ₹3,27,33,000 received was mistakenly considered a dividend, not buy-back consideration.

Respondents' Defence of Valid Buy-Back

M/s. Midwest Granite and other respondents vehemently denied the allegations. They asserted that Mr. Reddy ceased to be a shareholder after willingly participating in a legitimate share buy-back process in 2020 and receiving consideration for his shares. They presented documentation, including a letter of offer, acceptance forms signed by Mr. Reddy , and acknowledgement of consideration received, all dated in 2020.

The respondents argued that Mr. Reddy , a retired college principal, was a highly educated individual unlikely to sign documents without understanding their content. They pointed to the filing of Form SH-11 in 2020, making the buy-back public knowledge, and argued the petition was filed beyond the limitation period. They dismissed claims of fraud and document fabrication as baseless and maintained that the NCLT's summary jurisdiction was not appropriate for resolving complex fraud allegations.

Tribunal's Rationale: Buy-Back Valid, Petitioner's Claims Unsubstantiated

The NCLT bench framed key issues, focusing on the petitioner's locus standi, the legality of the buy-back, limitation, and allegations of oppression and illegal bonus shares. The tribunal prioritized the validity of the buy-back as it directly impacted the petitioner's standing to file the petition under Section 241 of the Companies Act, which requires the petitioner to be a member of the company.

The Tribunal meticulously analyzed the evidence presented by both sides. Crucially, it noted Mr. Reddy did not deny his signatures on key buy-back documents, including the offer letter and acceptance form. The bench stated:

> "It is pertinent to note that the petitioner herein, did not deny his signature on the letter of offer dated 19.09.2020 and also on the acceptance offer form dated 21.10.2020... but contends that...the 2nd Respondent... created the offer letter dated 19.09.2020 and also the acceptance letter 21.10.2020."

The tribunal found Mr. Reddy 's explanation of signing blank papers and being unaware of the buy-back to be "artificial, unbelievable besides an afterthought." It highlighted his educational background and the implausibility of signing and dating acknowledgements without reading the content, especially given the significant sum of money involved. The bench rejected the claim that the received amount was mistaken for a dividend, noting the company's tax filings on the buy-back income and the absence of proof for the high book value claimed by the petitioner.

Addressing the petitioner's submission of original share certificates, the NCLT pointed out their late submission, lack of prior mention in pleadings, and inconsistencies with the petitioner's averred shareholding history.

> "Therefore, we are of the firm view that the plea of the petitioner that, he signed on blank papers for the purpose of submission of Forms and documents before the RoC, is artificial, unbelievable besides an afterthought, hence shall fail invariably."

Final Verdict

Ultimately, the NCLT concluded that the share buy-back was valid, and consequently, Mr. Reddy ceased to be a member of Midwest Granite Pvt Ltd. by October 30, 2020. This lack of membership disqualified him from maintaining a petition under Section 241 of the Companies Act. The tribunal also ruled the petition was barred by limitation, having been filed beyond three years from the publicly filed buy-back documents. All other points raised by the petitioner, including allegations of oppression and illegal bonus share issuance, were deemed unsustainable due to the petitioner's lack of standing.

The Company Petition and related applications were dismissed with no costs. This judgment underscores the importance of establishing locus standi in company law petitions and the legal validity of documented corporate actions like share buy-backs when challenged on grounds of fraud and oppression.