NCLT’s Order for Appellant to Buy Minority Shareholder’s Shares Upheld, as Private Firm Lacks Open Market Sale Option

Case Details: Atlas Equifin (P.) Ltd. v. Jackie Kakubhai Shroff - [2024] 168 taxmann.com 58 (NCLAT-New Delhi)

Judiciary and Counsel Details

• Justice Yogesh Khanna, Judicial Member & Ajai Das Mehrotra, Technical Member
• Navin Pahwa, Sr. Adv., Yashwardhan, Ms Kritika Nagpal, Gyanendra Shukla & Premav Das, Advs. for the Appellant.
• Rahul Chitnis, Hersh Desai, Ms Shwetal Shepal, Vashu Gupta & Chiranjivi Sharma, Advs. for the Respondent.

Facts of the Case

In the instant case, the Respondent/minority shareholder of the appellant company offered his shares to the respondents/majority shareholders of the appellant at the market value of shares, with an increase of 10% per annum over the value of shares.

The Respondents rejected an offer made by the respondent. The Respondent filed a petition alleging various acts of mismanagement and oppression, submitting that the appellant’s affairs were being conducted in a manner prejudicial and oppressive to minority shareholders. The respondent prayed directions on respondents to purchase shares of the respondent at the market value of the shares.

The NCLT, vide the impugned order, directed the appellant to purchase the respondent’s shares. On appeal, the appellant submitted that before passing the impugned order, the NCLT ought to have formed an opinion regarding the appellant’s alleged acts of oppression and mismanagement.

The NCLAT observed that since, on prior occasions, too, erstwhile directors of the company sold their shares and hence the company had a precedent, equally so when the respondent does not wish to remain in the company, then in such a situation, to reject his prayer would cause damage to the company.

NCLAT Held

The NCLAT held that the respondent could not sell his shares in the open market, as it was a private company and not a listed one. Further, the path chosen by the NCLT to end controversy amongst directors/shareholders was not prejudicial to anyone and would rather be helpful for the smooth running of the company. Therefore, there was no illegality in the impugned order, and accordingly, an instant appeal was to be dismissed.

List of Cases Reviewed

• Order passed by NCLT (Mumbai) in Shri Jackie Kakubhai Shroff v. Atlas Equifin (P.) Ltd. & Others, [2024] 167 taxmann.com 722 (NCLT -Mum.) (para 18), affirmed
• Upper India Steel Manufacturing & Engineering Co. Ltd. & Ors. v. Gurlal Singh Grewal & Ors. [2017 SCC Online NCLAT 339]
• BSE Ltd. v. M/s Ricoh Company Ltd. & Ors. [2017 SCC Online NCLAT 12]
• (iii) Jaladhar Chakraborty & Ors. v. Power Tools & Appliances Co. Ltd. [(1994) Comp Cas 505], (para 16), distinguished

List of Cases Referred to

• Maharani Lalita Rajya Lakshmi v. Indian Motor Co (Hazaribagh) Ltd & ors 1961 SCC OnLine Cal 179 (para 5)
• relief as is complained of. In M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja & Anr. [(2008) 6 SCC 750 (para 11)
• the Hon’ble Supreme Court referred to Samgramsinh P. Gaekwad v. Shantadevi P. Gaekwad (2005) 11 SCC 314 (para 12)
• Vidhya Achu Roy v. Suraj Mani Engineers Pvt. Ltd. and Ors. 2021 SCC Online NCLAT 793 (para 14)
• Appellant had relied upon (i) Upper India Steel Manufacturing & Engineering Co. Ltd. & Ors. v. Gurlal Singh Grewal & Ors. [2017 SCC Online NCLAT 339 (para 16).