The appellate court NCLAT has dismissed the petition of Adesh Kumar Gupta, former MD and CEO of Liberty Shoes, seeking exemption from the minimum shareholding norm to file a case of oppression and mismanagement against the company.
Gupta holds a 5.83 per cent stake in Liberty Shoes.
He was removed as CEO of Liberty Shoes on September 30, 2023 and ceased to be the company’s chief executive officer (CEO).
However, the company informed the stock exchange about its removal from the board on November 21, a day after the Chandigarh bench of the National Company Law Tribunal (NCLT) on November 20 last year dismissed its earlier petition.
Gupta then moved the NCLAT seeking relief under Section 244 of the Companies Act to file a petition under Section 241, alleging oppression and mismanagement against him by the majority block of promoters on the board.
According to the rules, a suit alleging oppression and mismanagement under Section 241 must be supported by at least one-tenth of the total number of issued shares of the company.
The National Company Law Appellate Tribunal (NCLAT) in its latest order upheld the NCLT’s decision and said Gupta’s argument that this case presents exceptional circumstances that warrant grant of relief is “unpersuasive”.
A review of the materials on file and the circumstances of the petition and appeal “do not indicate any exceptional circumstances” under which such a waiver could be granted, the appeals court noted.
“We conclude that the NCLT acted within its jurisdiction and in accordance with the principles of law in denying the exemption under Section 244 of the Companies Act, 2013,” the NCLAT said.
The appeals court also rejected Gupta’s claims that two firms of the late Cyrus Mistry had been granted exemption earlier in a similar case against Tata Sons, saying they “do not sufficiently undermine the validity of the NCLT’s decision”.
“We do not find any infirmity in the orders of the NCLT. Therefore, the appeal is dismissed along with the IA and the impugned order is dated 20th November, 2023,” a two-member bench comprising Justices Yogesh Khanna and Arun Baroka said in its 61-page order.
The NCLAT also observed that the NCLT has powers to waive the minimum shareholding requirement in special circumstances. Moreover, the threshold for granting a waiver under Section 244 is high and is meant to be an exception rather than the rule.
“The petition, as highlighted in the impugned order, revolves around the removal of the appellant as a director and the related grievances. Section 241 is not intended to address such personal grievances but to protect the interests of the company and its shareholders against genuine acts of oppression and mismanagement,” NCLAT said.
The NCLT was therefore right to reject the exemption based on its assessment that the petition does not raise a case of oppression and mismanagement as envisaged under the Companies Act, it said.
“We find that the appellant’s allegations of oppression and mismanagement are closely linked to personal grievances relating to managerial disputes, which are not intended to be addressed under Section 241,” it said.
Liberty Shoes was founded by PD Gupta (father of Adesh Kumar Gupta) along with his brother DP Gupta. Later, his nephew Raj Kumar Bansal joined the business. Raj Kumar Bansal’s mother was the sister of PD Gupta and DP Gupta.
Liberty Shoes, founded in 1986, is made up of three families. In 1995, Liberty Shoes was listed on the London Stock Exchange. PD Gupta remained chairman until his death in 2003.
In 2004, Adesh Kumar Gupta was appointed as the company’s managing director. Along with about 10 family members from the second generation of founders, he took active roles in the company. However, disputes arose between shareholders and directors, mainly between PD Group, DP Group and Bansal Group.
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First published: September 22, 2024 | 18:03 IS
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