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NCLT: Tribunal can only look into oppression and not the legality/validity of the removal of a director

Citation : Thaniyulla Parambath Jahafar vs Relax Zone Tourism Private Limited, CP/24/KOB/2021

Date of Judgment/Order : 17th January, 2022

Court/Tribunal : The National Company Law Tribunal, Kochi Bench

Corum : Hon’ble Mr. Ashok Kumar Borah, Member (Judicial) & Hon’ble Mr. Shyam Babu Gautam, Member (Technical)

Background

The Petitioner is one of the directors of the Respondent No. 1 which was originally formed by 5 friends and basic features of the Respondent Company was that all the shareholders had equal shareholding and all the shareholders were participating in Management as directors.

The Petitioner was removed from the board as a director through an EGM and resolution which was passed by majority.

Petition was filed under Section 241-242 of the Companies Act 2013, against the removal claiming the removal to be be oppressive and prejudicial to the interests of the company.

Judgment

The NCLT while holding the removal of the Petitioner not an oppressive act, reiterated  the judgment of the Supreme Court in TATA Consultancy Services Limited Vs. Cyrus Investments Pvt. Ltd. and Ors. (Civil Appeal Nos. 440-441 of 2020), wherein interalia it has been observed that :-

1) An important aspect to be noticed is that in a petition under Section 241, the Tribunal cannot ask the question whether the removal of a Director was legally valid and/or justified or not. The question to be asked is whether such a removal tantamount to a conduct oppressive or prejudicial to some members. Even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial.

2) There may be cases where the removal of a Director might have been carried out perfectly in accordance with law and yet may be part of a larger design to oppress or prejudice the interests of some members. It is only in such cases that theTribunal can grant a relief under Section 242.

3) A company, however small, however domestic, is a company and not a partnership or even a quasi-partnership.

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