NCLAT Upholds Impleadment Application And Holds Shareholders Necessary For Effective Adjudication [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, upheld the order of the National Company Law Tribunal (NCLT), Hyderabad Bench allowing impleadment application and held that the shareholders were necessary parties for effective adjudication of the dispute arising from a company petition regarding share allotments.

The appellants, Gireesh Kumar Sanghi and Gaurav Sanghi, filed an appeal challenging the order dated 29.09.2017 passed by the NCLT, Hyderabad, whereby an impleadment application filed in Company Petition No.71/2008 was allowed.

The company petition, originally filed under various provisions of the Companies Act, 1956, pertained to challenge against resolutions passed in an Extraordinary General Meeting (EGM) dated 19.03.2007, whereby earlier allotments of shares made in 1998 and 2006 were sought to be derecognised.

Virender Ganda, the counsel for the appellants, contended that the impleadment application was filed at a highly belated stage, nearly nine years after the institution of the company petition, and is liable to be rejected. It was submitted that allowing such an application would create impediments in the management and affairs of the company.

The counsel for the appellant, further submitted that the matter had already been partly heard by a two-member bench of the NCLT, and therefore a single-member bench ought not to have entertained or decided the impleadment application, as it violated the principle of judicial propriety.

R. Venkatavaradan, the counsel for the respondents, submitted that respondents were shareholders of the company, having been allotted shares in the allotments made in 1998 and 2006, and collectively held a substantial percentage of the company’s equity share capital.

It was contended by the respondents counsel that any decision in the company petition would materially affect their rights and impleadment was necessary.

The respondents counsel further contended that there is no limitation prescribed for filing an impleadment application and such an application can be entertained at any stage if the presence of the parties is necessary for effective adjudication.

Sharad Kumar Sharma, Judicial Member and Jatindranatha Swain, Technical Member observed that the constitution of a single-member bench was valid under Section 419(3) of the Companies Act and therefore the argument regarding judicial propriety could not be sustained.

The Tribunal further observed that for deciding an impleadment application, the primary consideration is the presence of the applicants necessary for effective adjudication. Since the respondents were shareholders whose rights could be affected, they were held to be necessary parties. The Tribunal also noted that impleadment would avoid multiplicity of litigation.

The Tribunal noted that the appellants had participated in the proceedings but failed to file objections to the impleadment application and therefore could not subsequently contend that principles of natural justice were violated.

The Tribunal upheld the impleadment of the applicants and dismissed the appeal.

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