Non-Members cannot seek a waiver u/s 244 of Companies Act: NCLAT dismisses Madras Race Club Members' Oppression Petition [Read Order]
The NCLAT held that the precondition for seeking a waiver is that the applicant must be a 'member' as defined by law, a status the respondents had lawfully lost
The Chennai bench of the National Company Law Appellate Tribunal (NCLAT) has quashed an order passed by the National Company Law Tribunal (NCLT) and dismissed an oppression petition filed by two individuals against the Madras Race Club, holding that non-members cannot seek a waiver under Section 244 of the Companies Act, 2013.
The Appellant i.e. Madras Race Club is a Company which stands registered within the meaning of Section 8 of the Companies Act and is a non-profit Company, which does not have any share capital. It had about 7417 Club
Members.
The Company Application was initiated by the Respondents by filing the same under Section 244 of the Companies Act, 2013, to be read Rule 11 of NCLT Rules, 2016, seeking a waiver of the requirements of Section 244(b) in order to enable them to pursue Company Petition, under Section 241 read with Section 242 and 59 of the Company Act, 2013, seeking remedial measures against the acts of Oppression and Mismanagement, by the Company.
Stay Ahead with Expert Tax Insights – 2025 Edition
One of the members of the Appellant Club i.e. Mr. M. Muthukaruppan, had filed a Company Petition, being CP / 31 / 2017, before the Ld. NCLT, Chennai, seeking a direction under Section 96 of the Companies Act, to convene and hold the Annual General Meeting pertaining to the Financial Year 2015-2016.
The AGM could not be held as scheduled within the time prescribed, on account of certain revelations of irregularities and discrepancies, which were identified in the membership database of the Appellant Club, which was required to be resolved first before the conduct of AGM and hence, the Appellant had appointed a firm namely M/s. Brahmayya & Co., Chartered Accountants, to conduct a special audit so as to determine the actual status of the membership of the Club and their eligibility to continue as members of the Appellant.
The dispute originated from an audit and a subsequent judicial inquiry that found 635 individuals, including the respondents, had been improperly admitted as members of the Madras Race Club between 2000 and 2015, primarily for non-payment of entrance fees and non-compliance with admission procedures. The NCLT had previously ordered the club to remove their names from the register of members. While the NCLAT upheld this removal, it suggested the club's Annual General Meeting (AGM) could 'consider' their case for readmission upon payment of fees with interest. The AGM subsequently rejected their admission.
Aggrieved, the respondents filed a new oppression petition and sought a waiver under Section 244, arguing they had been members since 1998 and should not be left remediless. They contended that the club's social objective and their long-standing use of its facilities constituted 'exceptional circumstances' warranting a waiver.
A bench comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member) observed that Section 244 of the Companies Act explicitly confers the right to apply only on 'members of a company'. The term 'member' is statutorily defined and requires being entered in the register of members. The respondents' status as non-members was a settled fact, affirmed by prior NCLT and NCLAT orders.
The NCLAT rejected the respondents' contentions, stating that the NCLAT's earlier direction to the AGM was a 'gratuitous direction' to consider their case, not a creation of a substantive right to be deemed a member. The Tribunal emphasized that past membership does not grant an indefeasible right to initiate proceedings after lawful removal. It found that the 'exceptional circumstances' cited by the NCLT were hypothetical and not grounded in law, as allowing non-members to file would lead to procedural chaos and abuse of process.
The Tribunal concluded that since the respondents failed to establish their status as current members, their application for a waiver under Section 244 was not maintainable. Accordingly, the NCLAT quashed the NCLT's order granting the waiver and dismissed the Company Appeal.
The Tribunal observed that the very fact that “the Respondents have not been able to establish themselves to the members of Appellant Club, and rather admitted that, they are not the members, the Application preferred for grant of waiver at their behest would not be maintainable. If that be so, the Impugned Order, which grants the waiver on the basis of a hypothetical constraint without the same, being foundationed upon a sound principle of law, cannot be sustained.”
The Tribunal set aside the NCLT's order which had granted a waiver to the respondents, R.D. Ramasamy and M. Magesh Kumar, enabling them to file a petition under Sections 241 and 242 of the Companies Act, despite not meeting the member threshold. The NCLAT held that the precondition for seeking a waiver is that the applicant must be a 'member' as defined by law, a status the respondents had lawfully lost.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
