Dilution, Removal and the Wrong NCLT Bench
Suresh holds 12% of the equity shares of Meridian Hospitality Private Limited, which has eight shareholders and four directors. In April 2025 the company allotted 2,00,000 fresh shares at face value to a company owned by the promoter family. Suresh's holding was diluted from 12% to 4%. He was removed as a director at a shareholders' meeting held on 5 April 2025, of which he says he received no notice. The company's registered office is in Delhi; Suresh lives in Mumbai. The shareholders' agreement contains an arbitration clause. Suresh wants to file an application under sections 241 and 242 before the NCLT in Mumbai, seeking annulment of the allotment and restoration of his directorship. He has paid all calls on his shares. He asks whether he is eligible, which Bench has jurisdiction, and how the arbitration clause affects his application.
1. Is Suresh eligible to apply under section 241? Examine the section 244 threshold and the waiver route.
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Section 244(1) lays down the threshold for an application under section 241. A member must hold at least one-tenth of the issued share capital, or the application must be by at least one hundred members or one-tenth of the total members, whichever is less. Calls and other sums due on the shares must have been paid.
On the present shareholding, Suresh holds only 4% and does not satisfy the 10% capital test. The company has eight members, so the member-count route is also not satisfied by one member. However, the dilution from 12% to 4% is itself the act complained of. The NCLT has power to waive the threshold under the proviso to section 244(1) on an application. Suresh should file a separate waiver application along with the main application, showing: (i) he was a member before the impugned allotment; (ii) he held 12%, which satisfied the threshold; (iii) the allotment at face value to a promoter entity is prima facie oppressive and was done to reduce him below the threshold; and (iv) he has paid all calls.
The NCLT may waive the requirement if satisfied that it is a fit case. If waiver is refused, the section 241 application will not be maintainable in his individual capacity. He should also consider whether any other member can join him to cross the threshold.
2. Which NCLT Bench has territorial jurisdiction? Can he file in Mumbai because he resides there?
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Territorial jurisdiction of the NCLT is governed by the National Company Law Tribunal Rules, 2016. The application is ordinarily filed before the Bench having jurisdiction over the company's registered office. Meridian's registered office is in Delhi, so the Delhi Bench has jurisdiction.
Suresh's residence in Mumbai is irrelevant. A petitioner cannot choose the Bench because it is convenient or because he lives there. Filing in Mumbai would be liable to be returned or transferred for want of territorial jurisdiction, and the delay could prejudice interim relief. He should file before the Delhi Bench. If he wants to appear physically in Mumbai, he should check whether the NCLT permits video conferencing; that is a matter of practice, not jurisdiction.
3. How should he deal with the arbitration clause, and what interim relief should he seek under section 242?
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The shareholders' agreement contains an arbitration clause, but the reliefs Suresh seeks are statutory, not merely contractual. Sections 241 and 242 confer a special remedy on members for oppression and mismanagement. The NCLT's jurisdiction is not automatically ousted by an arbitration clause. However, the NCLT may consider an application under section 8 of the Arbitration and Conciliation Act, 1996 if the dispute is essentially contractual and covered by the clause. Suresh should plead that the core complaints - abuse of allotment power, dilution, removal without notice and breach of statutory procedure - fall within the NCLT's statutory jurisdiction and are not capable of being fully resolved by arbitration. He should also be ready to meet a section 8 objection at the first hearing.
On interim relief, section 242(4) empowers the NCLT to regulate the company's conduct, restrain acts, and pass orders to prevent oppression. Suresh should seek: (i) status quo on the shareholding and an injunction against any further allotment or transfer; (ii) suspension of the removal resolution and restoration of his directorship pending hearing; (iii) inspection of the statutory registers and board papers relating to the allotment; (iv) a restraint on the promoter group from exercising voting rights on the freshly allotted shares; and (v) if necessary, appointment of an interim administrator. The waiver application should be heard along with the interim application so that the threshold objection does not derail urgent relief.