A Section 241 petition is not available to every member. Section 244(1) prescribes the minimum number or shareholding that a member must have, and the NCLT has the power to waive the requirement under the proviso. The eligibility question is often the first battleground in an oppression dispute.
The Three Alternative Tests
For a company with share capital, Section 244(1)(a) requires the support of at least one hundred members or one-tenth of the total number of members, whichever is less, or members holding not less than one-tenth of the issued share capital. The three tests are alternative; a petitioner who satisfies any one of them has standing. The NCLAT has set aside an NCLT order that relied only on the share capital test and ignored the member-number tests.
For a company without share capital, Section 244(1)(b) requires the support of at least one-fifth of the total number of members. For a company with share capital, a member who holds the requisite shareholding may apply alone, without the support of other members.
The Waiver Power
The proviso to Section 244(1) permits the NCLT to waive all or any of the requirements of clauses (a) and (b) so as to enable members to apply under Section 241. The waiver is not automatic; the applicant must apply for it and must show why the waiver is justified. The NCLAT has upheld a waiver that allowed members of the Indian Motion Picture Producers Association to pursue an oppression petition, even though they did not meet the one-fifth threshold, because the circumstances warranted the exercise of the waiver power.
The waiver jurisdiction is an important safety valve. It allows a member with a genuine grievance but a small shareholding to approach the Tribunal where the interests of justice require it. But the waiver is discretionary, and the Tribunal must balance the petitioner's interest against the need to prevent frivolous or vexatious petitions.
The Practical Consequences
A petitioner who does not meet the threshold and does not obtain a waiver will have the petition dismissed at the threshold. The dismissal is not a merits determination, but it can be a significant setback, particularly where the petitioner has incurred the cost of filing and serving the petition.
The eligibility analysis should be conducted before the petition is drafted. The petitioner must determine which of the three alternative tests is satisfied, or must apply for a waiver at the outset.
Call to Action
Anuj Desai & Associates advises members and companies on the Section 244 eligibility thresholds and the waiver jurisdiction—from the computation of the member number and shareholding tests to the waiver application and the response to a threshold objection. If you are considering an oppression petition, we can help you assess your standing.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
🔗 linkedin.com/in/ca-anuj-desai-122547230
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