Appeal U/S 421 Of Companies Act Not Maintainable Against Interlocutory Order Permitting AGM, No Substantive Rights Affected: NCLAT

The National Company Law Appellate Tribunal has recently held that an appeal under Section 421 of the Companies Act, 2013, against an interlocutory order permitting holding of an Annual General Meeting (AGM) without affecting the substantive rights of the appellants is not maintainable. The Tribunal emphasized that procedural orders which do not determine substantive rights cannot be appealed under Section 421.

The NCLAT bench presided over by Justice Sharad Kumar Sharma [Member (Judicial)] and Jatindranatha Swain] [Member (Technical)], observed, "In fact, looking at the nature of the order, which has been subjected to challenge by invoking Section 421 of the Companies Act, 2013, it takes the shape of an Interlocutory Order, where the right of the Appellant in the context of provisions contained under Section 134 of the Companies Act, 2013, which though being procedural in nature and it's not being a substantive provision, has been left open to be considered and thus the Impugned Order permitting holding of the AGM as scheduled would be an Interlocutory Order."

Further, the NCLAT bench stated, "Since no material right of the Appellant has been addressed or affected on the merits and all objections of the Appellant have been left open to be considered at the stage of the AGM, it will not fall to be an appealable order under Section 421 of the Companies Act, 2013, as it has been left open for him to agitate all his grievances, when the Company Petition itself is taken up on merits qua the decision taken on the AGM as directed to be held in pursuance to the Impugned Order."

The case originated from a Company Petition filed under Sections 241, 242, and 128 of the Companies Act, 2013, in which the appellants alleged that the majority shareholders (holding 51.78% of the shares) had engaged in oppressive conduct and mismanagement. The appellants claimed that there were financial irregularities, including denial of access to financial records and improper actions regarding the financial statements for FY 2023-24. The respondents, during the pendency of the petition, had conducted a Board meeting, approving the financial statements, the Director's Report, and scheduling the 33rd AGM.

The appellants challenged these resolutions before the National Company Law Tribunal (NCLT), seeking to prevent the respondents from placing the financial statements for approval at the AGM. The NCLT allowed the AGM to proceed but directed that the outcome of Agenda No. 1 (adoption of financials) would be subject to further orders, leaving the final resolution open to review. Dissatisfied with the NCLT's order, the appellants filed an appeal with the NCLAT.

It was argued by the appellants that the decision of the NCLT violated Section 134 of the Companies Act, which requires proper approval of the financial statements before adoption. The appellants requested the AGM's postponement, citing their inability to attend on the scheduled date.

Alternatively, it was contended by the respondents that the AGM and its resolutions were well within the statutory rights of the company and did not infringe upon the appellants' interests. The respondents sought time to file their replies and assured compliance with the directions given by the Tribunal.

The NCLAT, in revision, held that the impugned order of the NCLT granting permission for conducting the AGM was only procedural and thereby did not affect the substantive rights of the appellants. It found Agenda No. 1 is stated to be subject to further orders. Further, objections raised by the appellants have been stated to be kept open at the time of hearing of the main petition. The NCLAT held that the appeal was not maintainable as it was an interlocutory order and did not affect any material right of the appellants.

Hence, NCLAT dismissed the appeal, stating that the appellants can raise their grievance during the main petition. The Tribunal concluded that the appeal had been filed prematurely and was not maintainable under Section 421 of the Companies Act, 2013.Case Title: Nagaraj V. Mylandla & Ors. v. Financial Software and Systems Pvt. Ltd. and Ors.

Case No.: Comp App (AT) (CH) No.84/2024

Advocate for Appellant: Adv. P.H. Arvindh Pandian (Sr. Adv), Rajkumar Jhabakh,

Advocate for Respondent: Adv. P.S. Raman (Sr. Adv), R. Parthasarathy (Sr. Adv), P. Giridharan, PSS Bhargava, Prabhav Sharoff, Mrudula Dixit, Suhrith Parthasarathy, Amritha Sathyajith, T.K. Bhaskar

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