Preference Shareholders are not remediless for redemption of preference shares – NCLAT

Provision involved:

Section 55 of the Companies Act, 2013 was to compulsorily provide for redemption of preference shares by doing away with the issue of irredeemable preference shares.

Facts of the case

• The appellants being preference shareholders have filed an application to NCLT for redemption of preference shares under section 55(3) or section 245.
• NCLT has dismissed the application of Appellant solely on the ground that the Appellant being preferential shareholders has no locus standi to file application for redemption of shares under Section 55(3) of the Companies Act, 2013 or even under Section 245 of the Companies Act, 2013.
• Aggrieved by the order of NCLT, The appellants have filed an appeal to NCLAT. The legal question involved is, whether there is any remedy under law available to preference shareholders for filing application for redemption of preference shares?

Decision

NCLAT held that Preference shareholders are not remediless for redemption of preference shares, they can file an application under Section 55(3) of the Companies Act, 2013 or alternatively they may also file application under Section 245 of the Companies Act, 2013 as a class action suit.

Our Comment

• The intention of the legislature while promulgating Section 55 of the Companies Act, 2013 was to compulsorily provide for redemption of preference shares by doing away with the issue of irredeemable preference shares. Therefore, even though there is no specific provision stipulated under the Companies Act, 2013 through which relief can be sought by preference shareholders in case of non-redemption, as the intention of the legislature being clear and absolute, Tribunal’s inherent power can be invoked to get an appropriate relief by an aggrieved preference shareholder(s).
• Alternatively, preference shareholders coming within the definition of ‘member(s)’ under Section 2(55) read with Section 88 of the Companies Act, 2013, may file a petition under Section 245 of the said Act, as a class action suit, being aggrieved by the conduct of affairs of the company.
• Hence, the order of the NCLT is set aside. The matter is remitted back to NCLT to decide the application as per law.

Ashutosh Sharma, Audit Associate, SW India