NCLAT junks former Liberty Shoes CEO's plea seeking ease of norms to sue firm

Appellate tribunal NCLAT has dismissed the petition of Adesh Kumar Gupta, former CEO and Executive Director of Liberty Shoes, seeking an exemption from minimum shareholding norm to file a case of oppression and mismanagement against the company.

Gupta has 5.83 per cent shareholding in Liberty Shoes.

He was removed as an executive director of Liberty Shoes on September 30, 2023 and ceased to be the chief executive officer (CEO) of the company.

However, the company informed the stock exchange about his removal from the board on November 21, a day after the Chandigarh bench of the National Company Law Tribunal (NCLT), on November 20 last year, dismissed his earlier plea.

Gupta then moved NCLAT and sought a waiver under section 244 of the Companies Act in order to file a petition under Section 241, alleging oppression and mismanagement against him by the majority promoter block on the board.

As per norms, a plea alleging oppression and mismanagement under Section 241 should be backed by at least one-tenth of the total number of the issued share capital of the company.

The National Company Law Appellate Tribunal (NCLAT) in its latest order upheld the NCLT's decision and said Gupta's argument that this case presents exceptional circumstances meriting the grant of a waiver is "not convincing".

Perusal of the materials on record and the circumstances of the petition and the appeal "do not indicate any exceptional circumstances" in which such a waiver could be granted, the appellate tribunal noted.

"We conclude that the NCLT acted within its jurisdiction and in accordance with the principles of law while denying the waiver under Section 244 of the Companies Act, 2013," the NCLAT said.

The appellate tribunal also rejected Gupta's contentions that waiver has been given earlier to two firms of late Cyrus Mistry in a similar case against Tata Sons, and said they "do not sufficiently undermine the validity of the NCLT's decision".

"We do not find any infirmity in the orders of the NCLT. The appeal along with the IA is therefore dismissed, and the impugned order dated November 20, 2023," said a two-member bench comprising Justices Yogesh Khanna and Arun Baroka in its 61-page-long order.

NCLAT also observed that the NCLT has powers to waive the requirement of minimum shareholding in special circumstances. Besides, the threshold for granting a waiver under Section 244 is high and is intended to be an exception rather than the rule.

"The Petition, as highlighted in the impugned order, revolves significantly around the appellant's removal as a director and the related grievances. Section 241 is not intended to address such personal grievances, but is meant to protect the interests of the company and its shareholders against genuine acts of oppression and mismanagement," said NCLAT.

The NCLT was, therefore, correct in refusing the waiver based on its assessment that the petition does not substantiate a case of oppression and mismanagement as envisaged under the Companies Act, it said.

"We find that the appellant's allegations of oppression and mismanagement are closely tied to personal grievances regarding directorial disputes, which are not intended to be addressed under Section 241," it said.

Liberty Shoes was started by P D Gupta (father of Adesh Kumar Gupta) along with his brother D P Gupta. Later, their nephew Raj Kumar Bansal was added to the business. Mother of Raj Kumar Bansal was sister of P D Gupta and D P Gupta.

Thus, there are three promoter families in Liberty Shoes which was incorporated in 1986. In 1995, Liberty Shoes was listed on the BSE. P D Gupta remained Chairman till his death in 2003.

In 2004, Adesh Kumar Gupta was appointed as CEO of the company. He along with about 10 family members of the second generation of the founders took active roles in the company. However, disputes arose among shareholders and directors essentially between PD Group, DP Group, and Bansal Group.