Company’s Sole Undertaking Can’t Be Ended Through Oppressive Process: NCLT Quashes EOGM Resolution Terminating JVA

The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that an Extraordinary General Meeting (EOGM) convened to terminate a company’s sole Joint Venture Agreement (JVA) was vitiated by procedural irregularities and constituted acts of oppression and mismanagement under Sections 241 and 242 of the Companies Act, 2013.

The Tribunal consequently declared the EOGM invalid and set aside the resolution approving termination of the Joint Venture Agreement.

The dispute arose from a company petition filed by a shareholder-director of Dream City Construction Private Limited alleging that the other directors had acted in collusion to terminate the company’s only business undertaking—a slum rehabilitation joint development project undertaken through a Joint Venture Agreement with Dignity Realty. The petition challenged the validity of the EOGM held on April 4, 2019, and sought to set aside both the meeting and the resolution approving termination of the JVA. During final arguments, the petitioner confined the challenge only to these two reliefs.

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Background of the Dispute

Dream City Construction Private Limited was incorporated in September 2010 by three shareholders for the sole purpose of participating in a slum rehabilitation redevelopment project. In 2012, the company entered into a Joint Venture Agreement with Dignity Realty under which both parties agreed to contribute towards project costs, while the company was entitled to 25% of the free-sale component of the project.

Differences later emerged between the shareholders regarding the implementation of the project, demarcation of the company’s share, registration of the project before MahaRERA, and sale of flats by Dignity Realty. Matters escalated when Dignity Realty issued a termination notice alleging that the company had failed to contribute its contractual share of project costs. The petitioner disputed the termination and simultaneously initiated proceedings before MahaRERA challenging the registration of the project without naming the company as a co-promoter.

While the MahaRERA proceedings were pending, the respondent directors convened an Extraordinary General Meeting on April 4, 2019, which approved termination of the Joint Venture Agreement. The petitioner challenged the legality of that meeting before the NCLT.

Core Issue Before the Tribunal

The principal issue before the Tribunal was whether the manner in which the EOGM was convened and the resolution terminating the company’s sole Joint Venture Agreement amounted to oppression and mismanagement within the meaning of Sections 241 and 242 of the Companies Act, 2013.

Failure to Comply with Section 102

One of the principal objections raised by the petitioner was that the notice convening the EOGM did not contain the mandatory explanatory statement required under Section 102 of the Companies Act.

The respondents argued that private companies enjoyed exemptions under the Ministry of Corporate Affairs notification dated June 5, 2015, and therefore the explanatory statement was unnecessary because of the Articles of Association.

The Tribunal, however, rejected this defence. It observed that although the Articles of Association originally excluded certain provisions governing general meetings, the subsequent MCA notification issued on June 13, 2017 restricted such exemptions only to private companies that had complied with statutory filing obligations under Sections 92 and 137 of the Companies Act.

Since Dream City Construction had failed to file annual returns and financial statements after March 31, 2017, it had lost the benefit of those exemptions. Consequently, compliance with Section 102 became mandatory. The Tribunal held that proceeding with the EOGM without supplying shareholders with the requisite explanatory statement violated the Companies Act.

The Bench further noted that despite receiving a detailed objection from the petitioner specifically demanding disclosure of material facts relating to the proposed resolution, the respondents neither furnished the explanatory statement nor postponed the meeting before proceeding with the EOGM.

Termination of Sole Business Undertaking

The Tribunal also examined whether terminating the Joint Venture Agreement served the company’s interests.

It observed that the JVA represented the company’s only commercial undertaking. Although the respondents alleged that the company had defaulted in contributing nearly ₹5.64 crore towards project costs, the Tribunal found that these allegations were supported only by an expense chart and not by independent documentary evidence establishing the alleged default.

The Bench held that when disputes existed regarding financial contributions under the JVA, the parties ought to have invoked the contractual dispute resolution mechanism instead of unilaterally terminating the agreement through a shareholders’ meeting. It observed that the respondents chose termination without involving the petitioner, despite the existence of serious disputes regarding the company’s obligations under the agreement.

EOGM Conducted During MahaRERA Status Quo

The Tribunal also attached significance to the fact that the EOGM was convened while a status quo order passed by MahaRERA remained in force.

According to the Bench, the notice for the EOGM was issued and the resolution approving termination was passed during the subsistence of the MahaRERA status quo order relating to the very same project. Although the MahaRERA complaint was later dismissed, the Tribunal observed that the dismissal was not on merits and that MahaRERA itself had noted that the dispute regarding termination of the JVA was already pending before the NCLT.

Tribunal Finds Acts of Oppression and Mismanagement

After considering the overall conduct of the respondents, the Tribunal identified multiple circumstances indicating oppressive conduct, including:

failure to issue the mandatory explanatory statement under Section 102;
termination of the company’s sole business undertaking without following statutory safeguards;
holding the EOGM during the subsistence of the MahaRERA status quo order;
failure to place minutes of the EOGM before the Tribunal despite claiming that the meeting had validly taken place; and
absence of records showing approval of other agenda items listed in the EOGM notice.

The Tribunal observed that it was unable to conclusively verify whether a valid EOGM had actually been conducted because no minutes containing discussions and resolutions were produced. Even otherwise, it held that termination of the company’s only undertaking through the impugned process amounted to oppression and mismanagement.

Final Decision

Allowing the petition in part, the NCLT answered the principal issue in favour of the petitioner and granted the two reliefs that had been pressed during final hearing.

The Tribunal declared the purported Extraordinary General Meeting held on April 4, 2019 invalid for violation of the Companies Act, 2013, held that the respondents’ conduct constituted oppression and mismanagement, and set aside the resolution approving termination of the Joint Venture Agreement.

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