The National Company Law Appellate Tribunal (NCLAT), New Delhi, determined that the purpose of Section 55 of the Companies Act, 2013, which was promulgated by the legislature, was to compulsorily provide for the redemption of preference shares by eliminating the issuing of irredeemable shares.
preferred stock.
In the instant case titled Bank of Baroda v. Aban Offshore the issue raised for clarification before the NCLAT was:
Whether a preemptive shareholder who has been wronged may use the inherent power of the Tribunal to obtain a proper redress or not?
With regard to this issue, by eliminating the issuance of irredeemable preference shares, the legislature obviously intended, when it promulgated Section 55 of the Companies Act, 2013, to mandate the redemption of preference shares. Because the legislature's intent was clear and unambiguous, even though the Act of 2013 makes no specific provision for preference shareholders to seek relief in the event that the Company does not redeem its shares or, as a result, no petition is filed under Section 55 of the Act, an aggrieved preference shareholder may still do so by using the Tribunal's inherent power to obtain the appropriate relief (s).
As an alternative, preference shareholders who meet the criteria for "member(s)" under Section 2(55) read with Section 88 of the Companies Act, 2013, may bring a class action lawsuit under Section 245 of the Act if they feel they have been wronged by the way the Company has been conducting its business.
Given these facts, NCLAT was unable to persuade you that the Appellant, as preference shareholders, had locus standi to submit a request for the redemption of preference shares. As a result, the NCLT's order is annulled. The case is returned to the NCLT, Chennai Bench, where the application will be decided legally. No cost-related order.
The NCLAT categorically stated that,
"Any company which fails to comply with an order passed by the Tribunal under this section shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees."