The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that participation in valuation cannot replace the findings of oppression and mismanagement required under Sections 241–242 of the Companies Act, rejected reliance on a stale valuation, and remanded the petition for fresh adjudication. The NCLAT clarified that a share-purchase direction under Section 242(2)(b) must rest on findings concerning the complained-of conduct under Section 241 and the statutory opinion required by Section 242(1).
The NCLAT rejected the view that the preventive and remedial nature of Sections 241–242 permits a buy-out without findings establishing oppression or mismanagement and satisfaction of Section 242(1). Further, failure to object does not make a valuation report automatically acceptable, and the Tribunal must independently examine its contents, genuineness and suitability for determining the share-purchase consideration.
Since the report submitted on 16 June 2021 reflected the company’s value as at 31 March 2018, the NCLAT held that its resubmission on 10 February 2025 did not make it a fresh report. The Tribunal also said that valuation should correspond to the decision date or a date in close proximity to it.
Briefly, Sanjit Instruments Private Limited and its majority shareholders challenged an NCLT Mumbai order directing the majority shareholders to purchase Arvind Jagannath Bagul’s shares under Section 242(2)(b) of the Companies Act. Bagul, a promoter-director holding 31.79% of the company’s equity, had filed a petition under Sections 241–242 following his removal as director, alleging oppression and mismanagement.
The appellants alleged that Bagul and his son had diverted customers and misused the company’s resources to benefit a competing business. These were disputed allegations, not findings upheld by NCLAT. During the proceedings, Bagul expressed willingness to exit on a fair valuation, following which NCLT appointed a valuer.
Also read Delhi High Court: Lower Courts Cannot Bar Their Judgments from Being Cited as Precedents
The Coram comprising of Justice Sharad Kumar Sharma (Judicial Member), Arun Baroka (Technical Member), and Indevar Pandey (Technical Member) found that NCLT had ordered the share purchase without recording findings establishing oppression or mismanagement or satisfaction of the conditions under Section 242(1). It rejected NCLT’s view that equitable relief could be granted without such findings merely because the parties had participated in the valuation process.
NCLAT also held that the absence of objections did not relieve NCLT of its duty to judicially scrutinise the valuation report. The report had merely been resubmitted on 10 February 2025; it was not a fresh valuation and continued to reflect the company’s position as of 31 March 2018. Treating it as a 2025 report showed incorrect appreciation of the record.
