The Hyderabad Bench of the National Company Law Tribunal (NCLT) has held that service of notice for a general meeting is a mandatory statutory requirement, and where an EGM is convened without proper proof of service on substantial shareholders, the meeting and resolutions passed thereat are liable to be set aside. Further, a rights issue that does not comply with the mandatory timing and procedural requirements under company law, and which is structured in a way that reduces majority shareholders into a minority and transfers control, constitutes oppression under Sections 241 and 242 of the Companies Act, 2013.
Allowing the petition under Sections 241 and 242 of the Companies Act, 2013, the Tribunal declared that the actions of Respondent Nos. 2 to 6, including the illegal allotment of shares and dilution of the petitioners’ shareholding, amounted to oppression. The Tribunal set aside and cancelled the allotment of 2,49,95,000 equity shares made in favour of Respondent Nos. 5 and 6, and directed rectification of the register of members under Section 59 so as to restore the petitioners’ shareholding to 71.79%. It also declared Form PAS-3 bearing SRN No. AB5236552 dated July 01, 2025 null and void, and directed the Registrar of Companies, Hyderabad to invalidate that filing in MCA records within four weeks of receipt of the order.
The Tribunal further declared the EGM dated Jan 06, 2025 void and set aside all resolutions passed thereat. It also declared Form MGT-14 bearing SRN No. AB2364408 dated Jan 18, 2025 invalid and non est, and directed the Registrar of Companies, Hyderabad to remove that filing from MCA records within four weeks.
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The Division Bench comprising Rajeev Bhardwaj (Judicial Member) and Sanjay Puri (Technical Member) first noted the legal threshold under Sections 242(1)(a) and 242(1)(b), namely that oppression or mismanagement must be proved and that circumstances should justify winding up on just and equitable grounds, though relief can be moulded to avoid winding up. It also held that the petitioners were entitled to maintain the petition as members satisfying the statutory requirement under Section 244 of the Companies Act.
On the EGM dated Jan 06, 2025, the Tribunal held that the respondents failed to place substantive material showing that notice had been duly served on the petitioners. It also found no material proving the presence of the requisite quorum or showing that the special resolution approval required under Section 185 had been validly obtained at a duly convened general meeting. On that basis, the Tribunal held that the Jan 06, 2025 resolution could not be sustained in law.
On the EGM dated June 28, 2025, the Tribunal examined the respondents’ claim of service through postal records but found that the receipts and tracking reports only showed dispatch of envelopes with indeterminate contents. The Tribunal further observed that even assuming notices were issued, the timing itself was suspect because deliveries were shown on 18th and 19th June 2025, either just one day before or on the opening date of the rights issue, which was contrary to law. It therefore held that due service of notice, being mandatory under Section 101, had not been established and the EGM was legally untenable.
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The Tribunal also found procedural illegality in the rights issue itself. It recorded that the issue opened on June 19, 2025 and closed on June 27, 2025, remaining open for only eight days, contrary to the minimum period under Section 62(1)(a). It further noted that the letter of offer was dispatched on June 17, 2025 for an issue opening on June 19, 2025, which did not satisfy the regulatory requirement referred to by the Tribunal for dispatch at least three days before opening.
A major factual circumstance noted by the Tribunal was that on the very first day of the issue, Respondent No. 5 subscribed not only to her entitlement but also applied for the large unsubscribed balance which could have become available only after expiry of the offer period and non-subscription by others. The Tribunal treated this as showing that the allotment process was pre-arranged and contrived. It held that the cumulative effect of these facts showed contravention of mandatory requirements governing a rights issue.
The Tribunal emphasized that the direct result of the allotment was that the petitioners’ shareholding fell from a majority to a minority, while control shifted to Respondent No. 2’s family. Relying on precedent, it held that where a majority shareholder is reduced to minority by a mala fide or procedurally defective allotment, that conduct amounts to oppression. The Tribunal found the present case to be of the same nature and therefore held the allotment void and oppressive.
Briefly, a petition was filed under Sections 241 and 242 read with Sections 59 and 213 of the Companies Act, 2013 concerning MBG Commodities Private Limited, a closely held family company originally formed out of a family partnership. The petition was filed by members of two-family branches who alleged that, before the disputed transaction, they collectively held 71.79% of the company’s paid-up share capital and were later pushed into a minority position through acts said to be oppressive and prejudicial to their rights.
The petitioners alleged that after they were gradually excluded from management, the company’s affairs came under the control of the contesting respondents. They complained of denial of access to statutory records, non-filing of financial statements for multiple years, failure to validly convene AGM(s), and non-supply of financial statements, board reports, and auditor’s reports to shareholders.
The dispute centred around two Extraordinary General Meetings. First, the petitioners said that an EGM dated Jan 06, 2025 was held without notice to them, where resolutions were passed authorising loans, guarantees and securities in favour of related entities up to an aggregate amount of Rs. 25.05 crores. Second, they challenged another EGM dated June 28, 2025 and the allotment of 2,49,95,000 equity shares mainly to Respondent Nos. 5 and 6, which allegedly diluted the petitioners’ collective stake from 71.79% to 47.87% and shifted control of the company.
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According to the petitioners, they were not served notice of the June 28, 2025 EGM, were not given offer letters or explanatory material, and were denied the chance to participate or exercise pre-emptive rights. They also argued that the company had no real need to raise fresh capital because its financials showed strong net worth, large cash reserves, substantial receivables and profit, which made the rights issue look collateral rather than genuine.
The respondents defended the company’s conduct by saying the petitioners had earlier resigned from management, the company had faced financial stress, and the rights issue was approved on June 09, 2025 to augment working capital for business growth and PSU tenders. They claimed letters of offer were dispatched on June 17, 2025, the issue remained open from June 19, 2025 to June 27, 2025, and the petitioners chose not to subscribe despite being informed.
