[Shreeji Patel is a student at National Law Institute University, Bhopal (NLIU)]
A recent ruling in Escientia Life Sciences v. Escientia Advanced Sciences (P) Ltd. dated 21 March 2025 reflects the evolving approach of the National Company Law Tribunal (“NCLT”) in resolving shareholder deadlocks. The NCLT proposed a structured buy-out mechanism after observing that a continued deadlock would jeopardize the future of the company. The Companies Act 2013 provides mechanisms to address such concerns, particularly through sections 241 and 244. These provisions have been expanded in recent decisions by the National Company Law Appellate Tribunal (“NCLAT”) to ensure minority shareholders have access to justice. The author explores the evolving judicial interpretations, challenges, and practical remedies available to minority shareholders who are being oppressed or experiencing deadlocks in corporate governance.
NCLT’s Ruling on Structured Buy-Out Mechanisms
In the present case there was a dispute between the Deccan Group (majority shareholders) and a minority group, leading to a complete breakdown of corporate governance. Internal communications revealed that nominee directors of Escientia Advanced Sciences (P) Ltd (“EASPL”) were actively associated with competing business entities, giving rise to a conflict of interest and breaching corporate governance standards. The NCLT observed that inter-company loans were designed in a manner advantageous to Deccan Group. The Tribunal observed that the Chief Operating Officer of EASPL was appointed without a unanimous board of directors’ approval, driven mostly by the Deccan Group’s nominee directors. Since the company was already doing well, the step was seen as a bid to consolidate control and sideline the founding promoters.
The NCLT noted that the prolonged deadlock would jeopardize the future of the company and proposed a structured buy-out mechanism. First, the minority shareholders were given the first right to purchase the majority shareholders’ stake. Subsequently, if they refused, the majority shareholders were entitled to buy out the minority holding. Lastly, if neither party opted for a buy-out, the Tribunal would have wound up the company under section 242(1)(b) of the Companies Act.
This approach is intended to protect corporate operations and shareholder value while preventing protracted litigation. According to the NCLT, the Deccan Group had shifted from their initial position as a passive investor to taking control of EASPL’s operations. It also stated that the Deccan Group had breached contract and corporate governance standards by violating the special rights granted to the original promoters under the articles of association (“AoA”).
Minority shareholders were oppressed as a result of this breach of trust and governance framework, particularly through corporate policies and monetary decisions.
This follows the precedent set in Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., where the Supreme Court emphasized preventing future oppression and ensuring the smooth operation of the business, implying that a clean exit through buy-out can be a feasible option in shareholder disputes.
Deadlocks in Equal Shareholding Companies
In another case of Hormouz Phiroze Aderianwalla v. Del. Seatek India (P) Ltd (2024), the NCLT while dealing with equal shareholding companies recognized that such deadlocks might hamper the operation of the company and held that a buy-out was the preferred remedy. The NCLT ordered that the petitioners were to buy out the shares of the respondents within six months, on the basis of a valuation report. Companies with 50-50 ownership structures face operational paralysis when disagreements arise. Prolonged conflicts can lead to declining investor confidence and financial instability. These judgments reflect the proactive approach of the tribunal in facilitating resolutions that prioritize the company’s continuity as well as securing shareholder interests.
Application of Section 244: NCLAT’s Interpretation
The Companies Act offers the mechanisms to address such concerns. The right to make an application under section 241 of the Act for minority oppression is subject to the requirements specified in section 244. The proviso to section 244(1) authorizes the NCLT to waive these requirements, so that members who do not meet the specified thresholds to apply under section 241, thereby providing access to justice to minority shareholders.
In Lokesh Kumar Bansal v. Adhunik Food Products Pvt. Ltd (2025), the NCLAT offered important clarification on how section 244 should be applied. It made it clear that if any one of the three conditions listed in section 244 were fulfilled, a petition filed under section 241 would be enforceable. In this case, the appellants met the requirement of having at least one-tenth of the total number of members by including four of the thirty members. The NCLAT overturned the dismissal order and permitted the petition to proceed, ruling that the NCLT had erred in not considering the alternative conditions. This interpretation avoids excessive procedural hindrances and broadens the scope for minority shareholders to seek relief.
In a different instance of Adesh Gupta v. Liberty Shoes Limited (2024), the NCLAT emphasized that while granting a waiver under section 244 the merits of the directorial complaint or the prima facie case should not be considered. The role of the tribunal is to determine if the applicants are eligibility or if a waiver is justified. The NCLAT stated:
“Grant of Waiver under Section 244 of the Companies Act, 2013 cannot be rejected on the assumption of rejection of the Company Petition on merits.”
This reiterates the principle that procedural thresholds must not impede substantive justice, particularly where minority shareholders make complaints of oppression or mismanagement.
Way Forward
Stronger safeguards are required, as evidenced by cases of poor management, financial diversion, and exclusion from decision-making. Legislative clarity on structured buy-out mechanisms is required to improve minority shareholder protection. The application of judicial remedies is inconsistent due to the absence of a clear legislative framework for structured buy-out implementation. Escientia Life Sciences (2025) and Tata Consultancy (2021) have demonstrated a case-by-case development of buy-out remedies. However, different benches of the NCLT and the NCLAT have given different interpretations to the powers under section 242, which has resulted in winding-up orders in some cases, buy-out orders in others, or, mere directions for parties to resolve disputes without definitive relief. Orders from the Tribunal will be consistent if the Companies Act is reformed to specifically include such mechanisms. Furthermore, disagreements over valuations frequently occur when implementing a buy-out order, delaying resolution. Introducing statutory guidelines on valuation methodologies can reduce disputes over fair pricing during buy-outs and facilitate smoother resolutions.
Conclusion
Protecting the rights of minority shareholders is crucial to corporate governance in order to guarantee equitable treatment and prevent oppression by majority stakeholders. Deadlocks among shareholders can impede decision-making and undermine the interests of the company, particularly in companies with equal shareholding. A legal framework for safeguarding minority shareholders is provided in the Companies Act. The flexibility of these provisions has also been strengthened by judicial interpretations, which enable tribunals to waive procedural requirements in order to maintain substantive justice. Structured buy-out mechanisms have been shown to be successful overcoming shareholder deadlocks and ensuring that companies can operate smoothly without prolonged internal conflicts. These developments underscore the evolving jurisprudence seeking a balance between the rights and interests of both majority and minority shareholders in India’s corporate landscape. However, challenges remain, particularly in deadlock situations and the enforcement of Tribunal-ordered remedies. Through the enhancement of legislative provisions and improving governance standards, India’s corporate legal framework can more effectively protect minority shareholder rights while ensuring business continuity and economic stability.
– Shreeji Patel
