Wide Powers of the Tribunal
Section 241-242 of the Companies Act, 2013 gives the National Company Law Tribunal wide powers to provide reliefs in oppression and mismanagement matters. The provision is not confined to granting only the specific reliefs expressly listed in 241-242. Clause (m) of section 242(2) further expands the Tribunal’s scope by enabling it to provide for “any other matter” which, in its opinion, is just and equitable.
In addition to the statutory powers under Section 242, Rule 11 of the NCLT Rules, 2016 preserves the Tribunal’s inherent power to issue appropriate directions where necessary to meet the ends of justice or prevent abuse of process.
This language often gives parties the impression that Section 242 can operate as a complete remedial solution whenever a company is already before the Tribunal.
Although Sections 241-242 and Rule 11 reflect the Tribunal’s wide remedial jurisdiction, the relief sought cannot be viewed in isolation from the statutory framework governing that relief. For instance, when the relief concerns redemption of preference shares, the discussion must necessarily turn to Section 55, which sets out the conditions for such redemption.
Permissible Sources for Preference Share Redemption
Section 55 of the Companies Act, 2013 deals with the issue and redemption of preference shares. Its purpose is not merely to prescribe a redemption timeline, but also to protect the company’s capital structure.
Section 55(2) permits redemption only through recognised sources. Preference shares may be redeemed either out of profits of the company which would otherwise be available for dividend, or out of the proceeds of a fresh issue of shares made specifically for the purpose of redemption. Where redemption is made out of profits, an amount equal to the nominal value of the shares redeemed is required to be transferred to the Capital Redemption Reserve, thereby preserving the capital base of the company.
Status of Preference Shareholders when the preference shares are due for redemption
Preference share capital continues to form part of the company’s share capital until it is redeemed in accordance with law. Therefore, the maturity of preference shares may create an obligation on the company to redeem, but it does not by itself convert that obligation into an immediate debt payable from any available funds.
In Lalchand Surana v. Hyderabad Vanaspathy[1], the Court observed that where redeemable preference shares are issued but not honoured when they are ripe for redemption, the holder of those shares does not automatically assume the character of a creditor. This is because such shares can be redeemed only out of profits which would otherwise be available for dividend, or by a fresh issue of shares, which is a limitation not applicable to an ordinary creditor.
The Supreme Court, in EPC Constructions India Limited v. M/s Matix Fertilizers and Chemicals Limited[2], also clarified that holders of cumulative redeemable preference shares are investors and not creditors, more specifically not financial creditors, for the purpose of initiating insolvency proceedings under Section 7 of the IBC, since non-redemption of such shares does not qualify as a default under the Code.
This distinction becomes relevant when a holder of matured preference shares seeks immediate payment. Since the holder continues to remain a shareholder and not a creditor, the claim cannot be enforced like an ordinary debt claim from any available fund.
When Wide Powers meet a specific mechanism
Sections 241-242 and Rule 11 may enable the Tribunal to provide reliefs in appropriate cases, but they cannot be exercised in a manner that defeats an express statutory requirement by invoking just and equitable grounds.
In Haridas Krishnan Kutty v. Jatayupara Tourism Private Limited and Others[3], the preference shareholder sought redemption of his matured redeemable preference shares under Sections 241-242 proceedings. His case was that the shares had reached the redemption date, the company was under the supervision of an NCLT-appointed Administrator, and funds were available in a Tribunal-controlled escrow/common pool account. The preference shareholder therefore sought a direction for redemption by invoking the Tribunal’s wide powers, including its power to grant just and equitable relief.
The company, the Administrator and certain other respondents opposed the relief. They argued that the company had no distributable profits. Further, redemption through fresh issue proceeds was also not feasible because subsisting status quo orders restrained alteration of the company’s share capital. The escrow funds also could not be treated as profits of that company.
The Tribunal accepted that the shares had matured, but concluded that the wide powers under Sections 241-242 and the inherent powers under Rule 11 cannot be used to bypass or act contrary to express statutory provisions. Accordingly, it refused redemption in the present proceedings, while leaving the Applicant to pursue remedies in accordance with Section 55 and other applicable provisions.
Conclusion
Where the Act provides a dedicated mechanism for a subject, the Tribunal cannot use its powers to achieve indirectly what the statute does not permit directly. In the context of preference share redemption, Section 55 prescribes the permitted sources and manner of redemption. Therefore, even where the redemption date has arrived, a direction for redemption cannot be issued under Sections 241-242 or Rule 11 if it would contravene Section 55.
Notes:
[1] Lalchand Surana v Hyderabad Vanaspathy Ltd (1990) 68 Comp Cas 415 (AP).
[2] EPC Constructions India Limited (Through its Liquidator) v. Matix Fertilizers and Chemicals Limited 2025 SCC OnLine SC 2293; [2025] 189 CLA 81.
[3] Haridas Krishnan Kutty v. Jatayupara Tourism Pvt. Ltd. and Ors., (2026) ibclaw.in 1474 NCLT
Author Bio
