Company Law Board
S.S. Laxminarayanan And Anr. vs Mather And Platt India Ltd. And Ors. on 17 July, 1997
Equivalent citations: [1998]92COMPCAS109(CLB)
ORDER
1. The first petitioner holding 50 shares and the second petitioner holding 128 shares have filed the instant petition under Sections 397/398/ 402 and 403 of the Companies Act, 1956, alleging various acts of oppression and mismanagement in the affairs of Mather and Platt (India) Ltd. (company). They have also annexed with the petition, a schedule containing the signatures of 146 other members giving their consent to file the petition.
2. The respondents have taken a preliminary objection as to the maintainability of the petition on the ground that the provisions of Section 399 have not been satisfied in regard to the qualification for filing the instant petition on the ground that the purported consent given by the consentors does not meet with the legal requirement of a valid consent. They have also taken another preliminary objection that the similar issues have been raised in a proceeding before the industrial court at Mumbai instituted by the union of the company and as such to avoid conflict of the decisions, this petition should not be proceeded with.
3. In view of the preliminary objection going to the root of our jurisdiction to entertain this petition relating to the provisions of Section 399, we decided to her the preliminary objections.
4. Shri Ganesh, advocate, appearing for the respondents submitted that the schedule containing the signatures of 146 shareholders signifying their consent cannot be treated as valid "consent in writing" as envisaged under Section 399(3) of the Act. Even if it is so treated, it is apparent from the wordings of the consent, that the consentors have not applied their mind to the various allegations made in the petition which is a requirement of a valid consent. He referred to the decision of the Company Law Board in Shanhar v. South India Concerns (24 CLA Jan 2, 1997 ; [1997] 1 Comp LJ 307) in which after considering decisions of various High Courts, the Company Law Board had held that "the requirement of consent in writing as per Section 399(3) would be satisfied if the consent letters throw some indication on the consentors' having applied their mind to the various allegations made in the petition and the reliefs sought for . ,. Therefore as long as there is an indication in the consent letters that they are aware of the various acts of oppression and mismanagement by the board of directors, the various reliefs that are required to put an end to the acts of oppression and mismanagement, then the consent letters should be considered to have met the requirement of Section 399(3)".
5. A reading of the schedule wherein the consent is recorded, Shri Ganesh submitted, would show that there is no indication that the consentors were aware of the allegations as well as the reliefs sought and as a matter of fact there is no indication that this petition was being filed under Section 397/398. He pointed out that there is also no indication as to when the consentors gave their consent--whether after preparation of the petition or before and on what dates. Therefore, according to him, the petitioners have just obtained the signatures of various shareholders without apprising them of the contents of the petition. Therefore, it is apparently clear, he submitted that the consentors are not aware of the contents of the petition nor they have applied their mind to the various allegations made in the petition. In the absence of such application of mind which is an essential requirement of "consent in writing" as envisaged under Section 399(3), the petition does not fulfil the requirement of Section 399. He also submitted that in view of similar allegations pending before the industrial court, to avoid conflict of decisions, this petition should not be proceeded with.
6. Shri Balgopal, advocate, appearing for the petitioners, submitted that the consentors are fully aware of the contents "of the petition and they have given their consent with the full knowledge of what is being alleged in the petition and what reliefs have been sought for. He further submitted, that, even assuming that there is no indication of application of mind by the consentors, since this is only a procedural matter, the Company Law Board should not attach much importance to this deficiency and should render justice by looking into the allegations. Relying on Union Bank of India v. Naresh Kumar [1997] 90 Comp Cas 329, 333 ; AIR 1997 SC 3, wherein the Supreme Court held "procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause. There is sufficient power in the courts, under the Code of Civil Procedure to ensure that injustice is not done to any party who has a just cause. As far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable," therefore, he submitted that as far as this preliminary objection is concerned, taking into consideration the observation of the Supreme Court, as stated above,' the defects in the consent letters, if any, should be treated as procedural and the petition should be considered on the merits. As far as the second preliminary objection relating to the matter pending before the industrial court is concerned, he submitted that even though the allegations may be the same, yet, the reliefs sought before the industrial court are entirely different from the reliefs sought in this petition and, therefore, there is no bar to the Company Law Board considering this petition..
7. We have considered the arguments of counsel. As per Section 397 of the Companies Act, any members can apply to the Company Law Board in case of oppression and mismanagement in the affairs of a company, "provided such members have the right so to apply in virtue of Section 399". The same stipulation has been made in Section 398(2) also. According to Section 399, the following members of a company shall have a right to apply under Section 397 or 398 :
(1) in the case of a company having share capital (a) of not less than 100 members of a company or not less than one-tenth of the total number of it? members, whichever is less, or (b) any member or members holding not less than one-tenth of the issued capital of the company provided they have paid all calls and other sums due on the shares.
(2) in the case of a company not having share capital, not less than one-fifth of the total number of its members.
8. Sub-section (3) of Section 399 further states that "where any members of a company are entitled to make an application in virtue of Sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them". In the present petition, there are only two petitioners and they have, for the purpose of bringing the total number of members to more than 100 to qualify to make this petition, annexed with the petition a schedule containing the signatures of 146 members.
9. The schedule containing the consent given by the consentor shareholders runs to 15 pages. Each page starts with "we, the following members of Mather and Platt India Ltd. who have signed herein do hereby declare that we had given our consent to the petitioners to present the petition on our behalf before the Company Law Board." Each page contains columns to show the serial number, name, address, number of shares held and whether all calls have been paid. The last column contains the signatures of the consentors-shareholders. Each page has provision for about 11 names and all are serially machine-numbered. Some of the pages are not completely filled in even though serial numbers are consecutive against the names of the consentors. There is no indication as to on what date they have signed and in what order they were signed--whether they have all signed simultaneously or on different occasions. There is also no indication whether they had gone through the petition or whether they had been apprised of what the contents of the petition are.
10. Thus, as rightly pointed out by Shri Ganesh, we are not in a position to find any material to show from this schedule and from the narration in each page that the petitioners are aware of the contents of the petitions relating to the allegations as well as the reliefs sought for. There is also no indication that the petitioners were aware that the petition was being filed under Section 397/398 or that the petition relates to allegations of oppression and mismanagement. The non-application of mind by these consentors is quite apparent from the narration in the schedule relating to consent. We do not wish to elaborate the decisions of the various High Courts which we have elaborated in South India Concerns order referred to above, while coming to the conclusion as quoted by Shri Ganesh which we have extracted earlier. However, since a similar schedule (annexure) containing consent had been considered by the Madras High Court in M. C. Duraiswami v. Shakti Sugars Ltd. [1980] 50 Comp Cas 154 which we had referred to in our order relating to Shankar v. South India Concerns [1997] 1 Comp LJ 307 ; 24 CLA Jan 2, 1997, we consider it appropriate to quote from the judgment (at page 161 of 50 Comp Cas) :
"The appellant in the present case was purporting to file the application on behalf of and for the benefit of all the 147 persons who figured in the annexure. From this, it necessarily follows that the said 147 persons must know what exactly the appellant was doing and that he was acting for their benefit. They can know this only if they know what was the actual ground to be put forward for invoking jurisdiction of the court under Section 397 or Section 398 or both and what was the relief proposed to be claimed in the petition. Therefore, the consent contemplated under Section 399(3) is intelligent consent, in the sense, that consent given for the purpose of making particular allegation in the petition and for the purpose of claiming a particular relief therein, therefore, a blanket consent as in the present case cannot be a consent as contemplated by Section 399(3)." Accordingly, the petition filed by the appellant was dismissed as not maintainable.
11. We had also taken a similar view in Shankar v. South India Concerns [1997] 1 Comp LJ 307 ; 24 CLA Jan 2, 1997. Thus, we have no hesitation to come to the conclusion that the purported consent given by the consenters as found in the schedule does not meet the requirements of "consent in writing" as contained in Section 399(3). If their consent is not a valid consent, then the petitioners by themselves holding only 158 shares do not satisfy the requirement of Section 399(1).
12. Having held that the consent is not a valid consent and that the requirement of Section 399(1) has not been satisfied, the other issue for our consideration is whether the requirement under Section 399(1) is a procedural requirement and as such could be condoned. According to counsel for the petitioners it is only a procedural requirement, which, in view of the Supreme Court observation in the case cited by him, can be condoned and the petition be heard on the merits.
13. The issue before the Supreme Court in the case cited by counsel for the respondents was whether the plaint was duly signed and verified by the competent authority, in view of the plea taken by the appellant therein that the suit was not maintainable in view of the plaint having not been signed by a competent person as envisaged under the relevant provisions of the Code of Civil Procedure, the Supreme Court observed (page 334 of 90 Comp Cas) :
"The courts below could have held that Shri L. K. Rohatgi must have been empowered to sign the plaint on behalf of the appellant. In the alternative, it would have been legitimate to hold that the manner in which the suit was conducted showed that the appellant-bank must have ratified the action of Shri L. K. Rohatgi in signing the plaint. .. The suit had been filed in the name of the appellant-company ; the full amount of court-fee had been paid by the appellant-bank ; documentary as well as oral evidence had been led on behalf of the appellant and the trial of the suit before the Sub-Judge, Ambala, had continued for about two years. It is difficult, in these circumstances, even to presume that the suit had been filed and tried without the appellant having authorised the institution of the same. The only reasonable conclusion which we can come to is that Shri L. K. Rohatgi must have been authorised to sign the plaint and, in any case, it must be held that the appellant had ratified the action of Shri L. K. Rohatgi in signing the plaint and thereafter it continued with the suit."
14. From the above it can be seen that the facts and issue in that case are entirely different from those before us.
Even otherwise, while coming to the conclusion, the Supreme Court also observed (page 333 of 90 Comp Cas) :
"Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause."
15. It is relevant to observe that the Supreme Court itself has differentiated between procedural defects which go to the root of the matter and those which do not. The observation of the Supreme Court is applicable in cases where the procedural defects do not go to the root of the matter. Whether the requirement of Section 399 is a procedural matter or not was considered by us in Shankar v. South India Concerns [1997] 1 Comp LJ 307 ; 24 CLA Jan 2 1997, wherein we gave a finding as follows :
"In regard to the contention of counsel for the petitioner that no rigid view be adopted in regard to the validity of the consent in writing, we consider that, while in the case of procedural matters one need not be rigid but since the consent in writing is a substantive matter which goes to the root of entitlement to file a petition under Section 397/398, the validity of the same has to be viewed rigidly."
16. Thus, the requirement of Section 399(1) can be satisfied only if we hold that the consent in writing given by the consentors in this instant petition is valid. This is a substantive matter going to the root of entitlement to file the petition under Section 397/398. This requirement of Section 399(1) is not a procedural matter at all. It is a qualification prescribed for moving a petition under Section 397/398 and as such it is a substantive requirement which has to be satisfied before a petition is considered on the merits. Therefore, we are unable to agree with counsel for the petitioners that the requirement of Section 399 is a procedural matter and can be condoned.
17. In view of our finding that the schedule containing the signatures of the shareholders purported to have given their consent in writing does not meet the requirement of Section 399(3), the petitioners by themselves do not qualify under Section 399(1) for filing this petition, under Section 398/399 and as such we dismiss this petition, without adverting ourselves to the other preliminary objection, as also the merits of the case.