Company Law Board
Nutankumar Pal Sheth vs Jaysynth Dyestuff (India) Ltd. on 16 January, 2006
Equivalent citations: [2006]72SCL188(CLB)
ORDER
S. Balasubramanian, Chairman
1. This is a petition under Section 397/398 of the Companies Act, 1956 ('the Act') in the matter of M/s. Jaysynth Dyestuff (India) Ltd. ('the company') with the main allegation that the company is proposing to dispose of its business undertaking at a substantially low price which would be prejudicial to the interest of the minority shareholders. This petition has been filed by the 9th petitioner holding powers of attorney from the rest of the 8 petitioners with a prayer to join other members of the company as listed at pages 19-20 of the petition on receipt of authorization letters given by them. According to the petitioners, the collective holding of 8,83,135 equity shares of Re. 1 each by the petitioners and those mentioned at page Nos. 19-20 of the petition account for more than 10 per cent of the total issued/paid up equity shares of 86,89,700 equity shares of Re. 1 each by the company. The company has questioned the maintainability of the petition on the ground that the 9 petitioners together held less than 10 per cent of the paid up equity share capital and in the absence of either consent letters or authority letters of the members listed in pages 19-20 of the petition, which should have been filed along with the petition, their shareholding cannot be taken into consideration to determine the entitlement of the petitioners to file the petition in terms of Section 399 of the Act.
2. During the hearing, he produced the authority letters received from the members listed at pages 19-20 of the petition and submitted that even though these members had executed the authority in favour of the 9th petitioner to file the petition, he had not received the same due to delay in transit and as such these authority letters should be taken on record. He further submitted that the requirement of filing the authority letters along with the petition is only procedural and non-filing of the same with the petition cannot be fatal to the petition. He submitted that the shareholding of the petitioners together with those held by these members would constitute more than 1/10th of the equity paid up capital of the company and as such the petition was maintainable. The senior Counsel for the petitioner referring to page 96 of the petition submitted that this petition has been filed to protect the interest of over 27 per cent of the minority shareholders as the respondents holding about 61 per cent are trying to dispose of the undertaking of the company for a paltry sum of Rs. 22.32 crores while as per the balance sheet of the company, the value of fixed assets was over Rs. 51 crores. Therefore, this petition has been filed to restrain the respondents from disposing of the undertaking of the company.
3. The learned senior Counsel for the respondents submitted that the proposal to dispose of the undertaking has been approved by shareholders through postal ballot with 98.9 per cent votes cast in favour of the resolution and therefore, this petition has been filed with the mala fide intention to scuttle the decision of the majority shareholders. Any way, he contended that this petition itself is not maintainable in terms of Section 399. The authority letters should have been filed along with the petition itself as it is a mandatory requirement to determine the maintainability of the petition in terms of Section 399 of the Act. Further, he also pointed out various infirmities in the authority letters and contended that if the defective authority letters are ignored, then the holding of the members who have supported the petition would be less than 10 per cent of the issued equity capital of the company.
4. While the learned senior Counsel referred to the annual report for the year 2004-05 at page 65 of the petition, I noticed that the issued capital of the company not comprised of 85,89,700 equity shares of Re. 1 each, it also comprised of 7,00,000 preference shares of Rs. 10 each. Thus, the total issued capital of the company is Rs. 1,56,89,700. In terms of Section 399 of the Act, a petition under Section 397/398 could be filed either by 1/10th of the total number of members or 100 members or by those holding not less than 1/10th of the issued capital of the company. In the present case, the total number of members supporting the petition is less than 100 members and they do not constitute more than 1/10th of the total number of members. Therefore, their entitlement to file the petition has to be considered only with reference to their shareholding. Section 399 of the Act does not distinguish between preference share capital and equity share capital. The term used in that Section is "issued capital" which means that and includes all types of shares issued by the company. Therefore, in the present case, to maintain the petition, the petitioners should hold shares worth a minimum of Rs. 15,69,970. According to the petitioners themselves, they hold equity shares worth only Rs. 8,83,135 even assuming that all the letters of authority are in order and that non-filing the letters of authority is not fatal to the petition. Since the holding of the members supporting the petition is less than 10 per cent of the total issued capital of the company, the petition is not maintainable in terms of Section 399 of the Act.
5. The senior Counsel for the petitioners contended that since the respondents themselves have questioned the maintainability only on the basis of equity share capital, this Bench should consider the maintainability in terms of issued equity capital only and not on the basis of total issued capital. I am unable to accept this contention. The admitted fact is that the respondents have questioned the maintainability in terms of Section 399 of the Act and, therefore, the same has to be considered in terms of that section notwithstanding the fact that respondents have not correctly understood the provisions of this section.
6. Since the collective holding of the petitioners and their supporters does not satisfy the requirements of Section 399 of the Act, the petition is dismissed as not maintainable. All the interim orders stand vacated.