Company Law Board
Mrs. Renuka A. Kattar vs Gees Marine Products Pvt. Ltd., Mr. ... on 20 July, 2004
Equivalent citations: (2005)3COMPLJ189(CLB), [2005]63SCL82(CLB)
ORDER
K.K. Balu, Member
1. This is an application filed by the applicant seeking directions of this Bench for substituting her name in the place of the second petitioner in the company petition No. 43/2003 filed under Sections 397 and 398 of the Companies Act, 1956 ("the Act") alleging acts of oppression and mismanagement in the affairs of M/s Gees Marine Products Private Limited ("the Company") for further prosecuting the company petition.
2. According to Shri R. Murari, the applicant's mother and sister have filed the company petition under Sections 397 and 398 of the Act alleging various acts of oppression and mismanagement in the affairs of the Company. At present, the second petitioner does not wish to prosecute the company petition and therefore filed an application in CA 153/2004 seeking leave of this Bench to withdrew herself from the company petition. The applicant, being a shareholder of the Company holding 150 equity shares desirous of substituting herself in the place of the second petitioner. As the applicant is aggrieved by the various acts of oppression and mismanagement in the affairs of the Company, she may be substituted in the place of the second petitioner to further prosecute the company petition. While concluding his submissions, Shri Murari pointed out that the CLB in exercise of the inherent power under Regulation 44 of the Company Law Board Regulations, 1991 may grant the prayer to meet the ends of justice.
3. Shri T.K. Seshadri, learned Counsel appearing for the respondents, while opposing the application submitted that a proceeding under Section 397 or 398 is a representative action, that the validity of a petition has to be judged on the facts as they were at the time of its presentation and that a petition which was valid when presented does not cease to be maintainable by reason of events subsequent to its presentation, in support of which he relied on the following decisions:
(i) Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao - AIR 1956 S.C. 213 and
(ii) L. RM. K. Narayanan v. Pudhuthotam Estates Ltd. -[1992] 74 CC 30.
In the present case, Shri Seshadri pointed out that the company petition was presented by the two petitioners, namely, Mrs. Grimolyu Kagoo and Mrs. Renuka Kattar and after filing the company petition, the second petitioner is withdrawing herself from prosecuting the company petition. Even if the applicant does not want to proceed with her action, it is not incumbent upon the CLB not to deal with the action on merits, provided the petition was a valid petition at the time of its presentation. The first petitioner can continue the proceedings before the CLB. The provisions of Section 155 (old) or Section 397 or 398 do not provide for substitution of any shareholder as a petitioner to any application under Section 397 or 398 on the lines of Section 405 which explicitly envisages addition of respondents to any application under Section 397 or 398. In this connection, Shri Seshadri referred to Rule 101 of the Companies (Court) Rules, 1959, which speaks of substitution of creditor or contributory for the original petitioner in the winding up proceedings. There is no such similar provision under Rule 88 of the Companies (Court) Rules, 1959 for substitution of the original petitioner in the case of a petition presented under Section 397 or 398 of the Act. In the absence of any enabling provision, according to Shri Seshadri, the applicant cannot seek for substitution in the place of the original second petitioner, unless both the petitioners are sought to be substituted.
4. Shri Murari in his reply contended that the provisions of Rule 88 and 101 of the Companies (Court) Rules, 1959 are inapplicable to the present proceedings. The plea of the respondents that only when all the petitioners withdraw from the proceedings, there can be substitution is ill-conceived. Therefore, there is no bar for the applicant being substituted in the place of the original second petitioner, in support of which Shri Murari quoted the relevant passages from Pudhuthotam Estates Ltd. (cited).
5. I have considered the arguments of learned Counsel. The issue that arises for my consideration is whether the applicant shall be substituted in the place of the second petitioner for the purpose of prosecuting the company petition. The provisions of Section 397 and 398 clearly envisage the protection of the shareholders and the interest of the public. Sub-section (3) of Section 399 permits an individual shareholder to make an application under Section 397 or 398 "on behalf and for the benefit of all" shareholders of a company for appropriate reliefs, with a view to bring to an end the matters complained thereof. Thus, the proceeding under Section 397 or 398 is a representative proceeding. Even if the original petitioner does not want to continue the proceedings, it is open to the CLB to consider the merits of the case without dismissing the petition. There is, therefore, in my considered view, no need for any enabling provision for substitution of any other member for the original petitioner on the lines of Section 405, for further prosecuting the petition under Section 397/398, provided there is a valid petition before the CLB. In regard to the power of substitution in a Section 397 or 398 proceeding, beneficial reference is invited to the observations made by the Delhi High Court in V.K. Mathur v. K.C. Sharma - 1987 (vol.61) CC 143, which reads as under: -
" ...there are ample powers in the court to permit other persons to join the petition as co-petitioners. In a proper case, the court can even permit such persons to take over the prosecution of the petition from the original petitioner and substitute themselves for him in case it is found that he desires to withdraw from the petition for oblique reasons but the court is satisfied that the allegations in the petition need to be gone into."
Similarly, the Madras High Court, while dealing with this proposition in L. RM. K. Narayanan v. Pudhuthotam Estates Ltd. (cited supra) held that "once a petition is validly presented, it is well open to a shareholder to ask for substitution and prosecute the proceedings even though such a shareholder by himself could not have presented a petition under Section 397 for want of required share qualification. The court has to only consider whether the petition was a valid petition at the time of his presentation. If a valid petition has been presented, any shareholder can ask for substituting himself as the petitioner."
In the above circumstances, the CLB, in exercise of the inherent power under Rule 44 of the Company Law Board Regulations, 1991 is empowered to substitute the applicant in the place of the second petitioner for further prosecuting the company petition, subject to its validity. The plea of Shri Seshadri that there are no enabling provisions as in the case of Section 405 of the Act or Rule 101 of the Companies (Court) Rules, 1999 for substitution of any shareholder as a petitioner to any application under Section 397 or 398 will have no application in the facts of the present case. Accordingly, the application is allowed substituting the applicant in the place of the second petitioner, who is allowed to withdraw from prosecuting the company petition. Ordered accordingly. With these directions, the company applications in CA 153/2004 and 154/2004 stand disposed of.