Delhi High Court
V.K. Mathur And Others vs K.C. Sharma And Others on 21 November, 1985
Equivalent citations: [1987]61COMPCAS143(DELHI), ILR1986DELHI361
Author: S. Ranganathan
Bench: S. Ranganathan
JUDGMENT S. Ranganathan, J.
1. A very interesting situation has developed in this company petition filed as far back as September 4, 1982, under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act").
2. The Delhi and District Cricket Association Ltd. (hereinafter referred to as "the company") was incorporated as a company limited by guarantee having no share capital. Though incorporated as a company, its affairs are managed by a general committee consisting of a president, two vice-presidents, three secretaries, a treasurer and eight committee members. There are also two Government nominees on the committee. A group of members of the company was apparently dissatisfied with the management of the company's affairs. About 45 members, "represented by Anil Khanna, Akash Lal and Sunil Dev", applied to the Company Law Board for an authorisation in terms of section 399(4) of the Act to enable them to move an application under section 397 and 398 in the High Court. By an order dated December 18, 1981, the Company Law Board authorised "the applicants" to apply to the court under the above section in relation to the company. A list of the 45 members who applied to the Central Government other than the three abovementioned is appended to the order and includes Sri V. K. Mathur, the petitioner in the petition.
3. In pursuance of this authorisation, C.P. No. 91 of 1982 was filed on September 4, 1982. The petition sets out the names of the petitioners as "Sri V. K. Mathur, Daryaganj, Delhi, and other supporting petitioners" but no other names were given. In paragraph 25 of the petition, after referring to the above authorisation of the Company Law Board, it was stated :
"The petitioners also attach herewith the consent of more members for the filing of this petition".
4. But no such consent was attached. Curiously enough, in addition to certain other respondents, Anil Khanna, Akash Lal and Sunil Dev, who had represented the aggrieved group before the Central Government in making the application under section 399, were three of the ten respondents to the petition. In support of the averments contained in the petition and affidavit of Sri V. K. Mathur dated August 27, 1982 was filed.
5. When the petition came up, after some adjournments and interim orders, on October 7, 1983, Khanna J. pointed out that there was no list or names of the "other supporting petitioners" who were moving the petition. After some more adjournments, the learned judge observed, on March 23, 1984 :
"It has been found that the petitioners have not clarified who are supporting the petitioners in terms of the order dated October 7, 1983. I am afraid this petition may have to be stayed in case that clarification does not come. Respondents cannot meet the case without knowing who are agitating this petition. Now, final opportunity is given to do the needful. To came up on April 25, 1984."
6. On the next date of hearing, counsel for the petitioner stated that the petition could be treated as one brought by V. K. Mathur only and that he did not want to file any list of the names of the other supporting petitioners and was mentioned in the petition and about which the order dated October 7, 1983, was made. This belated request was acceded to and the learned judge directed the petition to proceed accordingly.
7. In the meantime, on January 11, 1984, the petitioner had filed C.A. No. 22 of 1984 under Order 6, rule 17 of the Code of Civil Procedure seeking permission to amend the body of the petition by incorporating a reference to certain subsequent developments that had taken place in the affairs of the association. This application was supported by an affidavit of V. K. Mathur dated December 16, 1983, and accompanied by the proposed amended petition. This application was once dismissed for default on May 7, 1984, and then restored on August 7, 1984. The company petition had to be adjourned from time to time to await disposal of the amendment application. On November 13, 1984, Anand J. allowed the amendment subject to two reservations. One of these, mentioned in the order on C.A. No. 22 of 1984, was that the amendment would be subject to the right of the respondents to raise the plea that the original petition itself was not maintainable "in that it was filed by an individual, V. K. Mathur, even though purporting to be based on a sanction of the Central Government under section 399(a) of the Companies Act which was in terms granted to 45 members acting through three named representatives in the order". The other, mentioned in the order of the same date in C.P. No. 91 of 1982, was that the "amended petition be taken on record subject to the petitioner's filing a supporting affidavit". This was because though C.A. No. 22 of 1984 was supported by an affidavit of V. K. Mathur, there was no affidavit of his verifying the averments contained in the amended petition as had been filed along with the original petition. No such supporting affidavit has, however, been filed though several specific opportunities for the purpose were given on January 22, 1985, April 10, 1985, May 13, 1985, July 29, 1985, and September 11, 1985. Apparently, V. K. Mathur was no longer interested in the petition. Counsel for the respondents produced a letter addressed to him by V. K. Mathur to this effect but as V. K. Mathur has not withdrawn the vakalat executed by him in favor of Sri K. K. Mehra till today, this letter was not taken on record.
8. Faced with this situation, the petitioner filed C.A. No. 899 of 1985. This purported to be an application under Order 1, rule 10 of the Codes of Civil Procedure. It was stated in this application that in the original company petition, the petitioner had correctly stated that the petition was being supported by other members. But, it was said, the petitioner had not given the addresses of these six persons. Reference was made to the statement of counsel for the petitioner before the court that "the petition is not being supported by any other person". It was, however, alleged that this statement "was contrary to facts and also against the provisions of the Companies Act". It was said that counsel had no right of "withdrawing the names of the supporting petitioners" and it was prayed that the six persons mentioned in an annexed "list of supporting creditors" should be substituted as the supporting petitioners in the main company petition. This application was signed by six persons whose names, it is common ground, are not to be found in the authorisation issued by the Central Government under section 399(4) or the list appended to it and supported by the affidavit of one of them, viz., R. K. Mehra, who, however, is different from the R. K. Mehra mentioned in the list appended to the authorisation under section 399(4). This supporting affidavit was initially filed along with the application, but purported to verify the facts set out in the "accompanying amended petition under sections 397 and 398 of the Companies Act". This mistake was pointed out and the petitioner was directed to set out all the necessary facts in an affidavit and file the same in C. P. No. 91 of 1982. This, however, was not done and only an additional affidavit of R. K. Mehra verifying the facts set our "in the accompanying application under Order 1, rule 10, Civil Procedure Code" was filed in C.A. No. 899 of 1985. One more development may be mentioned before proceeding to deal with C.P. No. 91 of 1982 and C.A. No. 899 of 1985, and that is that counsel for the petitioner, on September 11, 1985, gave up respondents Nos. 1 to 3 and 9 which included Anil Khanna and Akash Lal (who were respondents Nos. 2 and 3).
9. In this state of the pleadings, it is contended for the respondents that the company petition and company application are liable to be dismissed. It is pointed out (a) that the amended petition, unsupported by an affidavit of V. K. Mathur is defective and liable to dismissal on that ground; (b) that the six new applicants, who do not fulfill the requirements of section 399(1)(a) or (b) and cannot file and independent petition on their own, cannot be permitted to join the petition filed by V. K. Mathur under an authorisation of the Central Government under section 399(4) which does not cover them; (c) that it will indeed be a great irony if Anil Khanna, Akash Lal and Sunil Dev, who obtained the necessary authorisation to proceed against the persons then in management for certain acts, are themselves permitted to be proceeded against, on the basis of the same authorisation; and (d) that V. K. Mathur, having earlier admitted that he could not procure supporting affidavits or name the petitioners supporting him and having stated that he would prosecute the petition on his own should not now be permitted to lend his name to the petition and permit other total strangers to prosecute a petition which he is no longer really interested in. On the other hand, Mr. Mehra submits (a) that the petition filed by V. K. Mathur (even without any supporting petitioners) under the authorisation given by the Central Government was perfectly valid and in order; (b) that the amended petition is also in order, as the additional facts alleged therein had been verified by V. K. Mathur in his affidavit in support of C.A. No. 22 of 1984 to which indeed the "proposed amended petition" was an enclosure; (c) that the filing of the petition having been authorised by the Central Government and the petition having been duly filed by one of the authorised persons and not withdrawn by him, there is no bar, statutory or otherwise, to any other interested persons applying to join it as supporting petitioners, and (d) that, on the contrary, the petition having been validly and properly filed, it could not be withdrawn, vide rule 89 of the Companies (Court) Rules, 1959, and, as such, the court was not only entitled but indeed obliged, to permit the petition to continue and dispose of the same, after hearing such persons as may be interested in supporting or opposing the same.
10. On purely general considerations, it may perhaps appear that counsel for the petitioner is right. The original petition was filed by one of the persons authorised by the board. The application for amendment is supported by the petitioner's affidavit and it may be hypertechnical to dismiss the amended petition on the only ground that an affidavit of the petitioner has not been filed to verify the facts mentioned in the amended petition. Once there is a valid petition before the court, 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 be desires to withdrawn from the petition for oblique reasons but the court is satisfied that the allegations in the petition need to be gone into. This is clear, as pointed out by Mr. Mehra, from Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp Case 91 (SC) and rule 88(2) of the Companies (Court) Rules. These are provisions and powers designed to enable the court to render justice and to ensure that the real grievances of groups of members properly ventilated are remedied by the court, and not allowed to be circumvented by interested persons buying up or otherwise silencing the original petitioner. But, one the contrary, these enabling powers should not be used in such a way as to defeat the very purpose of these statutory provisions. On a careful perusal of the language and purpose of these provisions, it seems to me that it will not be in consonance with the purpose of section 399 or the interests of justice and equity to allow the present petition to continue.
11. The provisions of Chapter VI of the Companies Act enable the court (under sections 397 to 407) and the Central Government (under sections 408 and 409) to interfere with a view to prevent oppression and mismanagement in the affairs of a company and pass such orders as may be appropriate to remedy the situation. While the powers of the Central Government in this regard are somewhat restricted, the court, under sections 402 and 403, has much wider powers. But both these sets of provisions can be set in motion only when a minimum stipulated number of members of the company (in case of resort to section 397, 398 and 408) or certain specified managerial personnel, in case of resort to section 409, are aggrieved by the existing or apprehended state of affairs in the company. Taking the provisions of sections 397 and 398, a petition under either of these sections can moved only if the same is supported by the minimum number of members mentioned in clause (a) or clause (b) section 399(1). To this rigid arithmetical rule, section 399(4) provides an exception and enables the Central Government to authorise a smaller number of members to petition the court for redressal of its grievances if, in its opinion, circumstances exist which make it just and equitable so to do. It is in pursuance of this provision that 48 members of the respondent company were authorised to move the present petition, though the precise grounds on which the application to the Central Government was made or the authorisation given are not placed on record by either side.
12. There was some debate before me as to whether the petition, thus authorised, should have been filed by all of them or could have been filed by only some of them. But, I think, it is clear that it need not be filed by all. It can be filed by any one or more of the persons authorised. However, it is equally clear that whoever may file the petition, it is a representative action on behalf of the group of persons who have been authorised. This follows from the very nature of the provision but has also been made explicit by section 399(3). Though, at first blush, sub-section (3) seems to be applicable only to the case of an application made by the minimum number of members entitled to move an application under clause (a) or (b) of sub-section (1), the better construction would seem to be that, once an authorisation is given to any member or members under sub-section (4), those persons will be members entitled to make an application by virtue of sub-section (1) and any application made by them would be covered by sub-section (3). I am, therefore, of opinion that any one or more of the persons authorised by the Central Government was entitled to present the application to the court by only so long as it is a representative petition on behalf of the relevant group of members. This sub-section (3) seeks to ensure, by requiring (a) that the written consent of all of them should be filed and (b) that the application will be on behalf of and for the benefit of all of them. Thus, Mr. V. K. Mathur, one of the authorised persons, was certainly competent to file the petition but only subject to these two conditions. The question is, are these two conditions fulfillled in this case ?
13. So far as the first condition is concerned, the written consent of any person from the authorised list, apart from Mr. V. K. Mathur, to the making of the application has not been filed. As I said earlier, the papers on the basis of which the Central Government gave its authorisation are not before me but, in view of the terms of the order itself, it can be assumed that all the persons mentioned in the order and its annexure had consented (I shall also assume, in writing) to the idea of an action under sections 397 and 398 against the persons in power and management in the company. But any consent at that stage was to the application being made to the Central Government. The Central Government may have granted or withheld authorisation and the presentation of the petition in court is a different stage, and a different proceeding. Section 399(3) seems to require that when an application under section 397 and 398 is intended to be moved by a set of persons and is moved by one of them, the written consent of all of them should be filed with the application. Clearly, this is how Mr. V. K. Mathur himself understood the requirement. Accordingly to the cause title, the petitioners are "Mr. V. K. Mathur and other supporting petitioners" and, as per paragraph 25 of the petition, the consent of more members for filing the petition was being attached. But, despite repeated opportunities given to him, he was not able to produce the consent or supporting affidavit of any single one of the authorised members. The petition filed, therefore, does not fulfill the first of the requirements of section 399(3).
14. It may sound too extreme to say that a petition under section 397 and 398 is liable to dismissal merely because some (say, only one or two and not, as in this case, all) of those who moved the Central Government back out of giving a written consent to the petition when made. But, it seems to me, there is nothing wrong is such a conclusion. Clearly, a petition under section 397/398, moved by the minimum number of persons entitled to do so under section 399(1) will not be maintainable, unless either they are all petitioners or they have all filed written consents to an application moved by one or more of them. There is no reason for not applying the same rule in the case of an application made in pursuance of an authorisation under section 399(4) and saying that the written consent of all, in whose favor, the authorisation is given, should be filed. A petition moved by only some of the persons authorised by the Central Government may not, in fact or in principle, be an application by the authorised persons unless their written consents to the petition are available. True, section 399(4) is intended to waive the minimum requirements of section 399(1) and, normally, it is the nature of the allegations made rather than the number of members who make an application to it that is considered by the Central Government while granting permission. But it would perhaps not be correct to say that the numbers it totally irrelevant particularly in cases where no public interest is involved and the disputes are only the result of inter-group rivalries in the organisation. To give an extreme example, suppose 98 (as against the minimum of 100) members move the Central Government and obtain an authorisation but when the petition is filed, only 2 persons are willing to give their consent. Will it not be a travesty of truth to say that the petition has been filed in pursuance of the authorisation of the Central Government ? The Central Government may not at all have been willing to grant an authorisation only in favor of two of the persons. Will it not be better and in accord with the letter and spirit of the provisions to require, in case there is any such change between the first and second stages, that the change be brought to the notice of the Central Government and a revised authorisation issued in favor only of those who are willing to give their consent in writing to the petition. But, whatever may be the position in a case where written it seems difficult to accept a petition by only one - in fact it is none, as well be discussed later - of the authorised persons without affidavits of consent from the others as one which fulfills the statutory requirements.
15. The second requirement also is not fulfillled. Apart from the fact that the absence of written consents of all those other than Mr. Mathur itself shows that the petition is not on their behalf, it is also extremely doubtful if it is for the benefit of all of them. One strange feature in this case is that three of the respondents to the petition against whom reliefs are sought were not only persons who joined in the applications to the Central Government but, in fact, were persons who represented the others before the Central Government. It is difficult to imagine that the applications to the Central Government could have contained the allegations made in the present petition against these respondents. If the authorisation had been obtained on the set of facts and the petition filed on the basis of another, the latter can be hardly said to be in pursuance of the former. However, in the absence of the necessary details, I shall assume that they are not different. Still it is difficult to say that the petition is made on behalf of and for the benefit of all those authorised by the Central Government when some of such persons are made respondents to the petition and the others are unwilling to come forward and support the petition.
16. Quite apart from the technicalities discussed above, it is clear that in this case, the petition as it now stands, is not really by any of the persons authorised by the Central Government. Mr. V. K. Mathur, in this case, is like the Cheshire cat, only his name pervades these proceedings to which he is no longer prepared to lend his real and direct support. His name is being made use of by others, who were not at all before the CLB, to prosecute a petition for which permission was obtained by a different set of persons. Though it is true that Mr. V. K. Mathur has not withdrawn the petition or his vakalat in favor of Mr. R. K. Mehra, it is intriguing why should not be prepared to file an affidavit verifying the amended petition despite repeated opportunities given by this court, if he is still interested in pursuing the matter. It can only mean that he is no longer interested but that the existence of the petition is being sought to be made use of by others who are total strangers to the Company Law Board's order. I think it will be a gross abuse of the restrictive provisions of section 399 to accept the plea on behalf of the petitioner. If such attempts are permitted, the provisions of section 399(4) can easily be circumvented and petitions made before the courts by less than the authorised number of members without any real authorisation from the Company Law Board. I agree with counsel for the respondent that the court should not allow such a thing to be done.
17. I have, therefore, come to the conclusion that the six applicants of C.A. No. 899 of 1985 cannot be permitted to be considered as supporting petitioners in C.P. No. 91 of 1982 and C.P. No. 91 of 1982 deserves to be dismissed as not maintainable in the circumstances set out above. Company Petition No. 91 of 1982 and C.A. No. 899 of 1985 are, therefore, dismissed. No costs.