Company Law Board
Turner Morrison Ltd. And Ors. vs Jenson And Nicholson (India) Ltd. on 30 March, 1998
Equivalent citations: [1998]93COMPCAS347(CLB)
JUDGMENT
1. The four petitioners herein above, collectively claiming to hold/entitled to hold 18.1 per cent. shares in Jenson and Nicholson (India) Ltd. (company), have filed this petition under Sections 397/398 and 402 and 403 of the Companies Act, 1956, alleging acts of oppression and mismanagement in the affairs of the company.
2. When this petition was mentioned we passed certain ex parte interim orders, which we later vacated on an application being made by the company. In the said application, the company has raised certain preliminary objections as to the maintainability of the petition. In view of these objections, we decided to hear arguments on the maintainability of the petition and this order is being issued on the same.
3. To appreciate the objections raised by the company on the maintainability of the petition, it is appropriate to narrate, in brief, as contained in the petition, the facts of the case. The first and the fourth petitioners are presently members of the company with their names having been entered in the register of members in respect of 14,900 and 72,150 shares respectively, totally constituting 2.10 per cent. in the share capital of Rs. 413.79 lakhs as in November, 1996. When the company proposed a rights issue of fully convertible debentures (FCDs) in July, 1996, the second petitioner applied for 7,00,000 FCDs out of an underwriter's quota, on an application for renunciation provided to the second petitioner by the underwriter. In response to this application, the company allotted 5,66,647 FCDs and since Part A of the FCDs was convertible into shares on the date of allotment itself, the second petitioner was allotted 5,66,647 shares on November 8, 1996, and share scrips for the shares were also issued to the second petitioner. The first and the fourth petitioners had renounced their rights entitlement to the third petitioner for 43,600 FCDs and accordingly, the third petitioner was allotted 43,600 FCDs. On conversion of Part A of the FCDs, the third petitioner was allotted 43,600 shares on November 8, 1996. During the period between October 31, 1996, and November 8, 1996, the second petitioner acquired 1,97,305 shares, which are yet to be registered in the name of the second petitioner. Thus, as on November 12, 1996, the four petitioners, collectively, among themselves, held 8,94,602 shares constituting 14.41 per cent. in the share capital of the company as it stood on that date. The second portion of the FCDs were to be converted into shares on February 1, 1997, which, if had been done, would have entitled the second and the third petitioners to further 5,66,647 and 43,600 shares, respectively. Thus, as on February 1, 1997, the petitioners were entitled to hold, in all, 15,04,849 shares constituting 18.18 per cent. in the share capital of the company or Rs. 827.58 lakhs. However, the company had, through a notice published in the Financial Express, made an announcement, that the issue of FCDs had failed and that appropriate refund orders were being posted to the holders of debentures and already converted equity shares. This alleged cancellation of allotment already made seems to be on account of the company's taking a view that the second petitioner had violated the provisions of the SEBI (Substantial Acquisition of Shares and Take Over) Regulations, 1994, when it had applied for and was allotted the FCDs. According to the petitioners, there has been no such violation and even assuming so, the company, by itself, did not have any statutory right to annul an allotment already made. The act of cancellation of allotment against the provisions of law, without following due process of law, is not only oppressive to shareholders but also is an act of grave mismanagement. It is also stated in the petition that the second petitioner has instituted a suit in the Calcutta High Court seeking a declaration that the petitioner was holder of the impugned shares and Part "B" of the FCDs and other consequential reliefs and that the suit is pending. The petitioners have, in the present petition, prayed for various reliefs including, inter alia, a declaration that the second and third petitioners are registered shareholders of 5,66,647 and 43,600 equity shares in the company.
4. Shri Sarkar, senior advocate, appearing for the company, submitted, that the petition is not maintainable on the following grounds :
(i) The petitioners have already initiated prior in time, certain legal proceedings in the High Court of Calcutta on the same issues, seeking similar reliefs and have also obtained certain interim relief, and as such, by. instituting the present proceedings, the petitioners are prosecuting parallel proceedings, which cannot be allowed.
(ii) Of the four petitioners, only two are, as on date, registered as members of the company and among themselves they hold only a negligible percentage of shares, and as such they are not qualified in terms of Section 399 of the Companies Act, to file a petition under Section 397/398.
(iii) In respect of certain shares impugned in the petition, the petitioners have already filed petitions, under Section 111, before the Eastern Bench of the Company Law Board and as such no allegation in respect of those shares can be examined in the present proceedings.
(iv) There has been enormous delay on the part of the petitioners in filing this petition, since the annulment of the allotment took place more than a year back.
(v) Since the petitioners have been already refunded all the amounts paid by them for the FCDs, the question of their being considered as members of the company does not arise.
5. Elaborating the above objections, he submitted that the satisfaction of the provisions of Section 399 is a primary condition for filing a petition under Section 397/398. When a person does not satisfy the provisions of this section--especially when his membership is disputed, he cannot file a petition seeking a relief, the grant of which would enable him satisfy the provisions of Section 399. On this proposition, he relied on Guldbrai Kalidas Naik v. Laxmidas Lallubhai Patel [1977] 47 Comp Cas 151 (Guj). Further, relying on the decision of the Calcutta High Court in Bengal Luxmi Cotton Mitts Ltd., In re [1965] 35 Comp Cas 187, he submitted that when there is a delay in seeking a remedy against an alleged wrongful act, the discretionary relief under Section 397/398 should not be granted and that when an alternative remedy has already been resorted to, orders under Section 397/398 cannot be issued. Therefore, according to him, when the petitioners have not fulfilled the requirements of Section 399 and they have already initiated separate proceedings, prior in time, seeking the same remedy, this petition should not proceeded with and should be dismissed as not maintainable.
6. Shri Kapur, senior advocate, appearing for the petitioners, submitted that, when the petitioners are questioning the very validity of the cancellation of allotment as mala fide and that such cancellation of shares has not been made in accordance with law, the cancellation has no effect, that the petitioner should be considered to be shareholders in respect of these shares so cancelled and once it is done they would satisfy the requirements of Section 399. He further submitted that as far as the earlier proceedings taken by the. petitioners are concerned, it has been decided to withdraw the same and as such the objection relating to parallel proceeding no longer survives. Further, he argued to state, that the company could not ask for a decision on the maintainability of the petition without the entire petition being gone through after filing of the reply by the company. Relying on Section 21 of the Civil Procedure Code, 1908, he submitted that the respondents, having participated in the proceedings, could not, without filing a reply to the petition, seek an order on the maintainability. He submitted that in all fairness, the respondent should be asked to file the reply and the Company Law Board should look into the entire case in full before giving a decision on the maintainability or otherwise Shri Gopal Subramaniam, senior advocate, appearing for the petitioners, while concurring with the arguments of Shri Kapur submitted that without going through the merits of the case, it is not possible at all to decide on the maintainability and as such he prayed for a direction to the respondents to file their replies, so that, along with the merits, the maintainability of the petition could also be considered.
7. We have considered the arguments of counsel on the maintainability. While we appreciate the arguments of counsel for the petitioners that the maintainability of the petition may not be decided without going through the merits of the case after filing of the replies by the respondents, we consider that two of the objections raised by Shri Sarkar merit consideration by us, even at this stage, as they touch upon the locus standi of the petitioners, without having to go through the merits of the case. They are pending prior proceedings in another forum and qualification under Section 399. In view of the submissions by counsel for the petitioners that they have decided to withdraw the earlier proceedings, we do not propose to deal with the same. Thus, the only issue for our consideration is whether the petitioners satisfy the requirements of Section 399.
8. Admittedly, at the time of filing the petition only the first and the fourth petitioners are shown as members in the register of members, while others are claiming to be entitled to be shareholders. One of the primary conditions of Section 399, as is evident from the beginning of Sub-section (1) of Section 399, is that the petitioners should be members of the company. As per Section 41 of the Companies Act, a member is a person who agrees in writing to become a member of the company and whose name is entered in the register of members. Admittedly, on cancellation of the allotment, rightly or wrongly, the names of the second and third petitioners, either have not been entered in the register of members or omitted therefrom later. The absence of'their names from the register of members would mean that they do not satisfy the condition of membership as contemplated in Section 41 of the Act. We had recently dealt with a similar case wherein337 the issue was, whether persons, whose shares had been forfeited, could maintain a petition when the very issue of forfeiture was an issue in the petition and whether we should issue an order on the maintainability as a preliminary issue. (Satish Chand Sanwalka v. Tinplate Dealers Association P. Ltd. [1998] 93 Comp Cas 70 (CLB)). The respondents contended that as per Section 164 of the Act, the register of members is the prima facie evidence of the matters contained therein and since the petitioners' names were not in the register, they do not satisfy the conditions of Section 41, However, we took the view that when as per Section 84, the share certificate is the prima facie evidence of title of a shareholder to the shares indicated therein, the prima facie evidence through the share certificate gets precedence over the prima facie evidence of the register of members. In that case, we found that, in spite of the alleged forfeiture, the forfeited shares had not been cancelled and were in the possession of the petitioners. In view of various other points , of law and facts remaining for consideration, which had a bearing on the maintainability, we declined to pass any order on the maintainability without going through the merits of the case. However, in the present case, we find that the shares have been cancelled by the company through a public notice and the second and the third petitioners have also been refunded all the money that they had paid for the shares. In other words, the prima facie evidence through share certificates is no longer available to them since the shares have been cancelled. This being the case, the issue that arises is, whether we can consider this petition as maintainable when the very cancellation has been made a subject-matter of the petition and that on a decision being favourable to the petitioners they would qualify under Section 399. A decision in favour of the petitioners in regard to the shares would result in an order for rectification of the register of members. Without such rectification being ordered, the restoration of the petitioners as members in the register of members would not arise. The decision of the Gujarat High Court in Gulabrai's case [1977] 47 Comp Cas 151, 159 is directly on this point. When a composite petition was filed under Section 397/398, combined with Section 155, the Gujarat High Court held that, "one has to be a member before he can complain of oppression as a member of the company. Now, if the petitioner's title to the membership is in dispute, and he has to seek relief under Section 155 for getting his name placed on the register of members to clothe himself with the rights of a member, it would be improper, till the dispute is decided, to permit such a person to maintain a petition under Sections 397 and 398". Having held so, and since the said petition was a composite petition, the court admitted the petition for relief under Section 155 (present Section 111). From the above decision, it is clear that, in composite petitions, where the title to shares, which entitles a person under Section 399, is in dispute, the same should be adjudicated first without considering the matters under Section 397/398.
9. Unfortunately, in the present case, we find that the petition is not a composite petition, even though the reliefs sought at paragraphs k, l, m and n of page 73 of the petition, are on rectification of the register of members, which when allowed, would entitle the second and the third petitioners to the shares allegedly wrongfully cancelled. We examined, whether we could, even in the absence of the mention of Section 111 in the title to the petition, consider this issue first before going through the other issues. We find that it may not be possible to do so in view of the change in the provisions of law that has been brought into effect by the Depositories Act, according to which Section 111 has been made applicable only to private limited companies and provisions of Section 111 A have become applicable to public companies. A perusal of the provisions of Section 111A would reveal that the entire provision relates to rectification arising out of transfer of shares or debentures only. Unlike the provisions of Section 111(4) (earlier Section 155), which is wider in scope covering various grounds for seeking rectification, the scope of Section 111A on rectification is limited only to matters relating to transfer. Thus, the jurisdiction of the Company Law Board under Section 111A relating to public companies is restricted and does not cover the grounds on which the rectification has been sought in the present petition. In other words, jurisdiction for rectification of register of members on grounds other than arising out of transfer of shares/securities has not been now vested in the Company Law Board. Since the maintainability of the present petition in terms of Section 399 depends on the rectification of the register of members of the company, which is a public company, on grounds other than transfer of shares, however strong and valid the claims of the petitioners may be, for such rectification, in view of want of jurisdiction, we will not be able to adjudicate on the claims of petitioners Nos. 2 and 3. Perhaps, the remedy relating to the declaration that they are shareholders lies in a civil suit, which incidentally the petitioners have already initiated. Since the other two petitioners hold only about 2 per cent. shares, by themselves, they do not qualify under Section 399 to pursue this petition.
10. Accordingly, this petition is dismissed as not maintainable in terms of Section 399. All interim orders are vacated. No order as to costs.