Company Law Board
J.P. Srivastava And Sons (Rampur) Pvt. ... vs Gwalior Sugar Company And Ors. on 18 January, 1999
Equivalent citations: [2000]100COMPCAS768(CLB)
ORDER
S. Balasubramanian, Chairman
1. During the proceedings in this instant petition filed under Section 397/398 of the Companies Act, 1956 (Act), alleging acts of oppression and mismanagement in the affairs of Gwalior Sugar Company Limited ("the company"), the parties had agreed to settle their disputes amicably by which the petitioners were to sell their shares to the respondents on a valuation to be made by a chartered accountant, pursuant to which such a valuation was done and before the Bench could pass an order on the petition, one of the respondents filed an application raising an issue relating to the maintainability of the petition in terms of Section 399.
2. During the proceedings, in a hearing on January 16, 1996, the Bench passed certain interim orders vide order dated January 22, 1996, and also observed that in view of the close relationship between the parties, they should work out an amicable settlement and also recorded that the counsel for the parties had undertaken to do so. In the hearings, on February 20, 1996, March 4, 1996, March 15, 1996, it was informed that the compromise talks were in progress. In the hearing on May 7, 1996, after hearing the parties the Bench passed the following order :
"It was agreed by the parties that the petitioners will sell their shares to the respondents for a value per share to be determined by a valuer appointed by us and the value will the binding on all parties, The parties will approach jointly reputed valuers and suggest an acceptable name for our approval on May 30, 1996, at 4.15 p.m."
3. After hearing the parties on May 30, 1996, the Bench passed the following order on June 1, 1996 :
"While considering the petition filed under Section 397/398 of the Companies Act in the matter of Gwalior Sugar Company Limited, in view of the nature of the company that it is a family company, we advised the parties to amicably resolve the disputes. It was agreed by the parties that the petitioners' group will sell its shares to the respondents' group. Since the parties could not settle the price for the shares by themselves, with the consent of the parties, we hereby appoint Thakur Vaidyanath Iyer and Co., Chartered Accountants, New Delhi, to value the shares of the company. While doing so, the valuer will take into account the family nature of the company and that the petitioners will be parting their ways with the affairs of the company. The valuer will give a report detailing the basis of the valuation. This valuation should be completed within a period of six weeks from the date of this order. The valuer will give personal hearing to the parties if they so desire. The valuer will furnish a copy of their report to the petitioners and the respondents as well as to this board. The remuneration to the valuer will be paid by the company. The matter will be further heard after receipt of the report at which time, the report will be considered by us and our final decision on the same will be, as agreed to by the parties, binding on all."
4. When this agreement was reached, Vikram Srivastava, joint managing director respondent No. 3 was personally present during the hearing. Through a letter dated November 20, 1996, the chartered accountants filed their valuation report, as per which the fair value of equity share of Rs. 100 each of the company was arrived at Rs. 7,031 per share and the valuation for the preference shares of Rs. 100 was at par value. A copy of this report was sent to the petitioners as well as the respondents. Thereafter, the matter was fixed for hearing on January 28, 1997, and March 5, 1997. On March 5, 1997, while the counsel for the petitioners made a statement accepting the value determined by the valuer, the respondents' counsel sought time to report his acceptance of the valuers report. Accordingly, in the hearing March 18, 1997, the Bench passed the following order :
"The report of the valuer was discussed today. The respondents would like to express certain reservations on the valuation made by the valuer and as such seek the liberty to approach the valuer. Liberty granted to both sides. The valuer will give a hearing to the petitioners as well as to the respondents within three weeks from today and send their report to us indicating therein whether the value per share arrived at by them requires any change .... For the convenience of the valuer, the parties may make written submissions before them, prior to personal discussion."
5. Accordingly, both the sides made both oral as well as written submissions before the valuer, who later on submitted a revised report on October 8, 1997, in which, after taking into consideration the submissions made by both the parties before him, the valuer has computed the value per equity share of Rs. 100 each as Rs. 6,340. On October 10, 1997, the respondents filed an application C. A. No. 264 of 1997 seeking for recalling the order of the Bench for valuation of the shares and for abandoning the valuation process and to proceed with the petition in accordance with law. The grounds for the prayer were that the spirit behind the respondents' agreeing to purchase the shares of the petitioners was that all other disputed relating to properties of the family should also be settled. But without doing so, the petitioners had taken action to dispose of certain family properties even in respect of matters which were in civil courts and as such there have been breach of understanding between the parties that all matters should be resolved amicably. In the hearing on December 15, 1997, the counsel for the respondents desired to file an application regarding the valuation report which was permitted. Accordingly they filed C. A. No. 302 of 1997 dated December 20, 1997, raising various objections on the valuation reports. On December 31, 1997, while considering both the applications, namely C. A. No. 264 of 1997 and 302 of 1997, the Bench advised both the parties to send a note to the Bench stating specifically the points on which they had reservations on the reports of the valuer so that the Bench itself could take up the matter with the valuers and fixed the date of further hearing on the applications on January 21, 1998. Accordingly, both the parties sent details of their objections. While the petitioners expressed their reservation on the revised valuation and have computed, on their own, the value per share at Rs. 7,565 yet, they had agreed to abide by the orders of the Bench. The respondents in their note have raised certain legal issues relating to the valuation of the shares more particularly with reference to the valuation of land that has been taken into consideration by the valuer and also on the method of valuation done by the valuer. The notes submitted by the parties were discussed with the valuer by the then member of the Company Law Board, A.R. Ramanathan and after the discussions, the valuer sent a note to the Bench that he found no scope for modifying their revised report and this was informed to the parties. In view of the different stands taken by the parties, in the hearing on January 21, 1998, the parties were advised to explore the possibility of settling the price among themselves and the same was reiterated in the hearing held on March 31, 1998, May 28, 1998. In the hearing held on July 14, 1998, the parties reported that the settlement efforts could not materialise and as such the two applications were heard on October 15, 1998.
6. In regard to C. A. No. 264 of 1997, Vijay Gupta, advocate for the respondents submitted that when the respondents agreed to purchase the shares held by the petitioners, it was with an understanding that certain other disputes relating to other properties would also be settled before payment for the shares is effected. Since, the other disputes are still pending, more particularly with reference to certain properties of the family, that are in the possession of the petitioners, the respondents are not in a position to agree to purchase the shares of the petitioners. In other words, he submitted that what was envisaged when the Bench recorded the consent of the parties was that there would be a complete settlement of all the disputes between the petitioners and the respondents. He further submitted that notwithstanding the respondents' contention about the valuation made by the valuer, even assuming that they are prepared to accept the valuation, the shares held by the petitioners would be purchased and consideration paid only after the disputes relating to other properties are settled. As far as C. A. No. 302 of 1997 is concerned, he submitted that the valuation made by the valuer is not acceptable for various reasons indicated in that application. Further, he submitted that the person who had done the valuation on behalf of the valuers was earlier a director on the board of a company in which one of the petitioners was a director and as such the valuation itself should be treated to have been vitiated as done by ah interested person.
7. Ms. Ahmedi, advocate for the petitioners, dealing with C. A. No. 264, submitted that the consent terms recorded in our order dated June 10, 1996, is an independent one without having any connection with any other disputes between the parties and as such it should be independently implemented. On our persuasion that it would be in the interest of every one that all the disputes between the parties are settled, she submitted that her clients would be prepared to place the other disputes before an arbitrator to be appointed by the Company Law Board, but that the payment for the shares held by the petitioners should be independent of the arbitration. She further submitted that the payment for the shares could be made after a few months during which the arbitration proceedings can go on, with a stipulation that whether the arbitration proceedings are completed or not, the consideration for the shares should be paid after the expiry of that period. As far as the valuation is concerned, she submitted that the valuer had applied his mind twice taking into consideration all the objections raised by the parties and, therefore, the question of reopening the issue does not arise. She also pointed out the parties had agreed that the decision of the Company Law Board on the valuation is binding on all. Further she submitted that even though the petitioners would like to go by the original valuation, she would try to convince her clients to accept the revised valuation. As far as the person who had done the valuation is concerned, she submitted that when he was a director on the board of a company in which one of the petitioners was director, he was representing financial institutions as their nominee and in that board, the respondents' group was also represented. Further, she submitted that he ceased to be a nominee of the financial institutions nearly five years back and as such the valuation done by him is not vitiated in any manner.
8. Reacting to the arguments of Ms. Ahmedi, Shri Gupta submitted that even the present dispute can be made a subject-matter of the arbitration and if it is not done, then, it should be stipulated that the consideration for the shares would be paid only after the arbitration is completed on the other disputes. After hearing both the counsel, we advised them to consult their clients on the proposals made by the respective counsel and indicate to us their stand on November 6, 1998, on which date the Bench had advised the counsel that the Bench would decide on both the applications.
9. Before the matter was taken up on November 6, 1998, respondent No. 8 moved and mentioned an application C. A. No. 262 of 1998 on November 3, 1998. On November 6, 1998, after hearing the applications Nos. 264 of 1997 and 302 of 1997, we permitted the petitioners to file their reply to C. A. No. 262 of 1998, and on November 10, 1998, while permitting the respondents to file their rejoinder to the reply to C. A. No. 262 of 1998, we adjourned the matter for final hearing of this application to November 19, 1998.
10. We have considered the arguments of counsel on applications C. A. Nos. 264 of 1997 and 302 of 1997. While in the first application, the respondents have sought for recalling the Bench order dated June 10, 1996, in C. A. No. 302, they have raised various objections on the valuation done by the valuers. The main reason for seeking recalling the order of June 10, 1996, is that the petitioners are not prepared to settle the disputes relating to other properties even though there was such an understanding between the parties when they consented to settle the present disputes amicably. Since the petitioners have failed to do so, the respondents are not bound by the consent terms. We are unable to appreciate the stand of the respondents in this regard. In the Bench order dated June 10, 1996, which we have already reproduced, there is no indication in that order that the same was subject to fulfilment of any other obligations on either side nor do the record of proceedings show that there was any such agreement between the parties. It is a fact that after the Bench advised the parties to sort out their disputes amicably on January 16, 1996, they reported that settlement talks were in progress and on June 10, 1996, the consent order was passed in terms of what was placed before the Bench. If there were any other conditionalities as alleged now, the parties could have indicated the same at the time of recording the consent terms. Therefore, we do not propose to take into cognizance anything that has not been recorded in the Bench order dated June 10, 1996. In this connection, it is worthwhile referring to the decision of the Company Law Board in Mrs. Michelle Jawad-Al-Fahoum v. Indo Saudi (Travels) P Ltd. [1998] 93 Comp Cas 151 (CLB) ; [1998] 30 CLA 42 in which the parties entered into certain consent terms and later, the respondents raised an issue that certain prior understandings between the parties have not been incorporated in the consent order and as such, the consent order should be modified or recalled. The Company Law Board, after recording that "the terms of the compromise cannot be modified unless all the parties concerned agree or it is established that the parties had not been at ad idem when they entered into it or they had not entered into it willingly and voluntarily or it was based on fraud" decided that once the consent terms were recorded wherein no reference to any prior understanding was incorporated, then the consent terms cannot be either modified or recalled without the consent of all the parties. In the present case also, there is absolutely no reference to any private understanding between the parties in the order dated June 10, 1996, and the petitioners are not agreeable for any modification in the said consent order. Once the parties consent to certain terms of settlement and the same is recorded by a judicial forum, then the parties are bound by the said settlement terms. Therefore, there is no scope for recalling the order dated June 10, 1996, on this ground. Gupta argued to state that even if the consent terms were to be implemented by which the respondents would purchase the shares of the petitioners, then it could be only after the other disputes between the parties are settled. He submitted that till such time the other disputes are settled, the understanding was that no payment need be made for the shares. This argument also deserves to be rejected as no such reference is found in the order dated June 10, 1996. Further, after this order, a few hearings took place and at no point of time this issue was raised by the respondents. As a matter of fact in para. 2 of C. A. No. 264 of 1997, the respondents have specifically averred "however, as a first step towards the final settlement it was suggested that the respondents-applicant should buy out the shareholding of the petitioner in the respondent No. 1-company and thereafter the settlement regarding division of other assets be taken up," Thus it is clear that even if there has been an agreement to settle the other disputes, it was to be after the shares of the petitioners are bought out by the respondents. In this connection, to allay the apprehension of the respondents, on our persuasion, Ahmedi fairly agreed to convince her clients to refer all other disputes between the parties to an arbitrator to be appointed by us to settle the disputes within a short time frame with a stipulation that irrespective of the conclusion of the arbitration proceedings, the payment towards the shares should be paid at the expiry of the said time frame. We think that it is a very fair proposal as the same would put an end to all the disputes between the parties and a time frame of nine months for completion of the arbitration proceedings should be sufficient and that on expiry of nine months, the respondents should pay the consideration for the shares irrespective of the fact whether the arbitration proceedings are concluded or not.
11. In regard to the value of the shares, the Bench appointed a reputed firm of chartered accountants with the consent of both the sides. The chartered accountants filed their valuation report and after the respondents raised certain objections, they were given an opportunity to approach the valuers once again with whatever reservations they had on the valuation. On the basis of the submissions made by both the parties, the valuers revised their value per equity share. Even after this, the respondents raised further objections through the Bench and after informal discussion with the then member, A.R. Ramanathan, the valuers have confirmed the valuation done by them. The valuers were appointed with the consent of the parties as experts and we do not consider it appropriate to question the valuation. Even the objection by the respondents that the person who had done the valuation should be considered as an interested person deserves to be rejected as till the revised report was received, they never raised this issue even though they had interacted with him earlier through written as well as oral submissions. As per the revised report of the valuers, the value per equity share comes to Rs. 6,340 as against the value computed in the first report as Rs. 7,031. In the order dated June 10, 1996, the Bench had indicated that the matter would be further heard after receipt of the report (valuers report) at which time the report will be considered by the Bench and its final decision on the same, as agreed to by the parties binding on all. Thus, on the basis of the valuation report, we consider that a sum of Rs. 6,000 per equity share would be an appropriate value for these shares and Rs. 100 each for the preference shares.
12. However, before passing an order on these terms, it is essential to consider C. A. No. 262 of 1998 wherein respondent No. 8 has raised certain objections regarding the maintainability of the petition in terms of Section 399 and also for recalling the order dated June 10, 1996, on the ground that she was not a party to the consent terms.
13. Sarkar, senior advocate for this respondent applicant, submitted that the subscribed capital of the company is of the order of 27,689 shares comprising 6,750 redeemable preference shares of Rs. 100 each, 5,000 irredeemable cumulative shares of Rs. 100 each and 15,939 equity shares of Rs. 100 each and as such the minimum requirement in terms of Section 399 of the Act for filing the instant petition is 2,769 (10 per cent.) shares. As against this requirement, he submitted that, the petitioners have relied in the petition only on the equity shares held by them of 1,927 shares and of the preference shares of 51 shares held by petitioner No. 3 totalling to 1978 shares working out to 7.14 per cent. which is below the requirement of 10 per cent. of the subscribed capital. Referring to the reply filed by the petitioners to the application wherein the petitioners have stated that the third petitioner represents a trust holding 1,029 preference shares and as such the total holding of the petitioners is more than 10 per cent. of the subscribed capital, Sarkar pointed out that the petitioners had at no time relied on the preference shares held in the name of the trust in the petition as there is no mention about these shares in the petition and as a matter of fact in paras. 1.3, and 2 the petitioners have relied only on the equity shares held by them in their individual names stating that the same forms over 12 per cent. of the equity capital of the respondent-company. He also urged that the insertion in ink at para. 2 of the petition relating to "plus 1,029 preference shares" should not be taken cognizance of inasmuch as the same insertion is not found in the copies of the petition served on the respondents and as such it is doubtful as to when the insertion was made. Even otherwise, according to him, as long as the trust itself is not a party to the proceedings with proper authority of the trustees, the mere indication that petitioner No. 3 was filing the petition for herself and as a trustee of the trust cannot be considered in the absence of any document filed with the petition authorising her to file the petition. Further, he also stated that there is no indication as to when and how she became the trustee of the trust and as a matter of fact as per Section 153 of the Companies Act, the shares cannot be held in the name of a trust. Assuming that she had the consent of the trustees to file the petition, there is no such averment in the petition nor any consent letter enclosed with the petition. As per the Company Law Board regulations, consent letters have to be annexed with the petition which has not been complied with in this case. For this proposition he relied on V.K. Mathur v. K.C. Sharma [1987] 61 Comp Cas 143 (Delhi). Referring to Clause 7 of the trust deed filed along with reply to the application, Sarkar submitted that the trust was formed in December, 1978, for the benefit of one K.K. Srivastava and Y.K. Srivastava, minors at that time. Assuming that the 1,029 preference shares were in the name of the trust, as per Clause 7 of the trust deed 50 per cent, of the properties of the trust would absolutely vest in K.K. Srivastava when he attained the age of majority and the balance 50 per cent. when Y.K. Srivastava attained the age of 18. At the time the deed was executed, Y.K. Srivastava was two years old as stated in the trust deed itself and Y.K. Srivastava was one month old. Therefore, 50 per cent. of the shares would have absolutely vested in the name of K.K. Srivastava in 1994 and other 50 per cent. in Y.K. Srivastava in 1996. Therefore, in any way, when the petition was filed in 1995, the trust could not have had any right to file the petition in respect of 515 preference shares which would have by that time vested in K.K. Srivastava who is not a party to the proceedings. If these shares are excluded, even assuming that petitioner No. 3 was authorised to act on behalf of the trust, the total percentage of the shares held by the petitioners and the trust would be less than 10 per cent.
thus failing to fulfil the requirements of Section 399. He also further stated that there is a suit pending in the Delhi High Court regarding all the preference shares as disclosed by the petitioners in page 124 of the petition. Summing up, he submitted that the petitioner had never relied on the preference shares held by the trust nor had the authority or consent of the trust to file the petition on its behalf nor the trust itself is a party to the proceedings and that at the time of filing the petition, the trust did not have any right or title over at least 515 shares. Under the circumstances, he prayed for dismissal of the petition.
14. Gupta, appearing for the respondent-company submitted that while it is clearly evident from the petition itself that there was no authorisation or consent from the trustees to file the petition on behalf of the trust in favour of petitioner No. 3, the established position of law is that no authority can be given by co-trustees to a trustee to initiate any proceedings on behalf of the trust and it is necessary that all the trustees should join the proceedings. For this proposition, he relied on Duli Chand v. Mahabir Per-shad Trilok Chand Charitable Trust, AIR 1984 Delhi 145. Therefore, he submitted that even assuming that the trustees had authorised as per the copy of the minutes at annexure F to the reply to C. A. No. 282 of 1998 filed by the petitioners, in view of the legal position that all trustees should join as parties, the same cannot validate the consent given by the trustees to the third petitioner to file the petition.
15. Ms. Ahmedi, advocate for the petitioners, submitted that this petition was filed not only by and on behalf of petitioners Nos. 1 to 4 but also on behalf of the trust as the trustees had given their consent to the third petitioner to file the petition on behalf of the trust. She also submitted, referring to para. 2 of the petition, that the number of preference shares held by the trust has been indicated in ink and, therefore, it is not correct to say that the petitioners do not rely on these shares. According to her, not only the trustees passed a resolution on June 3, 1995, to give consent to the petitioner No. 3 to file the petition, two of the trustees had actually executed a stamped document on June 9, 1995, giving the consent in writing. The only lapse, she submitted, was that these documents were not annexed to the petition. As long as these documents evidence that they were executed prior in time to the filing of the petition and have been produced when objections were taken, it cannot be said that non-filing of these documents along with the petition is fatal to the petition. According to her, Section 399 does not stipulate that the consent letters should be filed along with the petition and if as per the Company Law Board regulations, the same is to be enclosed with the petition, then, not doing so is only a procedural lapse as it has been held in Promod C. Bhat v. Kanwar Raj Nath, AIR 1954 Bom 518, wherein it was held that "if a rule goes beyond the scope of authority conferred by a statute, then the rule would obviously be bad and the rule cannot extend the authority of an officer conferred upon him by the Legislature". Therefore, she submitted that by not enclosing the consent letters with the petition, no statutory requirement has been violated and procedural lapse, if any, can always be condoned. In this connection, she also relied on P. Punnaiah v. Jeypore Sugar Co. Ltd. [1994] 81 Comp Cas 1 ; AIR 1994 SC 2258, wherein the Supreme Court has dealt with the issue as to whether consent given by the general power of attorney holder of a shareholder would be a valid consent under Section 399(3) of the Act. She submitted that in that case the Supreme Court has held that the consent contemplated by Section 399(3) falls under the normal rule, according to which, whatever a person can do himself, he can do through his agent, except certain functions which may be personal in nature or otherwise do not admit of such delegation. Accordingly, she submitted that in the present case the trustees had given consent to the third petitioner to file this petition and, therefore, it is a valid consent. She further submitted that the consent letter had been filed at the earliest opportunity after the respondents raised an issue in this regard and if such objection had been raised earlier, at that time itself, the petitioners would have filed these documents. Therefore, she submitted that the respondents have set up the eighth respondent who is closely related to other respondents at this belated stage only for the purpose of getting out of the settlement as the price fixed by the valuer is not in their favour. She submitted that it is clearly evident that after failing in their attempts to question the valuation and getting the consent order recalled on various grounds, as the last straw, they have raised the issue of maintainability of the petition. Accordingly, she submitted that the objection on the maintainability should be rejected and directions be issued to the respondents to purchase the shares of the petitioners as per the valuation report.
16. We shall first consider the objection that the eighth respondent was not a party to the consent terms recorded in the order dated June 10, 1996. It is on record that a copy of the petition was served on her and that she had also filed her vakalatnama in favour of an advocate. Directions were issued to all the respondents to file their replies but she did not file any reply. This petition was filed about two and half years back and more than a dozen hearings had taken place. She is the daughter of the second respondent and sister of third and seventh respondents and wife of the fourth respondent. Therefore, it is impossible for us to believe that she was not aware of the compromise efforts going on between the parties nor that she was not aware of the consent terms as recorded in the order dated June 10, 1996. As a matter of fact, after the consent terms were recorded, a large number of hearings took place on the valuation done by the valuers and in one of the hearings on December 15, 1997, her counsel was present, when the counsel for the respondent-company desired to file an application regarding the valuation. Even assuming that she was not aware of the consent terms recorded on June 10, 1996, in December, 1997, she was aware of the same and there is no explanation as to why she had waited nearly a year to present this application challenging the consent terms. Further, we also note that by the consent terms, her interests have not been in any way affected as it is the respondents' group which is to purchase the shares of the petitioners and in case she does not want to participate, it is for the other respondents to purchase the shares. Under these circumstances, we reject her prayer for recalling the order dated June 10, 1996.
17. As far as the other prayer that the petition should be dismissed for the reason that the petitioners do not satisfy the provisions of Section 399 is concerned, first we examined whether such a ground could be taken after nearly two years of filing the petition and after a number of hearings had taken place especially when we are inclined to agree with counsel for the petitioners that it is the last straw to get out of the consent order. Since it is a statutory requirement that satisfaction of the requirements of Section 399 is a pre-requisite for filing a petition under Section 397/398, as long as the same is raised before the disposal of the petition, we deem it necessary that the same should be considered, more so as it is a jurisdictional issue.
18. Section 399 reads as follows :
"Section 399.--(1) The following members of the company shall have the right to apply under Section 397 or 398 :
(a) in the case of a company having a share capital not less than 100 members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or the applicants have paid all calls and other sums due on their shares ;
(b) in the case of a company not having a share capital not less than one-fifth of the total number of its members.
(2) For the purposes of Sub-section (1) where any share or shares are held by two or more persons jointly, they shall be counted only as one member.
(3) 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 ..."
19. Sub-section 399(1) provides for two alternative types of qualifications. One is shareholding strength and the other is numerical strength. The shareholding strength is to ensure that the persons who apply have some minimum stake in the company and alternatively the numerical strength is to ensure that certain minimum number of shareholders feel aggrieved. The Legislature has prescribed such a qualification for filing a petition under Section 397/398 with a view to ensure that beneficial provisions of these sections are not misused by some odd disgruntled members. Members who desire to file a petition under Section 397/398 will have to file the petition in their own names and as per the Company Law Board regulations, they have to file an affidavit verifying the petition and also have to indicate that they hold the prescribed number of shares and that all calls made have been paid. Sub-section (3) is an exceptional provision, according to which, with the consent of other members, a member or members can file a petition. In cases where they have the consent of other shareholders which would make the petition maintainable, unless their consent in writing is enclosed with the petition it would not be possible to determine whether, on the date of filing the petition, the requirements of Section 399 are fulfilled. Therefore obtaining the consent is a condition precedent to the making of the application. (Makhan Lal Jain v. Amrit Banaspati Co. Ltd. [1953] 23 Comp Cas 100 (All)). The Company Law Board has held in V. Shankar v. South Indian Concerns Ltd., [1997] 1 CLJ 307 that consent in writing is a substantive matter which goes to the root of the entitlement to file a petition for relief and the validity of the same has to be viewed rigidly.
20. Keeping the above position in mind, now we shall examine whether the petitioners to the present petition comply with the requirements of this section. The only requirement of the provisions of Section 399 for examination in the present case is whether the petitioners comply with the requirement of one-tenth of the subscribed capital of the company.
21. Before doing so, it is worthwhile to note the averments in the petition about the shareholdings of the petitioners. This petition has been filed, as indicated in the petition, by J.P. Srivatstava and Sons (Rampur) P. Ltd. (first petitioner), Rampur Finance Corporation P. Ltd. (second petitioner), Nini Srivastava--for herself and as a trustee of J.K. Srivastava Family Trust (third petitioner) and J.K. Srivastava (fourth petitioner). Copies of the board resolutions of the first and second petitioner-companies authorising the secretary of these companies to initiate legal proceedings against the respondent-companies and the affidavit of Prakash Bisht, secretary is annexed to the petition. In the same way the affidavits of the third and fourth petitioners are also annexed to the petition. No authority of the J.K. Srivastava Family Trust authorising the third petitioner to represent the trust nor any affidavit by her representing the trust has been annexed to the petition. In paragraph 1.3 of the petition, it is mentioned that the petitioners were holding 1,277, 595, 5 and 50 equity shares totaling 1,977 equity shares representing over 12 per cent. of the equity shares in the company. It is also stated in that paragraph that the petitioners held some preference shares also as indicated in annexure A-1. However, this annexure is not found in the petition. In paragraph 2 it is stated all the petitioners are shareholders of the respondent No. 1-compony and holding total 1,977 equity shares which forms over 12 per cent of the equity capital of the respondent No. 1-company plus 1,029 preference shares (underlining by us). The underlined portion is inserted in ink and this is a disputed fact, with which we shall deal later.
22. The subscribed capital of the company consists of 15,939 equity shares of Rs. 100 each totalling to Rs. 15,93,900 and 11,750 preference shares of Rs. 100 each amounting to Rs. 11,75,000 totalling to Rs. 27,68,900. Therefore, to qualify to apply under Section 397/398, the petitioners should have 27,689 shares worth Rs. 2,76,890. There are four petitioners in the petition as serial one to four in the petition itself and these four shareholders as indicated in the petition hold 1,927 equity shares in addition to 51 preference shares held by petitioner No. 3. The entire dispute relating to the qualification revolves around 1,029 preference shares held by J.K. Srivastava Family Trust which according to the petitioner No. 3, she represents as indicated in the petition against her name as "for herself and as a trustee of J.K. Srivastava Family Trust". If the preference shares held by the trust are not taken into consideration, then the total number of shares held by the petitioners would work out to about 7 per cent. of the subscribed capital and if the shares are included, then the percentage would go to 10.85 per cent.
23. The issue relating to maintainability of the petition in terms of Section 399 requires careful examination. It is an admitted position that nowhere have the preference shares held either by the trust or by the petitioner No. 3 have been mentioned in the petition except in para. 2 wherein there is an insertion in ink "plus 1,029 preference shares". We do not propose to take into cognizance this insertion for two reasons--one is that this insertion is not found in the copies of the petition served on the respondents and the second is that the total number of preference shares held by the trust and the third petitioner amount to 1,080 shares while it is noted in the ink only as 1,029 shares. Further there is no indication that these shares represent the shares held by the trust. Further, in para. 1.3 where the details of equity shares held by the petitioners have been indicated petitioner wise, there is no mention about the preference shares. Any way as long" as the petitioners hold the requisite number of shares, wrong or incorrect mentioning of the number of shares held by them, in the petition is immaterial. The only issue for examination is whether the trust is a party to the proceedings or whether the trustees have given their consent to file the petition and if so whether the same is legally valid. The petitioners' stand is that the third petitioner, as has been stated in the petition in the title sheet, has filed this petition for herself and as a trustee of the trust and that the trustees have given their consent to her on behalf of the trust to file the petition. They have also relied on the resolution of the trustees and the consent letter executed by two trustees in favour of the third petitioner in this regard, which were filed later along with the reply to the application of respondent No. 8.
24. Admittedly, other than in the title to the petition that petitioner No. 3 is acting for and on behalf of a trust, nowhere else trust is mentioned in the petition. Normally, if one acts on behalf of another, then, it should be either by virtue of a power of attorney or any other written authority given by such person. The words "for and on behalf" would strictly mean that such a person has the authority to act on behalf of someone else. However, now the stand of the petitioners is that the petitioner No. 3 had the consent of the trustees of the trust to file the petition. It is to be noted that nowhere in the petition, is there any averment to the effect that the petitioner had the consent of the trustees to file the petition nor was the consent letter enclosed with the petition. No doubt the consent letter was produced after the application of respondent No. 8 was filed. Even though counsel for the respondents questioned the genuineness of the documents containing the consent and also the resolution of the trustees, even assuming that they are genuine, the question that arises is whether the same could be taken cognizance of at this point of time to hold that the petition is maintainable. It is a matter of fact that the consent document was not enclosed with the petition Section 399(3) which permits members who have obtained the consent in writing of other members to make an application on behalf of and for the benefit of all of them. To ascertain whether other members have given the consent for filing the petition, regulation 18 read, with annexure III of the Company Law Board regulations stipulates that the consent letters should be enclosed with the petition. Even though Ahmedi argued to state that the stipulation in the regulations is only procedural as the same is not prescribed in the Act, we are of the view that the said requirement, being pre-requisite, has to be complied with as the maintainability of a petition has to be decided on the date on which it is filed and it can be examined only when we are satisfied that the petitioners had the consent of other members and for that purpose the consent in writing should be annexed to the petition. In the absence of the consent in writing along with the petition, the maintainability of the petition on that date in terms of Section 399 cannot be decided. In a similar case wherein consent letters were filed long after the petition was filed, the Company Law Board has held that no cognisance of the same could be taken for examining the maintainability of the petition in V. Shankar v. South Indian Concerns Ltd., [1997] 1 CLJ 307 (CLB). It is not that the petitioners were not aware that wherever a shareholder has authorised some one else to prosecute the petition, proper authority should be filed with the petition, as in respect of petitioners Nos. 1 and 2, which are corporate entities, the authority given by the concerned board of directors, had been filed with the petition. In this connection, reference may be made to the decision of the Company Law Board in an unreported case, viz., Suresh Kumar Jain v. Hindustan Ferro Industries Limited, [1999] 96 Comp Cas 507 (CLB) wherein a petition was filed in the names of 24 shareholders and the allegation of the respondents was that some of the petitioners' signatures did not tally with the specimen signatures on the record of the company and some of the shareholders had not signed the petition and as such, the petition was not maintainable in terms of Section 399. However, it was noted that the petitioners had filed, before the preliminary objection was taken, a joint power of attorney signed by all the petitioners in favour of petitioner No. 1 to file the petition. The question that arose was whether the joint power of attorney which had not been filed along with the petition and in the absence of any mention in the petition that petitioner No. 1 was filing the petition on behalf of others as the holder of power of attorney, could be taken cognizance of. Since, the Company Law Board found that in the affidavit verifying the petition, petitioner No. 1 had claimed himself to be authorised and competent to verify the petition on behalf of all the petitioners and since the original of the power of attorney was filed even before any proceedings started and before the preliminary objection relating to the maintainability was raised, the Company Law Board held that the petition was maintainable. In the present case, petitioner No. 3, in the affidavit verifying the petition, has not mentioned anything about the trust and even the consent in writing given by the trustees has been filed more than two years after the petition was filed and after the maintainability issue was raised. Therefore, we are of the view that non-enclosing the consent document with the petition is fatal to the petition and as such the petition has to be held as not maintainable.
25. Even otherwise, Sarkar pointed out that on the date of filing of the petition, 515 preference shares held by the trust have already been vested with one of the beneficiaries as is evident from the terms of the trust deed. If it is so, then, even assuming that the petitioners could rely on the consent document, the total number of shares held by the petitioners and the trust would come to only 2,489 shares accounting for Rs. 2,48,900 which would be less than 10 per cent. of the subscribed capital of the company of Rs. 27,68,900. Therefore, under these circumstances also, the petition is not maintainable in terms of Section 399 of the Act. Further, Gupta brought to our attention the decision of the Delhi High Court in Duli Chand v. Mahabir Pershad Trilok Chand Charitable Trust, AIR 1984 Delhi 145, according to which trustees cannot, by a resolution, authorise a co-trustee to file a suit and unless all of them join as parties in the suit, the suit is not maintainable. We have perused this judgment. In this case, the issues examined were whether a particular resolution authorised one of the trustees to institute a suit and whether it is necessary that all the trustees should join in the suit. The Division Bench of the Delhi High Court observed in para. 16 (page 147) as "it is well known that a trust is not a legal entity as such ....... All trustees in law are owners of the property but they are obliged to use the same in a particular manner. If a number of trustees exist, they are joint owners of the property. It is not like a corporation which has a legal existence of its own and, therefore, can appoint an agent. A trust is not in this sense a legal entity. It is the trustees who are the legal entities". After examining the provisions of Section 47 of the Trusts Act, 1982, the court held as follows in para. 17 (page 148): "We are, therefore, of the opinion that the suit could not have been maintained by one of the co-trustees and further, no resolution passed unanimously by all the other co trustees could authorise one of the trustees to file the suit. The position of trustees is exactly the same as any other set of co-owners who must necessarily join together to file a suit". Thus, the legal position appears to be that all trustees should be parties to the proceedings and they cannot delegate or give consent to one of them to initiate proceedings. If it is so, then, as held by the apex court in P. Punnaiah v. Jeypore Sugar Co. Ltd. [1994] 81 Comp Cas 1 as referred to by Ms. Ahmedi, consent can be given only in respect of matters which one can do by himself. As per the judgment in Duli Chand v. Mahabir Pershad Trilok Chand Charitable Trust, AIR 1984 Delhi 145, trustees cannot authorise one of them to initiate any proceedings in the name of a trust and, therefore, the consent given by the trustees is something which they cannot give legally and as such even as per the decision of the apex court which has held that one cannot give consent in respect of a matter which does not admit delegation, this petition is not maintainable.
26. Thus, this petition suffers from either one or more of the following : Consent in writing was not filed along with the petition ; the trust did not, on the day of filing the petition control all the 1,029 preference shares ; all the trustees have not been made parties to the petition and the trustees cannot, in law, give consent to a co-trustee to file the petition. If it is so, then the shares held by the trust cannot be taken into account for the purposes of the provisions of Section 399. In that case the petition is not maintainable in terms of Section 399 and as such without passing any directions in pursuance of our conclusions at paragraphs 9 and 10, we dismiss this petition. However, since we ourselves feel that the correctness of our decision needs to be tested on appeal, we also stipulate that all subsisting interim orders will continue up to March 31, 1999, so as to provide for some time to the parties to initiate appeal proceedings.
27. Petition is dismissed. No order on costs.