2004 (10) TMI 330 - SC - Companies Law

Oppression and mismanagement - Whether group of minority shareholders held the requisite one-tenth of the issued share capital of the company under section 399 (1) of the Act when they filed the petitioner under sections 397 and 398? Held that - Appeal allowed. The matter must be remanded to the Single Judge since he had also dismissed the appeals preferred by the respondents from the decision of the CLB consequent upon the dismissal of the appellants appeal under section 10F of the Act. The finding of the CLB and the High Court to the effect that the petition of the appellant deserved to be rejected only because the letters of consent had not been annexed to the petition was therefore incorrect. What the CLB and the High Court should have done was to have satisfied themselves that the consent had in fact been given prior to the filing of the petition. There is nothing either in the orders of CLB or the High Court which could even remotely be construed as a rejection of the affidavits, resolution, etc. filed by Nini Srivastava to show that prior consent had in fact been obtained. We may also note the unrebutted specific averment by the petitioners to the effect that V.K. Srivastava was personally present throughout the litigation.

Issues Involved:

1. Whether the appellants held the requisite one-tenth of the issued share capital of the company under section 399(1) of the Companies Act when they filed the petition under sections 397 and 398.
2. Whether the petition under sections 397 and 398 was maintainable.
3. Whether the consent of the trustees to file the petition was valid.
4. Whether the filing of the consent along with the petition was mandatory.
5. Whether the trust held the requisite shares and whether the trustees could authorize one trustee to act on behalf of the trust.
6. Whether the beneficial interest in shares vested in the beneficiaries affected the maintainability of the petition.

Detailed Analysis:

1. Requisite Shareholding under Section 399(1):

The primary question was whether the appellants held the requisite one-tenth of the issued share capital of the company when they filed the petition under sections 397 and 398. The appellants argued that the Trust held 1029 preference shares, which were necessary to meet the required shareholding. The respondents contended that the petitioners did not hold the requisite 10 percent of the issued share capital, including preference shares, and thus the petition was not maintainable.

2. Maintainability of the Petition:

The respondents challenged the maintainability of the petition on the grounds that the appellants did not hold the requisite shareholding and that the consent of the trustees to file the petition was not valid. The CLB and the High Court upheld this contention, leading to the dismissal of the petition. However, the Supreme Court found that the Trust held the requisite shares and that the petition was maintainable.

3. Validity of Trustees' Consent:

The respondents argued that the Trust had not consented to or authorized the filing of the petition under sections 397 and 398. The Supreme Court held that the trustees had expressly authorized Nini Srivastava to file the petition, as evidenced by the resolution and affidavits. The Court noted that the trustees could delegate their powers to one trustee if the trust deed allowed it, which was the case here.

4. Mandatory Filing of Consent:

The respondents contended that the consent letters were not filed with the petition, violating Regulation 18 of the Company Law Board Regulations. The Supreme Court held that Regulation 18 was not mandatory and that the CLB had the power to dispense with its requirements. The Court emphasized that the consent must be obtained prior to filing the petition, but it was not necessary to file the consent letters with the petition.

5. Trust's Shareholding and Trustees' Authority:

The respondents argued that the Trust was not the owner of the 1029 shares, and the petition should have been filed on behalf of V.K. Srivastava, the registered shareholder. The Supreme Court held that the Trust held the shares and that the trustees could authorize one trustee to act on behalf of the Trust. The Trust Deed allowed the trustees to delegate their powers, and the resolution and affidavits confirmed the authorization.

6. Beneficial Interest and Maintainability:

The respondents argued that the beneficial interest in 551 shares had vested in the beneficiaries, affecting the maintainability of the petition. The Supreme Court held that an equitable or beneficial interest in shares does not make the owner of the interest a member of the company. Therefore, the ownership of the shares as registered with the company was sufficient to file the petition under sections 397 and 398.

Conclusion:

The Supreme Court set aside the decision of the Division Bench of the High Court, holding that the petition was maintainable and that the appellants had the requisite shareholding. The matter was remanded to the Single Judge for disposal of all the appeals. The Court emphasized a broad commonsense approach, prioritizing substance over form, and ensuring that the involvement of the company in litigation was not taken lightly.

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