2009 (7) TMI 776 - HC - Companies Law

Oppression and mismanagement - Held that - The contention raised on behalf of the appellants that on the ground of maintainability the company petition filed by the respondents has to be dismissed is not sustainable. The Company Law Board has correctly come to the conclusion that these are the issues to be decided on merits of the case and cannot be decided at this stage. Appeal dismissed.

Issues Involved:
1. Maintainability of the company petition under sections 397 and 398 of the Companies Act, 1956.
2. The status of the first respondent as a member or shareholder of the company.
3. The validity of the transfer of shares to the first respondent.
4. The relevance of previous civil suits and their withdrawal.
5. The interpretation of the term "member" under sections 2(27) and 41 of the Companies Act.
6. The jurisdiction of the Company Law Board in deciding the title of shares.

Issue-wise Detailed Analysis:

1. Maintainability of the company petition under sections 397 and 398 of the Companies Act, 1956:
The appellants argued that the company petition should be dismissed on the grounds that the first respondent is not a member of the company, as required under section 399 of the Companies Act. The Company Law Board rejected this application, stating that the issue of maintainability requires detailed consideration, which can only be addressed in the main petition.

2. The status of the first respondent as a member or shareholder of the company:
The appellants contended that the first respondent had not purchased the qualification shares and thus could not maintain the petition under sections 397 and 398. The first respondent argued that he had paid the full consideration for the shares and had received the share certificates, making him a member with substantial interest in the company. The Company Law Board decided that the question of whether the first respondent has a substantial interest and whether the shares were transferred to him should be determined in the main petition.

3. The validity of the transfer of shares to the first respondent:
The appellants claimed that the shares were not legally transferred to the first respondent, and thus he could not be considered a member. The first respondent maintained that the transferor had received the full consideration and delivered the share certificates, making him a member. The Company Law Board held that these issues should be decided in the main petition.

4. The relevance of previous civil suits and their withdrawal:
The appellants argued that the withdrawal of previous civil suits without leave to file appropriate proceedings should bar the first respondent from filing the company petition. The court held that the withdrawal of civil suits does not take away the statutory rights conferred under the Companies Act to file a petition for oppression and mismanagement.

5. The interpretation of the term "member" under sections 2(27) and 41 of the Companies Act:
The appellants argued that the term "member" should be interpreted strictly as per section 41, which requires the name to be entered in the register of members. The first respondent contended that the term "member" under section 2(27) should be interpreted broadly to include persons with substantial interest, even if their names are not entered in the register. The court referred to the Supreme Court judgment in World Wide Agencies (P.) Ltd. v. Margaratt Desor, which supported a broader interpretation of "member" in the context of sections 397 and 398.

6. The jurisdiction of the Company Law Board in deciding the title of shares:
The appellants argued that the Company Law Board cannot decide on the title of shares while exercising jurisdiction under sections 397 and 398. The court held that while the Company Law Board may not decide the validity of the share transfer, it can examine the interest of the respondents in the shareholdings to determine if they can maintain the petition.

Conclusion:
The court concluded that the issues raised by the appellants regarding maintainability and the status of the first respondent as a member or shareholder should be decided in the main petition. The appeal was dismissed, and the Company Law Board's decision to hear the main petition was upheld. The broader interpretation of the term "member" was affirmed, allowing the first respondent to maintain the petition under sections 397 and 398 of the Companies Act.

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