2000 (10) TMI 966 - Board - Companies Law

Issues Involved:

1. Whether the affairs of a holding company include the affairs of its subsidiaries in a petition filed u/s 397/398/402 and 403 of the Companies Act, 1956.
2. Whether a shareholder of the holding company can claim relief in respect of the subsidiaries without satisfying the provisions of section 399 in respect of the subsidiaries.
3. The binding nature of the decisions of High Courts on the Company Law Board (CLB).
4. The difference between an orbiter dicta and ratio decidendi.
5. The legality of a division Bench of the CLB differing from an earlier decision of another division bench of the CLB on a point of law.

Summary:

Issue 1: Inclusion of Subsidiaries' Affairs in Holding Company Affairs

The petition was filed by a shareholder holding 10% shares in the holding company, seeking reliefs against its subsidiaries. The respondents questioned the maintainability of the petition against the subsidiaries, arguing that the petitioner does not fulfill the requirements of section 399 regarding the subsidiaries. The CLB examined whether the affairs of a holding company include the affairs of its subsidiaries. The Board concluded that as a proposition of law, the affairs of a holding company do not include the affairs of its subsidiaries. The Board emphasized that a shareholder of a holding company cannot seek relief against its subsidiaries in terms of section 402 by merely being a shareholder of the holding company.

Issue 2: Reliefs Against Subsidiaries Without Satisfying Section 399

The petitioner's argument that the subsidiaries should be included as parties because the affairs of a holding company include the affairs of its subsidiaries was rejected. The Board held that allowing such an interpretation would mean permitting something indirectly that is not allowed directly by law. The statutory provisions under sections 397 and 398 vest the right to invoke these sections specifically on the members of the company against which these sections are invoked, and section 399 prescribes certain minimum qualifications even in respect of such members. Therefore, a person who is not a member of a subsidiary cannot invoke these provisions against that subsidiary.

Issue 3: Binding Nature of High Court Decisions on CLB

The petitioner cited various High Court decisions to support the argument that the affairs of a holding company include the affairs of its subsidiaries. The Board noted that none of the cited judgments categorically decided the issue as a proposition of law. The Board emphasized that a ratio decidendi of a superior court is binding on a subordinate court, but the decisions cited did not establish a binding precedent on the issue before the CLB.

Issue 4: Difference Between Orbiter Dicta and Ratio Decidendi

The Board referred to the Supreme Court's explanation that a decision not expressed, not accompanied by reason, or not proceeding on conscious consideration of an issue cannot be deemed to be a law declared to have a binding effect. The Board examined the cited cases and found that the issue of whether the affairs of a company include the affairs of its subsidiaries was not consciously determined, and thus, the cited cases did not constitute a binding ratio decidendi.

Issue 5: Legality of Division Bench Differing from Earlier Decision

The Board addressed the argument that a larger Bench should be constituted if the current Bench desired to reconsider the earlier decision in Herbertsons Ltd.'s case. The Board concluded that since the earlier decision did not examine the issue before the current Bench, there was no need to constitute a larger Bench. The Board reaffirmed that a shareholder of a holding company cannot file a petition against its subsidiaries by virtue of their shareholding in the holding company.

Conclusion:

The names of all the subsidiaries and their directors were ordered to be deleted from the array of parties. The 1st respondent company was directed to file its reply on the allegations in the petition, including those in respect of its dealings with the subsidiaries. The petition was scheduled for further hearing.

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