1994 (1) TMI 299 - HC - Companies Law

Summary

Issues Involved:
1. Compliance with Section 399(3) of the Companies Act.
2. Validity of the consent provided by shareholders.
3. Authority of the director to file the petition on behalf of the company.
4. Nexus between the draft petition and the main petition.
5. Judicial interpretation of consent under Section 399(3).

Issue-wise Detailed Analysis:

1. Compliance with Section 399(3) of the Companies Act:
The appellants contended that the petition did not comply with the mandatory requirements of Section 399(3) of the Companies Act, as the consent in Annexure A-2 was not valid under the Act. The Company Law Board had found that the consent satisfied the requirements of Section 399 and deemed the petition maintainable. The High Court, however, scrutinized whether the consent was properly secured and if the petition was validly instituted.

2. Validity of the Consent Provided by Shareholders:
Annexure A-2 contained a list of 22 shareholders and their purported signatures. The appellants argued that the consent was not valid as it referenced a draft petition rather than the main petition presented before the Company Law Board. The court emphasized that the consent should be specific to the petition filed and not a generic or blanket consent. The court cited previous judgments, including M.C. Duraiswami v. Sakthi Sugars Ltd., which stressed that consent must reflect that shareholders were aware of the specific allegations and reliefs sought.

3. Authority of the Director to File the Petition on Behalf of the Company:
The appellants argued that the director, Mr. C.P. Sodhani, did not have the authority to file the petition on behalf of the company, as he was not a managing director and had not demonstrated that he was duly authorized by a board resolution. The court agreed, referencing Nibro Ltd. v. National Insurance Co. Ltd., which held that a director needs explicit authorization from the board to institute legal proceedings. The absence of such authorization rendered the petition invalid.

4. Nexus Between the Draft Petition and the Main Petition:
The court found that there was no clear nexus between the draft petition mentioned in Annexure A-2 and the main petition filed. The consent letter indicated that shareholders had read the final draft of the petition, but there was no evidence that the draft and the main petition were identical. The court held that the consent must be specific to the actual petition filed, and any ambiguity or lack of clarity in the consent letter invalidated the petition.

5. Judicial Interpretation of Consent Under Section 399(3):
The court referred to several precedents, including the Division Bench decision in M.C. Duraiswami v. Sakthi Sugars Ltd., which clarified that consent under Section 399(3) must be specific to the petition filed and should reflect that shareholders were aware of the specific allegations and reliefs sought. The court concluded that the consent in Annexure A-2 did not meet these requirements, as it was related to a draft petition and not the main petition filed.

Conclusion:
The High Court allowed the appeal, setting aside the Company Law Board's order and dismissing Company Petition No. 59 of 1992. The court held that the petition was not validly instituted due to the lack of proper consent under Section 399(3) and the absence of authorization for the director to file the petition. No order as to costs was made.