2011 (7) TMI 1002 - HC - Companies Law

Shareholders - control over the company - benami shareholders - transfer of shares of deceased shareholder - Maintainability of this application - held that - when a proceeding is continuing for a substantially long time, to the knowledge of a Company, and none has come forward on its behalf to challenge the authority of the signatory, such ratification may be implied. Such has happened in this case - No one came forward to challenge his authority. Therefore, there is implied ratification of his authority by the Company and acknowledgment of it by the intervenor. Principles of estoppel would also prevent the intervenor to challenge his authority at this stage therefore objection is rejected. Whether the instant proceedings are representative and whether leave of the Court is specifically required to withdraw them, under the Code of Civil Procedure read with Rule 88(2) of the said Rules? Furthermore, whether the intervenor has the right of transposition? - held that - the above sections 397, 398 Company proceedings are representative proceedings - the consent of those persons who supported the petitioners was the minimum requirement, in the facts of this case, before applying to the Court for withdrawal of the section 397, 398 application. Nothing has been shown to me that these persons have given their consent. After the consent of these persons, leave as required under Rule 88(2) of the Company Court Rules, could be considered by the Court. Perhaps, that is why the prayer in the Judge s Summons is for an order of the Court for dismissal of the section 397, 398 proceedings. Right of intervenor - held that - the intervenor s father died in 1968. He claims that his mother and brother transferred shares to him in 1975. His mother died in 2000. Ever since the death of his father in 1968 till 2006 no steps were taken by the intervenor. If he is transposed as a petitioner he will be given the right to prosecute a petition, which he does not now have right to file, by efflux of time. Due to technical difficulties, as discussed above, the Court will not be in a position to allow the petitioners in the sections 397, 398 application to withdraw from the application. This application has been pending in the file of this Court for more than 25 years. The cause of action mentioned therein no longer survives. Therefore, using my discretion I order dismissal of this application C.P. No. 252 of 1985.

Issues Involved:
1. Competence of Sujit Kumar Chatterjee to sign the affidavit on behalf of the company.
2. Representative nature of the sections 397, 398 proceedings and requirement of leave for withdrawal.
3. Rights of the intervenor, Ajit Kumar Agarwal, to participate in the proceedings.
4. Alleged wrongful increase, allotment, and transfer of shares.
5. Validity and effect of the status quo order dated 21-6-1985.

Detailed Analysis:

1. Competence of Sujit Kumar Chatterjee to Sign the Affidavit:
The court examined whether Sujit Kumar Chatterjee had the competence to sign the affidavit in support of the Judge's Summons on behalf of the company. The legal framework considered included Order III Rule 1 and Rule 2 of the Code of Civil Procedure, which allow an agent to act for a party, and Order VI Rule 14 and Rule 15, which permit a party or a person duly acquainted with the facts to verify a pleading. The court noted that although Sujit Kumar Chatterjee did not file an affidavit of competency as required by Chapter VII Rule 8 of the Original Side Rules, his authority was impliedly ratified by the company through continued acknowledgment of his affidavits in previous proceedings. Thus, the objection to his competence was rejected.

2. Representative Nature of the Sections 397, 398 Proceedings:
The court determined that the sections 397, 398 proceedings were representative in nature, akin to a suit under Order 1 Rule 8 of the Code of Civil Procedure. This meant that the proceedings represented the interests of the petitioner as well as those of other shareholders who supported the petition. Consequently, the consent of these supporting shareholders was necessary before applying to the court for withdrawal of the application. The court found no evidence of such consent and concluded that the petitioners did not have an unqualified right to withdraw the proceedings without the court's leave.

3. Rights of the Intervenor, Ajit Kumar Agarwal:
Ajit Kumar Agarwal claimed entitlement to 7762 shares, representing 33.76% of the company's paid-up share capital, based on inheritance and transfers from his parents and brother. The court noted that his right to these shares was pending adjudication before the Company Law Board in section 111A proceedings. The court also referenced previous orders, including the judgment of brother Sanjib Banerjee, J., which stated that Ajit's application to be added as a party in the sections 397, 398 proceedings had to await the outcome of the rectification proceedings. Therefore, Ajit's right to prosecute the sections 397, 398 proceedings was conditional and not established at this stage.

4. Alleged Wrongful Increase, Allotment, and Transfer of Shares:
Ajit Kumar Agarwal alleged that the company had wrongfully increased its share capital and allotted shares in violation of the status quo order dated 21-6-1985, reducing his shareholding to 0.17%. The court acknowledged the pending rectification proceedings before the Company Law Board and noted that Ajit's claims had not been conclusively determined. Consequently, the court did not delve into the merits of these allegations in this judgment.

5. Validity and Effect of the Status Quo Order Dated 21-6-1985:
The status quo order directed that the shareholding of the company be maintained until further orders. The court recognized that this order may have had far-reaching consequences and preserved any rights that had accrued to any person by reason of the existence of the status quo order until the date of this judgment. The court discharged the status quo order while dismissing the sections 397, 398 petition.

Conclusion:
The court dismissed the sections 397, 398 petition (C.P. No. 252 of 1985) due to the lack of consent from supporting shareholders for withdrawal and the long pendency of the application, which rendered the cause of action no longer viable. The court allowed C.A. No. 686 of 2010 to the extent of dismissing the petition and discharged the status quo order dated 21-6-1985. C.A. No. 721 of 2010 was dismissed, and C.A. No. 541 of 2011 was disposed of accordingly.

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