2017 (3) TMI 1108 - Tri - Companies Law

Mppression and mismanagement - Maintainability of petition - members / petitioners holding less than l/10th of the Issued - Held that - As no change or new concept was brought in Section 244 of the 2013 Act. Indeed the old Section of law is in toto bodily lifted from Section 399 to Section 244 change is there to the extent of sub-section (4) in Section 399 to a proviso to sub-section (1) of Section 244 as to the phrase issued share capital or as to its rigors no change has come indeed the word namely has been introduced. For further confirmation that qualification is limited to the members mentioned in the Section not to others thereby the ratio decided in Northern Projects (2008 (4) TMI 505 - HIGH COURT OF BOMBAY ) is still relevant and makes it not open to the Petitioners to say that issued share capital means issued equity share capital . That the phrase class of members mentioned in the mismanagement clause in Section 241 cannot be said as percentage of shareholding for qualification is to be counted within the class of members over this aspect we have elaborately discussed and said that the member complaining can as well fight for the cause of class of members if mismanagement is qua against a class of members . But it cannot be read that a class of members themselves have to be treated separately attaining qualification u/s 244. It is only an additional relief that a member qualified u/s 244 can ask for relief. We already said that the addition of class of members is inconsequential to the qualification mentioned u/s 244. When the legislature has taken every care in creating rights on class basis had the legislature intended to introduce class concept they would have introduced the same in Section 244 as well. But that has not been done. Therefore there is no point in the argument of Petitioners saying that members mentioned in Section 244 has to be read as class of members . That we do not find any merit in the argument of the Petitioners Counsel saying that since the redeemable preference shareholding be shown as debt in the Accounting Treatment preference shareholding cannot be equated with the equity shareholding to invoke Section 244 because showing in Accounting Treatment for the convenience of Accounting Treatment will neither change the concepts of Company Law nor have any bearing on the mandate of the Statute. That we do not find any merit in the argument of the Petitioners Counsel saying that by introduction of waiver clause Section 244(1)(a) has become directory because by making waiver clause as an exception to 244(1)(a) the qualification clause has become further strong for two reasons - one by introduction of word namely it has become a third reiteration in respect to qualification and (2) by introduction of waiver clause as proviso that unconditional authorisation available the old Act to the Central Government has been made as a discretionary relief u/s 241(1)(a). There is neither a context in Section 244 in respect to class of members nor in complaint/application/cause of action Section 241 it is only inclusion of class of members giving a window to the complainant to canvass for the grievance of class of members as well not more than that. Therefore the meaning of the definitions enumerated in Section-2 will remain applicable; the meanings cannot be taken otherwise unless an explicit or implicit context comes into play saying that particular word s meaning is very much different from the meaning given in the definition. Therefore we do not find any merit in the argument of R11 s Counsel. Petitioners side has failed to satisfy this Bench that this Petition is maintainable.

Issues Involved:
1. Qualification of Petitioners under Section 244 of the Companies Act, 2013.
2. Interpretation of "Issued Share Capital" under Section 244.
3. Applicability of Accounting Standards to the determination of share capital.
4. Introduction and impact of the waiver clause in Section 244.
5. Relevance of the "Class of Members" concept in Sections 241 and 244.
6. Jurisdiction and discretion of the Tribunal under Sections 241 and 244.

Issue-wise Detailed Analysis:

1. Qualification of Petitioners under Section 244 of the Companies Act, 2013:
The core issue was whether the petitioners, holding 2.17% of the issued share capital, met the qualification criteria under Section 244 of the Companies Act, 2013, which requires not less than one-tenth of the issued share capital. The Tribunal concluded that the petitioners did not meet this threshold, thereby failing to qualify to maintain the petition under Section 241.

2. Interpretation of "Issued Share Capital" under Section 244:
The petitioners argued that "issued share capital" should be interpreted as "issued equity share capital," excluding preference shares. However, the Tribunal relied on precedents, including Northern Projects Ltd. v. Blue Coast Hotels and Resorts Ltd., which clarified that "issued share capital" includes both equity and preference shares. The Tribunal emphasized that statutory language should be interpreted as written unless it leads to absurdity, which was not the case here.

3. Applicability of Accounting Standards to the Determination of Share Capital:
The petitioners contended that redeemable preference shares should be treated as debt under Accounting Standard 32, thus not considered in computing the 10% share capital. The Tribunal dismissed this argument, stating that accounting standards are for financial transparency and do not override statutory provisions. Additionally, it was noted that these standards were not applicable to non-banking finance companies like Tata Sons.

4. Introduction and Impact of the Waiver Clause in Section 244:
The petitioners argued that the waiver clause made the qualification criteria directory rather than mandatory. The Tribunal disagreed, stating that the waiver clause, introduced as a proviso, actually reinforced the mandatory nature of the qualification criteria. The clause allows the Tribunal discretion to waive the requirement only upon application, not as a general rule.

5. Relevance of the "Class of Members" Concept in Sections 241 and 244:
The petitioners argued that the introduction of the "class of members" concept in Section 241 should influence the interpretation of Section 244. The Tribunal found no merit in this argument, stating that the concept of "class of members" is relevant for addressing grievances but does not alter the qualification criteria under Section 244. The Tribunal explained that the legislature would have explicitly included such a concept in Section 244 if intended.

6. Jurisdiction and Discretion of the Tribunal under Sections 241 and 244:
The Tribunal clarified that its jurisdiction under Sections 241 and 244 is to be exercised within the statutory framework, emphasizing that equity jurisdiction does not allow the Tribunal to override clear statutory mandates. The Tribunal highlighted that the relief under these sections is an exception to the rule of corporate democracy and must be strictly construed.

Conclusion:
The Tribunal concluded that the petitioners did not meet the qualification criteria under Section 244, as their shareholding was only 2.17% of the issued share capital, including both equity and preference shares. The arguments regarding the interpretation of "issued share capital," the applicability of accounting standards, and the impact of the waiver clause were all dismissed. Consequently, the Tribunal listed the matter for hearing on the waiver point, as directed by the Hon'ble NCLAT.

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