2017 (3) TMI 1393 - Tri - Companies Law

Permission of substitution of petitioner - allegation of huge mismanagement against the company - allegation of huge mismanagement - need for having requisite shareholding - Held that - No difficulty in holding that the proceeding under consideration does not abate on the death of petitioner No. 1 in 2013. Rather, this court has a duty cast upon it to ensure that such a representative proceeding is carried forward to its logical conclusion and if necessary, same needs to be done by impleading Parties who are similarly situated with the petitioner in such proceeding. In that view of the matter, three cannot be any abatement of the petition on the death of the petitioner No. 1. In such a scenario, other questions, viz. whether the applicants could show sufficient ground for not preferring substitution petition in time or whether the right to sue survive in favour of surviving petitioners etc. become wholly redundant. But then, on the face of (he materials on record, it needs to be concluded that conduct of the surviving petitioners in seeking substitution of the deceased petitioner by his legal representatives is found to be far from satisfactory. In those factual backgrounds, let us consider the contention that the petition seeking substitution is required to be rejected since on the date of filing of substitution application, the applicants did not have requisite share qualification to file the company petition in terms of law laid down in Sec. 399 of the Act of 1956. In that connection, we can peruse gainfully the decision in Rajahmundry Electric Supply Corporation Ltd. (1955 (12) TMI 21 - SUPREME COURT OF INDIA)as held that validity of the petition must be judged on the facts as they were at the time of its presentation, and a petition which was valid when presented cannot, cease to be maintainable by reason of events subsequent to its presentation. Coming back to our present case, we have found that the shareholding of the predecessor of applicants in the company was in decimals. But then, the materials on record prima facie show that the original petitioners had the requisite share qualification to file the petition u/s. 397/398 of the Act, 1956. This prima facie shows that the petition was validly filed by the original petitioners and therefore, only for applicants not having requisite share qualification to file the petition on their own on the date of filing of application under consideration, the applicants cannot be debarred from having their names substituted in place of deceased petitioner No. 1 in the company petition. Resultantly, the application is allowed.

Issues Involved:
1. Condonation of delay in filing the application.
2. Setting aside the abatement of the right of legal heirs of the deceased petitioner.
3. Allowing the proposed amendment to the company petition.
4. Granting leave to carry out the amendment and reaffirm the company petition.
5. Serving the amended petition to the respondents.

Detailed Analysis:

Condonation of Delay:
The applicants sought condonation of delay in filing the substitution application for the legal representatives of the deceased petitioner No. 1. The respondents argued that the applicants failed to show sufficient cause for the delay, citing the Supreme Court decision in *Balwant Singh v. Jagdish Singh* [2010] 8 SCC 685, which emphasizes that sufficient cause must be interpreted reasonably and practically, and that negligence or inaction on the part of the applicant is not excusable. Despite this, the court found that the proceeding under Sections 397/398 of the Companies Act, 1956, is representative in nature and does not abate on the death of a petitioner, thus making the delay argument redundant.

Setting Aside Abatement:
The respondents contended that the entire proceeding stood abated due to the death of petitioner No. 1 and the failure to substitute the legal representatives in time. They argued that the right to sue did not survive in favor of the surviving petitioners. However, the court held that a representative proceeding under Sections 397/398 does not abate on the death of a petitioner, as established in *Jawahar Singh Bikram Singh v. Sharda Talwar* and other cases. Therefore, the court concluded that there was no abatement of the petition.

Proposed Amendment to the Company Petition:
The applicants sought to amend the company petition to include the legal representatives of the deceased petitioner. The court allowed the amendment, noting that the original petition was validly filed with the requisite share qualification, and subsequent events do not affect its validity as per the decision in *Rajahmundry Electric Supply Corporation Ltd. v. A Nageshwara Rao*.

Granting Leave to Carry Out the Amendment and Reaffirm the Petition:
The court granted leave to the applicants to carry out the amendment within fourteen days and reaffirm the company petition. This step ensures that the legal representatives of the deceased petitioner are properly included in the proceedings.

Serving the Amended Petition to the Respondents:
The court directed the petitioners to serve a copy of the amended petition (without annexures) to the respondents, allowing them to take necessary actions in response to the amendment.

Conclusion:
The application was allowed, and the court ordered the amendment of the petition to include the legal representatives of the deceased petitioner. The petitioners were directed to complete the amendment process within fourteen days and serve the amended petition to the respondents. The connected TP was scheduled for further proceedings on 22.02.2017.

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