2013 (7) TMI 78 - HC - Companies Law

Maintainability of application - not enough support for filling petition - Mismanagement of the affairs of the company - oppression to the minority shareholders - Held that - On a plain reading of the Power of Attorney, it would appear the Power of Attorney was signed by Gaggar to facilitate compliance all formalities of registration of the shares as also the utilization of shares so long it was not registered with the company. Even if the Power of Attorney as well as affidavits of Gaggar and Lodha taken together it would find, Gaggar did not deny sale of shares. Even if Lodha exercised power on behalf of Gaggar that would relate to only the shares that were sold by Gaggar to Lodha. Gaggar executed the Power of Attorney so that such power could be used by the purchaser through the constituted attorney being two Directors of BDPL. Hence, the consent was valid. No rigid restricted meaning of Power of Attorney in this regard be given. Gaggar never authorized his attorneys to use his power other than his right over the shares. The learned Judge did not apply His Lordship s mind on the issue. His Lordship did not assign any reason why it would be unsafe to rely on the support of Gaggar when it was in consonance with the wishes of the beneficial owners. Mr. Gaggar never raised his finger towards the transactions. He denied having read the petition. Even if we give full credence to what he had said, such positive averment on behalf of Chatterjees in their petition would be superfluous as it was not the legal necessity. Thus the petition filed by Chatterjees maintainable. Hence, BDPL would be entitled to be transposed and/or substituted in place of Chatterjees in the proceeding & direct the department to substitute BDPL as the petitioner with permission to proceed with the application - request the Single Judge to give priority to the matter as it was pending for last 22 years.

Summary

Issues Involved:
1. Maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956.
2. Validity of the consent given by the supporters of the petitioners.
3. Effect of subsequent events on the maintainability of the petition.
4. Construction and interpretation of the Power of Attorney.
5. Transposition of Bhagwati Developers Private Limited in place of the original petitioners.

Detailed Analysis:

1. Maintainability of the Petition:
The petitioners, members of the Chatterjee family, filed an application under Sections 397 and 398 of the Companies Act, 1956, alleging mismanagement and oppression in Peerless General Finance and Investment Company Limited. The primary issue was whether the petition was maintainable given the shareholding requirements under Section 399 of the Companies Act, 1956. The learned Company Judge dismissed the petition on the preliminary ground that the petitioners did not have the requisite share qualification.

2. Validity of the Consent Given by Supporters:
The petitioners obtained support from Bhagwati Developers Private Limited (BDPL) and others to meet the shareholding threshold. The consent given by BDPL was scrutinized, especially the shares held by R.L. Gaggar, who had executed an irrevocable Power of Attorney in favor of Lodha, a nominee of BDPL. The Court examined whether this consent was valid and whether the Power of Attorney authorized Lodha to give such consent. The Court concluded that the consent given in writing by the supporters, including the shares held by BDPL and those purchased from Gaggar, was valid and sufficient for maintaining the petition.

3. Effect of Subsequent Events:
The Court referred to the Supreme Court's decision in Rajahmundry Electric Supply Corporation Limited Vs. A Nageshwara Rao, which held that the validity of a petition must be judged based on the facts at the time of its presentation. Subsequent events, such as the withdrawal of consent or changes in shareholding, do not affect the maintainability of the petition. The Court upheld this principle, stating that the subsequent crossing of the floor by the Chatterjees did not render the petition invalid.

4. Construction and Interpretation of the Power of Attorney:
The Court analyzed the Power of Attorney executed by R.L. Gaggar, which authorized Lodha to deal with the shares. The main purpose of the Power of Attorney was to facilitate the registration of shares and other formalities. The Court held that the handwritten portion of the Power of Attorney, which allowed for the giving of consent in legal proceedings, was valid and did not override the main purpose of the document. The Court emphasized that a Power of Attorney coupled with interest has an irrevocable status and should be interpreted liberally to allow the purchaser to exercise their rights.

5. Transposition of Bhagwati Developers Private Limited:
Given that the original petitioners (Chatterjees) were no longer interested in pursuing the litigation, BDPL sought to be transposed in their place. The Court allowed this transposition, recognizing BDPL's right to continue the proceedings for mismanagement and oppression. The Court directed the substitution of BDPL as the petitioner and requested the learned Single Judge to prioritize the matter, which had been pending for 22 years.

Conclusion:
The Court concluded that the petition filed by the Chatterjees was maintainable, supported by the valid consent of BDPL and others. The subsequent crossing of the floor by the Chatterjees did not affect the petition's validity. The Power of Attorney executed by Gaggar was interpreted to allow Lodha to give consent on behalf of BDPL. Consequently, BDPL was entitled to be transposed as the petitioner in place of the Chatterjees. The Court directed the department to substitute BDPL as the petitioner and proceed with the application on merit, giving priority to the long-pending matter.