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TMI Blog1978 (6) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... It is further the case of the petitioners that there is no basis for taking action by filing complaint before the Chief Judicial Magistrate. According to them, the petitioners will be put to considerable hardship if action is taken on the complaint filed before the Chief Judicial Magistrate and in the circumstances of the case it would be appropriate for this court to quash the complaint pending before the learned Chief Judicial Magistrate, Kozhikode, in S.T. 211 of 1977. M/s. Sudarsan Trading Company is a public company. The authorised capital of the company is Rs. 50 lakhs divided into 2,55,000 equity shares of Rs. 10 each and 2,45,000 shares of Rs. 10 each (equity/preference shares). The subscribed capital of M/s. West Coast Industrial Gases P. Ltd. is Rs. 15,07,000 as evidenced from the balance-sheet as at June 30, 1976. The case which is the basis for the complaint by the Registrar is that Sudarsan acquired on September 22, 1976, more than 54 per cent. of the subscribed capital of M/s. West Coast Industrial Gases P. Ltd. (referred to hereinafter as "West Coast Gases" for convenience) a company incorporated on June 28, 1972. It is the case of the complainant that in doing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding Rs. 20,00,000 (Rupees Twenty lakhs only) either in lump sum or in instalments for meeting the requirements of the party of the second part for the capital outlay as well as the working capital requirements................ 3. he party of the first part shall have the absolute power in its discretion to nominate the majority of the number of directors as provided in the article 63 of the articles of association of the party of the second part. 4.( i )The nominee directors shall be entitled to all rights and privileges of a director of the party of the second part and shall also have the right to attend all general meetings. ( ii )Such director as well as the party of the first part shall be entitled to receive all notices and other communications (including agenda) relating to meetings of the board and its committees and general meetings of the party of the second part. 5. The party of the second part shall immediately convene a meeting of the board of directors and co-opt the nominees of the party of the first part as the additional directors under section 260 of the Act. These nominated directors retiring at the next or subsequent annual general meetings shall be eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the subsection is not framed in the form of a restriction but as an enabling provision. (1) The board of directors of an investing company is restricted in the matter of investment in shares of any other body corporate up to 10 per cent. of the subscribed capital of the other body corporate. (2) The aggregate of the investments so made by the board in all other bodies corporate shall not exceed 30 per cent. of the subscribed capital of the investing company, and (3) The aggregate of the investments so made by the board in all other bodies corporate in the same group is not to exceed 20 per cent. of the subscribed capital. There is an exception to this rule and that is provided in sub-section (4). That reads : "The investing company shall not make any investmet in the shares of any other body corporate in excess of the percentages specified in subsection (2) and the provisos thereto, unless the investment is sanctioned by a resolution of the investing company in general meeting and unless further it is approved by the Central Government : Provided that the investing company may at any time invest up to any amount in shares offered to it under clause ( a ) of sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if, ( a )that other controls the composition of its board of directors ; or ( b )that other ( i )where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company ; ( ii )where the first-mentioned company is any other company, holds more than half in nominal value of its equity share capital ; or ( c )the first mentioned company is a subsidiary of any company which is that other's subsidiary. (2) For the purposes of sub-section (1), the composition of a company's board of directorts shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If at the time the investment was made the investing company was not a holding company but could become the holding company only by reason of such investment, for the same reason the investment could not be said to be made in a subsidiary company. The investment may be by a company to make the other company a subsidiary. Hence, petitioners may not succeed in that contention. But the larger contention is, as indicated, that on the date of investment, namely, September 22, 1976, Sudarsan and West Coast Gases had already been related as holding company and subsidiary and, therefore, the investment of more than the percentage of subscribed capital contemplated by sub-section (2) of section 372 was unobjectionable and not hit by section 372. Hence, the question which I will now examine is whether on September 22, 1976, the West Coast Gases had become a subsidiary company by reason of the power of control in Sudarsan and that is whether by reason of the agreement which is annex. "B", Sudarsan controlled the composition of the board of directors of West Coast Gases. The term "controls the composition of board of directors" is to be read in accordance with and only in accordance with sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any event or on the expiry of the term agreed upon or at will, the contract which gives the right to control the composition of the board of directors may stand terminated. Therefore, that it is limited in point of time does not derogate from the nature of the power to control the compositions of the board of directors. There may be instances where a company may be interested in controlling the composition of the board of directors of another only so long as it is interested in that by reason of its commitments, such as financing. When once the financing arrangements come to an end by volition of either party there may be no more reason to continue such control and hence the terms of the contract may provide for exercise of control only for a limited period and not in perpetuity. I have already adverted to the relevant terms of annex. "B" agreement. Clause 3 of the agreement, as I have indicated, gives absolute power to Sudarsan to nominate the majority of the number of directors of M/s. West Coast Gases. Such directors are entitled to all the rights and privileges of the other directors. Clause 5 specifies the machinery or a procedure by which the nomination by Sudarsan has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors. In other words, in a case where appointment is governed by provisions of section 260 of the Act and is, therefore, limited in point of time to the date of the next annual general meeting of the company there would still be control in the matter of composition of the board of directors for the period up to the next annual general meeting and, therefore, it is possible for the relationship of a holding company and subsidiary company to subsist during that time. There is a further question whether the terms of the agreement here could be read as one conferring on Sudarsan the power to appoint the board of directors of West Coast Gases. It is true that it is not Sudarsan which appoints the board of directors. It only nominates and the appointment has to be made by co-option as contemplated under section 260 of the Companies Act by the existing members of the board. That of course is the machinery by which the right to nominate is to be operative. There is a compelling obligation on the part of West Coast Gases to co-opt on such nomination being made. Reference to section 4(2)( c ) of the Companies Act may be useful in this context. That provides that the power to appoint a dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September 19,1976 and September 20, 1976, that the share capital was invested in West Coast Gases. Therefore, on the date such share capital was invested such investment was in a subsidiary company. If so that was unexceptionable. Sub-section (14)( d ) saves the case from sub-section (2) of that section. It was argued by Shri M.B. Kurup that this is not a matter on which this court should exercise power under section 482 of the Code. In logical sequence my consideration of this question should have come at the beginning of this judgment. But I did not deal with this question earlier because this contention too can be appreciated only on a true understanding of the facts of the case and hence it was necessary to consider the question as I have considered it here. It is true that it is not in any and every case where a party comes to this court complaining that a criminal complaint filed against him is frivolous and is without merit that the court should invoke its inherent power. There must be circumstances which warrant the exercise of the power. Where an abuse of the process of any court is made out or where the ends of justice would be served by this court making the exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inherent powers of the High Court to do justice between the state and its subjects, it would be impossible to appreciate the width and contours of that salient jurisdiction." In Madhu Limaye v. State of Maharashtra, AIR 1978 SC 47, the Supreme Court said thus (para. 8, page 50): "At the outset the following principles may be noticed in relation to the exercise of the inherent power of the High Court which have been followed ordinarily and generally, almost invariably, barring a few exceptions : (1)That the power is not to be resorted to if there is a specific provision in the Code for the redress of the grievance of the aggrieved party; (2)That it should be exercised very sparingly to prevent abuse of process of any court or otherwise to secure the ends of justice ; (3)That it should not be exercised as against the express bar of law engrafted in any other provision of the Code." Having heard both sides I feel that on the facts and in the circumstances stated here, the ends of justice will be served by exercising the power of this court under section 482 of the Code of Criminal Procedure. In these circumstances, I quash the complaint filed by the respondent bef ..... 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