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TMI Blog2008 (4) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant is a company incorporated on 4-3-1983 having its registered office at 6, Old Post Office Street, 4th Floor, Kolkata-700 001. 5. The authorized capital of the Respondent (company, for short) is Rs. 100,00,00,000 (Rs. One Hundred Crore only) divided into 1,85,00,000 (One Crore, Eighty Five Lakh) equity shares of Rs. 10 each and 81,50,000 (Eighty One Lakh, Fifty Thousand) preference shares of Rs. 100 each, and thus the issued, subscribed and paid up capital of the company is Rs. 88,05,28,000 (Rs. Eighty Eight Crore Five Lakh and Twenty Eight Thousand only) consisting of 65,52,800 (Sixty Five Lakh, Fifty Two Thousand Eight Hundred) equity shares of Rs. 10 each and 81,50,000 (Eighty One Lakh Fifty Thousand) preference shares of Rs. 100 each as per the latest audited balance sheet of the company as on 31-3-2006. 6. The company is mainly engaged in running a hotel in the name and style of "Park Hyatt Goa Resort and Spa". 7. As on 31-3-2002 the company had issued Rs. 6,55,28,000 equity shares of Rs. 10 each. Thereafter on 30-10-2002 the company issued 41,50,000 10 per cent cumulative redeemable preference shares of Rs. 100 each to the promoters group. 8. On 24-2-2004 the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough market purchases and preferential allotment pursuant to a resolution passed under section 81 of the Companies Act, 1956 or any other applicable law, which (taken together with shares or voting rights, if any, held by him or persons acting in concert with him) entitle such acquirer to exercise more than 55 per cent of the voting rights in the company. The next proviso stipulates that if the acquirer has acquired shares or voting rights through such market purchases or preferential allotment beyond 55 per cent of the voting rights in the company, he shall forthwith disinvest the shares acquired in excess of 55 per cent and shall be liable for action under these Regulations and the Act. The appellant also alleged several acts of gross mismanagement which are not necessary to be reproduced herein for the purpose of disposal of this appeal. However, a preliminary objection having been taken, on behalf of the company, in the light of section 399 of the Act, the appellant's petition came to be rejected. 11. The learned CLB in rejecting the appellant's petition came to the conclusion that (a) the expression "issued share capital" would include both equity and preference share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts justify the making of a winding up order on the ground that it is just and equitable to do so but that this would unfairly prejudice such member or members, may make such order as it thinks fit with a view to bringing to an end the matters complained of. This section corresponds to section 210 of the English Companies Act, 1948. Section 398 considerably enlarges the scope of the remedy by providing that any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to the interests of the company or that a material change has been taken place in the management or control of the company, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company, may apply to the Court and the Court may, if it is of the opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, make such order as it thinks fit with a view to bringing to an end or preventing the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the application a continuing course of conduct of the affairs of the company which is oppressive to any shareholder or shareholders or prejudicial to the interests of the company and it is this course of oppressive or prejudicial conduct which would form the subject-matter of the complaint in the application. The remedy is not intended to enable the aggrieved shareholders to set at naught what has already been done by controlling shareholders in the management of the affairs of the company. If such were the intention of the Legislature, which as I will presently show it could never have been, the language of sections 397 and 398 would have been different and the Legislature would not have confined the power of the Court by limiting the purpose for which it can be exercised under the sections. 16. The object behind section 399 of the Act has been set out by the Apex Court in the case of J.P. Srivastava & Sons (P.) Ltd. v. Gwalior Sugar Co. Ltd. [2004] 56 SCL 1 wherein the Apex Court has stated that the object of prescribing a qualifying percentage of shares in petitioners and their supporters to file petitions under sections 397 and 398 is clearly to ensure that frivolous liti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der be set aside and the matter be remitted to the Company Law Board to give its decision whether 41,50,000 preference shares are null and void in view of the violation of the proviso in Regulation 11 of the SEBI (Substantial Acquisition and Takeover) Regulations, 1997 so as to satisfy the eligibility requirement as stipulated in section 399 of the Act to maintain an application under section 397/398 of the Act. It is also contended that the Company Law Board committed a gross error in law in applying the rule of literal construction in interpreting the provisions of section 399 of the Act. It is the contention of the appellant that the term 'issued share capital' was nowhere defined in the Act and therefore the CLB was not right in concluding that the said term was defined under the Act. On the rule of interpretation of 'Noscitur a Sociis' reliance has been placed on behalf of the Appellants in the case of State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610 and Norman J. Hamilton v. Umedbhai S. Patel [1979] 49 Comp. Cas. 41 (Bom.). 19. The problem of interpretation is a problem of meaning of words and their effectiveness as medium of expression to communicate a particular t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated that the doctrine of Noscitur a Sociis means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. Expressed differently, it means that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated to it. 21. On the other hand the rule of literal construction simply means that the words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest the contrary. (Emphasis supplied) 22. On behalf of the Company, it is contended that a bare reading of section 399(1)(a) of the Act clearly provides that in order to maintain a petition on the basis of the shareholding, a member must hold, not less than 1/10th of the 'issued share capital' of the company and this provision is amply clear and has got to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope for applying the rule of Noscitur a Sociis in interpreting the expression 'issued share capital' of the company in section 399(1) of the Act as the said expression is a wide expression in itself. It is a wide expression deliberately used by the Legislature with a view to include both equity and preference share capital issued by the Company. It keeps no company to other words and it must be interpreted and understood in its natural, ordinary or popular meaning. The learned CLB who must be dealing in cases of this nature day in and day out was certainly right when it stated that it is well known and well understood that the said expression includes both types of share capital i.e., equity and preference. Share has been defined by section 2(46) of the Act to mean a share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied. It is common knowledge that capital of a company could come from shares both preference and equity and from loans and advances. That is how the appellant understood it when the appellant stated in clause (c) of the petition to the CLB that 'the issued, subscribed and paid up capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 85, 86 and 87 of the Act, the expression 'issued share capital' in section 399(1) of the Act can only refer to and refer only to the share capital which could be issued i.e., both equity and preference share capital and therefore the expression 'issued share capital' refers to both preference and equity share capital of the company. In other words, these sections can be used as tools of interpretation of the said expression. 26. The expression 'issued share capital' can have no doubt about it when considered in relation to other provisions of the Act. Inserting the word 'equity' after the word 'issued' and before the words 'share capital' will be adding a word which the Legislature clearly did not intend and to interpret it further as 'legally valid issued share capital' would be doing violence to the section. The Court cannot read anything into a statutory provision which is plain and unambiguous. Interpreting the expression in a manner suggested on behalf of the appellant will amount to creating a mischief rather than preventing it and thereby leave out a class of shareholders who have subscribed to the capital of the Company i.e., by way of preference shares. It is to be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. The issued capital, on the other hand, represents the shares which have actually been taken up by shareholder who have agreed to give consideration in cash or kind for the shares issued to them unless those shares are fully paid bonus shares, the issued capital is thus a reality and not merely an authority." 28. Section 41 of the Act gives the definition of 'Member'. Sub-section (3) of section 41 came to be inserted with effect from 20-9-1995. Sub-section (1) of section 41 provides that the subscribers of the memorandum of a Company shall be deemed to have agreed to become members of a Company, and on its registration, shall be entered as members in its register of members. Sub-section (2) provides that every other person who agrees in writing to become a member of a Company and whose name is entered in its register of members, shall be a member of the Company. Sub-section (3) provides that every person holding equity share capital of a Company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned Company. 29. The appellant's contention that only persons holding equity shares can be members of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not have the requisite percentage on the date of filing of the petition. The appellant might be having 14.8 per cent of equity shares, but that is not the criterion to make an application. The petition was therefore rightly dismissed. 31. Since the appellant did not qualify to maintain the petition in terms of section 399 of the Act, the petition was rightly rejected. Admittedly, the issue of the preference shares as being violative to the proviso to section 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 has not been gone into by the learned CLB on the ground that past and concluded transactions cannot be impugned in a petition under section 397/398 of the Act. 32. It is the appellants' contention that allotment of 41,50,000 preference shares on 30-9-2002 cannot be said to be a past and concluded transaction but it is a continuing wrong since the acquisition of voting rights by the promoters in excess of 55 per cent became operative for the first time with effect from 30-10-2004 and will continue to be so until dividends under section 87 of the Act are paid in respect of such preference shares. Reliance has been placed on Mohanlal Ganpatram's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition of the equity shares by the appellant and that controversy appears to be pending before the Delhi High Court. It was agreed that this Court will not go into that controversy. In my view, the decision in the case of Mega Resources (supra) would be inapplicable to the facts of this case but would be applicable in a case where the title to the shares held by the petitioners is challenged on the ground that those shares are not legally acquired and it is in that context that the CLB referred to the case of Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageshwara Rao AIR 1956 SC 213 wherein it was held that the validity of a 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, in the absence of a provision to that effect in the statute cease to be maintainable by reason of events subsequent to its presentation. The CLB in the case of Mega Resources (supra) held that if in a petition, the legality of the acquisition of the shares, or the factum of holding shares, the strength of which the petition is filed, is challenged, before proceeding with the petition, the CLB has to examine the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have jurisdiction as a matter of law. In rejecting a plaint on the ground of jurisdiction, the Division Bench should have taken the allegations contained in the plaint to be correct. In Scientific Instrument Company Ltd.'s case (supra) the Allahabad High Court approved the CLB's view in Satish Chand Sanwalka v. Tinplate Dealers Association (P.) Ltd. [1998] 93 Comp. Cas. 701 (Delhi) stating that normally, when the maintainability of a petition is questioned in terms of section 399, especially, as a preliminary issue, there should be enough material available before them, without having to go through the pleadings in detail to decide the issue. In that case, the issues like whether articles have been violated, whether there were calls due and whether the petitioner failed to pay the calls, whether notice of forfeiture were issued to the petitioner etc., were held to be complicated questions of law and facts requiring a detailed inquiry and it was further held that complicated questions of law and facts cannot be decided at the preliminary argument stage without going through pleadings and hearing. Accordingly, it was held that the maintainability of the petition would be decided aft ..... X X X X Extracts X X X X X X X X Extracts X X X X
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