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TMI Blog2010 (9) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... erjee, Ratnanko Banerji, Sambuddha Datta, Abhrajit Mitra, M.S. Tiwari, Soumen Sen and Suchayan Banerjee, Moinak Bose, Ankur Jain, Soumava Basu, Amit Muhuri and Kumarjit Das for the Appearing Parties. JUDGMENT 1. The plaintiffs impute improper motive to the original defendants in their seeking to obtain copies or inspection of records that the Companies Act, 1956 permits them to ask for. The plaintiffs suggest that the requests made by the original defendants are mala fide, made with ulterior motive and there is no legal compulsion on the plaintiff companies to accede thereto. 2. The suit has been instituted with leave under Order I rule 8 of the Code of Civil Procedure. There are certain facts that need to be recorded without comment since no immediate issue is raised thereon. The leave under Order I rule 8 of the Code was sought on the basis of the averment in the plaint as to the commonality of interest of the named plaintiffs with other unnamed companies. The plaintiffs have issued advertisements under Order I rule 8 of the Code. The original defendants have not applied for revoking such leave, though their application for rejection of the plaint on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to inspect records and receive copies of documents as mandated by statute would be tempered by the motive for such requests. 4. The original defendants made requests under sections 163, 196, 301 and 372A for obtaining copies or inspecting records relating to the register of members and annual returns of the plaintiff companies; for minutes of general meetings of such companies; for the registers of contracts disclosing names of firms and companies in which directors of the plaintiff companies are interested; and, for the registers of investments or loans made, guarantees given or security provided by the plaintiff companies in relation to any body corporate. The plaintiffs demonstrate that identical notices would be issued by the original defendants to various companies making similar demands for obtaining copies or inspection. The plaintiffs rely on the criminal complaints lodged by the original defendants or the first defendant upon the requests not being complied with by the plaintiff companies and the identical allegations contained in the letters for request and the petitions in the criminal proceedings. They say that it is inconceivable that the first defendant would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... request. The plaintiffs refer to the first defendant s request on 1-7-2008 to dislodge the business czar perched atop the first plaintiff company as a director thereof. The plaintiffs say that upon a request to such effect being received, there is a lot of paperwork which is involved in printing copies of the proposed resolution and other attendant matters and circulating them to the large number of shareholders of a listed company who are strewn all over the country. The plaintiffs rely on an order passed by the Company Law Board at the instance of Dabur India Ltd. in the year 2001 where the Company Law Board expressed the opinion that the request for removal of a director issued by the first defendant was not in bona fide exercise of his right as a shareholder but was with "an ulterior motive and as such is an abuse of the provisions of section 284" of the Companies Act. The plaintiffs say that the first defendant is a known mischief-monger and the second defendant is his associate and accomplice. The extent of the first defendant s shareholding in the plaintiff companies is detailed at paragraph 19 of the original petition; the first defendant holds one share in one of the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that the criminal proceedings launched are malicious. The plaintiffs have claimed, inter alia, a perpetual injunction restraining the original defendants from exercising any rights as shareholders of the plaintiff companies and for an ultimate direction by court for the shares held by the original defendants in the plaintiff companies to be sold. The immediate concern at the interlocutory stage, as is reflected from the prayers made, is both in respect of the criminal proceedings being launched and the outstanding requests for copies and inspection which the plaintiffs have not complied with. 8. The first defendant is present to contest the interlocutory proceedings. The defendant does not offer much by way of explanation or justification. The first defendant insists that if the statute confers him a right to make copies of certain records and inspect others, it would be foolhardy of a company to deny him the exercise of such right. He says that he needs the information that he has sought for his business purpose and that the subsisting order of injunction prejudices his publication. The first defendant insinuates that the affairs of public and even listed companies in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not dispel the apprehension expressed in the petition as to the motive for the impugned requests. 11. The plaintiffs rely on a judgment in Pelling v. Families Need Fathers Ltd. (2002) 2 All ER 440 for the proposition that it is not an unqualified right of a shareholder to be supplied with a copy of the register of members on request and special circumstances may be cited for the court to refuse it. The matter concerned a company limited by guarantee and registered as a charity. The court noticed that sub-section (6) had been subsequently introduced in the relevant provision that gave an element of discretion that invariably accompanies the word "may." But the court observed that the extent of discretion would be narrow and the usual order would be to give effect to a legal right. In that case, the requesting shareholder had sought to obtain the register of members of the company to communicate his views to other shareholders on the mismanagement in the company. The company cited special circumstances since it was a charity and undertook before court that it would act as an honest mailbox and forward the material supplied by the petitioning shareholder to other members of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may in that section was not permissive, but merely signified that the jurisdiction of the court to make an order did not arise unless there had been a refusal or contravention of the Corporations Law. He held (at 255) that the drafting of the Law was such that the word "may" means exactly that. It means that the court is empowered to make the order where a refusal in contravention of the Law has been established, as in the present case. Whether the power will be exercised must depend upon the proper discretionary considerations affecting the power in the light of the facts as are found by the court. We agree. For those reasons we reject the absolutist construction proposed by Dr. Pelling. ( ii ) The statutory discretion must be exercised judicially in accordance with established legal principles and having regard only to relevant considerations. We agree with Dr. Pelling that, as a general rule, the court will make a mandatory order to give effect to a legal right. But, as stated by Lord Evershed MR in Armstrong v. Sheppard Short Ltd. [1959] 2 All ER 651 at 656, [1959] 2 QB 384 at 396 it is not a matter of unqualified right . There may be something special in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ch. 708. The plaintiff in that case applied to the company for a copy of the shareholders address book and offered to pay the expenses for obtaining it. The company apprehended that the requesting shareholder intended to use the material for a purpose other than one contemplated by the statute and declined the request. The shareholder sought a mandamus commanding the company to provide him the material. The trial court felt that the motive of the plaintiff was irrelevant. The Court of Appeal agreed that the right did not depend upon the motives the shareholder may have for exercising it, it is enough that the request is made by a shareholder who desires to exercise his right. 15. The Davies case ( supra ) were noticed in Pelling s case ( supra ) and the passage from Pelling quoted above would reveal why the Davies judgments are of no relevance now that the statute, as in section 163 of the Companies Act in this country, confers a right on the requisitionist to approach a judicial or a quasi-judicial authority upon the request being declined. 16. Section 163 stands apart from the other provisions under which requests have been made by the original defendants. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral unusual situations. There may be cases where it would be useless to make an order directing the company to make available the records because the request may have been complied with between the time that the application is made and it is heard; where it is physically impossible for the company to comply with the request because of circumstances beyond the control of the company, say destruction by fire. But the strength of the authorities would show that there is an element of discretion, however narrow, still available to the authority receiving an application for compelling a company to comply with the request. It has, per force, to be an exceptional case for the authority to exercise its discretion against the person seeking to compel the company to make available the material; it may be made only in the most rare of cases. 19. What is of importance is that the extent of the discretion available under section 163(6) may not be the test in the present case; at any rate, in respect of the requests made under sections 196, 301 and 372A of the Act. It is not the person who made the request to the company who has come to court to compel the company to comply with the demand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich officers of the plaintiff companies had been approached by the original defendants. There is no affidavit produced from any officer of any of the plaintiff companies detailing the demands allegedly made or the threats allegedly held out by the original defendants. It is a vague charge that has been made and when assessing a statement on oath against a denial thereof on oath on affidavit evidence, there is something more asked of the plaintiff that these plaintiffs have failed to discharge. 22. The test is not, as the plaintiffs suggest, that the requisitionist must have a justification for making the request; the test is for the company to demonstrate that the request is for a corrupt purpose. The provisions that are relevant for the purpose of the present proceedings further transparency in corporate governance and cannot be ordinarily stultified on a vague charge of extortion. As to what would amount to corrupt motive on the part of a requisitionist would depend on facts, but such motive is not to be easily inferred. It would amount to corrupt or improper motive worthy of denial of the request if the requisitionist is shown to cause serious prejudice to the company or it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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