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TMI Blog2011 (6) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant which was the first respondent filed an application before the Board, C. A. No. 503 of 2009 (Ms. Bijay Kumar Kajaria's case (supra)) complaining that the petitioners before it did not have the requisite share qualification to maintain the action. On a very small point of procedure to be adopted to deal with that application an appeal came before me, filed by the appellant herein, being A. P. O. T. No. 408 of 2010. I disposed of that appeal on July 15, 2010, by giving some directions to the Company Law Board to deal with the above application filed by the appellant. 3. The group represented by the appellant and the proforma respondents in the appeal will be called the majority and the group represented by the respondents excluding the private respondents will be called the minority when such description is called for. This description is only for convenience and is not to be treated as a finding. Otherwise, the parties are described according to their description in the cause title of the sections 397 and 398 petition. 4. This application challenging the locus standi of the minority group to file an application before the Company Law Board was dismissed by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Act. But it is common ground that without such transfer their shareholding would be 16.55 per cent. 10. The central theme of this story is this, the company owns a very valuable property numbered as 15/C, Raja Santosh Roy Road, Kolkata. It is in Alipore. Everybody knows how valuable properties in that locality are. If the minority group is reduced to 6 per cent they will have no real interest in the company and hence will cease to have any controlling interest in the property. It is said that this property is the residence of the family. 11. The version of the minority group is that the affairs of the company were under the absolute control of respondent Nos. 2 and 5 being Ajay Kumar Kajaria and Sanjay Kajaria. These two respondents looked into the corporate as well as the personal accounts of the petitioners. These respondents also possessed all the records of the company as well as their personal records. Petitioner Nos. 1 and 2 never signed any transfer deeds by which they were shown to have transferred the above shares to respondent Nos. 5 and 6 being the son of respondent No. 2 and wife of respondent No. 4, respectively. The income-tax returns of the petitioners were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in allotting shares in such a manner that the shareholding of a group was reduced or if the authorised share capital was increased and consequent allotment of shares so as to reduce its shareholding, the court had the power to go into such issues. But any other dispute regarding holding of shares is a private dispute between the shareholders or between a shareholder and an outsider and does not concern the company. In a private dispute between two shareholders or one shareholder and one outsider, a court entertaining an application under sections 397 and 398 should not interfere. He cited the English case of A Company (No. 001761 of 1986), In re [1987] BCLC 141 and referred me to the passages at pages 145 to 146. He also cited the case of M. S. D. C. Radharamanan v. M. S. D. Chandrasekara Raja [2008] 143 Comp Cas 97/ 83 SCL 451 (SC) and placed paragraph 22. 18. However, he conceded that dilution of the shareholding of a member by the act of the company can be gone into, citing Om Prakash Gupta v. Hicks Thermometers (India) Ltd. [1999] 97 Comp Cas 356/ 21 SCL 94 (CLB - Delhi). 19. Furthermore, it was submitted by him that the minority had the remedy to promptly approach the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding whether the petitioners before them have the requisite qualifying shares or not. It has to come to a finding according to the requirements of section 399. They have no jurisdiction to defer the determination till conclusion of the trial. Look at the consequences if such an approach is taken. A busy body will succeed in opening up the affairs of a company, which otherwise he has no right to do. By the time his absence of right is established he will have accomplished the mischief. A company is entitled to protect its secrets, which it will be unable to do if such procedure is adopted. What are the requirements of section 399 ? Is the Company Law Board to hold a full trial to ascertain whether the petitioners before them are qualified to take out the proceedings ? My answer is an emphatic "No". Let me see to what extent the authorities support me. 27. If there is a dispute between the shareholders regarding holding or transfer of shares, or an ordinary dispute between a shareholder or director and the company it is a private dispute and the Company Law Board should not go into it in a sections 397 and 398 proceeding (see the case of A Company (No. 001761 of 1986) (supra); San ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. A general averment in paragraph 13 brings in unfair prejudice and the reference to section 459 by inference. In my judgment, all those paragraphs, if proved to the hilt, could not justify an order under section 459 because they do not come within the terms of the section and, although the phrase is slightly odd in connection with a petition and such a general right as this, they are within the description in Order 18, rule 19(1), a petition which discloses no cause of action, that is, no conduct within the statutory right to relief." 29. Our Supreme Court, with regard to an inheritance dispute raised in a sections 397 and 398 proceeding in Sangramsinh P. Gaekwad's case (supra), at paragraphs 143 and 144 said the following (page 622) : "It is also not in dispute that the matter relating to her claim to succeed FRG as his class I heir is pending adjudication in Civil Suit No. 725 of 1991 in the Baroda Civil Court. She claimed title in respect of 8,000 shares by inheritance in terms of the Hindu Succession Act. Indisputably, in terms of section 15 of the said Act she is a class I heir but the appellants herein contend that the said provision has no application having regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in regard to the affairs of the company." 31. But there is an exception to this principle. If the company through those in control of it is guilty of reducing the shareholding of a group of shareholders, by illegal allotment of shares or by illegal increase of its unauthorised share capital and thereafter make wrongful allotment of those shares, then the court can determine the correct shareholding under section 399 in a sections 397 and 398 proceeding (see the case of Om Prakash Gupta's case (supra)). But the exception is not the case here. 32. A private dispute partly exists between the majority and the minority regarding alleged transfer of shares. The minority belongs to the same family as the majority. Their plain and simple case is that respondent Nos. 2 and 5 were the alter ego of the company. The minority acted according to their wishes, blindly, by, inter alia, signing papers which were presented to them and by allowing them to make deposits in their bank account. The said transfer forms were never executed, or lodged with the company. I would like to say that learned counsel for the majority said that if it was the case of the minority that they had not signed the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd should have declared that the minority had no locus standi to maintain the action. It should have dismissed the company petition with liberty to the petitioners to file a fresh petition as and when their right to sue was established in a proper civil forum. 41. It may have been found by the Company Law Board that there were no executed transfer deeds lodged with the company. In that case, if without such transfer deeds the minority had more than 10 per cent holding in the company, the Board should have entertained the company petition and continued to do so until the majority could bring an order of the civil court that the minority had less than 10 per cent shares. 42. There may be a third situation where it may have been alleged that the transfer deeds had been forged or forged and submitted subsequently. In that case also the Company Law Board would have to consider the register of the company as correct and dismiss the company petition with the same liberty reserved to the minority. The Company Law Board should have directed the custodian of the share certificates to produce them at once and come to an appropriate conclusion. 43. I may also observe that in making a determ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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