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TMI BlogMAINTAINABILITY OF PETITION BY TRUST HOLDING SHARES IN COMPANY UNDER SEC. 397/398 AND 399 OF THE COMPANIES ACTX X X X Extracts X X X X X X X X Extracts X X X X ..... MAINTAINABILITY OF PETITION BY TRUST HOLDING SHARES IN COMPANY UNDER SEC. 397/398 AND 399 OF THE COMPANIES ACT - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 22-4-2010 - - Chapter VI of the Companies Act, 1956 deals with the prevention of oppression and mismanagement. Sec. 397 deals with the application to Company Law Board for relief in certain cases of oppression. The said section provides that any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members including any one or more of themselves may apply to the Company Law Board for an order under this section provided such members have right so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apply in virtue of section 399. If, on any application the Company Law Board is of opinion- * That the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and * That to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the company law board may, with a view to bringing to an end the matters complained of, make such orders as it thinks fit. Sec. 398 deals with the application to Company Law Board for relief in cases of mismanagement. It provides that any members of a company who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complaint- * That the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or * That a material change(not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors or managers or in the ownership of the company's shares, or if it has no share capital, in its membership or in any other manner whatsoever, 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 public interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in a manner prejudicial to the interests of the company; may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of Section 399. If, on any application the Company Law Board is of 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, the Company Law Board may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. Sec. 399 deals with the right to apply under sections 397 and 398. It provides that the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng members of a company shall have the right to apply under section 397 or 398- * In the case of a company having a share capital, not less than one hundred members of the company or not less than one tenth of the total number of members, whichever is less, or any member or members holding not less than one tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares; where any share or shares are held by two or more persons jointly, they shall be counted only as one member. * In the case of a company not having a share capital, not less than one fifth of the total number of its members. Where any members of a company are entitled to make an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them. The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorize any member or members of the company to apply to the Company Law Board under Sec. 397 or 398, not withstanding that the requirements are not fulfilled. The Central Government may, before authorizing any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the Company Law Board dealing with the application may order such member or members to pay to any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther person who are parties to the application. The issue taken in this article whether a trust, holding the shares of a company, can file application for oppression and mismanagement. The said is issued discussed with reference to case law in 'Vijay kumar Bharatia Family Trust V. Ranken Co., (P) Limited and another' - (2010) 94 CLA 479 (CLB). In this case the petition has been filed by Vijay kumar Family Trust claiming to hold 95,001 shares constituting 47.5% of the total paid up shares in Ranken Co (P) Ltd., alleging of mismanagement in the affairs of the company by the respondents. Shri Vijaya Kumar Bhartia filed an affidavit in his capacity as a trustee of the trust. The respondents raised a preliminary objection that the trust has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not being a juristic person cannot institute the proceedings in its name. The petitioners for this purpose filed an application for being added as party petitioners to the petition. The petitioner put forth the following submissions to Court: The ownership of shares by the trust has been admitted; Since the owner is not a legal person, the applicants could represent the owner as trustee; The applicant themselves are shareholders; There is no legal impediment in allowing the prayer to add them as party petitioners; The petitioners relied on the judgment of Supreme Court in 'Purushottam Umebhai Co. V. Manila Sons' -AIR 1961 SC 325 in which the Court considered the issue whether a plaint in a suit filed in the name of a firm c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be amended by substituting the name of the partners. In this case a single judge of Calcutta High Court rejected the petition for amendment on the ground that the original plaint was not plaint in law and therefore the only course available was to withdraw the suit and file a fresh suit. On appeal the Division Bench held that the suit brought in the name of firm name should be properly be considered a case of description of the individual partners and as such a mis-description, which in law can be corrected. The Supreme Court concurred with the decision of the Division bench holding that a plaint by all the partners of the firm with the defective description of themselves, a court could permit an amendment to the plaint to enable a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per description of the plaintiff in order to assist the court in determining the real question or issue between the parties. The petitioners contended that since the real issue between the applicant shareholders who control the trust holding 47.5% shares and the respondents who also hold the similar percentage of shares, the amendment should be allowed and the applicants be added as petitioners. The respondents submitted the following: * The trust is not a juristic person, it could not have filed a petition at all as it has no capacity and therefore the petition is nullity; * By amendment for substitution or addition of the applicants as petitioners, the initial defects canoe be cured; * The case relied by the petitioner is not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable to the present case. In that case the Supreme Court held that in terms of the provisions of section 153 of the Code of Civil Procedure, 1908 the amendment to the plaint could be allowed; * Order 30(1) of the Code permits partners constituting a firm to sue or to be sued in the name of the firm; however in case of a trust, all the trustees have to join together; in the present case, even the original affidavit has been signed only by one of the trustees; * As held in 'Mst. Zohra Khatoon V. Janab Mohammad Jane Alam' - AIR 1979 Cal. 133 the Court has held that when a suit is not maintainable no amendment can be made; in the present case, the petition is not maintainable for want of capacity on the part of the trust, no amendment can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed The Court heard both sides and held as follows: * In terms of Section 399, any member with the prescribed qualification can file a petitioner under Section 397/398; * If the name of the trust is in the register of members or if share certificates have been issued in the name of the trust in respect of the shares irrespective of whether such admission of a trust as a member is valid or not, the trust can maintain the petition as it has been admitted as a member, especially when no proceeding has been initiated to rectify the register of members for deleting the name of the trust on the ground that a trust cannot be admitted as a member; * In the present case the trust is holding 95,001 shares, there is no averment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect that its name is in the register of members; * If the applicants hold share certificates issued in the name of the trust or they are in a position to establish that the name of the trust is in the register of members, then the respondents cannot question the capacity of the trust to file this petition. In that case, the names of the petitioners can be added as party petitioners - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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