9911796707
TMI Blog2017 (3) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... t the phrase 'class of members' mentioned in the mismanagement clause in Section 241 cannot be said as percentage of shareholding for qualification is to be counted within the 'class of members', over this aspect, we have elaborately discussed and said that the member complaining can as well fight for the cause of 'class of members' if mismanagement is qua against a 'class of members'. But, it cannot be read that a 'class of members' themselves have to be treated separately attaining qualification u/s 244. It is only an additional relief that a member qualified u/s 244 can ask for relief. We already said that the addition of 'class of members' is inconsequential to the qualification mentioned u/s 244. When the legislature has taken every care in creating rights on class basis, had the legislature intended to introduce class concept, they would have introduced the same in Section 244 as well. But that has not been done. Therefore, there is no point in the argument of Petitioners saying that 'members' mentioned in Section 244 has to be read as 'class of members'. That we do not find any merit in the argument of the Petitioners' Counsel saying that since the redeemable preference shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Jain, Mr. DhruvDewary Ms. Ruby Sigh Ahuja, Mr. SayakMaity, Ms. TahiraKaranjawala, Mr. AvishkarSinghvai, Mr. Sidharth Sharma, Mr. Rohan Batra, Mr. Arjun Sharma, Ms. EeshaMohopatra, Ms. PayalChhabria, Mr. JeetKaria, Ms. juhiMathur, Advocate, Mr. Shailesh Poria ... Advocate, Shri Sudipto Sarkar, Shri Mohan Parasarary Sr. Counsel, Mr. D.L. Chidananda, Mr. Zal Andhyarujina, Mr. Ashwin Kumar D.S., Ms. Shurti Sardesai, Mr. Jahangir Mistry, Ms. Namrata Parikh. Advocates, Shri |anak Dwarkadas, Sr. Counsel, Mr. Sharan ]agtiani, Mr jehangirlej eebhoy, Ms. ShireenPochkhanawalla, Mr. NiravBarot Advocates ORDER Nobody knows when problem comes, now problem has come upon TATA (Tata Sons Ltd. (R1)) which everybody knows in India, there can't be anyone who has not experienced the product of Tata. Many of rural folk may not know TATA as a company, but everybody, east to west and north to south, knows Tata salt, Tata tea, Tata car, Tata bus, likewise many, it is a household name in India. Salt to software, it has seasoned this country with all spheres and makes its presence felt all over the world. The time has now become excruciating to this Tata Sons (R1) owing to Board Room battle. Tata S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Tata Steel Limited promoted by R1 for a sum in excess of USD 12 billion which was more than 33% of its original price, which eventually led Tata Steel go down by this purchase, when it was not doing well, Mr. Mistry initiated to merge this Tata Steel U.K with Thysseen Krupp so as to rid Tata Steel of the financial sufferance, but it is R2 who objected to restructuring of Tata Steel UK company causing loss to everybody including the petitioners. - That sometime in 2007-2008, R2 came out with a proposal to manufacture a car that could be enjoyed by poor of this nation, with an installed capacity of 2,50,000 cars annually, but the demand for these cars is only 3,000 cars per year, by which Tata Motors consistently loosing ₹ 1000 crores causing once upon profit making company i.e., Tata Motors gone into losses, inspite of it, R2, for his emotional reasons, has prevented R11 from taking crucial decision to shut down Nano Car Project. - That R2 caused issuance of 520 billion shares of TTSL at the rate of ₹ 17 to Sterling for a throw away price of ₹ 884 crores, and then issued TTSL shares to Singapore Company at the price of ₹ 26 per share immediately after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied against the answering Respondents, the petitioners, having 18.37% shareholding in R1, sought various reliefs on the ground that the alleged actions of R2 and his men are oppressive and prejudicial to the interest of the petitioners and R1 Company and its group companies. Arguments of the Respondents Counsel: 4. Looking at the petition the petitioners filed, Dr. Abhishek Manu Singhvi, Senior Counsel on the answering Respondents behalf, at the outset raised a threshold issue saying that the petitioners do not have qualification envisaged u/s 244 to file this CP u/s 241 for these two petitioners together have only 2.17% shareholding which is less than one -tenth of the issued share capital of the company, and by number also they being only two out of 51 total members of R1, the Respondents have taken out a detailed plea stating that the petitioners failed to meet the qualification as set out in section 244, therefore, this petition is liable to be dismissed in limine. 5. As to the issued share capital of R1, as on 21st December 2016, the total issued equity share capital of R1 is ₹ 40.41 crores and the total issued preference shares is ₹ 294 crores, hence total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company and includes stock and that since section 43 itself says share capital means equity plus preference, it can't be even imagined issued share capital means only equity, not preference. As to variation of rights of different classes of shareholders u/s 48, if variation of rights of one class of shareholders affects of the interest of other class of shareholders, then certainly 3/4th of such other class is to be obtained, but one fact that should not be forgotten is this right of variation shall lie either in the Memorandum or Articles, if not in constitutional documents, then at least in the terms of the issue of shares it shall disclose these rights, this concept of different classes of shares run on the understanding of the persons opting for shares, but this oppression or prejudice remedy will never become a right either in constitutional documents or terms in between the parties, therefore the petitioners cannot derive an analogy from this section to say the same is applied to sections 241 and 244. The Respondents counsel therefore submits that the meaning of the phrase "issued Share Capital" will not and cannot change into "Issued Equity Share Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the intention of the legislation must be found in the words used by the Legislature itself. The question is not what must be supposed and has been intended but what has been said. It is again to be noted that while interpreting a provision the court only interprets the law and cannot legislate it. Doing what is suggested on behalf of the appellant would not only be doing violence to the section but will amount to legislating a provision in a manner not at all intended by the Legislature. 29. From the aforesaid discussion, and from whatever angle one looks at the expression "issued share capital" of the company, it is very clear that the expression can only refer to the preference share capital as well as equity share capital of the company and the appellant was required to hold one-tenth of the total of this issued share capital before he became eligible to maintain a petition under section 397/398 of the Act. The appellant at no time held more than 2.01 per cent of issued share capital. It did not have it when it became a member or shareholder. It did not have requisite percentage on the date of filing of the petition. The appellant might be having 14.8 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into new enactment without any change, it has to be presumed that the legislature has consciously not made any change to the old section of law by noticing that old section of law will remain relevant and contextual not only for now but also to the times to come. When legislature has taken old law into new enactment without any change, then obviously ratio decided under old section of law that is subsequently re-ordained as new section of law, is binding on the courts. In the case supra, the ratio has been decided in the context of repetition of Articles 102 and 120 of the Limitation Act, 1908 in identical terms without any modification in the Limitation Act, 1963. The same is the view held in Pradeep J. Mehta vis. Commissioner of Income-tax, Ahmedabad (2008) 14 SCC pg.283 para No.20, 25 and Parvathy Amma&Ors. v. Krishnan &another 1962 KLJ 428 para No.8 in respect to the applicability of case law decided on old section of law that has been re-ordained as new section of law without any change. 15. The Respondent Counsel submits that the attempt of the petitioners to read the term "Class of Members" into section 244 is wholly untenable, self-serving and would do violence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the language used. When negative words are used, the court will presume that the intention of the legislature is that the provisions are mandatory in nature. 18. The Respondents Counsel submits that where the statute is clear and unambiguous then literal rule is applicable. The interpretation of statute arises only when literal interpretation defeats the purpose of the provision or results into manifest absurdity, for the language is being clear in section 244, there cannot be any scope to have more than literal interpretation to the section, therefore, the phrase class of members cannot be read into section 244 to say that issued equity share capital is to be taken into consideration for reckoning 10 percent shareholding qualification criteria mentioned section 244. 19. As to the argument of the Petitioners Counsel that section 244 has now become directory by introduction of waiver clause in the proviso to the section 244, the Respondents Counsel submits that argument of the Petitioners' case is surprising for two reasons, (1) - the Petitioners asking from one side that their Petition is maintainable on the ground that their equity is more than 10 percent, (2)-juxtap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the law, but it cannot supplant or override it. [Emphasis supplied]. 22. The Respondent counsel submits, if the law is what had been laid down in the case of Northern Projects supra, then the so-called "inequity" was being perpetuated for 57 years from 1956 to 2013. The determination of eligibility based on equity and preference share capital was present even under old regime and the same position never came to be contested in the period of 57 years. It is rather interesting that the same is allowed to continue without any change in the new enactment as section 244 believing the law that continued for more than half century as section 399 shall continue for the times to come as section 244. Now, it is not open to any body to say whether it is equitable or inequitable, that question is no more a question. 23. As to the argument the Petitioner counsel propounded that since Accounting Standard 32 referred to preference shares as debt, unless they are compulsorily convertible, as long as they are not converted or convertible into shares, the redeemable preference shares shall be treated as debt not as equity, henceforth the preference share capital that is not compulsori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition u/s.244, if at all the word "issued share capital" is taken into consideration for computation of qualification u/s.244, it will become absurdity because even Tata Trusts, who are holding above 66% equity in R1 company cannot file petition u/s.241. If such is the case, then the very purpose of protecting the minority in the company will be become redundant. Here it is to be seen that the Petitioners' shareholding value will come to ₹ 1,00,000 crores in the company therefore, if the preference shareholding valuing to ₹ 294 crore makes the Petitioners incapable to maintain petition u/s 241, it will become nothing but mockery of justice. 27. The petitioners relied upon D. Saibaba v. Bar Council of India 2003 6 SCC pg.186; Indian Performing Rights of Society Ltd. v. Sanjay Dalia & Others [2015] 10 SCC pg. 161 to say that a construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly has to be rejected and preference should be given to that construction which avoid such result. 28. The Petitioners submits that power under sec.241 to 244 being exercised by the Tribunal in its equitable jurisdiction, a hyper technical vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present cases are dissimilar to the facts of those cases thereby the ratio decided before advent of 2013 Act is not applicable to the present case. 33. In view of these submissions, the Petitioners counsel submits that the Petitioners being more than 10% equity in the company, this Petition is maintainable. 34. The Sr. Counsel Shri Janak Dwarkadas appearing on behalf of R11 sailing with the Petitioners submits that the definitions to "issued Share Capital" "Member", have to be taken into consideration unless the context otherwise requires. Since the new concept of class of members have been introduced in section 241, the meaning of the "issued capital" has to be limited to the "issued equity share capital alone" not otherwise. When the phrase "class of members" are related back to qualification clause in section 244, the context demands that issued share capital means only equity share capital not the share capital along with preference share capital, therefore, the meaning given in definitions sections will remain inapplicable for it has been conditioned that its meaning is applicable, unless, in the Act, the context otherwise re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equals when call is made on shares of the same class, in Section 117, to pass a special resolution in respect to the interest of any class of members, in Sections 230 to 234 to consider the class of members when the interest of that class is affected, therefore, the Petitioners' Counsel argument is that the members mentioned in Section 244 has to be read as 'equity class' for it is relatable to the interest of equity shareholders, (3) that since Accounting Standards-32 refers to preference shares especially redeemable preference shares, as 'debt to the company' thereby the preferential shareholding shall not be treated on par with equity, (4) that Sections 241 to 244 will need to be read together and they are not mutually exclusive in as much as though conditions and parameters as contained in Section 244 from the jurisdictional basis for Section 241, in the same manner the grievances mentioned Section 241 can only be maintained 'provided such member has a right to apply under Section 244' has been stated in Section 241. He argues primary rule of interpretation is that every part of a section should be given its full and natural meaning, it cannot be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 398. Application to Company Law Board for relief in cases of mismanagement - (1) Any members of a company who complain - (a) 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 (b) 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 manager 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 public interest or in a manner prejudicial to the interests of the company; (b) the 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 the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total number of its members. (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: (2) For the purposes of sub-section (1), where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (3) Where any members of a company are entitled to make an application in virtue of sub-section (1), 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. (4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Company Law Board under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled. Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation. -For the purposes of this sub-section, where any share or shares are held by two or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a rearrangement to Section 399 of 1956 Act into Section 244 of 2013 Act. 40. Before going into the changes and arrangements, I must place the submissions of Senior Counsel Mr. Mohan Parasaran saying that Section 244 is a Section determining who can become a Complainant to raise cause of action under Section 241, Section 241 is a Section giving rise cause of action to the Complainant qualified u/s 244 and then u/s. 242 to see if the Tribunal is of the opinion that the oppression or prejudice is made out and such oppression and prejudice leads to winding up of the Company if so, by considering such winding up would unfairly prejudice the complaining member or members, pass any remedy which is just and equitable to end the litigation in between the parties or to pass any orders as set out Sub-section 2 of Section 242. 41. This Bench agrees with the submissions of the Senior Counsel Mr. Mohan Parasaran because in the Act, arrangement is made in such a way that the person complaining must be qualified u/s 244 to raise cause of action u/s 241 then if the Tribunal is of the opinion u/s. 242(1) that oppression or prejudice is made out which is likely to drive the Tribunal to pass an Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not fulfilled. In the old Sub-section (4), three things are clear, one is authority was given to Central Government, two is the authority was given to the Central Government to ensure whether it is just and equitable to authorise a 'member' or 'members' to raise cause of action under either 397 or 398, three is an overriding clause authorising Central Government to authorise 'member' or 'members', to raise cause of action u/s 397 or 398 notwithstanding as to whether they have been qualified under sub-section (1)(a) or (b) of Section 399 or not. 45. What has happened to this Sub-Section (4) in Section 244? When it comes to Section 244, instead of making it as sub-section and instead of giving authorisation to Central Government, it has been made a proviso to Sub-section (1) of Section 244, meaning thereby that this right of authorisation to the 'members' to raise cause of action u/s 397 and 398 has been restricted to a proviso to the main Section by which the unconditional right under subsection to section 399 has metamorphosed into restricted right in the proviso to section 244. The power to authorise has been conferred upon NCLT. When qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposive interpretation canvassed by the Petitioners' Counsel saying that the issued share capital means 'equity share capital' is correct or not. 50. The Petitioners' Counsel laboured a lot to impress upon this Bench that the word 'class of members' added to Clause (b) of Sub-section (1) of Section 241 is relatable to Section 244 to read 'issued share capital' as 'issued equity share capital' for the reasons mentioned. One reason is that the legislature made so many changes in Section 397 and 398 of 1956 Act and abridged them into one Section i.e. 241 in 2013 Act. 51. Let us on this premise, again visit Sections 397, 398 and Sections 241, 244 to find out as to what are the changes made to them and whether such changes will have any bearing upon Section 244 of 2013 Act. Here, we should not forget that this Bench has already made an elaborate discussion on Section 244 and finally observed that no major changes have been done in respect to qualification, in fact, the compass of the jurisdiction has been further restricted for compliance of qualification criterion stating that discretion for considering waiver clause will happen only on an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 241 of the new Act. 53. Before going into further discussion, let us see the meaning of "cause of action'. If the dictionary meaning of "cause of action" is looked into, it says it is "a fact or facts that enable a person to bring an action against another". What is fact or facts in this case is the act or omission that falls within the ambit of oppression or prejudice stated in section 241. As to entitlement of cause of action, it is envisaged in section 244 that a member or members forming not less than one-tenth in number or one-tenth in value of the issued share capital alone are qualified for accrual of cause of action u/s 241, therefore cause of action u/s 241 is not a freehold cause of action, it is a qualified cause of action, the right to this cause of action comes upon qualification - if no qualification, no cause of action. 54. Here the cause of action is conceived in the Statute itself, so is the qualification. Both cause of action and qualification are not inalienable rights like fundamental rights to say that since the impugned action or omission is in violation of his fundamental rights, he is entitled to seek relief though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiff Rule. If this background is taken into consideration for reading Section 241, the bottom line for taking action under Section 241 is l/10th of numbers by member or not less than 10% of the value of shareholding. The basic rule taken into consideration for qualification criterion is the economic interest of the members. After all, why the Company comes into existence? It comes into existence to make profits on the money invested by the members. Therefore, the right given for the minorities is to protect economic interests of them. For this reason alone, class concept has not been introduced in Section 244 of the new Act thereby the phrase 'class of members' added to mismanagement clause will not have any bearing, not even remotely relatable to the qualification mentioned u/s 244 of the new Act. 56. The Petitioners' Counsel has vehemently argued that since 'class of members' concept has been introduced in cause of action Section (241), this has to be read into Section 244 of the new Act. We do not find any merit in this argument by looking at the phrase "class of members" mentioned in various sections of Company Law because shareholders -whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners' Counsel saying that the phrase 'issued share capital' used in Section 244 of the new Act is contrary to the purpose of legislation. It has been again and again reiterated by the Hon'ble Supreme Court, the purposive interpretation is to find out the purpose of legislation, but not to invent a purpose for the gain of any individual. The purpose of legislation is to initiate proceedings u/s 241 of the new Act only when the criteria of fulfilling one-tenth in number or not less than one-tenth of shareholding, i.e., 10% economic interest in the Company. Voting rights of the equity shareholders in the Company is only limited to the management of the Company. In fact, there is every possibility by virtue of this voting right to cause economic loss to the preference shareholders who do not have voting right to the decisions in the Company. Then what will happen to the economic interest of the preference shareholders who have invested their money in as much as the equity shareholders invested. Considering all these implications, 10% of the issued share capital is taken as qualification. The Petitioners have raised a point saying that today these Petitioners sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deceased and his death will have bearing on the lives of dependants, they are implicitly qualified to seek damages. Though, State takes action for the wrong done on criminal front, but when it comes to seeking damages, cause of action will accrue to kith and kin only. Therefore, for every wrongful action, cause of action on civil side is open only to those persons who are entitled to have entitlement, so entitlement criterion is the testing ground to accrual of cause of action. 62. Normally, when an act is illegal, the person against whom such illegality has been committed will get cause of action, for which a special jurisdiction need not be conferred upon a civil court, because Civil Procedure Code developed on the background of common law on the premise that inherent powers have been endowed upon a civil court to remedy the wrong unless it is expressly or impliedly barred by law. But over a period of time, special courts have come into existence. Wherever it has been mentioned that jurisdiction is conferred upon tribunal, it has to work within the frame work that has been assigned by the Statute, even the equity that is canvassed as given to NCLT under section 242 is also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses the test of repugnancy, if the act or omission does not pass that test, there cannot be any remedy, whichever Act we take, for example Contract Act, Transfer of property Act or Negotiable Instruments Act, for that matter any Act, repugnancy test has to be passed before laying hands on remedy. When remedy is not available in the cases where action is not hit by repugnancy, can civil court entertain a case where repugnancy of law is not present, certainly not possible for want of repugnancy. If such is the case, oppression remedy and unfair prejudice remedy do not fall within the ambit of civil court. This is the precise reason that drove the English Court to hold in Foss v. Harbottle that the action of the minority shareholders on company's behalf is hit by Proper Plaintiff Rule and Majority Rule. This case has become precursor to carve out a unique, exceptional and extraordinary jurisdiction to minority shareholders to pursue on company's behalf when the treatment against the minority is unfair and devoid of probity laced with bias, these words unfair prejudice and oppression are defined nowhere. If this case is dealt with as much as any other civil case, nothing is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomenon; it is a rare phenomenon. It is not the view of this Bench, it is the view laid by Honourable Supreme Court of India in Raghunath RajBareja v. Punjab National Bank, [2007] 2 SCC 230 is "law is hard, but it is law." 68. The petitioners are under misnomer that the word member used in section 244 is in relation to members holding equity only, had it been so, the legislature would have clarified in the section itself that members means and includes equity shareholders alone. Then, can it be presumed that the legislature taken every care to mention class of shares in other sections has remained incognito when it has come to drafting and approval of section of 244. Moreover, had the legislature felt that the oppression or prejudice remedy is to be limited or intended to be on class basis, why a separate provision has been brought under section 245 of the Act 2013. When the legislature consciously has not introduced this class concept in section 244 or even in section 241, instead of digging deep down why it has not been legislated in the way we felt right, if we start looking for the objective of the section, then our doubts will disappear and we get an answer to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r qualification is to be counted within the 'class of members', over this aspect, we have elaborately discussed and said that the member complaining can as well fight for the cause of 'class of members' if mismanagement is qua against a 'class of members'. But, it cannot be read that a 'class of members' themselves have to be treated separately attaining qualification u/s 244. It is only an additional relief that a member qualified u/s 244 can ask for relief. We already said that the addition of 'class of members' is inconsequential to the qualification mentioned u/s 244. When the legislature has taken every care in creating rights on class basis, had the legislature intended to introduce class concept, they would have introduced the same in Section 244 as well. But that has not been done. Therefore, there is no point in the argument of Petitioners saying that 'members' mentioned in Section 244 has to be read as 'class of members'. (3) That we do not find any merit in the argument of the Petitioners' Counsel saying that since the redeemable preference shareholding be shown as debt in the Accounting Treatment, preference s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en meaning is plain, language is plain; there cannot be any occasion to apply doctrine of purposive interpretation to any Section of Law. For there being no precedent saying that the meaning Section 244 is absurd and un-meaningful, this bench has to go by the language of the Section, when language is clear to this Bench to arrive to a conclusion to what has been said in the Section, we do not believe that there is any need to interpret to inflect the Section envisaged in plain language. Thereby, when language of the Section is plain and simple, we are of the view that there is no point to discuss every decision and to arrive to a conclusion to say that they are not applicable to the present case. The only precedent that is applicable to the present case is Northern Projects Ltd. (supra) to say that issued share capital means equity plus preference. Therefore, this Bench is of the opinion that the Petitioners' side has failed to satisfy this Bench that this Petition is maintainable. For there being a direction from Hon'ble NCLAT to decide waiver point soon after determination of maintainability point, this Bench, instead of dismissing this Company Petition as not maintainab ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
