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TMI Blog2020 (11) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether written consent is required to be filed alongwith the Petition? - HELD THAT:- The requirements contained in Regulation 18 of Company Law Board Regulation, 1991 can hardly be said to be mandatory in the sense that non-compliance would ipso facto result in the dismissal of the petition. Thus, we can say that sub-section 2 of Section 244 of the Act only speaks of obtaining of written consent of members. Though Rule 81 of NCLT rules, 2016 provides that the letter of consent signed by the members shall be annexed to the petition, however, non-compliance would not ipso facto result in the dismissal of the petition. We can say that such defect can be cured subsequently by filing of the written consent of members. It is not out of context to refer that Rule, 58 of the National Company Law Tribunal, Rules, 2016 provides that failure to comply with any requirements of these Rules shall not invalidate any proceedings, merely by reason of such failure, unless the Tribunal is of the view that such failure has resulted in miscarriage of justice. Thus, the written consent obtained under Section 244(2) of the Act is not annexed with the Petition as per the Rule 81 of NCLT Rules, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 345 of 2019 - - - Dated:- 4-11-2020 - (Justice Jarat Kumar Jain) Member (Judicial) , (Balvinder Singh) Member (Technical) And (V.P. Singh) Member (Technical) For the Appellant : Mr. Abhijeet Sinha and Mr. Naman Jhabakh, Advocates For the Respondent : Mr. Ratik Sharma and Mr. Pawan Upadhyaya, Advocates for R-1. Mr. Ramji Srinivasan, Sr. Advocate, Mr Satyavikram, Mr Rishab Kapoor, Mr. Shikhar Singh, Advocates for R-2 to R-5. Ms Lekha Vishwanath, Advocate. Mr. Shabaz Hussain, Advocate for R-8. Mr. KS Ravichandran, PCS for R-10. JUDGEMENT Jarat Kumar Jain. J 1. National Company Law Tribunal, Bengaluru Bench, Bengaluru vide Order dated 18.10.2019 allowed an Application, I.A No. 317 of 2019 in CP No. 82/BB/2019, whereby dismissed the Company Petition as it did not meet the threshold criteria under Section 244 of the Companies Act, 2013 (hereinafter referred to as the Act ). Hence, the Petitioners (Appellants herein) have filed this Appeal under Section 421 of the Companies Act, 2013. 2. Brief facts of this case are that the Appellant Nos. 2 and 3 are the wife and daughter of Appellant No. 1 respectively. The Appellants are Directors and Shareholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively i.e. total 42.76% of the issued share capital in the Respondent No. 1 Company. The Appellant Nos. 2 3 have executed a Power of Attorney dated 04.04.2019 in favour of the Appellant No. 1 and have authorized and empowered him to inter alia give the consent on behalf of them and sign, verify and present the Petition. Non-filing of the Power of Attorney alongwith the Petition, ipso facto would not lead to dismissal of the Petition or to vitiate the entire proceeding before the Tribunal. Section 244(2) does not provide that the consent of the Members supporting the Petition is necessarily filed alongwith the Petition under Section 241 of the Act. The maintainability of the Petition is challenged on technical ground and the issue is mixed question of law and fact. Therefore, cannot be taken up as a preliminary issue hence, the Application deserves to be dismissed on this ground alone. 5. Learned Tribunal held that in fact the Appellants (Petitioners) are holding 8.93%, 8.10% and 8.52% shares respectively and remaining shares are sub-judice before the Hon ble High Court of Karnataka as the Will of (Late) Mr. Basava Purnaiah and (Late) Mrs. C. Sarojini are in dispute and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 SCC 341, while interpreting Section 399 of the Companies Act, 1956 held that the consent can be given by the Power of Attorney Holder of such shareholder and issue of consent must be decided on the basis of the broad consensus approach, in relation to avoidance and subsistence of the case. It is not necessary that the consent should be given by the member personally. For this purpose, Learned Counsel for the Appellants also placed reliance on the Judgment of Hon ble Supreme Court in the case of J. P. Srivastava Vs. Gwalior Company Sugar Ltd. (2005) 1 SCC 172 and Bhagwati Developers Pvt. Ltd. Vs. Peerless General Finance Investment Company Anr. (2013) 5 SCC 455. 8. Learned Counsel for the Appellants also submitted that Section 244 of the Act, only provides for obtaining written consent of other members but does not speak for filing such consent alongwith the Petition. Hence, non- filing of the Consent alongwith the Petition would not ipso facto result in the dismissal of the petition. 9. Learned Counsel for the Appellants further submitted that though Rule 81(2) of National Company Law Tribunal Rules, 2016 (in brief NCLT Rules, 2016) provides that the consent signed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of three Appellants, therefore, the Appellant No. 1 alone cannot maintain the Petition. 14. Learned Senior Counsel for Respondent Nos. 2 to 5 submitted that as per the Company s balance sheets for the Financial Years 2016-2017 2017-2018 the Appellant Nos. 1, 2 and 3 hold 8.93%, 8.10% and 8.52% shares respectively (total shareholding 25.55%). Thus, the Appellant s contention that their collective shareholding is 42.76% or the individual shareholding (26.14%) of the Appellant No. 1 is contrary to the record, therefore, the Appellant No. 1 individually cannot maintain the petition. 15. Learned Senior Counsel for the Respondent Nos. 2 to 5 further submitted that a Joint Petition can be filed with the written consent of other members and the consent should be filed alongwith the Petition. There is no pleading in the petition that the Appellant No. 1 has obtained the written consent of Appellant Nos. 2 and 3 for filing the petition under Section 241 of the Act. Rule 81 of the NCLT, Rules, 2016 provides that in case of Joint Petition under Section 241 of the Act, written consent shall be annexed to the Petition. In the present case, the Appellant No. 1 produced a GPA of the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower of Attorney. 18. After hearing Learned Counsel for the parties, we have gone through the record and considered their rival submissions. 19. Firstly, we have considered the scope of enquiry under Section 244 (1)(a) of the Act. At an initial stage, the maintainability of the company petition on certain preliminary objection is analogous to the power of Civil Court to decide the Application for rejection of plaint under Order 7 Rule 11 of Code of Civil Procedure, 1908. The Hon ble Supreme Court in the Case of Bhau Ram Vs Janak Singh (2012) 8 SCC 701 has laid down the law that in order to decide an application for rejection of plaint under Order 7 rule 11 CPC, the Court is precluded from considering the defense of the defendants and their evidence. The Court has to look into the pleadings in the plaint and the documents annexed with the plaint. The stand of the defendants in the written statement or in the application is wholly immaterial for deciding the application under Order 7 Rule 11 of the CPC. 20. Hon ble Supreme Court in the case of J.P. Srivastava (supra) held that the objection of maintainability of the petition on the ground that without obtaining the consent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some major differences. Section 153-C (3) of the 1913 Act itself provided that the consent of the shareholders supporting the petition should be obtained in writing . Sub Section (3) of Section 399 of the 1956 Act, however, contains no such requirement. It only speaks of obtaining of the consent. It does not speak of consent in writing nor does it require any such writing to be annexed with the petition. Many of the decisions cited by both the parties have turned on the wording of Section 153-C (3) of the 1913 Act such as Makhan Lal Jain vs. The Amrit Banaspati Co. Ltd AIR 1953 Allahabad 326 when in the context of Sub section 3 of Section 153-C (a) it was held: the law requires that the consent should be in writing, i.e., in the form of a document. Therefore, the document itself should prove that the consent has been given. No evidence, either by way of affidavit or of oral sworn statement in Court, can be given to prove that such consent was given. 39.The reasoning in this decision would no longer be apposite having regard to the change in the language in Section 399(3) and the shifting of the requirement from the Act to Regulation 18 of the Company Law Board Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide evidence in support of the plea taken in the petition. If ofcourse the objection to the maintainability is taken by way of demurrer, the CLB can decide the issue on the basis of the averments contained in the petition alone, accepting the pleas therein as correct. But where the CLB takes into consideration facts outside the petition as it has done in this case, it cannot foreclose the petitioner from supporting its case in the petition on the basis of evidence not annexed thereto. Since the CLB calculated the total shareholding of the company including preference shares based on the allegations contained in the respondent No.8's application, it was for the CLB to determine the issue of actual prior consent on evidence. This view finds support from Reg. 24 which says: 24. Power of the Bench to call for further information/evidence: - The Bench may, before passing orders on the petition, require the parties or any one or more of them, to produce such further documentary or other evidence as the Bench may consider necessary. - (a) for the purpose of satisfying itself as to the truth of the allegations made in the petition; or (b) for ascertaining any inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsent presupposes physical power, mental power and a free and serious use of them. Examined in the light of these meanings and keeping in view the purpose for enacting section 399, we have no doubt, that the expression consent in writing used in section 399(3) means conscious approval of the action proposed to be taken by the persons to whom the consent has been given. We are also of the view that the writing itself should indicate that the persons who have signed the consent letters have applied their minds to the question before them and on application of minds have given consent for a certain action. Under section 402 of the Act, the court, on an application under sections 397-398 and without prejudice to the generalities of the powers of the court, can grant several types of reliefs. In this background, lit is necessary that the writing must indicate that the members giving consent had applied their minds to the allegations to the made and the reliefs sought to be prayed for in the proposed action and have given their consent for seeking those reliefs. This is apparent from the expression consent in writing . Had the intention been that the writing should not indicate the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ava (Supra) held that regulation 18 of the company law board regulation 1991 provides that where the petition is presented on behalf of members, the letter of consent given by them is required to be annexed to such petition. This requirement can hardly be said to be mandatory in the sense that noncompliance with any of them would ipso-facto result in the dismissal of the petition. The Petition cannot be dismissed on technical grounds as the written consent of the other members has not been obtained and filed alongwith the Petition. Whether consent should be given by a member personally or power of attorney holder of such member can give consent? 30. Hon ble Supreme Court in the case of Bhagwati Developers (P) Ltd. (Supra) followed the earlier judgments in the case of J.P. Srivastava (Supra) and P. Punnaiah (Supra) and held as under:- 16. Section 399 of the 1956, Act neither expressly nor by implication requires that the consent to be accorded therein, should be given by a member personally, as the same can also be given by the power-of-attorney holder of such a shareholder. Furthermore, the issue of consent must be decided on the basis of a broad consensus approach, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was not filed alongwith the petition and there is no pleading in the petition or the Affidavit sworn in support of petition. In the GPA, the Appellant No. 2 and 3 did not state the reasons for executing the GPA, while all the Appellants are residing together. Learned Senior Counsel has also raised these doubts before us in the arguments. 33. As we have discussed above that non-filing of written consent ipso facto would not result in dismissal of the petition. The GPA executed and notarized on 04.04.2019 and the petition under Section 241 and 242 of the Act filed on 30.04.2019. There is no finding rendered by the Tribunal that the GPA is back dated or a forged document and the Appellant Nos. 2 and 3 are not denying the execution of this document. 34. Learned Tribunal in the impugned Order without discussing any evidence stated that execution of the GPA was itself doubtful which might have been executed subsequent to filing of the main Company Petition. In the case of J.P. Srivastava (Supra), there was an allegation that the stamp paper on which the Affidavits have been affirmed were purchased subsequently, however, the Hon ble Supreme Court declined to accept this ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In this regard, we would like to refer the Judgment of Hon ble Supreme Court in the case of J.P. Srivastava (Supra) in which it was held as under: 48. 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 litigation is not indulged in by persons who have no real stake in the company. However, it is of interest that the English Companies Act contains no such limitation. What is required in these matters is a broad common sense approach. If the Court is satisfied that the petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement. Substance must take precedence over form. Of course, there are some rules which are vital and go to the root of the matter which cannot be broken. There are others where noncompliance may be condoned or dispensed with. In the latter case, the rule is merely directory provided there is substantial compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appeal is allowed and impugned order is set aside. The matter is remanded back to the Tribunal for disposal of the Petition as per law. 44. The Appellant has also filed the Application I.A. No. 1580 of 2020 before us seeking the following reliefs: A. restrain the Respondents from giving effect to the resolutions passed the purported AGM of the Respondent No. 1 Company held on 06.05.2020. B. Restrain the Respondents from including the names of the Appellants as Directors retiring by rotation in the notice convening any future Annual General Meetings of the Company; C. Declare the purported AGM held on 06.05.2020 as illegal and void and to restrain the Respondents No. 2 8 from holding office of a director and appoint independent director or directors until the appeal is adjudicated upon; D. Direct the Company to produce copies of all the bank statements where it holds an account i.e. current and savings, for the financial year 2017- 2018, 2018-2019, 2019-2020 and till 30th June 2020. E. restrain Respondents No. 2-8 from operating any of the bank accounts of the Company and appoint a Receiver or an Independent Chairperson to manage the affairs of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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