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TMI Blog2024 (9) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... e? - HELD THAT:- Though there appears to be some controversy as to whether compliance of sub-section (a) of Section 399 which states that not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less or any members or members holding not less than one-tenth of the issued share capital of the company, is mandatory or directory, in so far as the essential test that determines the eligibility in terms of sub-section (a) of section 399 of the Companies Act, 1956 is concerned, there is no ambiguity. In the instant case, the petitioners even while contending that they have 1/10th share of the issued share capital of the Company at the time of filing the company petition, also on 20.03.2023 have filed the consent affidavits of 4 shareholders of the 1st respondent, namely, Mrs. Alka Sanghi, Aarthi Sanghi, Gaurav Sanghi and Aashish Sanghi, which were merely taken on record subject to the objection if any of the respondents but not under the liberty/direction dated 14/03/2023 of this Tribunal, as contented by the petitioners in their written submission - the purpose behind the consent affidavits is to overcome the pre-condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e XI of the Companies Act 1956, before the Company Law Board, Chennai, seeking to: 1) For a declaration that the alleged amendment to the Articles of Association as illegal, null and void and not binding on the Respondent No. 1 company; 2) For a declaration that the alleged removal/resignation of the Petitioner No. 2 on 30.03.2001 from the board of the Respondent No. 1 as illegal, null and void; 3) For a declaration that the resolutions passed at the Board Meetings/ General Meetings which have been manipulated by the respondents with respect to shareholding/directorship/vesting themselves with authority as illegal null and void and not binding on the Respondent No. 1 company; 4) For a declaration that form 32 dated 01.10.2007, 21.02.2008 and 04.03.2008 before the Registrar of Companies, Hyderabad reflecting the appointment of Respondent No. 2,4 to 9 as Directors as illegal, null and void; 5) Consequently, for a permanent injunction restraining Respondents 2 to 9 from functioning or acting as directors of the first respondent company or holding themselves out as directors of the first respondent company; 6) For declaring the manipulation in the shareholding of the Respondent No. 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders and petitioners stated they possess required 1/10th of the paid-up capital of the company for filing of the present petition. The annual return for the year 2007 is filed as proof of shareholding of the petitioners. However, the manner in which the manipulation in the shareholding has been done by the respondents is being challenged in the present petition. iv. It is averred that the Petitioner no. 1 and Respondent no. 3 were founder directors, as shown in the annual returns filed for the financial year 2006. It is alleged that the respondents have manipulated the records to show that the founder directors of the company have resigned and the Respondent no. 5 and 7 have become directors from 2000-2001. It is further averred that the Respondent no. 2 and 3 taking advantage, the statutory record of the Respondent no. 1 company like minutes books, books of accounts, registers etc were manipulated without the knowledge of the Petitioners. v. It is averred that due to the mismanagement done by the respondents in the Respondent no. 1 company effected the functioning of other profit- making group companies and lead to financial crises. It was further averred that Respondent no.7 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies that he was not shown as the Director in the Respondent no. 1 company. There were no resolutions available with the Registrar of Companies in this regard. It is submitted that the resolutions in the 1st respondent company filed with the Registrar of Companies were signed by the Respondent no. 10 as the authorized signatory. It was averred that the Respondent no. 10 and 11 herein are employees of M/s. Sanghi Polyesters Ltd., a group company and they have nothing to do with any of the group companies except M/s. Sanghi Polyesters Ltd. They have been forging the signatures of the petitioners and have been abetting in all the illegal acts of other respondents. x. It was averred that the Respondent no. 2 and 3 manipulated records to show that the Respondent no. 2,4 to 9 had been appointed as Directors in the Respondent no. 1 Company. The petitioners pleaded that the pattern followed by the respondents is that they would successfully manipulate the records to show as though new Directors, who are none other than their own children and their wives, are appointed to the Board. This would result in the respondent s gaining majority in the Board resolutions. It was further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent no. 2 were the only directors on the board, there is no question of quorum being present only when Respondent no. 2 was present. xv. It is averred that the petitioners prayed for the intervention of the Hon ble Tribunal to appoint a commissioner to inspect and authenticate the statutory records of the company to identify the extent of manipulations done by the respondents along with other reliefs. They further averred that unless the statutory records are summoned and kept under protection, the respondents could continue to manipulate and this would further prejudice the rights of the petitioners. xvi. In support of the above pleadings, petitioners have relied upon the following documents: 1) Memorandum and Article of Association dated 1983; 2) Appointment of Respondent no. 5 and 7 as Directors (Form no. 32) dated 31-03-2001; 3) Annual Return of the year ending 2003-04 dated 30-09-2004; 4) Resolution vesting executive authority on board dt:01.04.2005 5) Annual Return of the year ending 2005-06 dated 31-03-2006; 6) Annual Return for the year ending 2006-07 dated 31.03.2007. 7) Appointment of R2 as director dated 01.10.2007. 8) Letter from 1st petitioner to 10th respondent date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- each and the paid up and issued share capital is 39,390 consisting of 39,39,000 of Rs. 100/- each. It is averred that based on the annual returns of the financial year 2006-07, the Petitioner No.1 and 2 claims to be the share-holder of Respondent No.1 company and hold only 10 and 2145 shares respectively. That the threshold limit of 1/10th thereof is 39,390 equity shares whereas the Petitioners 1 and 2 together hold 2155 equity shares which is 5.47% of the total issued capital of the 1st Respondent Company. Hence, they do not constitute together 1/10th of the issued share capital making the Petitioners No. 1 and 2 not qualified to file the company petition. It is further averred that the total number of share-holders of the 1st Respondent company is 22 and the thresh hold limit of 1/10th thereof comes to 2.2 whereas the petitioners No. 1 2 together are 2 in number. It is averred that in view of the fact that the Petitioner No.1 and 2 together do not own requisite percentage of shares nor do they constitute 1/10th of the total members making the company petition liable to be dismissed as not maintainable. It is further averred that the contention of the Petitioners no. l and 2 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact on that day, did not anticipate the death of the their father and in those circumstances Respondent No. 2 and 3 could not preclude the daily routine work of the affairs of the company and the appointment of Respondent No. 9 is one such on 1-3-2008 in usual and routine work of Respondent no. 1 company prior to the death of petitioners father, and Petitioner no. 1 was aware of the said appointment and was done with his consent. They further averred that in Sanghi Textiles Pvt Ltd, Petitioner No. 2 and his wife indulged in all illegal activities by removing directors in the said company from the board by appointing his family members as Board of directors and for the said illegal removal and appointment the matter is pending before this Hon ble Tribunal in C.P. No 72 of 2008 (T.P. No. 32/HDB/2016). ix. It is averred that in reply to para-VI (m) and (n) all the appointments of Directors in the Respondent no. 1 company were made with active knowledge and consent of the Petitioner no. 1. And allegations arraying the employees of another company as respondent No. 9 and 10 in this company petition for the records of forgery of signature is nothing but an act of vengeance to cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration by this Tribunal are: (1) Whether the Petitioners have satisfied the pre-condition envisaged under sub sections (1) and (3) of section 399 of the Companies Act, 1956? If the answer is no, whether the company petition is maintainable? (2) Whether amendments made to the Articles of Association and the declarations filed before Registrar of Companies, by the respondents were prejudicial to the interests of public, the 1st respondent company, and the petitioner, amounting to the acts of oppression and mismanagement? 7. We have heard Shri Venkat Vardhan Shri T. Vijayakumar Reddy, Counsels for Petitioner No. 1, Shri S.Chidambaram, PCS Shri Yogesh Jagia, Counsel for the Petitioner No. 2, Shri Sharad Sanghi, Counsel for the Respondents No. 3 to 5 and Shri Avinash Desai, Sr Counsel assisted by Shri Amarender Reddy and Shri A. Chakravarthy, Counsels for the Respondents No.6 to 8. Perused the record, written submissions and the case laws. Point (1): Whether the Petitioners have satisfied the condition precedent envisaged under subsections 1 3 of section 399 of the Companies Act, 1956? If the answer is no, whether the company petition is maintainable? 8. At the outset, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is less than half then its value shall be ignored. 46.50 should have been rounded off to 47 and not to 46 as has been done. If 47 candidates would have been considered for selection in general category, the respondent was sure to find a place in the list of selected meritorious candidates and hence entitled to appointment. 12. Shri Sharad Sanghi, the Ld. Counsel for the Respondents 3 to 5 would contend that, the above company petition is per se, not maintainable as the petitioners are not qualified under the provisions of section 399 (1) (3) of the Companies Act 1956, hence the petition is liable to be dismissed as not maintainable. According to the Ld. Counsel, the petitioners neither constitute one-tenth of the total number of members nor do they hold together one tenth of the issued share capital of the 1st respondent company as on the date of filling the company petition. According to the Ld counsel the annual returns of the financial year 2006-07 based on which the Petitioners claim to be the shareholders of the 1st Respondent company shows that the petitioners hold only 10 and 2145 shares respectively, as such the present petition is liable to be dismissed. 13. Ld. Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that by reason of such change, if 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; may apply to the[Tribunal] for an order under this section, provided such members have a right so to apply in virtue of section 399. Section 399 of Companies Act, 1956: Right to apply under section 397 or 398:- (1) The following members of a company shall have the right to apply under section 397 or 398:- (a) 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 its members, whichever is less or any members 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; (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 enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an application under S. 397 or S. 398 or under both, without any particulars, such as the nature of the allegation or complaint to be made in the petition and the nature of the relief sought to be claimed in the petition, cannot be the result of an application of the mind to the question before them and therefore, such a consent cannot be a valid consent. (Para 7) The expression consent in writing occurring in S. 399(3) of the Act will have to be read in the context of the provisions contained in S. 399(1). S. 399(1)(a) contemplates not less than 100 members of the company filing the application. Instead of all such members signing the application and: pursuing the application in court by taking all the trouble, the Parliament has provided for a procedural facility in sub-s. (3) of S. 399. The consent contemplated under S. 399(3) is an Intelligent consent, in the sense, a consent given for the purpose of making a particular allegation in the petition and for the purpose of claiming a particular relief therein and; therefore, a blanket, consent as in the present case cannot be a consent as contemplated by the section. (Para 8) 17. In Abid Hussain Khan and Ors. vs Shri Jaspal Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 non-compliance may be condoned or dispensed with. In the latter case, the rule is merely directory provided there is substantial compliance with the rules read as a whole and no prejudice is caused. Section 399 of the Act has replaced Section 153-C (3) of the Indian Companies Act, 1913 with 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 . Thus, from the case law as above stated, though there appears to be some controversy as to whether compliance of sub-section (a) of Section 399 which states that not less than one hundred members of the company or not less than one-tenth of the total number of its members, whicheve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Legislature, makes it abundantly clear that the written consent is a condition precedent for maintaining a petition under section 397 of the Companies Act 1956. 22. Indisputably, in the pleadings of the company petition it has been specifically asserted that the consent affidavits of other shareholders have been filed as Annexure, to the company petition, which plea however later turned out to be false, as no such Annexure has been enclosed either to the company petition. Moreover, the company petition is conspicuously silent on who, out of the total 22 shareholders have given their consent and what was the percentage of their shareholding or even the names of the shareholders who have allegedly consented for filing the present petition. However, in the purported consent affidavits which were subsequently filed on 20.03.2023, the deponents of the said affidavit have stated that, the fact of grant of consent by me is mentioned in the company petition filed . There is yet another assertion that, being old matter I am not able to recall about document handed over to Mr. Girish Sanghi, my father conveying my consent for filing the company petition , which cannot be countenance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 equity shares of Rs. 100/- each. The Issued, Subscribed and paid-up capital of the company is Rs. 39,39,000/- consisting of 39,390 shares of Rs. 100/- each consisting of 22 shareholders. If 1/10th number of 22 members is computed it would come to 2.2. However, relying on the ruling of the Hon ble Supreme Court of India, in State of UP and Another Vs Pawar Kumar Tiwari and Others [(2005) 2 SCC 10] where in it was held that, We do not find fault with any of the two reasonings adopted by the High Court. The rule of rounding off based on logic and common sense is: if part is one-half or more, its value shall be increased to one and if part is less than half then its value shall be ignored. 46.50 should have been rounded off to 47 and not to 46 as has been done. If 47 candidates would have been considered for selection in general category, the respondent was sure to find a place in the list of selected meritorious candidates and hence entitled to appointment. Ld counsel of the 2nd Respondent contended that, by applying the rule of rounding off, the 10% of the total 22 members being 2.2 and the same when rounded off, would become 2. Hence, the requirement of 10% remain satisfied. 26. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointments of Respondent no. 2 to 9 before Registrar of Companies on 01.10.2007, 21.02.2008 and 04.03.2008 are illegal and therefore are liable to be declared as null and void. 29. It is pertinent to state that the 1st petitioner Ravi Sanghi had sought transposition of himself as one of the respondents and therefore, did not urge any of the pleas raised in this petition. 30. Learned Counsel would further contend that deceased 2nd Respondent Anand Sanghi and 3rd respondent Sudhir Sanghi, acting in concert, have transferred 12900 equity shares held by Sanghi Textiles Limited and 3900 shares held by Ram Charan Sanghi (HUF) without transfer of documents prescribed under section 108 the Companies Act 1956, the knowledge of which was gained by the portioners only on verifying the Annual Return for the year ending 29.09.2007. Therefore, according to the Ld. Counsel, the transfer of these 12900 equity shares of Sanghi Textiles limited and 3900 held by Ram Charan Sanghi, is an act done prejudicial to the interests of the 2nd petitioner and the 1st respondent amounting to oppression and mismanagement hence liable to be set aside. 31. Shri Sharad Sanghi, Ld. Counsel representing the 3 to 5 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Learned Counsel for the 2nd petitioner, further contended that the deceased 2nd respondent Anand Sanghi and the 3rd respondent Sudheer Sanghi, have manipulated and amended the Articles of Association of 1st respondent, in order to illegally gain control of the affairs of the 1st respondent Company and therefore, the same constitutes act of oppression and mismanagement on part of these respondents. Hence, the prayer of the petitioner in this regard deserves to be allowed. 36. In so far as the amendment that was carried on 18.02.2008 to Article 109B of the AOA of the 1st respondent is concerned, the said amendment which has made the presence of Anand Prakash Sanghi, necessary for the quorum of any board meeting to become valid, as on date has become infructuous due to passing away of Anand Prakash Sanghi, during the pendency of these proceedings. 37. In so far as the contention that the registered office of the first respondent has been shifted without following the procedure of the law to the residence of Anand Prakash Sanghi is concerned it is to be stated that the said allegation no longer survives, since as per the MCA website the Registered office first respondent is not at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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