Descon Ltd. vs Biman Behari Sen and Others

I.P. Mukerji, J.

Background:

This is an appeal from the order of the Company Law Board made on March 30, 2010 (Biman Behari Sen v. DESCON Ltd. (No. 1) (2011) 162 Comp Cas 611). It held in that order that the supporters of the Applicants before them were more than the required number necessary u/s 399 of the Companies Act, 1956 ("the Act") to support their application under Sections 397 and 398 of the Act. The Appellant submits that such support was not there and the Board ought to have dismissed the main proceedings and allowed their application in this behalf.

Any shareholder cannot maintain a proceeding under Sections 397 and 398 of the Act. Section 399, inter alia, enacts that 100 or one-tenth of the total number of members of a company whichever is less have the right to apply under Sections 397 and 398. Any member or members holding not less than one-tenth of the issued share capital can also apply. Section 399(3) permits any member with the support of others, adding to make the required number of shareholders, to make the application.

Here it is common ground that the Applicants and their supporters have only 4.73 per cent, shares in the Appellant-company. So they do not fall within the alternative requirement.

Now, the question is whether these Applicants and their supporters satisfied the first requirement. The total number of members admittedly is 600. Respondents Nos. 1, 2 and 3 in this application being the Applicants before the Company Law Board filed the proceedings with the alleged support of a further 113 shareholders. Therefore going by the above section if they can show that these 113 or 60 out of them supported them, they fulfilled the requirement. The Appellant contends that there is no such consent as required by law. Therefore, the proceedings should fail on this preliminary ground.

Arguments:

The case of the Appellant was put in this way. They argued that 93 such letters of consent appended to the petition were undated. According to the affidavit-in-opposition filed by the contesting Respondents being the Applicants before the Board, these consent letters were signed some time in November, 2008. Further, according to the admission of the said Respondents at page 292 of the paper book the 397 proceedings petition was made ready on December 5, 2008 and filed in January, 2009. Therefore, according to them all these consent letters were signed before the 397 petition was made ready. Hence, there was no consent to this petition. Further, according to the Appellant the specimen signatures of 9 persons do not tally with the signature recorded with the company. One does not hold any share in the company.

They contend that a shareholder''s consent can only be taken note of by the court if the consent is real. That means that the shareholder has gone through the petition, understood its contents and accordingly, signified it in such a manner that the court is satisfied that he had read and understood the case and accordingly, given his consent. A Division Bench judgment of the Madras High Court in M.C. Duraiswami v. Sakthi Sugars Ltd. reported in (1980) 50 Comp Cas 154 and another decision in Omni India Limited and others Vs. Balbir Singh, were cited by the learned senior advocate for the Appellant. Mr. Aniruddha Roy, learned advocate led by Mr. S.K. Kapoor for the contesting Respondents has drawn my attention to the wording of the consent letters and argued that on a reading of such consent letters, there should not be any doubt in the mind of the court that the supporters of the Applicants had duly signified a real consent to filing of Section 397 petition.

It was also submitted on behalf of the Respondents that these consent letters were more elaborate, precise and indicative of the mind of the shareholders, than the ones dealt with by the respective courts in M.C. Duraiswami Vs. Sakthi Sugars Ltd., and Omni India Limited and others Vs. Balbir Singh,

Learned Counsel for the said Respondents also cited the important case of J.P. Srivastava and Sons Pvt. Ltd. and Others Vs. Gwalior Sugar Co. Ltd. and Others, placing paragraphs 39-47 of that decision. I will be relying extensively on that decision as I discuss the case of the parties in the "discussion" below.

Discussion:

Let me first consider one sample alleged letter of consent, being the one given by Kamala Kant Singh, undated and annexed at page 400 of volume II of the paper book in Appeal No. 138 of 2010. It runs as follows:

I, being a shareholder of Descon Ltd., having its registered office at Plot Nos. X-1, 2 and 3, Block EP, Sector: V, Salt Lake City, Kolkata-700 091, do hereby state that I have pursued and understood the Instant petition made, inter alia, u/s 397 and 398 of the Companies Act by Mr. Somenath Dutta and two others, viz. (a) Mr. Biman Bihari Sen (b) Mr. Pratanu Kumar Mitra including the grounds for oppression and mismanagement and reliefs sought therein, and do hereby give my consent to the filing of the same by the said Petitioners and including this letter of consent as a part of annexure P2 therein, being the shareholder who has consented to filing of the petition before the hon''ble Company Law Board, Principal Bench, New Delhi.

Kolkata, this...day of....2008. Signature Name of the shareholder : Kamala Kant Singh Address of the shareholder : Andrew Yule and Co. Ltd. 8, Dr. Rajendra Prasad, Sarani Pin-700 001 No. of shares held : 200 Folio No. : 445 Client :

First he says that he is a shareholder of the Appellant-company. Secondly, he has perused and understood the petition under Sections 397 and 398 of the Act. Thirdly, he says that he gives his consent to filing of the petition. 93 such consent letters are undated.

Let me now consider the decision in J.P. Srivastava and Sons Pvt. Ltd. and Others Vs. Gwalior Sugar Co. Ltd. and Others, Here, the Supreme Court says that the alleged requirement of filing consent letters is to be found in annexure III with reference to Regulation 18 of the Company Law Board Regulations, 1991. Serial No. 27 of such Annexure III contains a list of documents required to be annexed to a petition under Sections 397 and 398 of the Act. This annexure requires consent letters to be annexed to the petition. The hon''ble court remarked that such requirement could not be said to be mandatory. However, the court was of the opinion that the Company Law Board could determine whether such consent had been obtained, on the basis of the evidence before it. It pronounced the following in paragraph 39 of that decision (page 713):

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 Regulations, 1991 (hereinafter refer to as the ''Regulations''). Regulation 18 also does not itself contain the requirement for filing the consent letters. The requirement has been prescribed in annexure III, which is referred to in regulation 18. Serial No. 27 of annexure III contains a list of several documents required to be annexed to petitions relating to the exercise of powers in connection with prevention of oppression or mismanagement under Sections 397, 398, 399(4), 400, 401, 402, 403, 404 and 405. The documents required to be annexed to such petition include ''where the petition is prescribed on behalf of members, the letter of consent given by them''. Other documents required to be filed include ''documents or other evidence in support of the statement made in the petition, as are reasonably open to the Petitioner(s)'', as also ''three spare copies of the petition''. These requirements can hardly be said to be mandatory in the sense that non-compliance with any of them would ipso facto result in the dismissal of the petition. Apart from this, Regulation 18 itself is subject to the powers of the Company Law Board under Regulations 44 and 48. These read as follows:

Saving of inherent power of the Bench.: Nothing in these rules shall be deemed to limit or otherwise affect the inherent power of the Bench to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench.

Power to dispense with the requirement of the regulations.:

Every Bench shall have power, for reasons to be recorded in writing, to dispense with the requirements of any of these regulations, subject to such terms and conditions as may be specified.

The court was of the opinion that powers were given to the Company Law Board, even to dispense with the requirements of the regulations.

In this connection two more decisions need to be examined. The first is the case of M.C. Duraiswami v. Sakthi Sugars Ltd. reported in (1980) 50 Comp Cas 154. It is a decision of the Division Bench of the Madras High Court. It said that a consenting member should have known the details of the action, the reliefs that were prayed for and applied his mind before signifying consent. Such question could be gone into by the court.

In that case the alleged consent which was before the court was in the following terms (page 158 of 50 Comp Cas):

We, the undersigned, the members of Sakthi Sugars Ltd., whose particulars are given below give consent for M.C. Duraiswamy (the Appellant herein) a member of the company for filing a petition in the High Court of Judicature at Madras on their behalf under Sections 397 and 398 of the Companies Act of 1956.

The High Court had disapproved such consent, as not being real.

The second case was a Division Bench judgment of the Delhi High Court in Omni India Ltd. v. Balbir Singh reported in (1989) 66 Comp Cas 903, the ratio of which is similar to the Madras case.

In my opinion, the terms of consent given in this particular case are different from those dealt with by the Madras High Court and the Delhi High Court.

I have indicated earlier, the exact words in which the consent in this case was signified. The consent given in this case in my opinion meets the requirements of the Act. Fixing further duty upon a shareholder to spell out all the particulars surrounding that consent is virtually asking him to give evidence, which is not required by the statute and the said regulations.

Now, let me examine how the Company Law Board has dealt with such issue in the light of the decision in J.P. Srivastava and Sons Pvt. Ltd. and Others Vs. Gwalior Sugar Co. Ltd. and Others, . The material discussion and conclusion reached by the Company Law Board are as follows (page 616 of 162 Comp Cas):

As to intelligible consent in writing, he relied upon a recent citation in the case of (6) J.P. Srivastava and Sons Pvt. Ltd. and Others Vs. Gwalior Sugar Co. Ltd. and Others, to say that the bar under Sub-section (3) of Section 399 of the Act is applicable only when the supporters have no real stake in the company and also to say that substance takes precedence over the form, counsel says it is evident that the shareholders number required for filing being present even after the disputed shareholders are delisted from the supporters'' list and the consent letters of each of the supporters being separate and independent referring the present litigation, the letters being given prior to filing this case, in view of the ratio decided by the Supreme Court in the above case, counsel argued that all the other decisions saying consent in writing must be strictly complied with will be no more good law, because it is declared as directory. Counsel further argued that photocopies are also sufficient enough to place the consent of the supporters ; of course, counsel placed originals of those letters before this Court, but not filed as documents keeping reliance on the judgment supra.

On hearing either side, this Board noticed that the Petitioners complied with the number that is quantitatively required u/s 399, i.e., around 40, the ground that is taken up by the Applicants herein is not tenable, because every consent given in writing by each of the consentee''s in this case is independent and relating to the present litigation. Had there been various cases on behalf of the shareholders, it would be difficult to assume as to whether the consent given by them is for this case or to some other case. Since no other case is pending except this, it is invariably to be presumed, the consent in writing given by the Petitioners is for filing this petition only, not for any other thing...

Section 399 of the Act is rather a procedural compliance to file petition under Sections 397 and 398 of the Act. If any procedural compliance can be looked into, it must be for a limited purpose only as to whether such requisite number is there or not and as to whether any consent is there or not. If ex facie such procedural compliance is complied with, it cannot be said that a person coming with any grievance to any forum, cannot be restrained from pleading before the court of law by making roving inquiry. The substance of the citation of J.P. Srivastava and Sons Pvt. Ltd. and Others Vs. Gwalior Sugar Co. Ltd. and Others, , is the same.

As to Birla Corporation Ltd.''s case, it is an opinion expressed by the Company Law Board saying that the petition is motivated and one for an ulterior purpose at the threshold, such an opinion cannot be taken into consideration in this case on the ground that the Petitioners in this case are employees of Andrew Yule Co. Ltd. Just because they are the employees of Andrew Yule Co., it is not that they are not shareholders of DESCON Ltd., they being shareholders, they have every right to file a petition under Sections 397 and 398 of the Act. Whether it is a motivated one or filed with ulterior purpose is a fact to be decided only after considering it on merits of the main case but not at the preliminary stage. That being the position, it cannot be said that this petition is not maintainable on this ground.

I have examined the order. Although, the reasons are not elaborate, in 20 my opinion, they are adequate. The Board has accepted the photocopy consent letters appended to the petition. It has accepted that such consent was signified by each shareholder, to filing of the concerned proceedings, as there were no other proceedings pending relating to the shareholders and the company, involving furnishing of consent letters. As I have said earlier the Delhi and Madras decisions can be easily distinguished on the ground that the consent letters under consideration in those judgments were substantially different from the consent letters which are under consideration in this appeal. Although, the Supreme Court decision in the case of J.P. Srivastava and Sons Pvt. Ltd. and Others Vs. Gwalior Sugar Co. Ltd. and Others, was on a different point, namely, whether an application under Sections 397 and 398 could be entertained without annexing the consent letters, nevertheless, there are dicta in that judgment that evidence of such consent is very procedural and secondary. The hon''ble court relied on Regulation 18 of the said Regulations read with Regulations 44 and 48 to come to such conclusion. It also said that filing of these documents was not mandatory. However, it goes on to say that whether consent was obtained or not can be decided as a demurrer or at any subsequent stage.

Considering the passage in that judgment in paragraphs 39 and 40, I am of the opinion that the two Division Bench judgments of the Madras and Delhi High Courts may not be good authority any longer for the kind of consent required under the above sections of the Act.

I would add the following.

Section 399(3) says that consent has to be in writing. According to the Concise Oxford English Dictionary, 11th edition consent is defined as "permission for something to happen or to be done". Here, the question is whether the requisite number of shareholders gave such permission. The letters giving permission are annexed to the petition. They contain the statement as stated above and signed. 93 of them are undated- I do not think that the date of the document is very material in this case, as the Company Law Board has held that there was no second proceeding pending. Giving of consent is like accepting an offer. If there is acceptance there is contract. I think, challenge to such consent is similar to a challenge to formation of a contract. One has to show that there were some vitiating factors like duress or mistake or fraud or illegality which affected formation of the contract. He who alleges a fact has to prove it. When this kind of a consent letter is annexed to the petition, it is to be taken as consent correctly received. One who alleges that such consent is not real or is void or voidable has to establish such fact. I do not think that the Appellant has been able to establish such lack of consent. Moreover, as I have said before, the Company Law Board has dealt with the objection adequately.

For those reasons the appeal is dismissed. The order of the Company Law Board dated March 30, 2010, is affirmed. In the facts and circumstances there is no order as to costs.

Urgent certified photocopy of this judgment/order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.