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Judgment
S.P. Srivastava, J.
Feeling aggrieved by the order dated 19-11-98 passed by the Company Law Board, Principal Bench, New Delhi disposing of the petition No. 27/95 filed under sections 397/398 of the Companies Act, 1956, where under holding the said petition to be not maintainable in view of the provisions contained in section 399 of the said Act and refraining from passing any directions pursuant to the findings recorded by the Board in paragraphs 9 and 10 of the impugned judgment, the said petition had been dismissed, the appellants in Company Appeal No. 6/99 have now approached this Court invoking its jurisdiction envisaged u/s 10F of the Companies Act, 1956, praying that the impugned order of the Company Law Board so far as it pertains to the maintainability of the petition be set aside and the matter be remanded back to the said Board for decision.
The appellants in Company Appeal No. 5/99, have filed their appeal against the same order passed by the Company Law Board which is the subject matter of the Company Appeal No. 6/99 but have confined their relief to the findings/conclusions arrived at by the Board as indicated in paragraphs 9 and 10 of the impugned judgment and have prayed for setting aside of the same including the direction extending the life of the ad interim orders upto 31-3-1999.
The appellant in Company Appeal No. 7/99 had moved an application on 10-11-1998 raising the question in regard to the maintainability of the petition filed by the four appellants out of the five who have come up to this Court in Company Appeal No. 6/99. Her appeal is also confined to the reliefs claimed by the appellants in Company Appeal No. 5/99.
It may be noticed at this stage that the Members constituting the Company Law Board who had passed the impugned order had observed in the concluding paragraph of their order that they themselves felt that the correctness of their decision needs to be tasted on appeal.
The aforesaid observation appears to have been made in view of the fact that during the pendency of the petition before the Company Law Board, on the findings recorded by the Board itself, the parties had agreed to settle their disputes amicably by which the petitioners were to sell their shares to the respondents on a valuation to be made by a Chartered Accountant, pursuant to which, such a valuation was in fact got done but before the Bench could pass an order enforcing the settlement, one of the respondents in that petition, the appellant in the present Company Appeal No. 7/99, filed an application raising objections to the maintainability of the petition itself in terms of section 399 of the Companies Act, 1956. The Company Law Board had found on the basis of the valuation report that a sum of Rs. 6000/- per equity share would be an appropriate value for the equity shares of the Company and Rs. 100/- for each preference shares would be an appropriate value.
In paragraph IS of the impugned order, the Board had come to the conclusion that it was impossible to believe that the respondent No. 8, the appellant in Company Appeal No. 7/99, was not aware of the compromise efforts going on between the parties nor was not aware of the consent terms as recorded in the order dated 10-6-1996. The prayer for the recall of the order dated 10-6-1996 made by her was in the circumstances rejected by the Board.
The Company Law Board on the basis of the evidence and the materials brought on record had come to the conclusion that in fact the petition filed by the four appellants in Company Appeal No. 6/99 was not maintainable in view of the provisions contained in section 399 of the Companies Act, 1956.
In the aforesaid circumstances, in spite of the findings returned in paragraphs 9 and 10 of the impugned order, the Board had dismissed the petition. The observation referred to hereinabove was made in the aforesaid context indicating that the Board was in doubt as be whether in spite of the findings recorded in paragraphs 9 and 10 rejecting the claim of the respondent No. 8, the appellant in the present Company Appeal No. 7/99 holding that the dispute deserved to be amicably settled in terms of the order dated 10-6-1996, the petition was being dismissed on the ground of its non-maintainability.
Taking into consideration tire facts and circumstances of the case and the controversy raised, these appeals which had been heard together are being disposed of by a common order.
The provision contained in section 10F of the Companies Act, 1956 (hereinafter referred to as the Act) provides as follows:
10F. Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.
I have heard the learned counsel for the parties at some length and have carefully perused the record.
During the pendency of the appeal (Company Appeal No. 6/99), the appellants therein had moved an application being I.A. No. 4748/99 praying for taking on record the additional evidence consisting of nine documents.
Shri Mody, learned Counsel for the appellants during the course of hearing of the appeal had stated that the aforesaid application was not being pressed and had prayed that it may be dismissed as not pressed. Even otherwise also taking into consideration the nature and scope of jurisdiction envisaged u/s 10F of the Act, the aforesaid documents which were sought to be brought on record by way of additional evidence referring to a controversy in regard to a question of fact did not deserve to be brought on record as additional evidence because no enquiry into a question of fact is permissible in the present proceedings. The appeal contemplated u/s 10F of the Act, has to remain confined to a question of law and since investigation into a question of fact is not permissible while exercising the aforesaid jurisdiction, there can be no justification for permitting the additional evidence on a question of fact to be brought on record which will result in the reopening of a question of fact for a decision afresh, in the proceedings of the present nature, taking into consideration the nature and scope of the jurisdiction of this Court with which it is vested under the provisions of section 10F of the Companies Act. From the facts and circumstances as brought on record, it is apparent that the evidence referred to hereinabove was sought to be tendered as additional evidence in order to impugn a finding on question of fact. It would be useless for this Court to accept such an evidence for the purpose for which it is tendered. It must be emphasised that where a party wishes to adduce further evidence affecting the questions relating to facts it must be adduced before the Court or authority which can decide a question of fact as it is useless for such a party to tender such evidence before a Court or authority whose jurisdiction is confined to questions of law only.
In the aforesaid view of the matter, the application, I.A. No. 4748/99, is dismissed as prayed for.
The facts in brief shorn of details and necessary for the disposal of this appeal lie in a narrow compass: The petition filed u/s 397/398 of the Companies Act alleging acts of oppression and mismanagement in the affairs of M/s Gwalior Sugar Company Limited seeking various relief''s, which has given rise to this appeal, was filed by the appellants No. 1 to 4 in the present Company Appeal No. 6/99. The present appellant No. 3, Mrs. Nini Srivastava had indicated in the petition against her name as "For herself and as a Trustee J.K. Srivastava Family Trust". However, no authorising of the J.K. Srivastava Family Trust authorising the third petitioner to represent the trust nor any affidavit by her asserting that she was representing the trust had been annexed to the petition.
In paragraph 2 of the petition, it had been stated that the petitioner No. 3 was the wife of shri Vijay K. Srivastava and one of the share holders of the respondent No. 1 Company and holding a total of 1927 equity shares which constituted over 12% of the equity capital of the respondent No. 1 Company, whereafter there was an insertion in ink to the effect "plus 1029 preferential shares".
The Company Law Board had come to the conclusion that if the preference shares held by the trust is not taken into consideration, then the total shares held by the petitioners would work out to be about 7% of the subscribed capital and if the shares shown to be of the Trust are included, then the percentage would go to 10.85%. The Company Law Board was of the opinion that the only issue for examination was as to whether the trust was a party to the proceeding or whether the trustees had given their consent to file the petition and, if so, whether the same was legally valid. It was noticed by the Board that in the petition it had no where been stated that petitioner No. 3 had the consent of the trustees to file the petition. Further, no consent letter had been annexed with the petition. However, the consent letter was produced much after the date 10-11-1998 on which date the application had been filed by the respondent No. 8. The Company Law Board in its impugned order has noticed that the consent letter relied upon by the petitioners had not been enclosed to the petition even though there was a clear stipulation under the provisions contained in Section 399(3) of the Companies Act that members who have obtained the consent in writing of the other members, to make an application on behalf of and for the benefit of all of them. This conclusion was drawn on the basis of the provisions contained in section 399(3) read with Annexure-III of the CLB Regulations. The Board expressed the view that the requirement about the filing of the consent letters along with the petition on the date when the petition was filed was a prerequisite condition for the maintainability of the petition. The Board concluded that the petition suffered from various defects going to the root of, the matter and holding that the consent in writing had not been filed along with the petition and that the Trust did not on the day of the filing of the petition control all the 1029 preference shares and further all the trustees have not been made parties to the petition and especially the trustees could not, in law, give consent to a co-trustee to file the petition, the shares held by the Trust could not be taken into account for the purposes of the provisions contained in Section 399 of the Companies Act.
On the aforesaid findings, the Company Law Board held the petition as not maintainable being hit by the bar contained in Section 399 of the Companies Act and dismissed the same.
The learned Counsel for the appellants has tried to assail the findings returned against them by the Company Law Board.
The learned Counsel for the contesting respondents, has however tried to support the same and has urged that the defect regarding the ineligibility of the petitioners was fatal and incurable. It has further been pointed out that in the memo of appeal the appellants have not challenged the findings of the Company Law Board in regard to the interpolation made in the paragraph 2 of the petition.
A true copy of the Trust-Deed relating to "Mr. J.K. Srivastava Family Trust" has been filed, A perusal of the aforesaid trust-deed indicates that the settlement was made on 25th December, 1978 between Shri J. K. Srivastava on the one part and Smt. Rajmohini Srivastava and Shri Vijay Krishna Srivastava, ''The Trustees'' which expression was to include the Trustee or Trustees for the time being of the other part. It was indicated in the Trust-deed that the Settlor had two minor grandsons, Master Kunal Krishna Srivastava and Master Yatin Krishna Srivastava, sons of Shri Vijay Krishna Srivastava, for whose education and bringing up provision had to be made. Master Kunal Srivastava was disclosed in the Trust-deed to be two years and one month in age while. Master Yatin Krishna Srivastava was disclosed to be only one month of age.
In paragraph 7 of the Trust-deed, it was provided that the trustees shall hold the Trust Fund or any property representing the same in trust for the Settler''s said grandsons, so however, that when Master Kunal Krishna Srivastava attains the age of 18 years, he will be given his fifty percent share of the then Trust property or Fund and thereafter the same will vest absolutely in him, and so, however, that thereafter the Trustees shall hold the remaining trust property or Fund for the benefit of Master Yatin Krishna Srivastava till he attains the age of 18 years when the trust will automatically cease and the properties shall vest absolutely in the said grandson, Master Yatin Krishna Srivastava.
In paragraph 9 of the Trust-deed, it was provided that the power of filling up any vacancy amongst Trustees shall be in vested in the Settlor during his life time and thereafter the Trustees shall have the power to fill up the vacancy by majority decision. The number of Trustees shall not exceed three.
In the aforesaid circumstances, it is obvious that 50% of the total number of shares which were accretions to the Trust had ceased to be Trust-property on the attaining the age of 18 years by Master Kunal Krishan Srivastava and as stipulated in the Trust-deed vested absolutely in him with effect from the date on which he attained the age of 18 years.
Considering the circumstances, the Family Trust could not by any stretch of imagination be taken to be holding 1029 preference shares which could satisfy the minimum eligibility criteria so as to render the petition filed by the appellants No. 1 to 4 to be maintainable getting over the bar stipulated under the provisions contained in Section 399 of the Companies Act taking into account the total number of shares of the Company.
It may further be noticed that so far as Mrs. Nini Srivastava, the petitioner No. 3, is concerned, in paragraph 6.13 of the petition it had been stated that the petitioners had purchased 1277 equity shares in the Company in the year 1989 in the name of Nini Srivastava, petitioner No. 3, the wife of Mr. Vijay K. Srivastava. In the year 1989, the petitioner claims that J. K. Srivastava Group which included Mrs. Nini Srivastava, Mr. J. K. Srivastava and the Companies controlled by Mr. J. K. Srivastava had in all 1927 shares which constituted 12% of the total share holdings. However, by the year 1990, there was change in the ratio with the increase of the share held by the contesting respondents, it was not disputed either before the Company Law Board or before this Court that if 1029 shares which were claimed to be vesting in J. K. Srivastava Family Trust or even 50% thereof were excluded from consideration, the total number of shares held by the petitioners, the present appellants No. 1 to 4, fell much below the minimum 10% of the total share holding of the Company.
It is needless to emphasize that the requirement of locus stand of a party to a litigation is mandatory because the legal capacity of the party to any litigation whether in private or public action in relation to any specific remedy sought for has to be primarily ascertained at the threshold. A right to maintain a petition envisaged under Sections 397/398 of the Act, is subject to the conditions as contemplated under the provisions contained in Section 399 of the Act, which are mandatory in nature and require a particular legal capacity of a party in relation to the specific remedy sought for which ought to be primarily ascertained at the threshold.
The provisions relevant for the present case contained in Section 399 of the Companies Act are to the following effect:
(1) The following members of a company shall have the right to apply u/s 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 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;
(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) xxxx xxxx xxxx
(5) xxxx xxxx xxxx.
(emphasis supplied)
A perusal of the aforesaid provisions clearly indicates that the law requires that the consent referred to in Section 399(3) of the Act is a condition precedent to the making of the petition and must have been obtained prior to the presentation of the application. Such consent has to be in writing i.e. in the form of a document. It is therefore obvious that such document itself should prove that the consent has been given. No evidence either by way of affidavit or of oral sworn statement in the Court is permissible to be given to prove that such consent was in fact given.
The provisions contained in Section 399(1) of the Companies Act clearly stipulate that the right to apply u/s 397 or 398 of the Companies Act was made available to only such oppressed member or members of a Company who satisfied the minimum eligibility criteria specified in that section. The member/members of the company failing to achieve the minimum extent of share-holding specified u/s 399 of the Companies Act stand necessarily excluded, and have no right to apply or can be said to have a locus standi to maintain a petition. Consequently, the Company Law Board stands prohibited from taking any action exercising the jurisdiction envisaged u/s 397/398 of the Companies Act at the instance of such disqualified member/members having no right to invoke the jurisdiction of the Company Law Board.
It must not be lost sight of that if the law requires a thing to be done in a particular manner, it has to be done in that manner or not at all. The jurisdiction of the Company Law Board to take cognizance of and proceed to determine on merits the petition u/s 397/398 of the Companies Act and grant appropriate relief has been made dependant on certain exclusionary conditions as stipulated u/s 399 of the Companies Act. If the member/members of a Company who come forward with a petition envisaged u/s 397/398 of the Companies Act do not satisfy the minimum eligibility criteria laid down under the provisions of Section 399 of the Companies Act, it is obvious that the jurisdiction of the Company Law Board to entertain or adjudicate upon such a petition stands barred.
In the aforesaid connection, it may usefully be noticed that while considering a similar provision as involved in the present case, the Apex Court in its decision in the case of Rajahmundry Electric Supply Corporation Ltd. Vs. A. Nageswara Rao and Others, , had observed that the validity of a petition must be judged on the facts as they were at the time of its presentation.
The aforesaid was a converse case where the maintainability of a petition was sought to be challenged by reason of events subsequent to its presentation which was the withdrawal of the consent by some of the members of the company which, it was found could not affect either the right of the applicants to proceed with the application or the jurisdiction of the court to dispose it of on its own merits.
The provisions contained in Section 399 of the Companies Act in regard to the entertain ability/maintainability of the petition are clearly mandatory and peremptory in nature. A duty stood cast upon the Company Law Board to notice the provisions of the Act and give effect to them, even though not referred to in the pleadings. The provisions of the Act had to be given effect to, although in a particular case such an effect might have been inconsistent with the natural justice.
It may further be noticed that the onus of proving that the application was entertain able and maintainable clearly rested on the appellant. It may also be noticed that a contesting party is not competent to waive a plea in regard to such a defect going to the root of the matter and any omission on the part of the contesting party in this regard cannot absolve the concerned authority from its duty to dismiss the proceedings, in case it is found to be suffering from any defect as contemplated u/s 399 of the Companies Act. The concerned authority was bound under the law to raise the question even suo motu in regard to the maintainability and proceed only if it was satisfied that the petitioners had the minimum eligibility criteria and dismiss the petition on coming to the conclusion that it was not so.
In the aforesaid connection, it may further be emphasized that no amount of consent can confer jurisdiction upon an authority with which it is not otherwise vested.
The Company Appeal No. 6/99 so far as appellant No. 5 is concerned, is clearly not maintainable at its instance. The finding returned by the Company Law Board against the present appellants on the questions relating to their not satisfying the minimum eligibility criteria and the pre-requisite conditions as envisaged u/s 399 of the Companies Act are based on an appraisal of evidence on the record. These findings do not appear to suffer from any such legal infirmity which may justify an interference therein by this Court in the present proceedings.
Further, in view of the findings that the petition as framed was not entertainable and maintainable on the date of its presentation on account of the pre-requisite conditions and the eligibility criteria having not been satisfied by the petitioners, the Company Law Board could not assume a jurisdiction with which it could not be taken to have been vested and grant any relief in exercise of such an assumed jurisdiction, specially when no amount of consent can be deemed to have the effect of vesting the Company Law Board with a jurisdiction with Which it can be taken to be vested only subject to certain conditions which were not at all satisfied.
In the aforesaid view of the matter, the question of enforcing the terms as recorded in the order dated 10-6-1996 passed by the Company Law Board could not arise.
So far as the Company Appeal Nos. 5/99 and 7/99 are concerned, suffice it to say that these appeals are directed against the findings of the Company Law Board as contained in paragraphs 9 and 10 of the impugned judgment.
I am clearly of the opinion that the expression "decision" or "Order" contemplated u/s 10F of the Companies Act refers to any decision or order finally determining the rights and obligations of the concerned party or parties. A decision or order which could be the subject of an appeal contemplated under that provision must be such which goes to the toot of the matter and of a vital importance and has the effect of concluding the proceedings.
In the present case, the Company Law Board itself has refused to issue any directions on the basis, of the terms recorded in its earlier order dated 10-6-1996. Further, the Company Law Board itself has dismissed the petition.
Considering the facts and circumstances as brought on record, and the nature of the order passed by the Company Law Board, the Company Appeal Nos. 5/99 and 7/99, taking into account the reliefs claimed therein, are clearly not maintainable.
Taking into consideration the facts and circumstances as brought on record and the conclusions indicated hereinabove, all these appeals deserve to be and are hereby dismissed.