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2021 (7) TMI 1357 - Tri - Insolvency and BankruptcyMaintainability of petition - separate identity of holding and subsidiary companies - scope of the expression, "member" occurring in section 241, 242 and 244 of the petition - Should it be read narrowly and strictly in terms of the definition in section 2(55) of the Companies Act, 2013, or should it be given a little expansive meaning so as to include with its fold a beneficial owner of shares? - Can a Significant Beneficial Owner (SBO) of the shares of a holding company rappel straight into a subsidiary without coursing through the holding company? - Should the identities of the holding company and its wholly owned subsidiary be blurred so as to be so unidentifiable and practically indistinguishable? As Per Rajasekhar V.K., Member (J): HELD THAT:- Section 89(10) defines "beneficial interest" in a share to include, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person to - (i) exercise or cause to be exercised any or all of the rights attached to such share; or (ii) receive or participate in any dividend or other distribution in respect of such share - Therefore, for a beneficial interest to be recognised, forms are required to be filed both by the registered owner of the shares as well as by the person holding beneficial interest in the shares. Without that, it is not possible for a company to recognise the beneficial owner of a share. In the case of the Subject Companies, at least upto the filing of the petitions, the holding company, VTL, had not filed or recognised the APL Committee as the beneficial owner of the shares in any of the Subject Companies. Coming back to the definition of 'Member,' it is trite law that when a word has been defined, that definition should prima facie be applied wherever that word is used in a statute. It is assumed that the legislature is fully alive to the definition, and has intended that the term as defined shall govern what is proposed under that enactment. It is an exhaustive definition and not an inclusive one, leaving no interstices for judicial intervention. Reading the provision of 'Member' in the manner that I have been invited to do by the learned senior counsel for the petitioner, will be doing violence to the language of the statute. Therefore, on this ground, the petitioners have no locus to maintain the present petitions. The petitioners' case is that the forms regarding beneficial interest were filed with the Subject Companies on 09.12.2019. However, it is the claim of Mr. RP Singh, director, that these forms were never brought to the notice of the board of directors. This allegation has remained uncontroverted even though much has been said in the space of the four days allotted for the hearing. Even after Mr. Ranjan Bachawat, learned senior counsel for R5, specifically raised this during the course of his arguments, this was brushed aside as of no consequence by Mr. Joy Saha in his rejoinder arguments, and that these cannot be raised by R5 who was an independent director. On record, there was absolutely no action of any consequence, save and except that the RoC seems to have been cajoled into marking the Subject Companies as being under 'management dispute.' This was chicanery on the part of the Subject Companies, since on 22.04.2021, there was no management dispute. The boards of the Subject Companies were united in their decision that VTL should not be allowed to have its way. What was there was that the 100% shareholder was attempting to infuse new directors into the board - If the boards of the Subject Companies were aggrieved, they did not challenge it then at the relevant point of time. Instead, in the present petition, there is a prayer for interim relief of mandatory injunction restraining the new inductees from representing or holding themselves out as directors of the subject companies, without a corresponding challenge the holding of the EGM of 22.04.2021 at which they got appointed. There is also a final prayer that the new inductees should be removed from the boards. Applying the facts to the provisions of section 241, 242 and 244, where all three sections use the expression "Member," it is not possible to read the term to include persons who are, to borrow a term in familial relationships, "once removed" from the company, i.e., who would at best be treated as beneficial owners of shares in the holding company that holds 100% of the shares of the Subject Companies. One must continually remind oneself not to get too carried away to ignore the statute and guard against attempts to read equity into every act at the cost of the statute itself from where one takes appointment. There is no statutory requirement that the shareholders of a company have to give reasons to justify reasons for removing directors. The authorities in which it has been held to be so are too numerous to be recounted here. Suffice it to say that a board or its constituent members can be in office only so long as it enjoys the confidence of a majority of the shareholders. It is also an established principle of law that a shareholder holding the requisite minimum number of shares can always requisition an EGM for removal or for appointment of a director. The effect of these discussions is that the petitions are deemed to be not maintainable, on facts and in law. There is also the small matter of the territorial jurisdiction issue to be overcome, because this is, properly viewed, a case of action directly primarily against VTL whose registered office is situated in the State of Madhya Pradesh. As per Harish Chander Suri, Member (T): The present petition is very much maintainable, because for granting injunction, the Courts or for that matter this Tribunal cannot strictly go by the legislated law, it has the discretion in the specific circumstances, and those circumstances do exist in the present case because there is a long history of litigation between the parties and there are orders subsisting and binding on this Tribunal. Unless and until the whole controversy between the 'Member' vs. 'Significant Beneficial Owner', which for the present is a grey area and does not have so many binding judicial precedents, views and authorities of the higher courts clinching the issue, is settled in the final hearing of these petitions, the Injunction Orders sought by the petitioner have to be granted. The balance of convenience is more or less straight but certainly it tilts in favour of the petitioners on certain points because if the interim relief prayed for is not granted, and the EGMs are allowed to be held by the concerned respondents with the newly appointed Board members or for removing the existing members, and certain unpalatable decisions are taken which are not in favour of respondent no. 1 company, the whole purpose of the appointment of the APL Committee/petitioner no. 1, by the Hon'ble High Court will become meaningless and frustrated, which would result in further multiplicity of litigation. Petition disposed off.
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