TMI Blog1982 (2) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... Tejkumar Balkrishna Ruia, as their constituted attorney. In the petition, it is stated that the Bank of India holds, inter alia , 17,187 fully paid up shares in Killick Nixon Ltd. (hereinafter referred to as "the company"). The register of shareholders of the company shows the Bank of India as the holder of 17,187 fully paid up shares. The Bank of India has sold 16,706 shares out of these shares to Dhanraj Mills Pvt. Ltd. These shares, however, have-not been transferred by the company in its register of shareholders in the name of Dhanraj Mills Pvt. Ltd. The Union Bank of India holds, inter alia , 5,000 fully paid-up equity shares in the company and its name is shown on the register of shareholders of the company as the holder of these shares. The Union Bank of India has sold these 5,000 shares to Dhanraj Mills Pvt. Ltd. The transfer has not, however, been effected in the register of shareholders by the company Dhanraj Mills Pvt. Ltd. is also a member of the company and holds 20 fully paid-up equity shares in the company. Petitioner No. 4, Mahesh Jayantilal Patel, is also a member of the company and holds 20 fully paid-up equity shares in the company. Tejkumar Balkrishna Ruia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace, can maintain a petition under sections 397 and 398. Section 397, in plain language, states that a petition can be filed by any member or members of a company. Such a petition can be filed by them if the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner which may be oppressive to any member or members. Such members who are being oppressed may or may not include the petitioning members. Under section 398 also, a petition can be filed by any member of the company. Such a petition can be filed if the affairs of the company are being conducted in a manner prejudicial to public interest ox in a manner prejudicial to the interests of the company. Under sub-section (1)(b) of section 398, a petition can also be filed if, as a result of any material change in the management or control of the company as provided therein, it is likely that the affairs of the company will be conducted in a manner pie-judicial to public interest or in a manner prejudicial to the interest of the company. Under sections 397 and 398, there is a further qualification in respect of the members of the company who may wish to file a petition. This qualification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "In the case of a company limited by shares, a member is a person holding shares in the company; there can be no membership, i.e ., proprietary relationship to a company, otherwise than through the medium of shareholding. Consequently the terms 'member' and 'shareholder' are synonymous, apart from the now exceptional case of the bearer of a share warrant who is a shareholder but is not a member because he is not registered in the register of members." Section 2(27) of our Companies Act also spells out the same exception when it states that a "member" in relation to a company does not include a bearer of a share-warrant of the company issued in pursuance of section 114, In the case of Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR215; 29Comp. Cas. 282 (SC), the Supreme Court has also observed that (at p. 287 of 29 Comp. Cas.): "The words 'holder of a share' are really equal to the word 'shareholder', and the expression 'holder of a share ' denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members." It is important to bear this in mind because Mr. Chagla, learned counsel for the company, has sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no distinction between the rights of a member and the rights of a shareholder. A company recognises only its members as its shareholders and confers on them certain rights. A peculiar situation can, however, arise in the case of a member who has transferred his shareholding to another person. Ordinarily, a transferee who has purchased the shares of the company is entitled to have his name entered in the register of the members of the company and become its member. Under section 111 of the Companies Act, however, a company may have under its articles a right to refuse to register the transfer of or the transmission by operation of law of, the right to any shares of the company. In such a case, a transferee who has been refused registration may go in appeal to the Central Government under the provisions of section 111 of the Companies Act. He is also entitled to take action for rectifying the register of members under section 155 of the Companies Act if the company has refused registration of his name without sufficient reason. In the present case, the transferees have applied to the company for registering their names as holders of the shares which they have purchased from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as a trustee of shares, the transferor, is also a trustee of all property rights annexed to the shares. Since the right to vote is a right of property attached to the shares, the. beneficiary is entitled to ask the transferor to exercise the right as per his direction. The observations of Pratt J. ([1943] 45 BLR 46) have been cited, with approval by the Supreme Court in the case of Mathalone v. Bombay Life, Assurance Co. Ltd. [1954] 24 Comp. Cas. 1 in page 10. There is, therefore, good authority for the proposition that a constructive trustee can be asked by the beneficiary to exercise on his behalf all rights which pertain to his ownership of shares of a company. It is not, however, open to the beneficiary to ask the trustee nor can a trustee be compelled to undertake at the instance of the beneficiary, additional obligations. Thus, in the case of Mathalone v. Bombay Life Assurance Co. Ltd. [1954] 24 Comp. Cas. 1 , the Supreme Court held that a constructive trustee who has sold his shares could not be compelled by the transferee to purchase new shares which have been offered by the company to its members, especially because these were partly paid shares. The court obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are rights of property which are attached to the shares. It was submitted that the transferee cannot compel the transferor to do anything more or to perform on his behalf or to exercise at his behest his other rights which are the rights arising from the membership of the company. More specifically, a transferee cannot compel a transferor to file a petition under sections 397 and 398. It is not necessary to go into this aspect because in the present case the transferor has not resisted any demand made by the transferee to file a petition under sections 397 and 398 of the Companies Act, In the present case, the transferor has agreed to exercise all his rights as a holder of shares in question at the behest of the transferee and has in fact given a power of attorney for this purpose to the transferee. We may, however, point out that basically a constructive trustee is required to carry out all just and reasonable requests of the beneficiary. In so far as the rights pertaining to the property in the shares are concerned, there can be no doubt that all demands pertaining to the exercise of these rights would ordinarily be considered as just demands, though there may be special circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 397 or section 398 of the Companies Act, In view of these provisions, a member who holds less than 1/10th of the issued share capital of the company, cannot file such a petition. Nor can a stray member file such a petition. In the submission of Mr. Chagla, this would indicate that the grievance which a member has must be a substantial grievance and it must be a personal grievance. The argument does not, however, bear scrutiny. Under sections 397 and 398, any personal grievance of the member himself is not contemplated. The cause of action under section 397 is the conduct of the affairs of a company in a manner prejudicial to public interest or in a manner oppressive to any member or members of the company. Now, prejudice to public interest may not necessarily amount to a prejudice to the complaining member personally. Even in the latter category, the oppression need not be of the members who file a petition. Oppression of other members can also be a grievance for filing a petition under section 397. The same is true of section 398, which requires examination, not of any personal prejudice to the petitioning members but of prejudice caused to the public interest or to the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided under sections 397 and 398 of the Companies Act. The trustee cannot come before the court, because although he is a member, he does not have any beneficial interest in the shares; while the beneficiary also cannot "come because although he has a beneficial interest in the shares, he is not a member of the company. A similar situation will also arise in the case of the executors of a deceased member who holds the shares for the legatees. Such a situation is not contemplated under the Companies Act. We cannot interpret these two sections in a manner which will deprive a large number of members who represent the interests of their beneficiaries from seeking a remedy under sections 397 and 398 of the Companies Act. Such an interpretation is sought to be justified on the ground that only persons who have a "real" interest in the company are entitled to resort to sections 397 and 398. But in that case we would have to hold that the transferees of shares should be construed as members for the purpose of sections 397 and 398 of the Companies Act because they are the persons who have this "real" interest in the shares. Similarly, the legal representatives of deceased members whose nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs Ltd., In re [1970] 3 All ER 57 (Ch D), the court held that the petitioners, who were the administrators of the estate of a deceased member of a company, had locus standi as members of the company to present a petition under section 210 and held further that even though the petitioners were not registered as members of the company, the personal representatives of the deceased member must be regarded as members of the company for the purpose of section 210. Thus, instead of curtailing the term "member" in a provision similar to section 397, the English court extended the term "member" to cover the administrators of a deceased member also. The decision was reversed in appeal but not on this point (cf. Jermyn Street Turkish Baths Ltd., In re [1971] 1 WLR 1042 (CA)). And though some authorities have doubted the correctness of the judgment, the position in England is now governed by the new section 75(9) of the Companies Act, 1980, under which this right of the administrators is expressly recognized. The English Companies Act, 1980, has altered its provisions in this respect and under section 75, which deals with the powers of the court to grant relief against company in circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary to examine either the intention of the Legislature or the surrounding circumstances in order to -remove such ambiguity; Maxwell on the Interpretation of Statutes, 12th edn., p. 29, has stated that: "Where the language is plain and admits of but one meaning, the task of interpretation can hardly be said to arise Where, by the use of clear and unequivocal language capable Of only one meaning, anything is enacted by the Legislature, it must be enforced, however, harsh or absurd or contrary to common sense the result may be. The interpretation of a statute is not to be collected from any notions which may be entertained by the court as to what is just and expedient; words are not to be construed, contrary to their meaning, as embracing or excluding cases merely because no good reason appears why they should not be embraced or excluded. The duty of the court is to expound the law as it stands, and to leave the remedy (if one be resolved upon) to others." The Privy Council has observed in the case of Pakala Narayana Swami v. Emperor, AIR 1939 PC 47 at p. 51, that: "When the meaning of words is plain, it is not the duty of the courts to busy themselves with suppos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly under section 397 for relief from oppression or prejudice. Having lost all rights as a shareholder or a member there is no legal prejudice or oppression any more left for him to complain of within the meaning of section 397 of the Companies Act. The court was also impressed by the fact that the liquidator had already realised the money value of the shares by mortgaging the shares with Bank Hoffman. Bank Hoffman had obtained a decree of foreclosure in respect of these shares. In view of these facts, the court held that the petitioning company in liquidation or its liquidator could not be considered as members of the company, Two facts which weighed with the court in coming to the conclusion that the petitioner or the liquidator could not be considered as members were (1) that there was a decree of specific performance of an agreement of sale in respect of these shares, and (2) there was a foreclosure decree in respect of the mortgage created by the liquidator in respect of these very shares. In view of these facts, the Calcutta High Court appears to have come to the conclusion that the member who had filed a petition did not have any interest either in his own right or on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst place, a petition under section 397 is not require to be filed in respect of any shareholding. The petition is required to be filed by a member in his capacity as a member. A reference to shareholding is made in section 399 only for the purpose of prescribing a minimum qualification. The requisite shareholding enables a member to file a petition under sections 397 and 398. But the complaint that he makes is as a member of the company. Section 399 merely prescribes that in order to apply under sections 397 and 398, the number of members who comes before the court should be either not less than 100 members or not less than 1/10th of the total number of members of the company, whichever is less. This part of the qualification does not make any reference to shareholding at all. It relates to the number of members in a company. The second half of the qualification prescribes that in the alternative any member or members can come by way of a petition under section 397 provided they hold between them not less than l/1.0th of the issued share capital of the-company (provided, of course, they have paid all calls and other sums due on their shares). Section 399 does not state that a memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plaintiffs had come in a representative capacity as members of a society, called "the Arya Samaj". The respondents were the members of the managing committee of Arya Samaj. A difficulty arose because the members of the managing committee who were the defendants would also be included in the category of members of the society and hence be the plaintiffs. The court thereupon made the above observations. Whether such an exception can be carved out in the case of a petition under section 397 or not would be a matter for the court to decide as and when such a situation arises. But it should be borne in mind that there would be difficulties even if we hold that a member would be required to come in respect of his entire shareholding and that, as a necessary corollary, a member who could not come in respect of his entire shareholding would be debarred from making an application under sections 397 and 398 of the Companies Act, e.g., some of the shares of a member may be blocked by appointment of a receiver. If he still has the requisite shareholding without including those shares, he could have filed a petition under section 397, which he would not be allowed to do because he would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case. What is more important all likely difficulties are not resolved by holding that a member must petition in respect of his entire shareholding. It was next submitted that a right to apply under sections 397 and 398 at the Companies Act is a right which is personal to the member. He is required to exercise his own discretion. He cannot delegate his right under sections 397 and 398 to anybody else. Since in the present case the Bank at India and the Union Bank of India as well as the consenting members have delegated their rights to petitioners Nos. 4 and 5 who have filed the petition on the basis of such delegation of authority, the petition is bad in law and not maintainable. This submission, however, cannot be accepted. One of the cardinal principles of law is that an agency can be created for all lawful purposes and all rights can ordinarily be delegated. In Bowstead on Agency, 14th edn., p. 23, it is stated as follows Article 7. An agent may be appointed for the purpose of executing any deed or doing any other act on behalf of the principal, which the principal might himself execute, make or do except for the purpose of executing a right, privilege or power confer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is too ill or infirm to exercise the power. Such persons are entitled to appoint an agent to look after their affairs. It is the agent who will apply his mind to the affairs of his principal and use his own judgment. Members who are given, a right to file a petition under sections 397 and 398 can, therefore, delegate their right to an agent who can exercise that right on their behalf. It was argued that under the Companies Act, whenever delegation is permissible, it is expressly provided. Our attention was drawn to some of the sections of the Companies, Act where delegation is expressly permitted, e.g., under section 60, it has been provided that prospectus may be signed by an agent of the director or proposed director. This, however, cannot imply that the rights and privileges which are given to members under the Companies Act are incapable of delegation unless expressly so provided. There is nothing in the Companies Act to suggest that it prohibits the application of the normal Jaw of agency to the acts and obligations required to be performed under the Act. The same would be true in respect of the power to give consent under section 399 of the Companies Act. Under sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is a consent to the- filing of a particular petition with a particular allegation for a particular relief under section 397 or section 398 or under both. They upheld the decision of the Calcutta High Court, namely, that it was not necessary to prepare in advance the actual petition and show it to the consenting members, but it was necessary that the members, before they give their consent, ought to know about the nature of the particular petition and the nature of the allegation which would be made as well as the nature of relief which would be claimed. The Madras High Court said that there could not be a blanket consent. This decision also does not deal with the right of a member to delegate his power to give consent. All these decisions deal with cases where the members themselves had given their consent and the court was required to consider whether the consent was given by the members after applying their mind to the nature of the petition which was being filed, to the allegations contained in it and the reliefs which were sought. In fact there can be no quarrel with the proposition that consent cannot be given in vacuo. Consent must be given after applying the mind to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be done the following acts, deeds, matters and things, that is to say: 1. To exercise for us and in our name all rights and privileges and perform all duties which now or hereafter may appertain to us as holders of the said shares of the said company standing in our name and also in respect of any new shares which may be allotted or issued to us by the said company either as right shares (hereinafter called 'the said right shares') or bonus shares (hereinafter called 'the said bonus shares') as a result of our being holders of the said shares 5. To file such suit or suits or to file such appeals to take such proceedings in respect of the said shares, the said right shares and the said bonus shares against the company or against any other person for such reliefs as our attorneys or attorney shall think fit and to defend all suits, appeals and other proceedings which may be filed or taken by any person, company or party against us in respect of the said shares, the said right shares and the said bonus shares or any of them. 6. To represent us before any court, the Company Law Board, any other authority or officer in respect of any matter or proceedings relating to the said s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords conferring specifically enumerated powers cannot be construed so as to enlarge the restricted powers there mentioned. It goes on to observe that (at p. 739): "In fact, in a case like the one before us, where a general power of representation in various business transactions is mentioned first and then specific instances of it are given, the converse rule, which is often specifically stated in statutory provisions (the rules of construction of statutes and documents being largely common) applies. That rule is that specific instances do not derogate from the width of the general power initially conferred. To such a case the ejusdem generis rule cannot be applied." Our attention was drawn to article 24 at p. 75 of Bowstead on Agency, 14th edition, where the rules of construction for power of attorney have been laid down as follows: "Powers of attorney must be strictly construed, and are interpreted as giving only such authority as they confer expressly or by necessary implication. The following are the most important rules of construction: ( a )The operative part of a deed is controlled by the recitals where there is ambiguity. ( b )Where words do not confer general p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power of attorney holder to act in relation to the premises as fully and effectually in all respects as the shareholder could do if personally present. It is submitted that because of the deletion of these clauses from the power of attorney given on behalf of the Bank of India, it would not be open to the petitioners to file the petition on behalf of the Bank of India in respect of 16,706 shares. There are other circumstances also, which, according to the company, are relevant for the purpose of construing the power of attorney given by the Bank of India in respect of 16,706 shares. Those circumstances relate to the filing of the present petition. It has been submitted that the power of attorney given by the Bank of India in respect of 16,706 shares was not shown by the petitioners at the time when they filed the petition though other powers of attorney were disclosed nor was a Xerox copy the power of attorney suggestion is that the power of attorney in question was suppressed from the court at the time when the petition was filed. It was only subsequently that the power of attorney was shown to the court. At the time when the petition was being heard by the learned single judge, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construed as it stands. Under clause 1 of this power of attorney, the holder can exercise all rights and privileges that the holder of 16,706 shares could; have exercised. This would include the right to file a petition under sections 397 and 398. In any case, for the purpose of the present appeal, it is not necessary to take into account 16,706 shares which are the subject-matter of the disputed power of attorney. The shareholding necessary for maintaining the present petition is 12,495 shares which constitutes 1/10th of the share capital of the company. Even if 16,706 shares of the Bank of India are excluded, the other petitioners between them hold 16,303 shares these consist of 5,000 shares of the Union Bank of India, 20 shares each of petitioners Nos. 3 and 4, 10 shares of petitioner No. 5 and 11,253 shares of the consenting members. These shares constitute more than 1/10th of the share capital of the company. Even if the power of attorney given by the Bank of India is ignored, the petition will be maintainable. In the premises, in our view, the petitioners have the requisite locus standi to maintain the petition in question. The learned single judge has rightly dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
