TMI Blog1983 (7) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... plainant is a shareholder in Radhakrishna Mills Ltd., the fifth accused, and holds 240 equity shares. The board of directors of the mill is composed mainly of two families, one, that of Sri R. Venkataswami Naidu and his sons and the other, that of the first accused and his three sons, viz ., accused Nos. 2 to 4. There are only two outsiders in the board, viz ., one R. Palaniswami Naidu and one A. Narayanaswami Naidu. The first accused is, therefore, virtually controlled by the two families mentioned above. However, there appears to be some disputes between the two families and each family is attempting to gain control of the company. The complainant is not interested in the dispute between the two families, but as a shareholder he is interested in the proper management of the affairs of the company. The complainant found that a large number of shares in the fifth accused company had been purchased in the names of persons who do not actually hold them and that the purchasers were holding the shares benami for the benefit of accused Nos. 1 to 4. The complainant has given a list of the benami shares in the schedule attached to the complaint. The complainant gained intelligence about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the provisions of section 108C and section 302 of the Companies Act, because a person having a beneficiary interest in a class or classes of shares of a company should declare the same to the company within thirty days of such acquisition. Contrary to the provisions of law, there has been no such declaration by accused Nos. 1 to 4 to the company. That apart, under section 308 of the Companies Act, the directors of a company have to give notice to the company of their shareholdings in order to enable the company to comply with the provisions of section 307. Accused Nos. 1 to 4 have not given the required notice to the company as enjoined by law. The complainant sent a letter to the company (fifth accused) to retransfer the shares to the original holders and to give him an assurance that the benami shareholders would not be allowed to vote in the general body meeting held on July 30, 1978. Since no reply was received, the complainant sent a further letter to the chairman of the meeting requesting him not to take into consideration the votes of the benami shareholders, but in spite of the request, the shareholders holding shares benami for accused Nos. 2 to 4 exercised their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners to seek quashing of the proceedings. He pointed out that even according to the complaint, the alleged purchase of benami shares was about ten months prior to the filing of the complaint and that there had been no whisper till then about the shares having been purchased benami. The counsel stated that if the shares had been purchased benami, the matter would have been known to people in the office as well as in the share market. He emphasised the fact that while, in the schedule attached to the complaint, the names of 28 alleged benami purchasers of shares are mentioned, the complainant has cited in the complaint only four of the alleged purchasers, namely, Nos. 4, 6, 13 and 14, who have been arrayed as witnesses Nos. 7, 4, 5 and 6 in the complaint, and, therefore, the alleged purchase of shares by the other 13 persons has to stand only on the ipse dixit of the complainant. The counsel then argued that even if witnesses Nos. 4 to 7 in the complaint are going to get into the box and give evidence supporting the complaint, it would only mean that the petitioners had purchased 1,430 shares and by the acquisition of those shares, the petitioners cannot be accused of having ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 308 of the Companies Act (hereinafter referred to as "the Act"), which the petitioners are alleged to have contravened. Sections 108A to 108H were newly introduced by the Companies (Amendment) Act XLI of 1974. Section 108A reads as follows "108A. Restriction on the acquisition of shares. (1) Except with the previous approval of the Central Government, no individual, group, constituent of a group, firm, body corporate, or bodies corporate under the same management, shall jointly or severally acquire or agree to acquire, whether in his or its own name or in the name of any other person, any equity shares in a public company, or a private company which is a subsidiary of a public company, if the total nominal value of the equity shares intended to be so acquired exceeds, or would, together with the total nominal value of any equity share already held in the company by such individual, firm, group, constituent of a group, body corporate or bodies corporate under the same management, exceed twenty-five per cent. of the paid-up equity share capital of such company. (2) Any person who acquires any share in contravention of the provisions of sub-section (1), shall be punishable wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avening sub-section (1) or sub-section (2) or sub-section (3), without any reasonable excuse to do so, is punishable with fine which may extend to one thousand rupees for every day during which the failure continues. Lastly, we have section 308. This section deals with the duties of a director in giving notice to the company of such matters relating to himself as may be necessary for the purpose of enabling the company to comply with the provisions of section 307. Sub-section (3) is the punishment section and lays down that any person who contravenes sub-sections (1) and (2) of section 308 shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to five thousand rupees or with both. It is with reference to these sections, we have to examine the complaint to find out whether a prima facie case exists for the proceedings to go on or whether the complainant's averments are of such a nature that no case at all is made out against the petitioners and, therefore, if the trial proceeds, it will only prove to be an exercise in futility. Examining the first accusation of the complainant that the petitioners have acquired 32,000 odd s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act. In this case, there is no averment in the complaint that the Company Law Board has given a finding that petitioners Nos. 1 to 4 constitute a group. In the absence of such a finding by the Company Law Board, the court cannot proceed on the assumption that petitioners Nos. 1 to 4 constitute a group within the meaning of the Act. There is also another aspect of the matter to be taken note of in this connection. In paragraph 4 of the complaint, reference is made to ten persons as constituting the group of the first petitioner in the company. While petitioners Nos. 1 to 4 are enumerated as Nos. 1 and 3 to 5, the second enumerated person is Smt. Rajeswari Ramakrishnan, wife of the first petitioner. The sixth enumerated persons are Smt. D. R. Durgambal and the fourth petitioner. Then Nos. 7 to 10 are certain companies incorporated under the Act. Therefore, when the complainant says that shares have been acquired by the group of the first petitioner and then, according to him, the group of the first petitioner consists of nine other persons besides him, it becomes incomprehensible as to how he can attribute the acquisition of shares only to petitioners Nos. 1 to 4, viz ., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for any court to accept the evidence of someone regarding the purchase of shares by third parties benami for another and render any finding, because the holder of the share will be greatly prejudiced by any adverse finding rendered against him by the court. In fact, if a person holds a share benami for another and fails to disclose it, he becomes punishable under section 187C(5) for contravention of section 187C(1). The punishment is as high a fine which may extend to one thousand rupees for every day during which the failure continues. Having regard to the serious nature of the offence and the penalty provided for it, it would be highly improper for any court to render a finding against anyone that he is holding shares in a company benami for another, on the evidence of some other shareholder or shareholders. Such being the case, I see considerable force in the contention of Mr. Vanamamalai that even if the four shareholders named by the complainant come and give evidence against the petitioner in the case, it would only mean that the petitioners have acquired 1,430 shares in order to have beneficial interest in these shares themselves. When the acquisition of such shares will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benami share is also punishable, even as the person holding the beneficial interest in a benami share is punishable for failure to make the necessary declaration to the company about the holding of the benami share. The punishment provided is a fine which may extend to one thousand rupees for every day during which the failure continues. It is in the light of this penal provision the contention of the complainant that the witnesses cited by him have purchased shares benami for the petitioners should be examined. If the witnesses had purchased shares benami, they ought to have made a declaration to the company under section 187C(1). If they have failed to do so, they are liable for prosecution and punishment under sub-section (5). Such being the case, what falls for consideration is whether these witnesses would come and make incriminating statements against themselves and make themselves liable for prosecution under section 187C(5). The preponderance of a probability is that they would not come and give evidence against themselves in court. Assuming, for argument's sake, that they would be prepared to give such evidence, the question would be whether such evidence can be accepted a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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