TMI Blog1991 (11) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and 403 of the Companies Act to regulate the conduct of the affairs of the company and for various other reliefs. The petitioner in Company Application No. 266 of 1991 is the son of the first petitioner in Company Petition No. 21 of 1990 and other petitioners are his mother, brothers and sisters and brother-in-law. The petitioners have fried the company petition against the company and its board of directors seeking for relief to regulate the conduct of the company's affairs and for appointment of an administrator to take charge of the company. Very serious allegations of malpractice have been alleged against the company and its directors. It is relevant at this stage to notice certain averments made by the petitioners in the main company petition. Relevant passages are reproduced hereunder: "The petitioners together hold substantial interest in the first respondent company and they hold together 18.37 per cent, of the paid-up capital of the first respondent company. The break-up figures of shares held by the petitioners respectively are as follows: Names Shares 1. L. Ramaknshnan 2,730 2. L. RMK. Valliammai Achi 3,890 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken into account the shareholdings of L. RM. K. Narayanan also to maintain the company petition, which suited them at the time of filing the company petition. In. fact, they said in paragraph 23 that the board of directors who hold majority shares in the company, realising that the petitioners along with one L. RM. K. Narayanan, son of the first petitioner hold 23.26 per cent. (18.37 per cent, by the petitioners and the rest by L. RM. K. Narayanan) of equity capital and are an obstacle for carrying out their unlawful acts which are beneficial and advantageous to them, are now contemplating to increase their shareholding in the company by violating the provisions of the Companies Act. It is further averred that the persons in management hold 55 per cent of the equity capital and hence are unable to pass any special resolutions without the concurrence of the petitioners and the said L. RM. K. Narayanan. This company petition, though signed by the petitioners, was presented on February 26, 1990, in this court. Mr. L. RM. K. Narayanan has also filed a separate affidavit supporting the cause of the petitioners in the main company petition. He is holding 5,140 equity shares of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition since respondents Nos. 2 to 7 in the company petition have agreed to purchase their shareholdings. He has stated that since the proceedings under sections 397, 398 of the Act are representative actions and that he is vitally interested in prosecuting the petition and if the petition is allowed to be withdrawn, he and other shareholders are likely to be prejudiced very much. He has also stated that he had already filed an affidavit in this court setting out in detail how the affairs of the company are being conducted in a manner prejudicial to the company and its shareholders and hence he is entitled to be substituted in the place of the petitioners in the company petition. This petition was opposed by the managing director of the company through Mr. G. Subramaniam, learned counsel appearing for Mr. K. Govindarajan, advocate, supported by Mr. M. S. Krishnan, learned counsel for the petitioners in the company petition. Mr. G. Subramaniam, learned senior counsel, has urged that the applicant in Company Application No. 266 of 1991 cannot be brought on record or substituted in the place of the petitioners in the company petition on the following points: ( a )The petitioner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 397 for want of required share qualification. The court has to only consider whether the petition was a valid petition at the time of its presentation. If a valid petition has been presented, any shareholder can ask for substituting himself as the petitioning creditor. In this connection, the ratio laid down by the highest court in Rajahmundry Electric Supply Corporation Ltd. v. A Nageswara Rao [1956] 26 Comp Cas 91 , is of great importance. In very clear terms, it has been laid down that the validity of a petition must be judged on the facts as they were at the time of its presentation. When once there is a valid petition, the shareholder who seeks to substitute himself wants to merely continue such a valid petition and such a shareholder need not hold ten per cent, of the share capital. The requirement as to the share qualification is relevant and material only at the time of institution of the proceedings. Therefore, I am unable to countenance the argument of Mr. G. Subramaniam, learned senior counsel appearing for the respondents in both the company applications. Further, it is not incumbent upon the court to dismiss a petition because a proceeding under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der reply I state that the allegations made by the applicant in his affidavit are not true to our knowledge. As regards the allegations contained in para 5 of the affidavit under reply I state that we respondents Nos. 8 to 15 have sold all our shares in the first respondent company to the sixth respondent on January 18, 1991, and thereafter we have no interest in the affairs of the company. It is true that we are withdrawing our company petition on the account that we have sold all our shares in the respondent company to the sixth respondent on January 18, 1991". The real fact is that they were made to file an affidavit like the above one because they have sold their shares in the company to the sixth respondent on January 18, 1991, and hence they have no interest in the affairs of the company. It is thus seen beyond any doubt that the petitioners in the main company petition have filed the company petition only with a view to achieve their personal gain and filed the company petition as a coercive process to make the directors of the company and others in the management come to terms and, on achieving their object of selling their shares, they have decided to withdraw their seri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewise in an application filed under section 397 or 398 of the Act cannot insist on dismissal of the application on the ground that he does not want to press the same. Notwithstanding the unwillingness of the petitioner to press an application under section 397 or 398 of the Act, the court may deal with the application on merits. Rule 88(2) of the Rules ensures that no petitioner of an application filed under section 397 of the Act may withdraw the application without the leave of the court. We do not think that a petitioner of such an application may bypass the provisions of this rule by not wanting to withdraw the application but insisting on the dismissal of the application on the ground that he does not desire to press the same. He cannot, in our opinion, do indirectly what he cannot do directly by virtue of rule 88(2) of the said Rules". Rai Mathura Prasad's case [1984] 56 Comp Cas 467 , is a judgment rendered by a Division Bench of the Patna High Court, consisting of Sandhawalia C. J. and Lalit Mohan Sharma J. The Bench was of the view that the entire scheme of the Act clearly indicates that the court's power in this regard is to be used to protect the interest of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by their transposition the court has merely permitted them to proceed with the case as their representative is dead". Section 397 gives power to the court to save a company from winding up by making' a suitable order. Section 399 gives the right to apply under sections 397 and 398. It is useful to refer to sections 399(1)( a ) and section 399(3). Section 399(3) says that where any members of a company are entitled to make an application by 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. In Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp Cas 91 ; AIR 1956 SC 213: "Where an application has been made by or on behalf of two or more members, the members may jointly make an application or they may authorise one of them to make an application on behalf of and for the benefit of all of them... After the application is made, if such consent is revoked by some of the members, it does not affect the maintainability of the application". It is well-settled that the court has inherent powers to make such order as is necessary t ..... 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