TMI Blog2010 (5) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... d order of 1st October, 2007 did not form part of the records relating to the company's application filed on or about 6th September, 2007, the order impugned is set aside and the matter is remanded to be heard afresh on the company's application by the CLB. The respondents herein and/or the company will make over copies of such of the documents that it relied on before the CLB in course of the hearing on which the impugned order was passed, within a period of a fortnight, to the appellants herein. The appellants will have no further chance to file an affidavit to such documents but may rely on further documents, if the appellants choose, upon prior notice thereof to the respondents herein. The CLB is requested to hear the company's application afresh within a period a period of eight weeks from date. This order is conditional upon the appellants herein depositing a sum of Rs. 1 lakh, within four weeks from the date hereof, with the CLB or the officer who may be designated for such purpose by the CLB. In the event the company's application for dismissal CP 88 of 2007 succeeds, the respondents herein will be entitled to obtain such sum of Rs. 1 lakh from the CLB. In the event the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was for a period over 17 years ago was not filed and conveniently only the annexure to the return was filed apparently to mislead the CLB. Further, it was argued that the petitioner had admitted in the petition that the petitioners were shown as shareholders upto 1993. Thus, admittedly the annual returns filed by the respondent for the past 17 years did not reflect the petitioners holding the requisite shareholding. 4. It is the applicant's/respondent's case that the resignation letter dated 19th June, 1975 of R.G. Patwari, i.e., P-1 along with Form 32 filed at the material time, annual returns as on the annual general meeting ('AGM') for the years 1990 and 1991 along with filing receipts, share certificates relating to the shares transferred by the petitioners, register of members, register of share transfer annual accounts of Suwidha Viniyog Co. (P.) Ltd. for the period ended 31st March, 1989, 31st March, 1990, 31st March, 1991, income-tax returns of Suwidha Viniyog Co. (P.) Ltd. for the assessment year 1991-92 and register of documents destroyed produced before the CLB conclusively establish that the petitioners do not have the requisite shareholding to maintain the CP. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the CLB, the hon'ble court remanded the matter back to the CLB. It was contended that the hon'ble High Court has taken up the appeal and disposed of the same on the "singular ground" of the documents relied upon by the respondents not being available to the petitioners. 6. The counsel for the applicant argued that the petitioners' contention that even though the petitioners name does not appear in the register of members but they are entitled to maintain the petition as they are entitled to have their name on the register of members is misconceived. It is correct that a person who has an indefeasible right to have his name on the register, e.g., a legal heir of a deceased shareholder may maintain a petition under sections 397 and 398, the said contention is not open to the petitioners as they have not made out a case that they are entitled to have their name on the register of members. The petitioners had, in fact, sold their shares several years ago, the shares sold by the petitioners are reflected in the books of R-7 since past several years and the same also indicates that the same have been transferred for a consideration. 7. It was pointed out that in the appeal filed be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dolly Farms Resorts (P.) Ltd. [1999] 3 Comp LJ 456 (CLB). 9. The respondents'/petitioners' case is that CP No. 88 of 2007 has been filed attracting the provisions of sections 397, 398 and 402 of the Acts against wrongful and fraudulent cessation of membership of the petitioners in the company ; wrongful and fraudulent cessation 6f directorship of the P-1 ; diversion of the funds of the company by wrongfully forfeiting the shares held by the company ; diversion of the funds of the company towards unnecessary investments ; diversion of the funds of the company while giving loans to companies owned by the respondents ; misappropriation of funds by the company, non-compliance of statutory formalities ; petitioners have been kept in the dark about the affairs of the company ; respondents have been managing the company so as to erode its net worth ; respondents creating false liabilities of the company ; mortgage of the company's properties being created in respect of which the company has received no benefit. It is their case that the petitioners in paragraphs 2.3 and 2.4 of the petition stated that they have requisite qualification under section 399 to maintain the petition. In spi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has not disputed the same. It is not the case of the petitioners that petitioners were shown to be shareholders in the records of the company at the time of filing of the petition. 11. It was further contended that the purported share transfer by the company from the petitioners to some other persons are under challenge in the main petition. The company admits petitioners to be shareholder up to a given point of time; It is the transfer of shares from the petitioners in favour of other parties that is subject-matter of the company petition and the same ought not to be adjudicated upon in a dismissal application ; the company has failed to produce any transfer deed, the company has failed to produce any document showing any receipt of any consideration by the petitioners in respect of the subject shares. It was argued that the shares held by the petitioners in the company constitutes more than 10 per cent of the total issued, subscribed and paid-up share capital of the company. The company is a family company, the petitioners are members of the family holding shares of the company. . 12. It was contended that (1) register of members and (2) share transfer register claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced on Exphar SA v. Eupharma Laboratories Ltd. [2004] 10 CLA-BL Supp 89/[2004] 3 SCC 688; Abdulla Bin Ali v. Galappa [1985] 2 SCC 54 paras 5, 7, 10 ; Indian Minerals Chemicals Co. v. Deutsche Bank [2004] 12 SCC 376 paras 10 and 11 ; Rajkumar Devraj v. Jal Mahal Hotels ( P.) Ltd. [2006] 74 CLA 340 (CLB)/[2006] 134 Comp Cas 405 ; Saurashtra Cement Chemicals Industries Ltd v. ESMA Industries (P.) Ltd. [1990] 69 Comp Cas 372 (Guj.); Woodbriar Estate Ltd. v. VNAS Chandran [2007] 79 CLA 39 /[2007] 137 Comp Cas 709 (CLB); Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd. [2000] 36 CLA 124 (Bom.)/[2001] 106 Comp Cas 25. It was further pointed out that the CLB in the matter of Birla Corporation Ltd., In re. [2009] 90 CLA 294 (CLB) had directed that maintainability to be decided with the hearing of the main petition. 15. It has been further argued that the applicant/respondent-company has not adduced any evidence of the transfer of shares that is passing of consideration, amount of consideration and transfer deed. It was pointed out that the individual income tax-returns of the petitioners show that the shares in question have been shown to be held by the petitioners. Company provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Kerala Chamber of Commerce Industries ( supra) consent given was found to be invalid. It was further held that the persons giving such consent did not apply their mind. Here there is no case of consent ; T.N.K. Govindraraju Chetty ( supra) is a case of the allotment of shares ; in the facts of the case of Gulabrai Kalidas ( supra) blank transfer deeds were permitted to be signed. Further, it was found that Foreign Exchange Regulation Act, 1973 ('FERA') permission was not obtained. In any event, interim relief was granted ; in the case of Ved Prakash ( supra) the prayer for rectification was dismissed. It was directed that civil suit to be filed. However, in that case the petitioners without filing a civil suit, applied for relief under section 397 which was found to be not maintainable. Such is not the case here and in the case of Kanwarjit Toney Singh Bansi ( supra) dispute as to allotment arose. The case recognises that even if the name is not on the register, proceeding is maintainable. Hence, the respondents/petitioners for dismissal of CA No. 357/2007. 20. I have considered the rival submissions. In CA No. 357/2007 the applicant has challenged the maintainabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir eligibility under section 399 of the Act and since the petitioners had contended that the correct position was also reflected in their income-tax records, they were permitted to furnish the same. Simultaneously applicants/ respondents were also permitted to produce the company's records to prove their contentions in the CA in which pleadings were allowed to be completed first on 20th September) 2007 when CA No. 357/2007 was argued the respondents produced original share certificates, register of members and original letter of resignation in support of their CA. The order dated 20th September, 2007 reads as under : "CA No. 357/07 argued. Respondents produced the original share certificates, register of members and original letter of resignation in support of their CA No. 357/07. The petitioners have not yet produced the requisite documents. Order on.CA No. 357/07 reserved after hearing detailed arguments and reference to the cases of Gwalior Sugar ; Jai Mahal Hotels and Tin Plate." 22. It was noticed that when the respondent-company produced its records which were examined in the presence of. the petitioners, however, the petitioners did not ask for perusal/examination of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... og Co. (P.) Ltd. for the period ended 31st March, 1989, 31st March, 1990, 31st March, 1991 ; income-tax returns of Suwidha Viniyog Co. (P.) Ltd. for the assessment years 1991-92 and register of documents destroyed were made available to the respondents/petitioners for their comments, if any, after examining these documents. They have failed to comment except that the register of members and share transfer register being the documents maintained by the respondent-company are manufactured documents and, therefore, ought not to be relied upon by the CLB. Further, the respondents/ petitioners case is that the applicant has failed to prove the sale of shares, the transfer deed, the consideration paid for shares, resignation letter does not bear signatures of P-1, resignation letter is forged, there is no proof that the petitioners had bought two shares which stand transferred in their name and further that the respondent-company has not disputed the typed shareholding position annexed to the CP. These contentions of the respondents/petitioners without substantiating evidence are not tenable. They have failed to refute the applicant's contentions and rebuttal of the documents produced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs are not maintainable and in the present case the respondents have failed to do so. 25. In the present matter the applicant/respondent have drawn my attention to the order of the hon'ble High Court at Calcutta wherein on 11th December, 2007 regarding the applicant's contention on the plea of demurer, the hon'ble High Court had observed that : "The principal grievance of the appellants herein is that on an application of such nature, the averments in the petition must be taken to be correct and the challenger has to succeed or fail in its preliminary challenge by assuming that the statements found in the petition are correct. While it would be unnecessary, considering the order that, is proposed herein, to answer this question, it appears that the rule is not as inflexible as the appellants, make it out to be. Such rule cannot be stretched to its absurd limit that a demonstrably false statement made in the petition has to be accepted as correct and despite such demonstrably false statement, the petition has to ;be. heard out on merits." 26. There is no quarrel with the general principle that a petition or suit has to be dismissed and thrown out at an initial stage if it is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be any pending dues on the calls made, It also provides that no other sum should also be due on the shares. It is, therefore, far from doubt that section 399 stipulates minimum qualifications which members should possess such as their numerical strength or the extent of their share capital. Section 399 engrafts an important exception to this rule of competence to make an application under sections 397 and 398 of the Act, exception lies in the special dispensation, which the Central Government may give to any person to make an application despite the fact that the person concerned is, not eligible to make an application in terms of section 399(1). The petitioner while applying under sections 397 and 398 must hold the requisite number of shares at the time of filing of petition. The nature of provisions of section 399(1) is not procedural but it is a part of substantive law and, therefore, the requirements of section 399(1) should be construed as mandatory. The word shall used therein is considered to be imperative in nature and if has to be interpreted as mandatory having regard to the text and context of the statute irrespective of the fact whether any prejudice is caused. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open to the company to contend that the petitioner has not complied with the requirements of section 41(2) of the Act. 28. If, in a petition, the legality of the acquisition of the shares, or the factum of holding shares, the strength on which the petition is filed, is challenged, before proceeding with the petition, the Bench has to consider the issue of maintainability of the petition. The requirement of share qualification is relevant and material for maintaining the petition. It is the case of preliminary objection on maintainability of the CP which can be argued without the benefit of counter affidavit to the petition. It is not a case where there is dispute as to title. It is not a case where the shareholding percentage has come down. It is a case where the shares are allegedly transferred long back on which even profit has been shown in the income-tax returns, which the respondents/petitioners have chosen not to produce despite the CLB's asking. It is true, the onus is on the petitioners to prove their requisite membership to have qualification to apply under section 397/398 of the Act. They have not discharged their onus despite the specific opportunities provided to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a continuous act of oppression. But for allowing the petition to be maintainable in such a situation the CLB also has to see that there is no inordinate delay in alleging such acts. On the plea of application of the Limitation Act to the proceedings before the CLB it has been consistently held by the CLB that the Limitation Ad as applied by the civil court is not applicable to the proceedings before the CLB, a quasi-judicial authority exercising equity jurisdiction and not a court in the strict sense of the term. The CLB is not a court for the purpose of the Limitation Act and as such the limitation under article 137 of the Limitation Act, 1963, does not apply to the proceedings before the CLB. With regard to the very applicability of the Limitation Act to the proceedings before the CLB, this matter has been considered at great length in A.V. Sampat, O.L. v. Dunlop India Ltd. [1995] 19 CLA 69/[1996] 87 Comp Cas 398 (CLB), wherein the CLB have relied on certain decisions of the Supreme Court in the context of the applicability of the Limitation Act, namely, Nityanand M. Joshi v . Life Insurance Corporation of India AIR 1970 SC 209 and Town Municipal Council, Athani v. Presiding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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