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TMI Blog2012 (10) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellants' application therefor. At the time that this appeal was received on August 10, 2012, the primary legal issue canvassed by the appellants was that the CLB could not have looked beyond the executed terms of settlement to record that there were other disputes between the parties to the settlement that were required to be resolved. The question of law that is of pre-eminence and dislodges the legal issue initially noticed is as to whether proceedings under Sections 397 and 398 of the Act may be continued by the petitioners who have relinquished their shareholding in the subject company during the pendency of the proceedings. To be slightly more precise, the primary question of law, on the facts of the present appeal, is whether a petition under Sections 397 and 398 of the Act comes to an end upon the petitioners therein transferring their shares in the subject company and the transferees not seeking to pursue the matter. The ancillary issue that arises is as to the jurisdiction of a tribunal established by law that does not have the plenary or residuary authority that a regular court possesses. The respondents herein launched the petition in September, 2010, before the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich provides the key to the legal issue that has arisen is evident from the recording of the matters in issue in the CLB order of July 13, 2012, the relevant paragraphs need to be seen: "3. In the reply to the present application, the petitioner Smt. Anjula Nagpal stated that she had no idea or knowledge of signing a final settlement agreement and signing the share transfer forms. Further, she submitted that as per documents filed by the respondents, the share transfer forms are dated sometimes in May-June 2011 whereas the payments against which the transfers have been shown, have been made in September, 2011. The petitioner has also stated that she has not signed or executed any agreement knowing it to be the final Settlement Agreement. Further, the petitioner has submitted that she signed the agreement dated 17 September, 2011 based on the explanation and representation of the respondents that it was an "Initial Intent of Settlement" and she is suffering from lack of vision and was denied any assistance of her choice to verify the document. "4. The respondents in the rejoinder stated that the petitioner no. 1 has suppressed material facts in filing the replies and has made fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 is not legally valid or cannot be taken on record. Further, it is also denied and disputed that the document is not signed by the petitioner or that the signature of the petitioner is a false and fraudulent imitation of the signature of the petitioner or that it is an act of forgery or cheating or fraud. It has also been denied and disputed that there was any necessity to file shareholders agreement along with settlement dated 17th September, 2011." Against such recording of the CLB in the order impugned, the relevant averments in the two affidavits filed by the first respondent herein need to be noticed. To begin with, both affidavits used in opposition to the appellants' application were filed by the first respondent herein on her behalf and not on behalf of the two other petitioners before the CLB. However, there was no conflict of interest between the first petitioner before the CLB and the two other petitioners and the submission on behalf of the first respondent herein, that she controls the two other respondents or is sufficiently empowered to act on their behalf, is accepted. Further, contrary to the impression that one would get from the first respondent's allusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders or otherwise in the company with the filing of this Terms of Settlement. On the above terms it is agreed that the petition should be disposed of. The Terms of Settlement is being signed by all the parties to C.P. No. 777 of 2010." Copies of the share certificates and share transfer forms were appended to the appellants' relevant application and the contents thereof have not been denied in either affidavit filed by the first respondent herein before the CLB. There are four transfer forms relating to the shares held by the first respondent herein which have all been witnessed by her husband's signature. The other share transfer forms apparently bear the signature of a common director in the two other respondents, but, remarkably, records the husband of the first respondent herein as the witness thereto. It was not the petitioner alone with her "extremely poor vision and other physical problems" who signed the documents of transfer. There were two other signatories to the documents who are not said to have had failing vision or poor health. These facts, apparent from the documents, were all there for the CLB to see. In a remarkable change of tack, the first respondent herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a defendant thereto at the time of the institution thereof may be continued in the same court notwithstanding the defendant thereto having moved beyond the jurisdiction of that court, the threshold numerical qualification under Section 399 of the Act is to be looked into only at the time of the filing of the petition under Section 397 or Section 398 of the Act. If some of the petitioners pull out of the proceedings instituted under Section 397 or 398 of the Act, or some of the supporters of the petitioners who helped the petitioners obtain the numerical qualification withdraw support after the institution of the petition, the progress of the petition cannot be halted on such count; though the quality of the final relief that may be granted therein may be influenced by the shareholding strength of the continuing complainants. But where all the petitioners to a petition under either Section 397 or Section 398 of the Act cease to be shareholders of the concerned company, the petition is over; unless an overwhelming matter of public importance or public policy impels the CLB to pursue the petition on its own. For such a rare case, exceptional circumstances must exist and, more importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used becomes irrelevant to them; they divest themselves of the right to pursue the complaint; and, in the absence of any other shareholder donning the mantle of carrying the proceedings, the matter has to end. It is true that petitions under Sections 397 and 398 of the Act have traditionally been regarded as representative actions: the object of the actions and the purpose of the orders passed therein are considered to be for the benefit of the company and, as such, in the interest of the shareholders of the concerned company. But ever since the jurisdiction of High Courts in such matters has been vested in the CLB pursuant to the Amendment that came into effect at the end of May, 1991, petitions under Sections 397 and 398 of the Act are not known to be advertised; and copies of the petitions are no longer routinely forwarded to the Central Government, though the Central Government still has the right to intervene and be heard. Apart from the fact that neither set of parties has referred to the petition before the CLB having been advertised, the order impugned did not decline to record the settlement on the ground that the matter had partaken a representative character. Indeed, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment reported at (1975) 1 SCC 199 (The Godhra Electricity Co. Ltd v. The State of Gujarat) for the proposition that the conduct of the parties reveal their understanding of their agreement is of no relevance in the present context, particularly since the terms of settlement of September 17, 2011 recorded both a resolution of all disputes and the transfer of shares, even if the second clause therein - of the petitioners in the CLB proceedings abandoning the petition - is disregarded. Two judgments reported at (1999) 1 SCC 1 (Rickmers Verwaltung Gimb H v. Indian Oil Corporation Limited) and AIR 1936 PC 760 (Tyagaraja Mudaliyar v. Vedathanni) on consensus ad idem are equally inapposite. The first of the cases dealt with the matter of incorporation of an arbitration agreement by implication in a subsequent contract. The other case recorded an exception to the rule as to the impermissibility of parole evidence in respect of a written agreement. The final line of cases cited by the respondents, that an admission may be explained away, is somewhat closer to the matters in issue; but in the absence of necessary pleadings to invoke the principle, the two judgments cited on such aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction. Upon the admitted execution of the share transfer forms and the handing over of the share certificates, and the subsequent registration of the transfer thereof, the respondents herein ceased to be shareholders of the company on the transfer being effected and could no longer pursue the proceedings under Section 397 and Section 398 of the Act whether on merits or for the oblique purpose of extracting further money for the sale of the shares or even for obtaining their rightful due therefor. The appeal, APO No. 341 of 2012, succeeds. The order impugned dated July 13, 2012 is set aside and the appellants' application before the CLB, CA No. 201 of 2012, is allowed by dismissing the respondents' petition before the CLB, CP No. 777 of 2010. If the share certificates have been deposited by the appellants or their nominees with the CLB pursuant to the direction contained in the order impugned, they shall be immediately returned to the named holders thereof. If the sum of Rs.12,03,47,715 has been deposited by the respondents with the CLB, the respondents will be entitled to refund of the same immediately together with any accrued interest thereon. The stay petition, ACO No. 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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