TMI Blog1998 (4) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking to produce the original certificates the petitioners have also annexed a copy of a certificate of the statutory auditors of the company which certifies the shareholding of the petitioners. 3. The facts as stated in the petition are as follows : (a) In 1982 pursuant to the winding up of a company named Gayday Iron and Steel Company Limited under orders of the Calcutta High Court and subsequent to the directives of the Supreme Court of India on December 17, 1982, the BSIDC was declared the highest bidder for several lots of the assets of that company. Thereafter, the BSIDC was looking for a financial partner and ultimately, invited one Shri Pradeep Sanchetti as its partner. Pursuant to an agreement between them, the company was incorporated and to revive the factory fresh investment was to be made by Shri Pradeep Sanchetti and/or his associates whereas the investment of BSIDC was to be represented by the plant, building and land obtained from the official liquidator, Calcutta High Court, as stated above. The company made applications for long-term funds to the IDBI and the IRBI which were rejected resulting in the failure of the objective to revive the factory. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minated persons. (c) The past track record of the BSIDC is poor and its own net worth is negative. (d) The liabilities of the company are going up to the detriment of the shareholders. (e) It has come to the knowledge of the petitioners that attempts are being made to take out the properties from the ownership of the company by stating that they do not belong to the company but belong to the BSIDC. Since shares have been already allotted against these assets the BSIDC cannot claim these properties. (f) The IRBI has already recalled the disbursed loan which has not been paid. 5. The petitioners have prayed for : (a) freezing the liabilities of the company, (b) declaring that the properties and assets belong to the company, (c) freezing payment and further accrual of interest to the IRBI, (d) recommend winding up of the company, (e) recommend for settlement of disputes between the promoters. 6. Reply to the petition has been filed by the BSIDC and no reply filed by the IRBI. The BSIDC in its reply filed on August 1, 1995, has stated that the names of the petitioners do not find a place in the register of members maintained by the company and as such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are not being dealt with as at present. 8. A reply also came to be filed subsequently on behalf of the company in December, 1995, affirming the reply of the BSIDC. It is stated therein that although the private promoter declared that 25 per cent. shares in terms of the joint venture agreement have been contributed by him and his associates but after the receipt of the special audit report, the company found that in fact the private promoter by making false and incorrect entries had shown payment/contribution towards shares reserved for the private promoter. After the receipt of the special audit report the company at its board meeting wherein the representative of the private promoter was also present constituted a three-man committee to scrutinise the report and list out the irregularities and the charges for issuing show-cause notice to the private promoters. In view of this the private promoters left the company without handing over charge. It is further stated that the IRBI had disbursed ₹ 107 lakhs, a substantial amount out of which was misappropriated by the private promoters. After having found that crores of rupees received from the general public and from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed by the petitioners. Thereafter, adjournments had to be granted due to the non-availability of the respondents' counsel on February 3, 1997. In March, 1997, the petitioners' advocate also sought adjournment. On objection, the respondents' advocate was allowed to argue on maintainability which he did. In June, 1997, the petitioners' proxy advocate again sought adjournment due to the petitioner being out of India. Effectively, the petitioners could argue the case on maintainability in November, 1997, and March, 1998. 11. Shri P. K. Sharma, advocate, appearing for respondents Nos. 1 and 2 submitted that : The petitioners' names are not borne on the register of members maintained by the company and they are front men of Shri P. Sanchetti, co-promoter of the joint venture and its executive director as well as his nominee managing director. Therefore, the petitioners have no locus standi to file this petition. In this connection, he referred to a decision of the Supreme Court in Balakrishna Gupta v. Swadeshi Polytex Ltd, [1985] 58 Comp Cas 563 as well as of the Kerala High Court in Lalitamba Bai v. Harissons Malayalam Ltd. [1988] 63 Comp Cas 662. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the merits of the matter. 16. Arguments were advanced by Shri H. M. Dutta, senior advocate, on behalf of the petitioners. On maintainability, Shri Dutta stated that the burden of the petitioners is only to prove that he is the holder of the shares and he cannct be turned out for the non-maintenance of the relevant registers by the company. The right of a member cannot be denied since the company has not maintained its registers in order. The petitioners have come to the Company Law Board under Section 398 in their capacity as members of the company and not as co-promoters. With regard to the question of the entry in the register of members he cited a decision of the Andhra Pradesh High Court in Satyaprasad Rao (N.) v. V.L N. Sastry [1988] 64 Comp Cas 492 to state that even if the name of the shareholder is not found in the register the shareholder in whose favour share certificates are issued can exercise rights as member of the company notwithstanding the omission in the prescribed register. He further cited a Division Bench decision of the Karnataka High Court in Sri Balaji Textile Mills Pvt. Ltd. v. Ashok Kavle [1989] 66 Comp Cas 654 to state that if a person is treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the front personalities of the co-promoter of the BSIDC in the project who are guilty of defalcating more than ₹ 3 crores and against whom a number of litigations are pending. Therefore, the petitioners have not come with clean hands. 18. Out of the above two objections on maintainability the second in our opinion is really in the nature of a preliminary objection which may have to be dealt with along with the merits of the case and cannot be a valid objection with regard to maintainability as such. The only valid ground for challenge to maintainability is that the names of the petitioners are not found in the register of members and since non-members cannot maintain the petition without fulfilling the requirements of Section 399 of the Act the petition has to be dismissed in limine as not maintainable. We have seen the proceedings of C. P. No. 61 of 1992, and we do not find any reference to the present petitioners' names being found in the register of members or not. As per the order, no entries were found in the register of members except the names of the original promoters. It was also noted that efforts were on by the present respondents to reconstruct the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also referred to another case which has direct relevance, namely, Srikanta Datta Narasimharaja Wadiyar v. Venkateswara Real Estate Enterprises (Pot.) Ltd. [1990] 68 Comp Cas 216 (Kar) in which the preliminary issue in similar circumstances was decided by the Karnataka High Court under Section 397/398 of the Act, wherein it is observed that (page 238) If, in a given case, it is shown that though the name of a person is not shown in the register of members, if he had been treated as a member of the company, the company court can always exercise its equity jurisdiction. This court should not decline to exercise its equity jurisdiction on the ground of mere technicality. In fact, Balakrishna Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp Cas 563 (SC) itself was dealt with by the Karnataka High Court and it was observed as follows (page 229) : This decision, in my view, is not an authority on the question touching on the maintainability of a petition on the ground that the person who claims to be a member, is not a member within the meaning of Section 399 of the Act or Section 41(2) of the Act. 19. The petitioners have also cited another Division Bench judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, if the total capital as certified by the auditors is shown to have been contributed by all the concerned parties there is no gainsaying that the petitioners though admittedly part of the co-promoters group did not contribute and have not taken up the capital. The fact remains that the capital has been subscribed in full and respective subscriptions of promoters and the BSIDC as stated in the prospectus are taken up, otherwise no allotment to the public is possible. If at all, the respondents should have established, that though the subscription was there, it was not from the petitioners but from some other parties. There is no such averment from respondents in this regard. In addition yet another factor which is relevant is a certificate dated October 24, 1989, issued by the auditors of the company (much after the public issue) evidencing the fact that the co-promoters including the petitioners named specifically therein have contributed towards the share capital the amounts stated therein after verifying from the records of the company. It is also necessary to record here that the BSIDC by its subsequent letter dated December 13, 1989 (found in page 48 of the petition), has con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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