TMI Blog2017 (3) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is to be counted within the 'class of members', over this aspect, we have elaborately discussed and said that the member complaining can as well fight for the cause of 'class of members' if mismanagement is qua against a 'class of members'. But, it cannot be read that a 'class of members' themselves have to be treated separately attaining qualification u/s 244. It is only an additional relief that a member qualified u/s 244 can ask for relief. We already said that the addition of 'class of members' is inconsequential to the qualification mentioned u/s 244. When the legislature has taken every care in creating rights on class basis, had the legislature intended to introduce class concept, they would have introduced the same in Section 244 as well. But that has not been done. Therefore, there is no point in the argument of Petitioners saying that 'members' mentioned in Section 244 has to be read as 'class of members'. That we do not find any merit in the argument of the Petitioners' Counsel saying that since the redeemable preference shareholding be shown as debt in the Accounting Treatment, preference shareholding cannot be equated with the equity shareholding to invoke Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maity, Ms. TahiraKaranjawala, Mr. AvishkarSinghvai, Mr. Sidharth Sharma, Mr. Rohan Batra, Mr. Arjun Sharma, Ms. EeshaMohopatra, Ms. PayalChhabria, Mr. JeetKaria, Ms. juhiMathur, Advocate, Mr. Shailesh Poria ... Advocate, Shri Sudipto Sarkar, Shri Mohan Parasarary Sr. Counsel, Mr. D.L. Chidananda, Mr. Zal Andhyarujina, Mr. Ashwin Kumar D.S., Ms. Shurti Sardesai, Mr. Jahangir Mistry, Ms. Namrata Parikh. Advocates, Shri |anak Dwarkadas, Sr. Counsel, Mr. Sharan ]agtiani, Mr jehangirlej eebhoy, Ms. ShireenPochkhanawalla, Mr. NiravBarot Advocates ORDER Nobody knows when problem comes, now problem has come upon TATA (Tata Sons Ltd. (R1)) which everybody knows in India, there can't be anyone who has not experienced the product of Tata. Many of rural folk may not know TATA as a company, but everybody, east to west and north to south, knows Tata salt, Tata tea, Tata car, Tata bus, likewise many, it is a household name in India. Salt to software, it has seasoned this country with all spheres and makes its presence felt all over the world. The time has now become excruciating to this Tata Sons (R1) owing to Board Room battle. Tata Sons is a driving force and funding machine to al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 for a sum in excess of USD 12 billion which was more than 33% of its original price, which eventually led Tata Steel go down by this purchase, when it was not doing well, Mr. Mistry initiated to merge this Tata Steel U.K with Thysseen Krupp so as to rid Tata Steel of the financial sufferance, but it is R2 who objected to restructuring of Tata Steel UK company causing loss to everybody including the petitioners. - That sometime in 2007-2008, R2 came out with a proposal to manufacture a car that could be enjoyed by poor of this nation, with an installed capacity of 2,50,000 cars annually, but the demand for these cars is only 3,000 cars per year, by which Tata Motors consistently loosing ₹ 1000 crores causing once upon profit making company i.e., Tata Motors gone into losses, inspite of it, R2, for his emotional reasons, has prevented R11 from taking crucial decision to shut down Nano Car Project. - That R2 caused issuance of 520 billion shares of TTSL at the rate of ₹ 17 to Sterling for a throw away price of ₹ 884 crores, and then issued TTSL shares to Singapore Company at the price of ₹ 26 per share immediately after transaction with Sterling owned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answering Respondents, the petitioners, having 18.37% shareholding in R1, sought various reliefs on the ground that the alleged actions of R2 and his men are oppressive and prejudicial to the interest of the petitioners and R1 Company and its group companies. Arguments of the Respondents Counsel: 4. Looking at the petition the petitioners filed, Dr. Abhishek Manu Singhvi, Senior Counsel on the answering Respondents behalf, at the outset raised a threshold issue saying that the petitioners do not have qualification envisaged u/s 244 to file this CP u/s 241 for these two petitioners together have only 2.17% shareholding which is less than one -tenth of the issued share capital of the company, and by number also they being only two out of 51 total members of R1, the Respondents have taken out a detailed plea stating that the petitioners failed to meet the qualification as set out in section 244, therefore, this petition is liable to be dismissed in limine. 5. As to the issued share capital of R1, as on 21st December 2016, the total issued equity share capital of R1 is ₹ 40.41 crores and the total issued preference shares is ₹ 294 crores, hence total issued share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des stock and that since section 43 itself says share capital means equity plus preference, it can't be even imagined issued share capital means only equity, not preference. As to variation of rights of different classes of shareholders u/s 48, if variation of rights of one class of shareholders affects of the interest of other class of shareholders, then certainly 3/4th of such other class is to be obtained, but one fact that should not be forgotten is this right of variation shall lie either in the Memorandum or Articles, if not in constitutional documents, then at least in the terms of the issue of shares it shall disclose these rights, this concept of different classes of shares run on the understanding of the persons opting for shares, but this oppression or prejudice remedy will never become a right either in constitutional documents or terms in between the parties, therefore the petitioners cannot derive an analogy from this section to say the same is applied to sections 241 and 244. The Respondents counsel therefore submits that the meaning of the phrase issued Share Capital will not and cannot change into Issued Equity Share Capital when it comes to decide maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been said. It is again to be noted that while interpreting a provision the court only interprets the law and cannot legislate it. Doing what is suggested on behalf of the appellant would not only be doing violence to the section but will amount to legislating a provision in a manner not at all intended by the Legislature. 29. From the aforesaid discussion, and from whatever angle one looks at the expression issued share capital of the company, it is very clear that the expression can only refer to the preference share capital as well as equity share capital of the company and the appellant was required to hold one-tenth of the total of this issued share capital before he became eligible to maintain a petition under section 397/398 of the Act. The appellant at no time held more than 2.01 per cent of issued share capital. It did not have it when it became a member or shareholder. It did not have requisite percentage on the date of filing of the petition. The appellant might be having 14.8 per cent of equity shares, but that is not the criterion to make an application. The petition was therefore rightly dismissed. [Emphasis supplied]. 11. He further submits that this deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emain relevant and contextual not only for now but also to the times to come. When legislature has taken old law into new enactment without any change, then obviously ratio decided under old section of law that is subsequently re-ordained as new section of law, is binding on the courts. In the case supra, the ratio has been decided in the context of repetition of Articles 102 and 120 of the Limitation Act, 1908 in identical terms without any modification in the Limitation Act, 1963. The same is the view held in Pradeep J. Mehta vis. Commissioner of Income-tax, Ahmedabad (2008) 14 SCC pg.283 para No.20, 25 and Parvathy Amma Ors. v. Krishnan another 1962 KLJ 428 para No.8 in respect to the applicability of case law decided on old section of law that has been re-ordained as new section of law without any change. 15. The Respondent Counsel submits that the attempt of the petitioners to read the term Class of Members into section 244 is wholly untenable, self-serving and would do violence to the language of this statute if at all equity shareholders, as is sought by the petitioners, are considered as separate class to say that since the petitioners have more than 10% equity shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear and unambiguous then literal rule is applicable. The interpretation of statute arises only when literal interpretation defeats the purpose of the provision or results into manifest absurdity, for the language is being clear in section 244, there cannot be any scope to have more than literal interpretation to the section, therefore, the phrase class of members cannot be read into section 244 to say that issued equity share capital is to be taken into consideration for reckoning 10 percent shareholding qualification criteria mentioned section 244. 19. As to the argument of the Petitioners Counsel that section 244 has now become directory by introduction of waiver clause in the proviso to the section 244, the Respondents Counsel submits that argument of the Petitioners' case is surprising for two reasons, (1) - the Petitioners asking from one side that their Petition is maintainable on the ground that their equity is more than 10 percent, (2)-juxtaposition to the above argument, the Petitioners Counsel arguing that section 244 has become directory in the New Act for waiver clause has been introduced in the New Act forgetting the fact that prosecuting party cannot take inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57 years from 1956 to 2013. The determination of eligibility based on equity and preference share capital was present even under old regime and the same position never came to be contested in the period of 57 years. It is rather interesting that the same is allowed to continue without any change in the new enactment as section 244 believing the law that continued for more than half century as section 399 shall continue for the times to come as section 244. Now, it is not open to any body to say whether it is equitable or inequitable, that question is no more a question. 23. As to the argument the Petitioner counsel propounded that since Accounting Standard 32 referred to preference shares as debt, unless they are compulsorily convertible, as long as they are not converted or convertible into shares, the redeemable preference shares shall be treated as debt not as equity, henceforth the preference share capital that is not compulsorily convertible cannot be treated as share capital u/s.244 to calculate 10% shareholding for filing petition under section 241, the Respondent counsel argued that Accounting Standard cannot be used to override a statutory provision of Companies Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition u/s.241. If such is the case, then the very purpose of protecting the minority in the company will be become redundant. Here it is to be seen that the Petitioners' shareholding value will come to ₹ 1,00,000 crores in the company therefore, if the preference shareholding valuing to ₹ 294 crore makes the Petitioners incapable to maintain petition u/s 241, it will become nothing but mockery of justice. 27. The petitioners relied upon D. Saibaba v. Bar Council of India 2003 6 SCC pg.186; Indian Performing Rights of Society Ltd. v. Sanjay Dalia Others [2015] 10 SCC pg. 161 to say that a construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly has to be rejected and preference should be given to that construction which avoid such result. 28. The Petitioners submits that power under sec.241 to 244 being exercised by the Tribunal in its equitable jurisdiction, a hyper technical view ought not to be taken in order to deny the cause of equity and justice. For which he relied upon Mis. Worldwide Agencies Pvt. Ltd. and Another v. Margaratt Desor Ors. [1990] 1 SCC 536, Baldev Krishna Sai v. Shipping Corporation of India Ors. [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity in the company, this Petition is maintainable. 34. The Sr. Counsel Shri Janak Dwarkadas appearing on behalf of R11 sailing with the Petitioners submits that the definitions to issued Share Capital Member , have to be taken into consideration unless the context otherwise requires. Since the new concept of class of members have been introduced in section 241, the meaning of the issued capital has to be limited to the issued equity share capital alone not otherwise. When the phrase class of members are related back to qualification clause in section 244, the context demands that issued share capital means only equity share capital not the share capital along with preference share capital, therefore, the meaning given in definitions sections will remain inapplicable for it has been conditioned that its meaning is applicable, unless, in the Act, the context otherwise requires. Since the colour of section 244 is changed by relating it to the phrase 'class of members' used in section 241 (1) (b), the definitions and meanings given to issued capital, share and preference share capital and issued share capital are not applicable. With this submission, R11 counsel su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gument is that the members mentioned in Section 244 has to be read as 'equity class' for it is relatable to the interest of equity shareholders, (3) that since Accounting Standards-32 refers to preference shares especially redeemable preference shares, as 'debt to the company' thereby the preferential shareholding shall not be treated on par with equity, (4) that Sections 241 to 244 will need to be read together and they are not mutually exclusive in as much as though conditions and parameters as contained in Section 244 from the jurisdictional basis for Section 241, in the same manner the grievances mentioned Section 241 can only be maintained 'provided such member has a right to apply under Section 244' has been stated in Section 241. He argues primary rule of interpretation is that every part of a section should be given its full and natural meaning, it cannot be diluted by superimposing some other section on the footing one section is conditioned by another section, (5) that by introduction of waiver jurisdiction to NCLT in Section 244, the qualification clause has become directory because whenever any person pleads waiver of Sub-section (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or members or in a manner prejudicial to the interests of the company; or 398. Application to Company Law Board for relief in cases of mismanagement - (1) Any members of a company who complain - ( a ) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or ( b ) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors or manager or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t less than one hundred members of the company or, not less than members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares; ( a ) in the case of a company having a share capital, not less than one hundred members of the company or not less than its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; ( b ) in the case of a company not having a share capital, not less than one-fifth of the total number of its members. ( b ) in the case of a company not havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. (This part (a) of subsection 1 of the above section is lifted from clause (a) of sub-section (2) of section 397 and from clause (a) of subsection 1 of section 398 and then abridged both into clause (a) of subsection (1) of section 242. As to part (b) of subsection (1) of section 242, it has been bodily lifted without any change from clause (b) of subsection (2) of section 397 - here in this sub section (1), it appears that enquiry and remedy has been set out under subsection (1) of section 242) (2) Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section may provide for- (From subsection (3) to subsection (8) are not relevant for today's discussion, hence not reproduced) 39. After going through the old Sections of law and the new Sections of law, it is true, as the Petitioners' Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (1) of 399 and Sub-section (1) of 244, they start saying that the following members' alone have right to apply under Section 397 and 398 or Section 241, as the case may be. So, in the beginning itself both, old and new, start saying ''The following members shall have the right to apply uls 397, 398 of the old Act/241, namely , in this clause one mandate in the beginning of the Section is the following members , then second mandate is shall , third is a new introduction in new section is the word namely to be more exact about the following members in ensuing clause to specify and exclude the members other then members qualified u/s 244. Therefore, namely ' has been introduced to pinpoint the members qualified to file petition u/s 241. By reading up to Section 241(1)(a), it is clear in the statute that for maintaining a Petition u/s 241, the 'member or members' shall have 1/10th of number or not less than 10% of the issued share capital. 44. If we come to old Sub-section (4) of Section 399 of 1956 Act, it is evident that Central Government was authorised to authorise any member or members of the Company to apply to the Company Law Board u/s 397 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been deleted when it has come to waiver clause in the proviso to Sub-section (1) of Section 244, therefore, the order of authorisation that could be passed by Central Government disregarding qualification criterion mentioned in Sub-section (1) has been consciously deleted in the waiver clause of Section 244. 47. This proviso has started saying provided . Normally 'provided' means, as we all know, 'on the condition that' or 'if or 'only if, if this meaning is taken as meaning of word 'provided', the Tribunal is required to look into waiver only if an application has been made by the complaining 'member' or 'members', by which, it could be understood that the complaining member has to file an application for waiver along with the Main Company Petition itself. In subsection - 4 of section 399 of the old Act, it was not said that it has to be considered on application of the complaining party. 48. On seeing the facts of the case and on seeing the provisions of Section 244, prima facie it is clear that Petitioners having not met the 10% shareholding criterion to get qualification to file this Company Petition, therefore the Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, as to complaining party is concerned, no change has come. If we look for meaning of 'complaint', in legal parlance, complaint means pleading cause of action and the relief following the cause of action. So, according to all these three Sections, the member complaining must pass the test under the qualification Section, unless complaining member passes the test of qualification, such member cannot file a complaint/ petition under cause of action Section i.e. u/s 241 of the new Act. At least to this extent, there cannot be any confusion or any doubt or ambiguity to say that who can become a complaining party u/s 241 of the new Act. In the back drop of it, can it be said that by introduction of phrase 'the class of members' in (b) of Sub-section (1) of Section 241, the test for complaining party has been changed? To our belief and opinion, no. These words 'class of members' have been added to the mismanagement sub-section, therefore, it could at best be said that if at all any grievance is there to a class of members in respect to the mismanagement of the affairs of the company, the complaining party may as well canvas for the cause of a class of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with rights and liabilities, thereby if we go by Civil jurisprudence, the aggrieved alone will have cause of action on wrong done against the aggrieved, since the Company has been conceived as independent person or independent entity if any wrongdoing has been done to the Company, the Company being an independent person it has to initiate action on its own against the person done/doing wrong. If the Directors themselves are wrongdoers in a Company and if such wrongdoing affects minority, then such minority neither can prevail over in the shareholders' meeting nor in the Board. Therefore, there will not be any occasion for the Company to take up the cause of the minority who are at sufferance. To get over this problem, common law has evolved a concept of derivative action to fight on behalf of the Company to fight for the cause which is not falling within the ambit of shareholders' rights. As we all know, if you fight for the cause of others or Company, it will become a representative action on behalf of others. The beauty in representative action or derivative action is that a person can fight not only for his grievances but also for the grievances of others. This is a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the transparency and to avoid mixing up figures, therefore, the facility that has been recognised in the Accounting Treatment cannot be considered as overreaching effect on the statutory provisions. When the Statute defines preference shareholding as part of the issued share capital, can it be said that since Accounting Standard saying that redeemable shareholding shown as debt in the Company, therefore, the definitions given under Companies Act and the rights created under Companies Act are redundant? It cannot be like that. Preference shareholding will never become a debt and a shareholder can never wear the hat of creditors. The Petitioners have been arguing redeemable preference shares as debt, if so, any right has been conceived to the preference shareholders at least to make a demand for recovery of their investment before the period envisaged while issuing redeemable preference shares. If Company has gone into losses, can it be possible to preference shareholder to ask for recovery on par with creditors? So this limited argument of the Petitioners highlighting the practice in Accounting Standards will not make any case to obfuscate the mandate of the Statute. Therefore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and practices in order to ensure standardisation in the preparation of financial statements and to enable the comparability of financial statements and thereby improve reliability and usefulness of financial statements. 59. By reading these objectives, it is ascertainable that this Accounting Treatment has come into existence to easily understand the financial statements of the Company, nothing more nothing less. 60. When section is in clear and clean language understandable, no interpretation is required. Of course, the necessity will arise for interpretation to those who are bent upon to run down the purpose of legislation. What is the purpose of legislation? The answer is qualified cause of action. 61. Let us take one illustration to know how cause of action is relatable and personal. What will happen if a person is murdered - it being an offence against State, it will take action, though State is not directly aggrieved, since such action is prohibited under law, penal action will follow so as to maintain social order in a State. But when it comes to sue for damages, (of course this cause of action is not prevalent in our country) only the persons depending on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The word grievance denotes a cause of distress (injury, injustice, or wrong, etc.,) felt to afford reason for complaint or resistance. As we already said in the illustration that cause of action in civil cases is limited to the persons entitled, so unless entitlement of a person complaining is fulfilled, it cannot be construed as cause of action arose to the person propose to complain. 65. If we carefully read section 241, it is not discernible as to whether wrongful action is repugnant to any mandate of the statute or prohibition made by any statute. It says that if the act or omission of a wrong doer is prejudicial or oppressive to the categories mentioned in this section, it does not matter whether such action is legal or illegal. By going through origin of this concept, it will be clear that it has developed on fairness principle, probity principle and on equality principle, therefore, it is a remedy developed over and above repugnancy doctrine, so this relief is ordinarily not available before civil court. This is a unique doctrine not available under any other provision of the very same Act or, to our remembrance, under any other law. 66. We all know that an act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emains Rule, and these two are not interchangeable. Courts, before passing any relief, have to see whether cause propounded by the minority is really an exception to Rule of democracy, here strict proof test is to be applied, because this remedy in ordinary parlance is not available. If the case falls within the groove of oppression and mismanagement, equity could obviously be applied to pass any relief that is able to end the litigation, but by throwing all this cautious exercise and judicial discretion to winds, and assume that case u/s 241 242 is not bound by any principle and can pass any order ignoring the screening tests set out by the statute, then the corporate democracy, which is conceived as hallmark of governance, will become otiose. It will not only make corporate democracy otiose, it indeed makes our rule of democracy otiose if we act contrary to the mandate of statute. 67. A Section of law cannot be grafted with anything everything to one's convenience and take out a hybrid saying hybrid is the purpose of the section without realizing or perhaps knowing well that hybrid will never become original. One must be cognitive of the fact that statutes are not let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enior counsel Shri Sarkar appearing on behalf of the Respondents argued that when computation is made u/s 244, it is the investment made by the members will be taken into consideration, not the net value of the company or net value of the petitioners' shares as on the date. 71. Finally, our answers to the Petitioners' Counsel's arguments are (1) That no change or new concept was brought in Section 244 of the 2013 Act. Indeed, the old Section of law is in toto bodily lifted from Section 399 to Section 244, change is there to the extent of sub-section (4) in Section 399 to a proviso to sub-section (1) of Section 244, as to the phrase 'issued share capital' or as to its rigors no change has come, indeed, the word 'namely' has been introduced. For further confirmation that qualification is limited to the 'members' mentioned in the Section, not to others, thereby the ratio decided in Northern Projects (supra) is still relevant and makes it not open to the Petitioners to say that 'issued share capital' means 'issued equity share capital'. (2) That the phrase 'class of members' mentioned in the mismanagement clause in Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean equity plus preference in lieu of the additional phrase 'class of members' introduced in Section 241(1)(b). We differ with the argument of the Senior Counsel because there is neither a context in Section 244 in respect to 'class of members' nor in complaint/application/cause of action Section 241, it is only inclusion of class of members giving a window to the complainant to canvass for the grievance of class of members as well, not more than that. Therefore, the meaning of the definitions enumerated in Section-2 will remain applicable; the meanings cannot be taken otherwise unless an explicit or implicit context comes into play saying that particular word's meaning is very much different from the meaning given in the definition. Therefore, we do not find any merit in the argument of R11's Counsel. Both sides have filed catena of decisions showing precedents that purposive interpretation could be given where the Section of law is unable to give the meaning legislature intended to and if the purpose is not derivable from the language available, then definitely Courts will apply the doctrine of Casus Omissus or harmonise the meaning by taking the help ..... X X X X Extracts X X X X X X X X Extracts X X X X
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