TMI Blog2009 (4) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... 05, was ₹ 2,00,00,000 divided into 20,00,000 equity shares of ₹ 10 each. The issued, subscribed and paid-up capital of the company as on March 31, 2005, was ₹ 1,60,79,500 divided into 16,07,950 equity shares of ₹ 10 each with the main business of manufacturing, erecting, buying, selling, reselling, exchanging, assembling, importing, exporting, improving, distributing, hiring, designing, developing or otherwise and dealing in electrical and mechanical machines and equipments like transformers, motors, generators, etc., and hardware materials and machinery and equipments of all kinds and types manually operated or working with electricity, petroleum, solar system, steam and gas. 3. The petitioners in this case have sought issuing of suitable directions for regulating the conduct of the affairs of the company in future ; removing the present board of directors of the company ; ordering an investigation into the affairs of the company to fix liability of the respondents, all or any of them in respect to mismanagement and/or negligence and/or misappropriation and the consequent loss that may have been caused to the company by the respondents; for auditing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng but a gross abuse of the process of law and hence liable to be dismissed with heavy costs. 7. It was argued that in view of the cancellation of the shares, the petitioners were not holding any shares on the date of filing of the petition. In such a situation, the petitioners being aggrieved of the action of the respondents ought to have initiated proceedings for declaring the action of the respondents being illegal and set aside of the same. The petitioners having failed to do so cannot by way of the petition under Sections 397 and 398 question the oppression and mismanagement by the respondents. Further, the petitioners have not challenged the action of the respondent-company whereby it has cancelled the shares of the petitioners. Thus, the undated letter by which the respondent had cancelled the shares of the petitioners has attained finality. 8. To support their contentions the respondents placed reliance upon the judgments in John Tinson and Co. P. Ltd. v. Mrs. Surjeet Malhan [1997] 88 Comp Cas 750 (SC), Ranjit Singh v. Madan Mohan Cold Storage P. Ltd. [2009] 147 Comp Cas 513 (CLB), Suruchi Chand v. Mahalaxmi Glass Works P. Ltd. [2009] 148 Comp Cas 496 (CLB) and M. Sre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 per cent shares of the petitioners were pledged with the bank on March 25, 2006. Based upon the said agreement, the petitioners' group invested a sum of ₹ 1,58,50,000 including ₹ 36,17,888 as per details given in paragraph 6(d) of the petition. However, all of a sudden respondent No. 3 informed petitioner No. 1 on behalf of the company as its directors vide its letter which was without any date, that his appointment as a director is illegal as the articles do not empower the board of directors to appoint additional director. In a separate letter, that too without any date, the petitioners were informed that the company has annulled the transfer of 8,03,975 equity shares of ₹ 10 each made in terms of the agreement dated January 30, 2006, as the same is contrary to articles as prior approval of all the shareholders has not been obtained. Both these illegal actions have been challenged in the petition in view of the articles being amended on March 29, 2003, besides Form No. 23 filed by respondent No. 5. 10. Further, counsel for the respondents/petitioners replying to the Company Application No. 379 of 2008 challenging the maintainability of the company pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company petition cannot be accepted. 11. The shares of the petitioners constitute 50 per cent of the total paid-up share capital of the company and have been pledged with the State Bank of India at the instance of the respondents. Under the Act, there is no power with the company or any shareholder or director to cancel or annul any share once registered in the name of a shareholder. In the eyes of law, petitioners are still holding these shares and the petitioners are entitled to file the present petition, in terms of Section 399 of the Act. 12. Replying to the contention that the present petition has been filed by the present petitioners with the sole objective of instigating unnecessary litigation so that the respondents succumb to the undue demands of the petitioners by way of filing false criminal cases causing harassment to the respondents, it was pointed out that this false contention has been raised by the respondents with some ulterior motives of misguiding the Company Law Board. It was pointed out that a criminal complaint was filed by the petitioners under Sections 406, 420, 409, 465, 467, 468, etc., of the IPC before the DCB Police Station, Vadodara against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations. Petitioners Nos. 1 to 3 have acquiesced the said resignation as directors as well as the factum of transfer of shares upon payment of the consideration amount in terms of the memorandum of understanding dated January 24, 2002 and have thereby by their conduct accepted the same and have waived their rights, if any, to challenge the said resignation and/or transfer of shares. The present application as such is bad in law by the principles of acquiescence and estoppel. Petitioners Nos. 1 to 6 having approbated the said transactions cannot reprobate the same. The claim made in the application is barred by the principles of approbate and reprobate. The other petitioners being petitioners Nos. 7 to 11 all being brothers and sisters of respondents Nos. 2 and 3 have withdrawn from the present proceedings unconditionally and have no grievances whatsoever. In order to maintain a petition under Sections 397 and 398 as per the provisions of Section 399, Sub-section (1), the petitioners should hold either 10 per cent or more shares of the subscribed capital or should constitute 10 per cent or more of total members in the company. The present petition has been filed by 11 petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fers) 14. There is no quarrel with the legal principles laid down in the case law relied upon by the applicants/respondents regarding the maintainability of the company petition under Sections 397 and 398, the requisite qualification under Section 399 is mandatory. There is no dispute with the legal principle that this qualification/eligibility has to be calculated as on the date of filing of company petition. 15. As regards the preliminary objection on maintainability of this petition in view of the necessary qualification under Section 399 of the Act, it is correct that in order to maintain a petition under Sections 397 and 398 the petitioners should hold either 10 per cent or more shares of the subscribed capital or should constitute 10 per cent or more of the total members in the company. In this regard my attention was drawn to the provisions of Section 399 of the Companies Act, 1956. A bare reading and perusal of the provisions of Section 399(1) of the Companies Act would show that (a) in the case of a company having a share capital, members constituting not less than 100 members of the company or not less than one-tenth of total number of its members whichever is less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares and if the said issue/allotment is the very act which is challenged as oppressive in the said petition, the maintainability of the petition would be decided after determining the validity of the issue of allotment. The respondents/petitioners have rightly placed reliance on the case of Mohinder Singh (supra) to support their contentions. 16. Each case turns on its own facts. It has been argued that the facts of this case are such that if the petitioners are disqualified to maintain the company petition at the threshold itself no well meaning and genuinely interested shareholder would dare to proceed to make investment in a company as the threat and fear of being thrown out on sudden annulment of shares on the excuse of the allotment of shares being contrary to the provisions of the articles of association would always loom large. I find that there is allegation of removal of the petitioners as directors on the same excuse that the appointment was contrary to the provisions of the articles of association. The share certificates alleged to have been illegally shown as annulled/cancelled were pledged with the bank. The petitioners still hold photocopies of the duly endorsed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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