TMI Blog1967 (4) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... ne Maharaja Shri Ramanuj Saran Singh. But the said transfer has not yet been recognised by the aforementioned company. 3. The said company was incorporated on or about 5th May, 1947. It has an authorized capital of rupees ten lakhs divided into (a) 38,000 ordinary shares of ₹ 25 each and (b) 25,000 deferred shares of ₹ 2 each. Out of the authorised capital, the total subscribed and paid-up capital of the company is made up by the value of (a) 31,527 ordinary shares of ₹ 25 each and (b) 25,000 deferred shares at ₹ 2 per share. The value of the ordinary shares subscribed is ₹ 7,88,175 and that of the deferred shares is ₹ 50,000. The deferred shares are also called as the founder's shares. All these deferred shares were allotted to only five persons, namely,- (1) Shri P.Y. Deshpande, (2) Shri A.G. Sheorey, (3) Shri W.G. Sheorey (4) Mrs. Vimalabai Deshpande, and (5) Dr. M.G. Patwardhan. The said deferred shares carried disproportionate voting rights in their favour inasmuch as although the total capital contributed in respect of those shares is only ₹ 50,000, i.e., about 6 per cent of the total paid-up capital shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, the Central Government revoked the exemption granted, by its order dated 24th March. 1962. 8. The said revocation order of the Central Government was challenged by the fourth respondent in Special Civil Application No. 244 of 1962 in the High Court of Judicature at Bombay (Nagpur Bench). In that petition the fourth respondent herein prayed for the following two reliefs: (1) that the Court may be pleased to issue a writ of mandamus prohibiting the respondent therein from giving effect to the order of the Central Government dated 24-3-1962 revoking the order made by it under section 89(4) of the Act on 29-7-1957; and (2) it may be pleased to prohibit the respondent from taking any steps compelling the petitioner-company to modify the voting rights of the deferred or founders shares ana vested in the trustees. The Court by its judgment dated 27-1-1965 [Reported in: AIR 1966 Bom 218-Ed.] made the following order: The result is that we must strike down and we hereby declare the impugned order of revocation of exemption dated March 24, 1962, as invalid and of no effect There shall be a mandamus against the respondents restraining them from enforcing that order of rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised several preliminary objections to the petition. They contended that the controversy between the parties was concluded by the decision of the Bombay High Court in Special Civil Application No. 244 of 1962; the respondents therein had approached the Supreme Court for granting special leave to appeal against that judgment (the special leave prayed for had been subsequently granted and the appeal is now pending before the Supreme Court); therefore, this Court should not entertain this petition because if this Court issues any direction contrary to that issued by the Bombay High Court, the Government will not be in a position to obey the orders of both the Courts. The petition was also opposed en the ground of delay and laches on the part of the petitioners. It was also urged that the petitioners must be held to be bound by the decision of the Bombay High Court as they had intervene in the petition, referred to earlier. 12. Coming to the other questions urged it was pleaded that as the company was consulted before passing the impugned order, all the shareholders must be deemed to have been consulted. Alternatively, it was said that there was no need for the Government to consult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment will not be able to comply with the directions given by the Bombay High Court as well as those given by this High Court. At one stage, we thought that this petition can be kept pending till the appeal pending before the Supreme Court is decided and the petitioners herein asked to move the Supreme Court to implead them in the appeal. Though Shri A.K. Sen, the learned counsel for the petitioners agreed with that suggestion, Shri Phadke, the learned counsel for respondents 3 and 4, urged that we should dispose of this petition on its own merit without waiting for the decision of the Supreme Court. On a closer examination of the reliefs prayed for and that granted by the Bombay High Court, we came to the conclusion that the order that we propose to make in this petition does not conflict with the order of the Bombay High Court and therefore, there is no difficulty in disposing of this application on its own merit. As seen earlier, the petitioners in Special Civil Application No. 244 of 1962, had prayed for two reliefs, viz.: (1) A mandamus prohibiting the respondents from giving effect to the order of the Central Government dated 24-3-1962; and (2) to prohibit the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise its discretion in favour of the petitioners. 17. Having disposed of the preliminary objections advanced on behalf of the respondents, we may now proceed to consider the contentions advanced on behalf of the petitioners, which we had earlier formulated. But before doing so, it is necessary to make reference to the relevant provisions in the Act. The provisions with which we are primarily concerned in this case are Sections 87 to 90 of the Act. Incidentally, we have to consider Section 9 therein. 18. Till the Act came into force, the voting rights of the shareholders of a company limited by shares were regulated by its Articles of Association. But Section 87 (1) lays down that subject to the provisions of section 89 and sub-section (2) of section 92, (a) every member of a company limited by shares and holding any equity share capital therein shall have a right to vote, in respect of such capital, on every resolution placed before the company; and (b) his voting right on a poll shall be in proportion to his share of the paid-up equity capital of the company. But as the section itself says, the provisions of S. 87(1) are subject to the provisions of section 89. Section 88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hable with fine which may extend to one thousand rupees. (4) The Central Government may, in respect of any shares issued by a company before the first day of December. 1949, exempt the company from the requirements of sub-sections (1), (2) and (3), wholly or in part, if in the opinion of the Central Government the exemption is required either in the public interest or in the interests of the company or of any class of shareholders therein or of the creditors or any class of creditors thereof. Every order of exemption made by the Central Government under this sub-section shall be laid before both Houses of Parliament as soon as may be after it is made. Section 90 says that nothing in sections 85 to 89 shall, (a) in the case of any shares issued before the commencement of the Act, affect any voting right attached to the shares save as otherwise provided in section 89, or any right attached to the shares as to dividend, capital or otherwise; or (b) apply to a private company, unless it is a subsidiary of a public company. 19. From a reading of the above provisions, it is seen that the mandate contained in section 87 (1) applies to all companies which may come into existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of Section 89. There is no indication in the provisions to which our attention was invited, as to what should happen if the company itself failed to comply with the requirements of Section 89 (1). We have not gone into that question as the same is not necessary for our present purpose. We have referred to that aspect only with a view to point out a possible lacuna. We are unable to agree with the view taken by a learned single Judge of the Gujarat High Court in Juvan Singhji v. Balbhadra Singhji,: AIR 1963 Guj 209, that the net effect of the provisions of Sections 87 to 89 is that if there are at the commencement of the Act, any shares of any existing company which carry voting rights in excess of voting rights attaching under Section 87 (1) to equity shares in respect of which the same amount of capital has been paid up, the voting rights in respect of those shares stand automatically modified in accordance with the provisions contained in S. 87 (1) at the end of the one year mentioned in Section 89 (1). Such a conclusion is impermissible in view of Section 90. 20. There was great deal of controversy before us as to whether the Central Government could grant any exemption un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that it granted the impugned exemption in the belief that the third respondent was a public trust. It is clear from the return made on behalf of the Central Government that the only ground on which it came to the conclusion that it was in public interest to grant the exemption asked for was that the third respondent was a public trust. We have now to see whether the Government was right in its conclusion that the management of the company was in the hands of a public trust on the date it granted the exemption. Clause 21 of the Trust Deed as it stood on the date the impugned exemption was granted provided thus: The Trustees hereby declare that they hold and shall hold the shares specified in Schedule 'D' hereto and all dividends and interests accrued or to accrue upon the same or any of them upon trust for the beneficiaries, the settlors and the other three their successors or assigns and agree and undertake to pay to the beneficiaries their successors, or assigns, dividends and interests etc., accrued thereon. The Settlers were (1) Shri Purushottam Yeshwant Deshpande and (2) Shri Wasudeo Gopal Sheorey. The other three referred to in Cl. 21 were the remaining thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in the public trust or any property found to be trust property to file a suit, but the interest to which this section refers is the interest of a beneficiary or the interest of a person who claims the right to maintain the trust or any other interest of a similar character and is not the interest which is adverse to the trust set up by a party who does not claim any relation with the trust at all; moreover, the right to file a suit to which Section 8(1) refers is given to persons who are aggrieved by the findings of the Registrar; similarly, the right to prefer an appeal against the Registrar's order prescribed by Section 4(5) necessarily implies that the person must be a party to the proceedings before the Registrar; Section 4(5) also seems to be confined in its operation to persons who are before the Registrar, or who could have appeared before the Registrar under Section 5(2). Neither the Central Government nor the petitioners were parties to the proceedings before the Registrar. Therefore, the registration of the trust cannot debar either the petitioners or the Central Government from questioning its validity. Hence it is open to them to contend that the trust i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey would have satisfied the Government that the rights of the managing agents had not been transferred to a public trust. In other words, they would have been able to satisfy the Government that the circumstances put forward by the 3rd and 4th respondents in support of the exemption asked for did not exist. As observed by the Supreme Court in Barium Chemicals Ltd. v. Company Law Board, AIR 1967 SC 295, the non-application of its mind by the Government to relevant circumstances is a good ground for challenging the validity of an order made by it. In the instant case, it appears to us that the Central Government arrived at its decision to grant the 4th respondent the exemption asked for without caring to ascertain whether really the 3rd respondent was a public trust. It acted with eyes closed. Again, as observed in Barium Chemicals case, AIR 1967 SC 295, though an order passed in exercise of power under a statute cannot be challenged on the ground of propriety or sufficiency, it is liable to be quashed, even if it is passed in good faith and with the best of intention to further purpose of the legislation which confers the power, if the Court is satisfied that in passing that order t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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