TMI Blog1994 (1) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... airs of the company in such manner so as to make vast secret profits. Thereupon, the present first respondent, Shree Consultations and Services P. Ltd., came forward with Company Petition No. 59 of 1992 before the Company Law Board, Principal Bench, New Delhi, seeking a declaration that the appellants have ceased to be directors of the company, appointment of some fit and proper person as administrator of the company in the place of the board of directors, rendition of accounts by the appellants and other appropriate reliefs including suitable orders and directions for management, regulation and conduct of the company as the Company Law Board deems fit and proper. The said Shree Consultations and Services P. Ltd., purported to file this company petition for themselves and for and on behalf of the members who have given their consent to the petition being presented on their behalf. The letter of consent of members included in the schedule is in annexure A-2. The appellants, while resisting the petition, inter alia, contended before the Company Law Board that the petition did not comply with the mandatory requirements of section 399(3) of the Companies Act inasmuch as the consent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of its managing agent or secretaries and treasurers or manager, or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, 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 manner prejudicial to public interest or in a manner prejudicial to the interests of the company; may apply to the court for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on their shares. Annexure A-2 of the application in this case gives a list of 22 shareholders and their purported signatures along with their shareholdings. Thiru Raghavan, learned senior counsel for the appellants, first submitted that the copy of the annexure circulated to him contained 25 signatures whereas in fact only 22 members had signed the consent before the Company Law Board. Evidently this difference in numbers between the original and the copy circulated cannot be of any assistance to us in resolving the present controversy. 7. Thiru Raghavan, next pointed out that the issued, subscribed and paid-up share capital of the company is ₹ 21,50,000 divided into 21,500 equity shares of ₹ 100 each. In the annexure A-2, the petitioner, M/s. Shree Consultations and Services P. Ltd., is stated to own 700 shares. This does not constitute one-tenth of the paid-up share capital of the company. And so the petitioner alone cannot maintain the application since section 399(1)(a) requires that only a member holding not less than one-tenth of the issued share capital of the company has right to file an application under section 397 or 398. This contention is not controverte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular matter are to be exercised by the company in general meeting, in all other cases the board of directors are entitled to exercise all its powers. Individual directors have such powers only as are vested in them by the memorandum and articles. It is true that ordinarily the court will not non-suit a person on account of technicalities. However, the question of authority to institute a suit on behalf of a company is not a technical matter. It has far-reaching effects. Order 29, rule 1 of the Code of Civil Procedure, 1908, does not authorise person mentioned therein to institute suits on behalf of a corporation - it only authorises them to sign and verify the pleadings on behalf of the corporation. Thus, unless a power to institute a suit is specifically conferred on a particular director, he has no authority to institute a suit on behalf of the company. Such power can be conferred by the board of directors only by passing a resolution in that regard. The Calcutta High Court has in Mohan Lal Mittal v. Universal Wires Ltd. [1983] 53 Comp Cas 36 specifically laid down that further, rule 88 of the Company (Court) Rules, which prescribes the procedure for the presentation of a pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he board confirming the action of the chairman amounted to ratification by the board of the action of the chairman. Ratification related back to the date of the act ratified. Evidently, this argument of learned senior counsel for the respondents is untenable since the initial infirmity in presenting the company petition without authority is incurable. The question of authority to initiate legal action on behalf of a company be equated with an administrative act like terminating the service of an employee or verifying a plaint. Instead it is a flaw which goes to the root of the matter. Any cause instituted without authority makes it invalid from is inception and it cannot be validated by a later ratification. I am in respectful agreement with the view of learned single judges of the Delhi High Court and the Calcutta High Court as expressed in the above said two decisions relied on the appellants. So, it cannot be said that the company petition herein has been validly presented. 11. Under section 399(3) of the Companies Act, any shareholder entitled to make an application may do so after having obtained the consent of the rest to file an application on this behalf and for the bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Rules framed by the Supreme Court for regulating the procedure to be adopted in matters relating to the Companies Act before the High Courts, nor the regulation of the Company Law Board prescribe any form for the consent to be accorded in writing by the shareholders under section 399(3) of the Act. Rule 88 of the Companies (Court) Rules, 1959, merely requires that the list of names and addresses of all the members on whose behalf the petition is presented shall be set out in a schedule and annexed to the petition. The petition shall state whether the applicants have paid all calls and other sums due on their respective shares. Form No. 43 prescribes the mode by which the names and addresses of the members who have given their consent are to be entered in the schedule. The language and text of both rule 88 and the form thereunder make it clear that the mere entry of the name of a person in the schedule to a petition is not enough to establish that he has given his consent. Something more has to be proved in cases where in objection is taken about the quality and content of such consent that the parties whose names are entered in the annexure or the schedule to Form No. 43 were wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans that there was consensus ad idem between the sponsor or promoter and the other named shareholders in the annexure in the matter of the presentation of the particular petition with particular allegations and complaints against the company under sections 397 and 398 of the Act. 14. The decision referred to above was the subject of appeal before the Division Bench in Duraiswami (M. C.) v. Sakthi Sugars Ltd. [1980] 50 Comp Cas 154. While dismissing the appeal, Ismail J. (as he then was), who spoke for the Bench, pointed out that consent in writing contemplated in section 399(3) of the Companies Act, 1956, is a consent to the filing of a particular petition with a particular allegation for a particular relief under section 397 or section 398 or under both. There cannot be a blanket consent like a certain member or member or members consenting to some other member filing a petition under section 397 or section 398 or under both. Before a member can be said to have consented to a particular action, the said member should have known what was the action to be taken, what was the relief to be prayed for and what was the ground to be urged in support of the relief claimed. The member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There the petitioner claimed that he was supported by 106 shareholders. The allegation was that the managing director and directors had siphoned off funds from the company to the tune of several lakhs by taking advantage of their official position in the company. It was claimed by the petitioner therein that those 106 shareholders have given their consent in writing to him to file that application under sections 397 and 398 of the Companies Act, Relying on the ratio laid down by Division Bench referred to above, the learned judge had held that the letter of authority in that case merely authorised the petitioner to make necessary petition under sections 397 and 398 and it cannot be deemed to be a consent in writing for filing a particular petition on particular grounds for a particular relief under sections 397 and 398 or under both. It can only mean that the petition is generally authorised to make whatever petition he deems necessary for whatever reliefs he may deem fit. This certainly is not the consent in writing that is contemplated under the section. 17. In C.P. No. 42 of 1979, the consent letter merely stated that they thereby give their consent to one Gnanagiri Nadar to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the draft of the final petition which is stated to have been perused and consented to by the signatories and the actual petition presented before the Company Law Board. Evidently, this nexus cannot be established by oral evidence or any subsequent affidavits. We have to search for the same in the wording of the consent letter itself. The letter of authority discloses that the shareholders have read the final draft of the petition and given their consent to the petition that may be made therein. There is nothing further to indicate that all the contents of the final draft find a place in the present petition. 20. Thiru G. Subramaniam, learned senior counsel for the first respondent. vehemently argued that annexure A-2 revealed that the consent given was for the filing of the petition under sections 397, 398 and 402 on the ground of mismanagement of the company by the directors, syphoning off of funds, making secret profits, acting in a manner prejudicial to the shareholders and against the interest of the company and their conduct is prejudicial to the company. Therefore, the members gave consent to the filing of the petition by Shree Consultations and Services P. Ltd. f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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