J.P. Srivastava & Sons Pvt.
Ltd. & Ors Vs. M/S Gwalior Sugar Co. Ltd. & Ors  Insc 656 (26 October
Ruma Pal & Arun Kumar
(Arising out of Slp) No. 22044/2001) Ruma Pal, J.
This appeal arises out of proceedings initiated under Sections 397 and 398
of the Companies Act (hereinafter referred to as 'the Act') by a group of
minority shareholders complaining of mis-management and oppression in respect
of the respondent No.1 company M/s. Gwalior Sugar Company Ltd. (referred to as
'the Company'). The appellants are the unsuccessful petitioners. The primary
question to be resolved in this appeal is whether they held the requisite
one-tenth of the issued share capital of the Company under Section 399 (1) of
the Act when they filed the petition under Ss. 397 and 398.
The shares of the Company are basically held by two branches of the family
of J.P. Srivastava. J.K. Srivastava, who was originally the petitioner No.4,
and H.K. Srivastava who was originally the respondent No.2, were the two sons
Srivastava. During the pendency of the proceedings before us, both J.K.
Srivastava and H.K. Srivastava have died and are now represented by their
respective heirs. In the case of J.K.
Srivastava, his interest is now represented by his widow Mrs.
Raj Mohini Srivastava and his only son Vijay Kumar Srivastava. As far as
H.K. Srivastava is concerned, he is represented by his four children, Vikram,
Hemlata, Vir and Radhika. The corporate shareholders in the Company are in turn
also held by members of the Srivastava family. Mrs. Nini Srivastava, appellant
No.3, the wife of Vijay Srivastava, was the third petitioner in the proceedings
as originally filed. She was described as a petitioner "for herself and as
trustee for J.K.
Srivastava Family Trust" (referred hereafter as the Trust).
The proceedings were initiated before the Company Law Board (CLB) on 1st
July 1995. The pleadings were completed and the matter heard from time to time.
On 22nd January 1996, CLB issued an order, the relevant extract of which reads
"In view of the close relationship between the parties, we suggested to
the counsel for both the sides that they should try to work out an amicable
settlement between the parties. The counsel have undertaken to do so. The
result of their efforts will be intimated to us on 20th February 1996 at 2.30
p.m." Hearings were adjourned on 22.2.96, 4.3.96 and 15.3.96 when the CLB
was informed that compromise talks were in progress. Ultimately on 7.5.96, the
CLB passed this order:
"It was agreed by the parties that the petitioners will sell their
shares to the respondents for a value per share to be determined by a valuer
appointed by us and the value will be binding on all the parties.
The parties will approach jointly reputed valuers and suggest an acceptable
name for our approval on 30/5/96 at 4.15 p.m." On 10.6.1996, with the
consent of the parties, the CLB appointed M/s Thakur Vaidyanathan Iyer as
company chartered accountants, New Delhi to value the shares of the company.
On 22.11.96, the chartered accountants valued the shares. As the respondents
had reservations about the value, the matter was re-heard by the valuer who
reconsidered the submissions of the parties. Ultimately, the value of the
equity shares was given by the valuer as Rs.6340 per share. The valuation for a
preference share of Rs. 100/- was fixed at par. The respondents objected to
this valuation also. The contention of the respondents was that the other
disputes relating to family properties in possession of the petitioners should
be settled also. After various hearings the matter was fixed for hearing on
On 3.11.1998, the respondent No. 8, Mrs. Radhika Srivastava, moved an
application challenging the order dated 10.6.1996. In the application it was
alleged that the respondent No.8 had no knowledge of the compromise and that
she had been kept in the dark about the settlement arrived at. She prayed for
recall of the order dated 10.6.1996. It was also said that the calculation of
10% of the petitioner's shareholding in the Company was made only with regard
to the equity share capital of the company, whereas Section 399 sub-section(1)
requires the petitioner to have 10% of the total issued share capital which
would include preference shares and that the shareholding claimed by the
petitioners did not amount to 10% of such total. It was contended that the
appellants therefore did not hold the requisite 10 per cent of the issued share
capital of the respondent No. 1 company and therefore the petition under
Section 397 and 398 was not maintainable and should be dismissed.
The appellants filed a pre-notice reply on 5.11.1998 in which they stated
that the petitioner No. 3 (the appellant No. 3 before us) had filed the
petition on behalf of herself and as a trustee of the J.K. Srivastava Family
Trust (referred to as the Trust) and that the Trust held 1029 preference
shares. It was also alleged that the respondent No.8 was fully aware of and had
participated in, the proceedings, in which there had been 25 hearings over
three and a half years.
On 6th November, 1998, the matter was listed for orders to be passed by CLB,
when, according to the appellants, the CLB directed the appellants to file the
consent/authority if any given by the Trust to Mrs. Nini Srivastava to file the
petition under Sections 397 and 398. On 9th November, 1998 the appellants
brought on record an affidavit dated 9th June, 1995 executed by the trustees to
the effect that they had granted consent to the appellant No.3 to file the
petition, a resolution of the Trust dated 10th June, 1995 and an affidavit of
Mr. V.K. Srivastava dated 12th June, 1995. The appellants also filed a detailed
reply in which it was inter alia stated that the Trust held 1029 preference
shares in the company, that Mrs. Nini Srivastava had been appointed as a
trustee of the Trust on 24th August, 1994, that authority/consent to file the
petition under Sections 397,398 had been given by the trustees on 9.2.1995 and
V.K. Srivastava a co-trustee by his affidavit dated 12th June, 1995.
The other respondents supported the respondent No. 8's application. In the
counter affidavit filed on behalf of the Company, it was said that:
"As per the records of the Company as on date i.e the shareholders
register, 1029 Preference Shares stand registered in the name of Mr. V.K.
Srivastava Trustee, J.K.
Srivastava (family) Trust and not in the name of Mrs. Nini Srivastava. The
endorsement in the cause title against the name of Mrs. Nini Srivastava who is
not all a Trustee is no compliance at all and the petition is liable to be
dismissed as being not maintainable on the ground that it has been filed by the
petitioners holding less than 1/10th of the issued share capital of the company
i.e. 27.68 lakhs".
The hearing in the matter was concluded by the CLB and judgment reserved two
days after the last affidavit was filed. On 18th January, 1989 the CLB passed
an order rejecting the challenge by the respondent No.8 to the consent order
dated 10.6.1996. It revised the valuation and considered that a sum of 6000 per
equity share would be an appropriate value and Rs.100/- would be the
appropriate value for the preference shares. However, the CLB upheld the
contention of the respondent No. 8 that the application under Sections 397 and
398 was not maintainable on the ground that the petitioner did not hold the
requisite 10 per cent shares. The CLB proceeded on the basis that the Trust
held 1029 shares in the company but that it had not consented to the filing of
the petition under Sections 397, 398 by Nini Srivastava. According to the CLB
" The only issue for examination is whether the Trust is a party to the
proceedings or whether the Trustees have given their consent to file the
petition and if so whether the same is legally valid". It answered this
issue against the petitioners because;
(1) No authority of the J.K. Srivastava Family Trust authorizing the 3rd
Petitioner to represent the Trust nor any affidavit by her representing the
Trust had been annexed to the petition;
(2) since there was no averment to the effect that the petitioner had the
consent of the Trustees to file the petition and since the consent documents
were not enclosed with the petition, the requirement under Regulation 18 had
not been complied with and that non-enclosing the consent document with the
petition was fatal to the petition.
(3) If the preference shares held by the Trust is not taken into
consideration, then the total number of shares held by the petitioners would
work out to about 7% of the subscribed capital and if the shares are included,
then the percentage would go to 10.85%.
(4) 515 preference shares of the trust had already vested in the one of the
beneficiaries thus reducing the percentage of the petitioners share holding to
less than 10% and;
(5) relying upon Duli Chand v. M/s.
Mahabir Pershad Trilok Chand Charitable Trust, Delhi AIR 1984 Delhi 145 that
Trustees cannot authorize one of them to initiate proceedings in the name of
It therefore reached the conclusion that the shares held by the Trust cannot
be taken into account for the purposes of the provisions of Section 399.
Therefore without passing any directions pursuant to its finding on the effect
of the consent order, it dismissed the petition.
Several appeals were preferred from this order under Section 10-F of the Act
both by the appellants and the respondents. The learned Single Judge dismissed
all the appeals holding that the petition was not maintainable because no
consent of the trustees had been pleaded, that there was no compliance with
Regulation 18, that the shares of the Trust had vested in the beneficiaries and
that the trustees could not delegate their powers or authorize one of them to
represent the Trust.
During the pendency of the appeals, the respondents, according to the
appellants, committed further acts of oppression in respect and mismanagement
of the company.
Consequently, a second petition was filed under Sections 397 and 398 of the
Act by the appellants.
A Letters Patent appeal was filed from the decision of the Single Judge
before the Division Bench by the appellants. The Division Bench held that the
filing of the consent along with application under Section 399(3) of the other
share holders was a sine qua non to the initiation of proceedings under
Sections 397 and 398 and that on the failure on the part of the appellants to
file the alleged consents the application had been rightly dismissed. It was
held that it was not necessary to determine the nature of the trust and whether
the shares held by the Trust had devolved on any of the beneficiaries before
the petitions under Sections 397 and 398 of the Companies Act had been filed.
It was said that:
"If the trust contained some other properties there is likelihood that
the shares may not be divided." The Division Bench was also of the view
that since the second application had been filed, the CLB should consider
whether the shares of the trust should be reduced and the implications of
Section 153 of the Act. The CLB was directed to decide the subsequent
application on its merits ignoring the observations made by the CLB in its
order dated 18.1.1999 as well as of the Single Judge and to decide the case on
merits on the basis of the persons whose names were recorded in the register of
Before us the appellants contended that the Trust and the co-trustees had
authorised the third appellant to represent the Trust. It was submitted that
there was no dispute in fact that the Trust held 1029 shares in the company.
The only dispute was whether the third appellant was authorized to act on
behalf of the Trust. It was submitted that Section 399(3) did not deal with the
authorization but with the consent of supporting shareholders. It is said that
the Trust still continues and has not been brought to an end by reason of
devolution of the shares to the beneficiaries. It is said that the co-trustees
had in fact consented to/ authorized the appellant No. 3 to initiate and
prosecute the petition under Sections 397 and 398 and that in any event the CLB
should have given an opportunity to the appellants to implead the other
co-trustees. It was pointed out that the respondent No.8 had never raised any
issue that the trustees were necessary parties and that in their absence the
petition under Sections 397 and 398 was not maintainable. It was also submitted
that the High Court erred in holding that compliance with Regulation 18 of the
Company Law Board Regulation was a mandatory requirement. It was said that
Section 399(3) only requires that the consent should be obtained prior to the
filing of the petition. If this was proved as a fact, the requirement of filing
the consents in writing along with the petition under Regulation 18 should not
render the petition itself not maintainable. Reference has been made to
Regulations 44, 46 and 48 to show that the CLB retained the power to dispense
with the requirements of Regulation 18, in support of the submission that
Regulation 18 was merely directory.
Learned counsel appearing on behalf of the respondents submitted that the
petition had originally been filed only on the basis of the equity share
holding of the four petitioners and did not refer to any redeemable preference
shares. In the absence of these pleadings, it was asserted that the petitioners
did not have the requisite qualification shares for initiating proceedings
under Sections 397,398. It was submitted that the subsequent phrase "plus
1029 preference shares" in paragraph 2 of the petition was an
interpolation. Secondly, it is submitted that Mrs. Nini Srivastava did not have
the consent of the other trustees, and that assuming that she had the consent
of the trustees to file the petition, there was no such averment in the
petition nor any consent letter filed with the petition in violation of the
mandatory requirement of Regulation 18 of the Company Law Board Regulations.
Finally, it was said that the only person who could have joined the petition as
a petitioner was V.K.
Srivastava who was the registered share holder of the 1029 Preference
Shares. It is said that the trust was not and could not have been a member of
the company. This, according to the respondents, clearly followed from Sections
41(2) read with Section 153 of the Act. It is said that admittedly, the
application had not been filed on behalf of V.K. Srivastava.
Even assuming that the Trust was the registered member of the Company, it is
contended that there was no averment that the company petition had been filed
on behalf of the Trust. It is submitted that there was in fact no consent and
that the so called consents were subsequently obtained.
Any Member/or members of a Company may apply under Ss, 397 and 398 of the
Act to the CLB complaining of mismanagement or oppression provided such Member
or Members have the requisite shareholding as prescribed under Section 399 to
do so. The relevant portions of Section 399 read as under:
"S.399. Right to apply under Sections 397 and 398.
(1) The following members of a company shall have the right to apply under
section 397 or 398:- a) in the case of a company having a share capital, not less
than one hundred members of the company or not less than one-tenth of the total
number of its 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
b) xxx xxx xxx 2) xxx xxx xxx 3) Where any members of a company are entitled
to make an application in virtue of sub-section (1), any one or more of them
having obtained the consent in writing of the rest, may make the application on
behalf and for the benefit of all of them.
The question is, did the appellants who were the original petitioners have
the requisite number of shares when the petition was filed. The question itself
raises two further issues viz. who were the petitioners and did they in fact
hold the necessary shares? Mrs. Nini Srivastava claimed to represent the Trust
which held 1029 shares so making up the necessary shareholding under Section
399. It will be noted from the arguments particularized earlier that there has
been a shift in the arguments raised by the respondents. Before the CLB, the
Single Judge and the Division Bench the respondents arguments and basis of the
decision of the three fora was that the Trust held the 1029 Preference Shares
and that the Trust had not consented to or authorized the filing of the
petition under Sections 397, 398 of the Act. Before us however, the main focus
of the argument has been that the Trust was not owner of the 1029 shares but that
the owner was Mr. V.K.
Srivastava, who is now appellant No.4(b) before us, and that the petition
had not been filed on his behalf by the appellant No.3. Although in the
affidavit in reply filed by the Respondent No.8 there is a plea that shares
could not be held in the name of the Trust under Section 153 of the Act, from
the reasoning of the CLB and the two decisions of the High Court which we have
noted earlier, it is apparent that the issue was not pressed.
The three courts below have concurrently found that the Trust which held the
preference shares was not properly represented by Nini Srivastava. This was the
only case which the appellant had to meet. Now the respondents contend that in
fact it was Vijay Kr. Srivastava who held the 1029 shares and not the Trust and
Nini Srivastava did not represent him.
Although a passing reference was made to the fact in the counter affidavit
filed by the Company as noted above, that was done in the context of denying
that Nini Srivastava was a trustee. In our judgment it would not be proper to
permit the respondents to raise an issue not argued by them either before the
CLB or the High Court and to make out a new case at this stage. To allow a
party to take grounds not urged earlier would not only result in taking the
other party by surprise but it would deprive such party of any adjudication on
the issue by the different courts - a right to which each party is otherwise
entitled. It would also place such party at a great disadvantage as no
opportunity would have been granted to it to meet the new plea. In the case of
Rajahmundry Electric Supply Corporation v. A. Nageshwara Rao & Ors. AIR
1956 SC 213 the contention on behalf of the Company, while opposing a petition
under Ss. 397, 398, was that there was no proof that the applicant had obtained
the consent of the requisite number of shareholders opposing the petition. It
was said that out of the 80 persons who had consented to the institution of the
application, 13 were not shareholders at all and that two members had signed
twice. This Court said:
"This point is not dealt with in the judgment of the trial court, and
the argument before us is that as the objection went to the root of the matter
and struck at the very maintainability of the application, evidence should have
been taken on the matter and a finding recorded thereon".
The submission was rejected because the objection though raised in the
written statement had not been pressed at the trial and had not been argued
before the Trial Judge. We will therefore decide only those issues which were
pressed and decided upon by the three courts.
The issue then is was it represented before the CLB by Nini Srivastava? The
answer to this would depend on whether the trustees of the trust could
authorize one of them to initiate proceedings for and on behalf of the Trust. A
Full Bench of the Gujarat High Court in Atmaram Ranchhodbhai v.
Gulamhusein Gulam Mohiyaddin AIR 1973 Gujarat 113 said:- " Whether the
trust is a private trust governed by the Indian Trusts Act or is a public
charitable or religious trust, a trustee cannot delegate any of his duties,
functions and powers to a co-trustee or to any other person unless the
instrument of trust so provides or the delegation is necessary or the
beneficiaries competent to contract consent to the delegation or the delegation
is in the regular course of business. These are the only four exceptional cases
in which delegation is permissible and save in these exceptional cases, the
trustees cannot, even by a unanimous resolution, authorize one of themselves to
act as managing trustee for executing the duties, functions and powers relating
to the trust and every one of them must join in the execution of such duties,
functions and powers ". (p.115) The issue in that case was whether one co-
trustee could determine a tenancy. The Court said he could not, but held:
"But when we say that the tenancy must be determined by all
co-trustees, we must make it clear that what we mean is that the decision to
terminate the tenancy must be taken by all the co-trustees. The formal act of
giving notice to quit pursuant to the decision taken by all the co-trustees may
be performed by one co-trustee on behalf of the rest. The notice to quit given
in such a case would be a notice given with the sanction and approval of all
the co-trustees and would be clearly a notice given by all co-trustees."
(p.116) The view has been followed by the different High Courts [See for
example Duli Chand v. M/s. Mahabir Pershad Trilok Chand Charitable Trust, Delhi
AIR 1984 Delhi] and held to be too narrow in Jain Swetambara Murthi Pujaka
Samastha v. Waman Dattatreya Pukale AIR 1979 Karnataka 111.
This Court in M/s. Shanti Vijay & Co. v. Princess Fatima Fouzia &
ors. AIR 1980 SC 17 held that:- " the act of one trustee done with the
sanction and approval of a co-trustee may be regarded as the act of both. But
such sanction or approval must be strictly proved." It was also held that
a trustee could act on behalf of others, if there is a clause in the Trust Deed
authorizing the execution of the Trust to be carried out by "one or more
or by majority of the trustees".
Therefore although as a rule, trustees must execute their duties of their
office jointly, this general principle is subject to the following exceptions
when one trustee may act for all (1) where the Trust Deed allows the trusts to
be executed by one or more or by majority of trustees (2) where there is
express sanction or approval of the act by the co-trustees; (3) where the
delegation of power is necessary; (4) where the beneficiaries competent to
contract consent to the delegation;
(5) where the delegation to a co-trustee is in the regular course of the
business; (6) where the co-trustee merely gives effect to a decision taken by
the trustees jointly.
The present case comes within at least three of the exceptions listed. The
Trust in question was created on 25.12.1978 by J.K. Srivastava, one of the
original petitioners in favour of his two minor grandsons, Kunal and Yatin. The
trustees named in the Trust Deed were the settlor's wife, Raj Mohini (now the
appellant No.4 (a)) and their son Vijay ( now the appellant 4(b)) who was also
the father of the beneficiaries.
The Trust Deed contains the following clauses:
" Clause 7: The Trustees shall hold the Trust Fund or any property
representing the same in trust for the Settler's said grandsons so, however,
that when Master Kunal Krishna Srivastava attains the age of 18 years, he will
be given his fifty percent share of the then Trust Property or Fund and
thereafter the same will rest absolutely in him, and so, however, that
thereafter the Trustees shall hold the remaining Trust Property or Fund for the
benefit of Master Yatin Krishna Srivastava till he attains the age of 18 years
when the Trust will automatically ease and the properties shall vest absolutely
in the said grandson, Master Yatin Krishna Srivastava.
Clause 12:The Trustees may instead of acting personally employ and pay any
agent whether a solicitor, banker, stock broker or any other person to transact
any business or to any act required to be transacted or done in the execution
of the trusts hereof including the receipt and payments of money and shall be
entitled to be allowed and paid all charges and expenses so incurred and shall
not be responsible for the default of any agent employed in good faith.
Clause 16: The Trustees shall have full power to file and defend suit,
appeals, applications etc. to declare, sign and verify all plaints, written
statement, memo of appeals, cross objections, applications, affidavits etc. and
to appeal at any place or places in the Union of India before any Court, office
or authority to present and lodge any documents for registration and to admit
disputes, differences and demands to arbitration and to adjust, approve and
settle all accounts relating to the Trust Fund and to execute all releases and
discharges and to do all other things relating thereto.
Clause 19: All the decisions that will be required to be taken in carrying
out the Trusts herein contained shall be taken by majority of the Trustees. If
the Trustees are equally divided the Chairman shall have an extra or casting
vote. The Trustees present shall form a quorum for any meeting of the
These clauses clearly allow not only one co-trustee but any person to carry
out the trusts and to act for the trust provided ofcourse such person is
expressly authorized [See:
Killick Nixon Ltd. v. Bank of India (supra); Punnaiah v.
Jeypore Sugar Co. Ltd.(supra)].
The Resolution dated 3rd June, 1955 of the Trustees records inter alia:
"The constituents of the J.K. Srivastava group had decided to file a
petition with the Company Law Board in Delhi, under Section 397 & 398 of
the Company's Act, in the matter.
Mrs. Nini Srivastava reported that she was also to be a Petitioner and the
petition had been prepared.
The petition, application and Annexures were placed on the table, duly
examined read and understood and duly approved particularly to its contentions,
submissions and prayers.
It was then duly resolved that Mrs. R.M.
Srivastava and Mr. Vijay K. Srivastava Trustees give consent on behalf of
the Trust to the filing of the Petition/presentation of the Petition by Mrs.
Nini Srivastava and that she be also authorized to take all Legal action as
advised in the manner".
A joint affidavit affirmed on 9th June, 1995 by Raj Mohini and Vijay says:
" We have read and understood the Petition Under Section 397 & 398
of the Companies Act, ancillary application annexures and confirm our consent
to Mrs. Nini Srivastava, a Trustee of the Trust and a Petitioner with others,
in the Petition, to her filing/presenting the same. We also hereby give consent
and authority to Mrs.
Nini Srivastava a Trustee of the Trust to take such and all legal actions as
Finally, an affidavit was affirmed by Vijay Krishna Srivastava on 12th June,
1955 to the following effect:
"I, Vijay Krishna Srivastava, Trustee of the J.K. Srivastava Family
trust, holding 1029 fully paid up, Cumulative Preference Shares of Rupees 100
each of Gwalior Sugar Company Lt., as Trustee, have hereby given consent to the
filing presenting of the Petition before the Company Law Board, New Delhi,
under Sections 397 & 398 of the Company Act, by Mrs. Nini Srivastava a
Trustee of J.K. Srivastava Family Trust, in the matters of J.K. Srivastava
& others J.K.
Srivasatava constituents) against Gwalior Sugar Co. Ltd. and the H.K.
Srivastava & Others (H.K.
Srivastava constituents). The Petition relates inter alia to the transfer of
3229 Equity Shares of Gwalior Sugar Co. Ltd. and other acts of oppression and
mismanagement by the H.K.
Srivastava Constituents in management of Gwalior Sugar Company Ltd.
I have read and understood the Petition under Sections 397 & 398 of the
Companies Act, ancilliary application/ annexures and confirm consent to Mrs.
Nini Srivastava, a trustee of the J.K. Srivastava Family Trust, and a
Petitioner with others, in the Petition to her filing/presenting the
same." The conclusion is inescapable that the Trustees had expressly
authorized Nini Srivastava to file the petition.
Additionally, the affidavit of Vijay Srivastava, who is alleged to be the
registered owner of the 1029 preference shares, clearly shows that he had
expressly consented and authorized Nini Srivastava in his capacity as such
trustee to file the proceedings. If the respondents had fairly and squarely
raised the issue as to the petition not being consented to by Vijay Srivastava
as the registered shareholder of the 1029 shares, it would have been open to
the appellants to have relied on this affidavit and if necessary amended the
petition. The power to allow such amendments has been expressly granted to the
CLB under Regulation 46. As was stated several decades ago by the Privy Council
in Charan Das V. Amir Khan AIR 1921 50:- "Where the plaintiffs, through
some clumsy blundering, attempted to assert rights that they undoubtedly
possessed under the statute in a form which the statute did not permit, they
should be at liberty to express their intention in a plainer and less ambiguous
manner, and to amend the plaint so as to express the rights which it has been
really their intention all along to establish, although the amendment of plaint
is sought to be made at a time when the suit itself if instituted then would be
time-barred". (P.50) However, for the reasons indicated by us earlier we
do not propose to entertain this plea of the respondents at this stage.
It is true that criminal proceedings have been instituted by the respondents
on the allegation that the stamp paper on which the affidavits have been
affirmed were purchased subsequently. But we are not prepared to reject the
documents as forged ones not only because the executants have hotly contested
the allegations but also because there is no finding to that effect by any of
the three courts below or by the criminal court. Indeed as matters now stand
the criminal proceedings have been stayed by the High Court. Furthermore, Vijay
Srivastava and Raj Mohini's continuous support is also apparent from the fact
that both of them are parties to the appeal before us albeit in the capacity of
heirs of Late J.K.
The Courts below however refused to entertain the petition because the
documents referred to earlier had not been filed along with the petition in
accordance with their interpretation of S.399 and Reg. 18. Section 399 of the
Act has replaced Section 153-C (3) of the Indian Companies Act, 1913 with some
major differences. Section 153-C (3) of the 1913 Act itself provided that the
consent of the shareholders supporting the petition should be obtained in
writing . Sub Section (3) of Section 399 of the 1956 Act, however, contains no
such requirement. It only speaks of "obtaining" of the consent . It
does not speak of consent in writing nor does it require any such writing to be
annexed with the petition. Many of the decisions cited by both the parties have
turned on the wording of Section 153-C (3) of the 1913 Act such as Makhan Lal
Jain vs. The Amrit Banaspati Co. Ltd AIR 1953 Allahabad 326 when in the context
of Sub section 3 of Section 153-C (a) it was held:
". the law requires that the consent should be in writing, i.e., in the
form of a document. Therefore, the document itself should prove that the
consent has been given. No evidence, either by way of affidavit or of oral sworn
statement in Court, can be given to prove that such consent was given".
The reasoning in this decision would no longer be apposite having regard to
the change in the language in Section 399 (3) and the shifting of the
requirement from the Act to Regulation 18 of the Company Law Board Regulations
1991 (hereinafter refer to as the 'Regulations'). Regulation 18 also does not
itself contain the requirement for filing the consent letters . The requirement
has been prescribed in Annexure III, which is referred to in Regulation 18.
Serial No.27 of Annexure III contains a list of several documents required to
be annexed to petitions relating to the exercise of powers in connection with
prevention of oppression or mismanagement under Sections 397, 398, 399(4), 400,
401, 402, 403, 404 and 405. The documents required to be annexed to such
petition include "where the petition is prescribed on behalf of members,
the letter of consent given by them". Other documents required to be filed
include "documents or other evidence in support of the statement made in
the petition, as are reasonably open to the petitioner(s)", as also
"three spare copies of the petition".
These requirements can hardly be said to be mandatory in the sense that
non-compliance with any of them would ipso facto result in the dismissal of the
petition. Apart from this, Regulation 18 itself is subject to the powers of CLB
under Regulations 44 and 48. These read as follows:
44. Saving of inherent power of the Bench:- Nothing in these rules shall be
deemed to limit or otherwise affect the inherent power of the Bench to make
such orders as may be necessary for the ends of justice or to prevent abuse of
the process of the Bench.
48. Power to dispense with the requirement of the regulations.- Every Bench
shall have power for reasons to be recorded in writing, to dispense with the
requirements of any of these regulations, subject to such terms and conditions
as may be specified.
Given these powers in the CLB, we cannot hold that non- compliance with one
of requirements in Srl. No.27 in App. III of Reg. 18 goes to the very root of
the jurisdiction of the CLB to entertain and dispose of a petition under
Sections 397,398. All that regulation 18 requires by way of filing of
documents, is proof that the consent of the supporting shareholders had in fact
been obtained prior to the filing of the petition in terms of Section 399(3).
It cannot be gainsaid that it is open to the persons opposing the application
under Sections 397and 398 to question the correctness of an assertion as to
consent made by the petitioner. It is equally open to the petitioner to provide
evidence in support of the plea taken in the petition. If ofcourse the
objection to the maintainability is taken by way of demurrer, the CLB can
decide the issue on the basis of the averments contained in the petition alone,
accepting the pleas therein as correct. But where the CLB takes into
consideration facts outside the petition as it has done in this case, it cannot
foreclose the petitioner from supporting its case in the petition on the basis
of evidence not annexed thereto. Since the CLB calculated the total
shareholding of the company including preference shares based on the
allegations contained in the respondent No.8's application, it was for the CLB to
determine the issue of actual prior consent on evidence. This view finds
support from Reg. 24 which says:
24. Power of the Bench to call for further information/evidence:- The Bench
may, before passing orders on the petition, require the parties or any one or
more of them, to produce such further documentary or other evidence as the
Bench may consider necessary.- (a) for the purpose of satisfying itself as to
the truth of the allegations made in the petition; or (b) for ascertaining any
information which, in the opinion of the Bench, is necessary for the purpose of
enabling it to pass orders on the petition.
In P.Punnaiah V. Jeypore Sugar Co Ltd. AIR 1994 SC 2258, the member of the
company was the daughter, Rajeshwari. She was sought to be represented as a
petitioner in an application under Ss. 397 and 398 by her father acting as her
agent. The respondents objected saying that this was no consent at all. With a
view to counter-act the objection taken by the respondents, the appellants
filed an affidavit of Smt. Rajeshwari wherein she affirmed that she had
authorized her father to act on her behalf as her G.P.A in that behalf and to
take all such steps as he deemed proper to protect her interest.
This Court rejected the objection raised by the respondents.
Hansaria, J. rested his concurrence with the view on the affidavit filed by
Rajeshwari subsequent to the filing of the petition. He said:
" . As Smt. Rajeshwari made her position clear in the affidavit filed
in the High Court, I do think she had authorized her father to act on her
behalf in the matter at hand, and the application under Section 397/398 of the Companies Act, 1956,
as filed in the Court, ought to be taken as one to which she had
The finding of the CLB and the High Court to the effect that the petition of
the appellant deserved to be rejected only because the letters of consent had
not been annexed to the petition was therefore incorrect. What the CLB and the
High Court should have done was to have satisfied themselves that the consent
had in fact been given prior to the filing of the petition. There is nothing
either in the orders of CLB or the High Court which could even remotely be
construed as a rejection of the affidavits, resolution, etc. filed by Nini
Srivastava to show that prior consent had in fact been obtained. We may also
note the unrebutted specific averment by the petitioners to the effect that
V.K. Srivastava was personally present throughout the litigation.
Having decided that Nini Srivastava could have been and was authorized to
act on behalf of the Trust, the next question is, did Nini Srivastava file the
petition on behalf of the Trust? The CLB has noted that the cause title to the
petition showed that she had filed the petition for herself and as Trustee of
the Trust. According to the respondents, this was again an interpolation. But
the CLB has given no such finding nor has the High Court. Besides the
petitioners had said 'the petitioners are holding some preference shares also'.
It is admitted that Nini Srivastava holds 50 preference shares in her personal
name. However, the use of the plural is significant. It is not the case of the
respondents that any other individual petitioner holds preference shares except
for the Trust. Then again in paragraph 2, even if one were to ignore the phrase
'plus 1029 preferential shares', it has been specifically averred that 'the
petitioners form the group headed by J.K. Srivastava'.
There is no dispute that the "group of J.K. Srivastava" holds the
requisite percentage of shares for maintaining proceedings under Ss. 397, 398
and that the Trust falls within that group.
Again in paragraph 6.2 of the petition there is a categoric reference to the
1029 redeemable preference shares held by the Trust as being held by the
petitioners . This was also how the respondents understood the petition. In an
application filed by them on 19th March, 1988 under Reg.44 they said:
"That shareholding of the respondent company is divided mainly between
two groups namely, H.K. Srivastava Group in the Management holding about 30%
Equity Shares and 1029 Redeemable Cumulative Preference Shares and the J.K.
Srivastava group holding about 12% Equity Shares and 1029 Redeemable Cumulative
That it is apprehended that J.K.
Srivastava group i.e. the Petitioners holding about 12% Equity Shares and
1029 Redeemable Cumulative Preference Shares may obstruct the Resolution for
enhancement of Authorised Shares Capital.." It appears to us that the
intention of the petitioners undoubtedly was to represent the J.K. Group which
admittedly has the qualifying number of shares, although the expression of such
intention was not as clear as it should have been.
All the fora below have not proceeded on the basis that the pleading in the
petition did not reflect the intention. They have rested their findings on the
law as perceived by them that the Trust could not have been represented by one
The perception as we have held was erroneous.
The other ground on which the fora dismissed the petition was that the
beneficial interest in 551 shares of the 1029 held by the Trust had already
vested in the beneficiaries prior to the filing of the petition complaining of
mismanagement and oppression. This is again an incorrect legal proposition. An
equitable or beneficial interest in shares does not make the owner of the
interest a member of the company. [See M/s Howrah Trading Co. V. Commissioner
of Income Tax AIR 1959 SC 775; Killick Nixon Ltd. v. Bank of India 1985 (57)
Com. Cases 832] Therefore, even assuming that in terms of the Trust Deed the
shares had devolved on the beneficiary of the Trust, this would not mean that
the owner of the shares as registered with the company would not be competent
to file the petition under Sections 397 and 398.
The object of prescribing a qualifying percentage of shares in petitioners
and their supporters to file petitions under Sections 397 and 398 is clearly to
ensure that frivolous litigation is not indulged in by persons who have no real
stake in the company. However it is of interest that the English Companies Act contains no
such limitation. What is required in these matters is a broad commonsense
approach. If the Court is satisfied that the petitioners represent a body of
shareholders holding the requisite percentage, it can assume that the
involvement of the company in litigation is not lightly done and that it should
pass orders to bring to an end the matters complained of and not reject it on a
Substance must take precedence over form. Of course, there are some rules
which are vital and go to the root of the matter which cannot be broken. There
are others where non- compliance may be condoned or dispensed with. In the
latter case, the rule is merely directory provided there is substantial
compliance with the rules read as a whole and no prejudice is caused. [See:
Pratap Singh v. Shri Krishna Gupta AIR 1956 SC 140] In our judgment, Section
399(3) and Regulation 18 have been substantially complied with in this case.
The decision of the Division Bench of the High Court is, therefore, set
aside. The matter must be remanded to the Single Judge since he had also
dismissed the appeals preferred by the respondents from the decision of the CLB
consequent upon the dismissal of the appellants' appeal under Section 10F of
the Act. The appeal is, therefore, allowed and the matter remanded back to the
Single Judge for disposal of all the appeals which stand revived by reason of
The costs will follow the cause.