1994 (4) TMI 285 - HC - Companies Law

High Court remits case to Company Law Board for fresh consideration, emphasizes proper shareholder consent.

Shree Consultations & Services (P.) Ltd. Versus KN. Sankarnarayanan

The High Court set aside the orders of the learned Single Judge and the Company Law Board, remitting the case back to the Board for fresh consideration. ... Oppression and mismanagement Issues Involved:1. Maintainability of the petition under Sections 397, 398, and 402 of the Companies Act, 1956.2. Validity of the consent obtained from shareholders under Section 399(3) of the Companies Act.3. Authority of Mr. C.P. Sodhani to present the company petition.Detailed Analysis:1. Maintainability of the Petition under Sections 397, 398, and 402 of the Companies Act, 1956:The appeal was filed against the judgment of a learned Single Judge who set aside the order of the Company Law Board (CLB) and dismissed the company petition filed under Sections 397, 398, and 402 of the Companies Act, 1956. The petition was initially filed by some shareholders alleging mismanagement and personal gain by the Managing Director and another Director. The learned Single Judge held that the petition was not maintainable due to invalid consent and lack of proper authority for filing the petition.2. Validity of the Consent Obtained from Shareholders under Section 399(3) of the Companies Act:The core issue revolved around whether the consent obtained from shareholders, as contained in Annexure-2, was valid under Section 399(3). The learned Single Judge concluded that the consent did not meet the statutory requirements, as it did not indicate that the shareholders had applied their minds to the specific allegations and reliefs sought in the petition. The judgment referenced the Division Bench decision in *M.C. Duraiswami v. Sakthi Sugars Ltd.*, which established that consent must be an 'intelligent consent' given for a particular petition with specific allegations and reliefs.3. Authority of Mr. C.P. Sodhani to Present the Company Petition:Another significant issue was whether Mr. C.P. Sodhani had the authority to present the petition on behalf of the company. The learned Single Judge found that there was no valid board resolution authorizing Mr. Sodhani to file the petition, further undermining its maintainability. The appellant later attempted to introduce a board resolution as additional evidence to establish Mr. Sodhani's authority, but this was contested by the respondents.Judicial Pronouncements and Legal Principles:The judgment discussed several judicial pronouncements, including:- *M.C. Duraiswami v. Sakthi Sugars Ltd.*, which emphasized that consent must be specific to the petition and reflect an application of mind by the shareholders.- *Nibm Ltd v. National Insurance Co. Ltd.*, which held that individual directors need specific authorization to institute legal proceedings on behalf of the company.- *P. Punniah v. Jeypore Sugar Co. Ltd.*, which allowed consent given by a power of attorney holder on behalf of a shareholder.Court's Decision:The High Court found that both the CLB and the learned Single Judge erred in their handling of the preliminary objections. The CLB's order was deemed cryptic and lacking in objective consideration, while the learned Single Judge's decision was based on an incorrect application of the principles laid down in *M.C. Duraiswami's case*. The High Court decided to set aside both the orders of the learned Single Judge and the CLB and remitted the matter back to the CLB for fresh consideration. The CLB was directed to conduct a thorough enquiry into the maintainability of the petition, including the validity of the consent and the authority of Mr. Sodhani, and to pass appropriate orders within three months.Conclusion:The High Court's judgment underscores the importance of adhering to statutory requirements for shareholder consent and proper authorization in company petitions. It also highlights the necessity for judicial bodies to provide detailed and reasoned decisions, especially in matters involving serious allegations of mismanagement and abuse of power. The remittance to the CLB for fresh consideration aims to ensure a fair and comprehensive adjudication of the preliminary objections raised.