1998 (11) TMI 487 - HC - Companies Law

Court sets aside Board order, orders fresh hearing on petition's merits. Appellant to respond within a month.

The Court set aside the Board's order and directed a fresh hearing on the petition's merits, including maintainability. The appellant must reply within a ... Company Law Board - Appeals against order of, Oppression and mismanagement Issues Involved:1. Maintainability of the petition under section 397/398 of the Companies Act, 1956.2. Validity of share certificates and the authority of the share transfer agent.3. Preliminary objections regarding the membership status of the petitioners.4. Legal standards for determining questions of law and facts in preliminary objections.Issue-Wise Detailed Analysis:1. Maintainability of the petition under section 397/398 of the Companies Act, 1956:The appellant, Scientific Instruments Company, challenged the maintainability of the petition filed under section 397/398 of the Companies Act, 1956, by the respondent. The appellant contended that the petition did not meet the requirements of section 399 of the Act, which mandates that a petition under sections 397 and 398 can only be filed by shareholders holding not less than one-tenth of the issued share capital or constituting not less than one-tenth of the number of members or 100 members, whichever is less. The Board, however, held that the petition was maintainable as the respondent had provided evidence of possessing share certificates, which prima facie indicated ownership.2. Validity of share certificates and the authority of the share transfer agent:The appellant argued that the share certificates held by the petitioners were not valid as they were issued by AMI Computers (I) Ltd., who were not authorized to act as the company's share transfer agent. The Board, however, found that the resolution dated 24-2-1997, which appointed AMI Computers as the share transfer agent, was prima facie evidence of their authority. The Board held that the onus was on the appellant to prove that the resolution was not acted upon, which the appellant failed to do.3. Preliminary objections regarding the membership status of the petitioners:The appellant raised preliminary objections that out of the 113 shareholders who allegedly consented to the petition, only 12 were actual members of the company. The Board, however, noted that the share certificates possessed by the petitioners were prima facie evidence of their membership, even if their names were not recorded in the register of members. The Board held that the petitioners should be treated as members based on their share certificates, fulfilling the requirements of section 399.4. Legal standards for determining questions of law and facts in preliminary objections:The respondent raised an objection that an appeal under section 10F of the Companies Act could only be on a question of law, not facts. The Court, however, noted that if a finding is based on no evidence or on surmises and conjectures, it becomes a question of law. The Court found that the Board's decision involved complicated questions of law and facts that required a detailed inquiry. The Court referred to the Board's decision in Satish Chand Sanwalka v. Tin Plate Dealers Association (P.) Ltd., where it was held that complicated questions of law and facts should not be decided at the preliminary stage but after a detailed hearing.Conclusion:The Court set aside the Board's order dated 3-3-1998 and directed the Board to hear the petition afresh on merits, including the question of maintainability, based on the documentary evidence and material placed by the parties. The appellant was directed to file its reply to the petition within one month, and the Board was instructed to proceed with the case in accordance with law and the observations made. The appeal was partly allowed, and each party was ordered to bear its own costs.