Company petition threshold: prima facie shareholding and triable fraud allegations defeat rejection based on disputed admissions.

A company petition may proceed where the pleaded shareholding, on the respondents' own materials, shows more than 10% of the issued, subscribed and paid-up capital under section 399 of the Companies Act, 1956, because the statutory qualification is prima facie met. The article also explains that a petition alleging fraud cannot be rejected at the threshold on the basis of income-tax returns or supposed admissions, since disputed facts require proof and such material is only evidentiary. On a demurrer-type objection, provisions such as Order 6 Rule 4, Order 7 Rule 11 and Order 12 Rule 6 of the Code of Civil Procedure, 1908 do not permit final rejection where triable issues remain.

---

---

Issues: (i) Whether the petitioners had the requisite shareholding to maintain the petition under section 399 of the Companies Act, 1956. (ii) Whether the petition could be rejected at the threshold on the basis of the income-tax returns and the alleged admissions contained therein under the Code of Civil Procedure, 1908.

Issue (i): Whether the petitioners had the requisite shareholding to maintain the petition under section 399 of the Companies Act, 1956.

Analysis: The petitioners pleaded specific shareholdings which, on the materials relied upon even by the respondents, disclosed that they held more than 10 per cent of the issued, subscribed and paid-up capital. The threshold objection therefore could not succeed, because the statutory qualification for instituting the company petition stood prima facie satisfied on the pleaded and admitted figures.

Conclusion: The petitioners satisfied the shareholding requirement and the petition was not liable to be dismissed for want of qualification.

Issue (ii): Whether the petition could be rejected at the threshold on the basis of the income-tax returns and the alleged admissions contained therein under the Code of Civil Procedure, 1908.

Analysis: The pleadings asserted fraud and explained that the petitioners had signed papers in a family-company setting without knowledge of the alleged transfer entries. On a demurrer-type objection, the petition had to be tested on its own averments, and the disputed facts required proof. The income-tax returns, even if relied upon, amounted at best to evidentiary material and did not justify rejection under Order 6 Rule 4, Order 7 Rule 11, or Order 12 Rule 6 of the Code of Civil Procedure, 1908 at the preliminary stage.

Conclusion: The petition could not be rejected on the basis of the alleged admissions in the income-tax returns.

Final Conclusion: The preliminary objection failed, and the company petition was allowed to proceed on merits.

Ratio Decidendi: A company petition should not be rejected at the threshold where the pleaded facts disclose the statutory qualification to sue and raise a triable plea of fraud, because disputed questions of fact and evidentiary admissions must be tested by proof and cannot be finally concluded on a demurrer objection.

---