1997 (7) TMI 684 - Board - Companies Law

Shareholders' consent under Companies Act not met, petition dismissed under Sections 397/398

The Board dismissed the petition as the shareholders' consent did not meet the requirements of Section 399(3) of the Companies Act, 1956. Consequently, ... Consent in writing under Section 399(3) - qualification to apply under Section 399(1) - intelligent consent / application of mind - substantive requirement going to the root of entitlement - curing procedural defectsConsent in writing under Section 399(3) - intelligent consent / application of mind - Validity of the schedule of consents annexed to the petition as 'consent in writing' required by Section 399(3). - HELD THAT: - The schedule of 146 signatures was examined and found to be a printed form spanning multiple pages, lacking dates of signing, any indication that signatories had been apprised of the petition's contents, the grounds of alleged oppression and mismanagement, or the reliefs sought. The form's narration - merely declaring consent to present the petition on behalf of the signatories - demonstrates absence of application of mind. Relying on precedent (M. C. Duraiswami v. Shakti Sugars Ltd. and the Board's earlier decision in Shankar v. South India Concerns) the Court applied the principle that Section 399(3) contemplates an intelligent consent: consent must be given with knowledge of the specific allegations and reliefs so that the consentors know what they are authorising. The schedule therefore does not satisfy the statutory requirement of 'consent in writing' under Section 399(3). [Paras 11]The purported consents do not meet the requirement of 'consent in writing' under Section 399(3) and are invalid.Qualification to apply under Section 399(1) - substantive requirement going to the root of entitlement - curing procedural defects - Whether the statutory qualification in Section 399(1) is a mere procedural requirement that can be condoned, or a substantive pre condition to maintain a petition under Sections 397/398. - HELD THAT: - The Court analysed whether defects in the consents could be treated as procedural and cured in the interest of justice. Distinguishing the Supreme Court's observations on curable procedural defects, the Board held that the requirement of Section 399(1) is a substantive qualification for entitlement to institute a petition under Sections 397/398. As such it goes to the root of the right to apply and must be rigidly satisfied; it is not a procedural irregularity amenable to condonation. Consequently, failure to obtain valid consents under Section 399(3) cannot be cured by treating the defect as merely procedural. [Paras 16]Section 399(1) prescribes a substantive qualification which is not a procedural requirement and therefore cannot be condoned.Final Conclusion: The schedule of consents is invalid; the petitioners do not satisfy the statutory qualification under Section 399(1); the petition is dismissed for want of maintainability without deciding other preliminary objections or the merits. Issues Involved:1. Validity of consent under Section 399(3) of the Companies Act, 1956.2. Whether the requirement under Section 399(1) is procedural and can be condoned.3. Potential conflict with proceedings before the industrial court.Issue-wise Detailed Analysis:1. Validity of consent under Section 399(3) of the Companies Act, 1956:The petitioners filed the petition under Sections 397/398/402 and 403 of the Companies Act, 1956, alleging acts of oppression and mismanagement. The respondents raised a preliminary objection regarding the validity of the consent given by 146 shareholders, arguing that the consent did not meet the legal requirement under Section 399(3). The respondents contended that the consentors had not applied their minds to the allegations and reliefs sought in the petition, as required by law. They referred to the decision in Shankar v. South India Concerns, which emphasized that consent letters must indicate that the consentors are aware of the allegations and reliefs sought.Upon reviewing the schedule containing the signatures, the Board found no indication that the consentors were aware of the petition's contents or that they had applied their minds to the allegations and reliefs. The Board cited the Madras High Court's judgment in M.C. Duraiswami v. Shakti Sugars Ltd., which held that consent under Section 399(3) must be intelligent and specific to the allegations and reliefs in the petition. Consequently, the Board concluded that the purported consent did not meet the requirements of 'consent in writing' under Section 399(3).2. Whether the requirement under Section 399(1) is procedural and can be condoned:The petitioners argued that the requirement under Section 399(1) was procedural and could be condoned, citing the Supreme Court's observation in Union Bank of India v. Naresh Kumar that procedural defects should not defeat a just cause. However, the Board noted that the Supreme Court had differentiated between procedural defects that go to the root of the matter and those that do not. The Board had previously held in Shankar v. South India Concerns that the validity of consent in writing is a substantive matter going to the root of entitlement to file a petition under Section 397/398. Therefore, the requirement of Section 399(1) was not a procedural matter but a substantive qualification that must be satisfied before considering the petition on its merits.3. Potential conflict with proceedings before the industrial court:The respondents also raised a preliminary objection regarding the potential conflict with similar issues pending before the industrial court. However, the Board did not address this objection, as it dismissed the petition based on the lack of valid consent under Section 399(3).Conclusion:The Board dismissed the petition, holding that the consent given by the shareholders did not meet the requirements of Section 399(3). Consequently, the petitioners did not qualify under Section 399(1) to file the petition under Sections 397/398. The Board did not consider the other preliminary objection or the merits of the case.