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, the petitioners did not qualify to file the petition under Sections 397/398 as per Section 399(1). Other objections and the merits of the case were not considered due to this lack of valid consent.

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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.

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