2011 (8) TMI 969 - Board - Companies Law

Company petition deemed maintainable under Companies Act 1956. Qualification issue to be further examined.

Balraj Malhotra Versus Srijee Estates & Investment (P.) Ltd.

The court held that the company petition was maintainable as the petitioners provided sufficient evidence of their shareholding and eligibility under ... Oppression and mismanagement - maintainability petition - petitioners did not have the requisite qualification under section 399 to maintain the company petition under sections 397, 398, 402, 403 - Held that:- Even though a subscriber to the memorandum is a member in terms of section 41, but without the consideration for the shares he cannot be treated as a member for the purposes of section 399. A reading of the section would indicate that only a member can apply provided all calls and other sums due on the shares held have been paid. Section 399 not only specifies that there should not be any pending dues on the calls made, it also provides that no other sum should also be due on the shares. shareholder could establish allotment of shares not only by the register of members of the company, but also by the statutory returns and documents maintained and filed by the company, it is not open to the company to contend that the petitioner has not complied with the requirements of section 41(2) or the provisions of section 399. An objection as to the maintainability of the petition is only to be allowed at an initial stage if there is absolutely no doubt that the petition is not maintainable. instant petition is not to be dismissed at the threshold. Issues Involved:1. Maintainability of the company petition under sections 397, 398, 402, and 403 of the Companies Act, 1956.2. Qualification of the petitioners under section 399 of the Companies Act, 1956.3. Allegations of oppression and mismanagement.4. Validity of the allotment of shares and appointment of directors.5. Fraudulent use of digital signatures and filing of statutory forms.Detailed Analysis:1. Maintainability of the Company Petition:The primary issue is whether the petitioners have the requisite qualification under section 399 of the Companies Act, 1956, to maintain the company petition under sections 397, 398, 402, and 403. The petitioners alleged oppression and mismanagement and sought a declaration that the Board meetings held after October 28, 2006, and the resolutions passed therein be declared null and void. The applicant argued that the petitioners are not shareholders and do not qualify to maintain the petition, as they have not made any payment towards the alleged allotment of 1000 equity shares and have not been issued any share certificates. The petitioners countered by asserting that they hold more than 1/10th of the total number of members and 50% of the equity share capital of the respondent company.2. Qualification of the Petitioners under Section 399:The applicant contended that the petitioners do not meet the qualification criteria under section 399 of the Act, which requires holding either 10% or more of the subscribed capital or constituting 10% or more of the total members. The petitioners relied on Form 2 and annual returns, digitally signed by R2, to demonstrate their shareholding. They also presented a certificate from a chartered accountant and their income-tax returns as evidence of their shareholding. The judgment emphasized that the qualification under section 399 is mandatory and must be substantiated with documentary evidence. However, it also noted that if the issue/allotment of shares is challenged as 'oppressive,' the maintainability of the petition would be decided after determining the validity of the issue/allotment.3. Allegations of Oppression and Mismanagement:The petitioners alleged that the respondents had unlawfully increased the paid-up capital and manipulated the register of members. They claimed that the allotment of shares on January 4 and 16, 2007, to P1 and P2 was incorrect and that Form 2 was fraudulently filed using unauthorized digital signatures. The respondents refuted these allegations, arguing that the petition was filed to harass the company and prevent it from carrying out its activities. The judgment highlighted that the burden of proof lies on the person making allegations of fraud and that concrete details and evidence are required to substantiate such claims.4. Validity of the Allotment of Shares and Appointment of Directors:The petitioners argued that they were appointed as additional directors with effect from October 20, 2006, and that the shares were allotted to them on April 5 and 10, 2006. They presented various documents, including annual returns and certificates, to support their claims. The respondents contended that the Board never approved the appointment of P1 and P2 as directors and that the alleged allotment of shares was fraudulent. The judgment noted that the prima facie evidence of shareholding could be either the share certificate or the register of members, and that the qualification under section 399 can be met by persons entitled to have their names on the register.5. Fraudulent Use of Digital Signatures and Filing of Statutory Forms:The petitioners relied on digitally signed forms and annual returns to establish their shareholding. The respondents argued that the digital signatures were fraudulently used without authorization. The judgment emphasized that Digital Signature Certificates (DSCs) are protected by passwords known only to the owners, and the burden of proof lies on the person making allegations of fraud. The petitioners presented various documents, including income-tax returns and certificates from a chartered accountant, to demonstrate that the shares were allotted to them and reflected in their records.Conclusion:The judgment concluded that Company Application No. 518/2007, challenging the maintainability of CP No. 154/2007, was not filed by any respondent but by a practising company secretary without proper authorization. The petitioners presented sufficient prima facie evidence of their shareholding and eligibility under section 399. The issue of qualification is a mixed question of fact and law, requiring a hearing on merits. Therefore, the petition was held to be maintainable, and CA No. 518/2007 was dismissed. The case was listed for arguments on the merits of the company petition. No order as to costs was made.