TaxTMI 
TaxTMI 
2004 (10) TMI 330
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....iled the petitioner under sections 397 and 398. 3. The shares of the company are basically held by two branches of the family of J.P. Srivastava. J.K. Srivastava, who was originally the petitioner No. 4, and H.K. Srivastava who was originally the respondent No. 2, were the two sons of J.P. Srivastava. During the pendency of the proceedings before us, both J.K. Srivastava and H.K. Srivastava have died and are now represented by their respective heirs. In the case of J.K. Srivastava, his interest is now represented by his widow Mrs. Raj Mohini Srivastava and his only son Vijay Kumar Srivastava. As far as H.K. Srivastava in concerned, he is represented by his four children, Vikram, Hemlata, Vir and Radhika. The corporate shareholders in the company are in turn also held by members of the Srivastava family. Mrs. Nini Srivastava, appellant No. 3, the wife of Vijay Srivastava, was the third petitioner in the proceedings as originally filed. She was described as a petitioner "for herself and as trustee for J.K. Srivastava Family Trust" (referred hereafter as the Trust). 4. The proceedings were initiated before the Company Law Board (CLB) on 1st July 1995. The pleadings were complete....
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....ch would include preference shares and that the shareholding claimed by the petitioners did not amount to 10 per cent of such total. It was contended that the appellants therefore did not hold the requisite 10 per cent of the issued share capital of the respondent No. 1 company and therefore the petition under sections 397 and 398 was not maintainable and should be dismissed. 8. The appellants filed a pre-notice reply on 5-11-1998 in which they stated that the petitioner No. 3 (the appellant No. 3 before us) had filed the petition on behalf of herself and as a trustee of the J.K. Srivastava Family Trust (referred to as the Trust) and that the Trust held 1029 preference shares. It was also alleged that the respondent No. 8 was fully aware of and had participated in, the proceedings, in which there had been 25 hearings over three and a half years. 9. On 6th November, 1998, the matter was listed for orders to be passed by CLB, when, according to the appellants, the CLB directed the appellants to file the consent/authority if any given by the Trust to Mrs. Nini Srivastava to file the petition under sections 397 and 398. On 9th November, 1998 the appellants brought on record an af....
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.... petition and if so whether the same is legally valid." It answered this issue against the petitioners because : "(1) No authority of the J.K. Srivastava Family Trust authorizing the 3rd Petitioner to represent the Trust nor any affidavit by her representing the Trust had been annexed to the petition; (2) Since there was no averment to the effect that the petitioner had the consent of the Trustees to file the petition and since the consent documents were not enclosed with the petition, the requirement under Regulation 18 had not been complied with and that non-enclosing the consent document with the petition was fatal to the petition. (3) If the preference shares held by the Trust is not taken into consideration, then the total number of shares held by the petitioners would work out to about 7 per cent of the subscribed capital and if the shares are included, then the percentage would go to 10.85 per cent. (4) 515 preference shares of the trust had already vested in the one of the beneficiaries thus reducing the percentage of the petitioners shareholding to less than 10 per cent and; (5) Relying upon Duli Chand v. Mahabir Pershad Trilok Chand Charitable Trust AIR 198....
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....he basis of the persons whose names were recorded in the register of shareholders. 16. Before us the appellants contended that the Trust and the co-trustees had authorised the third appellant to represent the Trust. It was submitted that there was no dispute in fact that the Trust held 1029 shares in the company. The only dispute was whether the third appellant was authorized to act on behalf of the Trust. It was submitted that section 399(3) did not deal with the authorization but with the consent of supporting shareholders. It is said that the Trust still continues and has not been brought to an end by reason of devaluation of the shares to the beneficiaries. It is said that the co-trustees had in fact consented to/authorized the appellant No. 3 to initiate and prosecute the petition under sections 397 and 398 and that in any event the CLB should have given an opportunity to the appellants to implead the other co-trustees. It was pointed out that the respondent No. 8 had never raised any issue that the trustees were necessary parties and that in their absence the petition under sections 397 and 398 was not maintainable. It was also submitted that the High Court erred in holdin....
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....t or oppression provided such Member or Members have the requisite shareholding as prescribed under section 399 to do so. The relevant portions of section 399 read as under : "Right to apply under sections 397 and 398.-(1) The following members of a company shall have the right to apply under section 397 or 398:- (a )in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares; (b )****** (2) ****** (3) Where any members of a company are entitled to make an application in virtue of sub-section (1), any one or more of them having obtained the consent in writing of the test, may make the application on behalf and for the benefit of all of them." 19. The question is, did the appellants who were the original petitioners have the requisite number of shares when the petition was filed. The question itself raises two further issues viz., who were the petitione....
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....213 the contention on behalf of the Company, while opposing a petition under sections 397 and 398, was that there was no proof that the applicant had obtained the consent of the requisite number of shareholders opposing the petition. It was said that out of the 80 persons who had consented to the institution of the application, 13 were not shareholders at all and that two members had signed twice. This Court said : "(5) This point is not dealt with in the judgment of the trial court, and the argument before us is that as the objection went to the root of the matter and struck at the very maintainability of the application, evidence should have been taken on the matter and a finding recorded thereon..." (p. 215) 22. The submission was rejected because the objection though raised in the written statement had not been pressed at the trial and had not been argued before the Trial Judge. We will, therefore, decide only those issues which were pressed and decided upon by the three courts. 23. The issue then is-was it represented before the CLB by Nini Srivastava. The answer to this would depend on whether the trustees of the trust could authorize one of them to initiate proceedi....
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....Therefore although as a rule, trustees must execute their duties of their office jointly, this general principle is subject to the following exceptions when one trustee may act for all (1) where the Trust Deed allows the trusts to be executed by one or more or by majority of trustees (2) where there is express sanction or approval of the act by the co-trustees; (3) where the delegation of power is necessary; (4) where the beneficiaries competent to contract consent to the delegation; (5) where the delegation to a co-trustee is in the regular course of the business; (6) where the co-trustee merely gives effect to a decision taken by the trustees jointly. 27. The present case comes within at least three of the exceptions listed. The Trust in question was created on 25-12-1978 by J.K. Srivastava, one of the original petitioners in favour of his two minor grandsons, Kunal and Yatin. The trustees named in the Trust Deed were the settlor's wife Raj Mohini (now the appellant No. 4( a) and their son Vijay [Now the appellant 4(b)] who was also the father of the beneficiaries. The Trust Deed contains the following clauses : "Clause 7 : The Trustees shall hold the Trust Fund or any prop....
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....vastava group had decided to file a petition with the Company Law Board in Delhi, under sections 397 and 398 of the Company's Act, in the matter. Mrs. Nini Srivastava reported that she was also to be a Petitioner and the petition had been prepared. The petition, application and Annexures were placed on the table, duly examined read and understood and duly approved particularly to its contentions, submissions and prayers. It was then duly resolved that Mrs. R.M. Srivastava and Mr. Vijay K. Srivastava Trustees give consent on behalf of the Trust to the filing of the Petition/presentation of the Petition by Mrs. Nini Srivastava and that she be also authorized to take all Legal action as advised in the manner." 29. A joint affidavit affirmed on 9th June, 1995 by Raj Mohini and Vijay says : "We have read and understood the Petition under sections 397 and 398 of the Companies Act, ancillary application annexures and confirm our consent to Mrs. Nini Srivastava, a Trustee of the Trust and a Petitioner with others, in the Petition, to her filing/presenting the same. We also hereby give consent and authority to Mrs. Nini Srivastava a Trustee of the Trust to take such and all l....
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.... express the rights which it has been really their intention all along to establish, although the amendment of plaint is sought to be made at a time when the suit itself if instituted then would be time-barred..." (p. 50) 32. However, for the reasons indicated by us earlier we do not propose to entertain this plea of the respondent at this stage. 33. It is true that criminal proceedings have been instituted by the respondents on the allegation that the stamp paper on which the affidavits have been affirmed were purchased subsequently. But we are not prepared to reject the documents as forged ones not only because the executants have hotly contested the allegations but also because there is no finding to that effect by any of the three courts below or by the criminal court. Indeed as matters now stand the criminal proceedings have been stayed by the High Court. Furthermore, Vijay Srivastava and Raj Mohini's continuous support is also apparent from the fact that both of them are parties to the appeal before us albeit in the capacity of heirs of Late J.K. Srivastava. 34. The Courts below however refused to entertain the petition because the documents referred to earlier had n....
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....so facto result in the dismissal of the petition. Apart from this, Regulation 18 itself is subject to the powers of CLB under Regulations 44 and 48. These read as follows : "44. Saving of inherent power of the Bench.-Nothing in these rules shall be deemed to limit or otherwise affect the inherent power of the Bench to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench. 48. Power to dispense with the requirement of the regulations.-Every Bench shall have power for reasons to be recorded in writing, to dispense with the requirements of any of these regulations, subject to such terms and conditions as may be specified." Given these powers in the CLB, we cannot hold that non-compliance with one of requirements in Sr. No. 27 in App. III of Reg. 18 goes to the very root of the jurisdiction of the CLB to entertain and dispose of a petition under sections 397 and 398. All that regulation 18 requires by way of filing of documents, is proof that the consent of the supporting shareholders had in fact been obtained prior to the filing of the petition in terms of section 399(3). It cannot be gainsaid that it is open to the perso....
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....s adverted to, I do think she had authorized her father to act on her behalf in the matter at hand, and the application under section 397/398 of the Companies Act, 1956, as filed in the Court, ought to be taken as one to which she had consented." (p. 2263) 36. The finding of the CLB and the High Court to the effect that the petition of the appellant deserved to be rejected only because the letters of consent had not been annexed to the petition was therefore incorrect. What the CLB and the High Court should have done was to have satisfied themselves that the consent had in fact been given prior to the filing of the petition. There is nothing either in the orders of CLB or the High Court which could even remotely be construed as a rejection of the affidavits, resolution, etc. filed by Nini Srivastava to show that prior consent had in fact been obtained. We may also note the unrebutted specific averment by the petitioners to the effect that V.K. Srivastava was personally present throughout the litigation. 37. Having decided that Nini Srivastava could have been and was authorized to act on behalf of the Trust, the next question is, did Nini Srivastava file the petition on behalf....
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....ception as we have held was erroneous. 40. The other ground on which the fora dismissed the petition was that the beneficial interest in 551 shares of the 1029 held by the Trust had already vested in the beneficiaries prior to the filing of the petition complaining of mismanagement and oppression. This is again an incorrect legal proposition. An equitable or beneficial interest in shares does not make the owner of the interest a member of the company. [See Howrah Trading Co. Ltd. v. CIT AIR 1959 SC 775; Killick Nixon Ltd.'s case (supra). Therefore, even assuming that in terms of the Trust Deed the shares had devolved on the beneficiary of the Trust, this would not mean that the owner of the shares as registered with the company would not be competent to file the petition under sections 397 and 398. 41. The object of prescribing a qualifying percentage of shares in petitioners and their supporters to file petitions under sections 397 and 398 is clearly to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company. However it is of interest that the English Companies Act contains no such limitation. What is required in these matters is ....