TaxTMI 
TaxTMI 
2009 (7) TMI 776
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....nds on which the appeal is filed are that, the Company Law Board cannot decide about the title in respect of shares stated to have been transferred while exercising jurisdiction under sections 397 and 398 of the Companies Act; that the decision of the Company Law Board in rejecting the application on the ground of maintainability is perverse and without basis: and that the Company Law Board ought to have dismissed the company petition on the admitted ground that the respondents are not holding shares in the company and, therefore, they are non-members, who cannot maintain the petition under sections 397 and 398 of the Companies Act, 1956. Besides, the appellants have also raised other legal issues. 4. The facts which are relevant for the purpose of disposal of this appeal are as follows : (a)The appellants 2 to 5 along with the first respondent M. Palanisamy, have jointly purchased 64 cents and 65 sq.ft. of vacant land under a sale deed dated 19-4-1995. When the said appellants 2 to 5 have purchased the first appellant's mill, it was in the name, G.S.S. Spinners Private Limited, subsequently converted as M/s. S.V.T. Spinning Mills Private Limited. It is stated that the said appel....
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....d the Company Law Board by filing the company petition against the appellants for oppression and mismanagement. However, the suit filed by the appellants 2 to 5 for specific performance against the first respondent is still pending. (e)It was the case of the appellants that the filing of company petition by the first respondent is an abuse of process of law and inasmuch as the first respondent has not purchased the qualification shares and ultimately become a shareholder of the company, the petition filed by him for oppression and mismanagement under sections 397 and 398 of the Companies Act is not maintainable by virtue of section 399 of the Companies Act, 1956. 5. On the other hand, it was the case of the first respondent before the Company Law Board that the application filed by the appellants questioning the maintainability of the company petition is only to prolong the matter and the first respondent has in fact paid a sum of Rs. 1 lakh by way of cheque as against the agreed consideration of Rs. 60 lakhs, agreeing to pay the balance of Rs. 59 lakhs to the 12th respondent and later, on payment of balance amount to the 12th respondent and his group, the 12th respondent has tra....
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....en, on the admitted pleadings, the first respondent cannot be treated as a member of the company and a shareholder of the company, according to him, the very filing of the company petition by him should be treated as meaningless and the Company Law Board cannot be expected to keep the petition which is on the face of it not maintainable. 7(b ). It is his submission that while rejecting the application filed by the appellants for maintainability of the company petition, the Company Law Board shall have referred to the income-tax returns of the 12th respondent/transferor about his assets and rights in respect of the share certificates. 7(c ). It is his further submission that the returns filed on behalf of the appellants in respect of investment, especially relating to that of 3rd appellant, who claims to be the owner of the abovesaid shares, have been rejected by the Company Law Board as a weak evidence, which, according to him, is not the correct view. He would rely upon various judgments in, (i) Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel [1977] 47 Comp. Cas. 151 (Guj.); (ii) Ved Prakash v. Iron Traders (P.) Ltd. [1961] 31 Comp. Cas. 122 (Punj.); (iii) N. Satyaprasad Ra....
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....8 of the Companies Act, but also for a direction to rectify the records by issuing duplicate certificates, etc., and therefore, the first respondent having an indisputable and unchallengeable title as a member can maintain the company petition. 8(e ). He would also submit that the petition under sections 397 and 398 is filed on just and equitable grounds and therefore, the word, 'member' should be construed liberally. He would refer to the judgments cited by the learned senior counsel for the appellants to substantiate his contention. 8(f ). He would submit that the question of considering tax returns, etc., is a matter to be decided on merits of the case and that cannot be construed while deciding about the maintainability. He would rely upon the judgment in Mrs. Saroj Goenka's case (supra) to insist that the question of maintainability cannot be treated as a question of law and therefore, under section 10F of the Companies Act, the appeal is not maintainable. 8(g ). He would rely upon the judgment in Nagindas Ramdas v. Dalpatram Ichharam [1974] 1 SCC 242 to submit that when the decision on an issue involves appreciation of evidence and other factors, it cannot be an issue for ....
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....e broader object of sections 397 and 398 of the Companies Act. 12. On facts as elicited above, the crux of the issue appears to be that the first respondent and the respondents 2 and 3 have entered into an agreement on 27-3-1995 with the 6th respondent and his family members for acquiring the entire shareholdings of the 12th respondent, Mr. V.R. Govindarajulu and his family members, relatives and friends in the erstwhile G.S.S. Spinners Private Limited, which has been subsequently converted as M/s. S.V.T. Spinning Mills (P.) Ltd., for a sum of Rs. 60 lakhs and that was for transferring 19580 equity shares of Rs. 100 each aggregating Rs. 19.58 lakhs, apart from the building, plant and machinery and other properties of the said company. In furtherance of the said agreement it is stated that the first respondent paid a sum of Rs. 1 lakh as advance and the balance amount of Rs. 56.50 lakhs was paid to the 12th respondent through bank account said to have been jointly maintained by the first respondent along with respondents 2 to 5 and the remaining amount of Rs. 2.50 lakhs was paid in cash and, therefore, the case of the first respondent is that he has paid the entire sale considerati....
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....have no status of shareholders or members of the company, allowing the company petition to prolong for some more time would be only an abuse of process of law and also unnecessarily taking away the court's time, has no application to the facts and circumstances of the case. On facts, it is not possible to draw an inference that the pendency of company petition would be an empty formality. 15. On the one hand, it is the contention of Mr. R. Thiagarajan, learned senior counsel appearing for the appellants that in the income-tax return filed by the 12th respondent, who transferred the shares as stated above for the financial years 1995-96 (assessment year 1996-97), the 12th respondent has shown that he was holding 3830 shares in G.S.S. Spinners Private Limited to the value of Rs. 3,83,000 and similar is the case for the assessment year 1997-98 (financial year 1996-97) and therefore, the claim of the first respondent and other respondents that the shares have been purchased cannot be prima facie accepted. But, on the other hand, it is the case of the learned counsel for the respondents Mr. R. Venkatavaradhan that even in the suits filed by the first respondent, the appellants who have....
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....High Court has held that the pre-requisite for invoking jurisdiction under sections 397 and 398 of the Companies Act is provided under section 399(1) and a person who makes a complaint of oppression must be a member of the company. But, in the said case, it was also decided that in cases where title of membership is in dispute, the relief is under section 155 of the Companies Act to get his name rectified in the register of members. In that case, of course, the High Court has taken note of the fact that admittedly the signatures were obtained from the transferor in blank papers, based on certain understanding and it was, in those circumstances, the High Court held that the transferee cannot be held to be a member. 18. Even in the judgment of Division Bench of the Karnataka High Court relied upon by the learned senior counsel for the appellants in Shri Balaji Textile Mills (P.) Ltd.'s case (supra ), it was held that for the purpose of deciding about the term, 'member' or 'shareholder' under sections 397 and 398 of the Companies Act, it is not necessary for such person to comply with section 41(2) of the Act and a broader meaning to be given to the term, 'member' as per section 2(27....
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....h the parties because in the event it is held that the petition is not maintainable, several other issues involved in the case need not be tried and the evidence need not be adduced. On the facts, therefore, the single judge was justified in directing that the issue as to maintainability should be tried as a preliminary issue." I am of the view that on the facts and circumstances of the present case, while the pleadings are running to many pages and crucial issues are raised in respect of status and right of the respondents either as members or shareholders of the company, the above dictum is not of any help to the appellants. 20. It is, in this regard, relevant to refer to the basis of sections 397 and 398 of the Companies Act. A reading of the said sections including section 399 makes it abundantly clear that the right of complaining about oppression and mismanagement lies with the 'member', of course, subject to the requirement under section 399 in respect of holding of share capital and the word used is 'member' in the abovesaid sections. Sections 397 and 398 are as follows :- "397. Application to Tribunal for relief in cases of oppression.-(1) Any member of a company who co....
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....thinks fit." 21. The term, 'member' is defined under section 2(27) of the Companies Act in the form of non-inclusive definition which says as follows :- "Section 2(27) 'members', in relation to a company, does not include a bearer of a share-warrant of the company issued in pursuance of section 114." Therefore, the term 'member' under section 2(27) of the Companies Act has to be construed on a larger connotation, which means that the persons other than bearers of share warrants are to be treated as members. This is in apparent contravention of section 41 of the Companies Act which is captioned as definition of 'member', as follows :- "41. Definition of 'member'.-(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company and on its registration, shall be entered as members in its register of members. (2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. (3) Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a ....
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.... said construction, appears to us, to further the purpose intended to be fulfilled by petitions under sections 397 and 398 of the Act. It facilitates solution of problems in case of oppression of the minorities when the member is dead and his heirs or legal representatives are yet to be substituted. This is an equitable and just construction. This construction, as suggested by Pennycuick, J. Does not militate against either equity or justice of such situation. We would, therefore, adhere to that construction. In this connection, it may be mentioned that in the 1972 Edition of Gore-Browne on Companies, it has been stated as follows :- 'It has recently been settled that the personal representatives of a deceased member, even though they are not registered as members, are entitled to present a petition under section 210. In Re Jermyn Street Turkish Baths Ltd. Pennycuick, J. Held that on its true construction section 210 required that the word 'member' should include the personal representatives of a deceased member, on whom title of his shares devolved by operation of law'." 24. The applicability of sections 397 and 398 of the Companies Act is an equitable jurisdiction which is inte....
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....e-sheet prepared by respondent No. 1 company right from the years 1971 to 1986 does not show any indication that the petitioner had been excluded from the membership of the company either on the ground that he has not inherited the shares or otherwise. In the circumstances, I am of the view that the decision of the Division Bench in Balaji Textile Mills [1988] ILR 1988 Kar. 1213/[1989] 66 Comp. Cas. 654, is applicable on the undisputed material on record." 26. In these circumstances, I am of the considered view that the contention raised on behalf of the appellants that on the ground of maintainability the company petition filed by the respondents has to be dismissed is not sustainable. The Company Law Board has correctly come to the conclusion that these are the issues to be decided on merits of the case and cannot be decided at this stage. 27. The Division Bench of Madras High Court in the abovesaid case in Mrs. Saroj Goenka's case (supra), has in fact held that the issue relating to maintainability cannot be a pure question of law while deciding appeal under section 10F of the Companies Act. On the facts of the abovesaid case, the Division Bench has held as follows :- "The co....