TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1108
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....arma, Mr. Rohan Batra, Mr. Arjun Sharma, Ms. EeshaMohopatra, Ms. PayalChhabria, Mr. JeetKaria, Ms. juhiMathur, Advocate, Mr. Shailesh Poria ... Advocate, Shri Sudipto Sarkar, Shri Mohan Parasarary Sr. Counsel, Mr. D.L. Chidananda, Mr. Zal Andhyarujina, Mr. Ashwin Kumar D.S., Ms. Shurti Sardesai, Mr. Jahangir Mistry, Ms. Namrata Parikh. Advocates, Shri |anak Dwarkadas, Sr. Counsel, Mr. Sharan ]agtiani, Mr jehangirlej eebhoy, Ms. ShireenPochkhanawalla, Mr. NiravBarot Advocates ORDER Nobody knows when problem comes, now problem has come upon TATA (Tata Sons Ltd. (R1)) which everybody knows in India, there can't be anyone who has not experienced the product of Tata. Many of rural folk may not know TATA as a company, but everybody, east to west and north to south, knows Tata salt, Tata tea, Tata car, Tata bus, likewise many, it is a household name in India. Salt to software, it has seasoned this country with all spheres and makes its presence felt all over the world. The time has now become excruciating to this Tata Sons (R1) owing to Board Room battle. Tata Sons is a driving force and funding machine to all its subsidiaries spread all over the World. These days, trying time has ....
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.... which eventually led Tata Steel go down by this purchase, when it was not doing well, Mr. Mistry initiated to merge this Tata Steel U.K with Thysseen Krupp so as to rid Tata Steel of the financial sufferance, but it is R2 who objected to restructuring of Tata Steel UK company causing loss to everybody including the petitioners. - That sometime in 2007-2008, R2 came out with a proposal to manufacture a car that could be enjoyed by poor of this nation, with an installed capacity of 2,50,000 cars annually, but the demand for these cars is only 3,000 cars per year, by which Tata Motors consistently loosing Rs. 1000 crores causing once upon profit making company i.e., Tata Motors gone into losses, inspite of it, R2, for his emotional reasons, has prevented R11 from taking crucial decision to shut down Nano Car Project. - That R2 caused issuance of 520 billion shares of TTSL at the rate of Rs. 17 to Sterling for a throw away price of Rs. 884 crores, and then issued TTSL shares to Singapore Company at the price of Rs. 26 per share immediately after transaction with Sterling owned by Shivsankaran (called as Shiva) who is close to R2. Thereafter, Shiva sold Rs. 20.74 million shares out o....
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....re oppressive and prejudicial to the interest of the petitioners and R1 Company and its group companies. Arguments of the Respondents Counsel: 4. Looking at the petition the petitioners filed, Dr. Abhishek Manu Singhvi, Senior Counsel on the answering Respondents behalf, at the outset raised a threshold issue saying that the petitioners do not have qualification envisaged u/s 244 to file this CP u/s 241 for these two petitioners together have only 2.17% shareholding which is less than one -tenth of the issued share capital of the company, and by number also they being only two out of 51 total members of R1, the Respondents have taken out a detailed plea stating that the petitioners failed to meet the qualification as set out in section 244, therefore, this petition is liable to be dismissed in limine. 5. As to the issued share capital of R1, as on 21st December 2016, the total issued equity share capital of R1 is Rs. 40.41 crores and the total issued preference shares is Rs. 294 crores, hence total issued share capital has become with an aggregate face value of Rs. 335 crores. Out of which the petitioners collectively hold with an aggregate face value of Rs. 7.44 crores amountin....
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....riation of rights of different classes of shareholders u/s 48, if variation of rights of one class of shareholders affects of the interest of other class of shareholders, then certainly 3/4th of such other class is to be obtained, but one fact that should not be forgotten is this right of variation shall lie either in the Memorandum or Articles, if not in constitutional documents, then at least in the terms of the issue of shares it shall disclose these rights, this concept of different classes of shares run on the understanding of the persons opting for shares, but this oppression or prejudice remedy will never become a right either in constitutional documents or terms in between the parties, therefore the petitioners cannot derive an analogy from this section to say the same is applied to sections 241 and 244. The Respondents counsel therefore submits that the meaning of the phrase "issued Share Capital" will not and cannot change into "Issued Equity Share Capital" when it comes to decide maintainability u/s.244 of the New Act. In section 244, it has been mentioned that "any member or members holding not less than l/10th of the Issued Share Capital of the company", the parties ca....
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.... be doing violence to the section but will amount to legislating a provision in a manner not at all intended by the Legislature. 29. From the aforesaid discussion, and from whatever angle one looks at the expression "issued share capital" of the company, it is very clear that the expression can only refer to the preference share capital as well as equity share capital of the company and the appellant was required to hold one-tenth of the total of this issued share capital before he became eligible to maintain a petition under section 397/398 of the Act. The appellant at no time held more than 2.01 per cent of issued share capital. It did not have it when it became a member or shareholder. It did not have requisite percentage on the date of filing of the petition. The appellant might be having 14.8 per cent of equity shares, but that is not the criterion to make an application. The petition was therefore rightly dismissed." [Emphasis supplied]. 11. He further submits that this decision is upheld by the Honourable Supreme Court dated 30.9.2013 in SLP No.12753/2008 (Mis. Northern Projects Ltd. v. Blue Coast Hotels and Resorts Ltd. & Ors.) making it clear that issued share capital i....
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....at is subsequently re-ordained as new section of law, is binding on the courts. In the case supra, the ratio has been decided in the context of repetition of Articles 102 and 120 of the Limitation Act, 1908 in identical terms without any modification in the Limitation Act, 1963. The same is the view held in Pradeep J. Mehta vis. Commissioner of Income-tax, Ahmedabad (2008) 14 SCC pg.283 para No.20, 25 and Parvathy Amma&Ors. v. Krishnan &another 1962 KLJ 428 para No.8 in respect to the applicability of case law decided on old section of law that has been re-ordained as new section of law without any change. 15. The Respondent Counsel submits that the attempt of the petitioners to read the term "Class of Members" into section 244 is wholly untenable, self-serving and would do violence to the language of this statute if at all equity shareholders, as is sought by the petitioners, are considered as separate class to say that since the petitioners have more than 10% equity shareholding, this petition is maintainable on class basis. 16. The Respondent Counsel retorts the arguments of the Petitioner Counsel saying that the phrase "class of members" finds no place in section 244 of the A....
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....s being clear in section 244, there cannot be any scope to have more than literal interpretation to the section, therefore, the phrase class of members cannot be read into section 244 to say that issued equity share capital is to be taken into consideration for reckoning 10 percent shareholding qualification criteria mentioned section 244. 19. As to the argument of the Petitioners Counsel that section 244 has now become directory by introduction of waiver clause in the proviso to the section 244, the Respondents Counsel submits that argument of the Petitioners' case is surprising for two reasons, (1) - the Petitioners asking from one side that their Petition is maintainable on the ground that their equity is more than 10 percent, (2)-juxtaposition to the above argument, the Petitioners Counsel arguing that section 244 has become directory in the New Act for waiver clause has been introduced in the New Act forgetting the fact that prosecuting party cannot take inconsistent pleas. In fact, it is nothing but asking waiver before a waiver. The Respondents Counsel submits that introduction of the waiver clause into section itself makes it clear that qualification criterion set out ....
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....r interesting that the same is allowed to continue without any change in the new enactment as section 244 believing the law that continued for more than half century as section 399 shall continue for the times to come as section 244. Now, it is not open to any body to say whether it is equitable or inequitable, that question is no more a question. 23. As to the argument the Petitioner counsel propounded that since Accounting Standard 32 referred to preference shares as debt, unless they are compulsorily convertible, as long as they are not converted or convertible into shares, the redeemable preference shares shall be treated as debt not as equity, henceforth the preference share capital that is not compulsorily convertible cannot be treated as share capital u/s.244 to calculate 10% shareholding for filing petition under section 241, the Respondent counsel argued that Accounting Standard cannot be used to override a statutory provision of Companies Act, 2013, that apart, the said Accounting Standard has no applicability to non-banking finance company such as R1, as NBFCs have been specifically exempted from application of Accounting Standards by Rule 5 of the Companies (Indian Acc....
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....ny therefore, if the preference shareholding valuing to Rs. 294 crore makes the Petitioners incapable to maintain petition u/s 241, it will become nothing but mockery of justice. 27. The petitioners relied upon D. Saibaba v. Bar Council of India 2003 6 SCC pg.186; Indian Performing Rights of Society Ltd. v. Sanjay Dalia & Others [2015] 10 SCC pg. 161 to say that a construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly has to be rejected and preference should be given to that construction which avoid such result. 28. The Petitioners submits that power under sec.241 to 244 being exercised by the Tribunal in its equitable jurisdiction, a hyper technical view ought not to be taken in order to deny the cause of equity and justice. For which he relied upon Mis. Worldwide Agencies Pvt. Ltd. and Another v. Margaratt Desor&Ors. [1990] 1 SCC 536, Baldev Krishna Sai v. Shipping Corporation of India &Ors. [1987] 4 SCC pg.361 @ 366 29. The Petitioners Counsel submits that section 241 & 244 will need to be read together and not mutually exclusive in as much as though conditions and parameters as contained in section 244 from the jurisdictional basis from....
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....e context otherwise requires. Since the new concept of class of members have been introduced in section 241, the meaning of the "issued capital" has to be limited to the "issued equity share capital alone" not otherwise. When the phrase "class of members" are related back to qualification clause in section 244, the context demands that issued share capital means only equity share capital not the share capital along with preference share capital, therefore, the meaning given in definitions sections will remain inapplicable for it has been conditioned that its meaning is applicable, unless, in the Act, the context otherwise requires. Since the colour of section 244 is changed by relating it to the phrase 'class of members' used in section 241 (1) (b), the definitions and meanings given to issued capital, share and preference share capital and issued share capital are not applicable. With this submission, R11 counsel submits that this Petition is maintainable. Discussion 35. On hearing the submissions of either side, it appears to us that the admitted case of the Petitioners is that they hold 18.37% equity shareholding in R1 Company, if the preference shareholding is include....
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.... to the company' thereby the preferential shareholding shall not be treated on par with equity, (4) that Sections 241 to 244 will need to be read together and they are not mutually exclusive in as much as though conditions and parameters as contained in Section 244 from the jurisdictional basis for Section 241, in the same manner the grievances mentioned Section 241 can only be maintained 'provided such member has a right to apply under Section 244' has been stated in Section 241. He argues primary rule of interpretation is that every part of a section should be given its full and natural meaning, it cannot be diluted by superimposing some other section on the footing one section is conditioned by another section, (5) that by introduction of waiver jurisdiction to NCLT in Section 244, the qualification clause has become directory because whenever any person pleads waiver of Sub-section (1) of Section 244, the qualification has to be looked as directory not as mandatory. 38. Before going into the argument on both sides and merits on it, since the entire argument of either side has gone on sections 241 & 242 of new Act, it is essential to find out what these sections a....
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....ontrol of the company, whether by an alteration in its Board of directors or manager or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. may apply to th....
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....writing of the rest, may make the application on behalf and for the benefit of all of them. (4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Company Law Board under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled. Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation. -For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (5) The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable for the payment of any costs which the Company Law Board dealing with the application may order such member or members to pay to any other person or persons who are parties to the applic....
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....bunal is of the opinion that the oppression or prejudice is made out and such oppression and prejudice leads to winding up of the Company if so, by considering such winding up would unfairly prejudice the complaining member or members, pass any remedy which is just and equitable to end the litigation in between the parties or to pass any orders as set out Sub-section 2 of Section 242. 41. This Bench agrees with the submissions of the Senior Counsel Mr. Mohan Parasaran because in the Act, arrangement is made in such a way that the person complaining must be qualified u/s 244 to raise cause of action u/s 241 then if the Tribunal is of the opinion u/s. 242(1) that oppression or prejudice is made out which is likely to drive the Tribunal to pass an Order of winding up on just and equitable ground, since such winding up would unfairly prejudice the complaining member, then Tribunal will pass any alternative order to end the litigation complained of by passing any order or a relief that is set out under Sub-section (2) of Section 242. 42. Though Section 244 has been arranged subsequent to Section 241, since the Section saying who is the person qualified to raise the cause of action u/s....
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....her they have been qualified under sub-section (1)(a) or (b) of Section 399 or not. 45. What has happened to this Sub-Section (4) in Section 244? When it comes to Section 244, instead of making it as sub-section and instead of giving authorisation to Central Government, it has been made a proviso to Sub-section (1) of Section 244, meaning thereby that this right of authorisation to the 'members' to raise cause of action u/s 397 and 398 has been restricted to a proviso to the main Section by which the unconditional right under subsection to section 399 has metamorphosed into restricted right in the proviso to section 244. The power to authorise has been conferred upon NCLT. When qualification issue has been decided by the statute under Sub-section (1) of section 244, the direction that is used there is 'shall' leaving it not open to the Tribunal to go beyond the minimum qualification mentioned therein, but where it has come to proviso, it has become 'may' in the proviso giving discretion to NCLT as to whether to waive or not to waive the qualification that is set out in main Section. Moreover, notwithstanding clause that was there in Sub section (4) of Secti....
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....y changes in Section 397 and 398 of 1956 Act and abridged them into one Section i.e. 241 in 2013 Act. 51. Let us on this premise, again visit Sections 397, 398 and Sections 241, 244 to find out as to what are the changes made to them and whether such changes will have any bearing upon Section 244 of 2013 Act. Here, we should not forget that this Bench has already made an elaborate discussion on Section 244 and finally observed that no major changes have been done in respect to qualification, in fact, the compass of the jurisdiction has been further restricted for compliance of qualification criterion stating that discretion for considering waiver clause will happen only on an application moved by the complaining member before the Tribunal. 52. On reading Sections 397 (1), 398 (1) of 1956 Act and Section 241(1) of 2013 Act, the commonality in three sections is that all three will start with saying any 'member' or 'members' of a Company who complains or complain... and ends with saying 'may apply to the Company Law Board/Tribunal, provided such member/members have a right to apply under Section 399 of the old Act /244 of the new Act for an Order under this chapt....
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....-tenth in number or one-tenth in value of the issued share capital alone are qualified for accrual of cause of action u/s 241, therefore cause of action u/s 241 is not a freehold cause of action, it is a qualified cause of action, the right to this cause of action comes upon qualification - if no qualification, no cause of action. 54. Here the cause of action is conceived in the Statute itself, so is the qualification. Both cause of action and qualification are not inalienable rights like fundamental rights to say that since the impugned action or omission is in violation of his fundamental rights, he is entitled to seek relief though right is not envisaged under any Statute. Of course, the right of remedy for violation of fundamental rights is also borne out of the Constitution of India. Therefore, when a cause of action and qualification are simultaneously designed by the Statute, both have to go together. Here the right u/s 241 and the qualification u/s 244 have been simultaneously given by the Statute, thereby one cannot dilute another. When "class of members" qua is not conferred with a right to complain, there is no occasion to assume that the qualification clauses u/s 244 d....
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....lass concept has not been introduced in Section 244 of the new Act thereby the phrase 'class of members' added to mismanagement clause will not have any bearing, not even remotely relatable to the qualification mentioned u/s 244 of the new Act. 56. The Petitioners' Counsel has vehemently argued that since 'class of members' concept has been introduced in cause of action Section (241), this has to be read into Section 244 of the new Act. We do not find any merit in this argument by looking at the phrase "class of members" mentioned in various sections of Company Law because shareholders -whether they are equity shareholders or preferential shareholders - they have to remain waiting for their turn when winding up is ordered in the Company. The only difference is the preference shareholders will come into priority before equity shareholders when the residue of the liquidated Company is distributed to the shareholders. They cannot have any security rights over the assets of the Company. If all of a sudden the Company goes into losses, the preference shareholders have also to suffer along with equity shareholders. The dividend rights will be exercised against the Co....
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....y. Voting rights of the equity shareholders in the Company is only limited to the management of the Company. In fact, there is every possibility by virtue of this voting right to cause economic loss to the preference shareholders who do not have voting right to the decisions in the Company. Then what will happen to the economic interest of the preference shareholders who have invested their money in as much as the equity shareholders invested. Considering all these implications, 10% of the issued share capital is taken as qualification. The Petitioners have raised a point saying that today these Petitioners shareholding will become net value of Rs. 1 lakh crores, therefore, this investment being miniscule in the net worth of the Company, it cannot be considered for determination of qualification u/s 244 of the new Act. If that is the case, how much these Petitioners invested as equity in this Company? It was only Rs. 7 crores and odd. When economic interest is taken into consideration, the benchmark is how much investment has gone from the shareholders. It is not how much the net worth of the Company is at the time of filing the Company Petition. Moreover, the Respondents' Coun....
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.... will get cause of action, for which a special jurisdiction need not be conferred upon a civil court, because Civil Procedure Code developed on the background of common law on the premise that inherent powers have been endowed upon a civil court to remedy the wrong unless it is expressly or impliedly barred by law. But over a period of time, special courts have come into existence. Wherever it has been mentioned that jurisdiction is conferred upon tribunal, it has to work within the frame work that has been assigned by the Statute, even the equity that is canvassed as given to NCLT under section 242 is also a jurisdiction given by the statute, therefore, it can't be said that it is an equity jurisdiction, so Tribunal can do anything by applying its discretion, here we must make it clear that Tribunals or for that matter courts are to exercise the discretion judicially to the extent permitted, not beyond. 63. When it has been said that jurisdiction is conferred upon a particular Tribunal with overriding effect, then cause of action obviously will not arise before civil court, because remedy is not available before civil court, therefore it has to be understood that accrual of c....
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.... of civil court. This is the precise reason that drove the English Court to hold in Foss v. Harbottle that the action of the minority shareholders on company's behalf is hit by Proper Plaintiff Rule and Majority Rule. This case has become precursor to carve out a unique, exceptional and extraordinary jurisdiction to minority shareholders to pursue on company's behalf when the treatment against the minority is unfair and devoid of probity laced with bias, these words unfair prejudice and oppression are defined nowhere. If this case is dealt with as much as any other civil case, nothing is per se apparent to say that action of majority is hit by repugnancy. If the case law over this doctrine is gone into, it must be clear that treatment to minority or any member or members shall not only be differential to minority, but also discriminatory qua minority or complaining members to defeat the economic interest of them. Since this special jurisdiction is carved out beyond repugnancy, will it require higher standard of proof to pass this remedy than to pass a remedy in ordinary civil case? Obviously it must be more, because this relief is not based on ordinary civil law; it is all ....
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....as remained incognito when it has come to drafting and approval of section of 244. Moreover, had the legislature felt that the oppression or prejudice remedy is to be limited or intended to be on class basis, why a separate provision has been brought under section 245 of the Act 2013. When the legislature consciously has not introduced this class concept in section 244 or even in section 241, instead of digging deep down why it has not been legislated in the way we felt right, if we start looking for the objective of the section, then our doubts will disappear and we get an answer to the legislative intent the petitioners doubting. 69. If at all it is felt necessary to find out the purpose of the section, first of all that section or part of the section has to be read and try to elicit meaning out of it, if really it does not give meaning, then we must see the heading of the section, then it must be related to the sections proximate to it. We must take the meaning what section is giving, if you want to get some other meaning for which section is not meant, or section is not giving, then howsoever hard we try, we can't get the meaning other than what it gives. On seeing the pet....
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....244. When the legislature has taken every care in creating rights on class basis, had the legislature intended to introduce class concept, they would have introduced the same in Section 244 as well. But that has not been done. Therefore, there is no point in the argument of Petitioners saying that 'members' mentioned in Section 244 has to be read as 'class of members'. (3) That we do not find any merit in the argument of the Petitioners' Counsel saying that since the redeemable preference shareholding be shown as debt in the Accounting Treatment, preference shareholding cannot be equated with the equity shareholding to invoke Section 244, because showing in Accounting Treatment for the convenience of Accounting Treatment will neither change the concepts of Company Law nor have any bearing on the mandate of the Statute. (4) That we do not find any merit in the argument of the Petitioners' Counsel saying that by introduction of waiver clause, Section 244(1)(a) has become directory, because by making waiver clause as an exception to 244(1)(a), the qualification clause has become further strong for two reasons - one, by introduction of word 'namely', i....