TaxTMI 
TaxTMI 
TaxTMI 
2006 (8) TMI 652
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....ons, with a view to bringing to an end the matters complained of in the petition. 2. Shri Rakesh Sanghi. learned Counsel. while forcefully advocating his plea that an application under Section 397/398 would be maintainable. notwithstanding the requirements prescribed under Section 399. submitted: • The respondent Nos. 4 & 5. being brothers are promoters of the Company. The second respondent company is a group company of the respondent Nos. 4 & 5 and the third respondent company is subsidiary company of the first respondent company. The respondent Nos. 4 & 5 generated a huge sum of ₹ 10 to 12 crores by way of public issue of equity shares of the Company. but diverted the entire amount to their group companies. namely the respond....
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....ere form. Some rules are vital and go to the root of the matter; they cannot he broken; others are only directory and a breach of them can be overlooked provided there is substantial compliance with the rules read as whole and provided no prejudice ensues; and when the legislature does not itself state which is which judges must determine the matter and exercising a nice discrimination, sort out one class from the other along broad based, commonsense lines • The Supreme Court while dealing with the interpretation of statutes in Shreenath v. Rujesh held that "In interpreting any procedural law, where more than one interpretation is possible, the one which curtails the procedure without eluding the justice is to he adopted The proc....
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....intainable in view of the embargo contained in Section 399 of the Act. Section 399 dealing the right to apply for relief in cases of oppression or mismanagement reads thus: (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) in the case of a Company not having a share capital, not less than one-fifth of the total ....
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.... and (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members, shall have the right to apply under Section 397 or Section 398. It is. therefore, far from doubt that Section 399 stipulates minimum qualifications, which members should possess such as their numerical strength or the extent of their share capital. Sub-section (3) of Section 399 provides that any member or more of them having obtained the consent in writing of the rest may make the application under Section 397/398 on behalf and for the benefit of all of them. Section 399 engrafts an important exception to this rule of competence to make an application under Section 397/398. The exception lies in the special dispensation....
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....sent letters of members as well as documents required to be annexed to petitions relating to the exercise of powers in connection with prevention of oppression or mismanagement is not mandatory, but merely directory. Thus, this decision of the apex court does not go in aid of the petitioners. In this connection beneficial reference is invited to Mahendra Singh Rathore v. Rajput Hotel ami Resorts P. Ltd. (1998) 1 C.L.J 160. wherein it has been held that the applicant, while applying under Section 397/398 must hold the requisite number of shares at the time of filing the petition. While this is the legal position, the petition would be dismissed even if his shareholding is increased subsequent to filing of the application. Therefore, the plea....