IMPORTANT POINT
The object of prescribing a qualifying percentage of shares in petitioners and their supporters to file petitions under Sections 397 and 398 of the Companies Act is to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company and if the Court is satisfied that the petitioners represent a body of shareholders holding the requisite percentage, it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement.

Headnote:Companies Act, 1956-Sections 397, 398 and 399-Complaints of mis-management and oppression in respect of respondent/company-Proceedings initiated u/ss 397 and 398 of the Act by minority shareholders-Objection as to whether they held the requisite one tenth of the issued share capital of the company u/s 399(1) of the Act when they filed the petition u/s 397 and 398 of the Act-Shares of the company held by two branches of one family-Appellant who filed the petition was described as a petitioner for herself and as trustee for the Family Trust -Settlement between parties that the petitioners will sell their shares to respondents for a value per share-Respondent 8 moved an application challenging the order alleging that she had no knowledge of the compromise-It was contended that appellants did not hold the requisite 10 percent of the issued share capital of respondent/company, therefore petition u/s 397 and 398 was not maintainable-Trust held 1029 preference shares in the company-Authority/consent to file the petition u/ss 397, 398 had been given by the trustees-Whether appellant was authorized to act on behalf of the Trust-(Yes).
       Held : Any Member/or members of a Company may apply under Ss. 397 and 398 of the Act to the CLB complaining of mismanagement or oppression provided such Member or Members have the requisite shareholding as prescribed under Section 399 to do so. (Para 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 petitioners and did they in fact hold the necessary shares? (Para 20)
       The three courts below have concurrently found that the Trust which held the preference shares was not properly represented by Nini Srivastava. This was the only case which the appellant had to meet. Now the respondents contend that in fact it was Vijay Kr. Srivastava who held the 1029 shares and not the Trust and Nini Srivastava did not represent him. Although a passing reference was made to the fact in the counter affidavit filed by the Company as noted above, that was done in the context of denying that Nini Srivastava was a trustee. In our judgment it would not be proper to permit the respondents to raise an issue not argued by them either before the CLB or the High Court and to make out a new case at this stage. To allow a party to take grounds not urged earlier would not only result in taking the other party by surprise but it would deprive such party of any adjudication on the issue by the different courts- a right to which each party is otherwise entitled. It would also place such party at a great disadvantage as no opportunity would have been granted to it to meet the new plea. (Para 22)
       A trustee could act on behalf of others, if there is a clause in the Trust Deed authorizing the execution of the Trust to be carried out by "one or more or by majority of the trustees." 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. 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. (Paras 28 to 30)
       The conclusion is inescapable that the Trustees had expressly authorized Nini Srivastava to file the petition. Additionally, the affidavit of Vijay Srivastava, who is alleged to be the registered owner of the 1029 preference shares, clearly shows that he had expressly consented and authorized Nini Srivastava in his capacity as such trustee to file the proceedings. If the respondents had fairly and squarely raised the issue as to the petition not being consented to by Vijay Srivastava as the registered shareholder of the 1029 shares, it would have been open to the appellants to have relied on this affidavit and if necessary amended the petition. The power to allow such amendments has been expressly granted to the CLB under Regulation 46. (Para 35)
       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 a broad commonsense approach. If the Court is satisfied that the petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement. Substance must take precedence over form. Of course, there are some rules which are vital and go to the root of the matter which cannot be broken. There are others where non-compliance may be condoned or dispensed with. In the latter case, the rule is merely directory provided there is substantial compliance with the rules read as a whole and no prejudice is caused. (Para 48)

JUDGMENT

Ruma Pal, J.-Leave granted.

2. This appeal arises out of proceedings initiated under Sections 397 and 398 of the Companies Act (hereinafter referred to as the Act ) by a group of minority shareholders complaining of mis-management and oppression in respect of the respondent No.1 company M/s. Gwalior Sugar Company Ltd. (referred to as the Company ). The appellants are the unsuccessful petitioners. The primary question to be resolved in this appeal is whether they held the requisite one-tenth of the issued share capital of the Company under Section 399 (1) of the Act when they filed the petition under Ss. 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 is 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 completed and the matter heard from time to time. On 22nd January 1996, CLB issued an order, the relevant extract of which reads thus:

"In view of the close relationship between the parties, we suggested to the counsel for both the sides that they should try to work out an amicable settlement between the parties. The counsel have undertaken to do so. The result of their efforts will be intimated to us on 20th February 1996 at 2.30 p.m."

5. Hearings were adjourned on 22.2.96, 4.3.96 and 15.3.96 when the CLB was informed that compromise talks were in progress. Ultimately on 7.5.96, the CLB passed this order:

"It was agreed by the parties that the petitioners will sell their shares to the respondents for a value per share to be determined by a valuer appointed by us and the value will be binding on all the parties. The parties will approach jointly reputed valuers and suggest an acceptable name for our approval on 30/5/96 at 4.15 p.m."

6. On 10.6.1996, with the consent of the parties, the CLB appointed M/s. Thakur Vaidyanathan Iyer as company chartered accountants, New Delhi to value the shares of the company. On 22.11.96, the chartered accountants valued the shares. As the respondents had reservations about the value, the matter was re-heard by the valuer who reconsidered the submissions of the parties. Ultimately, the value of the equity shares was given by the valuer as Rs. 6340 per share. The valuation for a preference share of Rs. 100/- was fixed at par. The respondents objected to this valuation also. The contention of the respondents was that the other disputes relating to family properties in possession of the petitioners should be settled also. After various hearings the matter was fixed for hearing on 6.11.1998.

7. On 3.11.1998, the respondent No.8, Mrs. Radhika Srivastava, moved an application challenging the order dated 10.6.1996. In the application it was alleged that the respondent No.8 had no knowledge of the compromise and that she had been kept in the dark about the settlement arrived at. She prayed for recall of the order dated 10.6.1996. It was also said that the calculation of 10 of the petitioner s shareholding in the Company was made only with regard to the equity share capital

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2004 Supreme(SC) 1352

Cases Referred (5)