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High Court of Calcutta
I.P. Mukerji, J.
Murat Viniyog Ltd. – Appellant
Versus
Bijay Kumar Kajaria – Respondent
A.P.O. No. 371 of 2010; A.P.O.T. No. 514 of 2010 with A.C.O. No. 144 of 2010
Decided on : Jun 15, 2011
COMPANIES ACT - SECTION 397, 398 - SHAREHOLDING QUALIFICATION - Locus standi of Petitioners - Share transfer dispute - Company Law Board's jurisdiction in determining share qualification - Principles discussed.
Fact of the Case:
The case involved a dispute within a family-owned business, Murat Viniyog Ltd., between the majority and minority shareholders. The minority shareholders filed an application under sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement by the majority. The majority challenged the minority's locus standi to maintain the action, claiming that they did not have the requisite shareholding qualification as per section 399 of the Act.
Finding of the Court:
The Company Law Board dismissed the majority's application, holding that the minority had the requisite share qualification. The majority appealed this decision to the High Court.
Issues: 1. Whether the Company Law Board had the jurisdiction to determine the shareholding qualification of the petitioners in a section 397 and 398 proceeding involving a private dispute between shareholders regarding alleged transfer of shares. 2. The extent to which the Company Law Board could exercise its jurisdiction when faced with allegations that the qualification of the petitioner or petitioners to apply had been done away with by an act of the company or its alter ego.
Ratio Decidendi: 1. The Company Law Board should not entertain a private dispute between shareholders regarding holding or transfer of shares, or an ordinary dispute between a shareholder or director and the company, in a section 397, 398 proceeding. 2. The Company Law Board can determine the correct shareholding under section 399 in a section 397, 398 proceeding if the company, through those in control of it, is guilty of reducing the shareholding of a group of shareholders by illegal allotment of shares or by illegal increase of its unauthorized share capital and thereafter wrongful allotment of those shares. 3. In determining the share qualification, the Company Law Board should first go by the records of the company. 4. If the petitioners allege that shareholding was manipulated by those in control of the company, the Company Law Board can go into it. 5. If the petitioners allege that another group of shareholders has defrauded them by forging the share transfer forms and that the other group is the alter ego of the company, the Company Law Board should ask the Company to produce properly executed transfer deeds lodged with them to effect change of shareholding in its register. 6. If there are no executed transfer deeds lodged with the company and the minority had more than 10% holding in the company, the Board should entertain the company petition until the majority could bring an Order of the Civil Court that the minority had less than 10% shares. 7. If the transfer deeds had been forged or forged and submitted subsequently, the Company Law Board would consider the register of the company as correct and dismiss the company petition with liberty reserved to the minority to file a fresh petition as and when their right to sue was established in a proper civil forum.
Final Decision: The High Court set aside the impugned order of the Company Law Board and remanded the application to the Board for reconsideration and a fresh order in accordance with the principles discussed in the judgment. The Board was expected to dispose of the application within eight weeks from the date of communication of the order.
I.P. Mukerji, J.
1. ONCE again a dispute in a small business family has come to this Court by way of an appeal from an Order of the Company Law Board. The family involved is the Kajaria family. Some members of this family who are respondents in this appeal made an application to the Company Law Board under section 397 and 398 of the Companies Act, 1956, being C.P.No.18 (Kol) of 2009 complaining of oppression and mismanagement by some other members. The family concern involved was Murat Viniyog Ltd.
2. THE appellant which was the first respondent filed an application before the Board, C.A. No. 503 of 2009 complaining that the petitioners before it did not have the requisite share qualification to maintain the action. On a very small point of procedure to be adopted to deal with that application an appeal came before me, filed by the appellant herein, being A.P.O.T 408 of 2010. I disposed of that appeal on 15th July 2010 by giving some directions to the Company Law Board to deal with the above application filed by the appellant. The group represented by the appellant and the proforma respondents in the appeal will be called the majority and the group represented by the respondents excluding the private respondents will be called the minority when such description is called for. This description is only for convenience and is not to be treated as a finding. Otherwise, the parties are described according to their description in the cause title of the section 397 and section 398 petition.
3. THIS application challenging the locus standi of the minority to file an application before the Company Law Board was dismissed by the Tribunal on 16th August, 2010. The consequence of this dismissal order is that the Company Law Board will now proceed to hear the application on merits.
4. THE majority is aggrieved by this Order. Their point of view is that since the minority does not have the locus standi to maintain the Section 397, 398 application before the Company Law Board, it cannot go into the merits of the dispute. Now I will go into the details of the application. The whole dispute between the parties concerns section 399 of the Companies Act, 1956. This section specifies the class of members who can maintain an application under section 397 and 398. It inter alia states that one hundred members or l/10th of the members of a company whichever is less or holders of not less than l/10th of the issued share capital of the company can apply. Anyone member with the consent of others so as to fulfill the above requirement may also make the application.
5. ACCORDING to the majority, the minority at the time of filing of the section 397, 398 application did not have more than 6% of such share holding in the company. ACCORDING to the majority Bijay Kumar Kajaria, being the petitioner No. 1 before the Company Law Board had sold 37,750 shares of this Company Murat Viniyog Ltd. in the Financial Year 2007-2008. To be more specific, these shares were sold on 8th June, 2007. It was disclosed in his income-tax return for the Assessment Year 2008-2009. It was signed by the petitioner No. 1. Various statements like Balance Sheet, Profit and Loss Account, Computation Sheets and so on being documents accompanying the return are relied on by the majority. ACCORDING to one of such statements these shares were acquired in 1987 and sold on the aforesaid date.
6. SIMILAR return for the same financial and assessment years were placed to show that Uma Kajaria, the petitioner no.2 sold 15,000 shares on 21st June, 2007, 5,000 of which were acquired by her in 1987 and 10,000 in 1984. These shares were sold to the respondent Nos. 4 and 6 in the Company proceedings. Furthermore, these transfers have been recorded and registered by the Company and its register rectified accordingly. After giving effect to such transfers, the minority is left with 6% shares in the Company. Hence according to the majority they cannot maintain the proceeding under section 397 and
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