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1998 Supreme(All) 1213
IN THE HIGH COURT OF ALLAHABAD
A. K. Banerji, J.
SCIENTIFIC INSTRUMENT CO.LTD. - Appellant
Versus
RAJENDRA PRASAD GUPTA - Respondents
Company Appeal 1 Of 1998
Decided On : 11/02/1998
R.K.AGARWAL, R.P.AGRAWAL
The maintainability of a petition under Section 397/398 of the Companies Act, 1956, requires a detailed inquiry into the facts and circumstances of the case, especially when there are serious disputes regarding the genuineness of share certificates and the authority of the share transfer agent to issue them.
Headnote:
COMPANIES ACT - SECTION 399 - MAINTAINABILITY OF PETITION - SHARE TRANSFER AGENT - AUTHORITY - SHARE CERTIFICATES - GENUINENESS - REGISTER OF MEMBERS - EVIDENCE - PRELIMINARY OBJECTION - COMPANY LAW BOARD - JURISDICTION - FACTUAL INQUIRY - DELAY - COSTS.
Fact of the Case:
A petition was filed before the Company Law Board (CLB) under Section 397/398 of the Companies Act, 1956, alleging oppression and mismanagement by the board of directors and majority shareholders of the appellant company. The appellant raised a preliminary objection that the petition was not maintainable as the petitioners did not satisfy the requirements of Section 399 of the Act, which requires a petition to be filed by shareholders holding not less than 1/10th of the issued share capital or constituting not less than 1/10th of the number of members or 100 members, whichever is less. The CLB held that the petitioners were prima facie shareholders as they possessed share certificates issued by the company's share transfer agent, AMI, and that the onus was on the appellant to prove that AMI was not authorized to act as such. The appellant challenged this order before the High Court.
Finding of the Court:
The High Court held that the CLB erred in applying the provisions of Section 84 of the Act, which makes a share certificate prima facie evidence of title, without considering the serious dispute raised regarding the genuineness of the share certificates and the authority of AMI to issue them. The court also held that the CLB should not have proceeded with the petition without first determining the maintainability issue, especially in light of the complicated questions of law and facts involved. The court set aside the CLB's order and directed it to hear the petition afresh, including the question of maintainability, after the appellant filed its reply to the petition.
Issues: 1. Whether the CLB erred in holding that the petitioners were prima facie shareholders based solely on their possession of share certificates issued by AMI, without considering the dispute regarding the genuineness of the certificates and AMI's authority to issue them. 2. Whether the CLB should have proceeded with the petition without first determining the maintainability issue, given the complicated questions of law and facts involved.
Ratio Decidendi: 1. The court held that the CLB erred in applying the provisions of Section 84 of the Act without considering the serious dispute raised regarding the genuineness of the share certificates and the authority of AMI to issue them. The court noted that allegations of conspiracy, forgery, and manipulation had been made, and that the question of maintainability required a detailed inquiry. 2. The court also held that the CLB should not have proceeded with the petition without first determining the maintainability issue. The court noted that the questions involved were complicated and required a detailed inquiry, and that it was not appropriate to decide the issue solely on the basis of the fact that some of the petitioners held 50 shares each.
Final Decision: The High Court set aside the CLB's order and directed it to hear the petition afresh, including the question of maintainability, after the appellant filed its reply to the petition.
( 1 ) BY means of the above-noted appeal filed under Section 10f of the Companies Act, 1956, the scientific Instruments Company ("the appellant", in short) has, inter alia, prayed for setting aside the impugned order dated March 5, 1998, passed by the Company Law Board, Principal Bench, new Delhi ("the Board", in short), on the ground that the petition under Section 397/398 of the companies Act, 1956 ("the Act", in short), was not maintainable.
( 2 ) THE relevant facts in brief, as stated by the appellant, are that the appellant which is a public limited company, appointed A. M. I. Computers (I) Limited as its registrar to the public issue and a memorandum of understanding (MOU) was executed on September 12, 1996, in respect thereof. Though the board of directors resolved on February 24, 1997, to appoint the firm, A. M. I. Computers (I) Limited ("ami" in short), as its share transfer agent, however, the said resolution was not given effect to and no formal agreement or MOU was executed in respect of the said resolution. After the assignment of AMI was completed the appellant asked the said firm to return all the unused stationery and other records of the company which were in their possession as registrar of public issue but the same were not returned. Consequently, a complaint had to be lodged with the Securities and Exchange Board of India (SEBI) against AMI and a civil suit was also filed before the civil court at Mumbai, seeking appropriate orders for obtaining back the documents and records from the said firm. At this stage, the respondent, rajendra Prasad Gupta ("the respondent", in short), alleging consent of 113 persons filed a petition under Section 397/398 of the Act before the Board alleging certain acts of oppression and mismanagement against the appellant and its directors. The said company petition was registered as C. P. No. 92 of 1997. The appellant which was arrayed as respondent in the said petition filed preliminary objections before the Board, inter alia, raising the objection that the persons filing the petition are not the members of the company and the requirement of Section 399 of the Act has not been fulfilled, hence the petition deserves to be dismissed solely on the said ground. As the Board directed the appellant to produce the original record such as register of members, minutes book, etc. , to substantiate its objection the required original records were also produced before the Board by the appellant. The present respondent, Rajendra Prasad gupta, who had filed the petition, did not file any reply to the preliminary objection. However, the same was filed by one Manoj Kumar Agarwal, on behalf of one Sikkim Investment Limited contesting the allegations made by the appellant in its preliminary objection. By the impugned order dated March 3, 1998, the Board held that the petition was not hit by Section 399 and the same was maintainable. Consequently, a direction was issued to the present appellant to file its reply to the petition by April 1, 1998, and rejoinder to the same, if any, to be filed by May 1, 1998. Aggrieved against the said order the appellant has preferred the above-noted appeal before this court under Section 10f of the Act, as already noted above.
( 3 ) I have heard Shri R. P. Agarwal, learned counsel for the appellant and Shri R. K. Agarwal, counsel for the respondent. I have also perused the affidavits filed by the appellant and the respondent in this case before this court. I have also carefully perused the impugned order passed by the Board.
( 4 ) AS already noted above, the respondent had filed the petition before the Board under Section 397/398 alleging the consent of 113 shareholders and further alleging oppression and mismanagement by the board of directors and majority shareholders of the appellant. A preliminary objection was raised to the same by the appellant in terms of Section 399 of the Act alleging that out the 113 shareholders who are alleged to have
