NISCHINTAPUR TEA CO. LTD Versus SUBRATA SEN & ORS ( Calcutta High Court) – An application under Section 397 and 398 of the Companies Act, 1956 (hereinafter ‘the Act’) was filed in this court way back in 1985. It was numbered as C.P. No. 252 of 1985. It is still pending. The petitioner in that application was one Amita Sen, who has since died. In her place, her three sons Subrata, Ranjan and Sanjay are now substituted as petitioners being petitioner nos. 1.(a), (b) and (c).Two applications were heard by me for several days. They were most seriously contested. One of them (C.A. No. 686 of 2010) was an application by the company for dismissal of the Section 397, 398 application. One Ajit Kumar Agarwal, opposed this application as an intervenor. It was strenuously argued on his behalf that the company should not be granted the prayers. Neither, the petitioners in the Section 397, 398 application should be allowed to withdraw from the application. He made an application (C.A. No. 721 of 2010)for dismissal of C.A. 686 of 2010.
The company and the petitioners in the Section 397, 398 application were together on one side. They were represented by a battery of counsel. One set of counsel represented the company. Another set represented the petitioners. Ajit Kumar Agarwal, was also very well represented.The learned counsel for the company and the petitioners submitted that Ajit Kumar Agarwal had no locus standi to make the application. Similar submission was made on behalf of Ajit Kumar Agarwal that the alleged application by the Company was made by an incompetent person. It was submitted that Sujit Kumar Chatterjee, who affirmed the affidavit in support of the Judge’s Summons, on behalf of the company had no competence to do so. Therefore, the application for dismissal made by the company was incompetent and should be dismissed. This point had to be decided by the court first. So much so, that at the close of submissions a separate application was made by Ajit Kumar Agarwal being C.A. No. 541 of 2011 imploring me to decide the question first when I delivered the judgment. At the time of close of arguments, I reserved judgment in that application also to be delivered with the judgment in the other two applications.
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
C.A. No. 686 of 2010
In Connection With
C.P. No. 252 of 1985
In the matter of :
NISCHINTAPUR TEA CO. LTD.………………Applicant
– vs –
SUBRATA SEN & ORS.…………… Respondents
– AND –
C.A. No. 721 of 2010
C.A. No. 541 of 2011
In Connection With
C.P. No. 252 of 1985
In the matter of :
SUBRATA SEN & ORS.……….………Petitioners
NISCHINTAPUR TEA CO. LTD. & ORS.………….………Respondents.
In the matter of :
AJIT KUMAR AGARWAL ……………….…….Intervenor
C.A NO. 686 OF 2010
C.A. NO. 721 OF 2010
Heard on : 20.04.2011, 17.05.2011, 18.05.2011,19.05.2011, 15.06.2011.
Judgment on: 5th July, 2011.
I.P. MUKERJI, J.
An application under Section 397 and 398 of the Companies Act, 1956 (hereinafter ‘the Act’) was filed in this court way back in 1985. It was numbered as C.P. No. 252 of 1985. It is still pending. The petitioner in that application was one Amita Sen, who has since died. In her place, her three sons Subrata, Ranjan and Sanjay are now substituted as petitioners being petitioner nos. 1.(a), (b) and (c).
Two applications were heard by me for several days. They were most seriously contested. One of them (C.A. No. 686 of 2010) was an application by the company for dismissal of the Section 397, 398 application. One Ajit Kumar Agarwal, opposed this application as an intervenor. It was strenuously argued on his behalf that the company should not be granted the prayers. Neither, the petitioners in the Section 397, 398 application should be allowed to withdraw from the application. He made an application (C.A. No. 721 of 2010)for dismissal of C.A. 686 of 2010.
The company and the petitioners in the Section 397, 398 application were together on one side. They were represented by a battery of counsel. One set of counsel represented the company. Another set represented the petitioners. Ajit Kumar Agarwal, was also very well represented.
The learned counsel for the company and the petitioners submitted that Ajit Kumar Agarwal had no locus standi to make the application. Similar submission was made on behalf of Ajit Kumar Agarwal that the alleged application by the Company was made by an incompetent person. It was submitted that Sujit Kumar Chatterjee, who affirmed the affidavit in support of the Judge’s Summons, on behalf of the company had no competence to do so. Therefore, the application for dismissal made by the company was incompetent and should be dismissed. This point had to be decided by the court first. So much so, that at the close of submissions a separate application was made by Ajit Kumar Agarwal being C.A. No. 541 of 2011 imploring me to decide the question first when I delivered the judgment. At the time of close of arguments, I reserved judgment in that application also to be delivered with the judgment in the other two applications.
THE SECTION 397, 398 APPLICATION
The whole dispute between the parties concerns the Company, Nischintapur Tea Company Ltd. It was incorporated on 12th February, 1950. Sometime in 1985, the said application under Section 397, 398 of the Act was made by Amita Sen. She stated that she was the registered holder of 3472 equity shares of the company which was 15.10% of its total paid up capital. She had the support of other shareholders who held 7.11% of the total paid up capital. They were six in number and held 1635 shares as stated in paragraph 7(i) of the Section 397, 398 petition. Therefore, the petitioner and the shareholders supporting her had together 5107 shares.
As I have been able to understand, on reading the very voluminous petition, running into almost 100 pages, that 3240 shares were alleged to be beneficially belonging to the deceased husband of the petitioner but were held by the respondent Nos. 2,4 and 5 ‘benami’ and that there should be appropriate orders regarding those shares. There were also allegations that those in control of the company had not rectified its register by substituting the names of the legal heirs of some other deceased shareholders who held 5940 equity shares. It is true, that in paragraph 7(iii) of the petition it is stated that out of those 5940 equity shares, 3800 belonged to Maithan Das Agarwal, the father of the intervenor, Ajit Kumar Agarwal. It is also mentioned in paragraph 28(i) and (ii) of the petition that the company had not registered 2021 equity shares purchased by Om Prakash Agarwal, the brother of Ajit. These allegations are in the midst of a web of very complex allegations against those controlling the company, of not maintaining and rectifying the share register, of not accounting for the call money paid, crediting shares as fully paid when call money was due on them and so on.
THE INTERIM ORDER AND THEREAFTER.
This application was moved on 21st June, 1985. It appears that the application was moved ex-parte. On the same day an order was passed, inter alia, directing status quo to be maintained “with regard to the shareholding of the respondent No. 1(the company) until further orders”. The application was made returnable the following Monday with liberty to ask for further interim orders.
There was also an order in terms of prayer ‘h’ of the Judge’s Summons. It appears that in prayer ‘h’, the Special Officer appointed by this order was directed to hold an Extra Ordinary General Meeting of the company for the purpose of election of an independent board of directors after rectifying the share register and to entrust its management with a newly elected board.
Nothing seems to have happened after that. I was not told as to what happened on the returnable day of the application. I do not think that any step was taken by the Special Officer for rectification of the share register or to convene the extraordinary general meeting, as, if, that had been done, it would certainly have been pointed out to me.
The petitioner Amita Sen died. Her four sons Subrata, Ranjan, Sanjay and Sudipto were substituted as petitioners. Subsequently, Sudipto also died on 16th April, 2006. Only his death was recorded and his name deleted from the cause title, as he was a bachelor and the surviving petitioners were his heirs.
It appears that the matter rested like this for many, many years. More than two decades passed after the order dated 21st June, 1985. Nothing was done to prosecute this proceeding.
JUDGE’S SUMMONS DATED 12TH APRIL, 2007
Then on 5th April, 2007, a Judge’s Summons was taken out by the petitioners in the Section 397, 398 application that the application (C.A. No. 252 of 1985) “be treated as withdrawn and all applications connected thereto as not pressed”. That application was numbered as C.A. 302 of 2007. It was a four paragraph application. It narrated the death of Amita Sen and substitution of her four sons as petitioners. It also mentioned the death of Sudipto Sen. It was said that the petitioners were not interested in proceeding with the Section 397, 398 proceedings (C.P. No. 252 of 1985).
This application C.A. No. 302 of 2007 came up for consideration before brother Sanjib Banerjee J. on 12th April, 2007.
The following order was recorded on that day:
“The Court:- It is submitted on behalf of the applicants that the matter need not be proceeded with.
Company Application No. 302 of 2007 is dismissed as not pressed.
There will be no order as to costs.
Urgent Photostat certified copy of this order, if applied for,be made available to the parties concerned upon compliance with all requisite formalities.”
CONTEMPORANEOUS & SUBSEQUENT EVENTS
According to records, some events occurred contemporaneously. The first was in 2006. Ajit Kumar Agarwal took out proceedings in the Company Law Board (C.P. No. 582(IIIA)/ERB/2006) for rectification of the share register of the Company, under Section 111A of the Act. There it was contended by him that, but for the wrongful acts of the persons in control of the Company, he would have 7761 shares and more than 33% of its share capital. He also stated that the Section 397, 398 proceedings were pending. According to him the application for withdrawal had been dismissed as not pressed and not the Section 397, 398 proceedings.
Secondly, the petitioners had much earlier started negotiations with another person for transferring their shares in the Company, management of the tea garden and so on. They entered into a Memorandum of Understanding on 26th February, 2007 for that purpose. It is said that during continuance of these negotiations, the above application for the withdrawal was filed. It also appears that pursuant to such memorandum of understanding the Board of Directors of the Company was reconstituted. Now, these directors allegedly informed the petitioners that the said 397, 398 proceedings were shown as pending in the records of the High Court.
Furthermore, assuming that the Section 397, 398 application was pending, early in 2010 Ajit Kumar Agarwal filed an application in those proceedings, which was numbered as C.A. 40 of 2010, for being added there as a party.
Immediately after that, two of the petitioners namely Subrata and Sanjoy took out another judge’s summons for correction of the order dated 12th April, 2007 so as to record that by that order C.P. No. 252 of 1985 and all connected applications had been dismissed as not pressed and not as recorded. Hence, necessary clarification from the Court was sought. This application was numbered as C.A. No. 53 of 2010.
Both these applications were heard in great detail and disposed of by a very elaborate judgment and order, made on 11th March, 2010 by brother Sanjib Banerjee J. His Lordship refused to correct the records of the Court for, inter alia, the sheer delay in making the application for correction. Hence, C.A. No. 53 of 2010 was dismissed. The application of Ajit Kumar Agarwal (C.A. No. 40 of 2010) was also dismissed on the ground that Ajit’s right in the Company was pending adjudication before the Company Law Board in the Section 111A proceedings and his prayer had to “await the result in the Company Law Board matter.”
I will read the material parts of his Lordship’s judgement:
“The essence of the matter is as to whether the court intended to dismiss the petitioner or permit the withdrawal thereof but erroneously recorded the dismissal of the application. If it can be said that the intention was one and the recording another then there would be a mistake that can be rectified at any time, subject to equitable considerations as rights having accrued to others on the basis of the erroneous recording. But if it does not appear that the order intended to dismiss the petition and erroneously recorded the dismissal of the application, it may not call for a correction of the records.
Rule 88(2) of the Companies (Court) Rules instructs that a dismissal or a withdrawal of a petition under Sections 397/398 of the Companies Act needs to be made upon application of mind. The order of April 12, 2007 was a run of the mill of order of dismissal that does not reveal any application of the mind to the matter as it ought to have if it were intended to dismiss or permit the withdrawal of proceedings under Sections 397/398 of the Act. The order was immediately available though an application for the certified photocopy thereof appears to have been made only on May 8, 2007. There is no reason why it did not dawn upon the surviving petitioners that the order was not as had been sought for a period of nearly thirty months from the date of obtaining an authenticated copy thereof. There are other factors that also weigh in this assessment. CA No. 302 of 2007 was a bare-bodied application which did not indicate that the heirs of the deceased substituted petitioner were on record. If it was such application for dismissal that had been pressed on that day, such lacuna would have been discovered in considering whether leave as sought ought to be granted. The agreement for sale of shares that has been detailed at paragraph 5 of the affidavit in support of the summons in CA No. 53 of 2010 had not been pleaded in the affidavit in support of the summons in CA No. 302 of 2007. Paragraph 4 of the withdrawal application merely asserted that the applicants did not wish to proceed or continue with the petition, but gave no reasons therefor.
The court would have sought the reasons for withdrawal if the order intended to permit the withdrawal of the petition.
…….It is not altogether impossible that it was the withdrawal application that was not pressed. Paragraph 5 of the affidavit in support of the summons in CA No. 53 of 2010 has a line to the effect that the parties to the memorandum of settlement referred to therein intended to have the subsisting interim order vacated with retrospective effect. If it were so, the withdrawal application ought to have disclosed it and specific attention of the court should have been drawn to it for the unusual order that was necessary to give effect thereto. But the withdrawal application was silent on such aspect and the court’s leave was also not sought to condone any transfer of shares in the company that may have taken place during the currency of the injunction. Clearly, the order of April 12, 2007 was not intended to dismiss the petition or allow the withdrawal thereof but was intended to imply only what is apparent therefrom. …..CA No. 53 of 2010 is dismissed but without any order as to costs.
Though the applicant in CA No. 40 of 2010 argues that on an application to be imp leaded as a party the applicant does not have to conclusively demonstrate a right but a mere assertion of right is enough, since such applicant’s locus qua the company is pending adjudication before the Company Law Board in the proceedings under Section 111A of the Act, his prayer has to await the result in the Company Law Board matter. CA No. 40 of 2010 is dismissed with liberty to the applicant to apply afresh if he is found to be entitled to be a shareholder in the company. There will be no order as to costs.”
Shortly before filing these two applications, on 27th January, 2010 Ajit Kumar Agarwal had instituted a very comprehensive suit in this High Court against, inter alia, the Company and the petitioners claiming inter alia the following reliefs:
“a) A decree of declaration declaring that
i)The forfeiture of 3000 shares particulars whereof are given in paragraphs 11, 12, 13, 25 and 36 against the plaintiff and/or his predecessors in interest are bad;
ii) The transfer, if any, of 3000 shares particulars whereof are given in paragraphs 11, 12, 13, 25 and 36 to parties other than the plaintiff and/or his predecessors in interest hereinabove are bad and void;
iii) The transfer of 2021 shares as pleaded in paragraphs 14, 15, 16, 26 and 37 in favour of persons other than the plaintiff and/or his predecessors in interest are bad and void;
iv) Non-registration and non-transmission of 3000 equity shares as pleaded in paragraphs 11, 12, 13, 25 and 36 herein-above and 2021 equity shares as pleaded in paragraphs 14, 15, 16, 26 and 37 herein above as also 800 shares as pleaded in paragraphs 8, 11, 12 and 34 herein above and 1940 shares as pleaded in paragraphs 2, 4 and 11 in favor of the Plaintiff are bad and void;
vii) Particular actions taken regarding transfer of shares allotments of fresh shares, appointment of Directors and/or additional Directors after June 21, 1985 are bad and void particularly in view of the pleadings as pleaded in paragraphs 19, 20 and 21 herein above;
viii) The authorized share capital of the Defendant No.1 is limited to 3500 equity shares and the issued share capital of the Defendant No.1 is limited to 22, 991 equity shares;
ix) That the Plaintiff is the holder of 7761 equity shares of the Defendant No.1 amounting to 33.76% of the total issued share capital;
c) A decree of perpetual injunction restraining the Defendants and/or each one of them:-
i) To issue any further share capital of the Defendant No.1;
ii) To increase the share capital of the Defendant No.1;
iii) To rely upon transfer of shares and/or allotment of any shares as pleaded in paragraphs 19 and 20 of the present pleading and also the actions or documents as pleaded in paragraph 21 of the present pleading;
iv) To act as the share holder and/or Directors of the Defendant No.1 in any manner whatsoever to conduct any business of the Defendant No.1 including calling of Annual
General Meeting Extraordinary Annual General Meeting, appointment of auditors, filing books of Accounts and any other documents required to be filed with the Registrar of Companies and/or other statutory authorities under the provisions of the Companies Act, 1956 and/or any other law for the time being in force;
v) From operating any bank accounts in the name of and/or in relation to and/or connection with the Respondent No.1;
vi) From causing any interference of the Plaintiff’s right to and enjoyment of 33.76% shares of the Respondent No.1 including the shares particulars whereof are given in paragraph 2 of the present pleading.
d) A decree of mandatory injunction appointing a Receiver/Administrator and/or Special Officer directing the person concernedi) to Register and transmit 33.76% shares particulars whereof are given hereinabove in favour of the Plaintiff;
ii) to allow the Plaintiff to act as 33.76% share holding of the Defendant No.1;
He interalia alleged that he held 7762 shares, which was 33.76% of the total issued share capital of the Company. The defendants had violated the status quo order made on 21st June, 1985 by wrongfully increasing the capital of the Company and wrongfully allotting shares, so as to reduce the plaintiff’s holding to a miniscule minority. In aid of that suit two interlocutory applications were heard by sister Patheria J. In the order of 8th February, 2010, Her Lordship noted, inter alia, that according to a document of 1985,
Ajit Kumar Agarwal’s parents had 11.91% shares. His right to claim the entire shares which included his right to the shares, held by his deceased brother, was not established. This is what Her Lordship had to say:
“…………. Although one would be inclined to pass interim orders to protect the right of such shareholder but taking a pragmatic approach and considering the document of 1985 annexed to the petition therefrom, it will appear that the parents of the deceased collectively held 11.91% shares. Such share was to be divided among the legal heirs and representatives of the deceased parents and the percentage that falls to the lot of the petitioner would be lesser than the cumulative shareholding of the deceased parents. Therefore, it would be impossible for the petitioner to defeat the resolution at the meetings held. The petitioner as a legal heir and representative of his deceased parents may have a right to the share of his parents, but for assertion of such right no step was taken by lodging share-scrips and proceedings were filed before the Company Law Board only in 2006. Such proceedings are pending. For non-assertion of rights by the petitioner, prima facie, at this stage, the petitioner is not entitled to any interim orders.
Directions are given for filing affidavits. Affidavit in opposition be filed by three weeks. Affidavit in reply thereto, if any, be filed within two weeks thereafter. Matter to appear in the list six weeks hence.
In GA No. 286 of 2010 similar directions are given for filing affidavits, let CS No. 10 of 2010 be not relegated to the list of undefended suit.”.
From the above judgment and order of 11th March, 2010 of brother Sanjib Banerjee, J., the two petitioners and the company preferred two separate appeals being ACO No. 47 of 2010 connected with APOT No. 188 of 2010 and ACO No. 48 of 2010 connected with APOT No. 189 of 2010, the first appeal being preferred by the company and the second appeal being preferred by the two petitioners in the S.397 and 398 proceedings. Those appeals were dismissed by a common judgment and order made on 5th August, 2010 by the Hon’ble Appeal Court comprising of brothers Pinaki Chandra Ghose and Harish Tandon, JJ. The following was interalia held:
“The ratio laid in the aforesaid judgments are all based upon the fact that there has been a clerical or ministerial mistake in the judgment decrees or orders or there has been an error arisen therein from any accidental slip or omission. Here is a case where the Hon’ble First Court itself recorded that there is no such error, omission or a mistake in recording of the statement of fact of the happing of such state. Such recording of statement is conclusive and neither the lawyer nor the litigant may claim to contradict before the appellate court except before the judge himself (see AIR 1982 SC 1249 (State of Maharashtra Vs. Ramdas Shrinivas Nayak)
We do not find any merit in the instant appeals. Thus, both the appeals being APOT No. 188 of 2010 and APOT No. 189 of 2010 are hereby dismissed.
However, there shall be no order as to costs.”
An appeal was also preferred by Ajit Kumar Agarwal from the said judgment and order dated 11th March, 2010. I am told that such appeal is still pending.
Now, let me mention in short the contentions of the rival parties. These contentions will be dealt with by me in detail as I proceed to analyse the submissions and try to come to my conclusions.
The first and foremost submission on behalf of the applicant Company by Mr. P.C. Sen, learned Sr. Counsel is that there is vested in the petitioners in the Section 397, 398 proceedings who support the applicant an unqualified right to withdraw from these proceedings. The case reported in M/s Hulas Rai Baij Nath Vs Firm K.B. Bass and Co., AIR 1968 SC 111, Shiv Prasad – v – Durga Prasad and another, reported in (1975)1 SCC 405 (para 12) were cited together with Anil Dinmani Shankar Joshi and another – v – Chief Officer, Panvel Municipal Council, Panvel and another, reported in AIR 2003 Bombay 238 (para 4). My attention was drawn to Rule 88 of The Companies (Court) Rules 1959 which states that a S. 397, 398 proceeding could only be withdrawn with the leave of the court. Therefore, the said application for withdrawal was made before this court in April, 2007. Furthermore, Rule 6 of the said Rules was cited. It was submitted that the Code of Civil Procedure substantially applied to withdrawal of such proceedings and that the S.397, 398 proceedings were attempted to be withdrawn according to the provisions contained therein. Moreover, this application has been made further to those provisions.
With regard to the locus standi of Sujit Kumar Chatterjee to sign the affidavit, the learned counsel for the applicant Company and Mr. S.B. Mookerjee, learned Senior advocate for the petitioners submitted that, in the said applications which were heard before brother Sanjib Banerjee, J., the affidavit of Sujit Kumar Chatterjee was relied upon by the petitioners in the Section 397, 398 application and Ajit Kumar Agarwal. There is also reference to such affidavit in the said judgment and order of his lordship made on 11th March, 2010. Therefore, Ajit is estopped from challenging the authority of Sujit Kumar Chatterjee. Moreover, Sujit Kumar Chatterjee was duly authorised by the company to sign the affidavit.
The S.397, 398 proceedings never became an action in rem. No steps were taken in that proceeding after passing of the order dated 21st June, 1985.
Therefore, the said petitioners always had the right to withdraw from that application at any point of time.
Ajit Kumar Agarwal’s father died in 1968. He received, according to his assertion the entire shares of his father and shares from his mother and brother by way of gift on 2nd May, 1975. His mother died in 2000. Therefore, after this long delay he should not be allowed to participate in the proceedings. After the death of his father and the above alleged gift, no steps were taken by him, to claim rights arising out of those events. I may mention that Ajit Kumar Agarwal’s contention is that his father and mother held 800 and 1940 shares respectively aggregating to 2740 shares. They together held more than 11% of the paid up capital of the Company. By virtue of the said gift those shares vested in him together with the shares of his pre-deceased brother.
Mr. S. N. Mookerjee, learned senior counsel, who took over the arguments from Mr. S.B. Mookerjee learned senior advocate cited Sangramsinh P. Gaekwad And Ors. vs. Shantadevi P. Gaekwad (Dead) Through LRS. & Ors. reported in 2005 11 SCC 314 (Para 181) to submit that the interest of the Company from the point of view of the share-holders was the consideration in a Section 397, 398 application and that Ajit Kumar Agarwal had been unable to establish that he was a share-holder of the Company.
Furthermore, he tried to explain the effect of the present status quo order made on 21st June, 1985 which said that status quo of the share-holding of the Company be maintained until further orders. He argued that a status quo order to be effective had to be upon a particular person or a body of persons restraining him or them from doing a particular act or acts, to be enforceable against those persons. He relied on the case of S. Anand Deep Singh vs Smt. Ranjit Kaur & Ors. reported in 1991 Cri.LJ 996 (Paragraph-13).
Mr. Pratap Chatterjee learned senior advocate, assisted by Mr. Pramit Kumar Roy, Barrister-at-Law appearing for the intervenor Ajit Kumar Agarwal submitted that there had been wrongful increase, allotment and transfer of shares of the Company by which Ajit Kumar Agarwal’s share-holding was reduced to .17% in the Company. He submitted that he would be able to prove on the basis of the documents disclosed in this application that he was entitled to the shares of his parents as well as those of his deceased brother. By virtue of such entitlement he was entitled to 7762 shares which were 33.76% of the paid up share-holding of the Company.
Next he submitted that Section 397, 398 proceedings were a representative action. Furthermore, this representative action was sought to be withdrawn by the said petitioners, further to a compromise between them and some third party. In such representative action no compromise would be effected without the leave of the Court under Order 23 Rule 3B of the Code of Civil Procedure. He relied on S. Narayanan And Others Vs Century Flour Mills Ltd. And Others reported in (1985) 3 Company LJ 209 (Mad) (Paragraphs 13 & 14).
It was further submitted that according to admitted records, Ajit’s mother was entitled to 1940 and his father 800 shares in the Company. His father died in 1968. Ajit inherited his shares. His mother transferred her 800 in his favour. Furthermore, his brother, Om Prakash Agarwal now deceased had also transferred his shares to him. These shares were not recorded in the register of the Company, for which he had taken out proceedings under Section 111A of the Act. If these shares were his he would have more than 33% shareholding in the Company as on the date of the status quo order made on 21st June, 1985. Having such share-holding he was competent to prosecute the Section 397, 398 proceeding by being substituted in place of the said petitioners, if necessary.
Mr. Chatterjee cited R. Ramamurthi Aiyar (dead) by L.Rs. vs Raja Vs. Rajeswararao reported in AIR 1973 Supreme Court 643 (Paragraph 12).
It was further contended on behalf of the intervenor that the Company had no locus standi to make the application. Mr. Sujit Kumar Chatterjee had not been authorised by the Board of Directors. He was not the constituted Attorney of the Company. There is no Affidavit-of-Competency made by him.
Furthermore, any increase in shares or any allotment of transfers made in contravention of the status quo Order of this Court dated 21st June, 1985 was void. Mr. Chatterjee showed me the decision in Century Flour Mills Ltd. Vs S. Suppiah and Others reported in AIR 1975 Mad 270 (Para 4, 5 & 10). Such allotment of shares was liable to be cancelled and the parties put back to the position that they were on the date of the status quo order.
He also cited Krishna Kumar Khemka Vs Grindlays Bank P.L.C. And Others reported in (1990) 3 SCC 669 (Para 15) to submit that by acting in violation of the order, no right could be created.
Leave under Rule 88(2) of the said Rules was required for withdrawal of those proceedings. Furthermore, as the proceedings under Section 397, 398 were representative they were like a suit under Order 1 Rule 8 of the Code of the Civil Procedure. Sub-rules 4 and 5 enjoined leave of the Court for withdrawal of such a suit. Order 23 Rule 3B enjoined a compromise in such a suit to be effected only with the leave of the Court. Without leave it was void. Order 23 Rule 1A contemplated transposition of another person in place and stead of the plaintiff. The same principles were applicable to these proceedings. Without leave of the Court, withdrawal should not be allowed. Secondly if withdrawal was allowed by the Court, the intervenor should be transposed as the petitioner.
Moreover it was submitted that by the order dated 12th April, 2007 the application for withdrawal was dismissed by the Court. By the Order dated 11th March, 2010 it refused to correct that order so that it could mean withdrawal of the Section 397, 398 proceedings. That was affirmed by the said order of the Appeal Court dated 5th August, 2010. In these circumstances the issue had become res judicata and should not be allowed to be re adjudicated.
The learned counsel for the intervenor also showed me M/s. World Wide Agencies Pvt. Ltd. and another – vs – Mrs. Margarat T. Desor and others, reported in AIR 1990 SC 737 and Dhol Chand Vs Ganpat Lal And Anr. reported in 1957 Raj 283 to contend, that being an heir of his parents, Ajit Kumar Agarwal could be considered as a legal representative and should be allowed to prosecute this proceeding. The learned counsel further submitted, citing Rajahmundry Electric Supply Corporation Ltd. vs. A. Nageshwara Rao and Others reported in AIR 1956 SC 213 (Para 6) that in the facts and circumstances of this case it was just and equitable that the Company be wound up. In those circumstances the Section 397, 398 application was still maintainable to be continued by the intervenor.
Discussion and Conclusion:
The first point is regarding the maintainability of this application. Did Sujit Kumar Chatterjee have the competence to sign the affidavit in support of the Judge’s Summons on behalf of the Company? He described himself to be its constituted attorney. Let me try to look at the law. Order III Rule 1 of the Code of Civil Procedure prescribes that an agent can do any act for a party. Such agent according to Rule 2 is interalia a constituted attorney. Now Order VI Rule 14 provides that a pleading is to be signed by a party or a person duly authorized by him, in case a party cannot sign it due to a good cause. Then again Rule 15 of the same Order permits a party or a person duly acquainted with the facts to verify a pleading. Order XXIX relates to suits by or against Corporations. It says that a pleading on behalf of a corporation is to be signed by any director or secretary or principal officer of the corporation. Chapter VII of the Original Side Rules stipulates that the rules embodied in Order VI of the Code will apply to plaints. Chapter IX relating to written statement provides that the rules of Chapter VII will apply. Rule 8 of Chapter VII however, lays down that any person other than a party, verifying a plaint must file an affidavit, which by practice is known as the affidavit of Competency.
The objection is that Sujit kumar Chatterjee is not the Constituted attorney and has not filed an affidavit of competency as required by Chapter VII Rule 8. United Bank of India – vs – Naresh Kumar and others, reported in AIR 1997 SC 3 comes to Sujit’s as well the Company’s aid. This case was not even cited from the bar. It holds, that, on a reading of the aforesaid provisions of the Code, a constituted attorney of a Company and even, any officer authorized by the board have the competence to sign a pleading. Moreover, the Courts will be reluctant to defeat a proceeding on the technical ground that a pleading of a corporation has not been signed by the proper person. Even if such act of signing is irregular or the authority not supported by proof, it can be cured by ratification. It says that such ratification can be implied.
The case of State Bank of Travancore Vs. M/s Kingston Computer (I) P. Ltd., reported in 2011 3 JT 66 arose out of a decree in a suit. In the suit the first issue was whether the suit had been signed, verified and filed by a duly authorized person? The Hon’ble Supreme Court in paragraphs 14 and 15 of the judgment did not accept that one Ashoke Kumar Sukla was appointed as a Director of the Company or that any resolution had been passed by the Board of Directors authorizing him to file the suit. Such authority, not being there, the Court refused to recognize a letter of authority to him issued by one Raj Kumar Sukla describing himself as the Chief Executive Officer of the Company. It remarked that such letter of authority to him was nothing “but a scrap of paper” and that no resolution was passed by the Board of Directors.
In that case the Hon’ble Supreme Court was considering the facts as proved by evidence, in a particular suit, where evidence showed that the person filing the suit had no authority. Furthermore, the Company did not ratify his authority, expressly or by implication.
This case is closer to United Bank of India – vs – Naresh Kumar and others, reported in AIR 1997 SC 3 (Supra).
In my judgment, when a proceeding is continuing for a substantially long time, to the knowledge of a Company, and none has come forward on its behalf to challenge the authority of the signatory, such ratification may be implied. Such has happened in this case. Atleast, from the time of proceedings before brother Sanjib Banerjee J, affidavits were being filed by Sujit Kumar Chatterjee on behalf of the Company. No one came forward to challenge his authority. Therefore, there is implied ratification of his authority by the Company and acknowledgment of it by the intervenor. Principles of estoppel would also prevent the intervenor to challenge his authority at this stage.
Therefore, this objection is rejected.
The next point which needs to be disposed of is whether the instant proceedings are representative and whether leave of the Court is specifically required to withdraw them, under the Code of Civil Procedure read with Rule 88(2) of the said Rules? Furthermore, whether the intervenor has the right of transposition?
Section 399(3) of the said Act provides that any member out of a body of shareholders eligible to make an application under Section 397, 398 of the Act may make the application with the consent in writing of the rest. The next part of the paragraph is most important for the purpose of consideration of this issue. It stipulates that having obtained such consent, it can maintain the action for the said body of shareholders and for their benefit. This provision has the same characteristics as Order 1 Rule 8 of the Code of Civil Procedure. Sub-rule 4 says interalia that no part of the claim may be abandoned or the suit be withdrawn without notice to all persons whose interests were being represented. The Court has the power to substitute any person in place of the plaintiff (Sub rule 5). Order 23 Rule 1A provides for transposition of a party in case of a suit being withdrawn. Order 23 Rule 3B goes further to say that any compromise in a representative suit without the leave of Court is void. In this case, no compromise is on record.
The Madras High Court in S. Narayanan And Others Vs Century Flour Mills Ltd. And Others reported in (1985) 3 Company LJ 209 (Mad) held that Section 397, 398 proceedings instituted by a person or persons with the support of others was representative. I respectfully agree with that judgment.
In my judgment, all the above provisions of the Code of Civil Procedure and the said rules will apply to these proceedings.
In view of my finding above that the above Section 397, 398 Company proceedings are representative proceedings, the judgments cited on behalf of the company and the petitioners Shiv Prasad – v – Durga Prasad and another, reported in (1975)1 SCC 405, M/s Hulas Rai Baij Nath Vs Firm K.B. Bass and Co., AIR 1968 SC 111 and Panvel Municipal Council, Panvel and another, reported in AIR 2003 Bombay 238 will not apply as they were not representative proceedings. The dicta of the Hon’ble Supreme Court and the Bombay High Court in the above cases that a suitor has an unqualified right to withdraw proceedings will not apply, because if a proceeding is representative, it represents the interest of the petitioner, as well as all those persons whose interests are sought to be represented. Considering the above law, the consent of those persons who supported the petitioners was the minimum requirement, in the facts of this case, before applying to the Court for withdrawal of the Section 397, 398 application. Nothing has been shown to me that these persons have given their consent. After the consent of these persons, leave as required under Rule 88(2) of the Company Court Rules, could be considered by the Court. Perhaps, that is why the prayer in the Judge’s Summons is for an order of the Court for dismissal of the Section 397, 398 proceedings.
There is no doubt that according to the annual return of the Company up to 29th June, 1985, the father of Ajit Kumar Agarwal had 800 shares and his mother Sarbati Devi Agarwal had 1940 shares. Together they held 2740 shares which were about 11.8% of the paid-up share capital of the Company. Now, by the order dated 21st June, 1985 status quo was ordered regarding the shares.
According to Ajit Kumar Agarwal, in violation of the status quo order, the Company has indiscriminately increased its share capital and allotted shares so as to reduce the share-holding of Ajit Kumar Agarwal to 0.17%. Even at the time of hearing of his application for rectification under Section 111A of the said Act, before the Company Law Board, on 25th April, 2008 it was recorded in an order of the Board that “the valid shares come to 2740 shares.”
It may be mentioned at this point of time that Ajit Kumar Agarwal claims to be the sole heir of his father’s shares, transferee of the shares of his deceased brother Om Prakash Agarwal. He also claims to be the transferee of his mother’s shares which were gifted to him in 1975. Sometime in 2000, his mother died. He claims to be the beneficial owner of the shares held by his father and mother in the Company as also those of his brother.
According to the Company his claim could not be entertained as he could not produce any succession certificate or probate or deed of gift in his favor to establish such right.
But the fact is that the proceedings for rectification of the share register taken out by Ajit Kumar Agarwal is pending in the Company Law Board. So far there is no determination that he is entitled to the entire body of those shares or any part of them. The said suit is also pending in this Court where even after prima facie consideration no order was granted in his favor.
Moreover, his application C.A. No. 40 of 2010 praying to be added in the Section 397, 398 proceedings was dismissed by the said order of this Court against which an appeal is pending. It is said in very plain terms in that order that his application for addition of party in this proceeding has to await the result of the rectification proceedings.
I accept that being a legal heir of his parents, he had a theoretical right to prosecute a Section 397, 398 proceeding relating to a Company where his parents were shareholders (See Dhol Chand Vs Ganpat Lal and Anr. reported in 1957 Raj 283 (Supra) and M/s. World Wide Agencies Pvt. Ltd. and another – vs – Mrs. Margarat T. Desor and others, reported in AIR 1990 SC 737 (Supra). But, in my judgment that right was conditional upon existence of a cause of action in the petition, relating to the deceased and survival of the cause of action when an application or prayer for substitution was made. Furthermore, assertion of the right has to be made at the right time. I will narrate in the subsequent paragraphs how those rights never existed or were abandoned or lost.
I have scrutinized the Section 397, 398 petition. There is nothing in that application, to make me believe that it represented the interests of the intervenor or his parents or his brother. That petition mentioned in Page 12 (paragraphing in the petition is not very simple) that 3800 shares belonged to Maithan Das Agarwal. This was part of the averments that shares belonging to deceased persons were still existing in the records of the Company.
In page 57 of that petition it is mentioned that the intervenor’s brother’s purchase of 2021 equity shares of the Company was not registered. Scrutinising the petition it appears that it related to taking custody of the share scrips of deceased shareholders like the petitioner’s husband M.M. Sen; orders for dealing with ‘benami’ shares of Sen, for recording recent purchase of shares, for recording the death of shareholders, for rectification of the share register on account of such death and for the above purposes. I do not read in that petition even a fragment of the cause of action of the intervenor or of that of his family, as sought to be made out now so as to merit, consideration for his transposition as the petitioner, in those proceedings.
Moreover, the intervenor’s father died in 1968. He claims that his mother and brother transferred shares to him in 1975. His mother died in 2000. Ever since the death of his father in 1968 till 2006 no steps were taken by the intervenor. If he is transposed as a petitioner he will be given the right to prosecute a petition, which he does not now have right to file, by efflux of time.
I am not called upon to adjudicate the purport of the status quo order in this application. In these circumstances there is no need for me to comment on the decision in S. Anand Deep Singh vs Smt. Ranjit Kaur & Ors., reported in 1991 Cri. LJ 996. Neither am I called upon to decide the alleged violation of that order and its effect. So I do not consider Century Flour Mills Ltd. Vs S. Suppiah and Others reported in AIR 1975 Mad 270 (Supra) Krishna Kumar Khemka Vs Grindlays Bank P.L.C. And Others reported in (1990) 3 SCC 669.
Due to technical difficulties, as discussed above, the Court will not be in a position to allow the petitioners in the Section 397, 398 application to withdraw from the application. This application has been pending in the file of this Court for more than 25 years. The cause of action mentioned therein no longer survives. Therefore, using my discretion I order dismissal of this application C.P. No. 252 of 1985. However, the order of status quo may have had far reaching consequences. Therefore, while dismissing the petition I say that any rights which have accrued to any person by reason of existence of the status quo order till today are preserved. C.A. No. 686 of 2010 is allowed to the above extent. C.A. No. 721 of 2010 is dismissed. C.A. No. 541 of 2011 is disposed of accordingly. The status quo order dated 21st June 1985 is discharged.
Urgent certified photocopy of this judgment and order, if applied for, to be provided upon complying with all formalities.
(I.P. MUKERJI, J.)
Mr. Pramit Roy, Bar-at-law, for the intervenor prays for stay of the operation of this judgment and order.
Considering the fact that the status quo order is continuing since 21st June, 1985, there will be stay of this order for two weeks from date to enable the intervenor to avail of his right of appeal.
All parties concerned are to act on a signed photocopy of this order upon the usual undertakings.
(I.P. MUKERJI, J.)