Omni India Limited And Others vs Balbir Singh
1989 Latest Caselaw 168 Del

JUDGMENT

G.C. Jain, J.

1. This appeal under section 483 of the Companies Act, 1956 (hereinafter to be referred as "the Act"), is directed against the order of the learned company judge dated May 6, 1988.

2. S/Sh. Balbir Singh and Pramod Kumar Churamani, respondents herein, filed a petition (Company Petition No. 27 of 1988) under sections 397 and 398 of the Companies Act, 1956, against the appellants complaining of mismanagement and oppression at their hands. They sought (a) removal of appellants Nos. 2 to 8 from the board of directors and appointment of an administrator to run the affairs of the company with or without the help of the present respondents for a period of two years; (b) an order directing an investigation into the affairs of appellant No. 1 company and directing the Central Government to appoint Inspector(s) for investigation since incorporation and giving further directions to fix civil liability; for making untrue statements in the prospectus and for causing loss to the company on account of mismanagement ; (c) a declaration the Sh. Balbir Singh, respondent No. 1, was continuing as whole-time working director and entitled to salary, etc., in terms of the appointment letter dated June 2, 1987, and his alleged cessation as director was mala fide, illegal ; (d) declaration that all or any meeting of the board of directors held without the present respondents was null and void ; and (e) declaration that the loans taken from Punjab and Sind Bank unauthorisedly were a personal liability of Brig. T. S. Grewal and Sh. M. S. Grewal, appellants Nos. 2 and 3 in this appeal. In the alternative, they sought an order of winding up of the appellant company, M/s. Omni India Limited.

3. By the impugned order, the learned company judge admitted the petition and appointed Justice P. N. Khanna (retired judge of this court), as chairman of the board with direction to give a report regarding the working of the said company within one month or earlier, if possible.

4. The contention of the appellants in this appeal is that the petition filed by the respondents under sections 397 and 398 of the Act was not maintainable as it did not satisfy the requirements of section 399 of the Act and rule 88 of the Companies (Court) Rules, 1959. Section 399 and rule 88 read as under :

"399. Right to apply under sections 397 and 398. - (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 number of its members.

(2) For the purposes of sub-section (1), where any share or shares are held by two or more persons jointly, they shall be counted only as one member.

(3) Where any members of a company are entitled to make an application in virtue of sub-section (1), any one or moir of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.

(4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the court under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfillled.

(5) The central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the court dealing with the application may order such member or members to pay to any other person or persons to the application."

5. Rule 88. Petition under section 397 or 398. - (1) Where a petition is presented under section 397 or 398 on behalf of any members of a company entitled to apply under section 399(1), by any one or ;more of them, the letters of consent signed by the rest of the members ;so entitled authorising the petitioner or petitioners to present the petition on their behalf, shall be annexed to the petition, and the names and addresses of all the members on whose behalf the petition is presented shall be set out in a schedule to the petition and where the company has a share capital, the petition shall state whether the petitioners have paid all calls and other sums due on their respective shares. Where the petition is presented by any member or members authorised by the Central Government under section 399(4), the order of the Central Government authorising such members or members to present the petition shall be similarly annexed to the petition. A petition under section 397 shall be in Form No. 43, and a petition under section 398 shall be in Form No. 44.

(2) A petition under section 397 or 398 shall not be withdrawn without leave of the court, and where the petition has been presented by a member or members authorised by the Central Government under sub- section (4) of section 399, notice of the application for leave to withdraw shall be given to the Central Government."

6. A persual of section 399(1)(a) makes it clear that in the case of a company having a share capital, a petition under section 397 or 398 can be filed by (i) not less than 100 members, or (ii) not less than 1/10th of the total number of members ; of (iii) any member or members holding not less than 1/10th of the issued share capital of the company provided the applicant o;r applicants have paid all calls and other sums due on their respective shares. Under sub-section (3) of section 399, out of the members, out of the members mentioned in sub- section (1)(a), any one or more members can make an application on behalf or for the benefit of all of them after obtaining the consent in writing of the rest. Rule 88., inter alia, requires that the letter/letters of consent signed by the rest of the members shall be annexed to the petition.

7. In the present case, the company, M/s. Omni (India) Ltd., had admittedly a share capital. It is also not disputed that the respondents who filed the petition under sections 397 and 398 do not hold one-tenth of the issued share capital. They have, however, annexed the petition consent letters of 129 members.

8. Most of the consent letters are in these words :-

"Dear Mr. Balbir Singh,

I consent to your proposed action that you want to take against the management of OMNI INDIA LIMITED for the gross mismanagement of the company's affairs and the oppression of members.

You are aware I hold ------- shares of the company.

Yours faithfully, and

"Dear Mr. Balbir Singh,

I consent to your proposed action against the management of OMNI INDIA LIMITED for the gross mismanagement of the company's affairs and the oppression of members.

Your are aware I hold ------- shares of the company.

Yours faithfully,

9. Mr. S. C. Malik, learned counsel appearing for the appellants contended that the expression "consent in writing" used in sub-section (3) of section 399 implies that the writing itself should indicate that the persons who had affixed their signatures had applied their minds to the question before them and had given their consent to certain action being taken. The consent letters annexed with the petition, argued learned counsel, do not show that the signatories thereto had applied their minds or knew about the nature of allegations sought to be made or the reliefs sought to be claimed in the petition and, therefore, the petition was no maintainable.

10. The word "consent", according to Webster's Third New International Dictionary, inter alia, means compliance or approval of what is done or proposed by another, acquiescence, permission, capable, deliberate and voluntary agreement to or concurrence in some act or purpose implying physical and mental power and free action. According to Mozley and Whiteley's Law Dictionary, Tenth Edition, "consent" presupposes physical power, mental power and a free and serious use of them. Examined in the light of these meanings and keeping in view the purpose for enacting section 399, we have no doubt, that the expression "consent in writing" used in section 399(3) means conscious approval of the action proposed to be taken by the persons to whom the consent has been given. We are also of the view that the writing itself should indicate that the persons who have signed the consent letters have applied their minds to the question before them and on application of minds have given consent for a certain action. Under section 402 of the Act, the court, on an application under sections 397-398 and without prejudice to the generalities of the powers of the court, can grant several types of reliefs. In this background, lit is necessary that the writing must indicate that the members giving consent had applied their minds to the allegations to the made and the reliefs sought to be prayed for in the proposed action and have given their consent for seeking those reliefs. This is apparent from the expression "consent in writing". Had the intention been that the writing should not indicate the application of mind, then there was no necessity for using the term "consent in writing" and mere word "consent" could have been used. To hold that the requisite members can give their consent in writing without applying their minds or without considering the nature of the allegations and the reliefs sought would frustrate the entire purpose of section 399 which prohibits the filing of an application under section 397 or 398 of the Act, inter alia, by not less than 100 members.

11. The view taken by us finds support from the decisions of the Allahabad High Court, Madras High Court and Madhya Pradesh High Court. In Makhan Lal Jain v. Amrit Banaspati Co. Ltd. , a learned single judge held (at page 102 of 23 Comp Cas) :

"The expression 'consent in writing' obviously implies that the writing itself lf should indicate that the persons who have affixed their signatures have applied their minds to the question before them and have given their consent to certain action being taken."

12. In M. C. Duraiswami v. Sakthi Sugars Ltd. [1980] 50 Comp Case 154, a Division Bench of the Madras High Court examined the expression "consent in writing" in the background of the requirements of sections 397 and 398. On such examination, it was held (at page 158) :

"From the very nature of the case, 'consent in writing' contemplated in section 399(3) of the Act is a consent to the filing of a particular petition with a particular allegation for a particular relief under section 397 or section 398 or under both. There cannot be a blanket consent like a certain member or members consenting to some other member filing a petition under section 397 or section 398 or under both."

13. Similar view was taken by the Division Bench of Madhya Pradesh High Court in Kilpest Pvt. Ltd. v. Shekhar Mehra [1987] 62 Comp Case 717.

14. Mr. Satish Chandra, learned counsel appearing for the respondents, who had filed the petition under sections 397 and 398 relied on the decision of a learned single judge of the Calcutta High Court in In re Bengal Laxmi Cotton Mills Ltd. [1965] 35 Comp Case 187. In this case, it was held that under section 397 or 398 or rule 88, there is nothing to indicate that the members giving their consent should have the petition before them. There is no quarrel so far as this proposition is concerned. These observations, however, do not support the claim of the respondents at all in the present case. The contention advanced before the court in that case was that before the members give their consent, they should have the petition before them and for that purpose the petition should be prepared will in advance of the consent in writing given by the members. It was this contention which was negatived. Learned counsel for the appellants do not challenge its correctness. However, on the basis of this decision, it cannot be said that the members giving their consent in writing need not apply their minds to the question before them. In our view, the term "consent in writing" necessarily implies the application of mind regarding the particular allegations and the relief sought and prayed for. A mere consent for the proposed action against the management for the gross mismanagement of the company affairs and oppression of members, in our view, was not sufficient. The consent letters annexed to the petition were, therefore, of no value.

15. There is another fatal defect. Rule 88 of the Companies (Court) Rules, 1959, requires that letters of consent signed by the rest of the members authorising the petitioner to present the petition on their behalf shall be annexed to the petition and the names of the members on whose behalf the petition is presented shall be stated in a schedule to the petition and where the company had a share capital, the petition shall state whether the petitioners have paid all calls and other sums due on their respective shares. It further provides that the petition under section 397 shall be in Form No. 43 and the petition under section 398 shall be in Form No. 44. The respondents, along with their petition, filed a Schedule of the presentees. This schedule, however, does not fulfill the requirement of rule 88 and Forms Nos. 43 and 44. Rule 88 in terms requires that where a company has a share capital, the petition, shall state whether the petitioners have paid all calls and other sums due on their respective shares. This has also to be stated in column 5 of Forms Nos. 43 and 44. In the schedule annexed to the petition, in the fifth column, the value of the shares has been given. It was nowhere stated whether all the calls and sums due on shares have been paid. Learned counsel for the respondents contended that this has been indicated in para 4 of the petition. We have examined para 4 of the petition. This does not indicate whether the members who had given their consent had paid all calls and other sums due on their respective shares.

16. It was also submitted by learned counsel for the respondents that the expression "consent in writing" should be given its plain meaning, i.e., a mere consent in writing. The court should not interpret this expression so as to indicate the application of mind regarding the allegations and reliefs claimed. Reliance was placed on Killick Nixon Ltd. v. Bank of India [1985] 57 Comp Case 831. A Division Bench of the Bombay High Court in that case adopted the observations of Chagla C.J., in Walchandnagar Industries Ltd. v. Ratanchand Khimchand Motishaw [1953] 23 Comp Case 343 (Bom) (at p. 348) :

"It is never a safe guide for a construction of a section merely to look at certain anomalies that may result from a particular interpretation being put upon the section. It is true that a court must, if it can possibly do so, give an interpretation to a section which would not result in difficulties in the working of that section. But, on the other hand, many legislations, and specially modern legislations, have been so framed and so drafted that some anomaly or other is inevitable, and when such anomalies present themselves to the court, the duty of the court is to draw the attention of the Legislature to the removal of these anomalies and not to remove them itself by giving a construction contrary to the intention of the Legislature."

17. We have examined these observations. They are of no help to the respondents. The expression "consent in writing" is to be examined keeping in view the purpose of section 399. The interpretation which we have adopted is not likely to result in difficulties in the working of section 399.

18. It was also contended that the Act has not laid down any form for consent letters whereas the form regarding notice to the creditors to give any proof (Form No. 27) for notice convening meetings (Form No. 36), form of proxy (From No. 37) and from relating to the report of the term (Form No. 39) have been given. We have not been able to understand as to how this contention helps the respondents. From this contention, it cannot be said that the members giving their consent can simply say that they give their consent to the proposed action without applying their minds and without knowing what were the allegations sought to be made and what were the reliefs sought to be prayed for in the petition.

19. It was further contended that the consent letters annexed with the petition amounted to creating an agency in favor of the respondents who filed the petition. Reliance was placed on the provisions contained in sections 183, 184 and 185 of the Contract Act. Section 183 provides that any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent. Section 184 provides that no person who is not of the age of majority and of sound mind can become an agent. Section 185 says that no consideration is necessary to create an agency. These provisions are of no help at all. The consent letters in question cannot be treated as letters creating agencies. In any case, there is no such plea in this petition.

20. Learned counsel for the respondents then contended that even if the petition was not maintainable, the court could grant relief as granted in the impugned order. Reliance was placed on Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Case 743 (SC). We have examined the judgment. The judgment nowhere provides that the relief as granted in the impugned order can be granted even when the petition is not maintainable.

21. It was also argued that the appellants had waived their right to file the appeal inasmuch as they had participated in the proceedings held by Justice P. N. Khanna who had been appointed chairman of the board under the impugned order. Reliance was placed on the following observations of Sarkar J. in Bhau Ram v. Baij Nath Singh , at page 1330 :

"It seems to me that the objection to the maintainability of this appeal must succeed. The appellant, having taken the benefit of the decree, cannot now challenge its validity."

22. In our opinion, the contention is frivolous. The observations of the Supreme Court would apply only to a case where the appellant had taken any benefits under the impugned order. In this case , the appellant had not taken any benefit. In compliance with the impugned order, Justice P. N. Khanna visited the office of the company and submitted his report dated June 24, 1988. There is nothing to indicate that any benefit was taken by the appellants. The appellants were bound to obey the impugned order so long as it was in force. Justice P. N. Khanna had been appointed the chairman of the board and for that reason, the appellants were bound to allow him inspection, etc. There is no question of any waiver or estoppel.

23. In conclusion, we hold that the petition filed by the respondents under sections 397 and 398 was not maintainable.

24. As noticed above, the appellants had also prayed for winding up of the company as an alternative relief. The application for winding up, in our view, could continue. It was not much disputed by learned counsel for the appellants that a joint application under section 397 and 398 and for winding up could be filed. The impugned order was, however, liable to be quashed because the plea of winding up was an alternative plea and there was nothing to indicate whether the impugned order appointing Justice P. N. Khanna as the chairman of the board was on the basis of the averments relating to the prayer under sections 397 and 398 or otherwise.

25. In conclusion, we accept the appeal and set aside the impugned order. Learned company judge would treat the petition as a petition for winding up only and dispose of it according to law. The appellants