Madras High Court
Harikumar Rajah vs Icici Bank Ltd on 21 February, 2025
Author: Mohammed Shaffiq
Bench: Mohammed Shaffiq
CRP No.3623 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 21.02.2025
CORAM
THE HON'BLE MR.K.R.SHRIRAM, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE MOHAMMED SHAFFIQ
CRP No.3623 of 2009
Harikumar Rajah : Petitioner
versus
1.ICICI Bank Ltd
Anna Nagar Branch,
A-78, Plot No.3211 D,
Third Avenue, Anna Nagar,
Chennai 600 102
2.M/s.Sovereign Dairy Industries Ltd.,
rep. By its Directors,
having office at No.7, ECL Home Town,
Numbal 600 077 : Respondents
Prayer: Petition filed under Article 227 of the Constitution of India against
the order dated 23.05.2008 passed by the Chairperson, DRAT, Chennai, in
MA No.131 of 2007.
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CRP No.3623 of 2009
For Petitioner : Mr.T.R.Rajagopalan,
Senior Counsel
for Mr.V.Venkadasalam
For Respondent No.1 : Mr.AR.Karthik Lakshmanan
for Mr.L.Palanimuthu
For Respondent No.2 : Mr.R.Sankaranarayanan,
Senior Counsel,
for Mr.V.Perumal
ORDER
(Order of the Court was made
by the Hon'ble Chief Justice)
Petitioner is aggrieved by an order dated 23.05.2008 passed by the
Debt Recovery Appellate Tribunal, Chennai.
2. Petitioner had approached the Debts Recovery Tribunal, Chennai
for three reliefs, viz.,
(a) to implead petitioner as one of the
parties in the original application that was filed by
respondent No.1 against respondent No.2;
(b) to set aside the sale certificate dated
10.1 1.2003; and
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(c) to restrain one M/s.A.S.Shipping
Agencies Pvt. Ltd from alienating or encumbering
the property purchased until the applications were
disposed of.
3. DRT, by an order dated 27 April 2007, dismissed the application.
DRT held that petitioner cannot utilise the proceedings before DRT to
adjudicate certain corporate and/or civil rights. DRT further held that the
proceedings in the case before DRT have come to an end and claim has
already been adjudicated. DRT held it has no jurisdiction and petitioner
may approach the appropriate forum under the Companies Act.
4. Against this order, an appeal was filed before the DRAT which was
dismissed by order dated 23 May 2008, impugned in this petition. DRAT
also added that petitioner had no locus.
Assailing this order, the present petition is filed.
5. Petitioner is a shareholder of respondent No.2. Petitioner is
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aggrieved by the fact that respondent No.2 sold a land to A.S.Shipping
Agencies Pvt. Ltd, at a throwaway price, which according to petitioner was
very valuable. According to petitioner, land ad-measuring, approximately,
20.36 acres was sold by a private treaty for a paltry sum of Rs.65 lakhs,
when the land could have fetched in excess of Rs.5.65 crores. It was also
petitioner's case that he has filed CMA No.288 of 2003 before this Court
against an order passed by the Company Law Board and if petitioner
succeeds in the said CMA, the Board of Directors will be replaced and
hence, the Directors who agreed for sale of the land, would not have had
any power to act on behalf of the company or to alienate any property of
the company.
6. The said CMA No.288 of 2003 has been dismissed by us in a
separate order passed today.
7. It is settled law that rights of a shareholder are:
(a) to elect directors and thus to participate
in the management through them;
(b) to vote on resolutions at meetings of the
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company;
(c) to enjoy the profits of the company in
the shape of dividends;
(d) to apply to the Court for relief in the
case of oppression;
(e) to apply to the Court for relief in the
case of mismanagement;
(f) to apply to the Court for winding up of
the company; and
(g) to share in the surplus on winding up.
(Life Insurance Corporation Of India vs Escorts Ltd. & Ors)1 .
8. Whether a shareholder buys a share of the assets of a company
proportionate to the number of shares he has purchased, came up for
consideration about 70 years ago in Bacha F. Guzdar vs Commissioner Of
Income-Tax, Bombay2. The Court held that the company is a juristic person
and is distinct from the shareholders, and it is the company that owns the
property and not the shareholders. The Court went on to hold that there is
1 1986 (1) SCC 264, 326
2 AIR 1955 SC 74
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nothing in the Indian law to warrant an assumption that a shareholder who
buys shares, buys any interest in the property of the company, which is a
juristic person entirely distinct from the shareholders.
Paragraph 7 of Bacha F. Guzdar reads as under:
“7. It was argued by Mr. Kolah on the
strength of an observation made by Lord Anderson
in Commissioners of Inland Revenue v. Forrest(1),
that an investor buys in the first place a share of
the assets of the industrial concern proportionate
to the number of shares he has purchased and also
buys the right to participate in any profits which
the company may make in the future. That a
shareholder acquires a right to participate in the
profits of the company may be readily conceded
but it is not possible to accept the contention that
the shareholder acquires any interest in the assets
of the company. The use of the word 'assets' in the
passage quoted above cannot be exploited to
warrant the inference that a shareholder, on
investing money in the purchase of shares,
becomes entitled to the assets of the company and
has any share in the property of the company. A
shareholder has got no interest in the property of
the company though he has undoubtedly a right
to participate in the profits if and when the
company decides to divide them. The interest of a
shareholder vis-a-vis the company was explained
in the case of Chiranjitlal Chowdhuri v. The Union
of India and Others(1). That judgment negatives
the position taken up on behalf of the appellant
that a shareholder has got a right in the property
of the company. It is true that the shareholders of
the company have (1) (1924) 8 T.C. 704,710., (2)
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[1950] S.C.R. 869, 904. The, sole determining
voice in administering the affairs of the company
and are entitled, as provided by the Articles of
Association to declare that dividends should be
distributed out of the profits of the company to
the shareholders but the interest of the
shareholder either individually or collectively
does not amount to more than a right to
participate in the profits of the company. The
company is a juristic person and is distinct from
the shareholders. It is the company which owns
the property and not the shareholders. The
dividend is a share of the profits declared by the
company as liable to be distributed among the
shareholders. Reliance is placed on behalf of the
appellant on a passage in Buckley's Companies
Act, 12th Ed., page 894, where the etymological
meaning of dividend is given as dividendum, the
total divisible sum but in its ordinary sense it
means the sum paid and received as the quotient
forming the share of the divisible sum payable to
the recipient. This statement does not justify the
contention that shareholders are owners of a
divisible sum or that they are owners of the
property of the company. The proper approach to
the solution of the question is to concentrate on
the plain words of the definition of agricultural
income which connects in no uncertain language
revenue with the land from which it directly
springs and a stray observation in a case which
has no bearing upon the present question does not
advance the solution of the question. There is
nothing in the Indian law to warrant the
assumption that a shareholder who buys shares
buys any interest in the property of the company
which is a juristic person entirely distinct from the
shareholders. The true position of a shareholder is
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that on buying shares an investor becomes entitled
to participate in the profits of the company in
which he holds the shares if and when the
company declares, subject to the Articles of
Association, that the profits or any portion thereof
should be distributed by way of dividends among
the shareholders. He has undoubtedly a further
right to participate in the assets of the company
which would be left over after winding up, but not
in the assets as a whole as Lord Anderson puts it.”
(emphasis supplied)
9. This judgment was relied upon by the Apex Court in a recent
matter in BRS Ventures Ltd vs. SREI Infrastructure Finance Ltd and
another3, where paragraph 21 reads as under:
“21. ... Perhaps the reason for including
these two provisions is that it is well-settled that a
shareholder has no interest in the company's
assets. This view has been taken by this Court in
paragraph 10 of its decision in the case of Bacha
F. Guzdar v. Commissioner of Income Tax,
Bombay16, which reads thus:
“10. The interest of a shareholder vis-à- vis
the company was explained in Charanjit Lal
Chowdhury v.Union of India [CharanjitLal
Chowdhury v. Union of India, 1950 SCC 833 at p.
862 : 1950 SCR 869 at p. 904]. That judgment
negatives the position taken up on behalf of the
appellant that a shareholder has got a right in the
property of the company. It is true that the
shareholders of the company have the sole
determining voice in administering the affairs of
3 2024 SCC OnLine SC 1767
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the company and are entitled, as provided by the
articles of association, to declare that dividends
should be distributed out of the profits of the
company to the shareholders but the interest of
the shareholder either individually or collectively
does not amount to more than a right to
participate in the profits of the company. The
company is a juristic person and is distinct from
the shareholders. It is the company which owns
the property and not the shareholders. The
dividend is a share of the profits declared by the
(1955) 1 SCR 876 company as liable to be
distributed among the shareholders.” (emphasis
added)
A holding company and its subsidiary are
always distinct legal entities. The holding
company would own shares of the subsidiary
company. That does not make the holding
company the owner of the subsidiary's assets. In
the case of Vodafone International Holdings BV6,
this Court took the view that if a subsidiary
company is wound up, its assets do not belong to
the holding company but to the liquidator. As
mentioned in the decision, the reason is that a
company is a separate legal persona and the fact
that the parent company owns all its share has
nothing to do with its separate legal existence.
Therefore, the assets of the subsidiary company of
the corporate debtor cannot be part of the
resolution plan of the corporate debtor. ...”
(emphasis supplied)
10. Shri Rajagopalan submitted that it is not petitioner's case that he
has a share in the assets of the company but the company, by selling-off a
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share for a paltry sum much lower than the market value, has acted against
the interest of the company.
1 1. If that is his case, perhaps petitioner should apply to the
appropriate forum for relief, alleging oppression or mismanagement against
the company or its Board of Directors. The route taken by petitioner was not
correct. Of course, this should not be construed as if we are advising
petitioner.
12. Therefore, the view taken by the Debt Recovery Appellate
Tribunal, Chennai, cannot be faulted with. Petition stands dismissed. Since
the dispute is between two siblings, we are not inclined to impose any cost.
(K.R.SHRIRAM, CJ.) (MOHAMMED SHAFFIQ, J.)
21.02.2025
Index : Yes
Neutral Citation : Yes
tar
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To
1.The Chairperson,
Debt Recovery Appellate Tribunal,
Chennai
2.ICICI Bank Ltd
Anna Nagar Branch,
A-78, Plot No.3211 D,
Third Avenue, Anna Nagar,
Chennai 600 102
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THE HON'BLE CHIEF JUSTICE
AND
MOHAMMED SHAFFIQ, J.
(tar)
21.02.2025
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