Aniruddha Bose, J. - (1.) THE Appellants before me are six shareholders of Birla Corporation Limited, (the company). Five of them are private individuals and the sixth Appellant is a company. In this appeal under Section 10 -F of the Companies Act 1956 (the Act), they challenge the judgment and order of the Company Law Board (CLB) passed on 19th October 2009 in a proceeding initiated under Sections 397, 398, 402, 403 and 406 of the Act. This petition was registered as C.P. No. 57 of 2004. In the petition, the Petitioners have alleged various illegal acts on the part of the existing management of the company, and the prayers of the Petitioner centre around preventing the existing management from running the affairs of the company. Before the CLB, the Respondents contested the proceeding, and the main thrust of their defence was that the petition was filed with an oblique motive and this was a proxy war being fought on behalf of the members of the Birla family, referring to the industrial house known in the commercial world by their surname. There is an ongoing probate proceeding in connection with the estate of Priyamvada Devi Birla (PDV) in which some of the members of the Birla family and the Respondent No. 3 are involved as contesting parties.
(2.) IN the judgment under appeal, along with the main petition, several other interlocutory applications were also considered and directions and orders have been issued in those proceedings as well. In the petition originally filed, the five individual Appellants were the Petitioners. Subsequently, the sixth Appellant who was arraigned as Respondent No. 25 in the petition was transposed as a Petitioner. The main petition has been dismissed by the CLB on various grounds, including on the ground of maintainability. In this matter, the Appellants' case has been argued by Mr. S. B. Mukherjee, Mr. Sudipto Sarkar and Mr. P. S. Sengupta, learned Counsel whereas on behalf of the Respondents argument has been advanced mainly by Mr. Anindya Kumar Mitra, Mr. P. C. Sen, Mr. Pratap Chatterjee, Mr. Abhrajit Mitra and Mr. Soumen Sen, learned Counsel. In this order, however, I shall refer to the submissions of the learned Counsel of the respective parties in a composite manner instead of dealing with their submissions individually as there are many overlapping points in their submissions. At the threshold a preliminary objection has been taken by the learned Counsel appearing for the Respondents as regards maintainability of the appeal itself. It has been argued on behalf of the Respondents that the appeal ought not to be admitted since in the judgment under appeal, the CLB has come to a finding that the petition is not maintainable and such finding is based on factual issues. Argument of the Respondents on this count has been that CLB has come to its finding that the petition was filed mala fide, and such finding was finding on fact. Referring to the provisions of Section 10F of the Act, it has been contended that the appeal should not be admitted as no appeal lies against a finding on fact under the aforesaid provision of the Act. In the judgment, (at pages 70 -72) it has been inter alia held: 18. Shri Sarkar argued that as long as the petition has been filed/supported by 100 members, the question of qualitative aspect does not arise. He relied on Shaw Wallace and also on Killick Nixon cases. In Shaw Wallace, the issue raised was that the Petitioners therein held insignificant percentage of shares and therefore they could not maintain the petition when majority shareholders had no complaint. The qualitative issue never arose. As a matter of fact it could not have arisen at all in that case. The Petitioners therein were employees of Shaw Wallace and the Employees Union had complained to the Government about the mismanagement in the company. The government ordered an inspection and on the basis of the inspection report, while the employee shareholders filed a petition under Section 387/398, the government itself filed a petition under Section 408. Since the Petitioners therein were employees of the company itself, they had vital interest in ensuring better management in the company. Further, the petition was essentially a one under Section 398 and a large number of instances in the affairs of the company had been alleged as mismanagement. In so far as the reliance of Shri Sarkar on Killick Nixon case is concerned, it is to be noted that in that case, the transferor of the shares whose name continued in the register of members gave a power of attorney to the transferees to file a petition under Sections 397/398. A challenge was taken that the transferees, not being the members, had no personal interest in the affairs of the company. On this contention the court held "In the present case, there is nothing in Section 397 Or Section 398 To indicate that any special personal skill, judgment or quality of a member is required to be used when a member exercises his right under Section 397 Or Section 398. In a broad sense every person who is required to exercise any right or privilege is required to apply his mind. But this does not disable him from appointing an agent to exercise that right or privilege. In fact, there may be a number of cases where a person concerned may be unable to apply his mind, e.g., an illiterate person who is not aware of the facts or a person who is too ill or infirm to exercise the power. Such persons are entitled to appoint an agent to look after their affairs. It is the agent who will apply his mind to the affairs of his principal and use his own judgment. Members who are given a right to file a petition under Sections 397 And 398 can, therefore, delegate their right to an agent who can exercise that right on their behalf". In this judgment, the statutory provision has been examined in facts of that case. While I do agree that Section 399 does not talk of the quality of a member, I have explained below as to why the quality of the member is necessary in a proceeding under Sections 397/398. 19. In many of the proceedings before this Board, motive had been questioned, I do not remember that in any case, the qualitative aspect, as a point of law had been raised or considered by this Board. Shri Sarkar argued that there is no statutory provision regarding the qualitative aspect of a petition. I agree that Section 399 does not deal with the qualitative aspect. Yet, since in a proceeding under Sections 397/398, this Board exercises equitable jurisdiction with enormous powers, I am of the firm view that while examining the eligibility under Section 399, the qualitative aspect of a member should also be taken into account. It is more so in case of listed companies, as with no marketable lot now in force, any one holding shares could transfer a part of his shares and create 100 members, and file a petition on flimsy grounds just to harass the management or for publicity. 20. In the present case, the Petitioners have not denied any of the facts alleged by the Respondents in regard to the consenters. Shri Sarkar argued that no court can enquire as to how the Petitioners got qualification. I would have given some thought, if the Petitioners had gathered or collected existing members to meet the qualification. However in the present case, 109 members were created, that too, by a single member, who himself had acquired shares only a few days before he transferred the shares to the consenters. Thus it is quite obvious that a single shareholder became 109 shareholders. As a court of equity, this Board cannot shut its eyes when a person creates 100 members only to qualify to file a petition under Sections 397/98. While, as a proposition of law, I do not want to hold that there should be personal interest for the Petitioners, yet, in the present case, the consenters do not have real interests in the affairs of the company as shareholders, but acquired shares only to lend their signatures to enable filing of this petition. Shri Datar relevantly referred to the judgment of the Supreme Court in Gwalior Sugar ( : 2005 1 SCC 172) case, wherein regarding Section 399, the Supreme Court has observed "The object of prescribing a qualifying percentage of shares in the Petitioners and their supporters to file petitions under Sections 397 and 398 is clearly to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company. However, it is of interest that the English Companies Act contains no such limitation. What is required in these matters is a broad common -sense approach. If the court is satisfied that the Petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement". This would show that a petition under Section 397/398 can be filed only by those, even if qualified under Section 399, having some real stake in the company. As I have observed earlier in this paragraph, from the manner, mode and method of acquisition of shares, it is clear that the consenters have no real stake or interests in the company and therefore their fulfilling the requirements of Section 399 is of no consequence. In other words, in real sense, considering the equitable nature of the proceedings under Sections 397/398, it can be held that the Petitioners cannot maintain the petition.
(3.) SINCE objection has been raised on the point of maintainability, I shall refer to the submissions made on behalf of the Respondents first. Reliance has been placed on the decision of the Hon'ble Supreme Court in the case of T. K. Lathika v. Seth Karsandas Jamnadas reported in : 1999 (6) SCC 632 on behalf of the Respondents in support of their contention that such preliminary issue should be decided first, before entering into the merits of the appeal. The other judgment relied on by the Respondents on this count is also a decision of the Hon'ble Supreme Court, in the case of N. V. Srinivasa Murthy and Ors. (Vs. Mariyamma (Dead) By Proposed Lrs. and Ors. (reported in : 2005 (5) SCC 548. It has been argued that the question of maintainability of the petition is a factual issue, and in this regard an order of the CLB in the same proceeding passed on 15th October 2009 has been referred to. In this order it has been observed: In the present case, the allegation is that the petition is a motivated one and for a collateral purpose and instigated by Birla groups and the Petitioners and the consenting shareholders who had acquired shares recently cannot voice any grievance relating to alleged acts of oppression/mismanagement in the past. These issues, I am of the view do not raise any point of law but have raised factual issues.;