Salil Kumar Roy Chowdhury, J. - (1.) This is an application by one Puma Investment Limited, a company incorporated under the Companies Act, 1956, and having its Registered Office at No. 33A. Chowringhee Road. Calcutta, alleged to be holding 956 Equity Shares of Rs. 10/- each fully paid up in the Capital of Andhra Steel Corporation Ltd.
(2.) The petition is signed and verified by Promod Kumar Mittal, a son of Mohan Lal Mittal, the Defendant No. 3 in the suit. The suit was filed by the Bank in 1977 inter alia for a decree for Rs. 4,43,41,209.59 P. and also for a declaration of charge under an agreement on hypothecation in respect of the goods mentioned in the Deed of Hypothecation, the sale of the said hypothecated goods, appointment of Receiver etc. In the said suit an interlocutory application was made and Receiver was appointed over the Undertaking the Defendant No. 1 Company, Andhra Steel Corporation Ltd. of its Dunkuni Unit. The plaintiff bank also filed a winding up application in 1978 in this Court for realisation of its dues which was not the subject matter of the present suit. Both the suit and the winding up petition by the plaintiff bank are pending. In 1977 the Defendant No. 3, Mohan Lal Mittal instituted a proceeding under Sections 397-98 of the Companies Act, 1956, relating to the management of affairs of the said Defendant No. 1 Company, Andhra Steel Corporation Limited, and various interim orders were made from time to time in the said proceeding. It is alleged by the applicant, purna Investment Limited, through the said Promod Kumar Mittal, the son of Mohan Lal Mittal, that the Defendant No. 1 company, Andhra Steel Corporation Limited, did not file its Balance Sheets after the year ending 31st March, 1975. As such, the petitioners are unaware of the real state of affairs of the company. By a consent order passed in the Sections 397-98 application on the 25th May, 1977, an Extraordinary General Meeting of the Defendant No. 1 Co., Andhra Steel Corporation Limited, was directed to be convened and held for the purpose of election of Directors. The said Extraordinary General Meeting was eventually held on the 12th July. 1977. In the said meeting the petitioners, Purna Investment Limited and various other members of the said Andhra Steel Corporation Limited, participated in the voting. At the said meeting those persons who were representatives of various Financial Institutions including the plaintiff bank were unanimously elected as Directors of the Defendant No. 1 Co. Besides the said six persons, four other persons after hot contest were alleged to be elected on the basis of the report of the Chairman of the meeting appointed by this Court by the said consent order dated 25th May, 1977. The said report of the Chairman has been challenged by Mohan Lal Mittal group in the pending Sections 397-98 application pursuant to a liberty given by the Appeal Court order dated 23rd Apr. 1979. It is alleged that the said four persons belong to the other camp of Mohan Lal Mittal and were elected by a slender majority of votes controlled by the alleged delinquent management of the said Andhra Steel Corporation Limited. It is alleged that on the 22nd May, 1980, Puma Investment Ltd. came to know from M/s. M. G. Poddar, Advocate-on-Record of Mohan Lal Mittal. that the plaintiff bank was trying to put certain terms of settlement in the suit as also in the Extraordinary Suit No.......... of 1980 (Dena Bank v. Andhra Steel Corporation Limited) and in the pending winding up proceedings, and the petitioners are alleged to have succeeded in obtaining a copy of the proposed terms of settlement forwarded by the plaintiff bank's Advocate-on-Record inter alia to the said M/s. M. G. Poddar by its covering letter dated 2lst May. 1980, and the alleged two copies of the said terms of settlement are annexed to the petition. It is alleged that on the 23rd May, 1980, when the parties to the suit tried to put in certain terms of settlement (sic) intervened through its Counsel and made submissions successfully opposing such terms being put in wherein it is alleged that the Court was pleased to direct the plaintiff bank to make a formal application for the purpose of recording the terms of settlement in view of the serious controversies involved in this matter and the dispute raised to such terms being put in inter alia by the said petitioner. Puma Investment Limited, and also by the Defendant No. 3, Mohan Lal Mittal. Pursuant to such leave the present application was made by the petitioner who state that they are members of the Defendant No. 1 company and as such, vitally interested in the management of its affairs which have been carried on in a manner most detrimental to the interest of the defendant No. 1 company and its minority shareholders including the petitioner. It is stated in the petition that if the terms of settlement are permitted to be put in it would most prejudicially affect the interest of the defendant No. 1 company and the interest of the minority shareholders including the said petitioner, Purna Investment Limited. In para 9 of the petition some of the alleged infirmities of the formal application were put in the terms of settlement and to pass a decree on the compromise inter alia (1) the proposed terms of settlement are alleged to have been approved by the Managing Committee of the said Defendant No. 1 Company, Andhra Steel Corporation Limited, constituted by an order of the Appeal Court dated 26th July 1977. The said order of the Appellate Court is annexure 'B' to the petition and are at pages 44, 45 and 48. By the said order of the Appeal Court the Board of Directors was restrained from acting as a Board but they were deemed to be constituting a Committee of Management. It was submitted that the said Committee of Management has no power to approve the proposed terms of settlement by which it is alleged that substantial part of the Undertaking of the Defendant No. 1 Company being the said Dunkuni Unit was proposed to be sold virtually as a gift to one Grand Steel Alloy Limited which is alleged to be a Concern of one Shiv Kumar Agarwalla, the brother-in-law of Ratan Kumar Mittal, one of the brothers of Mohan Lal Mittal, who is alleged to be in the camp of I.S. Mittal, the defendant No. 4 in this suit who is alleged to be responsible for the mismanagement of the Defendant No. 1 company. The said Grand Steel Alloy Limited has been recently incorporated on or about 11th Sept. 1979 having its Registered Office at No. 7 Kiran Sankar Roy Road, Calcutta-1, with a nominal capital of Rs. 7,000/-, (2) it is alleged that the proposed term of settlement is the sale of the Dunkuni, Unit of the Defendant No. 1 company although lying closed since last few years, it is a very valuable asset and forms part of the substantial Undertaking of the Defendant No. 1 company and, therefore, it is hit by Section 293 (1) (a) of the Companies Act, 1956, which requires consent of the General Body of members of the Defendant No. 1 company and no such General Meeting was held or even proposed to be convened and, therefore, the terms of compromise are illegal, (3) the Defendant No. 1 Company through its said Committee of Management has purported to enter into an agreement with the plaintiff bank for sale of the said Dunkuni Unit to the said Grand Steel Alloy Ltd. on the basis of Cash Purchase, Money to be advanced by the plaintiff bank and it is alleged that such agreement is proposed to be recorded by putting in the terms of settlement, it is submitted that such agreement is invalid, illegal, inoperative and ineffectual by reason of singular absence of all powers of the Committee of Management to enter into such agreement. (4) that in the plaint leave under Order 2 Rule 2 has been obtained in the suit regarding the plaintiff bank's alleged right under equitable mortgage of immovable properties of the Defendant No. 1 company situated at Dunkuni and Bangalore outside the jurisdiction of this Court. Such immovable propperties are not the subject matter of the above mentioned suit. The Defendant No. 1 company under the proposed terms of settlement is proposing to dispose of the Dunkuni Unit and is further proposing to affect the immovable properties of the Defendant No. 1 company at Bangalore by proposing to create a charge over such immovable properties at Bangalore as security for payment of the part of the decretal dues of the plaintiff bank under the proposed terms. Therefore, this Court has no jurisdiction to record such terms of settlement as it purports to affect immovable properties outside the jurisdiction of this Court, (5) the proposal to dispose of the Dunkuni Unit of the Defendant No. 1 company by private treaty without public auction is unfair, improper and in any event would not enure for the benefit of all, (6) it is alleged that the Defendant No. 3 Mohan Lal Mittal, the father of Promod Kumar Mittal, who has verified the petition on behalf of the said Purna Investment Pvt. Ltd. has not agreed to sign the said terms of settlement which was attempted to be put in on the 23rd May, 1980. Therefore, Order 23 Rule 3 of the C. P. C. has no application as consent of all the Defendants is required for the proposed terms of settlement. On these grounds it was submitted that leave should be granted to the petitioner Purna Investment Pvt. Ltd. to intervene and various orders of injunction to be issued as prayed for in the prayers.
(3.) Mr. R.C. Nag, appearing with Mr. Ahin Chowdhury, for the petitioner, Purna Investment Pvt. Limited, submitted that the shareholder has a right to intervene in this matter as being a party interested in the company's welfare and benefit. Mr. Nag cited a passage from Okeck on Modern Corporate Law, an American Book Article 1596, page 668 where rights of a share-holder vis-a-vis the company's interests are summarised. The decision of the Supreme Court referred to is Mrs. Bacha F. Guzdar v. Commr. of Income-tax. Bombay, where Gulam Hassan, J, observed in para 7 at p, 77 as follows:-- "That a shareholder acquires a right to participate in the profit of the company may be readily conceded but it is not possible to accept the contention that the share holder acquires any interest in the assets of the company....... .........A Shareholder has got no interest in the property of the company though he has undoubtedly participated in the profit if and when the company declares to divide them........................ The company is a juristic person and is distinct from 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. .................. 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 that on buying share, 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 interest 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.";