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CASE NO.: Appeal (civil)  6951 of 2004

PETITIONER: J.P. Srivastava & Sons Pvt. Ltd. & Ors.

RESPONDENT: M/s Gwalior Sugar Co. Ltd. & Ors.

DATE OF JUDGMENT: 26/10/2004

BENCH: RUMA PAL & ARUN KUMAR

JUDGMENT: J U D G M E N T

(Arising out of SLP) No. 22044/2001)

RUMA PAL, J.  

Leave granted.

       This appeal arises out of proceedings initiated under  Sections 397 and 398 of the Companies Act (hereinafter  referred to as ’the Act’) by a group of minority shareholders  complaining of mis-management and oppression in respect of  the respondent No.1 company M/s. Gwalior Sugar Company  Ltd. (referred to as ’the Company’).  The appellants are the  unsuccessful petitioners.  The primary question to be resolved  in this appeal is whether they held the requisite one-tenth of  the issued share capital of the Company under Section 399  (1) of the Act when they filed the petition under Ss. 397 and  398.         The shares of the Company are basically held by two  branches of the family of J.P. Srivastava.  J.K. Srivastava, who  was originally the petitioner No.4, and H.K. Srivastava who was  originally the respondent No.2, were the two sons of J.P.  Srivastava.  During the pendency of the proceedings before us,  both J.K. Srivastava and H.K. Srivastava have died and are   now represented by their respective heirs.  In the case of J.K.  Srivastava, his interest is now represented by his widow Mrs.  Raj  Mohini Srivastava and his only son Vijay Kumar  Srivastava. As far as H.K. Srivastava is concerned, he is  represented by his four children, Vikram, Hemlata, Vir and  Radhika.  The corporate shareholders in the Company are in  turn also held by members of the Srivastava family. Mrs. Nini  Srivastava, appellant No.3, the wife of Vijay Srivastava, was the  third petitioner in the proceedings as originally filed. She was  described as  a petitioner "for herself  and as trustee for J.K.  Srivastava Family Trust" (referred hereafter as the Trust).          The proceedings were initiated before the Company Law  Board (CLB) on 1st July 1995. The pleadings were completed and  the matter heard from time to time.  On 22nd January 1996, CLB  issued an order, the  relevant extract of which reads thus:

"In view of the close relationship between the  parties, we suggested to the counsel for both  the sides that they should try to work out an  amicable settlement between the parties.  The  counsel have undertaken to do so.  The result

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of their efforts will be intimated to us on 20th  February 1996 at 2.30 p.m."

       Hearings were adjourned on 22.2.96, 4.3.96 and 15.3.96  when the CLB was informed that compromise talks were in  progress.  Ultimately on 7.5.96, the CLB passed this order:

"It was agreed by the parties that the  petitioners will sell their shares to the  respondents for a value per share to be  determined by a valuer appointed by us and  the value will be binding on all the parties.   The parties will approach jointly reputed  valuers and suggest an acceptable name for  our approval on 30/5/96 at 4.15 p.m."

       On 10.6.1996, with the consent of the parties, the CLB  appointed M/s Thakur Vaidyanathan Iyer as company chartered  accountants, New Delhi to value the shares of the company.   On 22.11.96, the chartered accountants valued the shares. As  the respondents had reservations about the value, the matter  was re-heard by the valuer who reconsidered the submissions  of the parties.  Ultimately, the value of the equity shares was  given by the valuer as Rs.6340 per share.  The valuation for a  preference share of Rs. 100/- was fixed at par.  The  respondents objected to this valuation also.  The contention of  the respondents was that the other disputes relating to  family  properties in possession of the petitioners should be settled  also.  After various hearings the matter was fixed for hearing on  6.11.1998.   On 3.11.1998, the respondent No. 8, Mrs. Radhika  Srivastava, moved an application challenging the order dated  10.6.1996.  In the application it was alleged that the respondent  No.8 had no knowledge of the compromise and that she had  been kept in the dark about the settlement arrived at.  She  prayed for recall of the order dated 10.6.1996. It was also said  that the calculation of 10% of the petitioner’s shareholding in  the Company was made only with regard to the equity share  capital of the company, whereas  Section 399 sub-section(1)  requires the petitioner to have  10% of the total issued share  capital which would include preference shares and that the  shareholding claimed by the petitioners did not amount to 10%  of such total. It was contended that the appellants therefore did  not hold the requisite 10 per cent of the issued share capital of  the respondent No. 1 company and therefore the petition under  Section 397 and 398 was not maintainable and should be  dismissed.  The appellants filed a pre-notice reply on 5.11.1998 in  which they stated that the petitioner  No. 3 (the appellant No. 3  before us) had filed the  petition on behalf of herself and as a  trustee of the J.K. Srivastava Family Trust (referred to as the  Trust) and that the Trust held 1029 preference shares.  It was  also alleged that the respondent No.8 was fully aware of and  had participated in, the proceedings, in which there had been  25 hearings over  three and a half years.           On 6th November, 1998, the matter was listed for orders to  be passed by CLB, when, according to the appellants, the CLB  directed the appellants to file the consent/authority if any given  by the Trust to Mrs. Nini Srivastava to file the petition under  Sections 397 and 398. On 9th November, 1998 the appellants  brought on record  an affidavit dated 9th June, 1995 executed  by the trustees to the effect that they had granted consent to  the appellant No.3 to file the petition, a resolution of the Trust  dated   10th June, 1995 and an affidavit   of Mr. V.K. Srivastava  dated 12th June, 1995.  The appellants also filed a detailed

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reply in which it was inter alia stated that the Trust held 1029  preference shares in the company, that Mrs. Nini Srivastava  had been appointed as a trustee of the Trust on 24th August,  1994, that authority/consent to file the petition under Sections  397,398 had been given by the trustees on 9.2.1995 and by Mr.  V.K. Srivastava a co-trustee by his affidavit dated 12th June,  1995.          The other respondents supported the respondent No. 8’s  application.    In the counter affidavit filed on behalf of the  Company, it was said that: "As per the records of the Company as on  date i.e the shareholders register, 1029  Preference Shares stand registered in the  name of Mr. V.K. Srivastava Trustee, J.K.  Srivastava (family) Trust and not in the name  of Mrs. Nini Srivastava.  The endorsement in  the cause title against the name of Mrs. Nini  Srivastava who is not all a Trustee is no  compliance at all and the petition is liable to  be dismissed as being not maintainable on the  ground that it has been filed by the petitioners  holding less than 1/10th of the issued share  capital of the company i.e. 27.68 lakhs".

The hearing in the matter was concluded by the CLB and  judgment reserved two days after the last affidavit was filed.  On  18th January, 1989 the CLB passed an order rejecting  the  challenge by the respondent No.8 to the consent order dated  10.6.1996.  It revised the valuation and considered that a sum of  6000 per equity share would be an appropriate value and Rs.100/-  would be the appropriate value for the preference shares.  However,  the CLB upheld the contention of the respondent No. 8 that the  application under Sections 397 and 398 was not maintainable on  the ground that the petitioner did not hold the requisite 10 per cent  shares. The CLB proceeded on the basis that the Trust held 1029  shares in the company but that it had not consented to the filing of  the petition under Sections 397, 398 by Nini Srivastava. According  to the CLB "\005\005 The only issue for examination is whether the  Trust is a party to the proceedings or whether the Trustees have  given their consent to file the petition and if so whether the same is  legally valid".         It answered this issue against the petitioners  because;

(1) No authority of the J.K. Srivastava  Family Trust authorizing the 3rd Petitioner to  represent the Trust nor any affidavit by her  representing the Trust had been annexed to  the petition;  

(2) since there was no averment to the effect  that the petitioner had the consent of the  Trustees to file the petition and since the  consent documents were not enclosed with  the petition, the requirement under  Regulation 18 had not been complied with  and that non-enclosing the consent  document with the petition was fatal to the  petition.

(3) If the preference shares held by the Trust  is not taken into consideration, then the total  number of shares held by the petitioners  would work out to about 7% of the  subscribed capital and if the shares are

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included, then the percentage would go to  10.85%.

(4) 515 preference shares of the trust had  already vested in the one of the beneficiaries  thus reducing the percentage of the  petitioners share holding to less than 10%  and;  

(5) relying upon Duli Chand v. M/s.  Mahabir Pershad Trilok Chand Charitable  Trust, Delhi AIR 1984 Delhi 145 that  Trustees cannot authorize one of them to  initiate proceedings in the name of the trust.   

           It therefore reached  the conclusion that the shares held  by the Trust cannot be taken into account for the purposes of  the provisions of Section 399.  Therefore without passing any  directions pursuant to its finding on the effect of the consent  order, it dismissed the petition.  Several appeals were preferred from this order under  Section 10-F of the Act both by the appellants and the  respondents.    The learned Single Judge dismissed all the  appeals holding that the petition was not maintainable  because  no consent of the trustees had been pleaded, that there was no  compliance with  Regulation 18, that the shares of the Trust  had vested in the beneficiaries and that the trustees could not  delegate their powers or authorize one of them to represent the  Trust.  During the pendency of the appeals, the respondents,  according to the appellants, committed further acts of  oppression in respect and mismanagement of the company.   Consequently, a second petition was filed under Sections 397  and 398 of the Act by the appellants.         A Letters Patent appeal was filed from the decision of the  Single Judge before the Division Bench by the appellants.  The  Division Bench held that the filing of the consent along with  application under Section 399(3) of the other share holders was  a sine qua non to the initiation of proceedings under Sections  397 and 398 and  that on the failure on the part of the  appellants to file the alleged consents the application had  been  rightly dismissed.  It was held that  it was not necessary to  determine the nature of the trust and whether the shares held  by the Trust had devolved on any of the beneficiaries before the  petitions under Sections 397 and 398 of the Companies Act  had been filed.  It was said that: "If the trust contained some other  properties there is likelihood that the  shares may not be divided."

       The Division Bench was also of the view that since the  second application had been filed, the CLB should consider  whether the shares of the trust should be reduced and the  implications of Section 153 of the Act.  The CLB was directed to  decide the subsequent application on its merits ignoring  the  observations made by the CLB  in its order dated 18.1.1999 as  well as of the Single Judge and to decide the case on merits on  the basis of the persons whose names were recorded in the  register of share holders.         Before us the appellants contended that the Trust and the  co-trustees had authorised the third appellant to represent the  Trust.  It was submitted that there was no dispute in fact that  the Trust held 1029 shares in the company.  The only dispute  was whether the third appellant was authorized to act on behalf

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of the Trust.  It was  submitted that Section 399(3) did not deal  with the authorization but with the consent of supporting  shareholders.  It is said that the Trust still continues and has not  been brought to an end by reason of devolution of the shares to  the beneficiaries. It is said that  the co-trustees had in fact  consented to/ authorized the appellant No. 3 to initiate and  prosecute the  petition under Sections 397 and 398 and that in  any event the CLB should have given an opportunity to the  appellants to implead the other co-trustees.  It was pointed out  that the respondent No.8 had never raised  any issue that the  trustees were necessary parties and that in their absence the  petition under Sections 397 and 398 was not maintainable. It  was also submitted that the High Court erred in holding that  compliance with Regulation 18 of the Company Law Board  Regulation was a mandatory requirement.  It was said that  Section 399(3) only requires that the consent should be  obtained prior to the filing of the petition.  If this was proved as  a fact, the requirement of filing the consents in writing along  with the petition under Regulation 18 should not render the  petition itself not maintainable.  Reference has been made to  Regulations 44, 46 and 48 to show that the  CLB retained the  power to dispense with the requirements of Regulation 18, in  support of the submission that Regulation 18 was merely  directory.           Learned counsel appearing on behalf of the  respondents submitted that the petition had originally been  filed only on the basis of the equity share holding of the four  petitioners and did not refer to any redeemable preference  shares.   In the absence of these pleadings, it was asserted  that the petitioners did not have the requisite qualification  shares for initiating proceedings under Sections 397,398.  It  was submitted that the subsequent phrase "plus 1029  preference shares" in paragraph 2 of the petition was an  interpolation. Secondly, it is submitted that Mrs. Nini  Srivastava did not have the consent of the other trustees, and  that assuming that she had the consent of the trustees to file  the petition, there was no such averment in the petition nor  any consent letter filed with the petition in violation of the  mandatory requirement of Regulation 18  of the Company Law  Board Regulations. Finally, it was said that the only person  who could have joined the petition as a petitioner was V.K.  Srivastava who was the registered share holder of the 1029  Preference Shares.  It is said that the trust was not and could  not have been a member of the company.  This, according to  the respondents, clearly followed from Sections 41(2) read  with Section 153 of the Act.  It is said that admittedly, the  application had not been filed on behalf of V.K. Srivastava.   Even assuming that the Trust was the registered member of  the Company, it is contended that  there was no averment that  the company petition had been filed on behalf of the Trust.  It  is submitted that there was in fact no consent and that the so  called consents were subsequently obtained.   Any Member/or members of a Company may apply under  Ss, 397 and 398 of the Act to the CLB complaining of  mismanagement or oppression provided such Member or  Members have the requisite shareholding as prescribed under  Section 399 to do so. The relevant portions of Section 399 read  as under: "S.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:-

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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)       xxx          xxx       xxx

2)     xxx              xxx             xxx      

3) Where any members of a company are  entitled to make an application in virtue of  sub-section (1), any one or more 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.                  

The question is, did the appellants who were the original  petitioners have the requisite number of shares when the  petition was filed.  The question itself raises two further issues  viz.  who were the petitioners and did they in fact hold the  necessary shares? Mrs. Nini Srivastava claimed to represent the Trust which  held 1029 shares so making up the necessary shareholding  under Section 399. It will be noted from the arguments  particularized earlier that there has been a shift in the  arguments raised by the respondents.  Before the CLB, the  Single Judge and the Division Bench the respondents  arguments and basis of the decision of the three fora was that  the Trust held the 1029 Preference Shares and that the Trust  had not consented to or authorized the filing of the petition  under Sections 397, 398 of the Act. Before us however, the  main focus of the argument has been that the Trust was not  owner of the 1029 shares but that the owner was Mr. V.K.  Srivastava, who is now appellant No.4(b) before us, and that  the petition had not been filed on his behalf by the appellant  No.3. Although in the affidavit in reply filed by the Respondent  No.8 there is a plea that shares could not be held in the name  of the Trust under Section 153 of the Act, from the reasoning of  the CLB and the two decisions of the High Court which we have  noted earlier, it is apparent that the issue was not pressed. The three courts below have concurrently found that the  Trust which held the preference shares was not properly  represented by Nini Srivastava.  This was the only case which  the appellant had to meet.  Now the respondents contend that  in fact it was Vijay Kr. Srivastava who held the 1029 shares and  not the Trust and Nini Srivastava did not represent him.  Although a passing reference was made to the fact in the  counter affidavit filed by the Company as noted above, that was  done in the context of denying that Nini Srivastava was a  trustee.  In our judgment  it would not be proper to permit the  respondents  to raise  an issue not argued by them either  before the CLB or the High Court and to make out a new case  at this stage. To allow  a party to take grounds not urged earlier  would not only result in taking the other party by surprise but it  would deprive such party  of any adjudication on the issue by  the different courts -  a right to which each party is otherwise

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entitled. It would also place such party at a great disadvantage  as no opportunity would have been granted to it to meet the  new plea. In the case of Rajahmundry Electric Supply  Corporation v. A. Nageshwara Rao & Ors.  AIR 1956 SC 213   the contention on behalf of the Company,  while opposing a  petition under Ss. 397, 398,  was that there was no proof  that  the applicant had obtained the consent of the requisite number  of shareholders opposing the petition.  It was said that out of  the 80 persons who had consented to the institution of the  application, 13 were not shareholders at all and that two  members had signed twice.  This Court said:    "This point is not dealt with in the  judgment of the trial court, and the  argument before us is that as the  objection went to the root of the matter  and struck at the very maintainability of  the application, evidence should have  been taken on the matter and a finding  recorded thereon".   

       The submission was rejected because the objection  though raised in the written statement had not been pressed at  the trial and had not been argued before the Trial Judge.  We  will therefore decide only those issues which were pressed and  decided upon by the three courts.          The issue then is \026 was it represented before the CLB by  Nini Srivastava?  The answer to this would depend on whether  the trustees of the trust could authorize one of them to initiate  proceedings for and on behalf of the Trust. A Full Bench of the  Gujarat High Court in Atmaram Ranchhodbhai v.  Gulamhusein Gulam Mohiyaddin AIR 1973 Gujarat 113  said:-

" \005\005Whether the trust is a private trust  governed by the Indian Trusts Act or is a  public charitable or religious trust, a  trustee cannot delegate any of his duties,  functions and powers to a co-trustee or to  any other person unless the instrument of  trust so provides or the delegation is  necessary or the beneficiaries competent  to contract consent to the delegation or  the delegation is in the regular  course of  business.  These are the only four  exceptional cases in which delegation is  permissible and save in these exceptional  cases, the trustees cannot, even by a  unanimous resolution, authorize one of  themselves to act as managing trustee for  executing the duties, functions and  powers relating to the trust and every one  of them must join in the execution of such  duties, functions and powers ". (p.115)  

       The issue in that case was whether one co- trustee could  determine a tenancy. The Court said he could not, but held:

"But when we say that the tenancy must be  determined by all co-trustees, we must  make it clear that what we mean is that the  decision to terminate the tenancy must be  taken by all the co-trustees.  The formal act  of giving notice to quit pursuant to the  decision taken by all the co-trustees may

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be performed by one co-trustee on behalf  of the rest.  The notice to quit given in such  a case would be a notice given with the  sanction and approval of all the co-trustees  and would be clearly a notice given by all  co-trustees."  (p.116)             The view has been followed by the different High Courts   [See for example Duli Chand v. M/s. Mahabir Pershad Trilok  Chand Charitable Trust, Delhi AIR 1984 Delhi]  and held to  be too narrow in Jain Swetambara Murthi Pujaka Samastha  v. Waman Dattatreya Pukale AIR 1979 Karnataka 111.           This Court in M/s. Shanti Vijay & Co. v. Princess  Fatima Fouzia & ors. AIR 1980 SC 17 held that:-

" the act of one trustee done with the  sanction and approval of a co-trustee may  be regarded as the act of both.  But such  sanction or approval must be strictly  proved."

             It was also held that a trustee could act on behalf of  others, if there is a clause in the Trust Deed authorizing the  execution of the Trust to be carried out by "one or more or by  majority of the trustees".           Therefore although as a rule, trustees must execute their  duties of their office jointly, this general principle is subject to  the following exceptions when one trustee may act for all (1)  where the Trust Deed allows the trusts to be executed by one  or more or by majority of trustees (2) where there is express  sanction or  approval of the act by the co-trustees; (3) where  the delegation of power is necessary; (4) where the  beneficiaries competent to contract consent to the delegation;  (5) where the delegation to a co-trustee is in the regular course  of the business; (6) where the co-trustee merely gives effect to  a decision taken by the trustees jointly.  The present case comes within at least three of the  exceptions listed.  The Trust in question was created on  25.12.1978 by J.K. Srivastava, one of the original petitioners in  favour of his two minor grandsons, Kunal and Yatin.  The  trustees named in the Trust Deed were the settlor’s wife, Raj  Mohini (now the appellant No.4 (a)) and their son Vijay ( now  the appellant 4(b)) who was also the father of the beneficiaries.   The Trust Deed contains the following clauses:

" Clause 7: The Trustees shall hold the  Trust Fund or any property representing the  same in trust for the Settler’s said grandsons  so, however, that when Master Kunal Krishna  Srivastava attains the age of 18 years, he will  be given his fifty percent share of the then Trust  Property or Fund and thereafter the same will  rest absolutely in him, and so, however, that  thereafter the Trustees shall hold the remaining  Trust Property or Fund for the benefit of Master  Yatin Krishna Srivastava till he attains the age  of 18 years when the Trust will automatically  ease and the properties shall vest absolutely in  the said grandson, Master Yatin Krishna  Srivastava.

Clause 12:The Trustees may instead of acting  personally employ and pay any agent whether  a solicitor, banker, stock broker or any other  person to transact any business or to any act

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required to be transacted or done in the  execution of the trusts hereof including the  receipt and payments of money and shall be  entitled to be allowed and paid all charges and  expenses so incurred and shall not be  responsible for the default of any agent  employed in good faith.

Clause 16: The Trustees shall have full power  to file and defend suit, appeals, applications  etc. to declare, sign and verify all plaints,  written statement, memo of appeals, cross  objections, applications, affidavits etc. and to  appeal at any place or places in the Union of  India before any Court, office or authority to  present and lodge any documents for  registration and to admit disputes, differences  and demands to arbitration and to adjust,  approve and settle all accounts relating to the  Trust Fund and to execute all releases and  discharges and to do all other things relating  thereto.

Clause 19:  All the decisions that will be  required to be taken in carrying out the Trusts  herein contained shall be taken by majority of  the Trustees. If the Trustees are equally divided  the Chairman shall have an extra or casting  vote.  The Trustees present shall form a  quorum for any meeting of the Trustees" .                 These clauses clearly allow not only one co-trustee but  any person to carry out the trusts and to act for the trust  provided ofcourse such person is expressly authorized [See:   Killick Nixon Ltd. v. Bank of India (supra); Punnaiah v.  Jeypore Sugar Co. Ltd.(supra)].         The Resolution dated 3rd June, 1955 of the Trustees  records inter alia:  "The constituents of the J.K. Srivastava group  had decided to file a petition with the Company  Law Board in Delhi, under Section 397 & 398 of  the Company’s    Act, in the matter.

Mrs. Nini Srivastava reported that she was also  to be a Petitioner and the petition had been  prepared.

The petition, application and Annexures were  placed on the table, duly examined read and  understood and duly approved particularly to its  contentions, submissions and prayers.

It was then duly resolved that Mrs. R.M.  Srivastava and Mr. Vijay K. Srivastava Trustees  give consent on behalf of the Trust to the filing  of the Petition/presentation of the Petition by  Mrs. Nini Srivastava and that she be also  authorized to take all Legal action as advised in  the manner".  

A joint affidavit affirmed on 9th June, 1995 by Raj Mohini  and Vijay says: " We have read and understood the Petition  Under Section 397 & 398 of the Companies  Act, ancillary application annexures and confirm

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our consent to Mrs. Nini Srivastava, a Trustee  of the Trust and a Petitioner with others, in the  Petition, to her filing/presenting the same.  We  also hereby give consent and authority to Mrs.  Nini Srivastava a Trustee of the Trust to take  such and all legal actions as advised".  

       Finally, an affidavit was affirmed by Vijay Krishna  Srivastava on 12th June, 1955 to the following effect:

"I, Vijay Krishna Srivastava, Trustee of the  J.K. Srivastava Family trust, holding 1029 fully  paid up, Cumulative Preference Shares of Rupees  100 each of Gwalior Sugar Company Lt., as  Trustee, have hereby given consent to the filing  presenting of the Petition before the Company  Law Board, New Delhi, under Sections 397 & 398  of the Company Act, by Mrs. Nini Srivastava a  Trustee of J.K. Srivastava Family Trust, in the  matters of J.K. Srivastava & others J.K.  Srivasatava constituents) against Gwalior Sugar  Co. Ltd. and the H.K. Srivastava & Others (H.K.  Srivastava constituents). The Petition relates inter  alia to the transfer of 3229 Equity Shares of  Gwalior Sugar Co. Ltd. and other acts of  oppression and mismanagement by the H.K.  Srivastava Constituents in management of Gwalior  Sugar Company Ltd.

I have read and understood the Petition  under Sections 397 & 398 of the Companies Act,  ancilliary application/ annexures and confirm  consent to Mrs. Nini Srivastava, a trustee of the  J.K. Srivastava Family Trust, and a Petitioner with  others, in the Petition to her filing/presenting the  same."

   The conclusion is inescapable that the Trustees had  expressly authorized Nini Srivastava to file the petition.   Additionally,  the affidavit  of Vijay Srivastava, who is alleged to  be the registered owner of the 1029 preference shares, clearly  shows that he had expressly consented and authorized Nini  Srivastava in his capacity as such trustee to file the  proceedings. If the respondents had fairly and squarely raised  the issue as to the petition not being consented to by Vijay  Srivastava as the registered shareholder of the 1029 shares, it  would have been open to the appellants to have relied on this  affidavit and if necessary amended the petition. The power  to  allow such amendments has been expressly granted to the  CLB under Regulation 46.  As was stated several decades ago  by the Privy Council in Charan Das V. Amir Khan AIR 1921  50:-   

"Where the plaintiffs, through some  clumsy blundering, attempted to assert rights  that they undoubtedly possessed under the    statute   in  a  form which the statute did not  permit, they should be at liberty to express their  intention in a plainer and less ambiguous  manner, and to amend the  plaint so as to  express the rights which it has been really their  intention all along to establish, although the  amendment of plaint is sought to be made at a  time when the suit itself if instituted then would  be time-barred". (P.50)

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However, for the reasons indicated by us earlier we do  not propose to entertain this plea of the respondents at this  stage. It is true that criminal proceedings have been instituted by  the respondents on the allegation that the stamp paper on  which the affidavits have been affirmed were purchased  subsequently. But we are not prepared to reject the documents  as forged ones not only because the executants have hotly  contested the allegations but also because there is no finding to  that effect by any of the three courts below or by the criminal  court.  Indeed as matters now stand the criminal proceedings  have been stayed by the High Court. Furthermore, Vijay  Srivastava and Raj Mohini’s continuous support is also  apparent from the fact that both of them are parties to the  appeal before us albeit in the capacity of  heirs of Late J.K.  Srivastava.           The Courts below however refused to entertain the  petition because the documents referred to earlier had not been  filed along with the petition in accordance with their  interpretation of S.399 and Reg. 18. Section 399 of the Act has  replaced Section 153-C (3) of the Indian Companies Act, 1913  with some major differences.  Section 153-C (3) of the 1913 Act  itself  provided that  the consent of the shareholders supporting  the petition should be obtained in writing .  Sub Section (3) of  Section 399 of the 1956 Act, however, contains no such  requirement.  It only speaks of "obtaining" of the consent . It  does not speak of consent in writing nor does it require any  such writing to be annexed with the petition.  Many of the  decisions cited by both the parties have turned on the wording  of Section 153-C (3) of the 1913 Act such as  Makhan Lal Jain  vs. The Amrit Banaspati Co. Ltd  AIR 1953 Allahabad 326  when in the context of Sub section 3 of Section 153-C (a) it was  held:  "\005\005. the law requires that the consent  should be in writing, i.e., in the form of a  document.  Therefore, the document itself  should prove that the consent has been  given.  No evidence, either by way of  affidavit or of oral sworn statement in  Court, can be given to prove that such  consent was given".

       The reasoning in this decision would no longer be  apposite having regard to the change in the language in  Section 399 (3) and the shifting of the requirement from the Act  to Regulation 18 of the Company Law Board Regulations 1991  (hereinafter refer to as the ’Regulations’).  Regulation 18 also  does not itself contain the requirement for filing the consent  letters .  The requirement has been prescribed in Annexure III,  which is referred to in Regulation 18.  Serial No.27 of Annexure  III contains a list of several documents required to be  annexed  to petitions relating to the exercise of powers in connection with  prevention of oppression or mismanagement under Sections  397, 398, 399(4), 400, 401, 402, 403, 404 and 405.  The  documents required to be annexed to such petition include  "where the petition is prescribed on behalf of members, the  letter of consent given by them".  Other documents required to  be filed include "documents or other evidence in support of the  statement made in the petition, as are reasonably open to the  petitioner(s)", as also "three spare copies of the petition".   These requirements can hardly be said to be mandatory in the  sense that non-compliance with any of them would ipso facto  result in the dismissal of the petition.   Apart from this,  Regulation 18 itself is subject to the powers of CLB under

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Regulations 44 and 48. These read as follows:   

44.  Saving of inherent power of the Bench:-  Nothing in these rules shall be deemed to limit  or otherwise affect the inherent power of the  Bench to make such orders as may be  necessary for the ends of justice or to prevent  abuse of the process of the Bench.

48.  Power to dispense with the requirement of   the regulations.- Every Bench shall have  power for reasons to be recorded in writing, to  dispense with the requirements of any of these  regulations, subject to such terms and  conditions as may be specified.

     Given these powers in the CLB, we cannot hold that non- compliance with one of requirements in Srl. No.27 in App. III of  Reg. 18  goes to the very root of the jurisdiction of the CLB to  entertain and dispose of a petition under Sections 397,398. All  that regulation 18 requires by way of filing of  documents, is  proof that the consent of the supporting shareholders had in  fact been obtained prior to the filing of the petition in terms of  Section 399(3). It cannot be gainsaid that it is open to the  persons opposing the application under Sections 397and 398 to  question the correctness of an assertion as to consent made by  the petitioner. It is equally open to the petitioner to provide  evidence in support of the plea taken in the petition. If ofcourse  the objection to the maintainability is taken by way of demurrer,  the CLB can decide the issue on the basis of the averments  contained in the petition alone, accepting the pleas therein as  correct.  But where the CLB takes into consideration facts  outside the petition as it has done in this case, it cannot  foreclose the petitioner from supporting its case in the petition  on the basis of evidence not annexed thereto.  Since the CLB  calculated the total shareholding of the company including  preference shares based on the allegations contained in the  respondent No.8’s application,   it was for the CLB to determine  the issue of actual prior consent on evidence. This view finds  support from Reg. 24 which says: 24.   Power of the Bench to call for further  information/evidence:-  The Bench may,  before passing orders on the petition, require  the parties or any one or more of them, to  produce such further documentary or other  evidence as the Bench may consider  necessary.-          (a)     for the purpose of satisfying itself  as to the truth of the allegations  made in the petition; or  (b)     for ascertaining any information  which, in the opinion of the Bench,  is necessary for the purpose of  enabling it to pass orders on the  petition.                          In P.Punnaiah V. Jeypore Sugar Co Ltd.  AIR 1994 SC  2258, the member of the company was the daughter,  Rajeshwari.  She was sought to be represented as a petitioner  in an application under Ss. 397 and 398 by her father acting as  her agent. The respondents objected saying that this was no  consent at all.         With a view to counter-act the objection taken

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by the respondents, the appellants filed an affidavit of           Smt. Rajeshwari wherein she affirmed that she had authorized  her father to act on her behalf as her G.P.A in that behalf and to  take all such steps as he deemed proper to protect her interest.  This Court rejected the objection raised by the respondents. Hansaria, J. rested his concurrence with the view on the  affidavit filed by Rajeshwari subsequent to the filing of the  petition. He said: " \005\005. As Smt. Rajeshwari made her position  clear in the affidavit filed in the High Court, I  do think she had authorized  her father to act  on her behalf in the matter at hand, and the  application under Section 397/398 of the  Companies Act, 1956, as filed in the Court,  ought to be taken as one to which she had  consented".  

       The finding of the CLB and the High Court to the effect  that the petition of the appellant deserved to be rejected only  because the letters of consent had not been annexed to the  petition was therefore incorrect.  What the CLB and the High  Court should have done was to have satisfied themselves that  the consent had in fact been given prior to the filing of the  petition.  There is nothing either in the orders of CLB or the  High Court which could even remotely be construed as a  rejection of the affidavits, resolution, etc. filed by Nini Srivastava  to show that prior consent had in fact been obtained.  We may  also note the unrebutted specific averment by the petitioners to  the effect that V.K. Srivastava was  personally present   throughout the litigation. Having decided that Nini Srivastava could have been and  was authorized to act on behalf of the Trust, the next question  is, did Nini Srivastava file the petition on behalf of the Trust?   The CLB has noted that the cause title to the petition showed  that she had filed the petition for herself and as Trustee of the  Trust.  According to the respondents, this was again an  interpolation. But the CLB has given no such finding  nor has  the High Court.  Besides the petitioners had said   ’the  petitioners are holding some preference shares also’.  It is  admitted that Nini Srivastava holds 50 preference shares in her  personal name.  However, the use of the plural is significant.  It  is not the case of the respondents that any other individual  petitioner holds preference shares except for the Trust. Then  again in paragraph 2, even if one were to ignore the phrase  ’plus 1029 preferential shares’, it has been specifically averred  that ’the petitioners form the group headed by J.K. Srivastava’.   There is no dispute that the "group of J.K. Srivastava" holds the  requisite percentage of shares for maintaining proceedings  under Ss. 397, 398 and that the Trust falls within that group.   Again in paragraph 6.2 of the petition there is a categoric  reference to the 1029 redeemable preference shares held by  the Trust as being held by the petitioners .  This was also how  the respondents understood the petition.  In an application filed  by them on 19th March, 1988 under Reg.44 they said:  "That shareholding of the respondent  company is divided mainly between two  groups namely, H.K. Srivastava Group in the  Management holding about 30% Equity  Shares and 1029 Redeemable Cumulative  Preference Shares and the J.K. Srivastava  group holding about 12% Equity Shares and  1029 Redeemable Cumulative Preference  Shares\005..:

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That it is apprehended that J.K.  Srivastava group i.e. the Petitioners holding  about 12% Equity Shares and 1029  Redeemable Cumulative Preference Shares  may obstruct the Resolution for enhancement  of Authorised Shares Capital\005.."

It appears to us that the intention of the petitioners  undoubtedly was to represent the J.K. Group which admittedly  has the qualifying number of shares, although the expression of  such intention was not as clear as it should have been.   All the fora below have not proceeded on the basis that  the pleading in the petition did not reflect the intention.  They  have rested their findings on the law as perceived by them that  the Trust could not have been represented by one co-trustee.   The perception as we have held was erroneous. The other ground on which the fora dismissed the petition  was that the beneficial interest in 551 shares of the 1029 held  by the Trust had already vested in the beneficiaries prior to the  filing of the petition complaining of mismanagement and  oppression.  This is again an incorrect legal proposition.  An  equitable or beneficial interest in shares does not make the  owner of the interest a member of the company. [See M/s  Howrah Trading Co. V. Commissioner of Income Tax AIR  1959 SC 775;  Killick Nixon Ltd. v. Bank of India 1985 (57)  Com. Cases 832]   Therefore, even assuming that  in terms of  the Trust Deed the shares had devolved on the beneficiary of  the Trust, this would not mean that the owner of the shares as  registered with the company would not be competent to file the  petition under Sections 397 and 398.   The object of prescribing a qualifying percentage of   shares in 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 commonsense 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.   Substance must take precedence over form.  Of course, there  are some rules which are vital and go to the root of the matter  which cannot be broken.  There are others where non- compliance may be condoned or dispensed with.  In the latter  case, the rule is merely directory provided there is substantial  compliance with the rules read as a whole and no prejudice is  caused. [See: Pratap Singh v. Shri Krishna Gupta AIR 1956  SC 140]  In our judgment, Section 399(3) and Regulation 18  have been substantially complied with in this case. The decision of the Division Bench of the High Court is,  therefore, set aside.  The matter must be remanded to the  Single Judge since he had also dismissed the appeals  preferred by the respondents from the decision of the CLB   consequent upon the dismissal of the appellants’ appeal under  Section 10F of the Act.  The appeal is, therefore, allowed and  the matter remanded back to the Single Judge for disposal of  all the appeals which stand revived by reason of this order.   The costs will follow the cause.