ORDER
K.C. Ganjwal, Member
1. The HSBC Pvt. Equity India Fund Ltd. a company incorporated in Mauritius and having its registered office at 10-Frere Felix de Valois Street, Port Louis, Mauritius have filed a company petition No. 46/2003 under Section 235 (2) read with Section 237(b) of Companies Act, 1956 against Shree Rama Multi-Tech Ltd and Ors.
2. The same company had filed earlier a company petition No. 26 of 2002 under Sections 397/398 of the Companies Act, 1956 alleging oppression and mismanagement in the affairs of the company The respondents had filed application challenging the maintainability of that petition on various grounds, inter-alia including the maintainability in terms of Section 399 of the Act. Since the main objection related to the provisions of Section 399, an order dated 27.1.2003 was passed by this Board indicating that since Section 399 of the Act stipulate that members holding not less than one tenth of the total issued capital of the company alone can file a petition under Section 397/398, petitioners holding only 8.52% shares in the total issued capital, have no locus-standi to file the petition and as such the petition was dismissed as non maintainable.
3. Having failed to pursue their company petition No. 26/2002 under Section 397/398 of the Companies Act, 1956, the petitioners have now filed CP No. 46/2003 alleging oppression and mismanagement. The petitioners prayed for the affairs of the respondent company to be investigated by an inspector and to direct ceasing and taking into custody all books and records of the company to prevent them being destroyed, altered etc.
4. The respondents have filed CA No. 142 of 2003 against the present CP No. 46/2003 challenging the maintainability of the petition. The original respondent No. 1 Shree Rama Multi Tech Limited seeks dismissal of the company petition No. 46/2003 on the ground that the present petition is not maintainable. The respondents submit that the present petition under Section 235(2) of the Companies Act. 1956 is not maintainable in as much as Shree Rama Multi Tech Ltd. is having a share capital but the present petition is not received from or filed by more than 200 members or by a member holding not less than one tenth of the total voting power. The petitioner is not holding one tenth of the voting power as defined under Section 2(48) of the Companies Act, 1956 and for a petition under Section 235(2) to be maintainable it has to be by not less than 200 members or by members holding not less than one tenth of the total voting power in a company. The total issued subscribed and paid up capital of the company is Rs. 33,12,23,667 consisting of 5,29,11,400 equity shares of Rs. 5 each fully paid up and 6.66,657 15% cumulative preference shares of Rs. 100 each fully paid. The company Shree Rama Multi tech Ltd. has not paid dividends on the said cumulative preference shares for the last two years. Consequently, in view of the provisions of Section 87 of the Companies Act, the holders of said preference shares acquired a voting power on each and every resolution that may be placed before the company at any meeting. Section 87 (2)(c) provides for proportionate representation of the preference shares as per the paid-up capital of the company. Thus the total voting power of the company as on date of the filing of the present petition is 33,12,23,667. One tenth of the total voting power would thus be Rs. 3,31,22,366.70. The petitioner HSBC Pvt. Equity India Fund Ltd holds 57,18,886 equity shares of Rs. 5 each totaling to Rs. 2,85,94,430, which is about 8.63% of the total voting power of the company. The petitioner is thus holding less than one tenth of the total voting power in the company and is not entitled to file and maintain the present petition under Section 235(2) and Section 237(b). Accordingly, the respondents have also submitted that the present petition is also not maintainable as the present petition is barred by the principles of rest-judicata of cause of action as the previous petition has been dismissed by this Hon’ble Board by its order dated 5.2.2003.
5. It is also submitted by the respondent that the petitioner has disposed of substantial number of shares and currently the petitioner is holding approximately 6.67% of the total voting power of the respondent company. The respondents have further submitted that Section 235(2) read with Section 2(48) and Section 87(2)(a), (b) and (c) of the Companies Act, 1956 are in support of their submissions to dismiss the petition. The respondents also submit that as the petitioner have failed to qualify the requirements under Section 235(2), they have no locus-standi to file a petition before this Board under Section 237(b) of the Companies Act, 1956.
6. The learned counsel for respondent submitted during the arguments that it is an established principal of law that anything which cannot be done directly cannot be done indirectly. The power under Section 237 is meant to be exercised by the Central Govt. and not by its shareholder. According to the learned counsel for respondent any aggrieved shareholder cannot directly file a petition before this Board and have to approach the Central Govt. instead. The Central Govt. may approach the Company Law Board for opinion but is not bound by such opinion. The respondent therefore, submit that the CP No. 46/2003 filed by the petitioner is beyond the jurisdiction of this Board and should be dismissed as the present petition is also filed without seeking liberty from this Board on same averments and issues as raised in CP 26/2002, which was dismissed by this Board vide order 5.2.2003.
7. The learned counsel for petitioner in the main petition submitted that the present application filed by the respondent is not maintainable as the same has been filed solely for the purpose of delaying a response on the merits of the case. This Hon’ble Board by an order dated 25.5.03 directed the respondent to file a reply to the company petition in the presence of the counsels appearing for the respondents. Instead of filing the reply to the main petition, the petitioners have-moved present application challenging the maintainability of the main petition. The learned counsel for petitioner submitted that there is no provision under the CLB Reg. that govern conduct of proceedings before this Board that allows filing an application “for rejection of company petition” and this Board does not have the jurisdiction to reject the company petition on the basis of an application filed on behalf of the respondent.
8. Dealing with the question of having requisite voting power to maintain the present proceedings, the petitioners have submitted that filing of the previous company petition does not in any way constitute a bar to the filing of the present company petition under Section 235 of the Act. The petitioners have denied that in view of the allegations made by respondent company, they have less than 10% of voting power in the respondent company and are not entitled to file and maintain the present petition. The petitioners also submit, that the respondents are calculating the percentage of voting power by the paid up capital and not by the number of shares. Each equity share has one vote and so each preference share also should have one vote. If calculated by the number of shares the petitioners have more than one tenth of the total voting power. The petitioners further said that the respondents have calculated each preference shares as having 20 votes and not one. The learned counsel for the petitioner submitted that the respondent cannot be allowed to take advantage of his own wrong. Not giving dividend on the cumulative preference shares is a wrongful act of which the company cannot take advantage. The learned counsel for petitioner was of the view that the present petition has been filed under Section 235(2) and the same would be maintainable under Section 237(b) also.
9. The petitioners have also, denied that the present petition is not maintainable as the same is barred by the principles of rest-judicata as the previous petition along with interlocutory application made therein was dismissed on the ground that the petition was not maintainable due to lack of qualification under Section 399 of the Companies Act, and not on merit of the case.
10. The petitioners also submit that the power to investigate the affairs of the company can be exercised at the instance of petitioner shareholder under the provisions of 235(2) and this Board has the power to initiate suo-moto investigation under Section 237(3) of the Act. The petitioner stated that the present application of the respondent is motivated with the purpose of avoiding investigation under Section 235 and 237(b) of the Act.
11. The learned counsel for petitioner relied on the following judgments:-
I. Deodatt Purshottam Patel v. Alembic Glass Industries Ltd.(1972) 42 Comp.Cases 63.
II. V.V. Purie v. E.M.C. Steel Ltd. and Ors. (1980) 50 Comp.Cases 127
III. Smt. Chandra Prabha and Anr. v. Hotel Shweta P. Ltd and Ors. (1995) 4 Comp LJ 520(CLB).
12. In the Gujarat High Court judgment Alembic Glass Industries Ltd mentioned above the scope and jurisdiction of Section 235 and 237 (b) have been defined as under:–
“The language of Section 237(a) is clear and unambiguous and admits of no construction by which any letter or limit can be put on the jurisdiction of this court to entertain a petition for giving a direction to the Central Government to appoint an inspector to investigate the affairs of the company. Once the Court makes an order, it is obligatory upon the Central Government to appoint an inspector. There are three distinct methods by which a party desirous of getting the affairs of a company investigated may get an inspector appointed by the Central Government. If the requisite number of members are available, application can be made under Section 235. Any one who is unable to collect the requisite number of members may bring to the notice of the Central Government various malpractices committed in the administration of the affairs of a company and the Central Govt. may act suo-moto under Section 237(b). In the aforementioned two cases the question of appointment of an inspector is within the discretion of the Central Government. But there is a third mode legislatively recognized and mandatory in character by which an inspector can be got appointed by the Central Government and that is where the special resolution to that effect is adopted by the company or where the court makes an order to that effect. In the Delhi High Court Judgment in the case of E.M.C. Steel Ltd and Ors. it is clearly mentioned that the general principle is that the court will not entertain action on behalf of private person to enforce the observance of public rights and duties unless they have a personal interest in the matter and unless their rights and interests are in some way affected. The last two paras of the judgment are as under:-
“The above extracts contain an enunciation of the general principle that the courts will not entertain action on behalf of private persons to enforce the observance of public rights and duties unless they have a personal interest in the matter and unless their rights and interests are in some way affected. I think that even in the interpretation of Section 237 this basic limitation should be treated as implicit and the section should not be given an interpretation which would make it possible for persons to start litigation in respect of what does not concern them. The section should be so interpreted as to enable relief to be obtained only by some person whose rights have been affected by the manner in which the affairs of the company have been conducted or accounts maintained and has, therefore, a grievance in the eye of law for which he seeks relief from the court. There is ample scope for the invocation of Section 237 by persons whose rights are infringed or affected and whose interests need to be protected or safeguarded by an investigation – a creditor who is unable to move the Central Govt. under Section 235; member or members who, though, aggrieved, are unwilling to move the Central Govt. or unable to fulfil the requirements of Section 236 and hence unable to move the Central Govt.; members who approach the Central Govt. under Sections 235 and 237(b) and are aggrieved by the rejection of their applications; a company which wants an investigation but is unable to have a special resolution passed. These are some illustrations of persons who would be able to move the court Under Section 237(a). It is, therefore, not as if the scope of the remedy enacted by this provision would be unreasonably curtailed or would become illusory by reading into the section an implied limitation to exclude persons having no manner of interest or concern with the company, from availing of it.”
In the judgment of Hotel Sweta Pvt. Ltd. and Ors. CLB has held in para 13 of the judgment that on the date of filing of the petition, the petitioners held less” than one tenth of the voting power and so cannot maintain this application under Sect 235 of the Act. It is further mentioned that in view of the powers conferred on CLB under Section 237(b) of the Act, various pleadings can be treated and examined as information to form the opinion with regard to 237(b). Paras 13, 14 and 15 are quoted below:-
“Para 13.——–As such, on the date of filing of the petition, i.e. 17 November, 1992, the petitioners held less than one-tenth of the total voting power and so cannot maintain this application under Section 235 of the Act. We, however, in view of the power conferred on us under Section 237(b) of the Act, still considered the various circumstances as set out in the petition and the various pleadings as “information” to examine whether there is justification for forming an opinion, with regard to investigation under that section. Para 14 – For the purpose of Section 237(b), we are requested (required?) to examine the various instances which are brought to our notice to find whether these instances suggest either,-
I the business of the company is being conducted to defraud its creditors, members or any other persons or oppressive to any of its members;
II the persons concerned with the management have been guilty of fraud, misfeasance or misconduct towards towards the company or its members;
III. the members of the company have not been given all the information with respect to its affairs which they might reasonably expect.
Para 15 – At the outset, we have to rule out certain matters contained in Section 237(b) as inapplicable in the present case, namely, that the company was formed for an unlawful purpose, or the business is conducted for an unlawful purpose. Thus, the areas to be looked into mainly relate to,-
I. intention to defraud creditors, members or any other persons or oppressive to members; II. persons connected with the management are guilty of fraud, misfeasance or misconduct; and
III. members have not been given all relevant information.”
13. The learned counsel for the respondent was of the view that the judgments cited by the petitioner in this case are not relevant and the decision of the Company Law Board in the case of Smt. Chandra Prabha and Anr. v. Hotel Sweta Pvt. Ltd and Ors. is not a correct law in view of the scheme of the Companies Act, 1956.
14. I have gone through the pleadings and heard learned counsel for both the parties and it is observed that the petitioner has not fulfilled the conditions laid down for filing petitions under Section 235 as the present petition under Section 235 has not been filed by 200 members or from members holding not less than one tenth of the total voting power. Accordingly, the company petition No. 46/2003 is not maintainable under Section 235(2) and the same is dismissed being not maintainable.
15. However, in the same company petition No. 46/2003, the petitioner has claimed relief under Section 237 (b) for an order of investigation of the company’s affairs. The petition Under Section 237(b) can be filed by any interested party being creditor, member or any other person on the ground that the affairs of the company are being conducted with intent to defraud or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members or that the company was formed for any fraudulent and unlawful purpose. The provisions of Section 237 are quoted below:-
“Section 237: Investigation of company’s affairs in other cases.- Without prejudice to its powers under Section 235, the Central Government –
a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if-
i) the company, by special resolution; or
ii) the Court, by order, declares that the affairs of the company ought to be investigated by an Inspector appointed by the Central Govt.; and
b) may do so if in the opinion of the Company Law Board there are circumstances suggesting-
i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose;
ii) that persons concerned in the formation of the company or the management of its affairs have an connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or
iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company.”
16. I am not inclined to accept the arguments of learned counsel for respondents that any member, creditors can file complaint only to Central Govt and if Central Govt. so desires, it may file the petition under Section 237(b) to CLB. It will not be out of place to mention that Section 237(b) confers suo-moto powers on the CLB. CLB can take information from any source including members and creditors or otherwise as rightly mentioned in the judgment of Gujarat High Court in the matter of Alembic Glass Industries Ltd if the person providing information has a stake or is an interested party in the company
17. Accordingly, the application of respondent is partly allowed in as much as the petition is not maintainable under Section 235 of Companies Act, 1956. However, the company petition No. 46/2003 is maintainable under Section 237(b) of the Companies Act, 1956 as information being provided by the interested party to the CLB. The action to be taken on the petition is the prerogative of CLB after going through the allegations of the informant. The CLB is free to take assistance of any interested party to form an opinion as to whether the investigation in the affairs of the company as suggested, by informant is necessary or not.
18. I direct that the present petition be treated as filed under Section 237(b). The respondents are directed to file their reply to CP No. 46/2003 within a period of four weeks and rejoinder, if any to be filed by the petitioner within two weeks thereafter. The case be listed for further hearing on 14.4.2004. With above directions, the company Application No. 142/03 stands disposed off.
19. There is no order as to cost.
