Companies Act Case Law J.P. Srivastava & Sons Pvt Ltd & Ors Vs M/s Gwalior Sugar Co Ltd & Ors

Appeal (civil) 6951 of 2004

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

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

DATE OF JUDGMENT: 26/10/2004


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

(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

(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
included, then the percentage would go to

(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%

(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
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
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
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:-

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
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  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

” Whether 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
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

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

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
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

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

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
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

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

“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)

However, for the reasons indicated by us earlier we do
not propose to entertain this plea of the respondents at this
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.
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
“. 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
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

(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

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
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:
” . 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
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

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..”

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.


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