Companies Act Case Law P Punnaiah Vs Jeypore Sugar Co Ltd

PETITIONER:
P. PUNNAIAH

Vs.

RESPONDENT:
JEYPORE SUGAR CO. LTD.

DATE OF JUDGMENT06/04/1994

BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
HANSARIA B.L. (J)

CITATION:
1994 AIR 2258 1994 SCC (4) 341
JT 1994 (3) 508 1994 SCALE (2)500
ACT:

 

HEADNOTE:

 

JUDGMENT:
The Judgments of the Court were delivered by
B.P. JEEVAN REDDY, J.- An application under Sections 397/398
of the Companies Act, 1956 can be filed inter alia by “any
member or members holding not less than one-tenth of the
issued share capital of the Company” vide clause (a) of
sub-section (1) of Section 399. Sub-section (3) of Section
399 says that among the members of the Company entitled to
make an application by 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”.
2.The three appellants in this appeal are the shareholders
of the first respondent-company, Jeypore Sugar Company
Limited. The respondents are its Directors. The first
appellant’s daughter Smt V. Rajeshwari also holds certain
shares in the first respondent-company. She is married and
has been residing in U.S.A. since 1973. Before leaving for
the U.S.A., she executed a General Power of Attorney (GPA)
in favour of her father, the first appellant herein, on 29-
11-1973.
3.On 25-10-1978, the three appellants herein filed an
application under Sections 397/398 in the High Court of
Orissa. To comply with the requirement of one-tenth
shareholding, the first appellant gave consent in writing
for and on behalf of Smt Rajeshwari as her GPA holder. If
the shareholding of Rajeshwari is taken into account and she
is deemed to have consented to the filing of the said
application, the requirements of Section 399 are admittedly
satisfied. The precise question in this appeal is whether
the consent given by her GPA holder for and on her behalf
and not by her ? personally is a valid consent within the
meaning of sub-section (3) of Section 399.
4.As soon as the application under Sections 397/398 was
filed by the appellants, some of the respondents raised a
preliminary objection to the maintainability of the
application on the ground that it does not comply with the
requirement of Section 399 inasmuch as the consent given by
the first appellant on behalf of and as the attorney of Smt
Rajeshwari, and not by herself personally, cannot be treated
as ‘consent’ within the meaning of Section 399(3). Both the
Company Judge and on appeal the Division Bench of the Orissa
High Court, upheld the said objection and dismissed the
application on the said preliminary ground alone.
5.For a proper appreciation of the question arising
herein, it would be appropriate to read Section 399 of the
Companies Act here:
“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
344
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)in the case of a company not having a
share capital, not less than one-fifth of the
total number of its members.
(2)For the purposes of sub-section (1),
where any share or shares are held by two or
more persons jointly, they shall be counted
only as one member.
(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.”
[Sub-sections (4) and (5) are omitted as
unnecessary.]
6.The relevant clauses of the General
Power of Attorney executed by Smt Rajeshwari
in favour of the first appellant may also be
noted:
“4. To sell, convert, collect, get in, or
manage or collect or otherwise administer any
property moveable or immovable which may be
vested in me alone or joint with others.
10.To take, prosecute, or defend, all legal
proceedings touching any of my matters in
which I am or may hereafter interested or
concerned and also if thought fit to
compromise, refer to arbitration, withdraw or
confess judgment or in any such proceedings.
12.To vote at the Meetings of the Company
or Companies and otherwise to act as my proxy
or representative in respect of any shares or
stock or debentures which may hereafter, be
acquired by me and for that purpose to sign
and execute any proxies or other instruments
in my name and on my behalf.
13.To appear and act in all the Courts, in
the Registration Office and in any Offices of
the Government, District Board, Municipality
or any local authority, on my behalf.
14.To sign, all the papers to be filed
into, Courts or Offices on my behalf and to
receive the moneys or other properties from
Courts or other Offices on my behalf.
15.Generally to act my Attorney or Agent in
relation to the matters aforesaid and all
other matters in which I may be interested or
concerned and on my behalf to execute or do
all deeds, acts or things as fully and
effectively in all respects as I myself do it
if I were personally present.” A reading of
the several clauses of the GPA discloses ex
facie that the powers given thereunder are
wide enough to take in the power to grant the
consent under Section 399(3). Under the said
deed, Smt Rajeshwari empowered her father to
manage and otherwise administer her moveable
and immovable properties including shares and
stock as may be held by her and to take all
proceedings before all the authorities and
courts concerning the said properties and
shares. The deed also empowered him to sign
all
345
necessary papers relevant in that behalf and to file them in
courts and generally to do all things as may be necessary to
safeguard her interest. It is obvious that in pursuance of
the said deed, it would have been perfectly legitimate for
the first appellant to institute suits, petitions and other
proceedings with respect to the shares or other moveable and
immovable properties held by Smt Rajeshwari. Indeed it
would well have been within the power of the GPA holder to
have himself figured as an applicant, acting in the name of
Smt Rajeshwari, in the said application filed under Sections
397/398. If so, there appears no reason why the consent
could not have been given by the Power of Attorney holder
which is only a step towards protecting the interest of
Rajeshwari. It in effect means joining the filing of the
application under Sections 397/398. May be that there are
some functions/duties which cannot be performed through a
Power of Attorney Agent (e.g. quasi-judicial/judicial
functions) but there appears to be no good reason why the
consent contemplated by Section 399(3) cannot be given by
such Power of Attorney holder, when indeed he could himself
have filed such an application in the name of and on behalf
of Smt Rajeshwari. In this connection we may notice yet
another fact. With a view to counteract the objection taken
by the respondents, the appellants filed an affidavit of Smt
Rajeshwari wherein she affirmed that on her recent visit to
India she was apprised by her father of the affairs of the
first respondent-company and of the proposal to file an
application against the first respondent-company and its
management alleging oppression and mismanagement. She
affirmed that she had authorised her father to act on her
behalf as her GPA in that behalf and to take all such steps
as he deemed proper to protect her interest.
7.The Company Judge and the Division Bench have, however,
taken the view that the consent to be granted by a member of
the Company under Section 399(3) must be a conscious
decision of the member himself/herself. They opined that
the member must personally apply his mind to the
advisability of granting consent and then grant it. In this
view of the matter, they held, the GPA holder is not
competent to grant the consent. Mr Sibal, the learned
counsel appearing for the respondents, supported the said
reasoning. He submitted that the right or power to grant
consent under Section 399(3) is a personal right which
cannot be delegated to or exercised by an agent. The very
filing of an application under Sections 397/398 has serious
repercussions on the reputation and creditworthiness of the
Company. It must therefore be insisted that the decision to
grant consent must be a personal decision of the member and
not a decision of his agent. Mr Sibal further submitted
that this is not even a case where the Power of Attorney
expressly authorised the agent to grant consent under
Section 399(3). The deed in question is merely a General
Power of Attorney and that is not enough.
8.We are unable to agree with the said reasoning.
Section 399 or subsection (3) thereof does not either
expressly or by necessary implication indicate that the
consent to be accorded thereunder should be given by the
member personally, As we have emphasised hereinabove, the
first appellant
346
could have filed, or joined as an applicant in an
application under Sections 397/398 in the name of and for
and on behalf of Smt Rajeshwari as her GPA holder. No
question of ‘consent’ would have and could have arisen in
such a case. If so, it is un-understandable as to why and
how he could not have given consent on behalf of Smt
Rajeshwari, the member, under Section 399(3). No rule or
decision could be brought to our notice saying that the
consent under Section 399(3) cannot be given by a GPA holder
(who is empowered by the principal to manage and administer
the shares and stocks held by the principal and to take all
necessary steps and proceedings in all courts, offices and
tribunals in that behalf). In this connection, it is
relevant to notice that shares may also be held by a company
or other corporate body. Question may arise what does one
mean by a personal decision by a company or other juristic
person. Be that as it may, we see no warrant for holding
that Section 399(3) is an exception to the normal rule of
agency. The normal rule is that whatever a person can do
himself, he can do it through his agent, except certain
functions which may be personal in nature or otherwise do
not admit of such delegation. The consent contemplated by
Section 399(3)falls under the general rule and not under
the exception.
9.Mr Sibal brought to our notice Rule 88
of the Companies (Court) Rules,1959 which
reads:
“88. Petition under Section 397 or 398.- (1)
Where a petition is presented under Section
397 or 398 on behalf of any members of a
company entitled to apply under Section
399(1), by any one or more of them, the
letters of consent signed by the rest of the
members so entitled authorising the petitioner
or petitioners to present the petition on
their behalf, shall be annexed to the
petition, and the names and addresses of all
the members on whose behalf the petition is
presented shall be set out in a schedule to
the petition and where the company has a share
capital, the petition shall state whether the
petitioners have paid all calls and other sums
due on their respective shares. Where the
petition is presented by any member or members
authorised by the Central Government under
Section 399(4) the order of the Central
Government authorising such member or members
to present the petition shall be similarly
annexed to the petition. A petition under
Section 397 shall be in Form No. 43, and a
petition under Section 398 shall be in Form
No. 44.
(2)A petition under Section 397 or 398
shall not be withdrawn without leave of the
Court, and where the petition has been
presented by a member or members authorised by
the Central Government under subsection (4) of
Section 399, notice of the application for
leave to withdraw shall be given to the
Central Government.”
What the rule says is that the letters of consent signed by
the consenting members shall be annexed to the petition
along with their names and addresses and other prescribed
particulars. The rule does not in any manner indicate that
the consent should be given by the member personally.
347
10.Mr Vinoo Bhagat, learned counsel for the appellant
invited our attention to a decision of the Division Bench of
the Bombay High Court in Killick Nixon Ltd. v. Bank of
India’. In this case it is held that the General Power of
Attorney holder is empowered to grant consent under Section
399(3). The General Power of Attorney concerned therein is
substantially in the same terms as the one concerned herein.
We agree with the said decision.
11.Mr Sibal brought to our notice a few decisions to which
we may advert now. A learned Single Judge of Allahabad High
Court held in Makhan Lal Jain v. Amrit Banaspati Co. Ltd.2
that the consent in writing contemplated by Section 153-C(3)
of Companies Act, 1913 requires that the writing itself
should indicate that the members have affixed their
signatures, having applied their mind to the question before
them and have consented for the action being taken. [Section
153-C(3) of the Companies Act, 1913, considered in the said
decision broadly corresponds to Section 399(3).] Looking at
the sheets of papers allegedly constituting the consent of
the consenting members, the learned Judge held that having
regard to their contents, they cannot be treated as consent
letters. Learned Judge held that the writing itself should
indicate that the person has applied his mind to the
question before him and has given his consent and that where
a petitioner obtained another shareholder’s signature on a
blank piece of paper and sought to supplement it by an
affidavit or an oral sworn statement of the member himself
or his agent cannot be said to have complied with the
requirements of the section. Nowhere does the decision say
that such consent must be given by the member personally and
that it cannot be given through his agent.
12.Mr Sibal relied upon the decision of this Court in
Charanjit Lal Chowdhury v. Union of India3 and in particular
the statement in AIR para 78 at page 62. In the said
paragraph, this Court considered the question whether the
shares held by a person can be said to be ‘property’ within
the meaning of Articles 31(2) and 19(1)(f) and whether
acquisition of the company by the Government amounts to
acquisition of the shares of the shareholders. The
petitioner contended that it does. Rebelling the said
contention, S.R. Das, J. observed:
“These rights, as already stated, are, no
doubt, privileges incidental to the ownership
of the share which itself is property, but it
cannot, in my opinion, be said that these
rights, by themselves, and apart from the
share are, ‘property’ within the meaning of
those articles, for those articles only regard
that as ‘property’ which can by itself be
acquired, disposed of or taken possession of.
The right to vote for the election of
directors, the right to pass resolutions and
the right to present a petition for winding up
are personal rights flowing from the
ownership of the share and cannot by
themselves and apart from the share be
acquired or
1(1985) 57 Comp Cas 831 (Bom)
2 AIR 1953 All 326: (1953) 23 Comp Cas
100: ILR (1954) 1 All 131
3 AIR 1941 SC 41 : 1950 scR 869 :(1951) 21
Comp Cas 33
348
disposed of or taken possession of as
contemplated by those articles. The second
question is assuming that these rights are by
themselves ‘property’, what is the effect of
the Ordinance and the Act on such ‘ property’.
It is nobody’s case that the Ordinance or the
Act has authorised any acquisition by the
State of this ‘property’ of the shareholder or
that there has in fact been any such
acquisition. The only question then is
whether this ‘property’ of the shareholder,
meaning thereby only the rights mentioned
above, has been taken possession of by the
State. It will be noticed that by the
Ordinance or the Act these particular rights
of the shareholder have not been entirely
taken away, for he can still exercise these
rights subject, of course, to the sanction of
the Government. Assuming however, that the
letters placed on these rights are tantamount
to the taking away of the rights altogether,
there is nothing to indicate that the
Ordinance or the Act has, after taking away
the rights from the shareholder, vested them
in the State or in any other person named by
it so as to enable the State or any other
person to exercise those rights of the
shareholder.”
13.The observations to the effect that the
right to present an application of winding up
and the right to vote for the election of
Directors are the personal rights of
shareholders must be understood in the context
of the question considered therein. The
observations cannot be torn from their context
to hold that the said rights cannot be
exercised through an agent. That was not the
issue before the Court. Mr Sibal also brought
to our notice the decision of this Court in R.
Subba Rao v. CIT4. The matter arose under
Section 26-A of the Indian Income Tax Act,
1922 read with Rules 2 and 6 of the rules
framed in that behalf. The rules provided
that an application for renewal of
registration of the firm “shall be signed
personally by all the partners”. It is
because of the said requirement that it was
held that partners must sign such an
application personally. In the absence of any
such expression in Section 399(3), the said
decision is of no help to the respondents
herein.
14.Mr Sibal lastly contended that the petition was filed as
far back as in 1978 and that over the years, certain
Directors have ceased to be Directors by death or otherwise
and that some new Directors have come into office. An
affidavit was handed over across the bar stating that some
of the Directors have expired. The affidavit, however, does
not say that any new Directors have come into office or that
in their absence the present appeal is not maintainable. We
need not, therefore, express any opinion on this contention.
15.For the above reasons, the appeal is allowed and the
orders of the learned Company Judge and the Division Bench
impugned herein are set aside. The consent given by the
first appellant for and on behalf of Smt V. Rajeshwari, as
her GPA holder, is a valid consent within the meaning of
Section 399(3) and, therefore, the preliminary objection to
the maintain-
4 AIR 1956 SC 604: 1956 SCR 577 : 30 ITR 163
350

 

 

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