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In Re: Kerala Chamber of Commerce - Court Judgment

LegalCrystal Citation
CourtCompany Law Board CLB
Decided On
Judge
AppellantIn Re: Kerala Chamber of Commerce
Excerpt:
.....less 5 288 3 persons signed twice and 1 person (293 - 5)5. less 2 286 unsigned consents (admitted by both (288 - 2) parties)6. less 23 members who have given 263 notarised letters stating that they have (286 - 23) not given consent, (disputed)7. less 21 persons whose signatures do 242 not match with specimen signatures (263 - 21) (disputed) in view of the rival claims, the validity of these 242 consents shall necessarily be examined. a careful perusal of the undated consent letter would indicate that it consists of 36 sheets of which the first sheet contains the signatures of two of the members, namely (i) m/s.s.v. printers; and (ii) m/s. bavasons constructions private limited, with the following recitals: we, the undersigned are the legally admitted members of.....
Judgment:
1. In the company petition filed under Sections 397, 398, 399, 402 & 403 of the Companies Act, 1956 ("the Act"), on account of certain alleged acts of oppression and mismanagement in the affairs of M/s.

Kerala Chamber of Commerce and Industry ("the Chamber"), the Chamber has come out with the present application under Sections 399 and 403 of the Act, read with regulations 44 and 47 of the Company Law Board Regulations, 1991 (Regulations 1991), questioning the very maintainability of the company petition for not meeting the requirements of Section 399 of the Act, in support of which, Shri P.H.Arvindh Pandian, learned Counsel submitted: The Chamber is a Section 25 Company. By virtue of Section 399, a right to apply under Sections 397 & 398 arises only if the consent of not less than one-fifth of the total number of members is obtained. As on the date of the company petition, namely, 21.12.2006, the Chamber consisted of 1809 members, out of which the admission of 388 members made on or after 30.09.2006 is under challenge and therefore, for the purpose of adjudicating the issue of maintainability of the main petition 1421 members (1809-388) may be taken into account, in which case 284 members would constitute the required strength in terms of Section 399 (1/5^th of 1421 = 284). The main petition has been filed by three petitioners and therefore, there must be 281 valid consents to the main petition.

The petitioners have purportedly obtained the consent of 318 members, out of which 76 consents are invalid in view of the fact that (i) same persons (4 members) have given multiple consents [3 members signed twice and one member signed thrice (9-4 = 5)]; (ii) some other persons (21 persons) are not members of the Company; (iii) the signatures of 21 members are at complete variance with the specimen signatures maintained with the Company; (iv) 51 members have given letters stating that they have not given consent to file the company petition, out of whom 28 members have again affirmed that they have given consent; thereby 23 members have maintained their stand that they have not given consent in favour of the petitioners to invoke the provisions of Sections 397 & 398; (v) consent by two members are unsigned; and (vi) four persons became members only after 30.09.2006. The cumulative effect of these irregularities in the consent letters would show that there are only 242 valid consents (318 - 76) as against the minimum of 281, consents apart from the three petitioners to meet the requirements of Section 399.

The consent has been given by members in a mechanical manner without application of mind, or having read the petition, or the averments contained therein. The signature of persons has been obtained on separate papers, since breaks in the signatures are found in certain pages of the main petition, namely, annexures 149, 160, 164 & 174.

It is obvious that members have signed without having seen the page 143 of the main petition, namely, the consent. Hence, the consents are not in accordance with law.

Article 10 provides that every member shall be entitled to nominate one representative in the manner specified therein and is entitled to exercise the rights of voting at any general meeting of the Company. In view of this, consent letters could be signed by the members or their representative. The consent letters in respect of 21 members as already stated having been signed by some one else, vary from the specimen signatures maintained with the Chamber. If the signatures of some of the members are obtained by misrepresentation, they cannot be said to be consenting parties to the petition at the time of its institution, as held in Naranjan Singh v. Edward Ganj Public Welfare Association (1983) Vol 54 CC 330. In the light of the principle enunciated in this judgement, the consent letters in respect of 23 members stated hereabove, who have disputed any valid consent given by them, must be ignored.

2. Shri N. Ramakrishnan, learned Counsel while opposing the prayer of the applicant submitted that the petitioners are challenging the induction of 388 members by the Chamber on or after 30.09.2006 and therefore, the total number of members may be kept at 1421 members (1809 - 388) for the purpose of the present application. The consent given by the members is proper for filing the company petition and is in consonance with the statutory provisions and does not suffer from any infirmity.

The consent given by 21 persons specified by the Chamber are not of members. There are multiple consents, invalidating five consents.

There are four members giving consent, who have been admitted after 30.09.2006. The consent letter has not been signed by two of members which is however only a technical error and must be ignored in view of their seal appearing in the consent letter. The signatures of 21 members vary on account of the fact that the representatives of those members were not available at the time of the company petition and hence consent letter was signed as contemplated in article 10 by the authorised representatives. The respective seal of the members were also put in the consent letters, as borne out by the letters of their representation in this regard. Out of 318 members who have given consent to file the company petition, 51 members reportedly denied having given any consent, whereas 28 members out of the disputed members once again clarified affirming their consent for filing the company petition by means of letters. The company petition made under Section 397/398 could not be rejected only because letters of consent, which is one of the requirements of Annexure III of regulation 18, has not been annexed to the petition, especially when the requirements of Section 399 are directory and not mandatory as held by the Supreme Court in J.P. Srivastava & Sons (P) Ltd. v. Gwalior Sugar Co. Ltd. 3. Shri Jose John, learned Counsel representing the seventh respondent, while adopting the arguments advanced on behalf of the applicant submitted that by virtue of Section 91 of the Indian Evidence Act, 1872, when the terms of a contract have been reduced to the form of a document, no evidence shall be given in proof of the terms of such contract. In view of this, the parties shall strictly go by the consent letter before the Bench. The date of the consent letter is left blank and applicable only to those two members, who have signed the consent letter. The remaining consentors have signed in the blank papers, without application of mind and without reference to the disputed consent letter. There is nothing to suggest whether the consentors who have not joined the petition signed consciously giving consent to file a petition under Section 397/398 of the Act. There is no indication in any of the sheets annexed to the consent letter why the signatures were affixed by the signatories. These cannot amount to 'consent in writing' of those signatories, as held in Makhan Lal Jain v. Amrit Banaspati Co.

Ltd. (1953) Vol. 23 CC 100. The Madras High Court held in M.C.Duraiswami v. Sakthi Sugars Limited (1978) Vol. 50 CC 154 that a blanket consent; without any application of mind by the consentors before giving consent and without knowing the action proposed, relief prayed for etc, cannot be a valid consent. In the present case, the signatures having been put in a number of blank papers, without application of mind and without reference to the petition, can never be valid consent and therefore, the petition does not meet the requirements of Section 399 of the Act.

I have considered the arguments of learned Counsel for the parties. The short issue for consideration is whether the petitioners do qualify under Section 399 to apply before the CLB for relief in eases of oppression and mismanagement in the affairs of the Chamber. Section 399(1) stipulates that (a) in the case of a company having a share capital, members constituting 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 members holding not less than one-tenth of the issued share capital of the company; and (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members, shall have the right to apply under Section 397 or Section 398. It is, therefore, far from doubt that Section 399 stipulates minimum qualifications, which members should possess such as their numerical strength or the extent of their share capital.

Sub-section (3) of Section 399 provides that any member or more of them having obtained the consent in writing of the rest may make the application under Section 397/398 on behalf and for the benefit of all of them. In the present case, the Chamber not having any share capital, not less than one-fifth of the total number of its members shall have the right to invoke the provisions of Section 397/398. In order to maintain a petition under Section 397/398, it is absolutely necessary to ensure that the applicant satisfy the requirements of Section 399 at the time of filing the petition. There are admittedly 1809 members in the Chamber before me as on the date of the company petition. However, the admission of 388 members made on or after 30.09.2006 is being impugned in the present company petition and, therefore, with the concurrence of the contesting parties, the total number of members, for adjudicating the issue of competence to make an application under Section 397/398 has been voluntarily fixed at 1421 members (1809 - 388), in which event 284 members would constitute the numerical strength in terms of Section 399 (1/5^th of 1421 = 284). There are three petitioners initiating the company petition and consequently the consent of minimum of 281 members is essentially necessary to maintain the present company petition. The petitioners have annexed the consent from 318 members out of which the consent of 76 members is under serious dispute, which however, at the time of arguments narrowed down to 44. Thus, the consent of 32 members (4 + 21 + 5 + 2), namely, 4 members who became members of the Company after 30.09.2006, 21 persons are not members, 3 members signed twice, one person signed thrice (9 4 = 5) and two members not signed, must be ignored from that of 318 members produced by the petitioners, which has been accepted by the petitioners. In view of the consensus reached between the parties, the number of consents produced before the Bench has come down from 318 to 286 (318 - 32). The petitioners have produced copies of the letters addressed by as many as 51 members in favour of the President of the Chamber, subsequent to filing of the company petition reporting that they have not signed any consent letter to file a petition before the CLB, in response to which the petitioners in turn, however, produced letters from 28 members out of the aforesaid 51 members to the effect that they will stand by the statement contained in the said petition.

The affirmation of 23 members that they have not given consent in favour of the petitioners to invoke the equitable jurisdiction of the CLB has neither been explained nor contraverted by the petitioners. If the consent letters are obtained by misrepresentation, they would no longer be valid in law as held in Naranjan Singh v. Edward Ganj Public Welfare Association (Supra). The net outcome of this controversy results in reduction of the consent by 23 members. The yet another serious dispute is in relation to variance of the signatures of 21 members with the specimen signatures of those members maintained by the Chamber. By virtue of Clause 10 of the articles of association, either the member or his representative can represent the Chamber.

Accordingly, it is contended on behalf of the petitioners that 21 persons, have signed the consent letters as authorised by the respective members, in support 'of which those members have produced letters subsequent to filing of the company petition reporting that the consent letters have been signed as authorised by them and further reiterated their consent for filing the company petition. It is, therefore, clear that in the case of consent by 21 persons they were not signed by the concerned member themselves, but by their representatives, reportedly authorised by those members. The subsequent letters of the members mentioned hereabove, unequivocally indicate that their representatives were not available on the day of giving the consent letters and therefore the consent letters came to be signed by the signatories, appearing in the consent letters as per the authority given by the members. There is no material whatsoever to establish that the respective members duly authorised the signatories appearing in the consent letter to sign the same. Thus, the consent of 44 members (23 + 21) discussed hereabove cannot be construed as valid. Consequently, the consent given by 76 members (32 + 44) is found to be invalid out of the 318 consents produced by the petitioners, thereby not meeting the requirement of Section 399, in terms of which there must be valid consent from 281 members, apart from the three petitioners (1/5th of 1421 = 284) But there only 242 valid consents (318 - 76 = 242) on account of the discrepancies already discussed, which are summarised hereunder:--------------------------------------------------------------Sl.

Nature of discrepancies obtained Number of consentsNo. after discrepancies--------------------------------------------------------------1.

Number of consents as admitted by 318 both parties.2.

Less 4 members who became 314 members of the Chamber after (318 - 4) 30.09.2006 (admitted by both parties.)3.

Less 21 persons who are not members 293 (admitted by both parties) (314 - 21)--------------------------------------------------------------4.

Less 5 288 3 persons signed twice and 1 person (293 - 5)5.

Less 2 286 Unsigned consents (admitted by both (288 - 2) parties)6.

Less 23 members who have given 263 notarised letters stating that they have (286 - 23) not given consent, (disputed)7.

Less 21 persons whose signatures do 242 not match with specimen signatures (263 - 21) (disputed) In view of the rival claims, the validity of these 242 consents shall necessarily be examined. A careful perusal of the undated consent letter would indicate that it consists of 36 sheets of which the first sheet contains the signatures of two of the members, namely (i) M/s.

S.V. Printers; and (ii) M/s. Bavasons Constructions Private Limited, with the following recitals: We, the undersigned are the legally admitted members of the Kerala Chamber of Commerce & Industry, Cochin. A Section of the present Management Committee of the Chamber have taken certain unilateral decisions which are against the interests of the Chamber and its members and are seeking to implement the said decisions in the course of the Annual General Meeting proposed to be held on 30.12.2006. Similarly, a s majority of the present Management Committee has committed various act which are found oppressive to the minority group of the Chamber and using the said majority, the group is now trying to undermine the elections for the Office-bearers to be held in the Annual General Meeting on 30.12.2006.

Since the representations made by the members in this regard have not been considered, it is now been decided by the undersigned to approach the Hon'ble Company Law Board seeking appropriate and necessary reliefs so as to protect the interests of the Chamber and its members.

In pursuance of the same, we the undersigned consent and do hereby authorise 1) Metalex Agencies, 2) Diwakar & Co. and 3) Mr. Niaz Ibrahim, the members of the association to file the necessary petitions before the Hon'ble Company Law Board seeking appropriate reliefs in the above matter. We are giving this consent in terms of the requirements Under Section 399(3) of the Companies Act.

There is no doubt that the aforesaid consentors have applied their mind to the issues before them and they have given their consent to the action being taken by the petitioners before the CLB in cases of oppression in the affairs of the Chamber seeking appropriate reliefs to protect the interest of the Chamber and its members. The first sheet containing the consent under Section 399(3) of the Act, does not make any reference to any of the subsequent sheets. Similarly, none of the subsequent sheets does refer to the first sheet containing the consent.

All the subsequent 35 sheets contain the names, addresses and signatures of the remaining consentors with the discrepancies already elucidated elsewhere. The first page of the consent letter does not indicate the number of sheets contained therein. These consentors are not signatories to the main petition. There is no material to show that the consentors have either read or understood the contents of the main petition. None of the sheets save the first sheet of the consent letter contains anything other than the names, addresses and signatures of the members, with exception of two members, who have not signed the consent letters. There are unexplained breaks found in between the signatures, which are not usual, in certain pages of the consent letters (page 149, 160 & 164 of company petition). The signatories have not written anything at the top of the sheets on which their signatures are found.

It could not either be ascertained, looking at those sheets, why the signatures were, affixed, especially when none of the sheets traces the root to the first sheet containing the consent of two of the members.

No endorsement is found at the top of any of the subsequent 35 sheets to the effect that the members are expressing their approval of the petition filed by the petitioners in the CLB. By virtue of Section 399(3) "consent in writing" would imply that the writing itself should indicate that the persons who have affixed their signatures have applied their minds to the issue before them and have given their consent to the action being taken, as reiterated in Makhan Lal Jain v.Amrit Banuspati Co. Ltd (Supra). None of the subsequent 35 pieces of sheets would indicate whether the signatories had the knowledge of the action to be taken, the reliefs to be claimed and the grounds to be urged in support of the reliefs claimed, etc. It is also unknown whether those signatories applied their minds on the relief sought to be prayed and the ground on which such relief is sought to be prayed.

In the absence of any particulars such as the nature of allegations or complaint to be made in the petition and the nature of relief sought to be claimed in the petition cannot be the result of an application of the mind to the question before them and therefore such consent cannot a valid consent as re-enforced in M.C. Duraiswami v. Sakthi Sugars Limited (Supra). All the subsequent 35 pieces of sheets would give an impression that the signatories have simply subscribed their signatures, without applying their minds and knowing the purposes for subscription of their signatures, to those sheets. The consent as envisaged under Section 399(3) must be an intelligent consent, which must be given for the purpose of making particular-allegations and for the purposes of claiming appropriate reliefs therein, which are found missing in the present case. In view of this, mere signatures contained in the blank pieces of paper cannot amount to "consent in wilting", since the sheets on which the signatures are found do not by themselves, indicate the purpose of signatures affixed therein. Section 399(3) stipulates that the consent should be in writing, namely, in the form of a document and, therefore, in the present case, pieces of sheets, should indicate why the signatures were affixed. In view of Section 91 of the Indian Evidence Act 1872 no evidence shall be given in proof of the terms of such contract, except the document itself. By merely obtaining the signatures of a number of members on as many as 35 pieces of sheets, the petitioners did not secure any valid consent in writing of those members, satisfying the requirements of Section 399(3). This would ultimately result in a situation where there is a valid consent only from two of the members whose names are appearing in the first sheet of the consent letter and consequently, the main petition with three petitioners and two consentors alone is not maintainable.J.P. Srivastava & Sons Private Limited v. Gwalior Sugar Co. Limited (Supra) while confirming the directory nature of requirement of letters of consent given by supporting shareholders, at the time of making the application under Section 397 & 398 as contemplated in Section 399(3), categorically held thus: "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 mat 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." The Supreme Court while making abundantly clear that the shareholders holding the requisite percentage can maintain an action under Section 397/398 in order to bring to an end the matters complained of held that the requirement of tiling consent letters of members as well as documents required, to be annexed to petitions relating to the exercise of powers in connection with prevention of oppression or mismanagement is not mandatory, but merely directory. Thus, a right to apply under Section 397/398 arises to the petitioners, only if the consent of not less than one-fifth of the total number of members, as contemplated in Section 399, is obtained.

Therefore the decision of the Supreme Court will be of little assistance to the petitioners.

4. In view of my foregoing conclusions, I am of the considered view that the company petition must fail at the threshold, for not meeting the requirements of Section 399 of the Act, Ordered accordingly. All the interim orders are vacated and the connected company application stand disposed of.


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