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Sri Krishna Tiles and Potteries (Madras) Private Limited Vs. the Company Law Board and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCivil Writ Appeal No. 329 of 1977
Judge
Reported in[1979]49CompCas409(Delhi); ILR1979Delhi105
ActsCompanies Act, 1956 - Sections 397; Companies Court Rules, 1959 - Rule 13
AppellantSri Krishna Tiles and Potteries (Madras) Private Limited
RespondentThe Company Law Board and ors.
Advocates: J.L. Nain,; D.N. Mishra,; K.J. John,;
Cases Referred(See Mayer Simon Parur v. Advocate General of Kerala and
Excerpt:
companies act (1956) - sections 397, 398, 399(1), (4) & (5)--companies (court) rules, 1959, rule 13--notification no. g.s.r. 443(e) dated 18-10-72--mismanagement or oppression--petition for relief--minimum number of members for petition--power of central government or company law board to dispense with requirement--company whether entitled to notice and be heard before central government or company law board authorises applicant to prefer petition without prescribed strength of shareholding--authorisation whether administrative or quasi-judicial--scope and nature of enquiry under section 399(4).; in the instant case a shareholder with less than 10 percent of shareholding in a company had been granted authorisation by the central government under sub-section (4) of section 399 of the.....prakash narain, j.(1) the important point which arises for determination in this petition under article 226 of the constitution of india, and i am told for the first time, is the construction of sub-section (4) of section 399 of the companies act, 1956. this provision empowers the central government to authorise any member or members of a company to apply to the court under section 397 or section 398 of the companies act notwithstanding that the said member or members do not have either the prescribed holding or numerical strength postulated by clauses (a) and (b) of sub-section (1) of section 399 which alone gives the right to a member or members to apply to the court under sections 397 or 398 of the companies act. section 397 confers powers on the court to grant relief in cases of.....
Judgment:

Prakash Narain, J.

(1) The important point which arises for determination in this petition under Article 226 of the Constitution of India, and I am told for the first time, is the construction of sub-section (4) of Section 399 of the Companies Act, 1956. This provision empowers the Central Government to authorise any member or members of a company to apply to the court under Section 397 or section 398 of the Companies Act notwithstanding that the said member or members do not have either the prescribed holding or numerical strength postulated by clauses (a) and (b) of sub-section (1) of Section 399 which alone gives the right to a member or members to apply to the court under Sections 397 or 398 of the Companies Act. Section 397 confers powers on the court to grant relief in cases of oppression and Section 398 empowers the court to grant relief in cases of mismanagement of a company. The right to move the court under either of the two sections or both of them, as far as members are concerned, is restricted to those having either the prescribed numerical strength or the prescribed shareholding. The conferment of this right by authorisation of the Central Government despite not having the prescribed numerical strength or prescribed shareholding after hearing the company or without hearing it is the moot question.

(2) The petitioner before me is a company which was incorporated in 1946 under the Companies Act, 1913. It has its registered office at 80, Royapettah High Road, Mylapore, Madras. It carries on the business of manufacturers of and dealers in tiles, bricks and other allied products. The petitioner is a private limited company with an authorised capital of Rs. 12 lakhs divided into 3000 5 per cent Preference Shares of Rs. 100 each, 2000 7 per cent Preference Shares of Rs. 100 each and 70,000 Equity Shares of Rs. 10 each. The paid up capital of the company is said to be Rs. 7 lakhs made up of 70,000 Equity Shares of Rs. 10 each. The company has, in all, 50 members. The management of the company is vested in whole-time Directors including the Managing Director who carry on the affairs of the company under the overall superintendence and control and directions of the Board of Directors.

(3) The respondents before me are the Company Law Board, established under Section 109 of the Companies Act, the Union of India, the Central Government and one Mr. A. M. P. Arunachalam of Madras, who is cited as a third respondent. Arunachalam has been authorised by the Company Law Board to apply to the court under Sections 397 and 398 of the Companies Act in relation to the affairs of the petitioner-company by virtue of the powers vested in the Central Government under sub-section (4) of Section 399 of the Companies Act. This fact has been communicated to the petitioner by a communication from the Department of Company Affairs (Company Law Board) bearing Reference No. 17/31/75-CI. I dated April 13, 1977. The petitioner challenges this authorisation given in favor of Arunachalam.

(4) According to the petitioner Arunachalam is the lone shareholder out of the members of the company and does not have support of the remaining 49 members. He holds only 3015 equity shares which is obviously less than 10 per cent of the paid up share capital of the company. It is contended that Arunachalam is ill-disposed towards the management of the company and has secured the impugned authorisation under section 399(4) of the Companies Act with mala fide intent and without any opportunity being granted to the petitioner to show to the Company Law Board that circumstances did no exist for grant of the impugned authorisation. The point that arises for consideration is whether before granting the authorisation under sub-section (4) of Section 399 of the Companies Act in favor of Arunachalam the Company Law Board was bound to give notice to and hear the petitioner-company. Incidentally a question also arises as to whether the Company Law Board was required to state reasons in its order of authorisation in terms of Section 399(4) or in other words the impugned order had to be what is known as a speaking order.

(5) The impugned order dated April 13, 1977 as communicated to the petitioner reads as under : 'No. 17/31/76-CL. I Government of India Ministry of Law, Justice & Company Affairs Department of Company Affairs (Company Law Board) Shastri Bhavan (5th Floor, 'A' Wing) Dr. Rajendra Prasad Road, New Delhi-1, the 13-4-77 Order Whereas Shri A. M. P. Arunachalam of No. 3, Raman Street, Madras-17, a member of Sri Krishna Tiles and Potteries (Madras) Private Limited, Madras being desirous of moving an application under Section 397/398 of the Companies Act, 1956 (I of 1956) has applied to the Company Law Board for an authorisation in terms of Section 399(4) of the said Act so as to enable him to move the said application; And whereas the Company Law Board is of the opinion that circumstances exists which make it just and equitable to do so notwithstanding that the requirements of clause (a) of sub-section (i) of the said section 399 are not fulfillled; Now, thereforee, the Company Law Board in exercise of powers conferred upon it by sub-section (4) of section 399 of the Companies Act, 1956 (1 of 1956) read with the notification of the Government of India in the Department of Company Affairs No. G.S.R. 443(E) dated the 18th October, 1972, hereby authorise the said Shri A. M. P. Anmachalam to apply to the court under section 397 and 398 of the said Act in relation to the said company. By order of the Company Law Board. sd/- (W. L. Pillay) Under Secretary to the Company Law Board.'

(6) Section 397 and Section 398 of the Companies Act read as under: '397. (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this section, provided such members have a right so to apply in virtue of section 399(2) If, on any application under sub-section (1), the Court is of opinion (a) that the company's affairs are being conducted jn a manner prejudicial to public interest or in a manner expressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. (1) Any members of a company who complain (a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company; or (b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of Directors, or of its managing agent or secretaries and treasurers or manager or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; may apply to the Court for an order under this section, provided such members have a right to apply in virtue of section 399(2) If, on any application under sub-section (1) the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.'

(7) The relevant portion of Section 399 of the Companies Act reads as under:

'399(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; (4) The Central Government may, if in its opinion circums less than one-fifth of the total number of its members. (2) .. (3) .. (4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Court under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be of sub-section (1) are not fulfillled. (5) The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the Court dealing with the application may order such member or members to pay to any other person or persons who are parties to the application.'

(8) The Company Law Board, respondent No. 1, has been constituted by virtue of the provisions of Section 109 of the Companies Act. The powers of the Central Government postulated by sub-section (4) of Section 399 have been delegated to it under Notification No. Gsr 443 (E) dated October 18, 1972. It is in exercise of these powers of the Central Government that the Company Law Board has made the impugned order giving authorisation under section 399(4) to Arunachalam.

(9) The Companies Act, 1956 was enacted by Parliament to consolidate and amend the law relating to companies and certain other associations to ensure better and proper functioning of the companies and such associations. It provides for control and vigilance by the Central Government and other authorities. In order to make the control and supervision more effective in the sphere spelt out by the legislature, the Central Government has been authorised by Section 642 of the Act to frame rules, inter alia, for all or any of the matters which by the Companies Act are to be, or may be, prescribed by the Central Government; and generally to carry out the purposes of the Act. In pursuance of these powers the Central Government promulgated the Companies (Central Government's) General Rules and Forms, 1956 by gazetting the same in Notification No. S. R. O. 432A. Rule 13 of these rules as under : - '13. Section 399(4). (1) Every application under clause (4) of Section 399 of the Central Government by any members of a company who wish to be authorised, to apply to the Court shall specify (a) the names and addresses of the applicants; (b) if the company has a share capital, the voting power held by each applicant; (c) the total number of applicants; (d) their total voting power; and (e) the reasons for making the application. (2) The reasons given in pursuance of clause (g) of sub-note (1) shall be precise and specific. (3) Every such application shall be accompanied by such documentary evidence in support of the statements made therein as are reasonably open to the applicants. (4) Every such application shall be signed by the applicants and shall be verified by their affidavit staling that paragraphs. ....... thereof are true to their knowledge and paragraphs. ..... .to the best of information and belief. (5) 'The Central Government may, before passing orders on the application, require the applicants or any one or more of them, to produce such further documentary or other evidence as the Central Government may consider necessary (a) for the purpose of satisfying itself as to the truth of the allegation made in the application. (b) for ascertaining any information which, in the opinion of the Central Government, is necessary for the purpose of enabling it to pass orders on the application.'

(10) Reading the provisions of Sections 397, 398 and 399 along with Rule 13, noticed above, it has been contended that the power exercised by the Company Law Board as a delegate of the Central Government in issuing the impugned authorisation has to be exercised quasi judicially and on objective assessment as opposed to the power being an administrative power exercised on subjective satisfaction. If that be correct, it is submitted, the Company Law Board would be a Quasi judicial body and was required not only to issue notice to the petitioner of the application moved by Arunchalam but also afford hearing to the petitioner and then pass a speaking order. It has been submitted that sub-section (1) of Section 399 of the Companies Act creates a protection in favor of the company against being harassed by a member or members not having sufficient financial interest in the affairs of the company or having sufficient numerical strength to claim interference. Granting of an authorisation under sub-section (4) of Section 399 has civil consequences qua the petitioner Company and, thereforee, even on the principles of natural justice it was entitled to a hearing before the impugned authorisation could be issued.

(11) The Company Law Board exercises diverse functions as delegated to it by the Central Government. Some of its actions may be administrative while others would be quasi-judicial. For example, if the Company Law Board is seized of a matter which it has to dispose of in according with the Company Law Board (Bench) Rules, 1975 it would be acting quasi-judicially or one may even see judicially. The matters which the Company Law Board hears judicially are like petitions under section 79 of the Companies Act or petitions for confirming alteration of Memorandum of Association. An application for authorisation under sub-section (4) of Section 399 of the Act is, however, not one of those matters. Indeed, it has not been contended that it is a matter which would fall within the ambit of the Bench Rules. What is contended is that in view of the consequence and effect of the order an enquiry to grant the authorisation has to be a quasi-judicial enquiry and the order passed on objective assessment instead of on subjective satisfaction.

(12) The respondent have contested the contentions of the petitioner. According to them the power exercised by the Company Law Board as a delegate of I he Central Government is an administrative power and the authorisation is to be given under sub-section (4) of Section 399 on the subjective satisfaction of the Company Law Board. It is contended by them that neither the law nor the principles of 'natural justice entitle the petitioner company to be heard. In that view of the matter, it is submitted, no notice was required to be given to the petitioner on the application of Arunachalam nor was the Com'pany Law Board required to pass a speaking order. It has further ' been submitted that sub-section (1) of Section 399 of the Companies Act places a bar on a member or members of the company which can be removed by the Central Government in exercise of its powers under sub-section (4) of Section 399. In other words, the disability imposed on a member or member's by sub-section (1) of Section 399 is removed by an authorisation issued under sub-section (4) of Section 399 and not that a protection afforded to a company is waived. It has also been contended that if the petitioner's contention was to be accepted a member or members seeking to move an application under section 397 or Section 398 of the Act would have to fight two battles, one before the Company Law Board and the other, if the authorisation is issued. before the court. This court certainly not be postulated by the legislature.

(13) The crucial words of Section 399(4) which require to be construed are 'in its opinion circumstances exist which make just 'and equitable so to do.' I shall presently deal with what these words mean First of all, let me lake up the contention of Mr.J. L. Nain learned counsel for the petitioner, that the Company Law Board as a delegate of the Central Government is a quasi-judicial body similar to an Income-tax Officer.

(14) Reliance hag been placed on Lalji Haridas v. The State of Maharashtra and another A. 1. R. 1964 SC 154 . In that case the Supreme Court was concerned with the question whether the proceedings before the Income-tax Officer under Section 37 of the Income-tax Act, 1922, could be said to be a Proceeding court within the meaning of Section 195(1)(b) of the Code of Criminal Procedure. In a complaint filed under Section 193 of the Indian Penal Code in the Court of the Presidency Magistrate, Bombay, it was alleged by the complainant that the opposite party had given false testimony on oath before the Income-tax Officer in a certain assessment proceedings. At the hearing before the Magistrate a preliminary objection was raised that the Magistrate could not take cognizance of die complaint because the proceedings in which the alleged false statement on oath was made were not proceedings before a court within leaning of Section 195(6) of the Code of Criminal Procedure and since no complaint in writing had been made by the court of the Income-tax Officer before which the proceedings were conducted a bar was created against the competence of the complainant to prefer the complaint. In that context and after analysing the functions of an Income-tax Officer it was held that he was a quasi-Judicial authority but not a court or a part of the judicial organ of the State. I do not think that the petitioner can get any assistance out of the observation made in the above case. The Income-tax Officer or for that matter the Company Law Board may be a quasi-judicial authority but it does not that proceedings before it are to be conducted as a lis between parties Before the Income-tax Officer the only party is the assesee and opposite party, if any, is the Revenue itself with its own making an assessment in accordance with the powers vested in him. The Income-tax Officer may be required to act quasi-Judicially as opposed to arbitrarily but he is not required to hear a dispute between two parties.The analogy of the Income-tax Officer is, thereforee, of no assistance.

(15) It has been submitted that in granting the authorisation under subsection (4) of Section 399 of the Companies Act there would be two parties namely, the applicant member or members and the Company because the company would be vitally affected in any authorisation being given by the Company Law Board. This would bring, in the concept of a lis and consequently of notice, hearing and speaking order. Referring to the provisions of Section 397 and Section 398, it has been urged that the existence of circumstances to even order winding up are pre-requisite to the maintainability of an application under Section 397 or Section 393 of the Companies Act. The Company Law Board would look into this aspect and if it is of the opinion that the complaining member or members have made out a case which may even justify the making of a order of winding up, then only would the authorisation be issued. In such a case the company suffers in reputation and, thereforee, there are serious consequences to the company in any authorisation being issued. It is for this purpose, it has been contended, that the protection is given that not any and every member can move an application under Section 397 or Section 398 of the Act but a member or members having sufficient financial or numerical interest in the affairs of the company. That the principles of natural justice would be attracted is contended on the basis of the decision of the Supreme Court in Lala Sh. Bhagwan & another v. Ram Chand & another, : [1965]3SCR218 and A. K. Kraipak & others y. Union of India & others : [1970]1SCR457 .

(16) In my opinion, the contentions of the petitioner are misplaced. The functions of the Central Government or the Company Law Board as its delegate, postulated by sub-section (4) of Section 399 of the Companies Act, are administrative functions and the formation of the opinion postulated by sub-section (4) of Section 399 is a subjective process. All that is required is that the circumstances must exist for the formation of the opinion and there must be material before the Company Law Board to form its opinion that circumstances exist which make it just and equitable to give the authorisation. I have already noticed earlier that what is to be construed are the words 'in its opinion circumstances exist which make it just and equitable so to do.' The same or similar words have been used in other provisions of the Companies Act, for example, clause (b) of Section 237 of the Companies Act. Under Section 237 of the Companies Act the Central Government, inter alia, may appoint Inspectors to investigate the affairs of the company if in its opinion there are circumstances suggesting that business of the company is being conducted with intent to defraud its creditors, members or any other persons etc. An investigation of the affairs of a company under Section 235 or Section 237 even on an application by members as contemplated by Section 236 is, perhaps, as serious a matter as an application under Section 397 or Section 398 of the Companies Act. The words in clause (b) of Section 237 are similar to the words in sub-section (4) of Section 399. It is a cardinal principle of interpretation of statutes that words used in a statute in various provisions should be construed as having been used in the same sense by the legislature unless specifically otherwise so provided or the context justifies another interpretation. The words 'in the opinion' or 'circumstances exist' have been construed and the interpretation admits of no doubt.

(17) In Barium Chemicals Ltd. and another v. Company Law Board and others, : [1967]1SCR898 , an order of the Company Law Board made under Section 237(b) of the Companies Act was challenged on various grounds. One of the points which came up for consideration was' whether in making the said order, the Company Law Board was exercising an administrative power or a quasi-judicial power. In that context it was also considered whether formulating of the opinion is a subjective process and if so, to what extent it was open to scrutiny in court. Incidentally the court also considered whether the exercise of the power affected the right of the company or ii had any serious or civil consequences. The court was of the opinion that so long as the order was not male fide it must be held to have been made in, exercise of administrative powers and the words 'reason to believe' or ''in the opinion of' do not always lead to the construction that the process of entertaining 'reason to believe' or 'the opinion' is an, altogether subjective process not lending .itself even to a limited scrutiny by the court that such a 'reason to believe' or 'opinion' was not formed on relevant facts or within the limits or within the restraints of the statute as an alternative safeguard to rules of natural justice where the function is administrative. Sub-section (4) of Section 399 also has similar words and so, in my opinion, the formation of the opinion about the existence of circumstances is a subjective process and the authorisation is issued by way of an administrative order. The only limited scrutiny which is permissible in court is as to the existence of the circumstances and not as to the sufficiency thereof. Once the circumstan,ccs are shown to exist then whether in the opinion of the Central Government of the Company Law Board it is just and equitable to grant the authorisation is not open to challenge.

(18) It has been urged that qua the Company Law Board the authorisation, is the final order because thereafter if an application under Section 397 or Section 398 is moved it is a court which has to decide the same. thereforee, it has been urged the Company Law Board must hear the petitioner before it can pass an order as a result of which the company may be dragged to court. Referring to Rule 13, noticed earlier, it has been urged that the manner in which an application is moved shows that there would be a lis and the power to order deposit of security would also show that a judicial or quasijudicial enquiry is to be held. Reliance is placed on Commercial Art Engravers Private Ltd. v. Indian and Eastern, Newspapers Society 1978 Comp Cas 36 and M/s. Erusian Equipment and Chemicals Ltd. v. State of West Bengal and another, : [1975]2SCR674 . In the case of Commercial Art Engravers Private Ltd. the Bombay High Court was dealing with court proceedings. In that context relying on Shankarlal Aggarwala v. Shankarlal Poddar (1965) 35 Comp Cas 1, it was held that even administrative directions issued by the Company Judge would attract the principles of natural justice and so, though the liquidator may be regarded as representing creditors in general yet the unsecured creditors must be heard and the unsecured creditors must have copies of the liquidator's report to make such submissions as they thought fit in regard to orders of sale etc. In M/s Erusian Equipment an,d Chemicals Ltd. the Supreme Court was dealing with fundamental rights and held that a person before being black-listed by a Government Department must be heard in furtherance of the rules of n,atural justice before he is deprived of the equality of opportunity in the matter of public contract. In the Bombay case hearing was permitted on the motion of the liquidator to creditors because the Company Judge was required to deal with the application of the liquidator judicially and not merely administratively. In the .Supreme Court case no question of lis arose and the hearing was to be given to the party affected by the administrative order. The former is a case of judicial or quasi-judicial proceedings while the latter of administrative action where a subjective decision has to be arrived at on objective test. The decisions relied upon do not advance the petitioner's case because what it wants' is that the Company Law Board should have heard Arunachalam on the one hand and the petitioner on the other. In other words the petitioner should have been allowed the opportunity to oppose the application, of Arunachalam. Such a situation cannot be permitted where the legislature gives' power to an executive authority to formulate the opinion and then take a subjective decision.

(19) The argument on behalf of the petitioner that the subjective decision of the Government may be based on ex parte false or fabricated evidence and should not be permitted unless the parly likely to be affected is given the opportunity to show to the Central Government or the Company Law Board the falsity of the material placed before it. No doubt it looks attractive but the fallacy in the argument is obvious. If the Central Government or the Company Law Board arrives at a decision on the basis of non-existent or untenable material it is always open to the affected party to come to court and challenge the subjective decision by invoking the rule enunciated in the case of Barium Chemicals Ltd- That, in my opinion, is sufficient safeguard to ensure that the subjective decision has been taken within the ambit of the power which is sought to be exercised, ladeed, sub-section (5) of Section 399 of the Companies Act empowers the Central Government before authorising any member or members as contemplated by sub-section (4) to require the applicant or applicants to give security for the payment of any cost which the court dealing with the application may order such member or members to pay to any other person or persons who are parties to that application. This envisages that frivolous applications would not be moved or if moved and granted by the Central Government may result in costs being ordered to be paid which are secured in advance. Rule 13, above referred to, also provides certain safeguards. Apart from the fact that every application of member or members has to be accompanied by documentary evidence in support of the statements made in the application and the application is to be signed and verified by an affidavit the Central Government may, before passing orders on the application, require the applicant or applicants or any one or more of them to produce such further documentary or oilier evidence as the Central Government may consider necessary for satisfying itself as to the truth of the allegations made in the application or for ascertaining any further information. The petitioner's fear, thereforee, that on- a false and frivolous application it may be dragged to court is misplaced. The scope of the enquiry postulated by sub-section (4) of Section 399 of the Companies Act is two fold. First, to ascertain whether indeed, prima facie, any case is made out of oppression of mismanagement so as to affect public interest prejudicially, as postulated by Section, 397 or Section 398. Secondly, whether the applicant or applicants are indeed members who should in the circumstances be allowed to move the court not for their personal gain but in the interest of the company and the general body of shareholders and the public. Whether circumstances, in fact, exist to grant an application under Section 397 or Section 398 is a matter which the court has to decide. At the stage of giving an, authorisation under Section 399(4) the Central Government or the Company Law Board has merely to see whether the matter could be allowed to be brought before the court by a minority of shareholders, in number or in financial interest. Indeed, the Central Government on a report being made to it by a member or members itself may move an application under Section 397 or Section 398 by virtue of the provisions of Section 401. Surely, it could not be argued that before the Government decides to move such an application it must hear the petitioner-company. If that is correct, then I see no reason in principle why the petitioner-company should have been heard on the question of authorisation contemplated by sub-section (4) of Section 399 of the Act.

(20) One may look at it from another angle. Section 397 and Section 398 postulate any member or members of the company to file an application under those sections a bar is created that such members should have a right to so apply by virtue of Section 399. This bar can be removed by the authorisation contemplated by subsection (4) of Section, 399. The members have legitimate interest in the functioning of their company. A bar is created by Section 399(1). This bar is lifted in circumstances mentioned by sub-section (4) of Section 399. It is not a protection, granted to the company because the company is afterall constituted by its members. It is a bar on the members. In removal of that bar the members have a right of hearing and not the company. Normally, any citizen in a free democratic country has a right to go to court if his interests are adversely affected by the action of anyone. Such right cannot be denied to members of the company qua the working of their company. The statutory bar created can be removed if circumstances exist. This is in conson,ance with the principle that everyone has a right to approach the court for redress of his grievance. If 11 per cent shareholders can move an application under Section 397 or Section, 398 without the intervention of the Company Law Board or the Central Government then a lesser number should have a right to do so on being authorised without having to fight first a battle with the company before the Company Law Board and then in court.

(21) An analogy may be drawn from the provisions of Sections 92 and 86 of the Code of Civil Procedure and Sections 195 and 197 of the Code of Criminal Procedure. The sanctions or authorisations or permissions contemplated by these sections are administrative acts. The authorities who are to give the sanctions, authorisations or permissions have repeatedly been held to be acting in administrative capacity and not in quasi-judicial capacity. (See Mayer Simon Parur v. Advocate General of Kerala and others, : AIR1975Ker57 and Shavax A. Lal and others v. Syed Masood Hosain and others, : AIR1965AP143 .

(22) I could, perhaps, visualise a case where a member or members apply for authorisation under sub-section (4) of Section 399 of the Companies Act and the application is rejected without affording an opportunity to substantiate it and the member or members come to court and invoke the principles of natural justice and contend that they have been denied the right to go to court without application of mind. In such a case, perhaps, the courts might like to interfere though there are decisions to the contrary like the one by Gopalan Nambiyar, J. in the Full Bench decision, of the Kerala High Court, above referred to, in Mayer Simon Parur's case. It was observed that when the Advocate General refuses consent under Section 92 of the Code of Civil Procedure no civil rights of the applicant are affected nor can anyone be said to be prejudicially affected by a grant or refusal of consent. I would not like to further dilate on this aspect because that is not the case before me. I, however, fully agree with the view expressed in this case that the grant of authorisation cannot be said to prejudicially affect the petitioner. All that the petitioner could, perhaps, urge was that the authorisation has been granted without there being material on record. That has, however, not been contended. In the view that I have taken, I discharge the rule and dismiss the petition with costs. Counsel's fee Rs. 300.00.


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