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Bank of India Vs. Andhra Steel Corporation Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany;Civil
CourtKolkata High Court
Decided On
Case NumberSuit No. 295 of 1977
Judge
Reported inAIR1982Cal57
ActsCode of Civil Procedure (CPC) , 1908 - Order 23, Rule 3
AppellantBank of India
RespondentAndhra Steel Corporation Ltd. and ors.
DispositionApplication dismissed
Cases ReferredMrs. Bacha F. Guzdar v. Commr. of Income
Excerpt:
- .....429-430,'the result of these decisions may be summarised as follows :-- (1) in the case of public limited company registered under the said act, the company is a separate entity from its shareholders. it is the company which is the owner of its assets, including immovable properties and not the shareholders. (2) the shareholder in such a company has a right to share in the profits, by way of receipt of dividends. he has a right in an appropriate case to apply for the winding up of the company and to take part in the distribution of the surplus assets after payment of the debts and liabilities which must of course be done in accordance with the articles of association and the provisions of the said act. (3) as long as the company continues to exist, that is to say before its dissolution.....
Judgment:
ORDER

Salil Kumar Roy Chowdhury, J.

1. This is an application by one Puma Investment Limited, a company incorporated under the Companies Act, 1956, and having its Registered Office at No. 33A. Chowringhee Road. Calcutta, alleged to be holding 956 Equity Shares of Rs. 10/- each fully paid up in the Capital of Andhra Steel Corporation Ltd.

2. The petition is signed and verified by Promod Kumar Mittal, a son of Mohan Lal Mittal, the Defendant No. 3 in the suit. The suit was filed by the Bank in 1977 inter alia for a decree for Rs. 4,43,41,209.59 P. and also for a declaration of charge under an agreement on hypothecation in respect of the goods mentioned in the Deed of Hypothecation, the sale of the said hypothecated goods, appointment of Receiver etc. In the said suit an interlocutory application was made and Receiver was appointed over the Undertaking the Defendant No. 1 Company, Andhra Steel Corporation Ltd. of its Dunkuni Unit. The plaintiff bank also filed a winding up application in 1978 in this Court for realisation of its dues which was not the subject matter of the present suit. Both the suit and the winding up petition by the plaintiff bank are pending. In 1977 the Defendant No. 3, Mohan Lal Mittal instituted a proceeding under Sections 397-398 of the Companies Act, 1956, relating to the management of affairs of the said Defendant No. 1 Company, Andhra Steel Corporation Limited, and various interim orders were made from time to time in the said proceeding. It is alleged by the applicant, purna Investment Limited, through the said Promod Kumar Mittal, the son of Mohan Lal Mittal, that the Defendant No. 1 company, Andhra Steel Corporation Limited, did not file its Balance Sheets after the year ending 31st March, 1975. As such, the petitioners are unaware of the real state of affairs of the company. By a consent order passed in the Sections 397-398 application on the 25th May, 1977, an Extraordinary General Meeting of the Defendant No. 1 Co., Andhra Steel Corporation Limited, was directed to be convened and held for the purpose of election of Directors. The said Extraordinary General Meeting was eventually held on the 12th July. 1977. In the said meeting the petitioners, Purna Investment Limited and various other members of the said Andhra Steel Corporation Limited, participated in the voting. At the said meeting those persons who were representatives of various Financial Institutions including the plaintiff bank were unanimously elected as Directors of the Defendant No. 1 Co. Besides the said six persons, four other persons after hot contest were alleged to be elected on the basis of the report of the Chairman of the meeting appointed by this Court by the said consent order dated 25th May, 1977. The said report of the Chairman has been challenged by Mohan Lal Mittal group in the pending Sections 397-398 application pursuant to a liberty given by the Appeal Court orderdated 23rd Apr. 1979. It is alleged that the said four persons belong to the other camp of Mohan Lal Mittal and were elected by a slender majority of votes controlled by the alleged delinquent management of the said Andhra Steel Corporation Limited. It is alleged that on the 22nd May, 1980, Puma Investment Ltd. came to know from M/s. M. G. Poddar, Advocate-on-Record of Mohan Lal Mittal. that the plaintiff bank was trying to put certain terms of settlement in the suit as also in the Extraordinary Suit No.......... of 1980 (Dena Bank v. Andhra Steel Corporation Limited) and in the pending winding up proceedings, and the petitioners are alleged to have succeeded in obtaining a copy of the proposed terms of settlement forwarded by the plaintiff bank's Advocate-on-Record inter alia to the said M/s. M. G. Poddar by its covering letter dated 2lst May. 1980, and the alleged two copies of the said terms of settlement are annexed to the petition. It is alleged that on the 23rd May, 1980, when the parties to the suit tried to put in certain terms of settlement (sic) intervened through its Counsel and made submissions successfully opposing such terms being put in wherein it is alleged that the Court was pleased to direct the plaintiff bank to make a formal application for the purpose of recording the terms of settlement in view of the serious controversies involved in this matter and the dispute raised to such terms being put in inter alia by the said petitioner. Puma Investment Limited, and also by the Defendant No. 3, Mohan Lal Mittal. Pursuant to such leave the present application was made by the petitioner who state that they are members of the Defendant No. 1 company and as such, vitally interested in the management of its affairs which have been carried on in a manner most detrimental to the interest of the defendant No. 1 company and its minority shareholders including the petitioner. It is stated in the petition that if the terms of settlement are permitted to be put in it would most prejudicially affect the interest of the defendant No. 1 company and the interest of the minority shareholders including the said petitioner, Purna Investment Limited. In para 9 of the petition some of the alleged infirmities of the formal application were put in the terms of settlement and to pass a decree on the compromiseinter alia (1) the proposed terms of settlement are alleged to have been approved by the Managing Committee of the said Defendant No. 1 Company, Andhra Steel Corporation Limited, constituted by an order of the Appeal Court dated 26th July 1977. The said order of the Appellate Court is annexure 'B' to the petition and are at pages 44, 45 and 48. By the said order of the Appeal Court the Board of Directors was restrained from acting as a Board but they were deemed to be constituting a Committee of Management. It was submitted that the said Committee of Management has no power to approve the proposed terms of settlement by which it is alleged that substantial part of the Undertaking of the Defendant No. 1 Company being the said Dunkuni Unit was proposed to be sold virtually as a gift to one Grand Steel Alloy Limited which is alleged to be a Concern of one Shiv Kumar Agarwalla, the brother-in-law of Ratan Kumar Mittal, one of the brothers of Mohan Lal Mittal, who is alleged to be in the camp of I.S. Mittal, the defendant No. 4 in this suit who is alleged to be responsible for the mismanagement of the Defendant No. 1 company. The said Grand Steel Alloy Limited has been recently incorporated on or about 11th Sept. 1979 having its Registered Office at No. 7 Kiran Sankar Roy Road, Calcutta-1, with a nominal capital of Rs. 7,000/-, (2) it is alleged that the proposed term of settlement is the sale of the Dunkuni, Unit of the Defendant No. 1 company although lying closed since last few years, it is a very valuable asset and forms part of the substantial Undertaking of the Defendant No. 1 company and, therefore, it is hit by Section 293(1)(a) of the Companies Act, 1956, which requires consent of the General Body of members of the Defendant No. 1 company and no such General Meeting was held or even proposed to be convened and, therefore, the terms of compromise are illegal, (3) the Defendant No. 1 Company through its said Committee of Management has purported to enter into an agreement with the plaintiff bank for sale of the said Dunkuni Unit to the said Grand Steel Alloy Ltd. on the basis of Cash Purchase, Money to be advanced by the plaintiff bank and it is alleged that such agreement is proposed to be recorded by putting in the terms of settlement, it is submitted that suchagreement is invalid, illegal, inoperative and ineffectual by reason of singular absence of all powers of the Committee of Management to enter into such agreement. (4) that in the plaint leave under Order 2 Rule 2 has been obtained in the suit regarding the plaintiff bank's alleged right under equitable mortgage of immovable properties of the Defendant No. 1 company situated at Dunkuni and Bangalore outside the jurisdiction of this Court. Such immovable propperties are not the subject matter of the above mentioned suit. The Defendant No. 1 company under the proposed terms of settlement is proposing to dispose of the Dunkuni Unit and is further proposing to affect the immovable properties of the Defendant No. 1 company at Bangalore by proposing to create a charge over such immovable properties at Bangalore as security for payment of the part of the decretal dues of the plaintiff bank under the proposed terms. Therefore, this Court has no jurisdiction to record such terms of settlement as it purports to affect immovable properties outside the jurisdiction of this Court, (5) the proposal to dispose of the Dunkuni Unit of the Defendant No. 1 company by private treaty without public auction is unfair, improper and in any event would not enure for the benefit of all, (6) it is alleged that the Defendant No. 3 Mohan Lal Mittal, the father of Promod Kumar Mittal, who has verified the petition on behalf of the said Purna Investment Pvt. Ltd. has not agreed to sign the said terms of settlement which was attempted to be put in on the 23rd May, 1980. Therefore, Order 23 Rule 3 of the C. P. C. has no application as consent of all the Defendants is required for the proposed terms of settlement. On these grounds it was submitted that leave should be granted to the petitioner Purna Investment Pvt. Ltd. to intervene and various orders of injunction to be issued as prayed for in the prayers.

3. Mr. R.C. Nag, appearing with Mr. Ahin Chowdhury, for the petitioner, Purna Investment Pvt. Limited, submitted that the shareholder has a right to intervene in this matter as being a party interested in the company's welfare and benefit. Mr. Nag cited a passage from Okeck on Modern Corporate Law, an American Book Article 1596, page 668 where rights of a share-holder vis-a-visthe company's interests are summarised. The decision of the Supreme Court referred to is Mrs. Bacha F. Guzdar v. Commr. of Income-tax. Bombay, : [1955]27ITR1(SC) where Gulam Hassan, J, observed in para 7 at p, 77 as follows:--

'That a shareholder acquires a right to participate in the profit of the company may be readily conceded but it is not possible to accept the contention that the share holder acquires any interest in the assets of the company................A Shareholder has got no interest in the property of the company though he has undoubtedly participated in the profit if and when the company declares to divide them........................

The company is a juristic person and is distinct from shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. ..................There is nothing in the Indian Law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders.

The true position of a shareholder is that on buying share, an Investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further interest to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it.'

4. In that decision the leading English decision in Commissioner of Inland Revenue v. Forrest 1924 (8) Tax Cases 704 at page 710 the observation Of Lord Anderson was referred to and also the decision of the earlier Supreme Court in Sholapur Mills' case, i.e., Charanjit Lal v. Union of India : [1950]1SCR869 was referred to and relied on.

5. Reference was also made to the Division Bench decision of this Court in Shyam Lal Purohit v. Jaggan Nath Roy : AIR1969Cal424 where the question whether a sharehoder in a compulsory winding up has any locus standi to apply for setting aside the sale ofproperty belonging to the company arose under Order 21 Rule 90 of the C. P. C. and dealing with this question D.N. Sinha, C. J., observed in para. 15 summarising the position of a share-holder as follows at pp. 429-430,

'The result of these decisions may be summarised as follows :--

(1) In the case of Public Limited company registered under the said Act, the company is a separate entity from its shareholders. It is the company which is the owner of its assets, including immovable properties and not the shareholders.

(2) The shareholder in such a company has a right to share in the profits, by way of receipt of dividends. He has a right in an appropriate case to apply for the winding up of the company and to take part in the distribution of the surplus assets after payment of the debts and liabilities which must of course be done in accordance with the Articles of Association and the provisions of the said Act.

(3) As long as the company continues to exist, that is to say before its dissolution no shareholder can be said to have any interest in the properties and assets of the company, either legal or equitable. Shareholders in a company are certainly interested in the properties and assets of the company in the sense that a wastage or frittering away of the assets might affect their rights to enjoy the profits and eventually the distribution of surplus assets in a winding up. This, however, is too remote an interest and cannot be included within the definition of 'interest' within the meaning of Order 21 Rule 90 of the Civil P. C.

(4) The words 'or whose interests are affected by the sale' in Order 21 Rule 90 are no longer confined to an interest in immovable property or to proprietary or possessory rights. The word 'interest' must be given a wide meaning and may include a contingent interest, but the right may be exercised by one who is directly and immediately affected by the sale of an immovable property. Rights which are likely to be affected or interest which may hypothetically or remotely be affected cannot be considered as coming within the four corners of Order 21 Rule 90.'

6. Mr. Chowdhury also cited another Division Bench decision of the Madras High Court in Registrar of JointStock Company, Madras v. Dalmia Cement : AIR1955Mad28 where also the same question was discussed. Therefore, Mr. Chowdhury submitted that the shareholder has a right to be heard in an application under Order 23 Rule 3 of the Civil P. C. and as such, he analysed the terms of settlement and submitted that it could not be for the benefit of the company and, therefore, the petitioner being a shareholder should be given right in this application for putting the terms of settlement and passing a compromise decree under Order 23 Rule 3 of the Civil P. C. made by the plaintiff bank and opposed the application on various grounds set out in the affidavit which I have already mentioned before. Mr. Chowdhury also referred to the question of registration of the terms of settlement and submitted that it is not fair and reasonable and, therefore, it should not be accepted and the application should be allowed.

Mr. Nag also submitted referring to the dictionary meaning of the word 'intervention' which includes the right of the shareholder to appear in a proceeding where the interest of the company is being adversely affected. He referred to the decision in Jhajharia Brothers Ltd. v. Sholapur Spinning & Weaving Company Limited (1940) 72 Cal LJ 458 : (AIR 1941 Cal 174) where a suit was filed by a shareholder and it was held that there can be a suit by the shareholder against the company for individual wrong done to them. Apart from individual wrong there may be suits to restrain acts ultra vires the company and the Court will interfere in cases of ultra vires acts because they are not within the constitution.

7. For the same purpose of the leading English decision in Natal Land Etc. Company v. Poulin Colliery 1904 A. C. 120 which was referred to in the Division Bench decision of this Court in Venkatarama Krishnamurty v. C.V. Rama Aiyer (1974) 78 Cal WN 1 where question of illegal agreement in a Section 34 application of the Arbitration Act, 1940, came up and the said English decision in Natal Land's case was referred to and it was held that party who is not a party to the arbitration agreement and if he objects to the jurisdiction of the Arbitrator and in spite of that the Arbitrator makes the award the Court can go into that question and it was further held that the company cannotadopt a preincorporation agreement which is illegal.

8. Mr. R.C. Nag, appearing with Mr. Ahin Chowdhury, for the petitioner, Purna Investment Pvt. Limited was supported by Mr. Some Nath Chatterjee. Mr. Aninda Mitra and Mr. Pratap Chatterjee, for Mohanlal Mittal, the father of Promod Kumar Mittal, who is a Director of the petitioner being Purna Investmment Private Limited, The present application is really a second front opened by Mohan Lal Mittal to oppose the application of the plaintiff Bank and other parties representing the company who have signed the terms of settlement to prevent the decree of compromise on the terms of settlement put in, being passed under Order 23 Rule 3 of the Civil P. C. In my view, the allegations and the submissions made on behalf of the petitioner, Purna Investment Private Limited, of which if the veil is lifted Mr. Mohan Lal Mittal's face appears as he is making this representation through his son on the principle that by repeating the same points through different sets of leading Counsel and parties, if possible re-enforces and establishes a proposition, although that may not be sound both in law or in fact.

9. The application was opposed by Mr. R.C. Deb, appearing with S.B. Mukherjee and Mrs. U.B. Mukherjee, for the Respondent Company. Andhra Steel Corporation Limited, and for B.C. Mittal, I.S. Mittal, Chagan Lal Mittal and Damodarlal Mittal and submitted and in my view quite rightly, that the applicant has no locus standi to present this application and intervene in the suit or the application for putting in the terms of settlement under Order 23 Rule 3 of the Civil P. C. made in the suit by the plaintiff bank and other respondents consenting to the same.

10. The question of right to intervene by a shareholder is a pure question of law as that would depend on the status, position and power of a shareholder in public Limited Company. Unless the applicant has locus standi, there is no question of going into the other matter raised in the petition and also argued from the Bar to re-enforce the arguments of Mohan Lal Mittal in different forms once in the said application under Order 23 Rule 3 of the C. P. C. and again in Sections 397-398 applicationfor removal of the Managing Committee. The present application appears to me to be an abuse of the process of the Court and utterly mala fide and it is not necessary for me to go into the other questions raised as those are already being raised in the application under Order 23 Rule 3 of the C. P. C. The position of the shareholder is denned under the Companies Act, 1956, and particularly the principles laid down in the Supreme Court decision in Mrs. Bacha F. Guzdar v. Commr. of Income-tax : [1955]27ITR1(SC) which I have already quoted before has clearly laid down the position of the shareholder of a company although Mr. Nag has in his usual thoroughness and erudite scholarship quoted the passage from Oleck on Modern Company Law, an American publication, in which generally the proposition as to the position of a shareholder has been summarised but that passage, in my view, does not help in any way the position of a shareholder in India which is governed by the Indian Companies Act, 1956, and also the said decision of the Supreme Court which is the law of the land under Article 141 of the Constitution of India. Therefore, on this preliminary issue of the petitioner having any locus standi to intervene and/or be added as a party in the application under Order 23 Rule 3 of the C. P. C. in my opinion, should be answered in the negative and must be held that the said Purna Investment Private Limited has no locus standi to intervene to be added as a party either to the petition under Order 23 Rule 3 of the C. P. C. or in the suit or to (sic). The present application is a mere abuse of the process of the Court and is a machination of Mohan Lal Mittal through his son, Promod Kumar Mittal, to set up one of his companies, Purna Investment Private Limited holding some shares as hereinbefore stated in the capital of the Respondent Company, Andhra Steel Corporation Limited.

11. Therefore. I need not go into the other question which has been raised by Mohan Lal Mittal in the main application under Order 23 Rule 3 of the Civil P. C. and, therefore, the said question cannot be raised again by this circuitous process by adding or intervention of a party who has no locus standi in the suit where the Respondent Company, Andhra Steel Corporation Limited, isrepresented and Mohan Lal Mittal himself is representing through leading Counsel and opposing the application by raising some objections as sought to be raised in the present application.

12. In that view of the matter. I have no hesitation in dismissing this application with costs.


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