Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Section 399 of Companies Act,
1956 deals with the issue of qualification to file an application under section
397/398 of Companies Act, 1956 seeking appropriate relief when there exists
oppression and mismanagement in the Company. The qualification prescribed under
section 399 is based on shareholding and also membership. Clause (1) of Section
399 of the Act is as follows:
“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;
(b) in the case of a company not
having a share capital, not less than one-fifth of the total number of its
members.”
Thus, an application under
section 397/398 of the Companies Act, 1956 can be representative application
too. It need not always be representative as any one or two shareholders can
possess more than 10% shareholding in the Company. When it is representative,
the members should give their ‘consent’ for approaching the Company Law Board
under section 397/398 of the Companies Act, 1956. Many applications are usually
filed in respect of closely held companies or family companies and a group is
normally led by a prominent member in the group who will take all decisions
on-behalf of the group. Under these circumstances, there may not be any
problems with ‘consent’. However, where many members join together and consent
for filing an application under section 397/398 of the Companies Act, 1956,
then, there will be complications. Because, an application under section
397/398 of the Companies Act, 1956 can lead to disastrous consequences in the
Company at times. Thus, the members consenting to file an application under
section 397/398 of the Companies Act, 1956 should apply their mind to the
contents and allegations in the application under section 397/398 of the
Companies Act, 1956. Dealing with the issue, the Hon’ble Delhi High Court in
Omni India Limited and Others Vs. Balbir Singh, 1989 66 Comp Cas 903 Delhi, was
pleased to observe as follows:
“10. The word
"consent", according to Webster's Third New International Dictionary,
inter alia, means compliance or approval of what is done or proposed by
another, acquiescence, permission, capable, deliberate and voluntary agreement
to or concurrence in some act or purpose implying physical and mental power and
free action. According to Mozley and Whiteley's Law Dictionary, Tenth Edition,
"consent" presupposes physical power, mental power and a free and
serious use of them. Examined in the light of these meanings and keeping in
view the purpose for enacting section 399, we have no doubt, that the
expression "consent in writing" used in section 399(3) means conscious
approval of the action proposed to be taken by the persons to whom the consent
has been given. We are also of the view that the writing itself should indicate
that the persons who have signed the consent letters have applied their minds
to the question before them and on application of minds have given consent for
a certain action. Under section 402 of the Act, the court, on an application
under sections 397-398 and without prejudice to the generalities of the powers
of the court, can grant several types of reliefs. In this background, it is
necessary that the writing must indicate that the members giving consent had
applied their minds to the allegations to the made and the reliefs sought to be
prayed for in the proposed action and have given their consent for seeking
those reliefs. This is apparent from the expression "consent in
writing". Had the intention been that the writing should not indicate the
application of mind, then there was no necessity for using the term
"consent in writing" and mere word "consent" could have
been used. To hold that the requisite members can give their consent in writing
without applying their minds or without considering the nature of the
allegations and the reliefs sought would frustrate the entire purpose of
section 399 which prohibits the filing of an application under section 397 or
398 of the Act, inter alia, by not less than 100 members.”
However, who can raise objections
to the ‘consent’ and at what stage, is also important in an application under
section 397/398 of the Companies Act, 1956. Because, on the ground that the
question of law can be raised at any stage, if an application under section
397/398 of the Companies Act, 1956 is dismissed at the final stage applying the
legal principles on the issue grammatically, then, it may not be correct. The
object of section 397/398 of the Companies Act, 1956 is to be considered in
this regard. If the Respondents in the application raise the issue pertaining
to the consent in their reply statement or even orally before the Board at the initial
stage, then, the petitioning members can convince the Board that all the
members have applied their minds to the application. Even in the absence of any
allegation and the consequent reply from the applicants, in my view, the Board
can insist the applicants to address the issue. It all depends upon the facts
and circumstances of each and every case and there can not be any hard and fast
rule in this regard. The Board can also allow the consented members to add
themselves independently in the application and it is in consonance with the
object of section 397/398 of the Companies Act, 1956 keeping the technicalities
apart. A member who has consented for filing an application may wish to state
his views independently and dealing with such a situation, the Hon’ble Calcutta
High Court, in Pramod Kumar Mittal Vs. Andhra Steel Corporation Ltd, 1985 (58)
CC 772, was pleased to observe as follows:
“(3) We are further of the
opinion that a section 397 application is a representative application in the
sense that it is on behalf of 10% of the shareholders which is required to
maintain such an application and if those shareholders who had given their
consent come to oppose or make any application before the court, they have
sufficient locus standi to be heard by the court and as such, in an appropriate
case like the present, one has a right to be added as parties in their own
names. In this case, inasmuch as Promode Kumar Mittal and other appellants were
supporting Mohanlal Mittal in the application under section 397 before the
court and inasmuch as Mohanlal Mittal was no longer prosecuting the section 397
application or opposing a particular transaction during the pendency of section
397 application of the Companies Act, we are of the opinion that the present appellants
were entitled to be added as parties and not acceding to that prayer, the
learned judge was in error.”
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
