Cyrus Investments Pvt Ltd & Anr vs Tata Sons Ltd & Ors

(Arising out of Order dated 17th April 2017 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 82/241,242,244/NCLT/MAH/2016)

IN THE MATTER OF:

Cyrus Investments Pvt Ltd & Anr. ...Appellant

Versus

Tata Sons Ltd & Ors ...Respondents

Present: Mr. C.A. Sundaram and Mr. Arun Kathpalia, Senior Advocates with Shri Somasekhar Sundaresn, Ms Rohini Musa, Shri Manik Dogra, Mr. Rohan Jaitley, Mrs Sonali Jaitley Bakhshi, Mr. Jaiyesh Bakhshi, Mr. Apurva Diwanji, Mr. Ruzbeh Mistry, Mr. Ravi Tyagi, Mr. Shubhanshu Gupta, Ms. Sanya Kapoor, Mr. Gunjan Shah, Mr. Parag Sawant and Mr. Akshay Doctor, Advocates for the Appellant.

Dr. Abhishek Manu Singhvi, Mr. Rajiv Nayar, Mr. Amit Sibal and Mr. Darpan Wadhwa, Senior Advocates with Mr. R.N. Karanjawala, Ms. Ruby Singh Ahuja, Mr. Gaurav Mitra, Ms. Tahira Karanjawala, Mr. Anupn Prakash, Ms. Eesha Mohapatra, Mr. Avishkar Singhvi, Mr. Sameer Rohatgi, Mr. Aditya Shankar, Mr. Arjun Sharma, Mr. Arvind Chari, Mr. Sidharth Sharma, Mr. Siddharta Kalita and Mr. Prateek Seksaria, Advocates for Respondent No.1.

Mr. Mukul Rohatgi, Senior Advocate with Mr. Dhruv Dewan, Mr. Nitesh Jain, Mr. Sayak Maity, Mr Rohan Batra, Mr Arjun Sharma, Ms. Reena Choudhary and Mr. Kostubh Devnani, Advocates for Respondent No.2.

Mr. S.N. Mookherjee, Senior Advocate with Mr. Dhruv Dewan, Mr. Nitesh Jain, Mr. Sayak Maity, Mr Arjun Sharma, Mr. Rohan Batra, Mr. Kostubh Devnani and Ms. Reena Choudhary, Advocates for Respondent No.3. 2

Mr. Sandeep Sethi, Senior Advocate with Mr. Nikhil Rohatgi and Mr. Rajiv Kumar, Advocates for Respondent No.11.

Mr. Mohan Parasaran, Senior Advocate with Mr. Saswat Patnaik, Mr. Aditya Panda, Mr. Ashwin Kumar D.S. and Ms. Aditi Dani, Advocates for Respondent Nos. 6, 14,17,18, 20 to 22.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

This common judgement disposes of two appeals against two different

orders, passed in one Company Petition.

2. The appellants Cyrus Investments Pvt. Ltd. and Sterling Investment

Corporate Pvt. Ltd., both shareholders of 1st Respondent Company - Tata

Sons Limited, preferred Company Petition No. 82 of 2016 before the National

Company Law Tribunal, Mumbai (hereinafter referred to as 'Tribunal') under

Sections 241, 242 and 244 of the Companies Act, 2013 alleging continuing

act of 'Oppression & Mismanagement' of members of 1st Respondent along

with an application seeking Interim Relief.

3. On 22nd December 2016, the Tribunal passed a consent order. During

the pendency of the same, the 1st Respondent issued notice on 5th January

2017 calling for Extra Ordinary General Meeting of the 1st Respondent

Company on 6th February 2017 with subject of business being removal of 11th

Respondent - Cyrus Pallonji Mistry as Director of the 1st Respondent

Company. The Contempt Petition alleging violation of Tribunal's Order was

filed by appellants with an additional affidavit including the action of the 1st, 3

14th, 17th and 20th Respondents. During the pendency of the said petition, an

application under proviso to Section 244 being I.A.No. 26 of 2017 was filed by

the appellants seeking waiver of condition for filing application under Sections

241 and 242 of the Companies Act, 2013. Learned Tribunal, by its order

dated 31st January 2017 inter alia stated that Interim Relief had already been

rejected in the previous orders but had not decided the issue of

maintainability, which was raised on behalf of the contending respondents.

4. On an appeal before this Appellate Tribunal, by Order dated 3rd

February 2017, the Appellate Tribunal while rejected the Interim Relief

application of the appellants and observed that if the appellants succeed in

proving 'Oppression & Mismanagement', the Tribunal may restore the

position of 11th Respondent. This Appellate Tribunal also held during final

hearing, the Tribunal should decide the question of maintainability first and

if answer is in negative against the appellants, then to decide the question of

waiver and thereafter if waived, to decide the merit.

5. Again during the pendency of the petition, an Extra Ordinary General

Meeting was convened by 1st Respondent on 6th February 2017 and removed

the 11th Respondent from the Board of Directors. The aforesaid act was also

challenged by appellants by Amendment Petition as carried out on 10th

February 2017.

6. The Tribunal heard the matter on the issue of maintainability and then

passed impugned order dated 6th March 2017 holding that the Company

Petition at the instance of appellants is not maintainable. The Tribunal held

that the appellants do not have qualification under Section 244, as they hold

less than 1/10th of the 'Issued Share Capital' of the Company. The Tribunal 4

then decided to proceed on the question of waiver in terms of proviso to

Section 244.

7. After hearing the Learned counsel for the parties on the question of

waiver, Learned Tribunal by second impugned order dated 17th April 2017

dismissed the application for waiver preferred by appellants and, thereby

dismissed the Company Petition. Against the orders dated 6th March 2017

and 17th April 2017, these respective appeals have been preferred.

8. The question for determination in these appeals are:-

(a) whether the petition preferred by appellants under Sections 241

and 242 of the Companies Act is maintainable? In other words,

whether the appellants qualify the condition of holding minimum

1/10th of the 'Issued Share Capital' of the 1st Respondent

Company, and

(b) In case the 1st question is decided in negative against the

appellants, then whether the appellants have made out a case of

waiver of all or any or the requirements specified in Clause 1(a)

of Section 244 so as to enable the appellants (the members) to

apply under Section 241.

Proposition on behalf of the appellants on the issue of maintainability:-

9. According to Mr. Sundaram Learned Senior Counsel for the Appellant,

the Companies Act, 2013, itself has created and recognises classes of

members. It has in this regard also made significant departures from the

Companies Act, 1956. The relevant Sections that clearly recognize classes of

members are: -

5

(a) Section 2(55): - In the definition of "members" three categories have

been envisaged, viz., (i) those who are members at the incorporation of

the company and subscribe to the Memorandum of Association of the

company; (ii) those who hold beneficial interest in shares held by and

with a depository; and (iii) those who agree in writing to become

members of the company as a result of a transfer or transmission of

shares.

(b) Chapter IV dealing with Share Capital of a company. (Sections 43, 47,

48 and 49)

(c) Section 87: - recognises different rights of classes of shareholders.

(d) Section 88: - Every company is required to maintain a Register of its

members. However, unlike the Companies Act, 1956, which prescribed

one Register being maintained by the Company containing details of its

shareholders, the Companies Act, 2013 has made a significant

departure through Section 88 which now requires every Company to

maintain a Register of Members separately indicating for each class of

equity and preference shares held by each member.

(e) Section 241 - recognizing the necessity to protect a class of members

10. It was also submitted that the Scheme of Sections 241-244 is that

Section 242 is a remedial mechanism that comes into play when the events

contemplated by Section 241 arises qua persons specified in the said Section

and Section 244 stipulates the entitlement of such persons to approach the

Tribunal. Therefore, these Sections are a self- contained code dealing with the

subject of "Oppression and Mismanagement."

6

11. In support of the contention, it was contended that the applications are

for the separate classes of members to Section 244.

Section 241(a) specifically mandates the protection of the rights and

interests of the following: -

a. Public interest;

b. A member (being the Petitioner before the Tribunal);

c. Another member or members; and

d. The company itself.

12. On the other hand, according to him, Section 241(b) mandates the

protection of the interests of the following, as a result of a material change in

management/control of the company, an alteration in the Board of Directors

or in the ownership of the Company's shares: -

a. The Company;

b. The members of the Company; or

c. Any class of members of the Company.

Section 244, on the other hand, while providing for the right to apply

under section 241, creates a different set of class of members, as

enumerated herein below: -

a. Not less than one hundred members of the company;

b. Not less than one- tenth of the total number of members; and

c. Any member or members holding not less than one-tenth of

the issued share capital of the company.

13. Therefore, according to Learned Counsel for the appellants, the words

"share capital" as found in Section 244, would have to be read in conjunction 7

with Section 241, and thus the reference to "share capital" in Section 244

ought to be read qua the "class of members" sought to be protected by the

Statute, under section 241. Moreso, when different classes of members are

recognized by the Companies Act, 2013, inter alia in Chapter IV which deals

with share capital.

Therefore, (a) and (b) looks are the member(s) or the holder of the share

but for (c) the relevance is the nature of the holding.

14. According to Learned Senior counsel, the reference to "Issued share

capital" in Section 244 has to only refer to the "relevant share capital"

otherwise it would lead to an absurdity that holder of shares who are

completely disinterested in an action, or even have a conflicting interest to a

Petitioner qua such action would necessarily have to join in with the aggrieved

party and their percentage of shareholding would also be taken into account

for the resolution of such a dispute. This would lead to an absurdity apart

from rendering the relief contemplated in Section 241 nugatory.

15. Much stress was given on the meaning of "Issued Share Capital" which

according to Learned Senior Counsel for the appellants, the term "Issued

share capital" as found in Section 244, could mean either "preference share

capital", or 'equity share capital' or 'total share capital'(i.e., 'equity' and

'preference' share capital collectively) since share capital includes mutually

exclusive kinds of capital.

16. It was submitted that the instant case does not deal with the

interpretation of Section 43 alone since the said Section expressly highlight

that there are different kinds of share capital. Moreover, even the Explanation 8

to the Section begins with the phrase "for the purpose of this section". And

has necessarily to be restricted only to the said provision and Section 244

ought to be interpreted on its own terms.

17. It was further contended that if the intention of the Legislature by the

use of the term "issued share capital" was an aggregate of the equity and

preference share capital of a company, the Legislature would have provided

some kind of an indicator with respect to this. This is more so, when in just

the preceding words, while referring to the strength of members to qualify as

being eligible, the Legislature thought it fit to use "total", while dealing with

"not less than one-tenth of the total number of its members.". therefore, it has

to be presumed that the Legislature, being conscious of the different kinds of

share capital, chose to not describe the "issued share capital" as being, the

"total", the "sum" or even the "whole" of the issued share capital of the

company. If it was the intention of the Legislature to make the terms "issued

share capital" as used in Section 43 applicable to Section 244, in the absence

of a definition to the said terms, the Legislature would have given some

indication in this regard. Such drafting cannot be referred to as simply an

omission on the part of the Legislature, owing to the fact, that the very same

Legislature makes use of the very same term, where it thought fit to do so.

18. Referring to Section 43 which relates to 'Kinds of Share Capital' with

Equity and Preference, Section 47 which deals with voting rights of two

classes of shareholders, Section 48 which relates to variation of shareholders'

rights and Section 49 'Calls on shares of same class too be made on uniform

basis", it was submitted that unlike Section 87 of the Companies Act 1956,

which restrained the voting rights of equity shareholders to equity share 9

capital and a preference shareholders to preference share capital. It was

contended that Section 47 of the Act 2013, grants the right to vote on every

resolution placed before the company. The voting rights of a preference

shareholders continued to be restrained to those resolutions placed before the

company which directly affect the rights attached to such preference shares,

except in the case of default by the company in payment of dividends as

enumerated in second proviso.

19. In support of the contention that different meaning of same expression

expressed in different sections cannot be given, Learned Senior Counsel for

the appellants relied on decision of Hon'ble Supreme Court in "Kaviraj

Pandit Durga Dutt Shyarma Vs. Navaratna Pharmacaeutical

Laboratories AIR (1965) SC 980" wherein the Hon'ble Supreme Court

interpreted the word "Navratna" taking into consideration Etymological and

in combination of other words while deciding a case of Trade Mark. We find

no relevancy of the said case in context of the present case and the submission

as made above.

Reliance was also placed in Hon'ble Supreme Court decision in Printers

(Mysore) Ltd. and Anr. Versus Asstt. Commercial Tax Officer and Ors,

(1994) 2 SCC 434. In the said case the Hon'ble Court observed:-

"18. ...... "it is well settled that where the context does

not permit or where it would lead to absurd or unintended

result, the definition of an expression need not be

mechanically applied. [Vide T.M. Kanniyanv. ITO [(1968) 2

SCR 103 : AIR 1968 SC 637 : 68 ITR 244] , Pushpa

Devi v. Milkhi Ram [(1990) 2 SCC 134, 140] (para 14) 10

and CIT v. J.H. Gotla [(1985) 4 SCC 343 : 1985 SCC (Tax)

670] .]"

20. It was submitted that the interpretation sought to be given by the

Respondents to the term "Issued Share Capital" in Section 244 would render

equating the two kinds of shareholders, when in point of fact, equity

shareholders have been treated as a separate class not only with respect to

identity in the Company (as contained in the Register of Members as also

Section 48, pertaining to the variation of shareholders' rights) but also with

respect to the actual running of the operations of the Company (as contained

in Section 47). Such treatment of unequal's as equals would as well offend

the doctrine of equality as enshrined in Article 14 of the Constitution. An

interpretation that would run against such principles of equality by treating

unlikes as likes ought to be eschewed.

21. It was also submitted that preference and Equity shares are mutually

exclusive classes. Preference being "debt" not intended to be part of "issued

share capital" in Section 244 when a class has to be restricted, the principle

has to be founded on homogeneity and commonality of interest. It must be

seen that dissimilar classes with conflicting interests are not put in one

compartment to avoid any kind of injustice.

22. Reliance was also placed on decision of Hon'ble Supreme Court in

"Infrastructure Leasing and Financial Services Limited Vs. BPL

Limited"- 2015(3) SCC 363, wherein Hon'ble Supreme Court noticed the

concept of class as:-

"30. delineating with the concept of class, referred to

Palmer's Treties on Company Law, observed: - 11

"What constitutes a class

The court does not itself consider at this point what

classes of creditors or members should be made parties to

the Scheme. This is for the company to decide, in accordance

with what the Scheme purports to achieve. The application

for an order for meetings is a preliminary step, the applicant

taking the risk that the classes which are fixed by the Judge,

usually on the applicant's request, are sufficient for the

ultimate purpose of the section, the risk being that if in the

result, and we emphasise the words 'in the result', they

reveal inadequacies, the Scheme will not be approved. If e.g.

rights of ordinary shareholders are to be altered, but those of

preference shares are not touched, a meeting of ordinary

shareholders will be necessary but not of preference

shareholders. If there are different groups within a class the

interests of which are different from the rest of the class, or

which are to be treated differently under the Scheme, such

groups must be treated as separate class for the purpose of

the Scheme. Moreover, when the company has decided what

classes are necessary parties to the Scheme, it may happen

that one class will consist of a small number of persons who

will all be willing to be bound by the Scheme. In that case it

is not the practice to hold a meeting of that class, but to make

the class a party to the Scheme and to obtain the consent of

all its members to be bound. It is, however, necessary for at 12

least one class meeting to be held in order to give the court

jurisdiction under the section."

32. The purpose of the classification of creditors has its

significance. It is with this object that when a class has to be

restricted, the principle has to be founded on homogeneity

and commonality of interest. It is to be seen that dissimilar

classes with conflicting interest are not put in one

compartment to avoid any kind of injustice. For example, an

unsecured creditor who has filed a suit and obtained a

decree would not become a secured creditor. He has to be put

in the same class as other unsecured creditors.

(See Halsbury's Laws of India, 2007, Vol. 27.)"

23. It was submitted that class of members being recognized as a separate

category is fortified by the use of the term in others provisions of the Statute:-

i. Section 43-share capital

ii. Section 49-Call on shares of same class to be made on uniform

basis

iii. Section 92- Annual Return

iv. Section 117- Resolutions and Agreements to be filed

v. Section 230-234-Power to compromise and make arrangements.

24. According to learned counsel for the appellants there will be a position

of absurdity if the Tribunals' interpretation of "issued share capital" used in

Section 244 is accepted, it would lead to an absurd situation, in as much as,

if such yardstick is used for the Respondent No.1 Company it would require 13

a holding of at least 81% in the equity of a company to be eligible to maintain

an action under Section 241. When the very section is to protect against

oppression and/or mismanagement of a minority and as per the amended

Section 241(1) (b), "class of members" has been specifically included the intent

would clearly be to protect even such class and a meaning cannot be

attributed to Section 244 which would militate totally there against. In the

instant case, even the majority equity shareholders who holds 66% of the

equity would not be eligible to maintain such an action.

25. It was also contended that the purpose of Section 244 being to ensure

that speculative actions of an insignificant percentage of shareholders are

discouraged and thereby stop mischievous litigation, it is relevant that in the

Respondent No.1 company, the valuation of the company being in the region

of at least 6 lakh crores, the interest of the Petitioners in the overall value of

the Company would be over 1 lac crores. The value of the preference

shareholding would only be Rs. 291 cores and not to carry voting rights other

than in the exceptional circumstances found in Section 47(2), of the 2013 Act.

26. According to appellants, a construction that results in hardship,

serious inconvenience, injustice, absurdity or anomaly or which leads to

inconsistency or uncertainty and friction in the system which the Statute

purports to regulate has to be rejected and preference should be given to that

constructions which avoids such results.

27. In support of the contention, reliance was placed in "Surjit Singh

Kalra Versus Union of India and Another - (1991) 2 SCC 87" wherein

Hon'ble Supreme Court held :-

14

"19. For the above reasons, we hold that the

expression "goods" occurring in the words "for use by him

in the manufacture or processing of goods for sale" in

Section 8(3)(b) of the Central Sales Tax Act, 1956 does take

in, i.e., does not exclude newspapers. We agree with the

view taken by the Madras and Kerala High Courts. In our

view, the view taken by the Karnataka High Court is

unsustainable."

28. Reliance was also placed on the decision of Hon'ble Supreme Court in

"Municipal Corporation of the City of Ahmedabad Versus Ben Hiraben

Manilal, (1983) 2 SCC 422", wherein the Hon'ble Apex Court, dealing with

building regulation, held: -

"7. Chapter XV of the Bombay Provincial Municipal

Corporation Act, 1949 as applicable to the area concerned,

deals with the building regulations and includes Section

260 of the Act. These provisions are to regulate the building

construction for the safety, health and wellbeing of the

inhabitants of the particular Municipality or Corporation.

Therefore, the provisions should be read broadly which will

effectuate the intention of the legislature and prevent the

mischief which was intended to be remedied or avoided by

the provisions. It is well settled that when a problem of

construction comes before a court, the intention of the

legislature must be given effect to as expressed in the

language of the provisions. Where the language is explicit, 15

no problem arises. Even where the usual meaning of a

language falls short of the whole object of the legislature, a

more extended meaning may be given to the words if they

are fairly susceptible of it. The construction must not,

however, be strained to include cases plainly omitted from

the natural meaning of the words. It has been said very

often that it is the duty of a judge to make such construction

of a statute as shall suppress the mischief and advance the

remedy (see in this connection the observations of Maxwell

on The Interpretation of Statutes, 10th Edn., p. 68, under

the heading "Beneficial Construction"). If we keep in mind

the purpose of these regulations and the object of these

regulations, i.e. regulating the building construction in a

municipal statute, it appears that it will be anomalous result

if it be said that if a building is constructed illegally or in an

unauthorised manner, action can only be taken against the

person who is doing the unauthorised act or illegal act but

after the construction of the building is passed over to

others, the construction of the building enjoys immunity

from any action in respect of the same. That it appears,

could not be a proper construction particularly in this case

in view of the specific language used in the latter part of

sub-section (1) of Section 478 of the Act set out hereinbefore.

Keeping in background the facts of this case and the said

provisions, in our opinion, the action taken by the 16

Corporation was warranted by the provisions of the Act.

Therefore it cannot be said that the notice issued by the

Municipal Corporation was unauthorised or illegal. In that

view of the matter, the judgment and order of the High Court

of Gujarat impugned in this case must be set aside on this

aspect of the matter and the appeal is thus allowed and the

respondent's suit dismissed. We express no opinion on the

other point of delegation. The parties will bear, in the facts

and circumstances of the case, their own costs throughout."

29. Hon'ble Supreme Court decision in "Krishan Kumar Versus State of

Rajasthan and Others, (1991) 4 SCC 258" was referred to suggest that new

scheme by reference to clause as brought into section 241 cannot be ignored

as an insignificant change.

30. For the purpose of interpretation of the intention of the legislature,

reliance was placed on decision of Hon'ble Supreme Court in "Indian

Performing Rights Society Limited versus Sanjay Dalia and Another,

(2015) 10 SCC 161". In the said case, for the purpose of interpretation of

statute, the Hon'ble Supreme Court referred to Justice G.P. Singh's "Principles

of Statutory Interpretation" 12th Edition, wherein it is observed that regard be

had to the subject and object of the Act, the court's effort is to harmonize the

words of the statute with the subject of enactment and object the legislature

has in view. When two interpretations are feasible, the Court will prefer the

one which advances the remedy and suppress the mischief, inconvenience,

injustice, absurdity or anomaly. The Hon'ble Supreme Court referred to the

Principle of Interpretation:-

17

"34. The learned author Justice G.P. Singh

in Interpretation of Statutes, 12th Edn. has also observed

that it is the court's duty to avoid hardship,

inconvenience, injustice, absurdity and anomaly while

selecting out of different interpretations. The doctrine

must be applied with great care and in case absurd

inconvenience is to be caused that interpretation has to

be avoided. Cases of individual hardship or injustice

have no bearing for enacting the natural construction.

The relevant discussion at pp. 132-33 and 140-42 is

extracted hereunder:

"(a) Hardship, inconvenience, injustice, absurdity

and anomaly to be avoided

In selecting out of different interpretations 'the court will

adopt that which is just, reasonable and sensible rather

than that which is none of those things'

(Holmes v. Bradfield Rural District Council [(1949) 2 KB

1: (1949) 1 All ER 381 (DC)] , All ER p. 384) as it may be

presumed 'that the legislature should have used the

word in that interpretation which least offends our sense

of justice'. (Simms v. Registrar of Probates [1900 AC 323

(PC)] , AC p. 335.) If the grammatical construction leads

to some absurdity or some repugnance or inconsistency

with the rest of the instrument, it may be departed from

so as to avoid that absurdity and inconsistency. 18

(Grey v. Pearson [(1857) LR 6 HL Cas 61 : (1843-60) All

ER Rep 21] , HLC p. 106.) Similarly, a construction giving

rise to anomalies should be avoided........xxx".

31. In the said case, the Hon'ble Supreme Court noticed that while

constructing an enactment, court will avoid construction which is unworkable

or impracticable, inconvenient, anomalous or illogical, as noticed below :

"35.Bennion on Statutory Interpretation has mentioned

law to the same effect under Section 312 and has

observed that there is a presumption that absurd result

is not intended and in Section 314 it has been observed

that the court has to avoid an inconvenient result while

interpreting a provision. It was stated that it can be

presumed that Parliament intends that while construing

an enactment the court will avoid a construction that is

unworkable or impracticable, inconvenient, anomalous or

illogical as the same is unlikely to be intended by

Parliament. In Rosali V. v. TAICO Bank [(2009) 17 SCC

690 : (2011) 2 SCC (Civ) 626] , this Court referring to

Halsbury's common sense construction rule held that it is

a well-settled principle of law that common sense

construction rule should be taken recourse in certain

cases."

32. Therefore, according to Learned counsel for the appellants for

harmonious construction of Sections 241 and 244 will need to be read 19

together and are not mutually exclusive inasmuch as though conditions and

parameters as contained in Section 244 from the jurisdictional basis for

Section 241, in the same manner, the grievances mentioned in Section 241

can only be maintained "provided such member has a right to apply under

Section 244" has been stated in Section 241. This is moreso, in the light of

Section 245, while dealing with a Class Action contains the very same

parameters as contained in Section 244 and such Section also specifically

deals with a "class of members"

33. Learned Senior counsel further contended that "Class of Members" was

recognized as a separate category under some sections of the Companies Act,

1956 viz., Sections 17(6), 42(3), 170(2) and Section 391. Sections 397-398 of

the 1956 Act dealing with Oppression and Mismanagement did not contain

this category. However, the 2013 Act has introduced the same in Section

241(2) and therefore, it is inconceivable that though the company's affairs

being conducted in a manner prejudicial to the interests of any class of

members is a ground for interference by the Tribunal, such class of members

cannot maintain an action. This is moreso, in light of the fact that the 2013

Act recognizes a Class of members as being a separate category.

34. According to the Learned Senior Counsel for the Appellants, Section

241 is a beneficial provision included in the interest equity, justice and good

conscience in order to protect the minority shareholders of a company. It is

imperative that such beneficial provision be given a liberal construction and

not be restricted to eliminate a class that would otherwise fall with the

category of classes to be protected under such beneficial legislation/provision. 20

35. It was further contended that the decision of 'Northern Projects

Limited. Vs. Blue Coast Hotels and Resorts Ltd. and Others' relied upon

by Tribunal have to be read in conjunction with the earlier Act (Companies

Act 1956) and its Sections bearing in mind that new Act (Companies Act 2013)

including Section 244, has not been considered. Even if the plain meaning of

"Issued Share Capital" in Section 244 is accepted to be inclusive both classes

of share capital and interpretation ought to be given that would render statute

workable and would not frustrate the very provision. Learned counsel also

distinguished the judgement relied upon by the Tribunal while passing the

impugned order.

Proposition on behalf of the Respondents (except 11th Respondent)

36. On behalf of the respondents, the main argument was advanced by Mr.

Abhishekh Manu Singhvi, Senior Advocate on behalf of the 1st Respondent

Company - Tata Sons Limited.

37. Referring to Section 241 of Companies Act 2013, Learned Senior

Counsel submitted that in the case of a company having share capital, the

following three categories of members have the right to approach the NCLT

for the purpose of making an application under Section 241 of the 2013 Act.

(i) Not less than 100 members of the company or,

(ii) 1/10th of the total number of members; or

(iii) Member(s) holding not less than 1/10th of the issued share

capital of the company.

38. In a manner of speaking, the aforesaid three categories are akin to three

types of entry passes for entering the portals of Tribunal for the purposes of 21

making an application under Section 241 of the 2013 Act. If any petitioning

member (or members, where there are more than one) possess any of the entry

pass, it will have a right to make an application under Section 241 of the 2013

Act. Conversely, member(s) not satisfying any of the eligibility criterion does

not have the right to make an application under Section 241 of the 2013 Act,

but can apply under the proviso to Section 244(1) of the 2013 Act to the

Tribunal for waiver of the eligibility requirements "so as to enable the

members to apply under Section 241".

39. Viewed in this light, Section 244 embodies a clear legislative policy of

allowing, as a matter of right, only members holding specified numerical or

shareholding numbers, to avail the remedy under Section 241 of the 2013

Act. Clearly, the Parliament did not want all members of the company to be

armed with the right to make an application under Section 241 against the

company in which they are members.

40. It was contended that the Appellants do not meet any of the eligibility

qualifications in as much as:

(i) The Appellants are two (2) members

(ii) They collectively represent less than 1/10th of the total 51

members of Respondent No. 1; and

(iii) As on the date of filing of the Petition, the total issued equity

share capital of Respondent No. 1 was Rs. 40.41 crores and the

total issued preference share capital was Rs. 294 crores. Out of

the total issued share capital (equity plus preference) with an

aggregate face value of Rs. 335 crores, the Appellants collectively

hold only equity shares with an aggregate value of Rs. 7.44 22

crores, which translates into only 2.17% of the total issued share

capital.

Thus, according to Respondents, ex-facie, the Appellants do not meet

any of the threshold requirements under Section 244(1) of the 2013.

41. Mr. Abhishek Manu Singhvi, Learned Senior Counsel for the 1st

Respondent contended that the Appellants made a bold and misleading

assertion that they were fully entitled to maintain the Company Petition since

they held 18.37% equity shares of the 1st Respondent Company. This was

averred despite the fact that the Appellants held only 2.17% of the issued

share capital of the 1st Respondent Company. According to him, the argument

now being made that the express "class of members" occurring in Section

244(1) was not even urged in the Petition.

42. It was also submitted that the respondents in their replies pointed out

that appellants were holding much less than 1/10th of the issued share capital

of the 1st Respondent Company. Faced with this quandary, the Appellants

called upon the Tribunal to "construe" Section 244 of the 2013 Act in a way

that the expression "issued share capital" occurring therein is read/treated

as "relevant issued share capital" on the basis that the concept of "class of

members" occurring in Section 241(1)(b) is liable to be imported into Section

244(1) of the 2013 Act. In other words, the argument taken both before the

Tribunal and this Appellate Tribunal is that 1/10th of the issued share capital

of a company must be reckoned separately for equity and preference

shareholders, such that it will be sufficient for section 244(1) if - petitioning

members holding only equity shares hold 1/10th of the issued equity share 23

capital and conversely petitioning members holding only preference shares

hold 1/10th of the issued preference share capital.

43. According to Learned Senior Counsel for the 1st Respondent it is not

clear from the construction of Section 244(1) propounded by the Appellants

how "relevant issued share capital" is to be computed in cases where

petitioning member(s) hold both equity and preference shares. However,

leaving that aside for the present, the central issue in the present appeal is

whether, in computing the criteria of "one-tenth of the issued share capital of

the company", the cumulative of equity and preference share capital is to be

looked at or only the relevant equity/preference share capital, as the case may

be, needs to be seen.

44. While it was submitted that "Issued Share Capital" includes both 'equity

share capital', 'preference share capital', it was contended that a survey of the

following provisions of the 2013 Act makes it clear that the expression "issued

share capital" includes both 'issued equity share capital' and 'issued

preference share capital'.

45. According to Learned Senior Counsel for the 1st Respondent, Section

244(1) of the Act 2013 being pari materia to Section 399(1) of the Act 1956,

the interpretation of "Issued Share Capital" as given and held by High Court

of Bombay in "Northern Projects Ltd. V. Blue Coast Hotels and Resorts

Ltd., (2009) 149 Company Cases 279", is to be applied which was affirmed

by Hon'ble Supreme Court.

46. Reliance was also placed on a decision of Hon'ble Supreme Court in

"J.P.Srivastava & Sons (P) Ltd. Vs. Gwalior Sugar Co. Ltd. (2005) 1 SCC 24

172" in support of the plea that the word "issued Share Capital" includes

both equity and preference share capital.

47. According to Learned Senior Counsel for the 1st Respondent, the stand

of the appellants that the phrase "class of members" in Section 241(1)(b)

should be read into Section 244(1) of Act 2013 is fully untenable.

48. It was also submitted that wherever the parliament thought it fit to refer

to "class" or "issued equity share capital", it has done so expressly. For

instance, Section 236 of Act 2013 which uses the phrase "issued equity share

capital" in the context of purchase of minority shareholding. Another example

is Section 48 of the 2013 Act which pertains to variation of rights of different

classes of shareholders and employs the expression "issued shares of that

class".

49. Reliance was placed on the decision of Hon'ble Supreme Court in

"Employees State Insurance Corporation Vs. TELCO, (1975) 2 SCC 835".

50. Learned Senior Counsel also contended that if appellants'

interpretation is accepted, it would wreak havoc and would be akin to driving

a coach.

51. According to respondents' language of Section 244 being clear and

unambiguous, the rule of literal interpretation should be applicable to its

interpretation.

52. Reliance was also placed on the decision of Hon'ble Supreme Court in

"Nasiruddin Vs. Sita Ram Agarwal (2003) 2 SCC 577; Commissioner of

Sales Tax, U.P. Lucknow V. Parson Tools and Plants (1975) 4 SCC 22;

V.L.S. Finance Ltd. V. Union of India (2013) 6 SCC 278 and Raghunath

Rai Bareja V. Punjab National Bank (2007) 2 SCC 230.

25

53. Mr. Mukul Rohtagi, Learned Senior Counsel who appeared on behalf of

the 2nd Respondent while taken similar plea further submitted that the

language of Section 244(1) of the Companies Act, 2013 is clear and explicit. It

is therefore, liable to be construed literally. Right from Companies Act 1956,

it is well settled that the term 'Issued Share Capital' used in Section 399 of

the said act comprised both the issued equity and preference share capital.

[Ref. Northern Projects Ltd. V. Blue Coast Hotels and Resorts Ltd., (2009)

148 Comp Case 279; M/s. Northern Projects Ltd. V. Blue Coast Hotels &

Resorts Ltd. & Ors. SLP No. 12753/2008; J.P. Srivastava & Sons (P) Ltd.

V. Gwalior Sugar Co. Ltd.' (2005) 1 SCC 172].

54. According to him, Section 244(1) of the Companies Act, 2013 employs

the same expression "issued share capital" which was appearing in Section

399 of the old act. Hence, the legislative intention to retain the meaning of

"issued share capital" as comprising both issued equity and preference share

capital is self-explicit and clear.

In view of the above, there is no scope to read 'issued share capital" in

any manner different than how the Hon'ble Supreme Court construed the

same in Northern Projects (supra).

55. Mr. S.N. Mukherjee, Learned Senior Counsel appeared on behalf of 3rd

Respondent also took similar plea and submitted that such contention is

liable to be rejected as:

(a) The words of Section 244 of the 2013 Act are clear, plain and

unambiguous;

(b) In such a case, the Courts are bound to give effect to that

meaning, irrespective of the consequences involved; 26

(c) To construe Section 244 of the 2013 Act in the manner suggested

by the Appellants would make the provisions unworkable. This

is because of the following: -

(i) In proceeding under Section 241 of the 2013 Act, the

subject matter of a petition can be an act prejudicial to

public interest only or an act prejudicial to the interests of

the company only or prejudicial to a member of the

company other than the petitioner of oppressive to a

member other than the petitioner, who may belong to a

class of a member, to which the petitioner does not belong;

The Appellants have not indicated what the relevant issued

share capital will be in each of these cases. Indeed, they

cannot as the intention of the legislature and the words of

Section 244 of the 2013 Act does not suggest that issued

share capital would vary on a case to case basis.

(ii) The inspiration on the part of the Appellants to suggest

such a construction is based on the expression "any class

of members" appearing in the latter half of Section 241

(1)(b) of the 2013 Act. This argument fails to take note of

the fact that Section 241 (1)(a) of the 2013 Act does not

contain the expression "any class of members". Both under

Section 241(1) (a) & (b), the eligibility criteria is the same

i.e., the criteria prescribed under Section 244 of the 2013

Act. That being the case, the expression "class of members"

cannot have any effect on the construction of the 27

expression "issued share capital" occurring in Section

244(1) of the 2013 Act.

56. According to him Section 241 of the 2013 Act gives locus to a member

make a complaint to the National Company Law Tribunal in respect of matters

specified in Section 24(1)(a)&(b) of the said Act. This locus is subject to the

specified in Section 244 of the 2013 Act. Neither the locus provisions nor the

eligibility provisions make any reference to "class of membership". That being

the case, no question arises of reading the expression "issued share capital"

as "relevant share capital", depending on the class of member applying for the

relief.

Instead the legislature where it thought fit to give a particular class of

members a right, it has expressly provided for the same. (See Sections 48(2) &

236 (1) of the 2013 Act)

57. Similar was the arguments advanced by Mr. Mohan Parasaran, Learned

Senior Counsel on behalf of the 6th Respondent and the other respondents.

Relevant Provisions of the Companies Act, 2013.

58. To decide the issue, it is desirable to refer Section 241 and Section 244

of the Companies Act, 2013, Chapter XVI of the Act relates to "oppression and

mismanagement', Section 241 deals with application to Tribunal for relief in

cases of oppression etc., which reads as under:

"241. Application to Tribunal for relief in cases of oppression, etc.

(1) Any member of a company who complains that-- 28

(a) the affairs of the company have been or are being

conducted in a manner prejudicial to public interest or in a

manner prejudicial or oppressive to him or any other

member or members or in a manner prejudicial to the

interests of the company; or

(b) the 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 the Board of Directors, or

manager, 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 its interests or its members or

any class of members, may apply to the Tribunal, provided

such member has a right to apply under section 244, for an

order under this Chapter.

(2) The Central Government, if it is of the opinion that the

affairs of the company are being conducted in a manner

prejudicial to public interest, it may itself apply to the

Tribunal for an order under this Chapter."

59. From sub-section (1) of Section 241 it is clear that any member of a

company who complains of 'Oppression and Mismanagement' may apply to 29

the Tribunal, provided such member has a right to apply under Section 244,

for an order under the said Chapter, which reads as follows: -

"Section 244--(1) The following members of a company

shall have the right to apply under section 241, namely: --

(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, subject to the

condition that the applicant or applicants has or have

paid all calls and other sums due on his or 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:

Provided that the Tribunal may, on an application made to

it in this behalf, waive all or any of the requirements

specified in clause (a) or clause (b) so as to enable the

members to apply under section 241.

Explanation. --For the purposes of this sub-section, where

any share or shares are held by two or more persons

jointly, they shall be counted only as one member. 30

(2) Where any members of a company are entitled to make

an application under subsection (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."

60. Bare perusal of Section 244 makes it clear that in this case the

Company having a share capital, only following categories of Members can

apply: -

(i) Minimum one hundred members of the company or one-tenth of

the total number of its members, whichever is less and

(ii) Any member or members (jointly) holding not less than one-tenth

of the 'issued share capital' of the company.

61. It is also obvious on a bare reading of Sections 241 and 244 of the 2013

Act, that while clause (a) and (b) of subsection (1) of Section 241 deal with the

subject matter of the grievances which can be raised in a petition, Section

244(1) deals with locus/eligibility of the member who can raise such

grievances. The subject matter of the complaint bears no connection with the

eligibility of the member applying to the Tribunal except that a member

seeking to make a grievance of the subject matter contained in Section 241 is

required to first satisfy the eligibility of Section 244 of the 2013 Act.

62. This explains why, after stating the nature of complaint in clauses (a)

and (b) of subsection (1) of Section 241, it is immediately provided that

"provided such member has a right to apply under section 244...". Equally,

Section 244 reciprocates by stating that the "following members...shall have

the right to apply under Section 241, namely". Viewed in this light, there is 31

perfect reciprocal harmony between Section 241 and Section 244 of the 2013

Act.

63. No doubt, the parliament while re-enacting Section 398(2) of the

Companies Act, 1956 as Section 241(1)(b) has added the expression "...any

class of members" at the end of Section 241(1)(b) but this only enlarges the

subject matter of the complaint which may be brought before Tribunal and

does not alter the locus/eligibility of a member who can bring such

compliant. The latter continues to be governed by Section 244(1), a provision

identical to the erstwhile Section 399(1).

64. This can be seen from a different perspective as well- breaking section

241(1)(b) in two parts. In the first part, "class of shareholders" has been used

to denote the entities by whom or in whose interest, the change in

management or control is being effected. This bears no connection with the

eligibility test in Section 244(1) of the 2013 Act. The second reference to the

expression "class of members" is found in the latter part fo the provision in

the context of the entity which is likely to be affected or prejudiced by such

change. The use of word 'class' here is to denote the group or commonality of

shareholders who are being affected because of certain acts of

mismanagement and oppression. Again, no causal link is drawn with the

eligibility criteria. Consequently, it is clear that there is no correlation between

the use of the expression "class" in Section 241(1)(b) and the eligibility

requirements in Section 244(1) of the 2013 Act.

65. Even the core premise of Appellants' contention i.e if there is oppression

against only one class of shareholders (preference or equity) shareholders of

that class ought to be entitled to ventilate that particular class' grievance and 32

for this purpose eligibility must be reckoned intra class is entirely without any

merit.

66. In respect of a complaint of oppression, both under the 1956 Act as also

under the 2013 Act, any member can make a complaint that any other

member is being oppressed. In other words, it is not necessary that only

member who is the object/target of oppression has the locus to maintain a

complaint; any other member(s) can so do on this behalf.

67. Apart from all the above, it is important to point out that wherever the

parliament though it fit to refer to "class" or "issued equity share

capital", it has done so expressly. For instance, Section 236 of the 2013 Act,

which uses the phrase "issued equity share capital" in the context of purchase

of minority shareholding. Yet another example is Section 48 of the 2013 Act

which pertains to variation of rights of different classes of shareholders and

employs the expression "issued shares of that class"

68. On the other end Section 245 of the 2013 Act, which is next to Section

244. While Section 245 provides the remedy of class action, it lays down the

same threshold of the number of members as Section 244 and that too,

without making any reference to the "class of members" seeking the remedy

under Section 245 of the 2013 Act. The consistency as well as the distinction

created by the draftsman in the provisions of the 2013 Act ought to be given

effect to. Since the legislature has consciously chosen to insert the class

aspect in certain provisions and decided not to do so in Section 244(1), such

intention must be respected.

69. In 'Forest Range Officer and others vs. P. Mohammed Ali and

others - 1993 Supp. (3) SCC 627', Hon'ble Supreme Court noticed its earlier 33

decision in 'Babu Manmohan Das Shah v. Bishun Das [(1967) 1 SCR 836

: AIR 1967 SC 643]' : adopting the ordinary rule of construction stated that

"the provisions of a statute must be construed in accordance with the

language used therein unless there are compelling reasons such as where the

literal construction would reduce the Act to absurdity or prevent manifest

legislative purpose from being carried out".

70. A larger bench of Hon'ble Supreme Court in "Nasiruddin and others

Vs. Sita Ram Agarwal" - (2003) 2 SCC 577, while held that literal or strict

construction/plain meaning to be given, further held that an interpretation

cannot be avoided because it may result in harsh consequences. It is only in

case of ambiguity, the court may interpret the provision and held :

"35. In a case where the statutory provision is

plain and unambiguous, the court shall not interpret the

same in a different manner, only because of harsh

consequences arising therefrom. In E.

Palanisamy v. Palanisamy [(2003) 1 SCC 123] a Division

Bench of this Court observed: (SCC p. 127, para 5)

"The rent legislation is normally intended for the

benefit of the tenants. At the same time, it is well settled

that the benefits conferred on the tenants through the

relevant statutes can be enjoyed only on the basis of

strict compliance with the statutory provisions. Equitable

consideration has no place in such matters.

xxx xxx 34

37. The court's jurisdiction to interpret a statute can be

invoked when the same is ambiguous. It is well known

that in a given case the court can iron out the fabric but it

cannot change the texture of the fabric. It cannot enlarge

the scope of legislation or intention when the language of

the provision is plain and unambiguous. It cannot add or

subtract words to a statute or read something into it

which is not there. It cannot rewrite or recast legislation.

It is also necessary to determine that there exists a

presumption that the legislature has not used any

superfluous words. It is well settled that the real

intention of the legislation must be gathered from the

language used. It may be true that use of the expression

"shall or may" is not decisive for arriving at a finding as

to whether the statute is directory or mandatory. But the

intention of the legislature must be found out from the

scheme of the Act. It is also equally well settled that when

negative words are used the courts will presume that the

intention of the legislature was that the provisions are

mandatory in character."

71. Hon'ble Apex Court in "Raghnath Rai Bareja and Another Vs.

Punjab National Bank and Others" - 2007(2) SCC 230", held that equity

cannot prevail over the law and observed:

35

"43. In other words, once we depart from the literal rule,

then any number of interpretations can be put to a

statutory provision, each judge having a free play to put

his own interpretation as he likes. This would be

destructive of judicial discipline, and also the basic

principle in a democracy that it is not for the Judge to

legislate as that is the task of the elected representatives

of the people. Even if the literal interpretation results in

hardship or inconvenience, it has to be followed (see G.P.

Singh's Principles of Statutory Interpretations, 9th Edn.,

pp. 45-49). Hence departure from the literal rule should

only be done in very rare cases, and ordinarily there

should be judicial restraint in this connection."

"51. The learned counsel for the respondent submitted

that we have to see the legislative intent when we interpret

Section 31. In our opinion, resort can be had to the

legislative intent for the purpose of interpreting a provision

of law when the language employed by the legislature is

doubtful or ambiguous or leads to some absurdity.

However, when the language is plain and explicit and

does not admit of any doubt, the court cannot by reference

to an assumed legislative intent expand or alter the plain

meaning of an expression employed by the legislature

vide Ombalika Das v. Hulisa Shaw [(2002) 4 SCC 539]." 36

72. In 'Commissioner of Sales Tax, UP, Lucknow Vs. Parson Tools and

Plans, Kanpur- 1975(4) SCC 22', Hon'ble Apex Court noticed the rule of

literal interpretation and held :

"16. If the legislature wilfully omits to incorporate

something of an analogous law in a subsequent statute,

or even if there is a casus omissus in a statute, the

language of which is otherwise plain and unambiguous,

the Court is not competent to supply the omission by

engrafting on it or introducing in it, under the guise of

interpretation, by analogy or implication, something what

it thinks to be a general principle of justice and equity. To

do so "would be entrenching upon the preserves of

legislature" [ At p. 65 in Prem Nath L. Ganesh v. Prem

Nath L. Ram Nath, AIR 1963 Punj 62, Per Tek Chand, J.],

the primary function of a Court of law being jus

dicere and not jus dare."

"23. We have said enough and we may say it again

that where the legislature clearly declares its intent in the

scheme and language of a statute, it is the duty of the

Court to give full effect to the same without scanning its

wisdom or policy, and without engrafting, adding or

implying anything which is not congenial to or consistent

with such expressed intent of the law-giver; more so if the 37

statute is a taxing statute. We will close the discussion

by recalling what Lord Hailsham [ At p. 11, Pearl

Berg v. Varty, (1972) 2 All ER 6] has said recently, in

regard to importation of the principles of natural justice

into a statute which is a clear and complete Code, by

itself:

"It is true of course that the courts will lean

heavily against any construction of a statute

which would be manifestly fair. But they have no

power to amend or supplement the language of a

statute merely because in one view of the matter

a subject feels himself entitled to a larger degree

of say in the making of a decision than a statute

accords him. Still less is it the functioning of the

courts to form first a judgment on the fairness of

an Act of Parliament and then to amend or

supplement it with new provisions so as to make

it conform to that judgment."

78. Section 399(1) of the Companies Act, 1956 which related to right to

apply under Sections 397 and 398 of the said Act is pari materia similar to

Section 244(1), as quoted below :

"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 :

38

(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."

79. From the aforesaid provision, it is clear that the legislature neither

omitted nor incorporated something in the analogous law in the subsequent

statute (Section 244(1) of the Companies Act, 2013 herein) and, therefore, the

literal interpretation which continued for last 57 years since 1956, cannot be

avoided on the premises that in the subject-matter "grievance as mentioned

in sub-section(1) of Section 241", the expression any "class of members" has

been added at the end of Section 241(1)(b) as it only constitute the change in

the subject-matter of the complaint. The qualifying provision, as was

prescribed under Section 399(1), remain static without any change while pari

materia similar qualifying condition incorporated in Section 244(1). The

locus/eligibility of the members who can raise such grievances, having 39

remained constant since last 57 years, the mere change of subject matter of

such complaint cannot give rise to a different interpretation of the provision.

80. If the argument advanced on behalf of the appellants that "Issued Share

Capital" should be read as "relevant issued and subscribed capital", it can be

interpreted in different way, leading to ambiguity and absurdity, which

interpretation is not permissible as it will cause mischief.

81. It is to be noticed that "Issued Share Capital" automatically means the

"Issued and Subscribed Share Capital". The provision of Section 244 also

makes it clear that it should be a paid up share capital as applicants have to

show that they have paid all calls and other sums due on their shares. If

different meaning of "Relevant Issued Share Capital" given, then in that case,

the persons having only equity shares will claim that it should be read as

"Issued Equity Share Capital" and those who have only "Preference Share

Capital", they will claim to read it as "Issued Preference Share Capital" and

third group having both Equity and Share Capital will claim that it should be

read as "Issued Equity and Preference Share Capital". As the submission as

made on behalf of the Appellants will only cause ambiguity to the provision of

Section 244 causing anomaly and absurdity, it will also change the normal

interpretation as given to Section 399(1) of Companies Act, 1956, which is

para materia same to Section 244(1) of the Companies Act, 2013.

82. It is well settled that where legislative intent is clear, it is the duty of

the courts to give full effect to the same without scanning its wisdom or policy,

and without engrafting, adding or implying anything which is not consistent

with the legislative intent. In a given case, the court can only iron out the

fabric but it cannot change the texture of the fabric. (See Nasiruddin v. Sita 40

Ram Agarwal (2003) 2 SCC 577 (Para 35, 37); Commissioner of Sales

Tax, U.P. Lucknow v. Parson Tools and Plants (1975) 4 SCC 22; V.L.S.

Finance Ltd. v. Union of India (2013) 6 SCC 278 (Pare 18) and

Raghunath Rai Bareja v. Punjab National Bank (2007) 2 SCC 230

(para29).

83. In view of decisions of Hon'ble Supreme Court, the arguments advanced

by the Appellants cannot be accepted as it would be unjust, and unfair to

interpret Section 244 in any other manner than the literal rule of

interpretation, as otherwise it would be nullity.

84. In this regard, it is desirable to refer the decision of Hon'ble Bombay

High Court in M/s. Northern Projects Ltd. Vs. Blue Coast Hotels and

Resorts Ltd. and others - 2009 (148) Company Cases 279, wherein

Hon'ble Bombay High Court held that "Issued Share Capital", includes both

"Equity and Preference Share Capital", the relevant paragraphs of the decision

directly on the point are quoted below :

"24. That apart, I am also unable to accept the

contention raised on behalf of the appellant that there is no

explicit intrinsic clue to suggest that the issued share

capital would be total of the two kinds of share capital. Such

clue can be now found in section 86 of the Act which with

effect from December 13, 2000, provides that the share

capital of a company, limited by shares shall be of two kinds

only, namely (a) equity share capital and (b) preference

share capital. Preference shares, as their name implies,

carry some preferential rights in relation to other class of 41

shares, namely, equity shares. There must be two kinds of

shares for one to be preference. This class is given

preferential treatment over the other. Section 85 of the Act

deals with kinds of share capital and sub-section (1) of

section 85 defines preference share capital and sub-section

(2) defines equity share capital. Sub-section (1)(a) of section

87 of the Act deals with voting rights of equity shareholders

and sub-section (2)(b) deals with voting rights of preference

shareholders. Having regard to the provisions of sections

85, 86 and 87 of the Act, the expression "issued share

capital" in section 399(1) of the Act can only refer to and

refer only to the share capital which could be issued, i.e.,

both equity and preference share capital and therefore the

expression "issued share capital" refers to both preference

and equity share capital of the company. In other words,

these sections can be used as tools of interpretation of the

said expression.

25. The expression "issued share capital" can have no

doubt about it when considered in relation to other

provisions of the Act. Inserting the word "equity" after the

word "issued" and before the words "share capital" will be

adding a word which the Legislature clearly did not intend

and to interpret it further as "legally valid issued share

capital" would be doing violence to the section. The court

cannot read anything into a statutory provision which is 42

plain and unambiguous. Interpreting the expression in a

manner suggested on behalf of the appellant will amount to

creating a mischief rather than preventing it and thereby

leave out a class of shareholders who have subscribed to

the capital of the company, i.e., by way of preference

shares. It is to be noted that a statute is an edict of the

Legislature and the language employed in a statute is the

determinate factor of legislative intent. The first and primary

rule of construction is that the intention of the legislation

must be found in the words used by the Legislature itself.

The question is not what must be supposed and has been

intended but what has been said. It is again to be noted that

while interpreting a provision the court only interprets the

law and cannot legislate it. Doing what is suggested on

behalf of the appellant would not only be doing violence to

the section but will amount to legislating a provision in a

manner not at all intended by the Legislature.

29. From the aforesaid discussion, and from whatever

angle one looks at the expression "issued share capital" of

the company it is very clear that the expression can only

refer to the preference share capital as well as equity share

capital of the company and the appellant was required to

hold one-tenth of the total of this issued share capital before

he became eligible to maintain a petition under section

397/398 of the Act. The appellant at no time held more than 43

2.01 per cent. of issued share capital. It did not have it when

it became a member or shareholder. It did not have the

requisite percentage on the date of filing of the petition. The

appellant might be having 14.8 per cent. of equity shares,

but that is not the criterion to make an application. The

petition was therefore rightly dismissed."

85. The aforesaid decision of the Hon'ble Bombay High Court was affirmed

by Hon'ble Supreme Court by reasoned order dated 30th September 2013 in

S.L.P. No. 12753/2008- 'M/s. Northern Projects Ltd. Vs. Blue Coast Hotels

and Resorts Ltd. and others', as quoted below: -

"The appeal filed by the petitioner was dismissed by the learned

Single Judge by recording the following observations: -

"The appellant's contention that only persons

holding equity shares can be members of the

Company in terms of Section 41(3) of the Act needs

to be considered only to be rejected. As rightly

pointed out on behalf of the Company Originally

Section 41 of the Act provided for two categories of

members, namely a person who is a subscriber to

the memorandum of association in terms of sub-

section (1) of Section 41 and secondly a person

whose name is entered in the register of members in

terms of Section 4192) of the Act. As rightly pointed

out on behalf of the Company it appears that sub-

section (3) was brought on the Statute book w.e.f. 44

20.9.1995 to meet the requirements of the equity

shareholders holding shares in the electronic form

and thereby a third category was added by the

introduction of the Depositors Act, 1996. As rightly

pointed out on behalf of the Company sub-section (3)

of Section 41 of the Act specifically mentions shares

in the electronic form and therefore any reliance

placed on the said sub-section to buttress the case

of the Appellant appears to be erroneous,

misleading and legally incorrect. As rightly pointed

out on behalf or the Company, the Depositors Act

1996 was enacted for the purpose of facilitating the

transactions of shares in dermat form thereby

introducing the paperless transaction in the market

and thus it covers the third category of equity

shareholders who are neither subscribers as

contemplated by sub-section (1) nor whose names

are entered in the register of members as

contemplated under sub-section (2) of Section 41.

Sub-section (3) of Section 41 is therefore only in

addition to section 41(1) and Section 41(2) and not

in derogation or substitution of the first two sub-

sections, it appears that the word 'shareholder' and

'member' is used in the same connotation under the

Act, as rightly submitted on behalf of the Company. 45

From the aforesaid discussion, and from

whatever angle one looks at the expression "issued

share capital" of the Company it is very clear that

the expression "issued share capital" can only refer

to the preference share capital as well as equity

share capital of the Company and the appellant was

required to hold one-tenth of the total of this issued

share capital before he became eligible to maintain

a petition under Section 397/398 of the Act. The

appellant at no time held more than 2.01% of issued

share capital. It did not have it when it became a

member or shareholder. It did not have the requisite

percentage on the date of filing of the petition. the

appellant might be having 14.8% of equity shares,

but that is not the criterion to make an application.

The petition was therefore rightly dismissed.

Since the appellant did not qualify to maintain

the petition in terms of Section 399 of the Act, the

petition was rightly rejected. Admittedly, the issue

of the preference shares as being violative to the

proviso to Section 11 of the SEBI (substantial

Acquisition of Shares and takeovers) Regulations,

1997 has not been gone into by the learned CLB on

the ground that past and concluded transactions 46

cannot be impugned in a petition under Section

397/398 of the Act."

We have heard learned counsel for the petitioner and

perused the record.

In our view, the reasons recorded by the Company Law

Board and the learned Single Judge of the High Court for

holding that the application filed by the petitioner under

Sections 397 and 398 of the Companies Act was not

maintainable are correct and the order under challenge

does not call for interference under Article 136 of the

Constitution.

The special leave petition is accordingly dismissed."

86. The reasons assigned by Hon'ble Supreme Court, not only constitute

the declaration of law under Article 141 of the Constitution of India but is

also binding on all courts, including this Appellate Tribunal.

87. From the aforesaid discussion, while we hold that the expression

"Issued Share Capital" as mentioned in Section 244(1) of the Companies Act,

2013 only refer to both 'Equity Share' and "Preferential Share Capital" of the

company and similar finding having given by the Tribunal, we uphold the

order dated 16th March, 2017.

88. As admittedly, the Appellants have less than 1/10th of the "Issued Share

Capital of the company" (2.17%), we hold that the Appellants do not qualify

under Section 244(1) to file a petition under Section 241 of the Companies

Act, 2013 and the petition without waiver, at their instance is not

maintainable.

47

89. In absence of any merit, we dismiss Company Appeal (AT) No. 133 and

affirm the decision of the Tribunal, in so far as it relates to maintainability of

the petition under Sections 241 and 242.

WAIVER

90. The next question arises for consideration as to whether the application

preferred by Appellants merits waiver under proviso to sub-section (1) of

Section 244 of the Companies Act 2013 ?

Proposition on behalf of the appellants

91. Mr. C.A. Sundaram, Learned Senior Counsel for the appellants

submitted that the following factors should be taken into consideration while

considering an application for waiver: -

a. What is the interest of the appellants in the company? Is it

insignificant or substantial ?

b. What are the issues raised in the Petition and whether Section

241 is the most appropriate jurisdiction to deal with the same ?

c. Is the cause raised of substantial importance to the appellants or

to any class of members or to the company itself or in public

interest ?

92. According to him if it is found that the Appellants' interest in the

company is substantial; the Tribunal is the most appropriate forum to deal

with the issues raised; if the issues raised are substantial in nature

substantially affecting the interests of the member, class of members, the

company or the public, then waiver ought to be granted and the aim would

be to further a remedy rather than prevent it since the object of clothing the

Tribunal with the power of waiver is to sub-serve such purpose. 48

93. It was also submitted that the affairs of the 1st Respondent company is

at the apex of the Tata Group of Companies and the Tata Group itself is

involved in manifold activities affecting every member of the public and has

become a household name. Hence, a fortiori any issue as regards the 1st

Respondent company has widespread ramifications and consequences and

such issues would therefore be widespread in their effect.

94. Learned counsel for the appellants highlighted the strange

shareholding of the 1st Respondent company to suggest that a

disproportionate number of the entire shareholding is in preference shares.

Yet, the preference shareholders have limited and negligible rights in the

management of the 1st Respondent company and do not have voting rights to

elect their Board, amend Articles or to even decide how the affairs of the

Company, including vital issues like the transferability of shares as found in

Section 47, clearly and distinctly create a separate class of members qua the

equity shareholders with completely different rights and obligations from the

preference shareholders. While so, the substantial interest of the Appellants

in this distinct class of members, which class is vitally interested in the

subject litigation, whose issues may not be of any relevance to the separate

class of preference shareholders, would be the most relevant consideration.

The Appellants holding 18.37% of the equity shareholding having a present

market value of more than Rs. 1 lakh crores would have a substantial interest

in the Company and not an insignificant one.

95. It was further submitted that it is not for the Tribunal to go into the

relative merits and demerits since to do so would be a decision on the merits

of the case whereas the Tribunal is at present, is only considering the question 49

as to whether the case ought to be heard at the behest of the Appellants. If

the decision of the Tribunal amounts to deciding the merits of the case, then

the merits ought to be gone into in detail.

96. According to appellants, if the waiver application is sought to be

rejected on the ground that it does not make out a case under Section 241,

then the only test to be applied for rejection at this stage would be those found

in Order VII Rule 11, CPC, and what is to be looked into is only as to whether

the Petition on the fact of it, if taken as absolutely correct makes out a cause

of action to maintain the suit. (Refer:-Saleem Bhai and Others versus State

of Maharashtra and Others - 2003 (1) SCC 557).

97. Learned counsel for the appellants relied on Hon'ble Supreme Court

decision in "Ali M.K. and Others versus State of Kerala and Others" -

2003 (11) SCC 632 , wherein Hon'ble Supreme Court held that "The normal

function of a proviso is to accept something out of the enactment or to qualify

something enacted therein which but for the proviso would be within the

purview of the enactment."

Stand taken by Respondents, except Respondent no.11.

98. Mr. Abhishek Manu Singhvi, Learned Senior Counsel for the 1st

Respondent company highlighting the background of sub-section (1) of

Section 244 of the Act and submitted that the eligibility requirements can be

waived by the Tribunal under a proviso to sub-section (1) of Section 244.

Waiver under the Proviso is an extraordinary statutory exemption which

allows an otherwise ineligible member(s) access to remedies under Section

241 read with Section 242 of the Act.

50

99. According to Learned Senior Counsel for the 1st Respondent company

waiver proviso cannot be interpreted to supersede the substantive provision

of sub-section (1) of Section 241.

Reference in this regard was made to the following judgements:

(a) "Santosh Ekoba Sonavane v. State of Maharashtra", 2010

SCC OnLine Bom 917 to suggest that a proviso cannot regulate

a substantive provision and

(b) "Director of Education (Secondary) and Anr. v. Pushpendra

Kumar & others," (1998) 5 SCC 192 wherein Apex Court while

considering the question of compassionate appointment observed

that departure from a main provision can be made only in

exceptional circumstances.

100. According to Learned Senior Counsel for the 1st Respondent, what

would constitute an exceptional and compelling case which merits the grant

of waiver can be summarised as follows: -

i) An exceptional and compelling case would be one which apart

from disclosing a prima facie credible case on facts, satisfies the

following conditions on a meaningful reading of the petition:

a) The allegations in the petition make out a case under Section

241 of the Act. This can be done on the basis of some negative

prescriptions to evaluate if, in light of settled law, the

allegations in the petition disclose a cause of action falling

within the scope of Section 241. For convenience, these tests

can be referred to as 'exclusionary tests' or 'cause of action' 51

tests as they would exclude cases which do not disclose a

cause of action.

b) Apart from not being hit by any exclusionary tests, the petition

should also meet certain positive prescriptions, or

inclusionary tests, which merit the grant of the special

privilege of waiver to the petitioners.

101. Exclusionary Tests, according to Learned Senior Counsel for the 1st

Respondent company are as follows: -

The first enquiry should be to see if the case made out in the

petition falls within the contours of Section 241. A case which does not

ex facie disclose a cause of action under Section 241 cannot merit the

grant of waiver. For this purpose, the Tribunal should examine whether

the allegations in the petition:

a) pertain to the affairs of the company with respect to which

the petition has been filed?

b) do not concern continuing acts of oppression but instead

call into question 'past and concluded' transactions or

transactions which are ex facie time barred under Section

433 of the Act?

c) are not directorial complaints or complaints for the loss of

office which are not related to the rights of the petitioners

as shareholders?

In addition, in view of the settled legal position that exercise of

jurisdiction by the Tribunal under Section 241 is equitable in

nature, conduct of the petitioners who approach the Tribunal 52

seeking waiver should always be above board. Consequently,

petitioners should be disentitled to waiver under the Waiver

Proviso if:

d) the petitioner(s) have approached the Tribunal with

'unclean hands', for instance by deliberately suppressing

material facts; or, if it appears that the litigation is not a

bona fide shareholder dispute but is actuated by malice

and/or intended to achieve an oblique purpose; or initiated

by a publicity driven petitioner.

e) The petitioners are ex facie estopped from raising the

allegations raised in the petition, say for instance, on

account of acquiescence to the matters complained of in

the petition.

The Tribunal may also determine that it is not a fit case to grant

waiver if the matters complained of in the petition cannot be

brought before the Tribunal on account of a statutory bar, such

as when the dispute is covered by an arbitration agreement or fall

within the jurisdiction of a specific statutory authority (such as

the Securities and Exchange Board of India) which excludes such

matters to be entertained and adjudicating by the Tribunal.

Lastly, the Tribunal may be justified in refusing waiver in cases

where the allegations set out in the petition and the reliefs

claimed, in the overall context of the company in question, lead

to the formation of an honest and reasonable belief in the mind 53

of the Tribunal that the remedy sought (i.e. the grant of reliefs

sought in the petition) would be worse than the disease itself.

102. The Inclusionary test was also highlighted on behalf of the 1st

Respondent company as follows: -

(a) where the petition makes out a case of supervening

national interest or public interest; or

(b) where the lack of maintainability under Section

244(1) is itself attributable to an alleged act of

oppression, the shareholding of the complaining

shareholder is brought below 10% of the issued

share capital of the company concerned.

(c) When the complaining shareholder would be entirely

remediless if waiver is not granted. In other words,

the complaining shareholder(s) has no forum before

which he could agitate his grievances apart from the

Tribunal by way of a petition under Section 241. In

particular, this would be in cases where it is only the

Tribunal which can grant the effective remedy to the

petitioners such as reduction of share capital

consequent to a buy-back of securities by the

company.

103. It was submitted that a plain reading of Section 430 shows that it only

bars the jurisdiction of civil courts in respect of suits or other proceedings

that the Tribunal or this Hon'ble Appellate Tribunal are "empowered to

determine by or under" the Act. There is nothing in the language of Section 54 430 which is even remotely suggestive of the fact that a litigant who does not

meet the qualifying eligibility criteria under Section 244(1) or a member whose

application for waiver has been rejected is altogether precluded from agitating

his grievance before ordinary civil courts.

104. According to Learned Senior Counsel, the legislative intent seems to be

precisely to the contrary, i.e. members satisfying the eligibility criteria of

Section 244(1) have an exclusive forum in the form of the Tribunal for matters

under Section 241 and members who don't satisfy such criteria (except

members who are given waiver under the Waiver Proviso) have to approach

ordinary civil courts. In essence, Section 430 operates as a bar on the

jurisdiction of civil courts only against members who satisfy Section 244(1)

and not with respect to other members who do not. In this regard the decision

of the High Court of Calcutta in The Asansol Electric Supply Co. Ltd. v.

Chunnilal Daw (1970) 75 CWN 704 was relied upon.

105. Learned counsel for the 1st Respondent submitted that the application

preferred by the appellants are hit by several of the exclusionary tests. The

following facts were highlighted: -

(i) Allegations do not pertain to the affairs of Tata Sons

It was submitted that majority of the allegations in the Petition do

not pertain to affairs of Tata Sons and instead relate to affairs of

five companies in which Tata Sons holds shares i.e. Tata Steel

Limited, Tata Motors Limited, Tata Teleservices Limited ("TTCL"),.

The Tata Power Company Limited and AirAsia (India) Limited

(hereinafter collectively referred to as "the Other Companies").

According to 1st Respondent some other relevant facts regarding 55

the other companies and allegations have been made by the

appellants who are legal entities different from Tata Sons, who

have their own Board of Director(s).

(ii) The allegations pertain to past and concluded transactions and are patently time barred.

It was also submitted that the bulk of allegations not comprising

the affairs of Tata Sons, several of the allegations set out in the

Petition date back several years and have been raised only after

11th Respondent was replaced as the Chairman of Tata Sons. The

allegations in the Petition which pertain to past and concluded

transactions and are patently time barred. According to

appellants by virtue of Section 433 of the Act, the provisions of

the Limitation Act, 1963 have been expressly made applicable to

proceedings before the Tribunal. Reliance has been placed on

decision of Appellate Tribunal in "Esquire Electronics Inc. v.

Netherlands India Communications Enterprises Ltd."

(Company Appeal (AT) No. 26 of 2016).

(iii) Allegations are in the nature of directorial complaints

Learned Senior counsel for the 1st Respondent submitted that the

Petition makes substantive allegations around the purported

illegal removal of 11th Respondent as the Chairman of Tata sons

and thereafter as a director. It is a settled principle of law that

directorial complaints cannot constitute a cause of action under

under Section 241 of the Act. Reliance was also placed on the

decision of Hon'ble Supreme Court in "S.P.Jain v. Kalinga 56

Tubes", (1965) 2 SCR 720 and "Hanuman Prasad Bagri v.

Bagri Cereals Private Limited," (2001) 4 SCC 420.

(iv) The Appellants' conduct disentitles them from seeking relief under the equitable jurisdiction of Section 241

It was submitted that the Appellants are companies which are

controlled by 11th Respondent and his family. The timing of the

filing of the Petition after 11th Respondent's removal as Executive

Chairman of Tata sons and his resignation as a director from

certain other companies in which Tata Sons is a shareholder,

leaves no iota of doubt that the Petition is not a genuine

shareholder action. In fact, the Petition is a vindictive action filed

to espouse 11th Respondent's cause after he was removed as

Executive Chairman. This action has been filed to get even with

the Tata Trusts and the board of directors of Tata Sons by 11th

Respondent as a former disgruntled employee. In particular, the

tone and tenure of the allegations in the Petition make it clear

that the same is targeted against 2nd Respondent and 14th

Respondent. Other facts have also been highlighted.

(v) Acquiescence/Waiver/Estoppel

Learned Senior Counsel for the 1st Respondent submitted that

the petition is barred by acquiescence/waiver/estoppel. In view

of the fact that though the Petition alleges certain articles of

association of Tata Sons have been used as tools of oppression

and a license to interfere by the trustees of the Tata Trusts, the

Appellants have suppressed the fact that they or 11th Respondent 57

had voted in favour of the amendments to the articles which they

now challenge. There is not a single document/correspondence

on record from the Appellants which demonstrates that the

Appellants have at any point of time raised any grievances with

respect to the matters complained of in the Petition before the

Petition was filed. Yet, there is no record in any minutes of board

and shareholder meetings of 11th Respondent ever objecting to or

dissenting from any decision taken at the board of directors or

general meeting. However, even the minutes of the

board/shareholder meeting during this time (most of which were

chaired by 11th Respondent) do not record any dissent/objection

expressed by 11th Respondent to the matters complained of in the

Petition.

(vi) Remedy worse than the disease-not just and equitable to wind up Tata Sons.

According to Appellants, Tata Sons is a company of sizeable value

which holds a stake in several other listed as well as unlisted

companies which operate in a variety of sectors. Tata Sons also

owns the 'TATA' brand which is licensed by it to these operating

companies. The present Petition seeks sweeping and far reaching

reliefs against Tata Sons (such as the supersession of the existing

board of directors, the appointment of an administrator,

investigation, appointment of independent auditors, striking off

certain article of association etc.) which will disproportionately 58

affect the operations and affairs of Tata Sons and destabilize its

affairs.

106. It was further contended that the application is not only hit by the

'exclusionary tests' in the manner set out above, it does not meet any of the

positive prescriptions or the 'inclusionary tests' which would merit the grant

of waiver. From bare averments, there is nothing to show even remotely that

the Petition concerns a supervening national or larger public interest. The

gravity of the consequences which have been explicitly explained to invoke it

as a ground for waiver, except a mere bald pleading, nothing has been pleaded

and pleading is simply inadequate.

107. Learned Senior Counsel for the 1st Respondent while submitted that

Section 241(1)(b) does not form the subject matter of the Petition. It was also

contended that the impugned order in so far it relates to waiver is a

discretionary order and ought not to be set aside unless perverse, arbitrary or

capricious. Reliance was placed on decision of Hon'ble Supreme Court in

"Wander Limited and Anr. v. Sntox India Private Limited" (1990) Supp.

SCC 727. "Skyline Education Institute India (Private) Limited v.

S.L.Vasani" (2010) 2, SCC 142, "Mohd. Mehtab Khan v. Khushnuma

Ibrahim Khan" (2013) 9 SCC 221 and "Bed Raj v. State of Uttar Pradesh"

AIR 1955 SC 778.

108. Mr. Mukul Rohtagi, Learned Senior Counsel for the 2nd Respondent

submitted that a bare reading of the petition preferred by Appellants before

the Tribunal demonstrates that the present Petition is malafide and an

afterthought filed at the behest of 11th Respondent, who chose not to become

the petitioner before Tribunal. The real trigger for filing the Petition is the 59

removal of 11th Respondent from the position of Chairman of 1st Respondent

on 24.10.2016. The mala fide nature of the Petition is evident from the fact

that it raised allegations which are stale, belated and several decades old.

Pertinently, 11th Respondent was a director of 1st Respondent Company since

2006 and thereafter, was the Chairman of 1st Respondent Company since

2012. Nothing prevented 11th Respondent from taking steps to put the affairs

of 1st Respondent Company in order if the same were being conducted

prejudicially to the interests of the 1st Respondent or in a manner allegedly

oppressive to the Appellants. However, the Petition is completely silent on any

steps taken by 11th Respondent to this effect.

109. It was also submitted that stale and belated nature of the allegations

raised in the Petition which cannot be entertained are as follows:

(i) Allegations of the year 1993: Appellants allege that Mehli Mistry

helped 2nd Respondent acquire an agricultural land and 2nd

Respondent returned the favour by awarding contracts of various

Tata Companies to Mehli Mistry.

(ii) Allegation of the year 2000: Appellants allege 2nd Respondent

unjustly enriched himself by Rs.3 crores by sale of Colaba flat.

(iii) Allegation of the year 2006-2008: Appellants allege that Tata

Motors slipped into losses due to the Tata Nano project which is loss

making and requires to be shut down, however 2nd Respondent has

not permitted the same.

(iv) Allegation of the year 2008: Appellants allege that the 2nd

Respondent abused the powers vested in him as the erstwhile

Chairman of the Tata Group in proceeding to acquire Corus for 60

heavily inflated price, which resulted in huge strain on the resources

of Tata Steel Limited.

110. It was further submitted that the Allegations raised are barred by

principles of waiver, acquiescence and laches. Most of the allegations

raised in the Petition relate to past and concluded transactions.

111. Further, according to Learned Senior Counsel for the 2nd Respondent,

Remedy of Section 241 cannot be used to settle private grudges: A bare

perusal of the allegations made in the Petition would demonstrate that the

same are essentially in the nature of a personal onslaught only against 2nd

Respondent. According to him, shareholders of a company cannot be

permitted to initiate proceedings for feeding private grudges of warring

groups. Reliance was made to the judgement of Hon'ble Orissa High Court in

"N.K.Mohapatra v. State of Orissa", AIR 1994 Ori 301.

112. It was also contended that Appellants have not come to the court with

clean hands. The only real cause of action for filing the Petition is the removal

of 11th Respondent as the Chairman of 1st Respondent Company. The Petition

is nothing but a proxy litigation at the behest of 11th Respondent to agitate

his own personal grievance against 2nd Respondent and to malign the

reputation of 1st Respondent, where 11th Respondent chose not to become the

Petitioner. Instead, the Appellant companies are being used as a front solely

for and on behalf of 11th Respondent.

113. It was further submitted that the allegations not pertaining to the Corus

acquisition, the Nano Project, removal of 11th Respondent as director from

various operating companies, transactions with Mr. Sivasankaran, award of

contracts to Mr. Mehli Mistry and alleged misappropriation of funds in Air 61

Asia, are all allegations which are made in respect of other operating

companies and are not related to the affairs of 1st Respondent Company.

Pertinently, none of the companies (Tata Motors Ltd., Tata Steel Ltd. etc.) in

relation to whose affairs, the allegation of mismanagement has been raised

have been made parties to the Petition.

114. It was also contended that Vague and unsubstantiated allegations has

been made pertaining to the sharing of information with 2nd and 14th

Respondents, the sale of the Colaba flat, the award of contracts to Mr. Mehli

Mistry, the alleged misappropriation of funds in Air Asia and the alleged use

of the Articles of Association of 1st Respondent Company as tools of oppression

are all vague allegations which have simply been made in the Petition without

furnishing any material particulars.

115. Similar plea was taken by the Learned Counsel for the rest of the

respondents except 11th Respondent.

116. Mr. S.N.Mukerjee, Learned Senior Counsel appearing on behalf of the

3rd Respondent while dealing with the Exclusionary factors (Disqualification)

contended that the meaningful reading of the application and/or the petition

would ipso facto disentitle the applicants from grant of waiver or result in the

tribunal refusing to exercise its discretion inter alia include:

(a) The allegations of oppression/mismanagement being ex-facie barred

by limitation (Section 433);

(b) The allegations of oppression/mismanagement not being in relation

to the affairs or the company of which the applicant is a member;

(c) The allegations of oppression/mismanagement being directorial

disputes;

62

(d) The allegations of oppression/mismanagement being ex-facie in

relation to past and concluded transactions;

(e) The allegations of oppression/mismanagement being such that ex-

facie the applicant is barred from urging the same on account of

principles of waiver, acquiescence or estoppel;

(f) The applicant having approached with unclean hands viz.

suppression vari or suggestion falsi;

(g) The applicant having approached seeking to urge personal

grievances or a proxy litigation;

(h) The petition being a dressed up application though the subject

matter is covered by arbitration;

(i) The disputes raised being ex-facie barred by res-judicata or

principles analogous thereto;

(j) The disputes raised and the subject matter thereof are ex-facie

barred by some other law and falls within the exclusive domain of

some other court/tribunal or forum;

117. In so far as Inclusionary factors (Qualification) is concerned, it was

contended that the Onus being on the Applicants to show from their

application and/or the petition that the same makes out strong grounds/a

compelling/strong prima facie case which entitle them to a waiver. While

exercising its discretion, the Tribunal may, inter alia, keep the following

considerations in mind: -

a) The allegations made in the application/petition disclose: 63

I. that it is not merely a personal dispute of a shareholder but

the acts complained of are prejudicial to the interest of the

company and interest of the public; and

II. that it in the interest of the company and all its members

to pursue the petition; and

III. that to wind up the company would unfairly prejudice such

member or members, but that otherwise the facts would

justify the making of a winging-up order on the ground that

it was just and equitable that the company should be

wound up.

b) That the Applicant has no other remedy in common law to redress

or vent his grievances.

118. Similar argument was advanced by Mr. Mohan Parasan, Learned Senior

Counsel for the Respondent Nos. 6, 14,17,18, 20 to 22.

Case of 11th Respondent

119. Learned Counsel for the 11th Respondent while supported the case of

the appellants, highlighted some of the acts of 'oppression and

mismanagement' on the part of the 1st Respondent Company giving three

examples.

120. In regard to allegation of Mr. C.Sivasankaran, it was stated that Siva

Group owes a sum of Rs. 694 crores, pursuant to the Inter-Se Agreement

between Siva, 1st Respondent and Tata Teleservices Ltd. This is towards the

shares of Tata Teleservices Ltd. that DoCoMo had acquired from the Siva

Group with a put option on 1st Respondent.

64

121. Other shareholders too were obligors such as 'Tata Power' (Rs. 790

crores), 'Tata Communications' (Rs. 1,058 crores), 'Tata Steel' ( Rs. 152 crores)

and Tata Industries (Rs. 543 crores). When 1st Respondent was forced to

deposit Rs. 8,450 crores towards payment to DoCoMo in July 2016, the Siva

Group refused to pay its proportionate share to 1st Respondent Company.

122. 11th Respondent pursued recovery of dues from Siva in right earnest on

behalf of 1st Respondent. On September 15, 2016, the Board of 1st

Respondent Company approved initiating legal action against Siva for

recovery of the said amount, when 11th Respondent brought up the subject

as a residual item on the agenda under the prerogative of Chairman. It is

pertinent to note that this had not been pre-vetted and pre-cleared with 2nd

Respondent or the other trustees.

123. In regard to Air Asia, according to 11th Respondent, Air Asia India

Private Ltd. ("Air Asia") is a company in which 1st Respondent holds a

substantial stake of 49% and of which 1st Respondent is the promoter. The

other joint venture partners were one Mr. Arun Bhatia and Air Asia Berhard,

a Malaysian aviation company. 20th Respondent is also personally a

shareholder of Air Asia.

124. The case of Corporate Governance Framework was also highlighted and

Learned Senior Counsel contended that Article 121 provides for the

requirement of a majority of the directors nominated by the Tata Trusts to

approve of every single decision of 1st Respondent. Article 121 A lists out

matters that necessarily have to be taken to the Board of Directors of 1st

Respondent. Thereby, the Trustees have complete control of affairs of 1st

Respondent and thereby affairs of all other Tata Group Companies. 65

125. According to Learned Senior Counsel for the 11th Respondent, the

removal of 11th Respondent as Executive Chairman is in direct conflict with

Article 118, which requires a committee to be formed. This removal cannot

be seen as some isolated act of oppression but is to be seen in the context of

and attendant with the various other evidently oppressive action that are

evident from the pleadings.

126. Therefore, this is not a "directorial dispute" about removal of a director,

but an oppressive act involving a material change effect by way of removal of

the Executive Chairman who was remedying and acting in the interests of 1st

Respondent.

127. Further according to 11th Respondent, the Company Secretary of 1st

Respondent (23rd Respondent) has admitted that no committee was formed

for the removal of the Executive Chairman in terms of Article 118, vide his

email dated November 12, 2016. This email also confirms that the Board of

Directors of 1st Respondent neither sought nor were guided by any legal

opinion on the validity of removal in violation of Article 118.

128. According to 11th Respondent, all the purported reasons for his removal

have been proffered only after the removal and in these proceedings, and not

prior to the removal, even while the Respondents seek to argue that the

Petitioners did not find the acts complained of as being oppressive before the

removal of 11th Respondent, which argument stands belied by the record

referred to above.

129. Directorship linked to shareholding was also highlighted. The

directorship of 11th Respondent came to an end on February 6, 2017, when

1st Respondent removed him from the Board of Directors. This is an office 66

held by 11th Respondent's family since 1980. In 2006, 11th Respondent, then

aged 39, was inducted as a non-executive director, just two years after his

father retired from directorship.

130. 11th Respondent's selection as Executive Chairman in 2012 was

through a selection process, done on merits for an executive position whereas

his appointment in 2006 as non-executive director was to succeed to his

family's representation on the Board.

131. To decide the issue, it is desirable to notice Chapter XVI of the

Companies Act, 2013 which relates to 'Prevention of Oppression and

Mismanagement'.

132. A member of the company, who otherwise is eligible under Section 244,

has a right to apply and complains of 'oppression and mismanagement' under

section 241, which is as follows :

"Chapter - XVI"

"Prevention of Oppression and Mismanagement"

"241. Application to Tribunal for relief in cases of

oppression, etc.

(1) Any member of a company who complains that--

(a) the affairs of the company have been or are being

conducted in a manner prejudicial to public interest or in

a manner prejudicial or oppressive to him or any other

member or members or in a manner prejudicial to the

interests of the company; or

(b) the material change, not being a change brought about

by, or in the interests of, any creditors, including 67

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 the Board of

Directors, or manager, 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 its interests or its members or any class of members,

may apply to the Tribunal, provided such member has a

right to apply under section 244, for an order under this

Chapter."

133. Sub-Section (2) of Section 241 empowers Central Government to apply,

if it is of the opinion that the affairs of the company are being conducted in a

manner prejudicial to public interest, which is as follows:

"(2) The Central Government, if it is of the opinion

that the affairs of the company are being conducted in a

manner prejudicial to public interest, it may itself apply

to the Tribunal for an order under this Chapter."

134. Under sub-section (1) of Section 242, the Tribunal is empowered to pass

order on any application made under section 241, as it thinks fit, with a view

to bringing to an end the matters complained of, if it forms opinion in terms

of clause (a) and (b) therein, and quoted below: -

68

"242. Powers of Tribunal. ─(1) If, on any application

made under section 241, the Tribunal is of the opinion--

(a) that the company's affairs have been or are being

conducted in a manner prejudicial or oppressive to any

member or members or prejudicial to public interest or in

a manner prejudicial to the interests of the company; 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 Tribunal may, with a view to

bringing to an end the matters complained of, make such

order as it thinks fit."

135. Sub-section (2) of Section 242 are inclusive Power of Tribunal to pass

specific order and direction without prejudice to the generality of the powers

under sub-section (1).

136. From the aforesaid provisions (Sections 241 and 242), it is clear that

the Tribunal can pass order on an application under Section 241 as it thinks

fit with a view to bringing to an end the matters complained of and if it is of

the opinion that the company's affairs have been or are being conducted in a

manner prejudicial or oppressive to any member or members or prejudicial to

public interest or in a manner prejudicial to the interests of the company; and

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- 69

up order on the ground that it was just and equitable that the company

should be wound up.

137. Aforesaid provision makes it clear that where member(s) who are eligible

as per sub-section (1) of Section 244 if apply under Section 241, the Tribunal

can decide the case on merit after hearing the parties.

138. Sections 243 relates to the "consequences of termination or

modification of certain agreements" made under Section 242. As per proviso

to Section 243, the Tribunal cannot grant leave unless notice of the intention

to apply for leave is served on the Central Government and that Government

has been given a reasonable opportunity of being heard in the matter, the

relevant of which reads as follows: -

"243. Consequence of termination or modification

of certain agreement. ----(1) Where an order made

under section 242 terminates, sets aside or modifies an

agreement such as is referred to in sub-section (2) of that

section,---

xxx xxx xxx

Provided that the Tribunal shall not grant leave

under this clause unless notice of the intention to apply

for leave has been served on the Central Government and

that Government has been given a reasonable

opportunity of being heard in the matter."

139. From the proviso to sub-section (1) of Section 243, it is clear that there

is a provision to 'grant of Leave', as distinct from 'grant of waiver', as provided

under proviso to sub-section (1) of Section 244, which reads as follows: - 70

"244. Right to apply under section 241. ----(1) The

following members of a company shall have the right to apply

under Section 241, namely: -

(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,

subject to the condition that the applicant or

applicants has or have paid all calls and other

sums due on his or 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:

Provided that the Tribunal may, on an

application made to it in this behalf, waive all or

any of the requirements specified in clause (a) or

clause (b) so as to enable the members to apply

under section 241.

Explanation. ---For the purposes of this sub-section,

where any share or shares are held by two or more

persons jointly, they shall be counted only as one

member."

71

140. From plain reading of sub-section (1) of Section 244, the following facts

emerges.

In the case of a company having a share capital, the following member(s)

have right to apply under Section 241:

(i) 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; and

(ii) any member or members holding not less than one-tenth of the

issued share capital of the company, subject to the condition that

the applicant or applicants has or have paid all calls and other

sums due on his or their shares.

141. Apart from two categories of members who have right to apply under

Section 241, under proviso to sub-Section (1) of Section 244, the Tribunal on

an application made to it in this behalf by any member, i.e. those who are

otherwise not eligible, may waive all or any of the requirements specified in

clause (a) or clause (b) so as to enable the member to apply under Section 241.

142. From the proviso to sub-section (1) of Section 244, it is clear that till the

Tribunal waive all or any of the requirements specified in clause (a) or clause

(b) of sub-section (1), so as to enable the member(s) to apply under Section

241, no application under Section 241 can be entertained.

143. Therefore, before grant of waiver, the question of forming opinion by

Tribunal on an application made under Section 241 and to pass any order as

it thinks fit does not arise. If the Tribunal intends to decide the application

under Section 241 on merit, it is required to waive the requirement as

prescribed under sub-section (1) of Section 244.

72

144. For the reasons aforesaid, we hold that the Tribunal cannot deliberate

on the merit of a (proposed) application under Section 241, while deciding an

application for 'waiver' under proviso to sub-section (1) of Section 244.

The factors dependent on merit

(i) Prima facie case:

Whether a prima facie case is made out or not is dependent on merit

of the case as may pleaded in the (proposed) application under

Section 241. As it is dependent on merit of the case, we are of the

view that the Tribunal cannot decide the question as to whether a

prima facie case has been made out or not while deciding an

application for 'waiver'.

(ii) Limitation:

The question whether an application under Section 241 is barred by

limitation is a mixed question of law and facts. The same is also

dependent on the cause of action and continuous cause of action, if

any. As the merit of the case cannot be deliberated in an application

for 'waiver' the Tribunal cannot decide the question whether

(proposed) application under Section 241 is barred by limitation or

not while deciding the application for 'waiver'.

(iii) Allegation pertains to affairs of another Company

This is a complicated issue dependent on facts of each case. The

allegation of 'oppression and mismanagement' pertains to the related

company or a third company is dependent on the facts of the case.

For example, on bare perusal of the application, if it appears that

the allegation relates to a third company then it is a different issue, 73

but in some cases even third company's issue may have direct

relation to the company of which 'oppression and mismanagement'

has been alleged. For example, Company 'A' which has substantial

shareholding say 50% in another Company 'B', as shareholder and

the Company 'A' takes part in the Board's meeting or Extraordinary

General Meeting of Company 'B' and takes decisions, which is

against the interest of Company 'A'. In such case, any aggrieved

member of the Company 'A' can allege 'oppression and

mismanagement' qua Company 'A', if its interest is compromised in

favour of another Company 'B'. In such case, it cannot be stated

that the matter pertains to another Company 'B' and therefore,

member(s) of Company 'A' have no right to allege 'oppression and

mismanagement'. In fact, it is a case of 'oppression and

mismanagement' qua Company 'A', if the right of the Company 'A' is

compromised. As the aforesaid disputed question is dependent on

facts and merit of a case, it cannot be decided nor can be taken into

consideration while deciding an application for 'waiver'.

(iv) Arbitration:

The question of referring a matter under Section 8 or 45 of the

Arbitration and Conciliation Act, 1996 does not arise during the

stage of decision of an application for 'waiver'. If the Tribunal, after

perusal of proposed application under Section 241, without deciding

the merit of the case forms opinion that the allegation relates to

'oppression and mismanagement' of the company, the question of

referring the matter to the arbitrator does not arise. 74

Similarly, if the Tribunal refuse to grant 'waiver' on the ground

the (proposed) application do not merit waiver, the question of

referring the case to arbitrator does not arise.

(v) Directorial Complaint

Whether the allegation is in the nature of Directorial Complaint or

not can be decided by the Tribunal only at the stage of deciding merit

of an application under Section 241 after taking into consideration

the reply, if any, and hearing the parties. As it is dependent on merit,

we hold that the question as to whether the allegation pertains to

Directorial Complaint or not, cannot be decided by Tribunal while

deciding an application for 'waiver'

(vi) Conduct of Applicant:

The question of deciding the conduct of an applicants to disentitle

them from seeking a relief is also based on merit of each case.

Therefore, we hold that such issue cannot be decided by the Tribunal

while deciding an application for 'waiver'.

(vii) Acquiescence/Waiver/Estoppel

The question whether (proposed) application under Section 241 is

barred by acquiescence or waiver or estoppel is question of fact

which can be decided only at the stage of hearing of application

under Section 241. Therefore, we are of the view that such question

cannot be decided by Tribunal while considering an application for

'waiver'.

145. For the aforesaid reasons we hold that the Tribunal while deciding an

application for 'waiver' under proviso to sub-section (1) of Section 244 to 75

enable the members to apply under Section 241 cannot decide the following

issues: -

(i) Merit of the case

(ii) Issues dependent on merit based on claim and counter claim,

such as:

a. Whether a prima facie case has been made or not

b. Whether the petition is barred by limitation,

c. Whether it is a case of arbitration,

d. Whether allegation relates to/pertains to another company

(Third party).

e. Whether the allegations are in the nature of directorial

complaint.

f. Whether the applicants' conduct disentitled them from

seeking relief.

g. Whether the proposed application under Section 241 is barred

by acquiescence or waiver or estoppel.

146. Section 244 of the Companies Act 2013 came into force from 1st June

2016. Prior to the same, eligibility clause was laid down under Section 399(1)

of the Companies Act 1956, which is para-materia same that of sub-section

(1) of Section 244.

147. In the Companies Act, 1956 there was no provision of 'waiver', but under

sub-section (4) of Section 399, on an application filed by any member i.e.

ineligible member or members of a company, the Central Government was

empowered to form opinion whether circumstances exist which make it just

and equitable to do so, authorise the member(s) of a company to apply before 76

the Company Law Board under Sections 397-398 (now Section 241),

notwithstanding that the requirements of clause (a) or (b), as the case may be

of sub-section (1) of Section 399 are not fulfilled. The said provision reads as

follows :-

399. Right to apply under section 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 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) xxx

(3) xxx

(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 Company Law Board] under section 397

or 398, notwithstanding that the requirements of clause

(a) or (b), as the case may be, of sub- section (1) are not

fulfilled."

77

148. Now there is a clear departure from earlier provision i.e. sub-section (4)

of Section 399 whereunder the Central Government was empowered to permit

the ineligible member(s) to file an application for 'oppression and

mismanagement' by its executive power. Under proviso to sub-section (1) of

Section 244 now the Tribunal is required to decide the question whether

application merits 'waiver' of all or any of the requirements as specified in

clauses (a) and (b) of sub-section (1) of Section 244 to enable such member(s)

to file application under Section 241. Such order of 'waiver' being judicial in

nature, cannot be passed by Tribunal, in a capricious or arbitrary manner

and can be passed only by a speaking and reasoned order after notice to the

(proposed) respondent(s). The basic principle of justice delivery system is

that a court or a Tribunal while passing an order is not only required to give

good reason based on record/evidence but also required to show that after

being satisfied itself the Court/Tribunal has passed such order. To form an

opinion as to whether the application merits waiver, the Tribunal is not only

required to form its opinion objectively, but also required to satisfy itself on

the basis of pleadings/evidence on record as to whether the proposed

application under Section 241 merits consideration.

149. The Tribunal is required to take into consideration the relevant facts

and evidence, as pleaded in the application for waiver and (proposed)

application under Section 241 and required to record reasons reflecting its

satisfaction.

150. The Tribunal is not required to decide merit of (proposed) application

under Section 241, but required to record grounds to suggest that the

applicants have made out some exceptional case for waiver of all or of any of 78

the requirements specified in clauses (a) and (b) of sub-section (1) of Section

244. Such opinion required to be formed on the basis of the (proposed)

application under Section 241 and to form opinion whether allegation

pertains to 'oppression and mismanagement' of the company or its members.

The merit cannot be decided till the Tribunal waives the requirement and

enable the members to file application under Section 241.

151. Normally, the following factors are required to be noticed by the Tribunal

before forming its opinion as to whether the application merits 'waiver' of all

or one or other requirement as specified in clauses (a) and (b) of sub-section

(1) Section 244:-

(i) Whether the applicants are member(s) of the company in

question ? If the answer is in negative i.e. the applicant(s) are not

member(s), the application is to be rejected outright. Otherwise,

the Tribunal will look into the next factor.

(ii) Whether (proposed) application under Section 241 pertains to

'oppression and mismanagement' ? If the Tribunal on perusal of

proposed application under Section 241 forms opinion that the

application does not relate to 'oppression and mismanagement' of

the company or its members and/or is frivolous, it will reject the

application for 'waiver'. Otherwise, the Tribunal will proceed to

notice the other factors.

(iii) Whether similar allegation of 'oppression and mismanagement',

was earlier made by any other member and stand decided and

concluded ?

79

(iv) Whether there is an exceptional circumstance made out to grant

'waiver', so as to enable members to file application under Section

241 etc. ?

152. The aforesaid factors are not exhaustive. There may be other factors

unrelated to the merit of the case which can be taken into consideration by

the Tribunal for forming opinion as to whether application merits 'waiver'.

ALTERNATIVE REMEDY - SECTION 430

153. One of the question arises as to whether the appellants can avail a

remedy in a suit before a Civil Court for alleged act of 'oppression and

mismanagement' levelled against the respondents.

154. Section 430 bars Civil Court to entertain any suit or proceeding in

respect of any matter which the Tribunal or the Appellate Tribunal is

empowered to determine under the Companies Act or any other law for time

being in force. The provision reads as follows:

"430. Civil court not to have jurisdiction.─

No Civil court shall have jurisdiction to entertain any

suit or proceeding in respect of any matter which the

Tribunal or the Appellate Tribunal is empowered to

determine by or under this Act or any other law for the

time being in force and no injunction shall be granted

by any court or other authority in respect of any action

taken or to be taken in pursuance of any power

conferred by or under this Act or any other law for the 80

time being in force, by the Tribunal or the Appellate

Tribunal"

155. Section 241 empowers the Tribunal to entertain the application relating

to alleged act of 'oppression and mismanagement', if any member complaint

of the same. The Tribunal can grant relief as it thinks fit and proper in the

case of oppression and mismanagement under Section 242. The plain reading

of the aforesaid provision makes it clear that Civil Court has no jurisdiction to

entertain any suit or proceeding in respect of alleged act of 'oppression and

mismanagement', if preferred by any member of a company.

156. The fact that one or other member is ineligible to apply under Section

241 relating to allegation of 'oppression and mismanagement' will not

empower the Civil Court to grant such relief, as can be granted by the Tribunal

under Section 242. No such power can be vested with the Civil Court on the

ground that the member is ineligible to apply before the Tribunal for alleged

act of 'oppression and mismanagement'.

157. For the aforesaid reasons, we hold that Civil Court is not the forum for

an ineligible member to sought relief as may be granted under section 242, if

a case of 'oppression and mismanagement' is made out.

Appellants' claim

158. Now the question arises whether the application for 'waiver' preferred

by appellants along with (proposed) application under Section 241 merits

'waiver' of all or any one of the requirements specified in clause (a) or clause

(b) so as to enable the appellants to apply under Section 241. To decide the

same, it will be desirable to notice the relevant facts, without going into the

merit of the (proposed) application.

81

159. There are 51 shareholders of 'Tata Sons Limited', whose shareholding,

both equity and preferential as on 21st December 2016 are as follows (as

pleaded and admitted): -

TATA SONS LIMITED SUMMARY OF SHAREHOLDING - EQUITY & PREFERENCE SHARES-21.12.2016

Eq. Sh. (FV Rs. Pref. Sh (FV Total Capital Equity 1000/sh) Rs. 1,000/sh) + Pref.

Shares % of Eq. Shares % of Shares % OF (A) Cap (B) Pref. Cap (E) TOTAL (C) (D) CAPITAL TRUSTS : (F) 1. Sir Dorabji Tata Trust 1,13,067 27.98% - 1,13,067 3.37% 0.00% 2. Sir Ratan Tata Trust 95,211 23.56% - 95,211 2.84% 0.00% 3. JRD Tata Trust 16,200 4.01% - 16,200 0.48% 0.00% 4. Tata Education Trust 15,075 3.73% - 15,075 0.45% 0.00% 5. Tata Social Welfare 15,075 3.73% - 15,075 0.45% Trust 0.00% 6. R D Tata Trust 8,838 2.19% - 8,838 0.26% 0.00% 7. M.K. Tata Trust 2,421 0.60% - 2,421 0.07% 0.00% 8. Sarvajanik Seva 396 0.10% - 396 0.01% Trust 0.00% 2,66,283 65.89% 2,66,283 7.95%

T COMPANIES

9. T Motors 12,375 3.06% - 12,375 0.37% 0.00% 10. T Steel 12,375 3.06% - 12,375 0.37% 0.00% 11. T Chemicals 10,237 2.53% - 10,237 0.31% 0.00% 12. T Power 6,673 1.65% - 6,673 0.20% 0.00% 13. IHCL 4500 1.11% - 4500 0.13% 0.00% 14. T Industries 2,295 0.57% - 2,295 0.07% 0.00% 15. T Global 1,755 0.43% - 1,755 0.05% 0.00% 16. T International 1,477 0.37% - 1,477 0.04% 0.00% 17. T Investment 326 0.08% - 326 0.01% 0.00% 52,013 12.87% - 52,013 1.55% 0.00%

P. MISTRY 82

18. Sterling Investment 37,122 9.19% - 37,122 1.11% Corp Ltd. 0.00% 19. Cyrus Investment 37,122 9.19% - 37,122 1.11% Pvt. Ltd. 0.00% 20. Mr. Pallonji Shapoorji 108 0.03% - 108 0.00% Mistry 0.00% 21. Mr. Cyrus Pallonji 0.00% 20,000 20,000 0.60% Mistry 0.68% 74,352 18.40% 20,000 94,352 2.82% 0.68%

Eq. Sh. (FV Rs. Pref. Sh (FV Rs. Total Capital 1000/sh) 1,000/sh) Equity + Pref.

Shares % of Shares (C) % of Shares % OF (A) Eq. Cap Pref. (E) TOTAL (B) Cap. CAPITAL INDIVIDUALS (D) (F) 22. Mr. Ratan Naval 3,368 0.83% 10,50,000 35.63% 10,53,368 31.43% Tata 23. Mr. Jimmy Naval 3,262 0.81% - 0.00% 3,262 0.10% Tata 24. Mr. Noel Naval 2,055 0.51% - 0.00% 2,055 0.06% Tata 25. Mr. Simone Naval 2011 0.60% - 0.00% 2011 0.06% Tata 26. Ms. Pilloo 487 0.12% - 0.00% 487 0.01% Minocher Tata 27. Mr. Jimmy 157 0.04% - 0.00% 157 0.00% Minocher Tata 28. Ms. Vera Farhad 157 0.04% - 0.00% 157 0.00% Choksey 29. H.H. M V 1 0.00% - 0.00% 1 0.00% Chauhan 30. Mr. Noshir Adi - 0.00% 2,60,000 8.82% 2,60,000 7.76% Soonawala 31. Mrs. Simone N - 0.00% 35,000 1.19% 35,000 1.04% Tata & Mr. Naval N Tata 32. Dr. Jamshed J. - 0.00% 50,000 1.70% 50,000 1.49% Irani & Ors. 33. Mr. Praveen P. - 0.00% 10,000 0.34% 10,000 0.30% Kadle & Anr. 34. Mr. Farokh K - 0.00% 30,000 1.02% 30,000 0.90% Kavarana 35. Mr. R. - 0.00% 1,30,000 4.41% 1,30,000 3.88% Gopalakrishnan & Anr. 36. Mr. Ishaat - 0.00% 75,000 2.55% 75,000 2.24% Hussain & Anr. 37. Mrs. Aloo Noel - 0.00% 1,50,000 5.09% 1,50,000 4.48% Tata & Anr. 38. Mr. S Ramadorai - 0.00% 30,000 1.02% 30,000 0.90% 39. Mr. Syamal - 0.00% 35,000 1.19% 35,000 1.04% Gupta & Anr. 83

40. Mr. Ashok Soni - 0.00% 25,000 0.85% 25,000 0.75% 41. Mr. Farokh N. - 0.00% 41,600 1.4% 41,600 1.24% Subedar & Anr. 42. Mr. Arunkumar - 0.00% 30,000 1.02% 30,000 0.90% R Gandhi & Anr. 43. Mr. Ravi Kant & - 0.00% 1,30,000 4.41% 1,30,000 3.66% Anr. 44. Mr. Narotam S - 0.00% 5,70,000 19.34% 5,70,000 17.01% Sekhsaria 45. Mr. Kishor A - 0.00% 5,000 0.17% 5,000 0.15% Chaukar & Anr. 46. Mr. Seturaman - 0.00% 10,000 3.34% 10,000 0.30% Mahalingam & Anr. 47. Mrs. F J Seina & - 0.00% 40,000 1.36% 40,000 1.19% Mr. J K Sethna 48. Mr. Bharat - 0.00% 5,000 0.17% 5,000 0.15% Damodar Vasani & Anr. 49. Mr. N S Rajan - 0.00% 15,000 0.51% 15,000 0.45% 50. Mr. Jamshed - 0.00% 60,000 2.04% 60,000 1.79% Khurshed Sethna & Anr. 51. Trent Limited - 0.00% 1,40,200 4.76% 1,40,000 4.18%

TOTAL 11,498 2.85% 29,26,800 99.32% 29,38,298 87.69% INDIVIDUALS

TOTAL 4,04,146 100.00% 29,46,800 100.00% 33,50,946 100.00%

160. From the aforesaid summary of shareholding we find that except Mr.

Ratan Naval Tata (at serial no. 22) having issued shareholding of 31.43% and

Mr. Narotam S. Sekhsaria (at serial no. 44), having 17.01% shareholding

capital of the company, none of the 49 member(s) are eligible to file an

application under Section 241, individually having less than 10% of the

shareholding.

161. That means in the context of present case, except that the minority

shareholders join together, i.e. either six in numbers or such numbers of

members whose joint shareholding will come up to 10% of the issued share

capital of the Company, which will be also not less than 3 to 4 members, none

of the 49 shareholders can file an application under Section 241 alleging 84

'oppression and mismanagement'. It will remain only in the hands of major

shareholders, namely Mr. Ratan Naval Tata or Mr. Narotam S. Sekhsaria, who

only have right and their prerogative to file such application.

162. One or the other minority shareholder cannot be asked or directed to

form a group of 10% of the member(s) that means six person(s) in the present

case, as it will be dependent on the prerogative of the other member(s).

163. We are of the view that this is one of the exceptional and compelling

circumstances, which merit the application for 'waiver' subject to the question

whether (proposed) application under Section 241 relates to 'oppression and

mismanagement'.

164. Appellants have pleaded and not disputed by respondents is that the

valuation of the company being in the region of at least 'Six lakhs Crores'.

The interest of the appellants in the overall value of the company would be

over 'one lakh crore'. Therefore, the interest of the appellants in the overall

value of the company is 1/6th of the total value of the company. On the other

hand, the value of the preference share holding would be only Rs. 291 crores,

who do not carry voting rights other than in the exceptional circumstances

found in Section 47(2) of the Companies Act 2013. The interest of the

appellants to the extent of 'one lakh crores' of the overall value of the company

whose valuation being in the region is about six lakhs crores, is another

factor, which we have kept in our mind to answer the application for 'waiver'

in favour of the appellants.

165. Article 121 of Articles of Association provides for requirement of a

majority of Directors nominated by Tata Trust to approve of every simple

decision of 1st respondent company - Tata Sons Limited and reads as follows:- 85

"121. MATTERS HOW DECIDED

Matters before any meeting of the Board which

are required to be decided by a majority of the

Directors shall require the affirmative vote of a majority

of the Directors appointed pursuant to Article 104B

present at the meeting and in the case of an equality

of vote the Chairman shall have a casting vote."

166. Article 121-A lists out matters that have to be taken to the Board of

Directors of the 1st respondent company - 'Tata Sons Limited' which includes

all Tata Group Companies, as named below. Thereby, the 1st respondent

company has complete control over the decision making and affairs of all the

Tata Group Companies, as apparent from the Article 121-A and quoted

below:-

"121-A. The following matters shall be resolved upon by the Board of Directors:

xxx xxx xxx

(g) Any matter affecting the shareholding of the Tata

Trusts in the Company or the rights conferred upon the

Tata Trusts by the Articles of the Company or the

shareholding of the Company in any Tata Company if

not already approved as part of the annual business

plan;

(h) Exercise of the voting rights of the Company at the

general meetings of any Tata Company, including the 86

appointment of a representative of the Company under

Section 113 (1) (a) of the Companies Act, 2013 in

respect of a general meeting of any Tata Company

and, in any matter concerning the raising of capital,

incurring of debt and divesting or acquisition of any

undertaking or business of such Tata Company,

instructions to such representative on how to exercise

the Company's voting rights.

Explanation: The term "Tata Company" used in this

Article shall, as the context requires, mean each or any

of the following companies:

Tata Consultancy Services Limited, Tata Steel Limited,

Tata Motors Limited, Tata Capital Limited, Tata

Chemicals Ltd., The Tata Power Company Limited,

Tata Global Beverages Limited, The Indian Hotels

Company Limited, Trent Limited, Tata Teleservices

(Maharashtra) Limited, Tata Industries Limited, Tata

Teleservices Limited, Tata Communications Limited,

Titan Company Limited and Infinity Retail Limited

and any other company in which the Company (or its

subsidiaries) holds twenty percent or more of the paid

up share capital and whose name is notified in writing

to the Company by the Directors nominated under

Article 104B."

87

167. Thus, prima facie, it appears that with regard to affairs of the other Tata

Group Companies, namely Tata Steel Limited, Tata Motors Limited, Tata

Teleservices Limited, The Tata Power Company Limited, Air Asia (India) etc.,

the 1st respondent company has some control and therefore, at the stage of

'waiver' it cannot be held that the matter relates to other companies or third

company.

168. This is another exceptional factor, we have noticed in this case, which

merit 'waiver' in favour of appellants to file an application under Section 241.

169. In so far as (proposed) petition under Section 241 is concerned, the

plain reading of the same will show that the allegations relate to 'oppression

and mismanagement'; it cannot be stated to be a frivolous application. We

find that some of the allegations as made by appellants and highlighted by

the learned counsel for the 11th respondent as noticed in the preceding

paragraphs, are of recent year 2016. We are not expressing any opinion with

regard to merit of such allegation, but have only noticed the allegations.

170. Taking into consideration the aforesaid facts and exceptional

circumstances of the case as apparent from plain reading of the (proposed)

application and as some of them relate to 'oppression and mismanagement',

qua 1st respondent company and its member(s), we are of the view that the

appellants have made out a case for 'waiver' to enable them to apply under

Section 241.

171. The Tribunal by impugned judgement dated 17th April 2017 having

failed to notice the aforesaid facts and factors, as discussed above and as it

decided the application for 'waiver' taking into consideration the prima facie

case / merit of the case, the said order cannot be upheld. We, accordingly, 88

set aside the impugned order dated 17th April 2017 passed by the Tribunal in

C.P.No. 82/241, 242, 244/NCLT/MAH/2016 and grant 'waiver' to appellants

to enable them to file application under Section 241.

172. The case is remitted to the Tribunal to register the (proposed)

application under Section 241, admit the same and after notice to the parties

decide the application on merit uninfluenced by impugned orders preferably

within three months.

173. In the result Company Appeals(AT) No. 133 is dismissed and Company

Appeals (AT) No. 139 of 2017 is allowed with the aforesaid observations and

directions.

However, in the facts and circumstances of the case, the parties will

bear their own costs.

(Mr. Balvinder Singh) (Justice S.J. Mukhopadhaya) Member (Technical) Chairperson

NEW DELHI 21st September 2017

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