M/S. India Awake For Transparency vs M/S.Hasham Investment And Trading ...

M/s. India Awake for Transparency Shristi Crescendo 24 Desika Road Mylapore Chennai - 600 004 ...Appellant

Versus

1. M/s. Hasham Investment and Trading Company Pvt. Ltd. No.134 Next to WIPRO Corporate Office Doddakannelli Sarajapur Road, Bengaluru - 560 035

2. Azim H Premji Survey No.75, 133, 135/1 and 136/1 Next to WIPRO Corporate Office No.574, Doddakannelli Sarajapur Road, Bengaluru - 560 035

3. Yaseem Premji Survey No.574, Doddakannelli Sarajapur Road, Bengaluru - 560 035

4. P Srinivasan No.524, 16th Cross Indira Nagar II Stage Bangalore Karnataka - 560 038

5. Azim Premji Trust rep by its Trustee Azim Premji Trustee Company Pvt. Ltd. No.134 Next to WIPRO Corporate Office Doddakannelli Sarajapur Road, Bengaluru - 560 035 ...Respondent Nos.1 to 5

2 Present: Shri S. Subramanian and Shri Arnav Dash, Advocates for the Appellant

Shri P.B. Suresh, Shri Vipin Nair and Shri Abhay P. Singh, Advocates for the Respondents

ORAL JUDGEMENT 07.02.2018

A.I.S. Cheema, J. : This appeal raises the question of law whether a

non-member can seek waiver under Section 244 of the Companies Act,

2013 ('Act' in brief).

2. The Appellant - original Petitioner is admittedly a non-member in

Respondent No.1 Company. The Appellant filed application, (treated as)

Company Petition 15 of 2017 before the National Company Law Tribunal,

Bangluru Bench ('NCLT' in short) for waiver under Section 241 read with

Section 244 of the Act. Petitioner claimed it was acting to safeguard public

interest. It was claimed that Respondent Companies had merged with

Respondent No.1 and in the process assets had been transferred for private

benefit. Grounds were raised trying to show that the Respondent companies

were acting more for private benefit rather than in public interest and

committed acts of oppression and mismanagement. NCLT heard the

Petitioner in the light of Section 244 of the Act and concluded that as the

applicant was not a member, he could not maintain the petition and non-

member cannot seek waiver. The petition was thus rejected. Hence the

present appeal.

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3. We have heard the learned counsel for the Appellant and the learned

counsel for the Respondents.

4. The learned counsel for the Appellant has submitted that if the

provisions of Section 244 of the Act are perused the proviso permits waiver of

all the requirements of sub-clause (a) or sub-clause (b) which refer to

numerical strength or voting strength and even a non-member can maintain

the petition.

Section 244(1) of the Act reads as under:

"(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 application 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 (1) or clause (b) so as to

enable the members to apply under section 241.

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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."

5. Referring to the above section, it is submitted by the counsel that

the proviso clearly provides that all or any of the requirements could be

waived. Thus, it is claimed requirement of being member also can be

waived.

6. It has been submitted that the Appellant - original Petitioner is

NGO and Company registered under Section 8 of the Act. The Appellant

takes up social causes in corporate world relating to grievances about

mismanagement of the Companies as well as Government

Departments. According to the learned counsel, as the Appellant found

that there was mismanagement in the Respondent Company, petition

was filed. The submission is that if Section 241(1)(a) is perused, it lays

down that where the affairs of the company are being conducted "in a

manner prejudicial to public interest", that could also be a ground for

filing the petition under Section 241. It is submitted that earlier the

word "public interest" was not there in the provisions and it was

introduced in Section 398 of the Companies Act, 1956 (old Act - in

short) by an amendment brought into force with effect from 1st January,

1964. The counsel submitted that under the old Act, the Central

Government could permit a member otherwise not eligible to move

application under Section 399 by resorting to sub-section 4. It is stated 5

that when Section 398 was amended, amendment to Section 399(4)

remained to be done and this has been corrected when the new Act

came into force by giving powers to the NCLT to waive all or any of the

conditions.

7. It has been argued that Judgement in the matter of "Cyrus

Investments Pvt. Ltd. & Anr. vs. Tata Sons Ltd. & Ors. - 2017 SCC

Online NCLAT 261" does not apply to the facts of the present matter as

in that matter, the present question was not involved. There, the

Petitioner was admittedly a member of the company and thus for him,

the question of waiver was considered. The learned counsel referred to

para 151 of that Judgement which reads as under:

"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.

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(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?

(iv) Whether there is an exceptional circumstance

made out to grant 'waiver', so as to enable

members to file application under Section 241

etc.?"

8. Referring to (i) in the above paragraph, the learned counsel

submitted that the observations of this Tribunal that if the person is

not a member the application is to be rejected outright should be

treated as obiter as it was not a question which was necessary to decide 7

in that matter. The question was neither argued nor deliberated and

thus these observations should be treated as obiter.

9. It is argued by the learned counsel for the Appellant that

provisions of Section 244(1) are quite clear and when the section is

clear, it should be applied as it is. According to him the words "all or

any" used in the proviso make it clear that the NCLT has wide powers

to waive all or any of the requirements mentioned in Clauses (a) and (b)

for the purpose of permitting the petition under Section 241.

10. It is submitted that if it is found that the Section is vague then

purposive of interpretation should be resorted to in order to see which

mischief was sought to be remedied when the amendments were made.

According to him, the concept of "public interest" was introduced with

effect from 01.01.1964 and which is also covered in Section 241(1)(a),

should be kept in view and to safeguard public interest even a non-

member should be able to maintain the petition.

11. The learned counsel for the Respondents has opposed the

contentions raised by the learned counsel for the Appellant. It is

claimed that Section 244(1) clearly refers to only members who would

be able to apply and maintain the application/petition and there is no

ambiguity. According to the counsel for non-members, there are other

options like resorting to Section 210 of the Act and the public interest

being referred to can be taken care by the Central Government which 8

can take necessary actions. It is argued that sub-section (2) of Section

241 also makes it clear that if Central Government is of the opinion that

the affairs of the company are being conducted in a manner prejudicial

to public interest, it may apply to the Tribunal for an order under this

Chapter. But that would be circuitous route. The learned counsel

submitted that the orders of the NCLT rejecting the petition were passed

without notice to the Respondents and now he has filed reply to show

that there were disputes between the present Appellant and the

Respondents and the petition was moved with ulterior motives.

12. Heard counsel for both sides. We find that in spite of adding

words relating to "public interest" on 01.01.1964 in the old Act, even

when Act of 2013 was enforced Section 241, 242 and 244 continue to

refer to Members of the Company to deal with question of oppression

and mismanagement. Thus there is no scope to make alleged purposive

interpretation as claimed. We have perused Section 241 and read it with

Section 244, and kept in view the old provisions of Section 398 and

399. We find that not much is required to be stated as Section 244 of

the Act, to us, appears to be quite clear. A mere glance at the Section

shows that the Proviso which has been added below Clauses (a) and (b)

gives power to waive all or any of the requirements specified in Clauses

(a) or (b) so as to "enable the members to apply". The Proviso does not

do away with "members". Apart from this, the Proviso controls and

refers only to Clauses (a) and (b) and does not control what is not part 9

of Clauses (a) and (b). The opening words of the Section are (i) "The

following members of a company shall have the right to apply under

Section 241, namely: -- ..............." Then clauses as mentioned above

are there.

13. The Proviso below Clauses 'a' and 'b' does not waive or control the

opening words of the Section which clearly say that the right would be

of the members to apply. The Proviso also gives rights to only "members"

to seek waiver of all or any of the requirements specified in Clauses (a)

and (b). Even Section 241 says that any "member of company" can

complain under the Section.

14. We thus do not find any substance in the arguments which are

being raised by the learned counsel for the Appellant. The learned

counsel for the Respondents submitted that busy bodies in the name

of public interest cannot be allowed to resort to Section 241 and 244

otherwise the companies would not be able to function. There is

substance in the submission. There are remedies available to the non-

members or public, in case the company was functioning against public

interest for which there are provisions in Chapter XIV of the Act, and

Section 242(2) of the Act is also there.

15. We thus hold the above question of law in negative.

16. We do not find any substance in the appeal. The impugned order

does not call for any interference. The appeal is dismissed with costs 10

quantified at Rs.2 lakhs to be paid by the Appellant to the Respondent

No.1.

[Justice A.I.S. Cheema] Member (Judicial)

[Balvinder Singh] Member (Technical) /rs/nn