# J.P. SRIVASTAVA AND SONS PVT. LTD. AND ORS v. MIS GWALIOR SUGAR CO. LTD. AND ORS

- **Citation:** [2004] Supp. 5 S.C.R. 648
- **Court:** Supreme Court of India
- **Decided:** 2004-10-26
- **Bench:** Ruma Pal, Arun Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/j-p-srivastava-and-sons-pvt-ltd-and-ors-v-mis-gwalior-sugar-co-ltd-and-ors-20228
- **Pages:** 23

## Headnote

Companies Act-Sections 397, 398 and 399(3)
Petition by shareholders including a trust-Support of share holders
C having 10% of total issued shares-Calculation of-Held: Shareholding of
the trust was to be taken into account as trust deed allowed a co-trusteepetitioner to act for the trust under express authorisation.
Petition by Shareholders including a trust-Beneficial interest in part
of shares held by trust already vesting in its beneficiaries prior to filing of
D petition-Held; This was irrelevant as beneficial interest rf'uld not make
owner thereof a member of company-It could not mean that owner of shares
as registered with company was incompetent to file the petition.
Shareholders supporting petition-letter of their consent-Held;
Requirement of filing such letter with the petition was not mandatory in the
E sense that their non-filing would ipso facto result in dismissal of petition-
/I was especially so in view of power of CLB to pass any order for ends of
justice and dispense with requirement of regulations-Only requirement was
of filing of document as proof that consent of supporting shareholder had in
fact been obtained prior. to filing of petition-substantial compliance with
· F the rule was sufficient provided no prejudice was caused-Regulations 18
(Serial 27 of Annexure lll), 44 and 48 of Company law Board Regulations
1991.
Support of petitioners with qualifYing percentage of shares-Held; If
Court is satisfied that petitioners represent a body of shareholders holding
G requisite percentage, it could assume that involvement of company in litigation
was not lightly done and not reject the petition on a technical requirement.
H
Objection as to maintainability-Held-If objection is taken by demurrer
ClB could decide the issue based on averment in the petition alone, accepting
648
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J.P. SRIVASTAVA AND SONS PVT.LTD. v. GWALIOR SUGAR CO.LTD.
649
the pleas therein as correct-However, Where CLB takes into consideration A
facts outside the petition, it cannot not foreclose the petitioner from supporting
its case in the petition on the basis of evidence not annexed thereto-On
facts, held that as objection of prior consent of shareholders holding 10%
of total issued shares was taken in application by respondent, CLB should
have determined the issue on evidence and dismissal of petition only because
letters of consent had not been annexed with it was incorrect-Regulation B
24 of Company Law Board Regulations 1991.
Appellants, a group of minority share holder in a company-respondent
no. 1, filed a petition before Company Law Board (CLB) under Sections 397
and 398 of Companies Act complaining of mis-management and oppression C
of the company. Respondent No. 8 contended that the petition was not
maintainable as requirement of Section 399 of Companies Act of petitioner
having 10% of total issued shares was not met by the appellant as that
calculation was done with respect to equity shares only whereas it should have
also included preference share. Petitioner-appellant no. 3 contended that she
had filed the petition on her behalf as well as family trust which held 1029 D
preference shares, and hence the petition was maintainable. CLB held that
petition was not maintainable as the said trust had not consented to filing of
the petition by no. 3. Single judge of High Court dismissed the appeal against
that order on the grounds that since the Trust could neither delegate their
powers nor authorise one of them to represent the trust, that consent of the
trustees was not pleaded, that there was no compliance with Regulation 18 of E
Company Law Board Regulations 1991, and that the shares of trust had vested
in the beneficiaries. Division Bench upheld the dismissal of the appeal. H .. ·nce
the present appeal.
Question before the Court was whether trustees could authorise one of F
them to initiate proceeding for and on behalf of the trust, and if so, whether
appellant no. 3 was so authorised.
Disposing of the appeals, the Court
HELD: 1. Al

## Text

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A
J.P. SRIVASTAVA AND SONS PVT. LTD. AND ORS.
v.
MIS GWALIOR SUGAR CO. LTD. AND ORS.
OCTOBER 26, 2004
B
[RUMA PAL AND ARUN KUMAR, JJ.]
Companies Act-Sections 397, 398 and 399(3)
Petition by shareholders including a trust-Support of share holders
C having 10% of total issued shares-Calculation of-Held: Shareholding of
the trust was to be taken into account as trust deed allowed a co-trusteepetitioner to act for the trust under express authorisation.
Petition by Shareholders including a trust-Beneficial interest in part
of shares held by trust already vesting in its beneficiaries prior to filing of
D petition-Held; This was irrelevant as beneficial interest rf'uld not make
owner thereof a member of company-It could not mean that owner of shares
as registered with company was incompetent to file the petition.
Shareholders supporting petition-letter of their consent-Held;
Requirement of filing such letter with the petition was not mandatory in the
E sense that their non-filing would ipso facto result in dismissal of petition-
/I was especially so in view of power of CLB to pass any order for ends of
justice and dispense with requirement of regulations-Only requirement was
of filing of document as proof that consent of supporting shareholder had in
fact been obtained prior. to filing of petition-substantial compliance with
· F the rule was sufficient provided no prejudice was caused-Regulations 18
(Serial 27 of Annexure lll), 44 and 48 of Company law Board Regulations
1991.
Support of petitioners with qualifYing percentage of shares-Held; If
Court is satisfied that petitioners represent a body of shareholders holding
G requisite percentage, it could assume that involvement of company in litigation
was not lightly done and not reject the petition on a technical requirement.
H
Objection as to maintainability-Held-If objection is taken by demurrer
ClB could decide the issue based on averment in the petition alone, accepting
648
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J.P. SRIVASTAVA AND SONS PVT.LTD. v. GWALIOR SUGAR CO.LTD.
649
the pleas therein as correct-However, Where CLB takes into consideration A
facts outside the petition, it cannot not foreclose the petitioner from supporting
its case in the petition on the basis of evidence not annexed thereto-On
facts, held that as objection of prior consent of shareholders holding 10%
of total issued shares was taken in application by respondent, CLB should
have determined the issue on evidence and dismissal of petition only because
letters of consent had not been annexed with it was incorrect-Regulation B
24 of Company Law Board Regulations 1991.
Appellants, a group of minority share holder in a company-respondent
no. 1, filed a petition before Company Law Board (CLB) under Sections 397
and 398 of Companies Act complaining of mis-management and oppression C
of the company. Respondent No. 8 contended that the petition was not
maintainable as requirement of Section 399 of Companies Act of petitioner
having 10% of total issued shares was not met by the appellant as that
calculation was done with respect to equity shares only whereas it should have
also included preference share. Petitioner-appellant no. 3 contended that she
had filed the petition on her behalf as well as family trust which held 1029 D
preference shares, and hence the petition was maintainable. CLB held that
petition was not maintainable as the said trust had not consented to filing of
the petition by no. 3. Single judge of High Court dismissed the appeal against
that order on the grounds that since the Trust could neither delegate their
powers nor authorise one of them to represent the trust, that consent of the
trustees was not pleaded, that there was no compliance with Regulation 18 of E
Company Law Board Regulations 1991, and that the shares of trust had vested
in the beneficiaries. Division Bench upheld the dismissal of the appeal. H .. ·nce
the present appeal.
Question before the Court was whether trustees could authorise one of F
them to initiate proceeding for and on behalf of the trust, and if so, whether
appellant no. 3 was so authorised.
Disposing of the appeals, the Court
HELD: 1. Although as a rule trustees must execute their duties of their G
office jointly, this general principle is subject to the following exceptions when
one trustee may act for all (1) where the Trust Deed allows the trusts to be
executed by one or more by majority of trustees (2) where there is express
sanction or approval of the act by the co-trustees; (3) where the delegation of
power is necessary; (4) wh~re the beneficiaries competent to contract consent
to the delegation; (5) where the delegation to a co-trustee is in the regular H
650
SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.
A course of the business; (6) where the co-trustee merely gives effect to a
decision taken by the trustees jointly. 1661-E, GI
Mis Shanti Vijay and Co. v. Princess Fatima Fouzia and Ors., AIR (1980)
SC 17, relied on.
B
Atmaram Ranchhodbha v. Gulahusein Gu/am Mohiyaddin, AIR (1973)
c
Gujarat 113 and Duli Chandv: Mis Mahabir Pershad Trilok Chand Charitable
Trust, Delhi, AIR (1984) Delhi 145, approved.
Jain Swetambara Murthi Pujaka Samas/ha v. Women Dattareya Pukale,
AIR (1979) Karnataka 111, disapproved.
1.2. The present trust comes within at least three of the exceptions listed.
Clauses in the trust deed clearly allow not only co-trustee but any person to
carry out the trust and to act for the trust provided of course such person is
expressly authorised. [661-G; 66~-G-Hl
D
1.3. From the resolution of Trustees and their affidavits the conclusion
is inescapable that the Trustees had expres!ily authorised appellant no. 3 to
file the petition. Additionally, the affidavit of her husband, who is alleged to be
the registered owner of the 1029 preference shares, clearly shows that he
had expressly consented and authorised appellant no. 3 in his capacity as such
E trustee to file the proceedings. [664-C-DI
F
P. Punnaiah v. Jeypore Sugar Co. Ltd., AIR (1994) SC 2258, relied on.
2.1. The intention of the petitioners undoubtedly was to represent the
J.K. Group which admittedly has the qualifying number of share, although
the expression of such intention was not as clear as it should have been.
[665-B-q
2.2. All the fora below have n,ot proceeded on the basis that the pleading
in the petition did not reflect the intention. They have rested their findings
on the law as perceived by them that the Trust could not have been represented
G by one co-trustee. The perception has held to be erroneous. 1669-C-D)
3. The other ground on which the flora dismissed the petition was that
the beneficial interest in 551 shares of the 1029 held by the Trust had already
vested in the beneficiaries prior to the filing of the petition complaining of
mismanagement and oppression. This is again an incorrect legal proposition.
H An equitable or beneficial interest in- shares does not make the owner of the
..
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J.P. SRI VASTA VA AND SONS PVT.LTD. v. GWALIOR SUGAR CO. LTD.
65 l
interest a member· of the company. Therefore, even assuming that in terms of A
the Trust Deed the shares had devolved on the beneficiary of the Trust, this
would not mean that the owner of the share as registered with the company
would not be competent to file petition under Sections 397 and 398.
[669-D, E, F)
Mis Howrah Trading Co. v. Commissioner of Income Tax, AIR (1959) B
SC 775 and Killick Nixon Ltd v. Bank of India, [1985) (57) Co. Cases 832,
referred to.
4.1. Section 399 of the Act has replaced Section 153-C(3) of the India
Companies Act, 1913 with some major differences. Section 153-C(3) of the
1913 Act itself provided that the consent of the shareholders supporting the C
petition should be obtained in writing. Sub-section (3) of Section 399 of the
1956 Act, however, contains no such requirement It only speaks of'obtaining'
of the consent. It does not speak of consent in writing nor does it require any
such writing to be annexed with the petition. Regulation 18 also does not itself
contain the requirement for filing of the consent letters. The requirement D
has been prescribed in Annexure Ill, which is referred to in Regulation 18.
Serial 27 of Annexure Ill contains a list of several documents required to be
annexed to petitions relating to the exercise of power in connection with
prevention of oppression or mismanagement under Sections 397, 398, 399( 4),
400, 402, 403 404 and 405, These requirements can hardly be said to be
mandatory in the sense that non-compliance with any of them would ipso facto E
result in the dismissal of the petition. Apart from this, Regulation 18 itself
is subject to the power of CLB under Regulation 44 providing for its inherent
power and Regulation 48 providing for its power with the requirements of
regulations Given these power of CLB, it cannot be held that non-compliance
with one of requirements in Sri. No. 27 in App. III of Reg. 18 goes to the very
root of the jurisdiction of the CLB to entertain and dispose of a petition under
Sections 397 and 398. All that regulation 18 requires by way of filing of
documents, is proof that the consent of the supporting shareholders had in
fact been obtained prior to the filing of the petition in terms of Sections 399(3) .
. [665-B-C-D; 666-B-C-D, E, G; 667-A-B I
4.2. If the Court is satisfied that the petitioners represent a body of
shareholders the requisite percentage, it can assume that the involvement of
the company in litigation is not lightly done and that it should pass orders to
bring to an end the matters complained of and not reject it on a technical
requirement. Substance must take precedence over fron;t Section 399(3) and
F
G
H
652
SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.
A Regulation 18 have been substantially complied with in this case.
[669-H; 670-A-B)
Pratap Singh v. Shri Krishna Gupta, AIR (1956) SC 140, referred to.
5.1. It is open to the persons opposing the application under Sections
B 397 and 398 to question the correctness of an assertion as to the consent
made by the petitioner. It is equally open to the petitioner to provide evidence
in support of the plea taken in the petitioner. If of course the objection to the
maintainability is taken by demurrer, the CLB can decide the issue on the
basis of the averments contained in the petition alone, accepting the pleas
therein as correct. But where the CLB takes into consideration facts outside
C the petition as it has done in this case, it cannot foreclose the petitioner
supporting its case in the petition on the basis of evidence not annexed thereto.
(667-B-C)
5.2. Since the CLB calculated the total shareholding of the company
including preference shares based on the allegations contained in respondent
D no. 8's application, it was for the CLB to determine the issue of actual prior
consent on evidence. This view finds support from Regulation 24. The finding
of the CLB and the High Court to the effect that the petition of the appellant
deserved to be rejected only because the letters of consent had not been
annexed to the petition was therefore incorrect. [667-D; 668-B-C)
E
CIVIL APPEL LA TE JURISDICTION : Civil Appeal No. 6951 of 2004.
From th~ Judgment and Order dated I 0.8.200 I of the Madhya Pradesh
High Court in L.P.A. No. 17 l of 2000.
Ms. Tasneem Ahmadi, Santosh Dwivedi, Anurag Pandey and Sudhir
p Kumar Gupta for the Appellants.
G
C.A. Sundram, Gopal Jain, Ms. Rakhi Ray, Ms. Bina Gupta, Ms. Nandini
Gore, Mrs. Manik Karanjawala and Umesh Kumar Khaitan with him for the
Respondents.
The Judgment of the Court was delivered by
RUMA PAL, J. Leave granted.
This appeal arises out of proceedings initiated under Sections 397 and
398 of the Companies Act (hereinafter referred to as 'the Act') by a group
of minority shareholders complaining of mis-management and oppression in
H respect of the respondent No. I company M/s. Gwalior Sugar Company Ltd. ·
--
-
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J.P. SRIVASTAVAANDSOl'!_SPVT. LTD. v. GWALIOR SUGAR CO. LTD. [RUMAPAL,J.] 653
(referred to as 'the Company'). The appellants are the unsuccessful petitioners. A
The primary question to be resolved in this appeal is whether they held the
requisite one-tenth of the issued share capital of the Company under Sectiori
399 (I) of the Act when they filed the petition under Ss. 397 and 398.
The shares of the Company are basically held by two branches of the
family of J.P. Srivastava. J.K. Srivastava, who was originally the petitioner No. B
4, and H.K. Srivastava who was originally the respondent No.2, were the two
sons of J.P. Srivastava. During the pendency of the proceedings before us,
both J.K. Srivastava and H.K. Srivastava have died and are now represented
by their respective heirs. In the case of J.K. Srivastava, his interest is now
represented by his widow Mrs. Raj Mohini Srivastava and his only son Vijay
Kumar Srivastava. As far as H.K. Srivastava is concerned, he is represented C
by his four children, Vikram, Hemlata, Vir and Radhika. The corporate
shareholders in the Company are in tum also held by members of the Srivastava
family. Mrs. Nini Srivastava, appellant No.3, the wife of Vijay Srivastava, was
the third petitioner in the proceedings as originally filed. She was described
as a petitioner "for herself and as trustee for J .K. Srivastava Family Trust" D
(referred hereafter as the Trust).
The proceedings were initiated before the Company Law Board (CLB)
on !st July 1995. The pleadings were completed and the matter heard from
time to time. On 22nd January 1996, CLB issued an order, the relevant extract
of which reads thus:
"In view of the close relationship between the parties, we suggested
to the counsel for both the sides that they should try to work out an
amicable settlement between the parties. The counsel have undertaken
to do so. The result of their efforts will be intimated to us on 20th
February 1996 at 2.30 p.m."
Hearings were adjourned on 22.2.96, 4.3.96 and 15.3.96 when the CLB
was informed that compromise talks were in progress. Ultimately on 7.5.96, the
CLB passed this order:
"It was agreed by the parties that the petitioners will sell their shares
E
F
to the respondents for a value per share to be determined by a valuer G
appointed by us and the value will be binding on all the parties. The
parties will approach jointly reputed valuers and suggest an acceptable
name for our approval on 3015196 at 4.15 p.m."
On l 0.6.1996, with the consent of the parties, the CLB appointed M/s
H
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SUPREME COURT REPORTS (2004] SUPP. 5 S.C.R.
A Thakur Vaidyanathan Iyer as company chartered accountants, New Delhi to
value the shares of the company. On 22.11.96, the chartered accountants
valued the shares. As the respondents had reservations about the value, the
matter was re-heard by the valuer who reconsidered the submissions of the
parties. Ultimately, the value of the equity shares was given by the valuer as
Rs.6340 per share. The valuation for a prefe~ence share of Rs. 100 was fixed
B at par. The respondents objected to this valuation also. The contention of the
respondents was that the other disputes relating to family properties in
possession of the petitioners should be settled also. After various hearings
the matter was fixed for hearing on 6.11.1998.
On 3.11.1998, the respondent No. 8, Mrs. Radhika Srivastava, moved an
C application challenging the order dated 10.6.1996. In the application it was
alleged that the respondent No.8 had no knowledge of the compromise and
that she had been kept in the dark about the settlement arrived at. She prayed
for recall of the order dated 10.6.1996. It was also said that the calculation of
10% of the petitioner's shareholding in the Company was made only with
D regard to the equity share capital of the company, whereas Section 399 subsection (I) requires the petitioner to have 10% of the total issued share capital
which would include preference shares and that the shareholding claimed by
the petitioners diq not amount to 10% of such total. It was contended that
the appellants therefore did not hold the requisite 10 per cent of the issued
share capital of the respondent No. I company and therefore the petition
E under Section 397 and 398 was not maintainable and should be dismissed.
The appellants filed a pre-notice reply on 5.11.1998 in which they stated
that the petitioner No. 3 (the appellant No. 3 before us) had filed the petition
on behalf of herself and as a trustee of the J.K. Srivastava Family Trust
(referred to as the Trust) and that the Trust held 1029 preference shares. It
F was also alleged that the respondent No.8 was fully aware of and had
participated in, the proceedings, in which there had been 25 hearings over
three and a half years.
On 6th November, 1998, the matter was listed for orders to be passed
by CLB, when, according to the appellants, the CLB directed the appellants
G to file the consent/authority if any given by the Trust to Mrs. Nini Srivastava
to file the petition under Sections 397 and 398. On 9th November, 1998 the
appellants brought on record an affidavit dated 9th June, 1995 executed by
the trustees to the effect that they had granted consent to the appellant No.3
to file the petition, a resolution of the Trust dated I 0th June, 1995 and an
H affidavit of Mr. V.K. Srivastava dated 12th June, 1995. The appellants also
-
-
I
.,_.
J.P. SRIVASTAVA AND SONS PVT.LTD. v. GWALIOR SUGAR CO.LTD. [RUMA PAL,J.J 655
filed a detailed reply in which it was inter a/ia stated that the Trust held 1029 A
preference shares in the company, that Mrs. Nini Srivastava had been appointed
as a trustee of the Trust on 24th August, l 994, that authority/consent to file
the petition under Sections 397,398 had been given by the trustees on 9.2.1995
and by Mr. V.K. Srivastava a co-trustee by his affidavit dated 12th June, 1995.
The other respondents supported the respondent No. 8's application. B
In the counter affidavit filed on behalf of the Company, it was said that:
"As per the records of the Company as on date i.e the shareholders
register, I 029 Preference Shares stand registered in the name of Mr.
V.K. Srivastava Trustee, J.K. Srivastava (family) Trust and not in the
name of Mrs. Nini Srivastava. The endorsement in the cause title
against the name of Mrs. Nini Srivastava who is not all a Trustee is
no compliance at all and the petition is liable to be dismissed as being
not maintainable on the ground that it has been filed by the petitioners
holding less than Ill 0th of the issued share capital of the company
c
i.e. 27.68 lakhs".
D
The hearing in the matter was concluded by the CLB and judgment
reserved two days after the last affidavit was filed. On 18th January, 1999 the
CLB passed an order rejecting the challenge by the respondent No.8 to the
consent order dated I 0.6.1996. It revised the valuation and considered that
a sum of 6000 per equity share would be an appropriate value and Rs. I 00
would be the appropriate value for the preference shares. However, the CLB
upheld the contention of the respondent No. 8 that the application under
Sections 397 and 398 was not maintainable on the ground that the petitioner
did not hold the requisite 10 per cent shares. The CLB proceeded on the basis
that the Trust held 1029 shares in the company but that it had not consented
to the filing of the petition under Sections 397, 398 by Nini Srivastava.
According to the CLB " ... The only issue for examination is whether the Trust
is a party to the proceedings or whether the Trustees have given their
consent to file the petition and if so whether the same is legally valid". It
answered this issue against the petitioners because;
(I) No authority of the J.K. Srivastava Family Trust authorizing the
3rd Petitioner to represent the Trust nor any affidavit by her
representing the Trust had been annexed to the petition;
(2) since there was no averment to the effect that the petitioner had
E
F
G
the consent of the Trustees to file the petition and since the consent H
656
SUPREME COURT REPORTS (2004] SUPP. 5 S.C.R.
A
documents were not enclosed with the petition, the requirement under
Regulation 18 had not been complied with and that non-enclosing the
consent document with the petition was fatal to the petition.
(3) If the preference shares held by the Trust is not taken into
consideration, then the total number of shares held by' the petitioners
B
would work out to about 7% of the subscribed capital and if the
shares are included, then the percentage would go to I0.85%.
c
( 4) 515 preference shares of the trust had already vested in the one
of the beneficiaries thus reducing the percentage of the petitioners
share holding to less than 10% and;
(5) relying upon Duli Chand v. Mis. Mahabir Pershad Tri/ok Chand
Charitable Trust, Delhi AIR (1984) Delhi 145 that Trustees cannot
authorize one of them to initiate proceedings in the name of the trust.
It therefore reached the conclusion that the shares held by the Trust
D cannot be taken into account for the purposes of the provisions of Section
399. Therefore without passing any directions pursuant to its finding on the
effect of the consent order, it dismissed the petition.
Several appeals were preferred from this order under Section IO-F of the
Act both by the appellants and the respondents. The learned Single Judge
E dismissed all the appeals holding that the petition was not maintainable
because no consent of the trustees had been pleaded, that there was no
compliance with Regulation 18, that the shares of the Trust had vested in the
beneficiaries and that the trustees could not delegate their powers or authorize
one of them to represent the Trust.
F
During the pendency of the appeals, the respondents, according to the
appellants, committed further acts of oppression in respect and mismanagement
of the company. Consequently, a second petition was filed under Sections 397
and 398 of the Act by the appellants.
G
A Letters Patent appeal was filed from the decision of the Single Judge
before the Division Bench by the appellants. The Division Bench held that
the filing of the consent along with application under Section 399(3) of the
other share h_olders was a sine q'w non to the initiation of proceedings under
Sections 397 and 398 and that on the failure on the part of the appellants to
file the alleged consents the application had been rightly dismissed. It was
H held that it was not necessary to determine the nature of the trust and
J.P. SRIVASTAVA AND SONS PVT.LTD. v. GWALIOR SUGAR CO. LTD. [RUMA PAL,J.] 657
whether the shares held by the Trust had devolved on any of the beneficiaries A
before the petitions under Sections 397 and 398 of the Companies Act had
been filed. It was said that:
"If the trust contained some other properties there is likelihood that
the shares may not be divided."
The Division Bench was also of the view that since the second application B
had been filed, the CLB should consider whether the shares of the trust
should be reduced and the implications of Section 153 of the Act. The CLB
was directed to decide the subsequent application on its merits ignoring the
observations made by the CLB in its order dated 18.1.1999 as well as of the
Single Judge and to decide the case on merits on the basis of the persons c·
whose names were recorded in the register of share holders.
Befoce us the appellants contended that the Trust and the co-trustees
had authorised the third appellant to represent the Trust. It was submitted
that there was no dispute in fact that the Trust held 1029 shares in the
company. The only dispute was whether the third appellant was authorized D
to act on behalf of the Trust. It was submitted that Section 399(3) did not deal
with the authorization but with the consent of supporting shareholders. It is
said that the Trust still continues and has not been brought to an end by
reason of devolution of the shares to the beneficiaries. It is said that the cotrustees had in fact consented to/ authorized the appellant No. 3 to initiate E
and prosecute the petition under Sections 397 and 398 and that in any event
the CLB should have given an opportunity to the appellants to implead the
other co-trustees. It was pointed out that the respondent No.8 had never
raised any issue that the trustees were necessary parties and that in their
absence the petition under Sections 397 and 398 was not maintainable. It was
also submitted that the High Court erred in holding that compliance with F
Regulation 18 of the Company Law Board Regulation was a mandatory
requirement. It was said that Section 399(3) only requires that the consent
should be obtained prior to the filing of the petition. If this was proved as
a fact, the requirement of filing the consents in writing along with the petition
under Regulation 18 should not render the petition itself not maintainable. G
Reference has been made to Regulations 44, 46 and 48 to show that the CLB
...
retained the power to dispense with the requirements of Regulation 18, in
support of the submission that Regulation 18 was merely directory.
Learned counsel appearing on behalf of the respondents submitted that
,.
the petition had originally been filed only on the basis of the equity share H
~
....
'
'
658
SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.
A holding of the four petitioners and did not refer to any redeemable preference'
shares. In the absence of these pleadings, it was asserted that the petitioners
did not have the requisite qualification shares for initiating proceedings under
Sections 397,398. It was submitted that the subsequent phrase "plus 1029
preference shares" in paragraph 2 of the petition was an interpolation.
Secondly, it is submitted that Mrs. Nini Srivastava did not have the ·consent
B of the other trustees, and that assuming that she had the consent of the
trustees to file the petition, there was no such averment in the petition nor
any consent letter filed with the petition in violation of the mandatory
requirement of Regulation 18 of the Company Law Board Regulations. Finally,
it was said that the only person who could have joined the petition as a
C petitioner was V.K. Srivastava who was the registered share holder of the 1029
Preference Shares. It is said that the trust was not and could not have been
a member of the company. This, according to the respondents, clearly followed
from Sections 41 (2) read with Section 153 of the Act. It is said that admittedly,
the application had not been filed on behalf of V .K. Srivastava. Even assuming
that the Trust was the registered member of the Company, it is contended that
D there was no averment that the company petition had been filed on behalf of
the Trust. It is submitted that there was in fact no consent and that the so
called consents were subsequently obtained.
Any Member/or members of a Company may apply under Ss. 397 and
E 398 of the Act to the CLB complaining of mismanagement or oppression
provided such Member or Members have the requisite shareholding as
prescribed under Section 399 to do so. The relevant portions of Section 399
read as under:
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"S.399. Right to apply under Sections 397 and 398.
( l) 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) xxx
xxx
xxx
(2)xxx
xxx xxx
J.P. SRI VASTA VA AND SONS PVT.LTD. v. GWALIOR SUGAR CO. LTD. [RUMA PAL,J.J 659
(3) Where any members of a company are entitled to make an application A
in virtue of sub-section (l), 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.
The question is, did the appellants who were the original petitioners
have the requisite number of shares when the petition was filed.
B
The question itself raises two further issues viz. who were the petitioners
and did they in fact hold the necessary shares?
Mrs. Nini Srivastava claimed to represent the Trust which held 1029
shares so making up the necessary shareholding under Section 399. It will be C
noted from the arguments particularized earlier that there has been a shift in
the arguments raised by the respondents. Before the CLB, the Single Judge
and the Division Bench the respondents arguments and basis of the decision
of the three fora was that the Trust held the I 029 Preference Shares and that
the Trust had not consented to or authorized the filing '.of the petition under
Sections 397, 398 of the Act. Before us however, the main focus of the D
argument has been that the Trust was not owner of the :1029 shares but that
the owner was Mr. V.K. Srivastava, who is now appellant No.4(b) before us,
and that the petition had not been filed on his behalf by the appellant No.3.
Although in the affidavit in reply filed by the Respondent No.8 there is a plea
that shares could not be held in the name of the Trust under Section 153 of E
the Act, from the reasoning of the CLB and the two decisions of the High
Court which we have noted earlier, it is apparent that the issue was not
pressed.
The three courts below have concurrently found that the Trust which
held the preference shares was not properly represented by Nini Srivastava. F
This was the only case which the appellant had to meet. Now the respondents
contend that in fact it was Vijay Kr. Srivastava who held the 1029 shares and
not the Trust and Nini Srivastava did not represent him. Although a passing
reference was made to the fact in the counter affidavit filed by the Company
as noted above, that was done in the context of denying that Nini Srivastava G
was a trustee. In our judgment it would not be proper to permit the respondents
to raise an issue not argued by them either before the CLB or the High Court
and to make out a new case at this stage. To allow a party to take grounds
not urged earlier would not only result in taking the other party by surprise
but it would deprive such party of any adjudication on the issue by the
different courts - a right to which each party is otherwise entitled. It would H
660
SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.
A also place such party at a great disantage as no opportunity would have been
granted to it to meet the new plea. In the case of Rajahmundry Electric
Supply Corporation v. A. Nageshwara Rao and Ors., AIR (1956) SC 213 the
contention on behalf of the Company, while opposing a petition under Ss.
397, 398, was that there was no proof that the applicant had obtained the
consent of the requisite number of shareholders opposing the petition. It was
B said that out of the 80 persons who had consented to the institution of the
application, 13 were not shareholders at all and that two members had signed
twice. This Court said:
c
"This point is not dealt with in the judgment of the trial court, and
the argument before us is that as the objection went to the root of
the matter and struck at the very maintainability of the application,
evidence should have been taken on the matter and a finding recorded
thereon".
The submission was rejected because the objection though raised in the
D written statement had not been pressed at the trial and had not been argued
before the Trial Judge. We will therefore decide only those issues which were
pressed and decided upon by the three courts.
The issue then is was it represented before the CLB by Nini Srivastava?
The answer to this would depend on whether the trustees of the trust could
E authorize one of them to initiate proceedings for and on behalf of the Trust.
F
G
A Full Bench of the Gujarat High Court in Atmaram Ranchhodbhai v.
Gulamhusein Gu/am Mohiyaddin, AIR (1973) Gujarat 113 said:-
" ............ Whether the trust is a private trust governed by the Indian
Trusts Act or is a public charitable or religious trust, a trustee cannot
delegate any of his duties, functions and powers to a co-trustee or
to any other person unless the instrument of trust so provides or the
delegation is necessary or the beneficiaries competent to contract
consent to the delegation or the delegation is in the regular course
of business. These are the only four exceptional cases in which
delegation is permissible and save in these exceptional cases, the
trustees cannot, c;,ven by a unanimous resolution, authorize one of
themselves to act as managing trustee for executing the duties,
functions and powers relating to the trust and every one of them must
join in the execution of such duties, functions and powers ". (p.115)
The issue in that case was whether one co- trustee could determine a
H tenancy. The Court said he could not, but held:
J.P. SRIVASTAVA AND SONS PVT. LTD. v. GWALIOR SUGAR CO. LTD. [RUMAPAL,J.] 661
"But when we say that the tenancy must be determined by all co- A
trustees, we must make it clear that what we mean is that the decision
to terminate the tenancy must be taken by all the ·co-trustees. The
formal act of giving notice to quit pursuant to the decision taken by
all the co-trustees may be performed by one co-trustee on behalf of
the rest. The notice to quit given in such a case would be a notice
given with the sanction and approval of all the co-trustees and would B
be clearly a notice given by all co-trustees." (p.116)
The view has been followed by the different High Courts [See for
example Du/i Chand v. Mis. Mahabir Pershad Tri/ok Chand Charitable
Trust, Delhi AIR (1984) Delhi] and held to be too narrow in Jain Swetambara
Murthi Pujaka Samastha v. Waman Dattatreya Pukale, AIR (l 979) Kamataka C
ll l.
This Court in Mis. Shanti Vijay and Co. v. Princess Fatima Fouzia and
Ors., AIR ( 1980) SC 17 held that:-
" the act of one trustee done with the sanction and approval of a co- D
trustee may be regarded as the act of both. But such sanction or
approval must be strictly proved."
It was also held that a trustee could act on behalf of others, if there is
a clause in the Trust Deed authorizing the execution of the Trust to be carried
out by "one or more or by majority of the trustees".
Therefore although as a rule, trustees must execute their duties of their
office jointly, this general principle is subject to the following exceptions
when one trustee may act for all (I) where the Trust Deed allows the trusts
to be executed by one or more or by majority of trustees, (2) where there is
express sanction or approval of the act by the co-trustees; (3) where the
delegation of power is necessary; (4) where the beneficiaries competent to
contract consent to the delegation; (5) where the delegation to a co-trustee
is in the regular course of the business; (6) where the co-trustee merely gives
effect to a decision taken by the trustees jointly.
The present case comes within at least three of the exceptions listed.
The Trust in question was created on 25.12.1978 by J.K. Srivastava, one of
the original petitioners in favour of his two minor grandsons, Kuna! and Yatin.
The trustees named in the Trust Deed were the settlor's wife, Raj Mohini (now
the appellant No.4 (a)) and their son Vijay (now the appellant 4(b)) who was
E
F
G
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SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.
A also the father of the beneficiaries. The Trust Deed contains the following
clauses:
B
c
D
E
F
G
H
"Clause 7: The Trustees shall hold the Trust Fund or any property
representing the same in trust for the Settler's said grandsons so,
however, that when Master Kuna! Krishna Srivastava attains the age
of 18 years, he will be given his fifty percent share of the then Trust
Property or Fund and thereafter the same will rest absolutely in him,
and so, however, that thereafter the Trustees shall hold the remaining
Trust Property or Fund for the benefit of Master Yatin Krishna
Srivastava till he attains the age of 18 years when the Trust will
automatically ease and the properties shall vest absolutely in the said
grandson, Master Yatin Krishna Srivastava.
Clause 12:The Trustees may instead of acting personally employ and
pay any agent whether a solicitor, banker, stock broker or any other
person to transact any business or to any act required to be transacted
or done in the execution of the trusts hereof including the receipt and
payments of money and shall be entitled to be allowed and paid all
charges and expenses so incurred and shall not be responsible for the
default of any agent employed in gooq faith.
Clause 16: The Trustees shall have full power to file and defend suit,
appeals, applications etc. to declare, sign and verify all plaints, written
statement, memo of appeals, cross objections, applications, affidavits
etc. and to appeal at any place or places in the Union of India before
any Court, office or authority to present and lodge any documents for
registration and to admit disputes, differences and demands to
arbitration and to adjust, approve and settle all accounts relating to
the Trust Fund and to execute all releases and discharges and to do
all other things relating thereto.
Clause 19: All the decisions that will be required to be taken in
carrying out the Trusts herein contained shall be taken by majority of
the Trustees. If the Trustees are equally divided the Chairman shall
have an extra or casting vote. The Trustees present shall form a
quorum for any meeting of the Trustees."
These clauses clearly allow not only one co-trustee but any person to
carry out the trusts and to act for the trust provided of course such person
is expressly authorized [See: Killick Nixon ltd v. Bank of India (supra);
J.P. SRIVASTAVA AND SONS PVT.LTD. v. GWALIOR SUGAR CO.LTD. [RUMA PAL,J.J 663
Punnaiah v. Jeypore Sugar Co. Ltd., (supra)].
A
says:
The Resolution dated 3rd June, 1955 of the Trustees records inter alia:
"The constituents of the J.K. Srivastava group had decided to file a
petition with the Company Law Board in Delhi, under Section 397 and
398 of the Company's Act, in the matter.
B
Mrs. Nini Srivastava reported that she was also to be a Petitioner and
the petition had been prepared.
The petition, application and Annexures were placed on the table,
duly examined read and understood and duly approved particularly to
its contentions, submissions and prayers.
It was then duly resolved that Mrs. R.M. Srivastava and Mr. Vijay K.
Srivastava Trustees give consent on behalf of the Trust to the filing
of the Petition/presentation of the Petition by Mrs. Nini Srivastava
and that she be also authorized to take all Legal action as advised in
the manner".
A joint affidavit affirmed on 9th June, 1995 by Raj Mohini and Vijay
"We have read and understood the Petition Under Section 397 and
c
D
398 of the Companies Act, ancillary application annexures and confirm E
our consent to Mrs. Nini Srivastava, a Trustee of the Trust and a
Petitioner with others, in the Petition, to her filing/presenting the
same. We also hereby give consent and authority to Mrs. Nini
Srivastava a Trustee of the Trust to take such and all legal actions
as advised".
F
Finally, an affidavit was affirmed by Vijay Krishna Srivastava on 12th
June, 1955 to the following effect:
"I, Vijay Krishna Srivastava, Trustee of the J.K. Srivastava Family
trust, holding 1029 fully paid up, Cumulative Preference Shares of G
Rupees I 00 each of Gwalior Sugar Company Lt., as Trustee, have
hereby given consent to the filing presenting of the Petition before
the Company Law Board, New Delhi, under Sections 397 and 398.of
the Company Act, by Mrs. Nini Srivastava a Trustee of J.K. Srivastava
Family Trust, in the matters of J.K. Srivastava and others J.K.
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664
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SUPREME COURT REPORTS (2004] SUPP. 5 S.C.R.
Srivasatava constituents) against Gwalior Sugar Co. Ltd. and the H.K.
Srivastava and Others (H.K. Srivastava constituents).