Member need not himself give consent for filing petition under Sections 241 & 242:Companies Act

Member need not himself give consent for filing petition under Sections 241 & 242: Companies Act

The Power of Attorney holder of the member can give such consent…

The Appeal filed by the Appellants - Chalasani Venkateswara Rao, his wife and daughter(Appellants 1,2 and 3) - against the order of the National Company Law Tribunal (NCLT), Bengaluru Bench, which dismissed the Company Petition as it did not meet the threshold criteria under Section 244 of the Companies Act, 2013 (Act), has now been dismissed by the NCLT along with a direction to the Parties to appear before the NCLT, Bengaluru Bench, on 11th November, 2020.

Herein, the Appellants were Directors and Shareholders of the Respondent No. 1 Company. According to the Appellants, the Respondent No. 1 Company was primarily owned and controlled by the Appellant no 1's family and Respondent No. 3's family, the legal heirs of late Basava Purnaiah who acquired the same in the year 1992 from the UB Group of companies.

According to the Appellants, they hold 26.14%, 8.10% and 8.52% shares, respectively, and total 42.76% of the paid-up share capital in the Respondent No. 1 Company. The Appellants had also filed a petition under Sections 241 and 242 of the Act, seeking declaration that the actions of Respondent Nos. 2 to 5 were oppressive and prejudicial to the interest of the Appellants and therefore, all Resolutions passed by the Respondent Nos. 2 to 5 from the period March, 2017 till April, 2019 were void.

The NCLT had held that the Appellants were holding 8.93%, 8.10% and 8.52% shares, respectively, and the remaining shares are sub-judice before the Hon'ble High Court of Karnataka as the Will of (late) Mr. Basava Purnaiah and (late) Mrs. C. Sarojini was in dispute and the implementation was stayed. The Appellants had based their claim on undeclared title of shares. Therefore, the Petition was not maintainable.

The NCLT also held that the General Power of Attorney of Appellant Nos. 2 and 3 in favour of Appellant No. 1 dated 04.04.2019 would not fulfil legal requirements and there was no pleading in the Petition with regard to the alleged consent by way of the GPA in question. The execution of the GPA itself was doubtful which might be executed subsequent to filing the Company Petition. Thus, the Appellants did not meet the threshold criteria under Section 244 of the Act. Being aggrieved with this order, the Appellants had filed this Appeal.

The Appellate Tribunal observed that an objection as to the maintainability of the Company Petition is only to be allowed at an initial stage if there is absolutely no doubt that the petition is not maintainable. It is a general principle that a petition is to be thrown out at an initial stage if it is unarguable on the demurrer.

It was also opined that the written consent obtained under Section 244(2) of the Act was not annexed with the Petition as per Rule 81 of the NCLT Rules, 2016. Such non-compliance with this rule would not invalidate the proceedings.

As per the Appellate Tribunal, it is not required that a member should himself give the consent for filing the petition under Sections 241 and 242 of the Act. The Power of Attorney holder of the member can give such consent. The Appellant No. 1 being the holder of the GPA was competent to give consent and file the petition on behalf of Appellant Nos. 2 and 3. The non-filing of the GPA along with the petition would not ipso facto result in dismissal of the petition.

Admittedly, the Respondent No. 1 was a family Company in which there were a total 9 members. The Appellant No. 1 is the husband of Appellant No. 2 and father of Appellant No. 3. It was noted by the Appellate Tribunal that all the Appellants had signed the Vakalatnama accompanied with the petition. The Appellant No. 1 having GPA had signed the petition on behalf of Appellant Nos. 2 and 3, and had also sworn Affidavit on behalf of them.

Thereafter, Appellant Nos. 2 and 3 had sworn Affidavits confirming that they had authorized Appellant No. 1 vide the GPA dated 4.4.2019 to protect their rights and interests in all the companies in which they owned shares.

Apart from this, they had also executed another Power of Attorney dated 03.09.2019 in favour of the Appellant No. 1. It was on the basis of these documents that the consent given by Appellant No.1 for and on behalf of his wife and daughter as their GPA holder, was a valid consent within the meaning of section 244 (2) of the Act.

Therefore, the preliminary objection to the maintainability of the petition vide u/s 241 and 242 was held to be unsustainable in law. The Appellate Tribunal also concluded that it was evident from the Balance Sheet of the Respondent No. 1 Company for the Financial Years 2016- 2017 and 2017-2018 that the Appellants held one-tenth of the total paid up share capital. Hence, they fulfilled the requirement for maintaining the Petition as stipulated under Section 244 (1) of the Act.