Preference shareholding cannot be equated with equity shareholding to invoke section 244. [Cyrus Investments (P.) Ltd. v/s. Tata sons Ltd.]

Cyrus Investments (P.) Ltd. v. Tata sons Ltd.

C.P. Nos. 82/241, 242,244/NCLT (MAH.) OF 2016

Forum: National company law tribunal, Mumbai bench

Bench: B.S. V. Prakash Kumar (Judicial member) & V. Nallasenapathy (Technical member)

Decided on: March 6, 2017

Relevant provision:

1. Section 241, 242 & 244 of companies act, 2013
2. 397, 398 & 399 of companies act, 1956

 

Brief facts: The petitioners, Cyrus Investments Pvt. Ltd. and Sterling Investments Corporation Pvt. Ltd. filed application under section 241, 242 and 244 of the Companies Act, 2013 stating together they hold 18.37 % equity shareholding in Tata Sons. And that the acts of respondents in relation to the affairs of R1 Company are prejudicial to the interest of not only the petitioners but also the company.

Issue:

  1. Whether there is any change in section 244 of a new act of 2013 as compared to 399 of 1956 act.
  2. Whether phrase “class of members” mentioned in mismanagement clause in section 241 can be read into section 244 also.
  3. Whether redeemable preference shareholding is equated with equity share shareholding to invoke section 244.

Argument of petitioner and respondent R11:

  1. Accounting standard 32 refers to redeemable preference shares as liability to the company therefore, preference shares shall not be taken into account in computing 10 % share capital for filing company petition u/s 244, if at all the word “issued share capital” is taken into consideration for computation of qualification u/s 244, it will become absurdity because even Tata trusts, who are holding above 66 % equity in R1 company cannot file petition under section 241.
  2. Power under section 241 and 244 being exercised by the tribunal in its equitable jurisdiction, a hyper-technical view ought not to be taken in order to deny the cause the equity and justice.
  3. The definition of issued share capital member has to be taken into consideration unless the context otherwise required. And since the new concept of a class of members has been introduced in section 241, the meaning of the “issued share capital” has to be limited to the “issued equity share capital” not otherwise. Also when the phrase “class of members” is related back to qualification clause in section 244, the context demands that issued share capital means only equity share capital, not the share capital along with preference share capital.
  4. The ratio laid previously under section 399 of companies act, 1956 is no more applicable as now concept of “class of members” has for the first time being introduced in section 241 to consider the grievance of the members on class basis hence, the phrase “issued share capital” shall mean only equity share capital”.

Argument of respondent:

  1. The petitioners do not have qualification envisaged u/s 244 to file this CP u/s 241 as these two petitioners hold only 2.17% shareholding which less than 1/10 of the issued share capital of the company .they d not qualify the condition given under section 244 of the companies act, 2013.
  2. Section 2(50) says issued capital means such capital as the company issues time to time for subscription that since section 2(84) says share means a share in the share capital f the company and includes stock and that since section 43 explains share capital means equity plus preferential it can’t be assumed that issued share capital includes only equity shares and not preferential shares.
  3. Respondents relied on Northern Projects Ltd. v. Blue Coast Hotels and Resorts Ltd. to show that issued share capital includes equity as well as preferential shares. They also relied on Sakal Deep Sahai Srivastava v. Union of India to say that if any section is section of repealed enactment is taken into new enactment without any change, it has to be presumed that the legislature has consciously not made any change to old section of law by noticing that old section of law will remain relevant and contextual not only for now but also for the times to come.
  4. The phrase “class of members” cannot be read into section 244 to say that issued equity share capital is to be taken into consideration for reckoning 10 percent shareholding qualification criteria mentioned in section 244. The statute is clear and unambiguous and therefore literal rule shall be applied.

Held: The “not less than 10% of issued share capital” qualification criteria set out in section 244 of the companies act, 2013 for a member of a company to apply to NCLT u/s 241 of the act for relief from oppression is not to be interpreted as “10% of issued equity capital”. The words “issued share capital” should be interpreted as “issued equity share capital plus preference share capital”.

The petitioner failed to show that this petition is maintainable. Issued share capital would include equity as well as preference shares. The petition is listed for next hearing on waiver point as directed by NCLAT.

Ratio:

(This brief was prepared and submitted to LawBriefs.in by Survi Sinha, Student at Gujarat National Law University- Gujarat.) 

 

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