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1.1 Prem Lata Bhatia vs. Union of India & Ors [(2006) 134 Comp. Cas 92 (Delhi)]

In the year 1975 the Respondent allotted its premises to the Petitioner for running a shop at a monthly rent of Rs. 901/-. Clause 8 of the Licence Deed stated that the licensee was not to permit the said premises or any part thereof to be used by any other person for any other purpose whatsoever without the previous consent in writing of the Government and in default thereof the Petitioner was liable for ejectment. The licensee was also not to introduce any partner nor transfer possession of the premises or part thereof or otherwise carry on the business in the premises with any other person or assign, transfer, charge or otherwise alienate his interest in the premises.

The Petitioner incorporated a private limited company wherein the Petitioner along with her husband held more than 97.93% shares in the company. The company ran its business of travel in the shop.

The Respondent initiated proceedings under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 against the Petitioner and the Estate Officer ordered eviction of the Petitioner on the ground that the shop that was allotted to the Petitioner was being run by the company without any authority and this was a case of sub-letting as the Petitioner was doing business with another partner and hence she was an unauthorised occupant of the shop. The appeal filed before the additional district judge and a writ petition before the single judge were dismissed.

On an appeal filed, their Lordships of the Delhi High Court held that if an individual took premises on rent and then converted his sole proprietorship concern into a private limited company in which he had controlling interest, he could not be evicted from the premises as the same person remained in possession though technically the company now ran the business. The Petitioner did not cease to be in possession and had not handed over the possession to anyone else and had only changed the form of her business and this was usually done when a business expanded. In such cases, the principle of piercing the veil of corporate personality should be utilised not to prevent somebody from doing any wrong, but merely in order to recognise the reality of the situation. Thus, applying the principle of piercing the veil of corporate personality, Clause 8 of the Licence Deed had not been violated. Hence, the Respondents were not to dispossess the Petitioner from the premises.

1.2 J.B. Exports Ltd. & Anr. vs. BSES Rajdhani Power Ltd. [(2006) 134 Comp. Cas 106 (Delhi)]

The Appellant No. 2 was the registered consumer of electricity, using the electricity load for the premises. The Appellant No. 2 stopped its business activity after the transfer of the entire share capital to Appellant No. 1. In the inspection carried out in the premises by the Respondent it was alleged that Appellant No.2 was consuming the electricity. Therefore, the Respondent sent a show cause notice to the Appellant No. 2 demanding sub-letting charges and load violation charges. The single judge upheld the notice on the issue of sub-letting.

The Court held that it was not the case of the Respondent that its bills were not being paid or that any fraud had been committed. The entire share of Appellant No. 2 belonged to Appellant No.1. It was only Appellant No. 2 which conducted its operations and business in the premises in question. The electricity connection had later in fact been transferred in its name formally. The purpose of the principle of separate corporate personality is to encourage and facilitate industrialisation, not to obstruct it. Consequently, the doctrine of piercing the corporate veil of corporate personality should be adopted not merely in cases of fraud or evasion of legal obligations but also in a large number of cases where it would promote the growth of industry. Under the circumstances mentioned above, the principle of piercing the veil of corporate personality should be applied. A sub-letting could be done by “A” in favour of “B” but when “A” and “B” were both treated as the same entity then by applying the principle of piercing the veil of corporate personality, there was no question of sub-letting.

2.1 Rai Bahadur Gujarmal Modi & Bros. (P) Ltd. vs. Godfrey Philips India Ltd. [(2006) 72 SCL 251(Bom)]

The Appellant made an application u/s. 84(4) of the Companies Act, 1956 before the Company Judge praying therein that the First Respondent company be directed to forthwith issue duplicate share certificate for the equity shares held by the Appellant. The Company Judge held that it was not a fit case for entertaining the company application.

On an appeal, the Court held that section 10 of the Companies Act only determines the territorial jurisdiction of the High Court. The said provision cannot be construed to mean that the High Court has jurisdiction with respect to all matters relating to a company. Wherever a special remedy before the Special Court has been provided, the Legislature has made special provisions under the Act. The High Court, as a Company Court is a special court with special company jurisdiction, needs no elaboration. The jurisdiction of the Company Court has to be found specifically from the provisions of the Act and it cannot be said that even where no special forum is provided under the Act, yet the High Court as a Company Court has jurisdiction to deal with all matters under the Act. This will mean conferring a special jurisdiction on the Special Court, the High Court, in the instant case, when the legislature has not provided that specifically and expressly. The power that has been conferred on the High Court under the Act, is not plenary power enabling it to deal with all matters and all questions and all issues arising under the Act.

The Special Court, viz. ‘Company Court’ cannot be said to have jurisdiction to decide all issues and all questions under the Act until specific provision is made in that regard under the Act. With regard to the application u/s. 84(4), as specific provision has been made conferring jurisdiction on the Company Court under section 2(11) read with section 10. Hence, the appeal is dismissed.

Since it was held that the company application u/s 84(4) itself was not maintainable before the Company Judge the findings recorded by the Company Judge on merits of the case as to whether equity shares in question had been lost or destroyed, obviously would have no bearing in any proceeding that the Appellant might be advised to prosecute for redressal of its grievance.

3.1 Bishon Singh vs. State of Uttar Pradesh [(2006) 72 SCL 224 (All)]

The Appellant’s service was terminated by his employer company on 19-2-2002. Despite the termination of his service, the Applicant did not vacate the quarter allotted to him during his employment with the company. On complaint u/s 630, the Civil Court finding prima facie case against the Applicant, initiated proceedings u/s 482 of the Criminal Procedure Code, 1973 by issuing summoning order. The Applicant filed instant application for quashing of the said proceedings contending, inter alia, that his services were terminated without giving any show cause notice, and that the termination matter was pending before the Labour Commissioner.

The Court held that section 630 of the Companies Act provides that if any officer or employer of the company who is in possession of the company’s property wrongfully withholds it, he shall be liable to be prosecuted on the basis of the complaint that may be filed by the company. In the instant case, the services of the Applicant were terminated in the year 2002 and, therefore, he did not have any right to continue to be in possession of the property of the company even if his case was pending before the Labour Commissioner. Thus, the Applicant can be prosecuted u/s. 630 of the Act. Therefore, there was no illegality in the summoning order and there was no legal ground to quash the proceedings u/s 482 of the Code. Application was devoid of merits and was liable to be dismissed.

4.1 Rajkumar Devraj & Anr. vs. Jai Mahal Hotels P. Ltd. & Ors. [CLB] C.A. No. 133 of 2006 in C.P. No. 30 of 2006. [decided on 25-8-2006]

The father of the Petitioners was holding 99% of the shares of the Respondent Company. On the death of the father, the Petitioners, being the legal heirs of the deceased shareholder, made an application for the grant of Succession Certificate which was pending before the Civil Court. The company did not register the transmission of shares in favour of the Petitioners. Meanwhile, the Respondent Company increased its authorized share capital and fresh shares were issued to the other Respondents, thereby the Petitioners were reduced to minority. The Petitioners moved the Company Law Board alleging oppression and mismanagement. The Respondents contended that the Petitioners were not shareholders and, therefore, not eligible to apply under section 397 or 398 of the Companies Act and that their petition was not maintainable.

The Company Law Board held the petition to be maintainable. According to the Petitioners, their father held 99% shares in the company and they were the legal heirs along with the other Respondents. All the three of them together have sought for grant for Succession Certificate and the 2nd Respondent and other brother being the near relations of the deceased have filed no objection to the grant of Succession Certificate in favour of the Petitioners and Rajmata and that the shares held by the deceased of 5,050 equity shares are also part of that application. Thus, without any additions or subtractions the pleadings reveal that the Petitioners were entitled to 2/3rd of the shares held by the deceased which is in excess of 10% of the then existing issued and paid-up share capital. Even after the allotment of the shares impugned in the petition, the Petitioners constitute more than 1/10th of the total membership. Thus, in the pleadings, the Petitioners have established that they are qualified in terms of section 399 of the Act to file this petition. The petition is maintainable and cannot be dismissed on the basis of demurrer application by the Respondents.

5.1 Subhas Ghosh vs. Happy Valley Tea Co. P. Ltd. [CLB] C.P. No. 164 (111) /ERB/2004, decided on 12-6-2006

The Petitioner was a selling agent of the Respondent company and he had applied for certain shares in the company at the behest of the directors and made payment, therefore the Board of Directors allotted 16,000 shares to him. The company also filed Form 2 indicating that 16,000 equity shares had been allotted, subject to the approval of the shareholders, to the Petitioner. Later the Petitioner found that his name was not appearing in the member’s register of the company. He filed a petition to the Company Law Board for rectification of members’ register by including his name. The Respondent Company contended that the shareholders of the company did not approve allotment of shares to the Petitioner and, therefore, the allotment, which was made subject to the approval of shareholders, was not a valid and binding allotment on the company.

The Company Law Board dismissed the petition. It held that the entire case of the Petitioner is rested on the letter dated 15-8-2001 by the Form 2 filed on 8-8-2002. In the letter dated 15-3-2001, the company specifically stated that the company was calling for an Extraordinary General Meeting to get the approval of the shareholders for allotment of shares to the Petitioner and, therefore, the Petitioner was aware that without the approval of the shareholders no shares could be allotted to him.

The Petitioner contended that since the Board has full powers to allot shares, there is no need to get the approval of the shareholders. Article 4 of the Articles of Association of the company reads: “The shares shall be at the disposal of the directors and they may allot or otherwise dispose of them to such persons at such times and generally on such terms and conditions as they think proper.” From this Article, it is evident that the Board has the power to decide to allot shares on such terms and conditions as they think proper.

The Company Law Board held that in the present case, as communicated to the Petitioner, the Board had thought it fit to get the approval of the shareholders for allotment of shares to the Petitioner. Therefore, when the allotment of shares to the Petitioner to his own knowledge was subject to the approval of the shareholders, he cannot now claim that shareholders’ approval was not necessary. He cannot take advantage of the allotment made, which has not been approved by the shareholders, whose approval was a pre-condition under which the shares were offered to the Petitioner.

It was contended by the Petitioner that cancellation of allotment would result in reduction of share capital, which cannot be done without Court’s approval. However, the Board held that this does not in any way bestow any right on the Petitioner to claim the shares. Need to approach the Board for rectification u/s 111(4) would arise only if member’s name is either omitted from or entered in the register of members without sufficient cause. In the present case, since the name of the Petitioner has been omitted from the register of members of sufficient cause (even assuming his name was earlier entered in the register after allotment) i.e. members have not approved allotment of shares to the Petitioner, which is as a pre-requisite; there is no scope to allow the petition.

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