[The
following guest post is contributed by Dheeraj
Kumar Sharma, who is a Manager at Vinod Kothari & Company]
following guest post is contributed by Dheeraj
Kumar Sharma, who is a Manager at Vinod Kothari & Company]
Introduction
The Mumbai Bench of the Company Law
Board (‘CLB’), through its order dated April 16, 2015 in the case of Mr.
Anil Kumar Poddar v. Bonanza Industries Limited, dismissed the application
of a shareholder who demanded copies of records of a company and sought
inspection of the register, minutes, annual returns, and the like, on the
ground that such an application was mala fide
and frivolous.
Board (‘CLB’), through its order dated April 16, 2015 in the case of Mr.
Anil Kumar Poddar v. Bonanza Industries Limited, dismissed the application
of a shareholder who demanded copies of records of a company and sought
inspection of the register, minutes, annual returns, and the like, on the
ground that such an application was mala fide
and frivolous.
Facts of the
Case
Case
In the present case, the applicant is
a professional shareholder named Mr. Anil Kumar Poddar (hereinafter referred to
as the ‘Applicant’) who holds 5 to 10
shares in various listed companies and, exercising shareholders’ rights,
demands copies of the company records, registers, minutes, etc. Bonanza
Industries Limited is the company against whom the present application has been
filed (hereinafter referred to as the ‘Defendant’),
which states that the shareholder complaint is a vexatious one and that the shareholder
harbours mala fide intention in his
acts.
a professional shareholder named Mr. Anil Kumar Poddar (hereinafter referred to
as the ‘Applicant’) who holds 5 to 10
shares in various listed companies and, exercising shareholders’ rights,
demands copies of the company records, registers, minutes, etc. Bonanza
Industries Limited is the company against whom the present application has been
filed (hereinafter referred to as the ‘Defendant’),
which states that the shareholder complaint is a vexatious one and that the shareholder
harbours mala fide intention in his
acts.
While responding to the
application, that the Defendant submitted that the Applicant holds a very
nominal or negligible shareholding in various listed companies spread all
across the country. Being a shareholder, the Applicant has various rights,
which include right to obtain copies of records being maintained by the
companies and to seek inspection thereof. The Applicant has adopted a modus operandi to slap notices under
section 20 of the Companies Act, 2013 (hereinafter referred to as the “Act”) to
the companies seeking various records, including minutes, registers, annual
returns and financials of the companies against payment of charges for
providing such records. However, the intention has never been that of a genuine
shareholder who is being concerned of the performance of the company as his
shareholding of 5-10 shares in each company shows a contrasting picture. For
this purpose the Defendant cited the case of Reliance lndustries Ltd, and Ors. v. Anil Kumar Poddar, in which
the Bench of the CLB had observed that the Applicant approached with unclean
hands and as a black mailer seeking finance in cash/cheque, therefore making it
an application filed with ulterior motive, which was consequently was rejected.
The Defendant submitted that the Applicant also gave warning that
non-fulfillment of his demands may lead to dire consequences.
application, that the Defendant submitted that the Applicant holds a very
nominal or negligible shareholding in various listed companies spread all
across the country. Being a shareholder, the Applicant has various rights,
which include right to obtain copies of records being maintained by the
companies and to seek inspection thereof. The Applicant has adopted a modus operandi to slap notices under
section 20 of the Companies Act, 2013 (hereinafter referred to as the “Act”) to
the companies seeking various records, including minutes, registers, annual
returns and financials of the companies against payment of charges for
providing such records. However, the intention has never been that of a genuine
shareholder who is being concerned of the performance of the company as his
shareholding of 5-10 shares in each company shows a contrasting picture. For
this purpose the Defendant cited the case of Reliance lndustries Ltd, and Ors. v. Anil Kumar Poddar, in which
the Bench of the CLB had observed that the Applicant approached with unclean
hands and as a black mailer seeking finance in cash/cheque, therefore making it
an application filed with ulterior motive, which was consequently was rejected.
The Defendant submitted that the Applicant also gave warning that
non-fulfillment of his demands may lead to dire consequences.
CLB’s Findings
The Hon’ble Bench observed the case
in light of approximately 150 other such applications which were filed by the
Applicant and were pending before the Bench. The Bench also considered the
ruling pronounced by the Calcutta High Court in the matter of Phillips Carbon Black Limited
& Ors. V. Anil Kumar Poddar & Anr., where the Applicant was
barred from exercising his rights as a shareholder along with his accomplices.
The Bench reiterated that to prevent the abuse of the process of the Court, the
CLB is entitled to pass such orders as may be necessary having regard to the
facts of the case, and since the information demanded by the Applicant is
available in public domain as it is a matter common knowledge that the
statutory records of all companies are available on MCA portal, hence the Bench
concluded that the Applicant is in the habit of making such frivolous
applications and is apparently not a bona
fide applicant.
in light of approximately 150 other such applications which were filed by the
Applicant and were pending before the Bench. The Bench also considered the
ruling pronounced by the Calcutta High Court in the matter of Phillips Carbon Black Limited
& Ors. V. Anil Kumar Poddar & Anr., where the Applicant was
barred from exercising his rights as a shareholder along with his accomplices.
The Bench reiterated that to prevent the abuse of the process of the Court, the
CLB is entitled to pass such orders as may be necessary having regard to the
facts of the case, and since the information demanded by the Applicant is
available in public domain as it is a matter common knowledge that the
statutory records of all companies are available on MCA portal, hence the Bench
concluded that the Applicant is in the habit of making such frivolous
applications and is apparently not a bona
fide applicant.
Provisions of
Law
Law
Section 20, which deals with the mode
of service of documents to and by the company, reads as follows:
of service of documents to and by the company, reads as follows:
20
(1) Xxx
(2) Save
as provided in this Act or the rules made thereunder for filing of documents
with the Registrar in electronic mode, a document may be served on Registrar or
any member by sending it to him by post or by registered post or by speed post
or by courier or by delivering at his office or address, or by such electronic
or other mode as may be prescribed:
as provided in this Act or the rules made thereunder for filing of documents
with the Registrar in electronic mode, a document may be served on Registrar or
any member by sending it to him by post or by registered post or by speed post
or by courier or by delivering at his office or address, or by such electronic
or other mode as may be prescribed:
Provided
that a member may request for delivery of any document through a particular
mode, for which he shall pay such fees as may be determined by the company in
its annual general meeting.
that a member may request for delivery of any document through a particular
mode, for which he shall pay such fees as may be determined by the company in
its annual general meeting.
Xxx
Arguments by
both the Parties
both the Parties
Petitioner
It was argued by the Applicant who
appeared in person before the Hon’ble Bench that the Defendant has made wrong
allegations of harassing the management through unfair means just to malign the
image of the Applicant and hence the intentions of the Defendant are mala fide. He demanded inspection of the
records of the company and the copies of such records in his capacity as a
shareholder, as such right is vested in him by the statute.
appeared in person before the Hon’ble Bench that the Defendant has made wrong
allegations of harassing the management through unfair means just to malign the
image of the Applicant and hence the intentions of the Defendant are mala fide. He demanded inspection of the
records of the company and the copies of such records in his capacity as a
shareholder, as such right is vested in him by the statute.
Defendant
However, counsel representing the Defendant
argued that the shareholder holds only 10 shares in the Defendant and has been
harassing the company and the management by illegally demanding copies of the
records of the Company, despite the fact that the records which he demands can
easily be obtained through the portal of the Ministry of Corporate Affairs, website
of the stock exchange where the shares of the company are listed or even on the
Company’s website. Attention was drawn by the Defendant towards the fact the
Applicant had filed 14 more applications against different companies, which
were enlisted for hearing on the same day of this hearing, to bring to light
the fact that the acts of the Applicant are frivolous in nature and hold no
substance. Hence, the Defendant made a request that the application be quashed
by the Bench.
argued that the shareholder holds only 10 shares in the Defendant and has been
harassing the company and the management by illegally demanding copies of the
records of the Company, despite the fact that the records which he demands can
easily be obtained through the portal of the Ministry of Corporate Affairs, website
of the stock exchange where the shares of the company are listed or even on the
Company’s website. Attention was drawn by the Defendant towards the fact the
Applicant had filed 14 more applications against different companies, which
were enlisted for hearing on the same day of this hearing, to bring to light
the fact that the acts of the Applicant are frivolous in nature and hold no
substance. Hence, the Defendant made a request that the application be quashed
by the Bench.
Judgment of CLB,
Mumbai
Mumbai
The
CLB Bench of Mumbai observed that the Applicant is in the habit of making such
applications. Acknowledging the Defendant’s submission regarding the
availability of records of companies on various websites of regulators and
records of the Registrar of Companies (“RoC”) and yet the act of the Applicant
filing such applications makes him appear to be a non-bona fide applicant. The Bench dismissed the application stating –
“the rights of inspection of documents
should be exercised in good faith and taking into consideration the company’s
best interest.” It therefore advised the Applicant from resisting himself
from filing such frivolous and mala fide
applications. However, the Bench also observed that pursuant to the powers
vested by the CLB Regulations upon it, it is not competent to pass an order for
investigation into charges levelled by the Company.
CLB Bench of Mumbai observed that the Applicant is in the habit of making such
applications. Acknowledging the Defendant’s submission regarding the
availability of records of companies on various websites of regulators and
records of the Registrar of Companies (“RoC”) and yet the act of the Applicant
filing such applications makes him appear to be a non-bona fide applicant. The Bench dismissed the application stating –
“the rights of inspection of documents
should be exercised in good faith and taking into consideration the company’s
best interest.” It therefore advised the Applicant from resisting himself
from filing such frivolous and mala fide
applications. However, the Bench also observed that pursuant to the powers
vested by the CLB Regulations upon it, it is not competent to pass an order for
investigation into charges levelled by the Company.
Analysis
Shareholders’
rights have been now discussed in length and at par at various forums. However,
it was in the year 1930 in the matter of Johnson Ranch
Royalty v. Hickey that the shareholders’ rights were magnified. In that
case, it was held that the fundamental principle is that the shareholders own
the corporation, including all property possessed by the corporation, including
all the information and all the records. Those in charge of the corporation are
merely the agents of the stockholders who are the real owners, and the owners
are entitled to information as to the manner in which the corporate business is
conducted. While the corporation holds the legal title to its property, the
stockholders are deemed the real and beneficial owners thereof and, as such,
are entitled to information concerning the management of the property and
business they have confided to the officers and directors of the corporation as
their agents. A stockholder’s assertion of right to inspect the corporation’s
books and records is sometimes said to be one merely for the inspection of what
is his own. Further, it was declared in the same case that the right to inspect
corporate books and records exists so that the shareholder may “ascertain
whether the affairs of the corporation are properly conducted and that he may
vote intelligently on questions of corporate policy and management.”[1]
rights have been now discussed in length and at par at various forums. However,
it was in the year 1930 in the matter of Johnson Ranch
Royalty v. Hickey that the shareholders’ rights were magnified. In that
case, it was held that the fundamental principle is that the shareholders own
the corporation, including all property possessed by the corporation, including
all the information and all the records. Those in charge of the corporation are
merely the agents of the stockholders who are the real owners, and the owners
are entitled to information as to the manner in which the corporate business is
conducted. While the corporation holds the legal title to its property, the
stockholders are deemed the real and beneficial owners thereof and, as such,
are entitled to information concerning the management of the property and
business they have confided to the officers and directors of the corporation as
their agents. A stockholder’s assertion of right to inspect the corporation’s
books and records is sometimes said to be one merely for the inspection of what
is his own. Further, it was declared in the same case that the right to inspect
corporate books and records exists so that the shareholder may “ascertain
whether the affairs of the corporation are properly conducted and that he may
vote intelligently on questions of corporate policy and management.”[1]
The
intent of introducing the concept of demanding inspection and copies of records
of the company was to facilitate more transparency and governance in the interest
of the shareholders where a matter may affect their rights. The same was also
introduced to give shareholders control over the company as its their money
which is invested in the company and they should have right to obtain
information on how their investment is being channelized by the company so as
to see if they will get their desired returns from the company or not. However,
on the contrary, a ruling pronounced in Guthrie v. Harkness,
199 U.S. 148 (1905) by the United States Supreme Court noted that courts will
not compel the inspection of a bank’s books under all circumstances. “In issuing
the writ of mandamus the court will exercise a sound discretion, and grant the
right under proper safeguards to protect the interests of all concerned. The
writ should not be granted for speculative purposes, or to gratify idle
curiosity, or to aid a blackmailer, but it may not be denied to the stockholder
who seeks the information for legitimate purposes.” Though the ruling was
pronounced for inspection of a bank’s records, but the intent is to safeguard
the records from going into wrong hands.
intent of introducing the concept of demanding inspection and copies of records
of the company was to facilitate more transparency and governance in the interest
of the shareholders where a matter may affect their rights. The same was also
introduced to give shareholders control over the company as its their money
which is invested in the company and they should have right to obtain
information on how their investment is being channelized by the company so as
to see if they will get their desired returns from the company or not. However,
on the contrary, a ruling pronounced in Guthrie v. Harkness,
199 U.S. 148 (1905) by the United States Supreme Court noted that courts will
not compel the inspection of a bank’s books under all circumstances. “In issuing
the writ of mandamus the court will exercise a sound discretion, and grant the
right under proper safeguards to protect the interests of all concerned. The
writ should not be granted for speculative purposes, or to gratify idle
curiosity, or to aid a blackmailer, but it may not be denied to the stockholder
who seeks the information for legitimate purposes.” Though the ruling was
pronounced for inspection of a bank’s records, but the intent is to safeguard
the records from going into wrong hands.
However,
vexatious shareholders have been misusing the rights, which could create unnecessary
problems for the companies. The Act missed out on the provisions which could require
that a shareholder hold a minimum number shares before exercising the
shareholders’ right for inspection of documents and other similar rights. In
their absence, such rights could be misused by some shareholders to make
vexatious demands without legitimacy, including before the judicial platforms
and drag companies into unnecessary litigation.
vexatious shareholders have been misusing the rights, which could create unnecessary
problems for the companies. The Act missed out on the provisions which could require
that a shareholder hold a minimum number shares before exercising the
shareholders’ right for inspection of documents and other similar rights. In
their absence, such rights could be misused by some shareholders to make
vexatious demands without legitimacy, including before the judicial platforms
and drag companies into unnecessary litigation.
Carve out for
companies to avoid vexatious shareholders
companies to avoid vexatious shareholders
The
companies, when faced with such vexatious claims, find themselves in a difficult
situation. The Act has vested the shareholders with such rights, and the
companies do not have the option to avoid them but to treat their request and
act upon it. The lack of power in the hands of companies to fix a minimum
threshold of shareholding for exercising the rights of shareholder has left the
companies without ammunition in the war with such vexatious members.
companies, when faced with such vexatious claims, find themselves in a difficult
situation. The Act has vested the shareholders with such rights, and the
companies do not have the option to avoid them but to treat their request and
act upon it. The lack of power in the hands of companies to fix a minimum
threshold of shareholding for exercising the rights of shareholder has left the
companies without ammunition in the war with such vexatious members.
In
the era of e-governance and with the various regulators requiring companies to
make continuous disclosures with changes on their websites, there seems to be
less need for a shareholder demanding documents as in the instant case.
Moreover, copies of records are also available to the portal of the Ministry of
Corporate Affairs from where one can seek information and copies, so there seem
less reasons why a shareholder would have to walk to the company’s offices and
ask for copies/information.
the era of e-governance and with the various regulators requiring companies to
make continuous disclosures with changes on their websites, there seems to be
less need for a shareholder demanding documents as in the instant case.
Moreover, copies of records are also available to the portal of the Ministry of
Corporate Affairs from where one can seek information and copies, so there seem
less reasons why a shareholder would have to walk to the company’s offices and
ask for copies/information.
Although
there is no specific carve out available to the companies, care must be taken by
the officials of the company to discover the motive of the shareholder seeking
such inspection and copies of records from the companies. If there appears to
be an ulterior motive, then such a request shall be forestalled by the
companies by approaching the tribunal/court.
there is no specific carve out available to the companies, care must be taken by
the officials of the company to discover the motive of the shareholder seeking
such inspection and copies of records from the companies. If there appears to
be an ulterior motive, then such a request shall be forestalled by the
companies by approaching the tribunal/court.
Impact of
Judgement
Judgement
In
my view, this order of CLB will send out a strong message of good corporate
governance to the stakeholders and try to curb the fraudulent and mala fide practices being conducted by vexatious
shareholders who will also look before they leap. The judgement will surely
create an awareness in the corporate world for companies to know and learn the
way to tackle such claims and for the investors to equally learn about their
rights which are meant to be used in the best interest of the company and the
shareholders at large instead of using them for their personal interest or
maliciously. Since we are in an era of digitalization, inspection of records
and registers shall only be exercised when there is utmost need and matters are
serious in nature, so as to avoid the wastage of time and efforts of both the
company as well as the shareholders.
my view, this order of CLB will send out a strong message of good corporate
governance to the stakeholders and try to curb the fraudulent and mala fide practices being conducted by vexatious
shareholders who will also look before they leap. The judgement will surely
create an awareness in the corporate world for companies to know and learn the
way to tackle such claims and for the investors to equally learn about their
rights which are meant to be used in the best interest of the company and the
shareholders at large instead of using them for their personal interest or
maliciously. Since we are in an era of digitalization, inspection of records
and registers shall only be exercised when there is utmost need and matters are
serious in nature, so as to avoid the wastage of time and efforts of both the
company as well as the shareholders.
–
Dheeraj Kumar Sharma
Dheeraj Kumar Sharma
[1] Note, however, that the notion of ownership rights of shareholders
in the property and records of the company may be limited to law as was
applicable in the US, and may not necessarily comport with notions of
shareholder rights in countries like India.
in the property and records of the company may be limited to law as was
applicable in the US, and may not necessarily comport with notions of
shareholder rights in countries like India.
लाभप्रद जानकारी, धन्यवाद.
Thank you for reading and complimenting Sanjeev ji.
Nice one
Dhheraj Kumar Sharma
Good one sir
Nice Write up, but what is the intents are not malafide, does the company have a right to ask for reason for inspection and also is there a limitation or time and "no of times" in a year to share shareholder's list by the company?