PURNA INVESTMENT LTD Vs. BANK OF INDIA LTD

JUDGEMENT

(1.) In the other appeal, which was filed by Purna Investment Co. Ltd., in which it was not a party to the suit or to the Section 397-application, but was only a shareholder in the company concerned, the learned trial judge had not given them leave to intervene in the suit. It may incidentally be mentioned that Puma Investment Co. Ltd. is a company in which Mohonlal Mittal and his group are closely associated and they have the controlling interest. Being aggrieved by the said order of the learned trial judge, this appeal has been filed before this court praying, inter alia, for leave to intervene and oppose the terms of settlement. Various questions have arisen on this aspect, but the main question is, whether a shareholder, as such, has such interest in a company which entitles him to intervene in respect of a suit pending against the company in respect of some of its assets. It is well settled that a shareholder has certain interest. It has been said very clearly that the shareholder's right is to participate, firstly, in the winding up in case a winding up order is made and, secondly, a shareholder has a right of payment of dividend where dividends are declared. In aid of the submission that the shareholder has sufficient interest in the company, the learned advocate for Purna Investment Co. Ltd. seeking to intervene in the appeal, drew our attention to certain observations in Modern Corporate Law by Oleck, vol. 3, Article 1595, at page 668. Our attention was also drawn to Order 1, Rule 10. It was submitted that under Order 1, Rule 10, Sub-rule (2), as the plaintiff had a share in the assets of the company, he was interested when question of bona fide of the settlement has been raised. Our attention was also drawn to certain observations in the decision of the American Supreme Court in McCabe v. Atchison [1914] (235 US 151) at page 162. On the nature of the right of the shareholder of the company in respect of the assets of the company, reliance was placed on certain observations of the Supreme Court of India in the case of Charanjit Lal Chaudhari v. Union of India [1951] 21 Comp Cas 33 (SC) and our attention was drawn to p. 37. The Supreme Court was considering, in that case, the question of the locus standi of the shareholder in maintaining an application under Article 32 of the Constitution in respect of certain actions taken against the company which affected the assets of the company. The Supreme Court, at p. 37 of this judgment, referred to the decision of the United States of America, namely, decision in the case of McCabe v. Atchison [1914] (235 US 151), to which, as we have mentioned hereinbefore, our attention was independently drawn. The United States Supreme Court reiterated that injury to the complainant of a legal right justified judicial interference. Reliance was placed on these observations in aid of the proposition that if a legal right was interfered with, which it was contended that the company had in respect of the assets of the company, interference with those legal rights justified right to intervene. The Supreme Court was categorical on the nature of the shareholder's right vis-a-vis the assets of the company in the case of Bacha P. Guzdar v. CIT [1955] 25 Comp Cas 1 ; 27 ITR 1, where the Supreme Court observed that a shareholder acquired rights to participate in the profits of the company, might be readily conceded but it was not possible to accept the contention that the shareholder acquired any right in the assets of the company. A shareholder has no right in the property of the company. The Supreme Court observed that there was nothing in the Indian law to warrant the assumption that a shareholder who bought shares acquired any interest in the property of the company which was a juristic person entirely distinct from the shareholder. The true position of a shareholder was that, on buying shares, an investor became entitled to participate in the profits of the company in which he held the shares if and when the company declared dividends subject to the articles of association that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He had undoubtedly a further right to participate in the assets of the company which would be left over after distribution among the creditors. But he had no right in the assets as a whole.

(2.) Mr. Nag appearing for the appellant also drew our attention to the decision of the Court of Session (Scotland), Second Division, in the case of IRC v. Forrest [1924] 8 TC 704. In that case, on the 25th of November, 1919, the respondent purchased certain shares in an industrial company for a sum exceeding their par value by 50, the excess being expressed in the contract to be paid "to cover the portion of the dividend accrued to date". On the 13th May, 1920, a dividend of 10 per cent, free of income-tax was declared and paid by the company for the year ending 28th February, 1920. The respondent-assessee contended that of the dividend so receivable on his shares 50 plus income-tax, altogether 71, should be treated as capital in view of the terms of the contract of purchase and should not be included in the computation of the income for the year 1920-21 for the purposes of super-tax for the following year and his contention was accepted by the Special Commissioners on appeal. It was held that the transaction was in essence an ordinary one of purchase of shares and the sum of 71 in question could not be deducted from the full amount of the dividend receivable by the respondent on 13th May, 1920, which, under Section 5, Sub-sections (1) and (3)(c) of the I.T. Act, 1918, was required to be included in the computation of income for the purposes of super-tax for the year 1921-22. Our attention was drawn to the observations of Lord Anderson at page 710 of the report, where it was observed as follows :

(3.) This decision was relied on by Mr. Nag in aid of the proposition that as a shareholder his client had an interest in one of the assets of the company, namely, Dunkuni plant, and as such was entitled to say that he was a necessary and proper party in the settlement. Mr. Nag also submitted that the learned judge did not appreciate the true effect of the aforesaid decision. In our opinion, the aforesaid observations of Lord Anderson were made in an entirely different context. It is well settled that the shareholder has a right to participate on the distribution of the assets in case of winding up and also a right to dividend declared by the company out of the profits made by the company by the user of the assets. In that context perhaps, he has an interest in the assets of the company, but that kind of interest cannot, in our opinion, be said to be an interest in a particular property in respect of which asset a shareholder has such an interest that would entitle him to intervene and object to dealing with this property independently of the company as such.