SQP IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPEAL NO.3 OF 2006 IN COMPANY PETITION NO.21/111A/CLB/WR OF 2005 Spanco Telesystems & Solutions Ltd. ...Appellants Versus Vinodkumar S.Malani & Anr. ...Respondents ....... Mr.Birendra Saraf i/b Mr.Yogesh N.Adhia for Appellants. Mr.U.J.Makhija, Sr.Counsel as amicus curiae for Respondents. ...... CORAM: CORAM: CORAM: A.M.KHANWILKAR, J. A.M.KHANWILKAR, J. A.M.KHANWILKAR, J. NOVEMBER NOVEMBER NOVEMBER 10, 2008. 10, 2008. 10, 2008. P.C. P.C. P.C. 1. This Appeal takes exception to the Judgment and Order passed by the Company Law Board, Western Region Bench, Mumbai dated 1st May 2006 in Company Petition No.21/111A/CLB/WR/2005. The Respondent filed the said Company Petition before the Company Law Board questioning the decision of the Appellant Company in rejecting the Application preferred by the Respondents applying for right : 2 : issue which was offered to the Respondents by the Appellant Company. It is common ground that the Appellants came out with rights-cum-public issue. As per the said offer, the Respondents were entitled for additional shares i.e. right shares in the ratio of 1:1. The offer letter issued by the Appellants clearly specifies that quoting of PAN/GIR number in the Application form was mandatory in case of the total value of right issue exceeding Rs.50,000/- (Rupees Fifty Thousand). The terms in the offer letter also clearly specifies that incomplete application or application not accompanied with money account payable are liable to be rejected. Relying on the fact that the application submitted by the Respondents did not mention the PAN number, although the right shares value exceeded sum of Rs.50,000/- (Rupees Fifty Thousand), the Appellants rejected the application of the Respondents being incomplete, on 25th November 2004. The Registrar and Transfer Agent of the Appellants after rejection of the application of the Respondents and similarly placed persons, finalised the basis of allotment in consultation with the Bombay Stock Exchange. The basis of allotment was duly advertised in the newspaper as : 3 : per the Bombay Stock Exchange requirement. The Appellants sent communication to the Respondents about rejection of his application on 29th November 2004 and refunded application money. 2. The Respondents, however, filed the Company Petition under Section 111 with the Company Law Board against rejection of their application only on 26th April 2005. The Company Law Board, in the first place, proceeded to accept the Appellants’ case that the application as submitted by the Respondents was incomplete. The finding of fact recorded by the Company Law Board that the application was incomplete, as it did not mention the PAN Number is not assailed before this Court. As a matter of fact, copy of the application produced by the Appellants in the compilation supports that position. The Company Law Board, however, then proceeded to observe that before rejecting the said incomplete application, the Appellants were obliged to comply with natural justice by giving one opportunity to the Respondents to rectify the mistake as has occurred in the submission of the application. It is on that premiss the Company Law Board directed the : 4 : Appellant Company to allot 2,400 equity shares to the Respondents within thirty days from the receipt of full amount for the said 2,400 shares from the Respondents. 3. This Appeal takes exception to the said view taken by the Company Law Board. After the Appeal was admitted, Respondents were duly served. They chose to forward reply affidavit to oppose the Appeal and made it clear that it will not be possible for them to remain present in Court at the time of arguments or to engage any Advocate. 4. In the circumstances, I thought it appropriate to appoint Mr.U.J.Makhija as amicus curiae to espouse the cause of the Respondents. Mr.Makhija graciously accepted that request and has appeared in the matter. 5. After hearing Counsel for both the sides, the only question that requires to be addressed in this Appeal is: whether the Appellants were obliged to comply with the formality of natural justice by giving opportunity to the Respondents : 5 : before rejecting the application as has been held by the Company Law Board? 6. The view taken by the Company Law Board in my opinion, has been rightly criticised by the Appellants as it overlooks the settled legal position that rules of natural justice cannot operate in relation to powers which are governed by the terms of an Agreement exclusively. This legal position is expounded in the decision of the Apex Court in M/s.Radhakrishna Agarwal & Ors. v. State M/s.Radhakrishna Agarwal & Ors. v. State M/s.Radhakrishna Agarwal & Ors. v. State of of of Bihar Bihar Bihar & Ors. reported in AIR 1977 SC 1496 (para & Ors. reported in AIR 1977 SC 1496 (para & Ors. reported in AIR 1977 SC 1496 (para 25). 25). 25). In the said decision, the Apex Court has observed that only question which normally arise in cases of Agreement is whether the action complained of is or is not in consonance of the Agreement. This is the only issue that ought to have been addressed by the Company Law Board in the fact situation of the present case. The Company Law Board ought to have referred to the terms and conditions of the application and no more. The terms and conditions of the application expressly contemplate that submission of incomplete application in any manner is liable to be rejected. There is nothing in the terms and conditions of the : 6 : offer made by the Appellants, which would even remotely suggest that it was imperative for the Appellants to give one opportunity to the Applicants before rejecting the incomplete application. 7. Be that as it may, as aforesaid, the fact that although the value of shares subscribed by the Respondents exceeded over Rs.50,000/- (Rupees Fifty Thousand), for which reason, it was mandatory to furnish PAN Number in the application itself, that is not in dispute. It necessarily follows that the application as submitted by the Respondents was incomplete, for which reason, the same was required to be rejected. Accordingly, the opinion recorded by the Company Law Board that the Appellants ought to have observed principles of natural justice by giving opportunity to the Respondents before rejection of their application is unstatable. 8. In the circumstances, the Appeal ought to succeed. The impugned Judgment and Order is set-aside and instead the Company Petition preferred by the Respondents is dismissed. : 7 : 9. The Court expresses word of gratitude to Mr.Makhija for having accepted the request to appear as amicus curiae to espouse the cause of the Respondents. A.M.KHANWILKAR, J.