Company Law Board, southern region bench, Chennai
S. Kanthimathy
v.
Woodlands
Estates Limited
K.K.
Balu, Vice Chairman
C.P.
Nos. 10, 11 and 12/111A/SRB of 2005
August
20, 2007
Section 111, read with section 111A, of the
Companies Act, 1956 - Transfer of shares - Power to refuse registration and
appeal against refusal - Whether transmission of shares by operation of law is
also governed by section 111A and, therefore, any person succeeding to shares
by operation of law can be treated as an investor entitled to invoke provisions
of section 111A(3) - Held, yes - Whether under section 111(7), jurisdiction of
CLB is not confined to determination of disputes between company and
shareholders alone, but extends to any disputed question of title in connection
with application for rectification - Held, yes - Whether therefore, parties are
not to be relegated to a civil court, without even examining whether prima
facie what is pleaded is a complicated question or not, or whether such
disputed issues are or are not peripheral to rectification, or whether such
issues would be beyond jurisdiction of CLB - Held, yes - Petitions under
sections 111/111A were filed to rectify register of members of companies in
respect of equity shares standing in name of (late) S (i.e., father of
petitioners) by substituting names of petitioners and respondent Nos. 5 to 9 in
place of second respondent - Disputes involved in said petitions were in
relation to shares bequeathed by late S in favour of his legal heirs -
Petitioners case was that subsequent to execution of will, shares acquired by
(late) S, either by purchase or through inheritance by virtue of will
executed by his deceased wife, were transmitted in their favour - Respondents
resisted petition mainly on ground that CLB had no jurisdiction to determine
issues raised in petitions as disputes were between third parties inter se and
not between company and shareholders - Whether since disputes involved in
instant company petitions were on account of shares inherited by (late) S
from his wife and shares purchased by (late) S after date of his will,
contentious interpretation, whether such shares devolved on sons under clause
10 of will as claimed by respondents or whether those shares would devolve
equally on daughters and daughters-in-law of testator under clause 26 of will
going by letter and spirit of section 75 of Indian Succession Act, could be
resorted to in instant proceedings - Held, no - Whether, therefore, instant
petitions were to be dismissed with liberty to parties to agitate their rights
in respect of impugned shares in a competent civil court - Held, yes
Facts
A petition under section
111, read with section 111A, was filed to rectify the register of members of
the company T, in respect of certain equity shares of (late) S by
substituting the names of petitioners and respondents 5 to 9 in place of the
second respondent. Another petition under section 111, read with section 111A,
was filed to rectify the register of members of the company R deleting the
names of respondent Nos. 3 to 6 in relation to certain equity shares of (late)
S. The disputes involved in the said petitions were in relation to the shares
bequeathed by (late) S in favour of his legal heirs in terms of his will. The
petitioners submitted that subsequent to the execution of the said will, the shares
in company T and company R acquired by (late) S either by purchase or
through inheritance by virtue of will executed by his deceased wife P, were
transmitted in their favour. However, the second respondent, executor of the
will and chairman and managing director of the company T, had completely
taken away the entire shares of (late) S in the companies solely for himself.
It was, thus, alleged that the transmission and transfer of impugned shares
were not bona fide and were contrary to the provisions of the Act, the
Hindu Succession Act and the Indian Succession Act.
The respondents submitted
that the petitioner had no locus standi to file the petitions, as
section 111A applies to private companies; that no power was conferred on the
CLB to register a transmission of shares under section 111A as the claim of the
petitioners was based on a right transmitted by virtue of a will; and that
further, the CLB had no jurisdiction to determine the issues raised in the
petitions as the disputes were between the third parties inter se and
not between the company and the share-holders. Another objection raised by the
respondents was that instant company petitions being filed with a delay of ten
months were liable to be dismissed on the ground of limitation as well.
Held
A combined reading of
section 111(5) and section 111A(7) would show that transmission of shares by
operation of law is also governed by section 111A. It could not be said that
the petitioners could not seek rectification of the register of members of the
companies by invoking the provisions of section 111A(3).
In view of the decision
of the Supreme Court in the case of World Wide Agencies (P.) Ltd. v. Miss. Margaret T. Desor
[1990] 67 Comp. Cas. 607, it is not necessary for any person to invest his own
funds to gain the status of an investor, but it would be sufficient, if ones
predecessor in interest had invested funds in the company. Thus, any person
succeeding to shares by operation of law can be treated as an investor. The
petitioners, being the legal representatives of (late) S, shall, therefore,
be deemed to be investors, entitled to invoke the provisions of section
111A(3).
Clause (a) of sub-section (7) of section 111
provides that the CLB may, on an application made for rectification of the
register of members, decide any question relating to the title of any person,
who is a party to the application to have his name registered in, or omitted
from the register. The language of this sub-section is clear and unambiguous,
an ordinary reading of which shows that the CLB is empowered to decide any
disputed question of title during the course of proceedings for rectification
of the register of members, as could be gauged from clause (b) of
sub-section (7) of section 111. By virtue of this provision, the CLB generally
may decide any question which is necessary or expedient to be decided in
connection with the application for rectification. Section 111(7) is not
confined to the determination of disputes between the company and shareholders alone,
but extends to any disputed question of title in connection with the
application for rectification. It could not, therefore, be concluded that the
CLB, in exercise of its summary jurisdiction, could not adjudicate the disputed
question of title raised by the petitioners in relation to the impugned shares.
In that background, the plea of the respondents, that the disputes raised in
the company petitions could only be decided by a civil court did not merit any
consideration.
In view of the above
legal position, the parties were not to be relegated to a civil court, without
even examining whether prima
facie what was pleaded was a complicated question or not, or whether such
disputed issues were, or were not peripheral to rectification or whether such issues
would be beyond the jurisdiction of the CLB.
So far as objection
relating to delay in filing the petition was concerned, the settled law is that
delays in bringing the appeals are required to be condoned in the interest of
justice, when no gross negligence or deliberate inaction or lack of bona fides is imputable to the parties
seeking condonation of delay. In the instant case, one could see that the legal
heirs of (late) S were engaged in resolving the disputes before approaching
the CLB, as was borne out by the various communications produced before the
CLB, leaving apart the disputed correspondence. There was, therefore,
justification to condone the delay of ten months. Therefore, the company
petitions could not be dismissed on the ground of limitation.
The wills left by
(late) S and (late) P were not being challenged by any of the legal heirs,
but serious disputes were in relation to the interpretation of certain material
clauses forming part of the wills. While according to the petitioners, a will
could be interpreted by all judicial/quasi-judicial authorities, it was
vehemently opposed by the respondents that a will had to be interpreted in an
appropriate proceeding by a competent civil court.
A combined reading of
section 2(bb) and section
75 of the Indian Succession Act would only mean that for the purpose of
determining as to what person or what property is denoted by any words used in
a will, the District Court having the jurisdiction shall enquire into (a)
even material facts relating to the persons who claim to be interested under
such a will; (b) property which is claimed as the subject of
disposition; (c) circumstances of the testator and of his family; and (d)
the right application of the words which the testator has used. The illustrations
explaining section 75 would categorically reveal that the Court may enquire in
order to ascertain as to what person the property is bequeathed to by a
deceased and what is the subject-matter of the bequest, by taking necessary
evidence in the matter. The disputes involved in the company petitions were on
account of the shares inherited by (late) S from his wife and the shares
purchased by (late) S after the date of his will. The contentious
interpretation, whether such shares devolved on the sons under clause 10 of the
will, as claimed by the respondents or whether those shares devolved equally on
the daughters and daughters-in-law of the testator under clause 26 of the will
going by letter and spirit of section 75, could not be resorted to in the
instant proceedings.
It was clear from the
minutes of meetings of company T and company R that there were no
deliberations at all both at the share transfer committee meeting and at the
board meetings on devolvement of the impugned shares under clause 10 or any
other clause of the will of (late) S before giving effect to the transmission
of shares at such meetings. All the relevant minutes were silent as to whether
the boards of company T and company R had ascertained the details in
relation to : (i) number
of shares held by (late) S at the time of execution of his will; (ii)
number of shares acquired by (late) S after the date of his will; and (iii)
number of shares held by (late) S at the time of his death in those
companies, which details were absolutely essential before according approval to
transmission of the impugned shares. None of the clauses of the will was ever
interpreted, before approving the transmission of shares, as found reflected in
each of the minutes.
In view of the above
and in exercise of the power under section 111A, read with section 111, the
following order was to be passed :
(i) Company T should rectify
its register of members in respect of impugned equity shares by restoring the
name of (late) S in the place of the second respondent;
(ii) The second respondent would
restore dividends received, if any, in respect of said equity shares in favour
of company T;
(iii) Company R should also
rectify its register of members in respect of impugned equity shares, by
restoring the name of (late) S in the place of respondent Nos. 3 to 6;
(iv) Respondent Nos. 3 to 6
would restore dividends received, if any, in respect of said equity shares in
favour of company R;
(v) The legal heirs of (late) S
were at liberty to agitate their rights in respect of the impugned shares in a
competent civil court.
With the above
directions, the company petition would stand disposed of. [Para 8]
Cases
referred to
Finolex Industries Ltd. v. Anil Ramchand Chhabria [2000] 37
CLA 278 (Bom.) (para 5), Hero Honda Motors Ltd. v. Unit Trust of
India [2005] 66 CLA 11 (Bom.) (para 5), S.I. Rooplal v. Lt.
Governor through Chief Secretary 2000 (1) SCC 644 (para 5), World Wide
Agencies (P.) Ltd. v. Margaret T. Desor [1990] 67 Comp. Cas. 607
(SC) (para 5), Nupur Mitra v. Basubani (P.) Ltd. [1992] 2 Cal.
L.J. 264 (para 5), Tommy Mathew v. Duroflex Ltd. [2004] 122 Comp.
Cas. 741/55 SCL 636 (CLB-Chennai) (para 5), Ammonia Supplies Corpn. (P.)
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310/17 SCL 463 (SC) (para 5), Khurshid Alam v. P. Pagnon Co. (P.)
Ltd. [2002] 108 Comp. Cas. 523/35 SCL 424 (CLB) (para 5), Gnanambal
Ammal v. T. Raju Aiyar AIR 1951 SC 103 (para 5), Pushpa Vadora v.
Thomas Cook (India) Ltd. [1996] 87 Comp. Cas. 921/[1995] 6 SCL 40 (CLB)
(para 5), Narinder Kumar Sehgal v. Leader Valves Ltd. [1993] 77
Comp. Cas. 393 (CLB) (para 5), Gopal Krishna Banga v. Poona
Industrial Hotel Ltd. [2000] 102 Comp. Cas. 375/[1999] 22 SCL 90 (Bom.)
(para 6), Tej Prakash S. Dangi v. Coramandal Pharmaceuticals Ltd. [1997]
89 Comp. Cas. 270 (AP) (para 6), Karamsad Investment Ltd. v. Nile
Ltd. [2001] 34 SCL 269 (AP) (para 6), M. Srinivasulu Reddy v.
Kishore R. Chhabria [2001] 34 SCL 1 (Bom.) (para 6), Shirish Finance
& Investment (P.) Ltd. v. M. Sreenivasulu Reddy [2002] 35 SCL 27
(Bom.) (para 6), NEPC Micon Ltd. v. Sashi Prakash Khemka [2007]
137 Comp. Cas. 917/78 SCL 442 (Mad.) (para 6), Sahara Fabrics (P.) Ltd. v.
Smt. Kailash [2006] 134 Comp. Cas. 472/69 SCL 233 (Bom.) (para 6), Dr.
G.N. Byra Reddy v. Aarathi Cine Enterprises (P.) Ltd. [1997] 89
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AIR 1995 SC 1111 (para 6), Prakash Timber (P.) Ltd. v. Smt. Sushma
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S. Berrys Automotive Udyog (P.) Ltd. [2006] 129 Comp. Cas. 568/59 SCL 659
(N. Delhi-CLB) (para 6), Sundaram Finance Ltd. v. M.K. Kurian
[2006] 1 M.L.J. 506 (para 6), Kerala State Electricity Board v. T.P.
Kunhaliumma AIR 1977 SC 282 (para 6), Major (Retd.) Inder Singh Rekhi v.
Delhi Development Authority AIR 1988 SC 1007 (para 6), Town Municipal
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54 Comp. Cas. 301 (Delhi) (para 6), Nasiruddin v. State Transport
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(CLB) (para 8), Keshu Appliances (P.) Ltd. v. Royal Holdings
Services Ltd. [2006] 71 CLA 189 (para 8) and Duroflex Ltd. v.
Johnny Mathew [2007] 77 CLA 261 (Ker.) (para 8).
V. Ramakrishnan and G. Sivasankaran for the
Petitioner. T. Dulip Singh, Jose John, T.K. Seshadri, T.K. Bhaskar and
Ms. V. Janaki for the Respondent.
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