Company Law Board, CHENNAI BENCH
S. Kanthimathy
v.
Woodlands Estates Limited
K.K. BALU, VICE CHAIRMAN
C.P. NOS. 10, 11 AND 12/SRB OF 2005
August 20, 2007
Section 111, read with section 111A of the Companies Act, 1956 - Power
to refuse registration and appeal against refusal - Whether transmission of
shares by operation of law is also governed by section 111A - Held, yes -
Whether any person succeeding to shares by operation of law can be treated as
investor entitled to invoke provisions of section 111A(3) - Held, yes - Whether
Board is empowered to decide any disputed question of title during course of
proceedings for rectification of register of members - Held, yes - Whether
Board has to exercise its jurisdiction under section 111/111A even if it is
found that complicated questions of fact or law or disputes of complicated nature
or serious disputes are involved - Held, yes - Petition 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 name of petitioners and respondent Nos. 5 to 9 in place of second
respondent - Disputes invalued in 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 wife were
transmitted in their favour - Respondents mainly resisted petition on ground
that CLB had no jurisdiction to determine issues raised in petitions as disputes
were 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 developed on sons under clause 10 of will,
as claimed by respondents or whether these 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 cannot be resorted to
in instant proceedings - Held, yes - Whether, therefore, instant petitions were
to be dismissed with liberty to parties to agitate their rights in respect of
impugned shares in competent civil court - Held, yes
FACTS
A petition under section 111 read with section
111A was filed to rectify the register of members of company T in respect of
34492 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 company R deleting the names of respondent Nos. 3 to 6 in relation to
65378 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 of purchase or through inheritance by virtue of will
executed by his deceased wife P, were transmitted in their favour. However,
the second respondents, executor of the will and Chairman and Managing Director
of company T had completely taken away the entire shares of (late) S in the
companies solely to 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, Hindu Succession Act
and India Succession Act.
The respondents submitted that petitioner had
no locus standi to file the
petitioners, as section 111A applies to private companies and that no power was
conferred on 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.
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 respondents was
that instant company petition being filed with a delay of ten months was liable
to be dismissed on 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 it could not be said
that the petitioners could not seek rectification of the register of members of
the companies invoking the provisions of section 111A(3).
Following the decision of the Supreme Court in
the case of World Wide Agencies (P.) Ltd.
v.
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 decide 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 this 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 complicated question or not, or whether such disputed issues were, or not
peripheral to rectification or, whether such issues will 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 borne out by
the various communications produced before the Bench, leaving apart the
disputed correspondence. There was, therefore, justification to condone the
delay of ten months, which was accordingly condoned in the interest of justice.
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 can 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 fact
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 by a deceased and what is the subject
matter of the bequest, by taking necessary evidence in the matter. The disputes
involved in these 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
these shares devolve 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 meeting of
company T and company R that there was no deliberation at all both at the
share transfer committee 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 board 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 these companies, which were absolutely essential before according approval
for transmission of the impugned shares. None of the clauses of the will was
ever interpreted, before approving the transmission of shares, as founded in
every of the minutes.
In view of the above and in exercise of the
power under section 111A read with section 111 of the Act, the following order
is passed:
(i) Company T should rectify its register of
members in respect of 39.388 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 39.388 equity shares in favour of
company T'
(iii) Company R should rectify its register of
members in respect of 70.902 equity shares, by restoring the name of (late) S.
in the place of respondents 3 to 6:
(iv) The respondents 3 to 6 would restore
dividends received, if any, in respect of 70.902 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. [