2004 (10) TMI 344 - HC - Companies Law

Summary

Issues Involved:
1. Transmission of 1,000 equity shares.
2. Allotment of rights shares.
3. Delay and latches in approaching the Company Law Board (CLB).
4. Validity of the direction given by the CLB.

Issue-wise Detailed Analysis:

1. Transmission of 1,000 equity shares:
The respondent filed a petition under sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement. The CLB directed the appellant company to transmit 1,000 equity shares in favor of the respondent, which were originally held by the respondent's deceased father. The company initially refused the transmission on the grounds that the application was not properly submitted and lacked a 'no objection' certificate from the deceased's daughters. During the proceedings, the required certificate was submitted, and the appellants agreed to transmit the shares. Therefore, the legality of this direction was not discussed further.

2. Allotment of rights shares:
The company issued rights shares to existing shareholders, but the respondent was denied these shares because the 1,000 shares of his deceased father had not been transmitted to him. The CLB directed the cancellation of the allotment of rights shares to appellant No. 2 and their issuance to the respondent. The respondent had applied for the rights shares and submitted the required payment, but the company refused, citing the lack of transmission of the original 1,000 shares. The court noted that the company acted in bad faith, given the close family relationship and the fiduciary trust involved. The court upheld the CLB's direction, emphasizing the quasi-partnership nature of the company and the historical shareholding ratio of 40:60 between the two family groups.

3. Delay and latches in approaching the CLB:
The appellants argued that the respondent's petition was not maintainable due to an eight-year delay in approaching the CLB. However, the CLB dismissed this contention, and the court noted that the issue of delay was relevant only to the first and second reliefs, which were either conceded or not granted. The court found that the petition concerning the rights shares was filed promptly after the issue arose in 2002, rendering the delay argument irrelevant.

4. Validity of the direction given by the CLB:
The appellants contended that the CLB's direction violated section 81 of the Companies Act and related rules, arguing that the rights shares should be offered to the recorded shareholders, which still included the deceased father. The court rejected this argument, noting that the company had previously accepted the Will of the deceased and transmitted shares in other family businesses accordingly. The court found that the company's refusal to allot the rights shares to the respondent was a deliberate attempt to alter the shareholding balance and deprive the respondent of his rightful shares. The court cited the Supreme Court's decision in World Wide Agencies (P.) Ltd. v. Margarat T. Desor, which held that legal representatives of a deceased member could move a petition under sections 397 and 398. The court concluded that the CLB's direction was proper, legal, equitable, and valid.

Conclusion:
The court dismissed the appeal, upholding the CLB's order to transmit the 1,000 shares and allot the rights shares to the respondent. The court emphasized the equitable and just nature of the CLB's decision, given the familial and fiduciary context of the case. The appeal was dismissed with costs quantified at Rs. 10,000.