2008 (7) TMI 569 - HC - Companies Law

Oppression and mismanagement - Whether the nomination is required to be attested by witnesses? -challenging the allotment of additional 3000 shares and declaring that respondent No. 1 is the holder of 98 per cent of the shareholding which came to him by virtue of the Will of late Sh. V.P. Punj Held that - The Will set up by the petitioner was disputed by another heir of the same class and, therefore, the Delhi Development Authority directed the petitioner to obtain a probate of the Will . This action of the DDA was upheld by the Court. However, in the present case, respondent No. 3 is neither a Class-I heir like respondent No. 1 nor has he set up a claim by way of testamentary succession in respect of the 980 shares. He has set up a claim on the basis of nomination. Keeping in view the fact that section 63 of the Indian Succession Act requires an unprivileged Will to be attested by at least two witnesses in a particular manner, and that the purport of section 109A is to override even a Will so executed, the requirement of attestation by a witness of a nomination made by a shareholder, in my view cannot be said to be merely procedural or directory.the procedural requirements laid down in the said section, for such overriding effect to be given to have to be strictly adhered to. The attestation of the nomination form by two witnesses in my view is an essential requirement which cannot be done away with. Admittedly, in the present case the purported nomination made by late Shri V.P. Punj has not been attested by any witness. Consequently, in my view the said nomination is invalid and would not have the effect of overriding the normal law of succession. Appeal dismissed.

Issues Involved:
1. Maintainability of the company petition under sections 397 and 398 of the Companies Act, 1956.
2. Validity of the transmission of 980 shares to Respondent No. 3 based on nomination.
3. Validity of the allotment of 3000 additional shares in violation of the Articles of Association.
4. Examination of the procedural requirements under section 109A of the Companies Act for nomination.

Issue-wise Detailed Analysis:

1. Maintainability of the Company Petition:
The appellants challenged the maintainability of the petition filed by Respondent Nos. 1 and 2 under sections 397 and 398 of the Companies Act, arguing that they did not meet the requirements of section 399. They contended that Respondent No. 1 had no shareholding, and Respondent No. 2 held only 20 shares, which was less than 0.2% of the total shares. The Board observed that determining the maintainability would also dispose of the petition on merits. The Board noted that the material provided by the appellants was inadequate and that primary documents were not disclosed. The Board decided that the maintainability issue would be considered along with the petition after completion of pleadings.

2. Validity of the Transmission of 980 Shares:
The appellants argued that late Shri V.P. Punj had pledged his shares to Respondent No. 3 and nominated him as the beneficiary. Respondent Nos. 1 and 2 disputed the authenticity of the nomination letter dated 15-4-2002 and argued that the nomination was not in the prescribed form. They also contended that no notice was given to the pledger before the appropriation of the shares, making the transfer invalid. The Board observed that the validity of the foreclosure without notice and the nomination's validity required examination. The Board noted that the original nomination letter was not produced initially, and its authenticity was disputed.

3. Validity of the Allotment of 3000 Additional Shares:
Respondent Nos. 1 and 2 argued that the allotment of 3000 shares was in violation of Article 8 of the Articles of Association, which restricted membership to male lineal descendants of Pt. Kanhaiya Lal Punj. They contended that shares could not be allotted to incorporated companies and that the allotment was not justified as a settlement of outstanding loans. The Board observed that the validity of the allotment and transfer of shares needed to be examined with reference to the Articles of Association. The Board also noted that the shares transferred were those held by late Shri V.P. Punj, and unless the transfer was valid, subsequent transfers could not be held valid.

4. Examination of Procedural Requirements under Section 109A:
The appellants argued that the nomination made by late Shri V.P. Punj was valid even if not in the prescribed form. Respondent Nos. 1 and 2 contended that the nomination was not in the prescribed form and was not attested by witnesses, making it invalid. The Court observed that section 109A requires nominations to be made in the prescribed manner, including attestation by witnesses, to override testamentary succession. The Court held that the procedural requirements must be strictly adhered to and that the nomination in question was invalid due to the lack of attestation.

Conclusion:
The Court dismissed the appeal, holding that the maintainability of the petition could not be decided at the threshold and required a detailed examination of facts and law. The Court also held that the nomination made by late Shri V.P. Punj was invalid due to non-compliance with the procedural requirements of section 109A. The Board was directed to proceed with the petition and application CA No. 59/2007 in light of these observations. The appellants were ordered to pay costs of Rs. 50,000 to Respondent Nos. 1 and 2, and the parties were directed to appear before the Board on 23-7-2008.

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