2006 (8) TMI 655 - Board - Companies Law

Oppression and mismanagement - qualifications prescribed u/s 399 - right of legal heirs of a deceased member - petitioners constitute more than 1/10th of the total membership - HELD THAT - According to the petitioners, their father held 99% shares in the company and they are the legal heirs along with Rajmata. All the three of them together have sought for grant of a succession certificate and the 2nd respondent and other brothers being the near relations of the deceased have filed no objection to the grant of succession certificate in favour of the petitioners and Rajmata and that the shares held by the deceased of 5050 equity shares are also part of that application. Thus, without any additions or subtractions, the pleadings reveal that the petitioners are entitled to 2/3rd of the shares held by the deceased which is in excess of 10% of the then existing issued and paid up share capital. Even after the allotment of the shares impugned in the petition, the petitioners constitute more than 1/10th of the total membership. Thus, in the pleadings, the petitioners have established that they are qualified in terms of Section 399 of the Act to file this petition. In view of this, I need not have to consider any of the objections raised by the respondents on the maintainability. Yet, the main ground for challenge on the maintainability is the discovery of the alleged Will subsequent to the date of filing of this petition. However, in the application seeking for dismissal, there is no mention about the Will nor the prayer for dismissal is based on the alleged Will. Only in the rejoinder, a copy of the alleged Will has been enclosed. The learned Counsel for the petitioners relevantly cited certain decisions to the effect that the maintainability of the petition in terms of Section 399 has to be examined with reference to the facts that stood on the date of filing the petition. Therefore, I hold that the present petition, in terms of the averments in the petition, is maintainable and cannot be dismissed on the basis of the demurer application by the respondents. All the objections of the respondents will be considered while considering the petition on completion of pleadings. Accordingly, I direct the respondents to file their counter to the petition and rejoinder will be filed. The petition will be heard.

Issues Involved:
1. Whether the petition filed by the children of a deceased shareholder, who have applied for a succession certificate, should be dismissed at the preliminary stage due to non-compliance with Section 399 of the Companies Act.
2. The legal standing of the petitioners as members of the company under Sections 397/398 of the Companies Act.
3. The impact of a Will allegedly disinheriting the petitioners on their right to file the petition.
4. The relevance of the succession certificate and the petitioners' entitlement to the shares.

Issue-wise Detailed Analysis:

1. Preliminary Dismissal Based on Section 399:
The primary issue for consideration was whether the petition should be dismissed at the preliminary stage because the petitioners did not meet the requirements of Section 399 of the Companies Act. The respondents argued that the petitioners' application for a succession certificate was still pending, and without it, they lacked locus standi as their names were not in the register of members. Additionally, the respondents highlighted other pending litigations and the need for RBI permission for foreign nationals to hold shares in India. The Board concluded that the jurisdictional aspect and qualification under Section 399 should be considered, not other factual aspects such as the transmission of shares or RBI permissions, which would be dealt with after completing the pleadings.

2. Legal Standing of Petitioners as Members:
The petitioners, as legal heirs of the deceased shareholder, filed the petition under Sections 397/398 of the Companies Act. The Supreme Court's decision in the Margaret T. Desor case was cited, which recognized the right of legal heirs to file such petitions even if their names were not on the register of members. The Board emphasized that the legal representatives of a deceased shareholder could maintain a petition under Sections 397/398, as the estate of the deceased vests in the legal representatives immediately upon death.

3. Impact of the Alleged Will:
The respondents introduced an alleged Will disinheriting the petitioners, arguing that it barred them from maintaining the petition. However, the Board noted that the maintainability of a petition must be determined based on the averments in the petition at the time of its filing, not subsequent discoveries. The alleged Will surfaced only after the petition was filed, and its authenticity was yet to be confirmed. Therefore, the petitioners' legal standing could not be undermined by the alleged Will at this preliminary stage.

4. Relevance of Succession Certificate and Entitlement to Shares:
The petitioners claimed entitlement to 2/3rd of the shares held by their deceased father, supported by the fact that they, along with Rajmata, had applied for a succession certificate. The Board held that the petitioners had established their qualification under Section 399 based on the pleadings, which indicated that they were entitled to a significant portion of the shares. The Board reiterated that the maintainability of the petition should be judged on the facts as they were at the time of presentation, and subsequent events, such as the discovery of the alleged Will, should not affect it.

Conclusion:
The Board concluded that the petitioners had established their qualification to file the petition under Sections 397/398 of the Companies Act based on the averments in the petition. The objections raised by the respondents, including the alleged Will, would be considered during the substantive hearing of the petition after the completion of pleadings. The respondents were directed to file their counter to the petition, and the matter was scheduled for further hearing.

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