2013 (1) TMI 8 - HC - Companies Law

Administration of the estate - Appointment of joint administrators for estate left by deceased - Putting the estate for the time being in the custody of three independent persons - Who would act as Joint Administrators pendente lite in and over all the estates of the deceased For making inventory of the estate and take possession of the same except the properties which are under possession of the Joint Special Officer for the time being - They will take all lawful steps for general Administration of the estate left by the said deceased - They will take steps in accordance with law for their participating in all the meetings of Shareholders of the companies and also take all lawful steps as shareholders in accordance with law Issue - Powers of the Committee of APL - Exercise of nature of rights relating to the shares which form major part of the estate Held that - Nothing prevents them to exercise all the rights, powers and privileges incidental to the ownership of the shares and stocks except that of distributing such estate to the legatees/beneficiaries which is required to be finally determined by the Court. As representative of the shareholder they can always apply to the company to subscribe for such shares in their capacity as representative of the deceased in the estate and not as owners in their own names. In order to enjoy privileges incidental to the ownership of the shares an application will have to be made to the company as required by law to record their names in the Register of members and the companies will have to consider such an application in accordance with their Articles of Association and the provision of law which governs the same. Parties for the purpose of administration of the estate having agreed to appointment of 3 Member Committee as Joint Administrators they shall be entitled to exercise of the rights and powers of General Administrators over the estate of the deceased other than the right of distributing such estate and we, therefore, direct them i) to prepare and file an inventory of the assets of the estate and appraisal of the value of such assets and ii) to take over possession of the assets of the estate in the manner provided under the law considering the nature of the property. a) From Receivers and Special Officers appointed by the Probate Court; b) From Executor s legal heirs; c) From the present Institution and companies as the case may be Receivers/Special Officers appointed by the Probate Court will on handing over the assets out of the estate of the deceased for which they were appointed will stand discharged on their submission and settlement of accounts by the Court.

Issues Involved:
1. Appointment of Administrator Pendente Lite (APL) and their powers.
2. Rights and powers of APL concerning shares and stocks.
3. Jurisdiction and authority of the Probate Court.
4. The necessity of transferring shares to APL.
5. Legal implications of the Companies Act and Indian Succession Act on APL's powers.
6. Arguments and precedents cited by both appellants and respondents.

Detailed Analysis:

1. Appointment of Administrator Pendente Lite (APL) and their powers:
The appeals arose from a common judgment delivered on 27th August 2010, where the estate was placed under the custody of three independent persons acting as Joint Administrators pendente lite. The judgment directed these administrators to inventory the estate, take possession, and manage the deceased's properties, including operating bank accounts, collecting dividends, and participating in shareholder meetings. The court emphasized that APLs have all the rights and powers of a general administrator, except for the distribution of the estate, as per Section 247 of the Indian Succession Act (ISA).

2. Rights and powers of APL concerning shares and stocks:
The main contention was whether APLs could get shares transferred to their names and exercise voting rights. The appellants argued that the interim orders preserving the status quo were sufficient and that transferring shares to APLs would be contrary to the Companies Act, 1956, and the ISA. They maintained that APLs, being officers of the court, do not possess the same rights as executors or administrators with granted probate or letters of administration. Conversely, respondents argued that APLs must exercise all rights, including voting, to preserve the estate's value, especially given the deceased's controlling shares in the M.P. Birla Group.

3. Jurisdiction and authority of the Probate Court:
The court affirmed its jurisdiction to appoint APLs and grant them powers to manage the estate, including shares and stocks, to preserve and protect the estate until the final adjudication of the testamentary suit. The court emphasized that APLs represent the estate for all purposes except distribution, distinguishing them from receivers who merely hold the estate for the benefit of the successful litigant.

4. The necessity of transferring shares to APL:
The appellants argued that transferring shares to APLs would disturb the status quo and was unnecessary. They contended that only legal representatives with granted probate or letters of administration could apply for share transfer. The respondents countered that APLs must exercise all rights arising from shareholding to prevent mismanagement and protect the estate's value, especially given the deceased's significant shareholding in the M.P. Birla Group.

5. Legal implications of the Companies Act and Indian Succession Act on APL's powers:
The court noted that shares could be obtained by transfer or transmission under Section 108 of the Companies Act. It held that APLs, as representatives of the deceased, could apply to companies to exercise rights like voting and receiving dividends, necessary for administering the estate. The court clarified that APLs could act as representatives of the deceased shareholder, not as owners, and companies must consider such applications per their Articles of Association and relevant laws.

6. Arguments and precedents cited by both appellants and respondents:
The appellants cited several precedents, including cases like Balkrishan Gupta vs. Swadeshi Polytex Ltd., to argue that APLs could not be equated with executors or administrators with granted probate. They emphasized that APLs are akin to receivers with limited powers. The respondents, however, cited cases like Charanjit Lal vs. Union of India and Maheshwari Khetan Sugar Mills vs. Ishwari Khetan Sugar Mills, arguing that APLs, as legal representatives, must exercise all rights associated with shareholding to preserve the estate's value.

Conclusion:
The court concluded that APLs, as representatives of the deceased, have the right to exercise all rights and powers of a general administrator, including voting and other shareholder rights, except for distributing the estate. The court directed the Joint Administrators to prepare an inventory of the estate, take possession of assets, and manage the estate as per the law. The court granted a limited stay of four weeks on the order's effect concerning the Joint Administrators exercising rights related to shares and stocks to allow the appellants to take appropriate steps.

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