2023 (12) TMI 789 - HC - Companies Law

Execution of mutual will revoking earlier mutual wills - refusal to grant injunction against BCL as being the third party to the testamentary suit - The core of the dispute is the will executed by PDB which has given rise to a spate of litigation before this court and even after the lapse of more than 18 years after the demise of PDB, the litigation has not seen the end of the day. Powers of Probate Court under Section 247, Succession Act - Question of title - HELD THAT - It is well-settled that a Probate Court or a Letters of Administration Court cannot finally adjudicate issues of title. It is purely within the domain of a competent Civil Courts to decide such issues. However, in order to decide an application under Section 247, Succession Act, the Probate Court may very well decide, prima facie, the extent of the Estate of the deceased. For such purpose, the Probate Court can definitely decide, although tentatively, as to the extent of the property of the deceased. Such adjudication on the Estate of the deceased, however, does not tantamount to a final adjudication of the title over the property. In KANWARJIT SINGH DHILLON VERSUS HARDYAL SINGH DHILLON AND ORS. 2007 (10) TMI 675 - SUPREME COURT the Hon ble Supreme Court held that it is well settled law that the functions of a probate court are to see that the will executed by the testator was actually executed by him in a sound disposing state of mind without cohersion or undue influence and the same was duly attested. It was therefore not competent for the probate court to determine whether the person had or had not the authority to dispose of the suit properties which he purported to have bequeathed by his will. The probate court is also not competent to determine the question of title to the suit properties nor will it go into the question whether the suit properties bequeathed by the will were joint ancestor s properties or acquired properties of the testator. Powers of Probate Court under Section 247, Succession Act - Third party injunction - HELD THAT - This sub issue relates to third party injunctions which can be further sub-divided and the power of the court to grant injunction is also required to be considered. In Nirod Barani Debi Versus Chamatkarini Debi 1914 (1) TMI 1 - CALCUTTA HIGH COURT , the Hon ble Division Bench held that it is essential for application of Order 39 Rule 1 CPC that the property dispute in the suit is in danger of being wasted, damaged or alienated by a party of wrongfully suit in execution of a decree. Consequently, the application for injunction must satisfy the court that the proceedings is a suit in which there is property in dispute and the property is in danger of being wasted, damaged or alienated. It was further held that the question, consequently, arises whether the proceedings for the probate of a will or for letters of administration may rightly be held to be a suit in which property is in dispute. In the opinion of the court, the answer was in the negative. While considering whether the companies can be joined as the party defendant, the court held that the noticee companies can neither be joined as a party defendant nor can any order of restrain be passed against such companies who is not a party to the proceedings. Further the court held that it cannot extend its jurisdiction to a person who is not a party to the present proceedings. Further the probate court cannot extend the jurisdiction over a person or entity who is not a party to the proceedings. Further it was held that since the noticee company being not the party to the proceedings no order can be passed against it. Extent of PDB Estate - Only shares or controlling interest - HELD THAT - To decide the extent of the Estate of the deceased, the court has to ascertain the powers which could be exercised by the deceased testatrix herself. The powers of the probate court while appointing an administrator pendent lite (APL) are co-extensive with the powers of the testator/testatrix. As a necessary corollary, the powers of an APL formed by the probate court cannot exceed such limits - With regard to the shares in several companies, PDB s powers were restricted to her ownership of the particular shares in different companies as mentioned in the affidavit-of-assets. In such context, the expression controlling interest should not be confused with personal influence of the testatrix. Whatever might have been the personal influence of the deceased testatrix, the same was intangible and restricted to herself. The charisma or personal influence of the deceased might have helped her in carrying out her will in the affairs of the companies, but do not comprise of tangible incidents of her property or Estate - it cannot be said that her personal influence is, in any manner, a part of the Estate. The Probate Court can direct the APL, personally or through its appointees, to register itself or its agents as members of the companies in the capacity of owners of the shares actually owned by PDB in such companies. Upon such registration, the APL and/or its nominees would function as shareholders in such companies and have all the incidental rights and controlling power which PDB would have had by virtue of such shareholdings, including voting rights, participation rights in decision-making processes and meetings, etc. However, the Probate Court cannot go an inch further than that in interfering with the business of the companies. If the promoter hold majority shares then they are several remedies prescribed under the Companies Act to enforce the decision which by not approving the decision of the Board of Directors and they may also initiate process of removal of the Directors and appointment of the Directors of their choice in the place of the main directors. But no such step can be taken without following provisions of the Companies Act. That the court in a probate proceeding cannot pass any directions encroaching upon the jurisdiction of the Board of Directors or taking over of the manufacturing units by purchasing its shares. Further the court categorically held that the APL should be made agree so that the APL can exercise its power of control over the management of BCL by following provisions prescribed under the Companies Act and in case APL fails to discharge its duties, probate court can pass necessary directions upon APL for taking steps in accordance with law. Further the probate court at best can pass necessary directions upon APL to initiate appropriate proceedings before the appropriate forum for seeking appropriate reliefs and in accordance with law and it is only that appropriate forum which can pass appropriate order after adjudicating the rights of the parties including that of a stranger. Thus, it is clear that it is extent of the shareholding which enables the shareholders to control the company and any other interpretation will fall foul of the definition of control as defined under Section 2(27) of the Act. Extent of PDB Estate - Controlling interest meaning - HELD THAT - Controlling interest in the present context, can only mean the incidental rights, including voting rights, rights of participation in shareholders meetings and other decision-making processes which PDB would have had by virtue of her shareholdings in the respective companies. Extent of PDB Estate - Whether the issue of extent of Estate barred by res judicata and/or barred by estoppel against HVL - HELD THAT - An adjudication in a probate proceeding or a letters of administration proceeding cannot be viewed through the myopic lens of res judicata between the parties. Even if an issue is decided finally between HVL and Birla faction, the same does not operate against a Probate Court while adjudicating issues, since the final judgment of a Probate Court would not be restricted to the parties but would operate against the world at large - Hence, the Probate Court s decisions cannot be decided from the limited perspective of res judicata or estoppel between the parties. Thus, the Probate/Letters of Administration Court has an additional responsibility to independently weigh evidence and adjudicate carefully on all issues before it, prima facie or final. Viewing from such perspective, the question of res judicata or estoppel between the parties cannot restrain the Probate Court from independently assessing the question of extent of Estate of the deceased testatrix. None of the previous adjudications pertained to a final decision on the application under Section 247 of the Succession Act. Since this Court is sitting in appeal over a final decision by the learned Single Judge on the application under Section 247 of the Succession Act, by operation of the principles of Order XLI of the Code of Civil Procedure, the Appellate Court has equivalent powers of finally deciding the said application, co-equal with the learned Single Judge which was deciding the same. Hence, while finally deciding the application for appointment of Administrator Pendente Lite, this Court is not fettered by previous observations by different interlocutory courts at different points of time. APL (Administrator Pendente Lite) powers - How far APL can interfere in Company affairs - HELD THAT - The charter of the APL under Section 247 of the Indian Succession Act is to protect and preserve the interest of the estate and can deal with the same, short of distributing the same - the testamentary court, in the present case, can and should clothe the APL with the powers to enlist themselves as members of the companies where the testatrix PDB held shares, in the capacity of shareholder, and also exercise each and every power, including voting rights, associated with shareholding. APL (Administrator Pendente Lite) powers - Whether APL decisions have to be unanimous or majority view prevails - HELD THAT - The theory of referring to the court each and every day-to-day decision in the functioning of the APL as a shareholder/member of the companies is not workable. Conflict is a foregone conclusion in the present composition of the APL, since there has not been a single meeting of the APL in recent past where there has been unanimity among all three members. Of course, major decisions (to be decided by the third member) are to be referred to the testamentary court for formal orders/decisions - In any event, since the APL is not an adjudicatory authority and cannot act so, there does not arise any question of the testamentary court delegating its powers to it. The APL shall strictly act in accordance with the observations above, limited to its role as shareholder with ancillary functions including voting rights, which are to be used judiciously to protect and preserve the interest of the estate during pendency of the Letters of Administration suit. The order of the learned Single Judge is modified to the above extent. Liberty is given to the APL and the parties to approach the testamentary court taking up the letters of administration suit if need be and where there are serious doubts - Application disposed off.

Summary

Issues Involved:

1. Powers of the Probate Court under Section 247, Succession Act.
2. Extent of PDB Estate.
3. Powers and Functioning of Administrator Pendente Lite (APL).

Summary:

Issue 1: Powers of the Probate Court under Section 247, Succession Act

i) Question of Title:
The Probate Court cannot conclusively decide issues of title, which fall within the domain of civil courts. However, the Probate Court may decide the extent of the estate of the deceased prima facie while deciding an application under Section 247 of the Indian Succession Act. This is to ensure the protection and preservation of the estate during the pendency of the probate proceedings.

ii) Third Party Injunction:
Third party injunctions can be granted by testamentary courts in exceptional cases for the limited purpose of protecting the estate of the deceased. However, under normal circumstances, the testamentary court cannot interfere in the internal affairs of third-party companies. The companies not being parties to the probate proceedings are not amenable to the jurisdiction of the probate court.

Issue 2: Extent of PDB Estate

i) Only Shares or 'Controlling Interest':
The estate of PDB is comprised of the actual shares owned by her during her lifetime in the various companies, trusts, and other entities, as well as the consequential powers which such ownership carries as its incidence. Insofar as the companies are concerned, the estate left by PDB consists of the shares which she owned in the various companies and the powers and legal authority she had by virtue of such shareholding, which are heritable. Such powers include voting rights and other ancillary rights of shareholders sanctioned by law.

ii) 'Controlling Interest' Meaning:
'Controlling interest' in this context can only mean the heritable incidental rights, including voting rights, rights to participate in shareholders' meetings, and other decision-making processes which PDB would have by dint of her shareholdings in the respective companies. Her personal charisma or influence among the different companies and their managements, even if existent during her lifetime, unfortunately went with her and cannot form a bundle of heritable rights to be part of her estate.

iii) Whether the Issue of Extent of Estate Barred by Res Judicata and/or Estoppel:
The issue of the extent of PDB's estate is not barred by res judicata. The company courts and the Company Law Board did not have the jurisdiction to decide such issue conclusively; thus, they were not 'competent' courts within the meaning of 'res judicata' to bind the testamentary court. The testamentary court's findings and its offshoots by way of challenges before higher forums never conclusively dealt with or finally decided the extent of the estate. HVL was not estopped by the stand taken by RSL as HVL was substituted in a different capacity than RSL in the testamentary proceeding. Hence, the issue of the extent of the estate of the deceased is not barred by res judicata or estoppel.

Issue 3: Powers and Functioning of Administrator Pendente Lite (APL)

i) How Far APL Can Interfere in Company Affairs:
The APL steps into the shoes of the deceased testatrix and cannot exercise powers which the testatrix herself did not have. The APL can merely step into her shoes and register itself or its nominees as owners of the said particular shares, including the consequential registration as members of the companies. The APL, through its nominees, may decide which way the votes of the testatrix's shares should go and how they would exercise their voting rights and election of directors. However, the APL cannot interfere with all internal affairs of the companies of all the tiers with the blessings of the testamentary court. There cannot be any universal or dynamic injunction or direction affecting the future course of action of the companies from the testamentary court.

ii) Whether APL Decisions Have to Be Unanimous or Majority View Prevails:
The APL has to function on the basis of majority decisions instead of waiting for unanimity. The very composition of the APL as intended by the courts appointing it gives a clue to the purpose behind such appointments. The judicial member in the APL shall act as an arbiter in case of dispute between the other two members. The APL decisions have to be taken on the basis of majority and not unanimity. The APL must also keep in mind that it is not an adjudicatory authority but merely the representative of the estate of the deceased testatrix.

Conclusion:
The order of the learned Single Judge is modified to the extent indicated above. Liberty is given to the APL and the parties to approach the testamentary court taking up the letters of administration suit if need be and where there are serious doubts. The letters of administration suit should be disposed of expeditiously.