2024 (4) TMI 307 - HC - Companies Law

Division of shares among the deceased s children - Interpretation of will - To be treated as part of her movable properties or not - equal division of the 100 shares of the appellant company-Vantage Construction (P) Limited between the three children of the testator - cancellation of allotment of 9800 shares - HELD THAT - What is apparent is that the issue with regard to the shareholding of the deceased was very much alive and in the knowledge of the parties. The whole tone and tenor of the correspondence between the parties referred hereinabove would show that HPSC was always ready and willing to transfer 1/3rd shareholding in the two companies provided both NPSC and NCD were to agree to compensate him for so called cumulative losses which incidentally were never spelled out. Therefore there is merit in the submission by the learned counsel for the respondents that after the death of HPSC on 03.04.2014 the legal heirs/successors of deceased HSPC are attempting to set up a new case which was never espoused by the deceased - late HPSC. HPSC never challenged the entitlement of the respondents as regards 1/3rd shareholding in the company with regard to the shares left behind by the deceased Smt. Ram Piari Chawla - the finding given by the CLB that the shareholding to the extent of 100 shares in Vantage Construction Private Limited and 5 shares in Earl Chawla Company Private Limited were in the nature of movable properties encompassed in the Will dated 04.07.1986 appears to be without any blemish and the same cannot be faulted on any ground whatsoever. It is a finding based purely on the prevailing facts and on a fair and reasonable interpretation of the Will. Decision of the CLB to cancel the allotment of 9800 shares in the appellant No. 1 company in favour of appellant No. 2/HPSC represented through legal heirs - HELD THAT - It is pertinent to mention that the aspect of allotment of 9800 shares in the name of HSPC from 10.10.2002 was not indicated in the letter dated 22.11.2008 and it only came to be revealed in the subsequent letter dated 01.12.2008. There was a clear attempt on the part of late HPSC in dragging his feet on the matter by calling upon the respondents to submit certain documents vide letter dated 15.12.2009 despite being the real brother of the respondents and having common knowledge of the entire factual background. It is also borne out from the record that the register of shareholding was fabricated so as to show 100 shares of his deceased mother in the name of his own daughter and as his mother had died on 27.10.1990. There is brought not an iota of evidence that any other person was brought in as the second director for mandatory compliance with the provisions of the Act and in the said circumstances the decision by the CLB thereby raising an inference that HPSC allotted 9800 shares to himself without holding any valid meeting as required by law and thereby making such increase behind the back of NPSC and NCD required to be invalidated. This Court finds that the impugned judgment dated 24.06.2013 passed by the CLB does not suffer from any patent illegality perversity or incorrect approach in law. Accordingly the present appeal is dismissed.

Summary

Issues Involved:

1. Interpretation of the Will dated 04.07.1986 regarding the inclusion of shares as part of the estate.

2. Jurisdiction of the Company Law Board (CLB) u/s 111 of the Companies Act, 1956 to cancel the allotment of shares.

Summary:

1. Interpretation of the Will:

The appellants challenged the CLB's conclusion that the shares held by the deceased testatrix were included within the meaning and scope of the "movable properties" in the Will dated 04.07.1986. The CLB directed equal division (1/3rd each) of the shares among the three children of the testator. The High Court upheld the CLB's interpretation, noting that the Will bequeathed all movable and immovable properties equally among the three children. The Court found no merit in the appellants' argument that the shares were not part of the estate, as the testatrix's wealth tax returns reflected the shareholdings, and there was no challenge to the Will's validity by HPSC.

2. Jurisdiction of CLB to Cancel Allotment of Shares:

The appellants argued that the CLB committed a jurisdictional error by cancelling the allotment of 9800 shares in a summary proceeding u/s 111 of the Act. The High Court dismissed this argument, stating that the CLB has the jurisdiction to rectify the register of members if there is a wrong entry without holding a valid meeting. The Court found that HPSC unilaterally allotted shares to himself without proper authorization, which was invalid and without sufficient cause. The High Court directed the appellant company to comply with the CLB's order to rectify the register and delete the invalid allotments.

Conclusion:

The High Court dismissed the appeals, upholding the CLB's interpretation of the Will and its jurisdiction to cancel the allotment of shares. The Court directed the appellant company to comply with the CLB's orders and imposed exemplary costs on the appellants for prolonging the litigation with unsubstantiated claims.