9911796707
TMI Blog1989 (12) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... ts at G-40, Connaught Circus, New Delhi. The authorised share capital of the company was to the tune of Rs. 5 lakhs divided into 5,000 equity shares of Rs. 100 each. The paid-up capital as per the last annual return filed by the company with the Registrar of Companies, was Rs. 2,01,000. The company has, at all relevant times, seven shareholders and the total number of shares subscribed and paid-up was 2,010 shares. Appellant No. 2, Mrs. Amrit Kaur Singh, at all relevant times, was a shareholder holding 545 fully paid-up shares in the share capital of the company, and was also the whole-time working director of the company, holding the office from 1974 onwards. The late Mr. S.K. Desor was a British national. He held 600 shares in the said company, acquired by him from the ex-managing director, Mr. Amrik Singh Saluja, and his family. Respondents Nos. 2 and 3 to this appeal are the children of the late Mr. S.K. Desor who died on March 5, 1985. As per the certified copy of the annual return made up to February 15, 1984, the shareholders of appellant No. 1 (company) were as follows : No. of shares Mr. S.K. Desor 600 Mrs. Amrit Kaur Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding 545 shares benami and that these in fact belonged to Mr. S.K. Desor. A preliminary objection was raised on behalf of Mrs. Amrit K. Singh regarding the maintainability of the petition on the ground that the appellants were not members of the company as their names had not been recorded in the register of members. A further objection was taken that a composite petition under, sections 397 and 398 of the Act with an alternative prayer for winding up of the company was not maintainable. The learned single judge of the High Court, sitting as a company judge, dealt with the application and held that the appellants who were the wife and children of the late Mr. S. K. Desor and had obtained letters of administration under section 290 of the Indian Succession Act read with section 273 of the Act, as also the permission of the Reserve Bank of India, should be treated as members for the purpose of maintaining a petition under sections 397 and 398 of the Act. The learned single judge also held that a composite petition was maintainable. The appellant, Mrs. Amrit K. Singh, filed an appeal for herself and, as she alleged, as working director, from the judgment and order dated Septem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution. The question, therefore, which is material to be considered, is, whether the legal heirs of a deceased shareholder whose names are not entered in the register of members, are entitled to maintain a petition under, sections 397 and 398 of the Act. It was contended on behalf of the appellants that sections 397 and 398 of the Act must be strictly construed. Section 397 of the Act which is in Chapter VI of the Act under the heading "Prevention of oppression and mismanagement", provides as follows : "Application to court for relief in cases of oppression. (1) Any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the court for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the court is of the opinion, ( a ) that the; company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, and ( b ) that to wind up th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer to articles 25 to 28 of Table A of the Act which deal with transmission of shares and which are in the following terms : "25. (1) On the death of a member, the survivor where the member was a joint holder, and his legal representatives, where he was a sole holder, shall be the only persons recognised by the company as having any title to his interest in the shares. (2) Nothing in clause (1) shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by him with other persons. 26. (1) Any person becoming entitled to a share in consequence of the death or insolvency of a member may, upon such evidence being produced as may from time to time properly be required by the board and subject as hereinafter provided, elect, either, ( a ) to be registered himself as holder of the share ; or ( b ) to make such transfer of the share as the deceased or insolvent member could have made. (2) The board shall, in either case, have the same right to decline or suspend registration as it would have had, if the deceased or insolvent member had transferred the share before his death or insolvency. 27. (1) If the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the heir or lineal descendants where no letter of administration has been taken." Mr. Nariman submits that, in view of the specific provisions of section 397 of the Act, only a member is entitled to move a petition under sections 397 and 398 of the Act and that a member is one whose name is in the register of members in view of section 41 of the Act, as mentioned hereinbefore. In this connection, it was emphasised that not only must the applicant be a member but in terms of section 399 of the Act, he has to fulfil the conditions laid down under clauses ( a ) and ( b ) of section 399 of the Act. These should be construed so as to mean what the words say. According to Mr. Nariman, a member is not, in view of the scheme of the Act, the representative of a deceased member. It is true that it must be a member and section 41 of the Act provides that a member of a company is a. person who has applied in writing and "whose name is entered in the register of members" who is entitled to move the petition. It appears in this case that the names of respondents Nos. 2 and 3 had not then been entered in the register of members at the relevant time when the application was made. But the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 210 of the English Companies Act, the views of Pennycuick J. were not reversed or modified. Mr. Nariman submitted that the observations of Pennycuick J. were obiter for the decision of the case. We are unable to agree. Indeed; this was a point specifically referred to by Pennycuick J. as being raised and specifically decided. But we need not detain ourselves with this controversy because the decisions of the English courts are not binding on the courts of India. But the observations or the reasoning are of persuasive value. We are clearly of the opinion that, having regard to the scheme and the purpose of sections 397 and 398 of the Act, the reasoning on a pari materia provision of the English Act would be a valuable guide. The said construction, appears to us, to further the purpose intended to be fulfilled by petitions under sections 397 and 398 of the Act. It facilitates solution of problems in case of oppression of the minorities when the member is dead and his heirs or legal representatives are yet to be substituted. This is an equitable and just construction. This construction, as suggested by Pennycuick J., does not militate against either equity or justice. We wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows : "22. A person becoming entitled to a share by reason of the death, bankruptcy or insolvency of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not before being registered as a member in respect of the share be entitled in respect of it to exercise any right conferred by membership in relation' to meetings of the company." Gowans J., in that case, found that there was a "careful distinction between members and persons entitled to shares by reason of the death of a member but who are not registered which appeared to deny the status of a member to a legal personal representative who is not a member". On an analysis of various decisions, Gowans J. was of the view that a deceased's estate and its representative may, in a particular context, have to be treated as not a member and in view of the provisions of section 186(1) of the Victorian Companies Act, 1938, which provides "any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to one or more of the members (including himself) may . . . apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding-up, which is called the "sledge-hammer remedy", but that he would be refused the lesser , and alternative remedy of seeking relief against oppression and mismanagement though the latter remedy requires establishment on just and equitable grounds of winding up as a precondition for its invocation. It would be rather incongruous to hold that the case for winding-up on just and equitable ground can be made out by the legal representatives under section 439(4)( b ) of the Act, but not the other. This does not appear to be logical. It appears to us that to hold that the legal representatives, of a deceased shareholder could not be given the same right of a member under section 397 and 398 of the Act would be taking a hypertechnical view which does not advance the course of equity or justice. The High Court, in its judgment under appeal, proceeded on the basis that legal representatives of a deceased member represent the estate of that member whose name is on the register of members. When the member dies, his estate is entrusted in the legal representatives. When, therefore, these vestings are illegally or wrongfully affected, the estate, through the legal representatives, must be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the death of the member whose name is still on the register. In our opinion, therefore, the High Court was preeminently right in holding that the legal representatives of a deceased member whose name is still on the register of members are entitled to petition under sections 397 and 398 of the Act. In the view we have taken, it is not necessary to consider the contention whether, as on the date of the petition, they were not members. In that view of the matter, it is not necessary for us to consider the decision of this court in Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp Cas 91 (SC). In view of the observations of this court in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 , it is not necessary, in our opinion, to consider the contention made on behalf of the appellant before the High Court that the permission of the Reserve Bank of India had been erroneously obtained and consequently amounts to no permission. In the present context, we are of the opinion that the High Court was right in the view it took on the first aspect of the matter. The second question was whether a combined petition under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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