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TMI Blog2008 (7) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... omination made by a shareholder, in my view cannot be said to be merely procedural or directory.the procedural requirements laid down in the said section, for such overriding effect to be given to have to be strictly adhered to. The attestation of the nomination form by two witnesses in my view is an essential requirement which cannot be done away with. Admittedly, in the present case the purported nomination made by late Shri V.P. Punj has not been attested by any witness. Consequently, in my view the said nomination is invalid and would not have the effect of overriding the normal law of succession. Appeal dismissed. - CO. A. (SB) NO. 14 OF 2007 - - - Dated:- 2-7-2008 - VIPIN SANGHI, J. A.S. Chandihok, U.K. Chaudhary, Ms. Ranjana Roy Gawai, Saurabh Kalia and Parvinder Tanwar for the Appellant. Rajiv Shakdher, Mukul Talwar, Satwinder Singh, Vijay Vaish, Rajiv Ranjan, Ms. Divya Suman, Ms. Nirmala Narayanan, Mukul Talwar and Ms. Sujata Kashyap for the Respondent. JUDGMENT 1. This company appeal under section 10 of the Companies Act, 1956 (for short, the Act ) is preferred by the Appellants, M/s. Dayagen Private Ltd. (for short, the company ) and one M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him by virtue of the Will of late Sh. V.P. Punj. Various other reliefs were also sought by respondent Nos. 1 and 2 before the Board. 4. The Company filed CA No. 59/2007 challenging the maintainability of the petition filed by respondent Nos. 1 and 2 by placing reliance on section 399 of the Companies Act, 1956, and submitting that respondent Nos. 1 and 2 did not fulfil the requirements of the said section and therefore, they did not have the locus standi to maintain the said petition. It was contended that the shareholdings of respondent No. 2 was only to the extent of 20 shares which, according to the Appellants herein, translated to less than 0.2 per cent shares. Respondent No. 1 was not entitled to maintain the petition since he did not have any shareholding in the company, and he was not entitled to succeed to the shareholding of late Shri V.P. Punj, and he could not be considered to be a shareholder for the purpose of section 399 of the Act. It was further argued that there were 12 shareholders in the company and therefore respondent No. 2 by himself did not constitute 1/10th of the membership of the company. Therefore, neither in terms of the numbers/percentage of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allotment of shares to the said two companies. It was further submitted that the Board of Directors of the Company in its meeting held on 16th October, 2006 had accorded its approval to the transfer of 80 shares held by respondent No. 3 herein to 8 transferees of 10 shares each, thus, raising the total number of shareholders/members to 12. 6. The application CA No. 59/2007 was contested by respondent Nos. 1 and 2 herein who submitted that the Will of late Sh. V.P. Punj was not in dispute. They relied on the decision of the Supreme Court in Worldwide Agencies (P.) Ltd. v. Margret TD sor [1990] 1 Comp. LJ 208 to contend that the legal heirs of a deceased member can maintain a petition under sections 397 and 398 of the Act even without their names being entered in the register of members. They also argued that applicants in CA No. 59/2007 had relied on an alleged letter of late Shri V.P. Punj dated 15-4-2002 without even disclosing the same in their application. Only a copy of the said letter was produced and the original was withheld. Even assuming for the sake of argument, without admitting that late Shri V.P. Punj has pledged his 980 shares in favour of respondent No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as being on account of a part settlement of the outstanding loans. As per the balance sheet of the company as on 31-3-2005, the company owed sum of Rs. 97.6 lakhs to late Shri V.P. Punj advanced by him as unsecured loans. However, no shares were similarly allotted to him in the discharge of his loans. If shares had to be allotted to other creditors of the company, similar treatment would have been given to late Shri V.P. Punj. It was further argued that two of the subsequent transferees from Respondent No. 3 herein, in respect of ten shares each, were also incorporated companies and did not satisfy the requirements of Article 8 of the Articles of Association and, therefore, could not hold the said shares. If all the four incorporated companies are excluded from membership, there would be eight members, even if it is assumed that respondent No. 3 herein had been validly recorded as a member of the company. Consequently Respondent No. 2 alone would represent 12.5 per cent of the number of shareholders and he could maintain the petition. Reliance was placed on a decision of the Board in Rajkumar Devraj v. Jai Mahal Hotels (P.) Ltd. [2006] 134 Comp. Cas. 405 1 (CLB - New Delhi) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplied with. 10. The Board passed the impugned order by observing that there are only two main allegations in the petition; firstly, that the company had declined to transmit the shares in favour of Respondent No. 1; secondly, that further issue of shares was in violation of the articles of the company. Both these acts were claimed to be oppressive to the Respondent Nos. 1 and 2, since, on account of these acts they had been reduced to a hopeless minority. The Board observed that the case presents a peculiar situation in the sense that determination of the application challenging the maintainability would also result in disposing of the petition on merits and that the material placed by the appellants and Respondent No. 3 in their application being CA No. 59/2007 were inadequate. The Board observed that no primary documents like copies of Board resolution approving the transfer/transmission of the 980 shares in favour of respondent No. 3, the letter of late Shri V.P. Punj dated 15-4-2002, the Board resolution approving membership of eight other persons/entities had been disclosed in the application. The Board further observed that it was not clear as to whether the claim of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple laid down in Margret T D sor ( supra ) since Respondent No. 1 was the legal heir of late Shri V.P. Punj and held that at this stage it was not possible to decide on the issue of maintainability of the petition and that the said issue would be considered at the time of consideration of the petition. 12-13. On the aforesaid basis the Board came to the conclusion that the maintainability of the petition in terms of section 399 could not be examined at the threshold and can be determined only after completion of the pleadings. The Board also observed that it had been held in a number of cases that if the shareholding of the petitioner in a petition under sections 397 and 398 of the Companies Act got reduced to below 10 per cent on issue/allotment of further shares and if the said issue/allotment is the very act which is challenged as oppressive in the said petition, the maintainability of the petition would be decided after determining the validity of the issue of allotment. Since in this case Respondent No. 1 was the legal heir of late Shri V.P. Punj who held 980 out of the 1000 issued shares, and if the said shares devolved upon Respondent No. 1 and had been transmitted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class I heir and that the only other Class I heir was the sister who had, in fact, accepted the Will but was otherwise claiming a right of maintenance on account of being an unmarried daughter of late Shri V.P. Punj. He argued that even the applicants in CA No. 59/2007, while challenging the maintainability of the petition had not disputed, and possibly could not have disputed, the genuineness of the Will since Respondent No. 3 herein is not even a Class-I heir of late Shri V.P. Punj. Will or no Will , Respondent No. 3 in any event would not have succeeded to the estate of late Shri V.P. Punj, since, the estate would have, in any event, devolved only upon Respondent No. 1 and his sister. He also argued that the genuineness of the so called letter dated 15-4-2002 was in serious dispute whereby it was claimed that late Shri V.P. Punj nominated Respondent No. 3 herein as his nominee in respect of the said 980 shares in the company. He submitted that, firstly, the applicants in CA No. 59/2007 did not file the alleged letter dated 15-4-2002. Along with the rejoinder a photocopy of the said letter was filed in a sealed cover. Even at that stage the original was not filed before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well settled that the denial of the rights of membership to an heir of a deceased member, and the reduction of percentage of shareholding of an existing member to a miniscule minority have been recognised as acts of oppression. If the case of Respondent Nos. 1 and 2 were to be believed, it may even tantamount to usurption of the shareholding and management of the company by Respondent No. 3, which is also an act of oppression. Reference may be made to Malleswara Finance Investments Co. (P.) Ltd. v. Company Law Board [1995] 82 Comp. Cas. 836 (Mad.). The Division Bench of the Madras High Court observed in the facts of that case that the impugned increase in the shareholding by way of issuance of 20,000 equity shares was not made in good faith. By the said increase a stranger was sought to be inducted in the company with full voting rights and the majority was being reduced to the status of the minority. Ill motive and mala fide intention to defeat the rights of the shareholders being writ large, the allotment of shares was held to be invalid. The act of issuance of shares purely for the purpose of creating voting power, or to dilute the majority voting power was condemned. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -meal. The reason is obvious. If on preliminary, the suit is tried and if the issue is decided one way or the other, it would lead to further proceedings by way of appeal or revision. Number of years would lapse and ultimately when the highest Court which is approached in hierarchy decides the matter one way or the other a stage may be reached where the suit has to be tried further and that would involve lot of delay and the parties would be tried further and that would involve lot of delay and the parties would get completely exhausted and exasperated by passage of time underlying such piece-meal trial of suits. With a view to avoiding such delay and exasperation to the litigating public, this provision of Order 14, Rule 2 in the amended form has been brought in the statute book. Consequently, underlying principle of this provision is laudable and beneficial one. As per this provision, it is indicated by the legislature that suit must be tried as a whole in all issues." In view of this settled legal position, the order passed by the trial court is required to be quashed and set aside. The application submitted by defendant No. 1 is required to be dismissed. 20. In Ramesh B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppression and mismanagement being carried out by the Respondents herein, whereby they have not only denied transfer of 980 shares to which he is entitled through the registered Will dated 8-4-2005 of his late father, but have also drastically reduced the existing shareholding of late Mr. V.P. Punj to which the Petitioner is entitled to in the Respondent Company by making further allotment of shares in gross violation of the provisions of the Articles of Association of the Respondent Company. The Respondent Nos. 2, 3 and 4 have even trespassed into the registered office of the Company and gained illegal and wrongful control of the premises, since the death of Mr. V.P. Punj. The petitioner humbly submits that the petition has been filed under sections 397, 398 of the Companies Act, 1956, in the capacity of the legal heir and a shareholder of the Respondent Company. The Petitioner in this regard is relying on the judgment of the Hon ble Supreme Court in the matter of Worldwide Agencies (P.) Ltd. v. Margaret T D sor [1990] 1 Comp. LJ 208 wherein it was held : having regard to the purpose of section 399 of the Companies Act, 1956, it would not be just construction to deny the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Till the date of death of Mr. V.P. Punj this status quo was maintained which is evident from the balance sheet of the Respondent Company for year ending 31-3-2006. 25. That as stated earlier, late Mr. V.P. Punj had allowed his younger brother Respondent No. 2 to continue as the director of the Respondent Company. The Respondent No. 2 along with the other directors have betrayed the trust reposed upon him by his late brother by conniving with Respondent Nos. 3 and 4 to illegally usurp the Company for his own personal gains. 29. That the Petitioner No. 1 would like to bring to the knowledge of the Hon ble an important fact that during his life-time late Mr. V.P. Punj had executed a Will dated 8-5-2005 which has been duly registered vide Volume No. 462, at pages 53 to 56, Book No. 3. As per this Will, 98 per cent shareholding in Respondent Company held by late Mr. V.P. Punj along with all the other properties, businesses, interest and shares in the businesses both the self-owned and self-acquired were bequeath entirely to his son Petitioner No. 1 herein. That as per the Will, Petitioner No. 1 was also given the right to collect own and use the rent in respect of properties b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their right or do not do so within the time specified then, the directors may dispose of or allot the said shares in such a manner which may be beneficial to the company. 47. That is further submitted that the right of the directors to dispose or allot the shares is not an unfettered right but is subject to the conditions provided in clause 8 of the Articles of Association which provides that so long as the Respondent Company is a private limited company, no person other than male lineal descended in the main line of Pt. Kanhaiya Lal Punj shall be made a member for the company. In view of the aforesaid provisions of the Articles of Association, assuming that Mr. V.P. Punj or Petitioner No. 2 declined to accept the fresh shares, the same should have been offered only to the lineal descended of late Pt. Kanhaiya Lal Punj which in this case is Petitioner No. 1 herein. In the present case, the shares have been allotted to two private limited companies which is in absolute contravention of the provisions of clause 8 of the Articles of Association which clearly. Such allotment of shares could not have been made with the consent of late Mr. V.P. Punj and Petitioner No. 2 as they would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors in transmitting the 980 shares in favour of Respondent No. 3 herein on the basis of the alleged nomination by late Shri V.P. Punj dated 15-4-2002 which is not only disputed as being forged but as also not being in conformity with the law. The other aspect under challenge is of the issuance of shares to various other persons and entities who are claimed as not being entitled to hold shares in the company, not being the direct lineal descendants of late Sh. K.L. Punj. The result of both these actions is that Respondent No. 2 has been reduced to a meagre minority, while Respondent No. 1 has been completely ousted from the membership of the company though, undoubtedly, he is one of the two children and Class-I heirs of late Shri V.P. Punj. Simultaneously, issuance of the additional shares and transfer of those shares, inter alia , to corporate entities has had the effect of reducing Respondent No. 2 to an insignificant minority in terms of number of shareholders of the company from constituting 50 per cent of that number to merely 1/12th that is a little over 8 per cent of the total number of shareholders. These actions of the respondent company can validly be challenged as being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuine the issue could not have been determined. It was argued that the Board committed a legal error in applying section 84 while concluding that the petition was maintainable. Section 84 states that the share certificate is a prima facie evidence of title. The High Court remanded the matter back to the Board by observing that the questions involving maintainability required a detailed enquiry and that it should hear the petition on merits including the question regarding maintainability on the basis of evidence and the material placed by the parties. 25. The Act is a special code and provides for special remedies before a Specially created Tribunal. Sections 397, 398 and 402 can be invoked by a petitioner in certain circumstances when a case of oppression and/or mismanagement is made out. Relief against oppression and mismanage-ment can be granted only by the Board. Merely because it may be open to an aggrieved person to avail of more than one remedies in a civil court and/or before the Board under the Act for the purpose of remedying some of his grievance which may also constitute acts oppression and/or mismanagement, it does not mean that such a person should be driven to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the very transaction itself, which was not merely a matter concerning rectification. In the present case, the appellant company has chosen to act on the basis of the so-called nomination made by late Sh. V.P. Punj in favour of Respondent No. 3. The registration of 980 shares in favour of Respondent No. 3 is, therefore, founded upon the so-called nomination and not upon the pledge claimed to have been created by late Sh. V.P. Punj in favour of respondent No. 3 in respect of the said 980 shares. The right to claim the 980 shares of late Sh. V.P. Punj set up by Respondent No. 3 on the basis of the alleged pledge created by late Sh. V.P. Punj. does not appear to be of much relevance. This is so because, admittedly, a notice was required to be given to the pledger before the foreclosure of the pledge. In this case no notice was given to late Shri V.P. Punj during his life time. After his demise the notice should have been given to his legal heirs, that is, Respondent No. 1 and his sister to enable them to redeem the pledge. Admittedly that too has not been done. Even otherwise no legal proceedings were initiated to foreclose the pledge and it is not even the case of the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been disposed of or rejected. 30. Turning now to the decision in Bipin K. Jain ( supra ), which is a decision of the Board - Southern Region Bench, the Board in this decision simply reiterated the aforesaid legal position, namely, that where there are complicated questions of fact raised in proceedings under section 111 of the Act, the Board should relegate the parties to a civil suit. There is no quarrel with this proposition. However, the stage for examination of this aspect would be when the Board hears the petition filed by the respondent Nos. 1 and 2. This decision is also, therefore, of no avail to the appellants. 31. The decision of the Madhya Pradesh High Court in Smt. Kamla Devi Mantri ( supra ) and Surendra Kaur v. Singh Engineering Works (P.) Ltd. [1977] 47 Comp. Cas. 638 (All.) are also on the same lines, as the aforesaid decisions and, therefore, do not need any further elaboration. 32. I also do not agree with the submission of Sh. Chandhiok, that the ratio of the Supreme Court decision in Margret TD sor ( supra ) does not apply in the facts of the present case. In that decision the Supreme Court was dealing with the issue whether the legal heirs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssor-in-interest, and respondent No. 3 is not be the successor-in-interest in respect of the 980 shares held by late Sh. V.P. Punj. Even if the Will of late Sh. V.P. Punj propounded by respondent No. 1 were to be ignored, the only consequence would be that apart from respondent No. 1, his unmarried sister would also inherit the shareholding in question i.e . the 980 shares in the appellant company in case the nomination claimed by respondent No. 3 in his favour is found to be illegal. Though it is claimed by the appellants and respondent No. 3 that an inter se dispute is pending between the respondent No. 1 and his unmarried sister in relation to the estate of late Sh. V.P. Punj, nothing has been placed on record to show that there is a challenge to the Will of late Sh. V.P. Punj set up by respondent No. 1. 34. The decision of the Kerala High Court in T.J. Thomas v. Rev. C.F. Joseph [1988] 1 CLJ 22 relied upon by the appellants, is a decision rendered prior to the Supreme Court decision in Margret T D sor ( supra ) and is, therefore, of no relevance. 35. The decision of this Court in Pamela Manmohan Singh v. State [2000] 83 DLT 469, has no relevance whatsoe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er whether the nomination allegedly created by late Shri V.P. Punj was valid or not. I may note that the Board in its impugned order did not rule on the validity of the nomination and merely observed that the execution and validity of the nomination are issues which would require consideration. However, the parties have advanced detailed arguments and even cited case law in support of their respective stands. The issue, whether the nomination set up by respondent No. 3 is valid or not, assuming that late Shri V.P. Punj in fact signed the document dated 15-4-2002, is a purely legal issue since it involves the interpretation of section 109A of the Act and the nomination attributed to late Sh. V.P. Punj. Therefore, I now proceed to determine this issue on the assumption that the said document was in fact executed by late Shri V.P. Punj. 38. Sections 109A and 109B of the Act read as follows : "109A. Nomination of shares. (1) Every holder of shares in, or holder of debentures of, a company may, at any time, nominate, in the prescribed manner, a person to whom his shares in, or debentures of, the company shall vest in the event of his death. (2) Where the shares in, or debentur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such notice or transfer as aforesaid as if the death of the member had not occurred and the notice or transfer were a transfer signed by that shareholder or debenture-holder, as the case may be. (4) A person, being a nominee, becoming entitled to a share or debenture by reason of the death 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 or debenture except that he shall not, before being registered a member in respect of his share or debenture, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the company : Provided that the board may, at any time, give notice requiring any such person to elect either to be registered himself or to transfer the share or debenture, and if the notice is not complied with within ninety days, the Board may thereafter withhold payment of all dividends, bonuses or other moneys payable in respect of the share or debenture, until the requirements of the notice have been complied with." 39. From a reading of the aforesaid provision it is seen that a shareholder may, at any time, nominate in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is made in section 109A, is to be found in Form No. 2B which reads as follows : Form No. 2B [ See rules 4CCC and 5D] Nomination Form (To be filled in by individual(s) applying singly or jointly) I/We...................................and..................................and..................................the holders of Shares/Debentures/Deposit Receipt bearing number(s)....................................of M/s.............wish to make a nomination and do hereby nominate the following person(s) in whom all rights of transfer and/or amount payable in respect of shares or debentures or deposits shall vest in the event of my/our death. Name :................................................ Address :................................................ ................................................ ................................................ ................................................ Date of Birth................................................ (to be furnished in case the nominee is a minor) The Nominee is a minor whose guardian is............................Name and Address .................................................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X
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