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TMI Blog2009 (4) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... CLB is set aside. The action complaining of oppression and mismanagement is dismissed. Even while setting aside the order of the CLB, the appellant as representing the company is directed to transmit the shares held by the deceased members in the names of the legal heirs who have obtained the necessary grants under the Indian Succession Act and who have petitioned to the company for transmission, for title to shares on the death of members cannot hang in vacuum and the right flows eo instanti. - CAPP NOS. 10 AND 16 OF 2008 (O&M) CMA NO. 135 OF 2008 AND 14 OF 2009 - - - Dated:- 17-4-2009 - K. KANNAN, J. Anand Chhibbar and Pankaj Gupta for the Appellant. Sumeet Mahajan, Sham Lal Bhalla, Sanjay Tangri and Vikas Bahl for the Respondent. JUDGMENT I. Disposition before CLB 1. The company appeal has been filed at the instance of M/s. Sutlej Chit Fund and Financiers Private Limited, Jalandhar against the order passed by the learned Company Law Board ( CLB ) dated 23-5-2008 in a petition filed by respondent Nos. l to 6 complaining of oppression and mismanagement under sections 397 and 398 of the Companies Act, 1956. By the impugned order dated 23-5-2008, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Parkash Singh, who had died in May, 1984. The 8th respondent was reported to have been inducted as Additional Director in the place of S. Ajit Singh Jhikka, who died in the year 2002. This induction was also the other point of contention by the respondents but the appellant would contend that such induction was a statutory necessity, for, the company could not have gone on with the affairs with one person as director and it was mandatory to induct the new director. 4. The incipient rift was when the 1st respondent, who was a non-resident Indian and settled in Canada for more than 25 years made a complaint to the Deputy Director of Company Affairs, Department of Company Law and Justice, Kanpur that the shareholding of the company had been illegally increased from 2,000 shares to 5,000 shares and pleading that his interest might be safeguarded. A copy of the complaint had also been sent to the Senior Superintendent of Police, Jalandhar. The company joined issues on the complaint given against it by its reply dated 21-1-2003 through its Managing Director denying all the allegations made in the complaint, pointing out, inter alia that the 1st respondent himself was a proclaim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allotment of additional 3,000 shares was illegal, constituting a continuous act of oppression. IV. Grounds of challenge 6. The appellant assails the order passed by the CLB on the following grounds : ( i )The shareholding of the company had been increased as far back as on 14-2-1996 and the petition filed more than 9 years on 4-8-2005 was hopelessly barred by limitation. ( ii )The factum of increase of the shareholding was in the knowledge of the 1st respondent admittedly even as per the averments made in the complaint made on 20-10-2002 and the petitioners were guilty of inordinate delay and laches. ( iii )The applications for transmission of shares by respondent Nos. 2 to 6 had been filed on 9-10-1999 and 16-3-2000 respectively for deaths that had occurred between the years 1983 and 1984. Such applications for transmission of shares filed more than 15 to 16 years and that further the petition having been moved more than 6 years after their applications for transmission of shares were hopelessly time barred. Since as per section 110 of the Companies Act, an application for registration of transfer of shares, if it is refused to be registered, a person aggrieved ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LB on the basis of contentions raised by the appellant address the following questions of law : ( a )Whether the petition filed by respondent Nos. 1 to 6 before the Ld. CLB is barred by limitation? ( b )Whether the Ld. CLB can order transmission of shares in a petition filed under sections 397 and 398 of the Act? ( c )Whether the setting aside of increase in the shareholding of the company on 14-2-1996 by the Ld. CLB is illegal and unsustainable? ( d )Whether a single Director can legally convene and held an AGM? ( e )Whether a single Director can constitute a Board or Director? ( f )Whether there is an inherent contradiction in the directions given by the Ld. CLB which cannot be executed and complied with? ( g )Whether the impugned order is wrong, illegal, arbitrary and can be sustained in light of the detailed facts and the submissions made in the appeal? VI. The response from contesting respondents ( i ) Increase in share capital and allotment of additional shares without notice is an instance of oppression. 8. The contentions raised by the appellant are being resisted by the respondents with legal submissions with reference to pronouncements of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antadevi P. Gaekwad [2005] 57 SCL 476 that such a fiduciary duty would arise in exceptional situations when the directors took upon themselves the task of advising the shareholders. The Court said that once the issuance of additional shares is properly notified to all shareholders, approved in the meeting of directors as also in the general meeting to the notice of all, the shareholders cannot later be allowed to join issues on additional shares and the allotment to purchasers thereof merely because they have been among the directors of the company alleging the issue to be invalid unless it is shown to be fraudulent or oppressive. The Hon ble Supreme Court laid with reference to its procedure to grant appropriate leave under section 397 of the Companies Act in the following words : "145. The jurisdiction of the Court to grant appropriate relief under section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the court while exercising its discretion is not bound by the terms contained in section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the court may seem fit and proper, is warrante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth of shareholding necessary to maintain the petition must be reckoned with reference to persons, who have not themselves registered as members but holders of shares as legal heirs of deceased members. ( iii ) Allotment of additional shares without notice is bad in law 10. While adverting to the objection taken by the appellant regarding the finding of the CLB that the increase of shares made without proper notice was invalid, learned counsel for the respondent refers to a decision of the Calcutta High Court in Jadabpore Tea Co. Ltd. v. Bengal Dooars National Tea Co. Ltd. 1984 (55) Comp. Cas. 160 that allotment of additional shares in order to reduce the majority shareholders to minority would be void for mismanagement and the notice without adequate details as to allotment would become null and void. The Bench held that where the allotment of shares might tilt the balance of the shareholding and might transform major bulk of shareholders into a minority group of shareholders, the particulars of allottees or the manner of their allotment should also be indicated necessarily, because, in the existing climate of erosion of the intrinsic sense of fairness, it is necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rden that the court will act on the presumed fact. If the addresses states that he was never served with notice, still the person who is alleged to have sent the notice cannot use the presumption to his advantage without undertaking the burden of proving the actual service. I reject the contention of the appellants that notices of meetings were sent to the respondents 1 and 7, whose names continued as members of the company. ( ii ) Maintainability of petition by the legal representatives, even though not shown as members in the register of members of the company 12. On the maintainability of the petition itself, I have no doubt in my mind that the contention of appellant that only two of the members who held between themselves 450 shares constituted less than 10 per cent of the total holding or less than 1/10 of the total number of members is not a sound argument if it is considered that even legal heirs of the shareholders as holders of the shares could maintain petition. The decisions referred to by learned counsel for the respondents of the maintainability of action at the instance of legal representatives in World Wide Agencies (P.) Ltd. s case ( supra ) ought to put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease the shareholding. It is difficult to attribute mala fides to persons, who were involved in the affairs of the company if the other persons, who were the legal representatives of the deceased directors and shareholders had not been vigilant about their own rights and sought themselves for inclusion of their names as such shareholders. ( v ) Cause of action for complaint of oppression and mismanagement and bar of limitation 15. It is difficult to believe that there was any justification for all the persons who claimed themselves to be legal representatives as well as for the 1st respondent who had known about the increase of shareholding even in the year 2002 to remain quiet for more than 9 years from the time when the increase had been made and then complain in 2005 that the increase in shareholding had been made without adequate notice to them. As far as the 1st respondent himself, the complaint that he was a proclaimed offender is not denied and as for the remaining persons, they had not taken steps for transmission of the shares in their names soon after the respective deaths of the existing shareholders, who later died. They had not adopted the procedure as laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to apply to the Court complaining of oppression and mismanagement. While the Companies Act itself does not stipulate any particular period of time before when the applications could be entertained under sections 397 and 398, still if the acts com-plained of had originated more than even 9 years prior to the filing of the petition, the application ought to have been filed within 3 years from the date when the cause of action arose by applying Article 137 of the Limitation Act. In Surinder Singh Bindra v. Hindustan Fasteners (P.) Ltd. AIR 1990 Delhi 32, it was held that Article 137 of the Limitation Act was applicable, but where the acts complained of consisted in a continuing wrong, even an act that had commenced 3 years before the presentation of the petition could be taken notice. In this case, the act complained of is the failure of the petitioner to accede to transmission of share of the legal representatives, the persons did not resort to the procedure prescribed under section 111 of the Companies Act. The non-issue of notice, increase of share capital and the non-offer of additional shares constitute a bundle of successive actions forming part of the same transaction and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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