Company Law Board
A.J. Coelho vs South India Tea & Coffee Estates Ltd. on 20 April, 2001
ORDER
1. The petition in CP 52 of 1995 is filed under section 111(4) of the Companies Act, 1956 ('the Act') against South India Tea and Coffee Estates Limited ('the Company') and three others for the following reliefs :--
(a) to rectify the register of members of the company
(i) by deleting the name of the third respondent in respect of 3,250 equity shares belonging to the estate of the deceased M.A. Coelho and the corresponding rights shares of 9,750 equity shares and entering the name of the petitioners in respect of their interest therein;
(ii) by deleting the name of third/fourth respondent in respect of 21,000 rights shares which should have been allotted in favour of the petitioners; and
(b) to direct payment of dividend to the petitioners in respect of the impugned shares.
After the petition was filed, other legal heirs of the deceased M.A. Coelho were impleaded as petitioners Nos. 2 to 9. The petitioner No. 1 and 8 are sons; petitioner No. 2 and 7 are daughters and the other petitioners are wife and children of I.R. Coelho, deceased son of Mrs. Coelho.
2. The petition in CP 84 of 99 is filed by the petitioners holding 16.20 per cent of the total issued and paid up capital of the Company under sections 397 and 398 of the Act alleging that the affairs of the' Company are being conducted in a manner prejudicial to the interest of the Company as well as respondents and seeking the following reliefs :--
(a) to rectify the register of members of the Company
(i) by deleting the name of the third respondent in respect of 3,250 equity shares belonging to the estate of the deceased Mrs. M.A. Coelho and the corresponding rights shares of 9,750 equity shares and entering the name of the petitioners in respect of their interest therein;
(ii) by deleting the name of third/fourth respondent in respect of 21,000 rights shares which should have been allotted in favour of the petitioners; and
(b) to supersede the existing board of directors of the company and order convening of the general body to manage the affairs of the company.
3. The main acts of oppression and mismanagement relate to placing of the shares of the deceased M.A. Coelho and the corresponding right shares in the name of the third respondent and the allotment of right shares in favour of the third/fourth respondent depriving the petitioners, thereby divesting the controlling interest of the Coclho family in the management of the company in favour of the second respondent group. The petitioners in CP 84 of 1999 are the petitioners I and 8 in CP 52 of 1995. The company in both the petitions is common. The reliefs sought in both the petitions are substantially the same. In view of this, both these petitions were heard together and as such are being disposed of by this common order.
4. The facts in brief as reiterated by Shri K.N.V. Ramani, the senior counsel for the petitioners are that the first petitioner, being son of the deceased G.J. Coelho and the deceased M.A. Coelho, is a member of the Company holding 7,000 equity shares of nominal value of Rs. 10 each. Mrs. M.A. Coelho, a member of the Company holding 3,250 shares in the Company died on 24-9-1981. Upon her death, the impugned shares devolved on her legal heirs, namely, her four daughters and four sons. One of the sons, namely, Mr. I.R. Coelho died on 8-9-1990 leaving behind the petitioner Nos. 3 to 6 and 9, as his legal heirs. Between the year 1981, when Mrs. M.A. Coelho died and until the year 1986 the impugned shares were not transmitted in favour of her legal heirs, but continued in her name as borne out from the annual returns of the Company made up to 29-10-1981, 31-10-1983 and 31-10-1984, The petitioners came to know from the annual return filed up to 30-10-1986 that entire impugned shares were shown as transferred in favour of the third respondent, who is the wife of the second respondent. The petitioners being the legal heirs arc entitled to the impugned shares. The second respondent taking advantage of his position as the managing director of the Company placed the impugned shares in the name of third respondent, as if the shares were transferred in her favour. The second respondent further gave the benefit of right shares to the third respondent by allotting shares in the ratio of 3:1, i.e., 9750 shares on 15-3-1989. The second respondent has, therefore, illegally placed 13,000 shares in favour of the third respondent to which otherwise all the legal heirs of the deceased M.A. Coelho are entitled. The first petitioner had sent a legal notice on 24-4-1993 for which respondents 1 to 3 caused a reply dated 15-6-1993 making absolutely false and unsubstantiated allegations that the shares were transmitted in the name of the third respondent in accordance with the understanding among the members of the family and in accordance with the wishes of the deceased M.A. Coelho. Mrs. M.A. Coelho had not executed any instrument of transfer during her life time and for several years after her death the impugned shares were shown as belonging to the estate of the deceased M.A. Coelho. The deceased has not left behind her any will. No succession certificate has also been produced before the transfer of shares in favour of the third respondent. The impugned shares should have gone to all legal heirs of the deceased M.A. Coelho by virtue of the rule of succession. The Company has been always held and managed as a family company based on maintaining an equilibrium among the members of the family in respect of the holdings. The second respondent managed to secure a majority holding and the controlling interest of the Company by illegally placing the impugned shares in favour of the third respondent. Under sections 30, 33 and 40 of the Indian Succession Act, the third respondent, being daughter-in-law cannot be a legal heir of the deceased M.A. Coelho. Since the third respondent is not a legal heir, the impugned shares cannot be transmitted in her favour. The Company has not adopted the procedure prescribed in article 16 of articles of association in case of transmission of shares in favour of the third respondent. The Company has violated the provisions of section 108 of the Act. Proviso to section 108(1) speaks of transmission of shares by operation of law. On death of a shareholder, share devolved upon the legal heirs of the deceased shareholder. Later the Company recognises transmission. In transmission no act of the parties is involved. The third respondent, not being a legal heir, is not entitled to the impugned shares. The board of directors cannot recognise the transmission in favour of the third respondent. There has been no resolution by the board of directors for effecting the transmission of impugned shares in favour of the third respondent. Under article 16 of discretion should be exercised by the members of the Board in approving the transfer in favour of the third respondent. In the instant case, three of the directors were interested and hence discretion exercised by the Board is not valid. There has been no document to evidence any family arrangement by which the impugned shares were transmitted in favour of the third respondent. Even in a partition, it can be only between persons having antecedent title. There can be antecedent title only among the legal heirs of the deceased. The third respondent cannot be a party to any such family arrangement and hence instrument of transfer is absolutely necessary. If there is no antecedent title among the parties, all the requisite formalities regarding the transfer shall have to be observed. The provisions of section 108 are mandatory. The respondents have taken a different sfand in their reply notice dated 15-6-1993. (Exhibit A-7 of page 82 of CP 52 of 1995) regarding the transfer of impugned shares in favour of the third respondenl. In the circumstances, the impugned shares are liable to be automatically restored to the name of the petitioners and other legal heirs. The transmission of impugned shares was never effected with consent of legal heirs of ihe ceased M.A. Coelho nor was approved at the Board meeting held on 23-7-1986. There was no understanding among the legal heirs of the deceased M.A. Coelho on appropriation and division of the assets and interest in the estate of M.A. Coelho and consequent transmission of shares in favour of the respondent 3. However, whenever any such consensus was reached on certain specific items they were duly recorded in one form or another. The impugned shares were left undivided and or yet to be divided among the legal heirs of the deceased M.A. Coelho. The statutory returns filed by the first respondent company as well as Wealth-tax Return of third respondent are self-serving documents from which no rights can flow. The impugned shares should therefore be restored to all the legal heirs of the deceased M.A. Coelho. Shri Ramani further submitted that the Company came out with a rights issue and though the first petitioner applied for the rights shares and advised the second respondent to appropriate surplus available in Adikcholc Estate Account towards consideration for the rights shares, the second respondent failed to allot the rights shares. This factor came to light only when the first petitioner secured the Annual Return from the Registrar of Companies, Coimbatore on 6-8-1992. Though the rights offer was made in March, 1987, the allotment of rights shares was made only on 15-3-1989, revealing the fraudulent conduct on the part of the respondent Nos. 2 and 3. While allotment of rights shares was made to all the other members of the family, the first petitioner alone was deliberately discriminated and shares were not allotted, in spite of the fact that the first petitioner applied for the rights shares. The first petitioner was eligible for 21,000 rights shares, which he was deprived of by the fraudulent acts of the second respondent. The rights shares due to the first petitioner were allotted to third/fourth respondent which is illegal. In the process, the second respondent has augmented the post rights holding controlled by him to 1,11,400 equity shares amounting to more than 51 per cent of the share capital, as against 35.83 per cent which his group held originally. Thus, there has been creation of new majority, which is an act of oppression. The first petitioner's endeavour to settle the disputes amicably through intervention of family members did not fructify. There is no deliberate delay or laches in initiating the proceedings against the respondents. The first petitioner filed this petition (CP 52 of 1995) on 7-8-1995 and all the remaining legal heirs except the daughters. Mrs. M.A. Saldhana and Ms. Rowcna Coelho, impleaded themselves as petitioners 2 to 9 in the year 1996. Mr. I.R. Coelho, one of the sons, since deceased in not a party before the CLB. Mr. Ramani has further submitted that the company railed to produce any copy of the Board Resolutions in support of the offer regarding issue of 1,80,000 equity shares by way of rights to the existing shareholders. The respondents have disputed the letter dated 21-4-1987 (Annexure A-9 at page 90 of CP 52 of 1995) by which the first petitioner had requested the second respondent to adjust the amount that is due to the first petitioner in the Adikehole account towards the rights shares. However, the second respondent has not questioned the Setter dated 29-4-1987 (Annexure A-10, at page 91 of CP 52 of 1995) of the deceased I.R. Coelho, one of the brother of the first petitioner addressed to the second respondent containing similar request as in the letter dated 21-4-1987 sent by the first petitioner. Though the first petitioner has sought for production of certain documents regarding allotment of shares including an extract from the bank account to find out whether the respondents had paid money for the rights issue, the Company failed to produce any of those documents, thereby adverse inference should be drawn against the respondents. The letters dated 21-4-1987 and 29-4-1987 (Annexures A-9 and A-10) will show that the Company did not comply with formalities for allotting the rights shares. It is apparent that the Company allotted the rights shares in favour of Mr. I.R. Coelho acting upon the letter dated 29-4-1987 (A-10) without remitting the money for allotment of rights shares. At the same time, the Company neither acted upon the letter dated 21-4-1987 of the first petitioner nor allotted the shares. Though, the rights issue was made in March, 1987, allotment was effected only in the year 1989 after a delay of two years. He further stated that the company is a family company and as such no strict formalities are meant to be applied in the matter of rights issue as borne out from the facts that no formal written applications were prescribed for rights issue and also no amount was insisted. The petitioner had not acquiesced the action of the company in allotment of the rights shares in favour of the respondent Nos. 2 and 3 by way of the adoption of annual accounts at the annual general meeting held on 30-9-1992. It is in these circumstances, the petitioners sought for the remedies sought in the petitions. Shri Ramani, in support of his legal contentions relied on the following decisions :--
• Mrs. Margaret T. Desor Worldwide Agencies (P.) Ltd. [1989] 66 Comp. Cas. 5 (Delhi) to state that "Transmission" means an immediate or instantaneous sending across. In this sense, when one is dealing with transmission of shares, it must mean that upon the death of the last holder of shares, in law, there is an instantaneous transfer of ownership to the heirs of the last holder, and the property therein must vest in the heirs from the moment of death onwards. This would happen by virtue of operation of the law of succession. This position, that ownership of property rights vis-a-vis the shares held by the deceased in transferred to the heirs of a deceased holder, is recognised by necessary intendment by the proviso to section 108 of the Companies Act, 1956." (p. 5) • CIT v. Keshavlal Lallubhai Patel AIR 1965 SC 866 to state that-
"partition is really a process in and by which a joint enjoyment is transformed into an enjoyment in severality. Each one of the shares had an antecedent title and therefore no conveyance is involved in the process as a conferment of a new title is not necessary."
• Sahu Madho Das v. Mukand Ram AIR 1955 SC 481 - to state that-
... the formalities of law about the passing of title by transfer would have to be observed if there is no antecedent title among the parties.
• Gopat Krishanji Ketkar v. Mohamed Haji Latif AIR 1968 SC 1413, Irudayam Ammal v. Salayath Mary AIR 1973 Mad. 421 and Pefer Alan Basi v. East India Pharmaceutical Works Ltd AIR 1976 Cal. 182 to state that-
"A practice has grown up in Indian procedure of those in possession of important documents or information lying by, trusting to the abstract doctrine of the onus of proof, and failing, accordingly, to furnish to the Courts the best material for its decision. With regard to third parties, this may be right enough-- they have no responsibility for the conduct of the suit, but with regard to the parties to the suit it is, their Lordships' opinion, an inversion of sound practice for those desiring to rely upon a certain state of facts to withhold from the Court the written evidence in their possession which would throw light upon the proposition."
• Maheshwari Khetan Sugar Mills v. Ishwari Khetan Sugar Mills [1963] 33 Comp. Cas. 114 (All.) - to state that -
... the agreements were not instruments of transfer and in view of section 108 of the Companies Act, 1956, the Company cannot make alterations in the register of Members and the alterations made were consequently unauthorised and illegal.
• Tracstar Investments Limited v. Gordon Woodruff Ltd [1996] (1) CLJ 462 (CLB) and Killick Nixon Ltd v. Dhanraj Mills (P.) Ltd. [1983] 54 Comp. Cas. 432 Bom. to state that-
... any member of a Company aggrieved or not in regard to the shares can seek rectification of register of members of the Company.
• Mannalal Khelan v. Kedar Nath Khetan AIR 1977 SC 185 to state that-
... the provisions contained in section 108 of the Act are mandatory.
• Dr. G.N. Byra Reddy v. Arathi Cine Enterprises (P.) Ltd. [1997] 89 Comp. Cas. 745 (CLB).
Tungabhadra Machinery & Tools Ltd. v. Sree Rayalaseema Alkalies & Allied Chemicals Ltd. [1997] 89 Comp. Cas. 13 (CLB).
Shiv Dayal Agarwal v. Sidhartha Polyster fP.) Ltd [1997] 88 Comp. Cas. 705.
Smt. Kana Sen v. C.K. Sen & Co. (P.) Ltd--[1997] 49 CLJ 468.
A.V. Sampatti, Official Liquidator v. Dunlop India 87 Comp. Cas. 398.
Gopal Krishanji Ketkar (supra) Even if the burden of proof does not lie on a party, the Court may draw an adverse inference if he withholds important documents in his possession which can throw light on the facts at issue.
• Irudayan Ammal v. Salayath Mary--AIR 1973 Mad. 421 - to state that ... in case of non-production of material document by a party adverse inference must be drawn by the Court.
• Peter Alan Basil v. East India Pharmaceutical Works Ltd. - AIR 1976 Cal. 182 - to state that ... if a party deliberately does not produce material document in his possession, adverse inference can be thrown against him though onus of proof was on the opposite party.
5. Shri T. Raghavan, the senior counsel for the respondents, while reiterating the averments made in counter-statements, submitted that the Company was incorporated on 29-4-1955. Since the year 1970, the Company came under the control of the second respondent, Mr. G.J. Coelho, father of second respondent had acquired a plantation, known as 'Silver Cloud Estate' in Kudalur, which belonged to a partnership firm wherein the second respondent's father and his children were partners. After the demise of the father, the management of the estate was taken over by the second respondent, being the eldest son. In the year 1981, a company by name Silver Cloud Estates Private Limited was promoted and all the assets and properties belonging to the partnership firm, namely, Silver Cloud Estates vested in the Company and later a subsidiary company was formed to own and manage the said plantation. In the year 1991, disputes arose with regard to increase of the paid-up share capital of Silver Cloud Estates Private Limited between the second respondent and the first petitioner. Consequently, the second respondent caused a notice dated 16-12-1992 which prompted the first petitioner to retaliate by issuing the notices dated 24-4-1993 (A-6 & A-11 annexed to the petition CP 52 of 1995) in relation to the Company. Shri Raghavan further submitted that Mrs. M. A. Coelho died on 24-9-1981 leaving behind her, a number of properties and also the impugned shares. After the demise of Mrs. M.A. Coelho, the question of distribution of assets was discussed among the legal heirs and after such mutual discussion all the properties and the interest in the estate of the deceased M.A. Coelho were distributed among the legal heirs as per the understanding. The 2nd respondent was not allotted any share in the aforesaid assets. Mrs. M.A. Coelho had indicated that her shares in the Company should go to the 2nd respondent. It was agreed among all the legal heirs that the 2nd respondent would be entitled to the impugned shares standing in the name of the deceased M.A. Coelho. Accordingly, with the consent of all the legal heirs of the deceased M.A. Coelho, the impugned shares were transmitted to the 3rd respondent, being the wife of the 2nd respondent at a Board Meeting of the Company held on 23-9-1986. Ever since July, 1986, the impugned shares are standing in the name of the 3rd respondent. At no point of time, there was any protest by any of the legal heirs of the deceased M.A. Coelho or any other shareholder not was there any claim for rights share, relating to the deceased M.A. Coelho's share. The respondent Nos. 2 and 3 never acted fraudulently and in breach of the fiduciary duty. No shareholder at the annual general meeting held on 30-10-1986 opposed the resolution to increase the share capital. The 1 st petitioner did not attend the said meeting. The transmission of impugned shares has nothing to do with the annual general meeting. The petitioners were aware of transmission of the shares in favour of the respondent 3 in view of the fact that the transmission was effected with the knowledge and understanding of all the legal heirs of the deceased M.A. Coelho. The Company has filed periodical returns as required by law. The 3rd respondent has included the impugned shares as part of her wealth in the returns filed under the Wealth-tax Act and has been paying income-tax on the dividend received in respect of the impugned shares. None of the petitioners had any time sought for registration of the impugned shares in their names. The impugned shares became the property of the 3rd respondent by virtue of a family arrangement among the legal heirs of the deceased M.A. Coelho. The family arrangement constitutes a valid transaction and the acquisition of property rights under such arrangement, several of properties of the deceased M.A. Coelho were allotted to the shares of the family members in accordance with the arrangement. Shri Raghavan pointed out that at the Board Meeting held on 30-9-1986, the Company passed a resolution to raise its share capital to meet its business needs. At the annual general meeting held on 30-10-1986. it was approved to increase the share capital and accordingly rights issue of shares was undertaken. The record date for rights issue was 28-7-1987. The Company sent letters to all the shareholders on 3-4-1987. The last date for subscribing to the rights issue was 25-4-1987. The 1st petitioner received the rights issue application form, but did not make any payment. The 1st petitioner never made any request for adjustment from the Adikehole Estate Account. He did not chose to subscribe to the rights issue after having received rights issue offer. Even if the letter dated 21-4-1987 of the first petitioner, namely, A-9 is a genuine letter, it has no legal sanctity in view of the fact that A-9 is conditional. No payment has been made. Hence, no allotment can be made in favour of the 1st petitioner. Moreover, the legal notice caused by the 1st petitioner does not make a reference to the disputed letter dated 21-4-1987 (A-9). The CLB cannot compel the parties to allot shares in a section 111 proceedings. The petitioners cannot ask for rectification without allotment of shares. If the prayer of the petitioners is allowed it will amount to the reduction of share capital. It is against the interest of the creditors and members. Neither the petitioners, nor any other legal heir of the deceased M.A. Coelho had raised the issue of entitlement to rights shares held in the name of the deceased M. A. Coelho. In view of the fact that the Company was not in a sound financial position, three family members renounced their entitlement. However, the respondent Nos. 2 and 3 invested their funds for allotment of shares. The board of directors of the Company completed allotment of rights shares on 15-3-1989 and allotted shares to all the members who had accepted the offer. No one questioned the allotment. The letter dated 21-4-1987 (Annexure A-9) said to have been sent by the 1st petitioner is concocted one for the purposes of the present case. The Company did not receive the rights issue form from the 1st petitioner. The 1st petitioner attended the annual general meeting of the Company held on 30-9-1992, in which meeting the accounts for the year ending 31-3-1992 were adopted. The accounts for the year ended 31-3-1992 reflected the raised share capital and allotment of impugned shares made three years prior to adoption of the accounts for the said year. The rights shares were allotted to all the members who had applied. The 1st petitioner had not chosen to subscribe to rights shares and hence discrimination does not arise. The 1st petitioner has acquiesced the actions of the Company by proposing the adoption of accounts of the Company for the year ended 31-3-1992. The 1 st petitioner is debarred to question the action of the Company. The unsubscribed portion of the rights shares was allotted by the Board in terms of the offer exercising the power vested with the board of directors. Though the rights offer was made in March, 1987 the allotment was only made on 15-3-1989, which does not contain the date on which the allotment should be made by the Board. There is no illegality in allotment of the impugned shares. The claim of 1st petitioner is not bona fide and he has filed the petitions for collateral purpose in order to pressurise the 2nd respondent not to agitate his rights in regard to Silver Cloud Estates Private Limited. The delay of 11 years in approaching the CLB is inordinate and unexplained. The petitioners are not entitled to any relief on account of delay and laches. Shri Raghavan emphasized that the proceedings under section 111 are summary in nature. The CLB will have no jurisdiction to make any order relating to assets of the deceased M.A. Coelho, which can be agitated only in a Civil Court. The family arrangement agreed upon by the respondents can be investigated only with oral and documentary evidence which can be gone into in a Suit for administration of the estate of the deceased M.A. Coelho. The present proceedings are barred by limitation, especially when Mrs. M.A. Coelho died in 1981 and the impugned shares were registered in the name of the 3rd respondent in the year 1986. The petitioners' action to dispute the said transaction after a period of 11 years is barred by time. The CLB is a Court within the meaning of the Indian Limitation Act, 1963 and the present proceedings would be barred by the provisions of the Indian Limitation Act. The transmission of impugned shares reflected in the Annual Return is a public document. The petitioners have public notice of (he transmission of the impugned shares even in the year 1986 by which time section 155 of the Act was in force and not section 111(4). The proceedings under section 155 would He before the High Court and by virtue of article 137, the remedy of the petitioners before the High Court is barred. The petitioners' right extinguished after October, 1989. The High Court was only the forum before which the petitioners ought to have agitated their rights. Any right barred by limitation cannot be revived. The petition (CP 52 of 1995) was filed on 7-8-1995. Applications by the legal heirs of the deceased M.A. Coelho impleading them as petitioners were filed on 1-1-1996. When the Depositories Ordinance came into existence with effect from 20-9-1995, section 111 is inapplicable in respect of a public limited Company. The petitioners cannot have any relief under section 111. Though Code of Civil Procedure is not applicable in proceedings before the CLB, the underlying principles will be made applicable to the effect that the applications filed by the legal heirs will be from the date of application. Accordingly, they cannot seek any remedy attains the Company under section 111. According to Shri Raghavan, family arrangement can be among family members and they need not be the co-owners, whereas a partition can be only among co-owners. Pre-existing right is not required in a family arrangement but it is essential only in case of a partition. Even if family arrangement is not legally later completed, such arrangement is binding. Parties are bound by the family arrangement. Subsequent legal formalities are irrelevant. If there is a family arrangement, no other document is required. Shri Raghavan, in support to his above contentions relied on the following decisions :
• Km. Kr. Kr. Ramanathan Chettiar v. N.M. Kandappa Goundan--AIR 1951 Madras 314.
Tungabhadra Machinery Tools Ltd's case (supra) T.G. Veera Prasad v. Sree Rayalaseema Alakalies & Allied Chemicals Ltd. CP 2/111/SRB of 1991 Tungabhadra Machinery & Tools Ltd.'s case (supra) G.N. Byra Reddy's case (supra) "...to state that "if a right to sue had become barred by the provisions of the Limitation Act then in force on the date of the coming into force of a new Act or amendment then such a barred right is not revived by the application of the new enactment. It cannot be said in such a case that because the remedies are barred but the rights are not extinguished, such rights can be deemed to be enforceable in a Court of law."
• Kale v. Deputy Director of Consolidation - AIR 1976 SC 807 - to state that "the Members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same."
• Muthuveeran Chetty v. Govindan Chetty AIR 1961 Mad. 470 - to state that "A member to whom a promissory note is allotted at a partition of the joint family properties, is entitled to sue on the note without an endorsement or deed of assignment in writing."
• Ramprasad Dagaduram v. Vijaykumar Motilal Hirakhanwala AIR 1967 SC 278--to state that-
"the Court has power to add new plaintiff at any stage of the suit, (under Order 1 Rule 10 of Civil Procedure Code, 1908) and in the absence of statutory provision like section 22 (of the Limitation Act, 1908), the suit would be regarded as having been commenced by the new plaintiff at the time when it was first instituted. But the policy of section 22 is to prevent fhis result, and the effect of the section is that the suit must be regarded as having been instituted by the new plaintiff when he is made a party."
• Krishna Moorthy v. Bangalore Turf Club--1975 (2) Kar. L.J. 428 - to state that "...the Court always must look to the conduct of the plaintiff and will refuse to interfere even in cases where it acknowledges his right unless his conduct in the matter has been fair and honest and in particular without acquiescence or delay."
6. We have considered the pleadings and arguments of the counsel. Even though there are two petitions before us, the reliefs sought in both the petitions are common. While in the 111 petition, there are nine petitioners and four respondents, in the 397 petition, there are two petitioners and five respondents. Even though as a point of law, allotment of shares, unless the same is contended to be against the provisions of the articles or the Act, the same cannot be considered in a 111 petition for rectification, yet, since the same issue has been agitated in the 397 petition also, we are considering this aspect in this order.
7. First we shall consider the question of limitation on which Shri Raghavan cited a number of cases. In a 397 petition, if the alleged act of oppression has a continuous effect, then the issue of limitation is of no consequence. In this case, the allegation is that there has been a change in the shareholding in the Company which has continuous effect on the rights of shareholders. Therefore, this petition cannot be dismissed on account of limitation.
8. Originally this company had been promoted by outsiders and the Coelho family took control of the Company in 1971 at which time the entire share capital of the Company was held by the family members except 2000 shares. The same position continued even in the year 1986 except that some additional shares had been issued that too only to the family members. In 1986, there was no identifiable majority in the Company since the shares were more or less evenly distributed among the family members. The percentage of holding of the respondents at the time was reportedly of about 35 per cent. The petitioners have challenged the transmission of 3,250 shares held in the name of the deceased M.A. Coelho and also the non-allotment of 21,000 rights shares to the petitioners. They have also challenged the corresponding rights issue of 9,750 shares made in respect of 3,250 shares registered in the name of the third respondent. These allotments have taken the percentage holding of the respondents group to about 51 per cent, which in other words has created a new majority. The settled position of law is, that, if by allotment or issue of shares, a new majority is created, then the same could be considered to be an act of oppression. Keeping in view this legal proposition in mind, allegations contained in the petition have to be examined. In so far as the registration of 3,250 shares held in the name of the deceased M.A. Coelho, in the name of the third respondent is concerned, the challenge is that since the third respondent is not a legal heir, the shares should not have been registered in her name and should have been registered in the name of the legal heirs. The respondents have relied on an alleged family settlement among the family members and also the wishes of the deceased M.A. Coelho for getting the shares registered in the name of the third respondent. We find from the reply of the respondents to the legal notice issued by the petitioners at page 15 that these shares were transmitted in the name of the third respondent. Article 16 of dealing with transmission of shares provides as follows :--
"The executors or administrators of a deceased shareholder or a holder of a succession certificate shall alone be recognised by the Company as having title to the shares, unless the Directors, in their discretion resolve to recognize the title of any person which is proved to their satisfaction with or without sufficient indemnity being given to the Company according as the Directors may decide. In case of the death of any one or more of the joint holders of any shares the survivor or survivors shall be the only persons recognised as having any title to, or interest in such shares."
9. According to this article the Board shall recognize only the holder of the succession certificate or a person who is proved to be entitled to the shares of the deceased. In the present case, obviously there is no succession certificate. The only ground under which the Board could have allowed the registration in the name of the third respondent is that she was entitled to the same. Unfortunately, no board resolution has been produced before us so far to evidence that the board of directors had considered the provisions of article 16 before approving the registration of shares in the name of the third respondent. Even assuming as contended by Shri Raghavan that there was a family settlement, yet no record is produced to prove family settlement. Without any record relating to the family settlement, the Board of the Company, acting in a fiduciary capacity could not have registered the transmission of shares in the name of the 3rd respondent on the ground that she was entitled to the shares. Therefore, we are of the view that the registration of 3,250 shares held in the name of the deceased M.A. Coelho in the name of the third respondent by way of transmission is clearly an act of oppression against the other family members/legal heirs. In view of this finding, we could have directed the removal of the third respondent and restoring these shares in the name of the deceased Mrs. M.A. Coelho with the liberty to the petitioners to comply with the requirements of article 16. However, in the present case, since the identity of all the legal heirs is apparent and since there are no disputes in regard to the legal heirs, we consider it appropriate to direct that simultaneously with the removal of the name of the third respondent from the register of members, these shares will be transmitted in the name of all the other legal heirs proportionately. This should be done within 60 days of this order.
10. Since the third respondent was allotted 9,750 shares by way of rights shares in respect of these 3,250 shares which we have already held she was not entitled to, her name in respect of these rights shares of 9,750 will also have to be removed from the register of members provided the other legal heirs are interested in acquiring these shares in the same proportion in which the shares held in the name of Mrs. M.A. Coelho are distributed among the legal heirs. In case these legal heirs arc not interested in acquiring the proportionate shares, these shares will be retained in the name of third respondent. The legal heirs should exercise their option of getting these shares within a month from the date of transmission of shares as directed in the earlier paragraph, along with the remittance of consideration at the same value at which the shares were originally allotted and send the communication to the Company. On receipt of this communication, the Company will ensure payment of the consideration to the third respondent and simultaneously get transfer deeds from her in favour of the legal heirs who Have exercised this option and register the shares in the name of her legal heirs within one month thereafter.
11. In regard to the complaint regarding non-allotment of 21,000 shares to the first petitioner, we note that even though the rights issue closed on 25-4-1987, the actual allotment took place only on 15-3-1989, i.e., after nearly a gap of two years. Even though, the contention of the first petitioner is that he had requested the company to allot shares against the credit balance available in the Adikehole Estate Account which also we have found to be substantiated by the statement of accounts (Exhibit P7) at pages 61 and 62 of the petition (CP 84 of 1999), responded denies to have received such a request. Even assuming that the respondents are right in their contention, yet, considering the fact that there was a gap of nearly two years in the allotment of shares, in a family company like this, equity demanded that the Company should have ascertained the willingness of the first petitioner to subscribe to the shares before allotting these shares in favour of the third and fourth respondents. We find from the reply of the respondents that since allotment of shares was made with a view to raise funds for the Company and as such the consideration could not have been adjusted against the credit balance, we also find that a similar request had been conceded in respect of Mr. LR.Coelho. We also note that notwithstanding the stand of the respondents that there had been inordinate delay in challenging this allotment, yet we find that as early as 1993, the petitioner issued a legal notice in respect of these allotments. Thus the fact is that except the first petitioner all other family members had been allotted shares and that allotting these shares to the third and fourth respondents exclusively, the percentage shareholding of these respondents had gone up substantially. As we have observed in the earlier paragraph, exclusion of only the first petitioner from allotment of shares in a family company, is definitely an act of oppression against the petitioners and as such, we give the option to the first petitioner to apply for these shares (21,000 shares) along with consideration at the same price at which shares were allotted to the third and fourth respondents within a month from the date of order and the company shall get the shares transferred from the third and fourth respondents to the first petitioner within a month thereafter.
12. We also note that the third respondent having subscribed to the right entitlement in respect of 3,250 shares and also to the 21,000 shares, has received adequate compensation by way of dividend and as such she is in no way prejudicially affected.
13. Even though, the hearing of this petition was concluded on 11-10-2000, the issue of this order was deferred in view of the pendency of proceedings in another family company, viz., CP 6-1-1998, order in respect of which has also been issued as of date.
14. With above directions, we dispose of these petitions without any order as to costs.