Company Law Board
Rajkumar Devraj And Rajkumari Lalitya vs Jai Mahal Hotels (Private) Limited And ... on 25 August, 2006
Equivalent citations: [2006]134COMPCAS405(CLB)
ORDER
S. Balasubramanian, Chairman
1. Whether a petition filed by the children of a deceased shareholder, who have applied for grant of succession certificate in their favour, which application is reportedly under challenge, deserved to be dismissed at the preliminary stage on the ground that they do not satisfy the requirements of Section 399 of the Companies Act to file a petition under Sections 397/398, is the issue for consideration in this order.
2. The facts in brief are: The petitioners are the children of late Maharaj Jagat Singh who expired on 5.2.1997. He was holding 5050 equity shares of Rs. 100/- each in Jai Mahal Hotel Private Limited (the company) constituting 99% of the then issued/paid up capital of 5100 shares. The company owns a Hotel now under the management contract with Indian Hotels Limited. The petitioners, along with the mother of late Maharaj Jagat Singh, namely, Maharani Gyatri Devi (Rajmata) have filed an application for grant of a succession certificate in their favour which is still pending. The main allegation of the petitioners in this petition is that since their father was unwell, the company was being managed by the 2nd respondent who is the brother of late Maharaj Jagat Singh and the son of the 2nd respondent viz. 3rd respondent. They collectively held 50 shares constituting less than 1% shares in the company. It is alleged that with a view to grab the company, the 2nd and 3rd respondents, without the knowledge and consent of the legal heirs, had issued and allotted further 60882 shares on 28.4.2001. By this allotment, the 2nd and 3rd respondents presently control more than 90% shares in the company as against less than 1% shares held by them earlier. This according to them is an act of oppression. It is also alleged that respondents 4 to 8 have been appointed as directors illegally and unlawfully. With these allegations, consequent reliefs have been sought including investigation into the affairs of the company.
3. When the petition was mentioned on 27.4.2006, and interim reliefs sought, the respondents filed an application CA 133 of 2006 challenging the maintainability of the petition in terms of Section 399 on various grounds and sought for dismissal of the petition. The grounds raised in the application are (1) case No. 134 of 1998 relating to grant of succession certificate is still pending in the court of District & Sessions Judge and till the same is decided the petitioners will have no locus standi as their names are not in the register of members. (2) Suit No.870 of 1996 is pending before Delhi High Court wherein the father of the petitioner himself had claimed that all properties of the family are HUF properties. (3) Civil Appeal No.4492 of 1992 is pending before the Supreme Court whereby the Supreme Court has appointed an Administrator/Receiver to protect and safeguard all the properties of the family till the issue of succession and partition of various parties is decided. It is further stated in the application that late Maharaj Jagat Singh was divorced from his wife Priya, the mother of the petitioners and the petitioners and their mother are settled in Thailand. Since their relationship with late Maharaj Jagat Singh was strained, he had disinherited the petitioners and has left all rights and interests to his mother Maharani Gayatri Devi. Further, the petitioners having become majors in 1997 and 1999 did not seek for transmission of the shares so far. Further, the petitioners being foreign nationals, have to obtain RBI permission to hold shares in India which they have not done so far. In view of the above, the petitioners do not and cannot have requisite qualifying shares in terms of Section 399 to maintain this petition. In the rejoinder, the respondents have enclosed a letter written by late Maharaj Jagat Singh dated 23.6.1996 addressed to his mother that he had disinherited the petitioners and had bequeathed all his movable and immovable properties and assets to his mother. This according to the respondents, is a Will and therefore the petitioners cannot have any claim on the shares.
4. Shri U.K. Choudhary appearing for the respondents submitted: No doubt the petitioners are natural heirs of the deceased but whether they are legal heirs is a question pending before the Civil Court wherein they have applied for a succession certificate. Even though the said case is pending for over 7 years, the petitioners have not obtained the succession certificate in their favour. The petitioners have not produced any evidence to show that they had at any time sought for transmission of shares in their favour and that the company had rejected their application. In terms of Section 108 of the Act, it is the petitioners who have to apply for transmission of shares. Since they never took any interest to bring their names on the register of members and since a Will has surfaced now, the petitioners cannot claim membership of the company on the basis of the shares held by the father till such time either the Will is rejected or a succession certificate is granted in their favour. Only then they will have locus standi to file a petition under Sections 397/398. The petitioners have relied on Worldwide Agencies P Ltd v Margret T Desor 67 CC 607 to contend that being legal heirs of the deceased, they have the right to apply under Sections 397/398. In that case, succession certificate was granted in favour of the petitioner and when the petitioner applied for transmission, the company rejected the application. Thus the petitioner therein had undisputed title to the shares. In the present case, there is no succession certificate and there is a Will disinheriting the petitioners. In fact, Raj mala has already applied for probate of the Will. In terms of Section 399, one has to establish undisputed title to the shares, which in the present case, the petitioners cannot establish. Even though, in the proceeding relating to succession certificate, the family members had admitted that the petitioners were entitled for the said certificate, subsequent discovery of the Will would negate all the admissions made in that proceeding.
5. Shri Sarkar appearing for the company submitted: Even though the petitioners attained majority in 1997 and 1999, they never applied for transmission of shares in their favour. In terms of Article 18 of AOA of the company, only a person entitled to the shares can apply for transmission and therefore while applying for transmission, it should be established that the person applying for transmission has undisputed entitlement. In the present case, the petitioners have claimed 1/3rd each of the shares held by late Maharaja Jagat Singh. Whether they are so entitled is a matter to be decided by the civil court and not by this Board. Further, Rajmata who is now claiming the entire property is not before this Board and as such, in her absence, even otherwise, the matter cannot be decided by this Board. The entitlement of the petitioners to the shares should be such that in terms of Article 18 of AOA, the company cannot refuse transmission. In the present case, since the petitioners have been disinherited and Rajmata is claiming the shares, even if the petitioners apply for transmission, the company cannot allow the transmission in view of the disputes on the shares. Further, the petition is not a combined petition invoking the provisions of Section 111 of the Act. In Gulabrai Kalidas Naik v. Lakshmidas Lallubhai Patel 47 CC 151 Gujarat High Court has held that even in case of a combined petition, if the title to the shares is in dispute, then, the same should be decided first before proceeding with the petition. In the present case, this Board cannot decide the title to the shares because of other pending proceedings in competent courts of law. As a matter of fact in Mahender Kumar Jain v. Federal Chemicals Works Ltd. 35 CC 651, the Allahabad High Court has held that when the title to the shares is seriously disputed and several disputed question of facts require determination, Section 111 of the Act cannot be invoked to seek rectification of the register of members. Equitable considerations would arise only if the petitioners fulfill the statutory requirements of Section 399. Therefore, they have to first establish their right to the shares by obtaining a succession certificate.
6. In reply, Shri Malhotra, Advocate appearing for the petitioners submitted: The alleged Will, the authenticity of which yet to be confirmed, surfaced only after filing of this petition. Even in the application, the respondents have not mentioned anything about the alleged Will but enclosed it only with the rejoinder. It is a settled law that the maintainability of a petition has to be determined on the day when it was filed. It is an admitted position that in the proceedings relating to succession certificates, Rajmata had admitted that the petitioners are legal heirs of the deceased and even other members family have done so. It was actually a joint petition by the petitioners and Rajmata. Thus, on the day of the petition, there was no doubt about the entitlement of the petitioners to 2/3rd of the shares held by the deceased. In Rajahmundry Electric Supply Corporation Ltd. v. Nageshwar Rao AIR 1956 SC 213, it has been held that validity of a petition must be judged on the facts as they were at the time of presentation and a petition which was valid when presented, cannot cease to be unmentionable by reasons of events subsequent to its presentation. In S. Vardharajan v. Venkateshwara Solvent Extractions Private Limited 1995 4 CLJ 287, the Madras High Court has held that the requirement as to the share qualification is relevant and material only at the time of institution of a proceeding. Similar decision has been given in LRNK Narayanan v. The Puthuthotam Estates Limited 1992 MLJ 253. Since on the day of presentation of the petition, there was no dispute relating to the entitlement of the petitioners to 2/3rd shares of the deceased, the subsequent discovery of the alleged Will has no bearing on the maintainability of the petition. Further, it is a settled law that the maintainability has to be decided on the basis of averments contained in the petition alone accepting the plea therein as correct and the defense set up against the maintainability cannot be looked into. In JP Srivastava & Sons Pvt Ltd. v. Gawalior Sugar Co. Ltd. 2004 4 CLJ 467, the Supreme Court has held that if the objection to the maintainability is taken by way of demurrer, the CLB can decide the issue on the basis of the averments contained in the petition alone accepting the pleas therein as correct. In Steel Authority of India Ltd. v. Rameshwar Das 60 DLT 271, the Delhi High Court has held that whether the plaint discloses any cause of action is to be decided by looking at the averments contained in the plaint itself and not on the defense set up in the written statement. In Maharaja Jagat Singh v. Lt. Col. Bhavani Singh 58 DLT 130, Delhi High Court has, held that while deciding a matter, the court is to look into the averments made in the plaint and documents annexed therewith. It cannot look into the defense set up by the defendants. Since in the present petition, on the basis of the plaint filed in the Succession Court, the petitioners have claimed 2/3rd of the shares held by the deceased, the respondents cannot, at this point of time, refute the same. It is on record that in the judicial proceedings before the District Judge, Jaipur and Delhi High Court, the family members and Rajmata including the 2nd respondents had admitted that the petitioners are the legal representatives of the deceased entitled to inherit 2/3rd of the estate. In Sangram Singh P. Gaekwad v. Shanta Devi P. Gaekwad 2005 3 CLJ 385, the Supreme Court has held that once an admission is made before a judicial forum, it cannot; be resiled thereafter.
7. The learned Counsel further submitted: In Marget Dessar case, it has been held that the legal representatives of a deceased shareholder can maintain a petition under Sections 397/398 of the Act even without their names being on the register of members. Only if the probate is granted in favour of Rajmata, the petitioners could be declared to have no right to the shares and not till then the uncertainty of the outcome of. the proceedings relating to succession certificate and probate cannot stand in the way of the petitioners maintaining this petition. It is not in dispute that the petitioners are Class I heirs and therefore per-say they can initiate proceedings to protect the interests of the company in which they are entitled to hold the shares. It is an admitted fact that the entitlement of the petitioners to the shares of their father was never challenged till 5th May, 2006 when they filed this petition. When Section 213 of the Indian Succession Act prohibits even an executor or a legatee from claiming under a Will without a probate in judicial proceedings, third parties like the present respondents cannot rely on this un-probated Will to un-suit the petitioners.
8. I have considered the pleadings and arguments of the counsel. At the outset, it is necessary to point out that in examining the maintainability of a petition under Sections 397/398 as a preliminary issue, only the jurisdictional aspect in regard to the cause of action and qualification aspect have to be considered and not other factual aspects whether the petitioners had sought for transmission of the shares, whether further issue of shares was made with the knowledge and consent of the petitioners and whether the petitioners can hold shares without RBI permission, whether the company could register the transmission etc., have be considered only after the pleadings are completed. As far as the jurisdictional aspect is concerned, the main cause of action is that a majority shareholder has been reduced to a minority by issue of further shares and therefore, undoubtedly, this Board has the jurisdiction to entertain the same in terms of Sections 397/398 of the Act. Therefore, the only other preliminary issue relates to provisions of Section 399 relating to qualification.
9. A petition under Sections 397/398 can be instituted only by a members of a company satisfying the qualifications prescribed under Section 399. The admitted position in this case is that the names of the petitioners are not in the register of members of the company. They have filed this petition in the capacity of legal heirs of the deceased. The right of legal heirs of a deceased member, even without their names being on the register of members to file a petition under sections 397/398 has been recognized by the Supreme Court in Margaret T. Desor case. According to Shri Chaudhary, the decision in that case was, as noted in the judgment itself, on the basis that the petitioner therein had obtained a succession certificate and that her application for transmission had been rejected by the Board of directors. In other words, in that case, there was no dispute about the title of the petitioners to the shares but in the present case, the petitioners do not have any title to the shares in view of the discovery of the Will. A careful reading of the judgment reveals otherwise. No doubt that the Supreme Court had noted that the petitioner had obtained a succession certificate, but what it examined was "We are-concerned with two questions of law, namely whether the legal heirs of a deceased shareholder can be treated as members of the company for the purposes of maintaining a petition under Sections 397 and 398 of the Act..." (page 611). This would indicate that what the Supreme Court examined was a pure question of law and not on the basis of the facts as pointed out by the learned counsel. After examining various authorities, the Supreme Court held "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 Sections 397/398 of the Act would be taking a hyper technical view which does not advance the cause of equity or justice. When the member dies, his estate is entrusted in the legal representative. When, therefore, these vestings are illegally or wrongfully affected, the estate, through the legal representatives must be enabled to petition in respect of oppression and mismanagement and it is as if the estate stands in the shoes of the deceased member. We are of the opinion that this is a correct view. It may be mentioned in this connection that succession is not kept in abeyance and the property of the deceased members vests in the legal representative on the death if the deceased". This makes it abundantly clear that the legal heris of a deceased member can file a petition under Sections 397/398 of the Act irrespective of the fact whether their names are in the register of members or not.
10. After having held so, the next issue for consideration is whether in facts of the present case, the petitioners are entitled to file this petition. It was urged by Shri Choudhary that even though the petitioners, by being the children of the deceased member, are natural heirs, they cannot be considered as legal heirs in view of the Will of the deceased disinheriting the petitioners. In other words, according to him, they are barred by law in terms of Section 399, to maintain this petition. It is a settled law, as has been reiterated by the Supreme Court recently in Ramesh B. Desai v. Vipin Vadila Mehta 132 CC 479 that in order to examine whether the plaint is barred by any law, the averments made in the plaint alone have to be seen and they have to be assumed to be correct and it is not permissible to look into the pleas raised in the written statement or to any piece of evidence. In that case, the defendants sought for dismissal of a petition filed under Section 155 of the Companies Act seeking for rectification of the register of members, without going into the merits of the petition on the grounds of limitation. This plea was accepted by a single Judge of Gujarat High Court and the petition was dismissed and the Division Bench also upheld the said decision. When the matter came up before the Supreme Court, Supreme Court recapitulated its own various judgments as follows: "The plea raised by the contesting respondents is in fact a plea of demurrer. Demurrer is an act of objecting or taking exception or a protest. It is a pleading by a party to a legal action that assumes the truth of the matter alleged by the opposite party and sets up that it is insufficient in law to sustain his claim or that there is some other defect on the face of the pleadings constituting a legal reason why the opposite party should not be allowed to proceed further. In O.N. Bhatnagar v. Smt. Rukibai Narsindas 1982 2 SCC 244 Para 9, it was held that the appellant having raised a plea in the nature of demurrer, the question of jurisdiction had to be determined with advertence to the allegations contained in the statement of claim made by respondent No. 1 under Section 91(1) of the Act and those allegations must betaken to be true. In Roop Lal Sathi v. Nachhattar Singh Gill 1982 3 SCC 487 para 24, it was observed that a preliminary objection that the election petition is not in conformity with Section 83(1)(a) of the Act, i.e., it does not contain the concise statement of the material facts on which the petitioner relies, is but a plea in the nature of demurrer and in deciding the question the court has to assume for this purpose that the averments contained in the election petition are true. Reiterating the same principle in Abdulla Bin Ali v. Galappa 1985 2 SCC 54, it was said, that there is no denying the fact that the allegations made in the plaint decide the forum and the jurisdiction does not depend upon the defence taken by the defendants in the written statement. In Exphar Sa v. Eupharma Laboratories Ltd. 2004 3 SCC 688 para 9, it was ruled that where an objection to jurisdiction is raised by way of demurrer and not at the trial, the objection must proceed on the basis that the facts as pleaded by the initiator of the impugned proceedings are true. The submission in order to succeed must show that granted those facts the court does not have jurisdiction as a matter of law. In this case, the decision of the High Court on the point of the jurisdiction was set aside as the High Court had examined the written statement filed by the respondents in which it was claimed that the goods were not at all sold within the territorial jurisdiction of the Delhi High Court and also that respondent No. 2 did not carry on business within the jurisdiction of the said High Court. Following the same principle in Indian Mineral & Chemicals Co. v. Deutsche Bank 2004 12 SCC 376 paras 10 and 11, it was observed that the assertions in a plaint must be assumed to be true for the purpose of determining whether leave is liable to be revoked on the point of demurrer".
11. Having referred so, the Supreme Court held "The statement in the plaint without addition or subtraction must show that it is barred by any law to attract application of Order 7 Rule 11 of Civil Procedure Code. The principle is, therefore, well settled that in order to examine whether the plaint is barred by any law as contemplated by Sub-rule (d) of order VII, Rule 11 of the Civil Procedure Code, the averments made in the plaint alone have to be seen and they have to be assumed to be correct. It is not permissible to look into the pleas raised, in the written statement or to any piece of evidence".
12. Therefore, to decide whether, the petitioners have fulfilled the requirements of Section 399, I have to only examine the averments in the petition. According to the petitioners, their father held 99% shares in the company and they are the legal heirs along with Rajmata. All the three of them together have sought for grant of a succession certificate and the 2nd respondent and other brothers being the near relations of the deceased have filed no objection to the grant of succession certificate in favour of the petitioners and Rajmata and that the shares held by the deceased of 5050 equity shares are also part of that application. Thus, without any additions or subtractions, the pleadings reveal that the petitioners are entitled to 2/3rd of the shares held by the deceased which is in excess of 10% of the then existing issued and paid up share capital. Even after the allotment of the shares impugned in the petition, the petitioners constitute more than 1/10th of the total membership. Thus, in the pleadings, the petitioners have established that they are qualified in terms of Section 399 of the Act to file this petition. In view of this, I need not have to consider any of the objections raised by the respondents on the maintainability. Yet, the main ground for challenge on the maintainability is the discovery of the alleged Will subsequent to the date of filing of this petition. However, in the application seeking for dismissal, there is no mention about the Will nor the prayer for dismissal is based on the alleged Will. Only in the rejoinder, a copy of the alleged Will has been enclosed. The learned Counsel for the petitioners relevantly cited certain decisions to the effect that the maintainability of the petition in terms of Section 399 has to be examined with reference to the facts that stood on the date of filing the petition. Therefore, I hold that the present petition, in terms of the averments in the petition, is maintainable and cannot be dismissed on the basis of the demurer application by the respondents. All the objections of the respondents will be considered while considering the petition on completion of pleadings.
13. Accordingly, I direct the respondents to file their counter to the petition by 15.9.2006 and rejoinder will be filed by 5.10.2006. The petition will be heard on 27.10.2006 at 10.30 a.m.