Company Law Board
Narinder Kumar Sehgal vs Leader Valves Ltd. on 29 January, 1993
Equivalent citations: [1993]77COMPCAS393(CLB)
ORDER
1. This is an appeal/petition under Section 111 of the Companies Act, 1956. On the same facts another appeal/petition was filed by one Shri Devender Kumar Sehgal against the same company. Since the facts and issues involved are the same, both the appeals/petitions are being disposed of by this single order.
2. It is stated in the petition that Leader Valves Ltd. incorporated in 1977 was promoted, inter alia, by one Sh. Dwarka Dass Sehgal, who, at the time of his death on April 11, 1982, had a total shareholding of 33 per cent, Sh. D. D. Sehgal was also partner of a firm, Sehgal Oil and General Mills, Jalandhar. Sh. D. D. Sehgal held 29,535 shares of Rs. 100 each in the company on behalf of the firm apart from his personal holding of 325 shares. The firm consisted of Sh. D. D. Sehgal and his five sons. It is further stated that after the demise of Sh. D. D. Sehgal, one of his sons, Sh. Devender Kumar Sehgal, filed a suit in 1989 in the Court of Additional Senior Sub-Judge, Jalandhar, which was compromised between the parties and a decree was passed on September 4, 1990, declaring that all the partners of Sehgal Oil and General Mills, Jalandhar, are owners of 4,977 shares besides the share of Late Sh. Sehgal going to his widow and one of his daughters. Subsequent to this decree, the petitioners approached the company for transmission of 4,977 shares which was not accepted by the Board on the ground that the applications are not legally in order. Later by a letter, the company had stated that it was not a party to the settlement and had no knowledge of the total number of legal claimants and further that the claimants should procure a certificate of succession before approaching the company for transmission. The appellants not only sought the transmission of 4,977 shares each in their name, hut also prayed for interim relief to restrain any change in the constitution of a board of directors as well as to restrain the board from taking any decision other than what is required in the normal course of the business.
3. The company in its reply affidavit has stated that it has not refused transmission to the legal heirs but had only asked for compliance with Articles 18 and 20 of the articles of association and Section 109 of the Companies Act, 1956. The company called for a succession certificate to identify the legal heirs entitled to these shares. The company has explained that after the death of Sh. D. D. Sehgal, in January, 1983, the five sons of Sh. D. D. Sehgal submitted a will of the deceased requesting for transmission of the 29,860 shares in the names of his five sons equally. In the meantime, the company received a telegram from one of the legal claimants Mrs. Usha Puri, a daughter of the deceased, residing in America that she is one of the eight legal claimants and warned that the company will be legally responsible if 1/8th being her share is not transferred to her. It was subsequent to this that the suit was filed in the Jallandhar court in 1989 which was compromised. One of the terms of the compromise was that the share in the flat purchased by the erstwhile firm and taken over by the company has to be given to Smt. Asha Verma, another daughter of the late Sh. D. D. Sehgal. According to the respondent-company, the flat is the property of the company and was in the possession of the Late Sh. D. D. Sehgal as managing director. It was submitted that though the company was included as one of the parties in the suit, subsequently for reasons best known to the petitioners, its name was deleted vide order of the Jalandhar court dated April 24, 1990, and hence the judgment is not binding on the company. A plain reading of the judgment does not spell out as to whether the parties of the said suit are the only legal heirs and have succeeded to the estate of Sh. D. D. Sehgal. The order dated September 4, 1990, decreed the suit in terms of the family compromise. According to the company under Section 630 of the Companies Act, 1956, the legal heirs are bound to hand over possession of the property, namely, the Bombay flat, before approaching the company for transmission of shares. The company has further submitted that though it has become a public company under Section 43A, yet, it was entitled to retain the restrictive clauses and as such under Section 111(13), it can enforce the restrictions and accordingly no petition under Section 111 can lie, against the company. In this connection company has cited the case of Dr. Kodali Sree Rama Nagendhra Venhata Subbarao v. Sri Ramdas Motor Transport Ltd: [1983] 2 Comp LJ 64 (CLB).
4. The company has also submitted that the articles of association have adopted regulations contained in Table "A". Under article 26 of Table A, it is provided that in case of death, the executor or administrator shall be the only person recognised by the company as having any right to the shares registered in the name of such member. The company has only required the appellant-petitioner to submit the succession certificate/pro-bate/letter of administration to establish this fact. Thus no cause of action has arisen in favour of the appellant-petitioner and prayed that the appeal be dismissed with costs. The company has also cited the following cases :
1. T. R. Sitaram v. Sitaram Anglo Ayurvedic Pharmacy Ltd. (C.L.B Appeal No. 47 of 1981 dated July 31, 1982).
2. N. Begum v. Vidya Sagar Cotton Mills Ltd. [1963] 33 Comp Cas 36 (Cal).
3. Sew Prasad Saraf, In re, AIR 1954 Cal 444.
4. Kasi Viswanathan Chettiar v. Indo-Burma Petroleum Co. Ltd. [1936] 6 Comp Cas 42 (Rangoon).
5. During the hearing, learned counsel for the petitioners reiterated their submissions and further averred that the flat at Bombay is jointly owned by the three original promoters of the company and that one of the legal heirs has been given a share in the flat which belongs to the late Shri D. D. Sehgal by mutual agreement between the parties. Learned counsel for the respondent contended that the flat belongs to the company and produced evidence to the effect that it constitutes one of the assets of the company and that the company is being assessed to wealth-tax accordingly. The flat had become the property of the company consequent to the deed of dissolution of the partnership and hence the company cannot recognise the collusive agreement leading to the decree in which suit the company was not a party. The counsel, however, recognised that the total number of legal heirs is eight but would not commit the company to the decree which would involve the tacit agreement regarding sharing of the property. Counsel for the petitioners confirmed that the flat is in the possession of one of the legal heirs. The company was still agreeable for the transmission of the shares provided that all the eight legal heirs agree on the distribution of the total shares bequeathed, without any reference to the property.
6. In view of the above willingness of the company we allowed time to the petitioners to come to a mutual agreement between all the legal heirs regarding the distribution of the shares among themselves without any reference to the property so that it will be possible for the company to take steps on the request of the petitioner for transmission of the shares of the late Shri D. D. Sehgal. After taking nearly 1 1/2 months, the petitioners could not come to an agreement and hence the case is being disposed of on merits.
7. We have carefully perused the pleadings and heard the submissions by counsel from both the sides. The main issues which arise from the petitions are :
(a) Whether the petition is maintainable ;
(b) Whether the company is justified in insisting on a succession certificate/probate/letter of administration ;
(c) Whether the appellants could be granted the relief prayed for. The admissibility of the petition was challenged by the respondents on the ground that : (a) there was no refusal though there might be delay and (b) under Section 111(13) a private company has a right to enforce restrictions contained in the articles of association and the decisions in cases N. Begum v. Vidya Sagar Cotton Mills Ltd. [1963] 33 Comp Cas 36 (Cal) and Dr. Kodali Sree Rama Nagendhra Venkata Subbarao v. Sri Ramdas Motor Transport Ltd. [1983] 2 Comp LJ 64 (CLB), were mentioned in support of these arguments.
8. In the first case cited above, the hon'ble High Court has examined the maintainability of a petition under Section 155, in the context of an undue delay in considering the application for registration of transfer. In that context, the hon'ble court has distinguished "default" from "refusal", and has concluded that default means "not doing what is reasonable in the circumstances" and undue delay has been construed as a default. In the present case, however, though the board not specifically refused or unduly delayed it has observed in its resolution that the application is defective in law and the managing director was authorised to give a suitable reply to the applicants. The managing director, vide his letter dated October 8, 1991, has sealed the fate of the application of the petitioners for transmission with the following remark : "In the circumstances stated above your application for transmission of shares cannot be considered." This specific statement amounts to a refusal, and the petitioners have rightfully resorted to the legal action available under law. Hence the present appeal/ petition is maintainable.
9. As regards the second objection relating to enforceability of the restrictive clause, the case under consideration is relating to transmission to legal heirs. The company has also admitted that the appellants are the legal heirs and as per Article 18 of the articles of association of the company, transmission could be made to the legal heirs and the "restrictions" contemplated relating to transfer of shares under Section 111(13) do not arise in the present case. The case cited in support of the contention of non-admissibility is irrelevant as it relates to the position which prevailed before introduction of the Companies (Amendment) Act, 1988. As such the objection on the ground of non-maintainability fails and we rule that the appeals are maintainable.
10. As regards the second issue, the company had a genuine problem in identifying the legal heirs inasmuch as the will was filed in 1983 by five sons. Thereafter a telegram received from the daughter of the deceased member has set in motion a controversy regarding the identity of the legal heirs. Though, under the proviso to Section 108(l)(c), the company has the power to register as member any person to whom the shares have been transmitted by operation of law, the company is well within its powers to insist on the production of succession certificate/probate/letter of administration. In this connection, the case-law cited, namely, Kasi Viswanathan Chettiar v. Indo-Burma Petroleum Co. Ltd. [1936] 6 Comp Cas 42 (Rangoon), is relevant. Article 20 of the articles of association squarely empowers the board of directors to insist on evidence when a person becomes entitled to a share in consequence of death or insolvency of a member. It is precisely this point which has been upheld, in the context of a similar article in the case cited by the respondents. Further, the respondents have justified their action as in the interest of the company particularly because the property of the company is in the possession of one of the legal heirs and since recognition of the compromise decree without the company being a party to the suit would tantamount to a tacit acceptance of surrender of the claim to its own property. On this issue the directors have established that their action is in the interest of the company and not without any oblique motive or for collateral purpose as pronounced by the Supreme Court as the guiding principles in Bajaj Auto Ltd. v. N. K. Firodia [1971] 41 Comp Cas 1. Though the petitioners were also directors of the company and they were present at the meeting of the board of directors in which the relevant resolution was passed, they do not appear to have dissented from the resolution. The company has also offered to consider the transmission in case all the eight legal heirs agree for the suitable distribution of shares mutually without reference to any issue relating to the property. In the circumstances, we find that there is no justification for this Bench to grant any relief as sought by the appellants and there is no ground to interfere in the decision of the board of directors. Accordingly, both the appeals stand dismissed. We had also considered it not appropriate to pass any interim orders and hence no such orders were passed. There is no order as to costs.