National Company Law Appellate Tribunal
Nalini Hari vs Mysore Stoneware Pipes & Potteries Ltd on 5 December, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
COMPANY APPEAL (AT) (CH) NO. 55 of 2021
&
I.A. Nos. 630 & 631/2021
(Arising out of the Order dated 08th April, 2021 passed by the Learned
Adjudicating Authority (National Company Law Tribunal, Bengaluru
Bench), in C.P. No.18/BB/2021)
IN THE MATTER OF:
Mrs. Nalini Hari
No. 3, Palat Madhavan Road,
Mahalingapuram,
Chennai - 600034. ...Appellant
Versus
M/s. Mysore Stoneware Pipes & Potteries Ltd.
No. 452, 11th Cross,
6th Main, Sadashovanagar,
Bengaluru - 560080. ...Respondent
Present
For Appellant: Mr. R. Venkatavaradan, Advocate.
For Respondent: Dr. D. Prakash, Advocate
For Mr. A. Mohan, Advocate.
JUDGEMENT
(Virtual Mode) [Per; Shreesha Merla, Member (T)]
1. Challenge in this Appeal is to the Impugned Order dated 08.04.2021 passed by National Company Law Tribunal (NCLT, Bengaluru Bench) in C.P. No. 18/BB/2021.
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Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021
2. Succinctly put, the facts in brief are that the Petitioner in the Company Petition, Ms. Nalini Hari is the daughter of Mr. R. Kapanipathi Rao, the founder/Promoter who at the time of his death, held around 15,419 Shares in the Respondent Company. It is pleaded that the Petitioner is the legitimate Claimant entitled to the Shares held by her father and that her three siblings have given a letter of waiver/relinquishment of their right to the said shares in favour of the Petitioner. On 22.10.2014, the Petitioner obtained a Legal Heirship Certificate from the Tahsildar, Egmore Taluk Office, Chennai in her name and that of the other living siblings for the purpose of effecting transmission of the said shares held by her father. On 23.12.2019, the Petitioner submitted her formal Application of transmission of the shares to the Respondent Company in the prescribed format with all the relevant documents including an indemnity bond, duplicate Share Certificates, Succession Certificate, Legal Heirship Certificate, and the NoC from the siblings. It is stated that despite the period of 90 days as provided for under Section 58(4) of the Companies Act, 2013 (hereinafter referred to as 'The Act') has lapsed, the Petitioner did not receive any response from the Respondent Company. The Petitioner approached the Hon'ble Madras High Court for obtaining a Succession Certificate as per the provisions of Indian Succession Act, 1920 and the same was granted by the Hon'ble Madras High Court, by Order dated 28.05.2019. It is stated that the Respondent Company conducted a roving enquiry and had investigated the cause of one Ms. Sumathi to -3- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 further their own profit/position. By email dated 19.02.2020, the Respondent Company has informed her that the decision of the said Application would be taken by one Mr. B.N. Harish, but till date there was no response and hence the Petitioner preferred C.P. No. 18/BB/2021, seeking a direction to the Respondent Company to transmit the Shares lawfully in her name. By the Impugned Order, NCLT has disposed of the Company Petition with the following directions:
"7. In the above facts and circumstances of the case, and the matter involve rival claim, it would be just and proper to dispose of C.P.No.18/BB/2021, with the following directions:
i. Executor (K. Dushyantha Kumar) is directed to issue notice to the rival claimant namely Smt. K. Sumathi & Ors., by granting six weeks' time to get necessary clarification or review order of the Succession Certificate dated 28.05.2019 granted in O.P.No.1118 of 2018, duly impleading the Petitioner herein, as Respondent, from Competent Court of law.
ii. In case, the rival claimant's failed to get any order within above period, the Company as well as the Executor are directed to take appropriate action basing on the Succession Certificate dated 28.05.2019 to give effect to transmission of shares held by deceased shareholders in the Company, in favour of the Petitioner, with all consequential benefits, within a period of four (4) weeks thereafter.
iii. The Petitioner is directed to submit necessary documents as sought for by the Company and the Executor.
iv. The Registry is directed to forward a copy of this order immediately to both the Parties and Executor, Mr. K. Dushyantha Kumar.-4-
Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 v. No order as to costs."
3. Submissions of the Learned Counsel appearing on behalf of the Appellant:
• Learned Counsel for the Appellant strenuously contended that when a person has furnished a Succession Certificate in his/her favour, such a person is entitled to get the shares transmitted and registered in his/her favour. The said Succession Certificate was required to be acted upon subject to any further Order that may be passed in any pending proceedings between the parties. Learned Counsel drew our attention to the ratio of the Judgement passed by the Hon'ble Supreme Court in 'S.M. Hajee Abdul Hye Sahib' Vs. 'K.N.S. Hajee Shaik Abdul Kader Labbai Sahib Company Private Limited'1, wherein it is observed as follows:
"8. The company has relied on the provisions of article 33 in seeking various documents from the petitioner. While the petitioner furnished some of the documents, yet he has not been able to produce consent letters from other legal heirs of the deceased as well as the original share certificates. While it is within the right of the board to call for these documents, yet, if we look at the issues in an objective manner, we find that some of the legal heirs are on the board of directors and that the petitioner has already produced succession certificates from the competent court of law. Even though the succession certificate issued by the court is under appeal, the order of the trial court has not yet been stayed. When the petitioner has produced the succession certificate, we are of the view that the company's demand for consent letters from the other legal heirs is not warranted. In case the petitioner was not in a 1 1997 SCC OnLine CLB 26 -5- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 position to produce a succession certificate, the company would be fully justified in asking for the consent letters but not in the present case. As far as the original share certificates are concerned which are reported to be with some of the other legal heirs, there is nothing wrong in the company in registering the transmission in favour of the petitioner in respect of the impugned shares and issuing duplicate certificates by cancelling the original certificates especially when the company is a closely held one and the whereabouts of the certificates should be known to the members of the board, some of whom are also legal heirs of the deceased. Accordingly, even though the board had the power to call for documents as per article 33, yet in the instant case, considering the facts and circumstances of the case, we are of the view that the company should have waived the requirement of production of these two documents. As far as the second ground taken by the company is concerned that the petitioner is disqualified to be a member (since he ceased to be a member on expropriation of shares held by him earlier) on account of his running a competing business, even though the respondent has produced various documents to establish this fact of his running a rival business, we do not propose to go into the same for the reasons that the matter is already under appeal. As we have already pointed out, the power to refuse transfer/transmission should be exercised in accordance with the articles. Articles 25 and 26 deal with shares held by a member who is running a competing business. While as per article 25, the company would acquire the shares of such members, article 26 provides for expropriation. We have already pointed out that we are not going into the validity of these articles or the right of the company to take action as provided under these articles especially when these issues are not before us. The only limited issue before us is whether the company has powers to refuse on the ground of someone carrying on competing business and refusing to admit him as member on transmission. Article 25/26 is applicable only in respect of shares of existing members. Article 33, which we have already extracted above, only empowers the board to -6- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 call for necessary evidence of title and any decision to either register or refuse to register on the basis of documents produced or not produced would be within the competence of the board. In other words, there is nothing in these articles to show that a person carrying on a competing business will not be admitted as a member. Exercise of powers by the board under article 25/26 would arise only when a person who is a member carries on a competing business. Had it been a transfer of shares and not transmission, perhaps, the board could have taken such a stand by the provisions of article 29. According to us, the powers of the board in the case of transmission are limited to the extent of only calling for requisite evidence of title and taking a decision on the same and nothing more."
• It is vehemently argued by the Learned Counsel for the Appellant that the Respondent Company could not have withheld the transmission of shares in the Appellant's name as there was a valid Succession Certificate at the time of filing of the Company Petition. Reliance is placed on the Judgement of the Company Law Board in 'Arjun Kumar Israni' Vs. 'Cipla Ltd.'2, in which it is observed as follows:
"Third question for consideration is whether the respondent-company is justified in not acting on the Succession Certificate issued by the competent court on account of insufficient court fees stamp. In this regard, we are of the view that it is for the Court to satisfy about the payment of proper court fees and if court fees paid is insufficient, the recovery of deficit court fees alongwith penalty is to be decided by the authority of the court or Revenue Authority and it is not open for the respondent-company to withhold the transmission of shares in the name of the appellant on this ground, once the Succession Certificate has been produced from the competent court who has declared the appellant as legal 2 1996 SCC OnLine CLB 9 -7- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 heir for the shares in question and there is no other claimant for the said shares, the company ought to have effected the transmission of shares on the basis of Succession Certificate produced.
Accordingly, in pursuance of sub-section (5) of section 111, the respondent-company is hereby directed to effect the transmission of 50 equity shares standing in the name of Dr. Kewalram Banirm Israni at the time of his death and various bonus shares, dividends and rights accrued from time to time on the said shares in the name of the appellant on the basis of Succession Certificate produced within 10 days from the date of receipt of this order."
• Learned Counsel for the Appellant placed reliance in the Judgement of the Hon'ble Supreme Court in 'Jai Mahal Hotels Pvt. Ltd.' Vs. 'Devraj Singh'3, wherein it is observed as follows:
"20. In the present case, as already observed, there is no real dispute between the parties. DR Group followed the due procedure. It had the succession certificate in its favour apart from the transfer deed from GD, who admittedly inherited rights from LMJS. The will in favour of GD is beyond any dispute. Thus, DR Group derived rights from GD by documents executed by her in her lifetime and conveyed to the Company. Even if the will of GD is not taken into account, for purposes of issuance of rectification, the documents executed by GD clearly entitled DR Group to have the rectification made.
21. The decisions in Mulraj v. Murti Raghunathji Maharaj, AIRP 1967 SC 1386 : (1967) 3 SCR 84, Manohar Lal v. Ugrasen, (2010) 11 SCC 557 : (2010) 4 SCC (Civ) 524, Ajudh Raj v. Moti, (1991) 3 SCC 136 and Chiranjilal Shrilal Goenkal v. Jasjit Singh, (1993) 2 SCC 507 are of no relevance to a situation where the 3 (2016) 1 SCC 423 -8- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 beneficiary of the interim order itself opts to proceed with the matter in respect of which stay is granted by the higher court. In the present case, GD having settled the matter and having herself sought rectification, the interim order granted at her instance could be no bar against DR Group. The decisions sought are thus, of no relevance to such a situation.
22. We sum up our conclusions as follows:
(i) LMJS executed will in favour of his mother GD which is not in dispute;
(ii) GD and DR jointly obtained succession certificate;
(iii) GD signed the transfer deeds and communicated the same to the Board of Directors;
and
(iv) The civil court vide order dated 28-7-1991 declined to grant temporary injunction finding no prima facie case against the succession certificate."
4. Submissions of the Learned Counsel appearing on behalf of the Respondent:
• Learned Counsel for the Respondent argued that the transmission of shares sought for by the Appellant from the Respondent Company is based on the Succession Certificate obtained by the Appellant in OP No. 1118/2018 dated 25.08.2019. But in view of a 'Rival Claim' by the second wife of Mr. R. Kapanipathi Rao in whose Will, the Rival Claimant by name Ms. K. Sumathi is stated by the testator as his wife, the Respondent Company could not have transmitted the shares in favour of the Appellant.-9-
Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 • It is submitted that the said Smt. K. Sumathi filed an Application before the Hon'ble Madras High Court seeking a relief to set aside/revoke the Order dated 28.05.2019. An Application for condonation of delay was also filed vide A. No. 3640/2021 which was condoned by the Hon'ble Madras High Court vide Order dated 15.03.2022. It is submitted that since the Hon'ble High Court has condoned the delay and the Order issuing the Succession Certificate is under challenge, the Appellant cannot rely on the said Succession Certificate for claiming the transmission of shares in the present case.
• Learned Counsel denied that there was any collusion between the Respondent Company and Ms. K. Sumathi and contended that the said allegations are without any proof and the fact that Ms. K. Sumathi was not added as a Respondent in the Company Petition, is only a motivated attempt to protect the Appellant from any litigation.
• It is submitted that the Respondent Company neither supports the Appellant nor Ms. K. Sumathi and is only duty bound to examine the case in accordance with law.
• It is argued that the Respondent Company is relying on the Will as an additional factor to exhibit the rival claims since the Will expressly states that Ms. K. Sumathi is the wife of the testator. The Learned Counsel placed -10- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 reliance on the Judgement of the Hon'ble Supreme Court in 'G. Ganesan' Vs. 'P. Sundari'4, wherein it is observed as follows:
"It is submitted that this Hon'ble Tribunal was misled on the legal position during the arguments on 01.11.2022 that the will cannot be taken into account because it is not probated. The answering Respondent is not concerned with the other argument regarding the subject matter of the will. The Respondent company is relying on the will as an additional factor to show rival claim since the will expressly states that Mrs. K. Sumathi is the wife of testator. The legal position is stated in the Judgment of a division bench of the Hon'ble Madras High Court reported in G.Ganesan Vs. P. Sundari 2011 (2) CTC 435 wherein it was held that "it is the settled proposition of law that in view of the bar contained in Section 213 of the Act, an unprobated Will cannot be admitted in evidence in any proceeding to establish any right or title derived under the Will. However, for collateral purposes such an unprobatedWill can be proved in evidence".
• It is submitted that the Respondent Company is relying on the Will only for the limited purpose for showing that 'Rival Claim' with respect to transmission of shares.
• Learned Counsel concluded his arguments submitting that there is absolutely no 'perversity' and that the ground of 'perversity' taken by the Appellant is baseless.
Assessment:
5. The brief point which falls for consideration in this Appeal is whether the NCLT was justified in directing the executor to issue Notice to the Rival Claimant 4 2011 (2) CTC 435 -11- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 namely Smt. K. Sumathi and in granting six weeks time to obtain the necessary clarification regarding the Succession Certificate, keeping in view the facts and circumstances of the attendant case on hand.
6. C.P. No. 18/PB/2021 is the Company Petition filed by Ms. Nalini Hari/ the Appellant against the Respondent Company inter alia seeking to affect the transmission of 15,419/- shares lying in the name of her father late Mr. R. Kapanipathi Rao, and also to pay the dividend due. It is not in dispute that there was a 'Rival Claim' by Smt. K. Sumathi who is also one of the Shareholders of the Respondent Company. Smt. K. Sumathi vide letter dated 30.07.2014 had written to the Respondent Company stating that her husband Mr. R. Kapanipathi Rao had passed away on 02.06.2014 and that 15,419/- shares lying in the name of her husband has to be transferred in her name as she is the 'wife' and 'legal nominee'. It is the case of the Respondent Company that subsequent to the letter received from Smt. K. Sumathi, a letter dated 21.09.2015 was received from the Appellant herein lodging Claim for the transmission of the same 15,419/- shares held by her father, with a request not to entertain any Claim from any person other than the children of late Mr. R. Kapanipathi Rao.
7. A perusal of the material on record shows that the Respondent Company had received various letters of communication from both Smt. K. Sumathi and Ms. Nalini Hari in respect of the shares held by late Mr. R. Kapanipathi Rao. It is the main case of the Appellant that the NCLT has erroneously given time for Smt. -12- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 K. Sumathi to obtain clarification regarding the Succession Certificate issued by the Hon'ble Madras High Court on 25.08.2019, as essentially the date on which NCLT has decided the matter, the Succession Certificate of the Appellant was subsisting which evidence that the Appellant alone is the legal heir and therefore the shares had to be transmitted only to the heir as shown in the Succession Certificate as on the date of the Impugned Order. Instead NCLT had given Notice to the Rival Claimant Smt. K. Sumathi only because there was a collusion between the said Smt. K. Sumathi and the Respondent Company.
8. This Tribunal is conscious of the fact that Smt. K. Sumathi is in possession of the registered Will wherein her name appears as the wife of the testator namely Mr. R. Kapanipathi Rao and also that both the Aadhaar and Voter Cards exhibit her name as wife of Mr. R. Kapanipathi Rao and that they have an adopted daughter. It is significant to mention that Smt. K. Sumathi also is 'in possession of the Original Share Certificates'. The contention of the Learned Counsel for the Appellant that the Will cannot be taken into account because it is not probated, in the facts of the present case, is untenable as the Respondent Company is relying on the Will only as an additional factor to exhibit that there was a 'Rival Claim' as the Will expressly specifies that Smt. K. Sumathi is the wife of the testator. At this juncture, we find it relevant to place reliance on the ratio of the Hon'ble Supreme Court in 'Mohan Krishan Abrol' Vs. 'State of Punjab'5, wherein the 5 (2004) 7 SCC 505 -13- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 Hon'ble Apex Court has held that 'this bar comes into play only as a right of the executor or a legatee under Will is sought to be established and for any collateral purposes, an unprobated Will can be proved in evidence'. It is seen from the record that the Will is being relied upon only for the limited purpose of specifying 'Rival Claims' and therefore we do not find any substance in the argument of the Learned Counsel for the Appellant that the Will is not probated and therefore has absolutely no significance.
9. The Hon'ble High Court of Karnataka in 'Smt. Suvarna W/o Ramanna' Vs. 'Ramesh S/o Sangappa'6, while dealing with a Petition filed under Section 372 of the Indian Succession Act, 1925 filed before the Court of the Senior Civil Judge at Sedam contending that she was a sister of one Mr. Chandrashekhar who died living behind the Petitioner as his sole legal heir and successor had deposited an amount in a Fixed Deposit, which the Bank had agreed to release provided she produced the Succession Certificate and accordingly she had filed a Petition which was allowed and a Succession Certificate was issued in her favour. Having come to know about the Succession Certificate obtained by the Petitioner, the Respondents, who are the children of the brothers of the deceased, Mr. Chandrashekhar, filed an Application under Section 383 of the Indian Succession Act, 1925 obtaining to the same. The Hon'ble High Court of Karnataka has observed that the Petitioner had obtained the Succession Certificate from the Trial 6 Writ Petition No. 200103/2022 -14- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 Court by misrepresentation and concealing the material facts and directed her to redeposit the amount. In the instant case, though, the Appellant has not misrepresented regarding 'her status as a daughter' of the late Mr. R. Kapanipathi Rao, the fact remains that Smt. K. Sumathi was never made a party to the Petition. At the cost of repetition, the said Smt. K. Sumathi is in possession of the Will and the Original Share Certificates.
10. It is pertinent to mention that the said Smt. K. Sumathi has not been made a party in the Original Petition CP No. 18/PB/2021, wherein the Appellant had sought inter alia for a direction for transmission of shares in her name, held by her father. The communication addressed by both Smt. Nalini Hari and Smt. K. Sumathi to the Respondent Company is filed before the Tribunal. Be that as it may, the said Smt. K. Sumathi has filed an Application before the Hon'ble Madras High Court seeking to revoke the Order dated 28.05.2019 passed in OP No. 1118/2018. An Application A. No. 3640/2021 in OP No. 1118/2018 was filed seeking condonation of delay, which was condoned by the Hon'ble Madras High Court vide Order dated 15.03.2022, in which Order, the Hon'ble High Court has observed as follows:
A.No.3640 of 2021 in O.P.No.1118 of 2018
P.VELMURUGAN, J.
This application has been filed to condone the delay of 884 days in filing necessary application to revoke the -15- Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021 succession certificate granted by this Court, vide order dated 22.03.2019 in O.P.No.1118 of 2018.
2.Heard the learned counsel for the applicants and the learned counsel for the respondents and also perused the materials available on record.
3.Though the respondents/petitioners have obtained succession certificate, the applicants, who claim to be the second wife and adopted daughter of the deceased R. Kapanipathi Rao, have come forward with the present application to revoke the said succession certificate.
4.Whether the first applicant and second applicant are the second wife and adopted daughter of the deceased, or not, or whether the first applicant has got any testimony, can be decided not in this application, however, the Court has to see whether the reasons are sufficient to allow the application.
5.On being satisfied with the averments stated in the affidavit filed in support of the application and also considering the submissions made by the learned counsel on either side, the delay is condoned.
6.Registry is directed to take this application to revoke the succession certificate on file, if it is otherwise in order."
11. Having regard to the aforenoted Order, whereby the Hon'ble Madras High Court has condoned the delay and the Order issuing Succession Certificate dated 28.05.2019, is under challenge, we are of the considered view that the decision regarding transmission of shares by the Respondent Company and the Rival Claims ought to be decided subject to the Order of the Hon'ble Madras High Court.
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Comp. App. (AT) (CH) No. 55 of 2021 & I.A. Nos. 630 & 631/2021
12. Keeping in view the facts and circumstances of the attendant case, this Tribunal does not find the Judgements relied upon by the Appellant, applicable to the facts of the attendant case.
13. For all the foregoing reasons, we do not see any illegality or infirmity in the Impugned Order dated 08.04.2021 passed by the NCLT. Hence, this Appeal fails and is accordingly dismissed. No costs.
14. The connected pending Interlocutory Applications, if any, are Closed.
[Justice M. Venugopal] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) Chennai Bench, 05th December, 2022 himanshu