Kerala High Court
Lalithamba Bai vs Harrisons Malayalam Ltd. And Anr. on 7 January, 1988
JUDGMENT Varghese Kalliath, J.
1. This is an application filed under Section 155 of the Companies Act, 1956. Section 155 of the Companies Act gives power to this court to rectify the register of members. Section 150 mandates that every company shall maintain a register of its members. Section 150 provides that, " (1) Every company shall keep in one or more books a register of its members, and enter therein the following particulars :
(a) the name and address, and the occupation, if any, of each member ;
(b) in the case of a company having a share capital, the shares held by each member, distinguishing each share by its number, and the amount paid or agreed to be considered as paid on those shares ;
(c) the date at which each person ,was entered in the register as a member; and
(d) the date at which any person ceased to be a member : Provided that where the company has converted any of its shares into stock and given notice of the conversion to the Registrar, the register shall show the amount of stock held by each of the members concerned instead of the shares so converted which were previously held by him.
(2) If default is made in complying with Sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which, the default continues."
2. Section 109 of the Companies Act provides that:
"A transfer of the share or other interest in a company of a deceased member thereof made by his legal representative shall, although the legal representative is not himself a member, be as valid as if he had been a member at the time of the execution of the instrument of transfer."
3. In this case, the petitioner and the second respondent claim that they are the legal heirs of Ramavarma Valiakoil Thampuran. Thampuran has left a will, which is an annexure to the petition, marked exhibit A-5, and by virtue of this will, the shares held by Thampuran in Malayalam Plantations (Holdings) Limited (UK) have been bequeathed to the petitioner and the second respondent. It is also provided in the will that they are entitled to the shares in the ratio of 2 : 1.
4. Thampuran had 3,750 shares in Malayalam Plantations (Holdings) Limited (UK). We are now concerned only with regard to these shares held by the said Thampuran. Thampuran died on December 29, 1975. There is no dispute that the said shares have to devolve as a bequest by virtue of the will to the petitioner and the second respondent.
5. The case of the petitioner is that she is entitled to an order from this court under Section 155 of the Companies Act to rectify the share register of the first respondent, Messrs. Harrisons Malayalam Ltd.
6. Now, I shall advert to the case of the petitioner as to how Messrs. Harrisons Malayalam Ltd. came into existence and how the petitioner is entitled to claim the right to become a shareholder of the said company when Thampuran had shares only in the Malayalam Plantations (Holdings) Ltd. (UK). Messrs. Harrisons and Crosfield (UK) Ltd. were acting as agents and secretaries of Malayalam Plantations (Holdings) Ltd. (UK). By annexure A-3, it is seen that exercising the power under Section 209(1) of the Companies Act (English Act), 1948, Messrs. Harrisons and Crosfield (UK) Ltd. had acquired the shares held by Thampuran in Malayalam Plantations (Holdings) Limited (UK), and that the said company, Malayalam Plantations (Holdings) Limited (UK), have received on behalf of the shareholder, Thampuran, as purchase consideration, shares of Harrisons & Crosfield (UK) Limited. Further, it is seen stated that Thampuran had 340 ordinary shares of 1 each in Harrisons & Crosfield (UK) Ltd. and cash, representing proceeds of sale of fractions, 3. It is clear from annexure A-3 that the legal heirs of Thampuran, viz., Setu Lakshmi Bayi, the wife, the petitioner and the second respondent, have got entitlement to the abovesaid shares. In the same annexure, it is further stated that they are prepared to arrange for the transfer of Harrisons & Crosfield (UK) Ltd. ordinary shares held in trust for them on receipt of Malayalam Plantations (Holdings) Limited (UK) share certificates. The letter concludes by saying that "a certificate for such ordinary shares will then be issued to you, and if applicable, a cheque in respect of the proceeds of sale of any fractions due to you". In response to this annexure A-3, the petitioner had replied to Malayalam Plantations (Holdings) Ltd. (UK) by annexure A-4 and said that the certificates which were required to be submitted as stated in annexure A-3 were with Malayalam Plantations (Holdings) Ltd. (UK) and so, certificates of shares of Messrs. Harrisons & Crosfield (UK) Ltd. may be sent to the petitioner without delay.
7. In the petition it is not stated that pursuant to this letter they have received the shares of Messrs. Harrisons & Crosfield (UK) Ltd. From the records available in this case, it is difficult for this court to proceed on the basis that the petitioner and the second respondent have obtained the share certificates of Messrs. Harrisons & Crosfield (UK) Ltd. and thus the petitioners have become members or shareholders of Messrs. Harrisons & Crosfield (UK) Ltd. In this respect, I have to refer to annexure A-2 which is exhibit A-3. In this annexure, Messrs. Harrisons & Crosfield (UK) Ltd. have indicated that they have received Malayalam Plantations (Holdings) Ltd. (UK) share certificates for 3,750 shares, but they said that they wanted the completed indemnity (bond) and a letter of request also. The letter of request referred to in exhibit A-3 should be a letter of request from Malayalam Plantations (Holdings) Ltd. (UK) for the transfer of shares, since at that time those shares were held in trust by Malayalam Plantations (Holdings) Ltd. (UK). I am not in a position to say with certainty from the records available in the case that there was a transmission of the shares held by Valiakoil Thamburan in Malayalam Plantations (Holdings) Ltd. (UK) in favour of the petitioner and the second respondent. Of course, the possibility is that those shares have been converted into shares of Messrs. Harrisons & Crosfield (UK) Ltd. and so, those shares might have been transmitted to the legatees under the will of Thamburan, namely, the petitioner and the second respondent. Anyhow, from the records available in the case, I feel that the petitioner and the second respondent have got entitlement for 340 ordinary shares of 1 each in Messrs. Harrisons & Crosfield (UK) Ltd. Of course, the petitioner and the second respondent have to comply with the formalities required for the actual transmission/transfer of shares.
8. Whether the petitioner and the second respondent have complied with the formalities required for actual transmission/transfer of shares cannot be said with certainty. I am bound to consider what it is that constitutes membership in a company. This is a point of first importance in the law of companies and it can be answered only with reference to the relevant provisions of the Companies Act.
9. Section 41 of the Companies Act gives the definition of a member. It includes the subscribers to the memorandum of a company and every other person who agrees in writing to become a member of the company and whose name is entered in its register of members. In the case of members other than subscribers to the memorandum, two essential conditions have to be satisfied to constitute a person as a member : (1) An agreement in writing to become a member, and (2) an entry on the register. These two conditions are cumulative. Both these conditions have to be satisfied and if both these conditions are not satisfied, the person in question cannot claim the status of a member. The position in the English Act is also almost identical.
10. Messrs. Harrisons and Crosfield (UK) Ltd. had large assets and liabilities in India. Since a foreign company was holding large assets in India, as a policy measure, a scheme was evolved for the purpose of acquiring the assets of Messrs. Harrisons and Crosfield (UK) Ltd. by an Indian company and for that purpose Messrs. Harrisons and Crosfield (India) Ltd. was formed and the assets and the business liabilities of Messrs. Harrisons and Crosfield (UK) Ltd. in India were taken over by Messrs. Harrisons Crosfield (India) Ltd. and this was done after satisfying the provisions of the Indian Companies Act by filing C. P. No. 24 of 1979 and obtaining an order from this court. Copy of the order passed by this court with a scheme of arrangement and amalgamation has been produced and marked as exhibit R-1. As per the scheme, it is clear that in Messrs. Harrisons and Crosfield (India) Ltd. 60% of the issued share capital should be held by Indian residents and the remaining 40% of the issued share capital by Messrs. Harrisons and Crosfield (UK) Ltd. This 40% of the issued share capital was given on the basis of the valuation of the assets and liabilities of Messrs. Harrisons and Crosfield (UK) Ltd. in India. This I say since in the scheme it is made clear thus :
"Within six months after the operative date, the Indian company will issue shares for cash to Indian residents at par to ensure that 60% of the issued capital is held by Indian residents. In issuing and allotting shares to the transferor company, the Indian company will see that the equity participation of the transferor company in the Indian company Shall not exceed 40% of the issued capital and the balance 60% will be issued and allotted to persons resident in India. At no time after the lapse of six months from the operative date, the non-resident interest in the equity capital of the Indian company shall exceed 40%."
11. Subsequent to the incorporation of Messrs. Harrisons and Crosfield (India) Ltd., by an order of this court in C. P. No. 13 of 1983, a scheme of arrangement and amalgamation was passed whereby Messrs. Harrisons and Crosfield (India) Ltd. was amalgamated with Malayalam Plantations (India) Ltd., and by that amalgamation, Messrs. Harrisons and Crosfield (India) Ltd. ceased to exist and the name "Malayalam Plantations (India) Ltd." has been changed to Messrs. Harrisons Malayalam Ltd., the first respondent in this petition.
12. The question that has to be considered in this case is, whether, from the aforesaid facts and circumstances, the petitioner's claim for rectification of the share register of Messrs. Harrisons Malayalam Ltd. can be allowed or not. Counsel for the petitioner submitted that all assets and liabilities of Messrs. Harrisons and Crosfield (UK) Ltd. in India are now virtually vested with Messrs. Harrisons Malayalam Ltd. and so, he submits that since the petitioner and the second respondent had some shares in Messrs. Harrisons and Crosfield (UK) Ltd., by virtue of transmission in their favour of the shares of their father in Malayalam Plantations (Holdings) Ltd. (UK), the share register of the first respondent has to be rectified declaring that the petitioner and the second respondent are holding shares in the first respondent-company. Of course, it is true that all . the business liabilities in India of Messrs. Harrisons and Crosfield (UK) Ltd. have been, as I said earlier, now taken over by Messrs. Harrisons Malayalam Ltd.
13. The main question that I have to answer is whether, if the petitioner and the second respondent have got the shares of Malayalam Plantations (Holdings) Ltd. (UK) transferred to them as shares of Messrs. Harrisons and Crosfield (UK) Ltd., those shares can be treated as the shares of the first respondent-company. Counsel for the petitioner submitted that it can be done since all the liabilities of Messrs. Harrisons and Crosfield (UK) Ltd. have been taken over by Messrs. Harrisons Malayalam Ltd. in respect of its Indian business. The question is whether that provision is comprehensive enough to say that the shares held by Indian residents in Messrs. Harrisons and Crosfield (UK) Ltd. also have been taken as liabilities of Messrs. Harrisons and Crosfield (India) Ltd. in the first instance and then by Messrs. Harrisons Malayalam Ltd. I find it difficult to accept the contention of counsel for the petitioner. Assuming that the petitioner succeeds in establishing that the shares held by her father in Malayalam Plantations (Holdings) Ltd. (UK) have been converted into shares of Messrs. Harrisons and Crosfield (UK) Ltd. and those shares have been transmitted to the petitioner' and the second respondent, even in that case, it is difficult to say that the shares held by the petitioner in Messrs. Harrisons and Crosfield (UK) Ltd. have to be treated as shares of Messrs. Harrisons Malayalam Ltd., as one of the business liabilities of Messrs. Harrisons and Crosfield (UK) Ltd. in India. The shares held by Indian citizens in Messrs. Harrisons and Crosfield (UK) Ltd. may perhaps constitute a liability of that company. But, it can never be said that it is a business liability. What is the true position of a shareholder in a company ? If the company earns profits and declares dividend, certainly, the shareholder is entitled to participate in it and get his share of dividend. In the event of winding up, his right is to participate in the distribution of company's assets in accordance with the rights given to him under the articles. He acquires no other interest in the assets of the company : See Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 ; [1955] 25 Comp Cas 1 ; AIR 1955 SC 74. "A share in a company cannot properly be likened to a sum of money settled upon and subject to executory limitations to arise in the future ; it is to be regarded rather as the interest of the shareholder in the company, ensured, for the purposes of liability and dividend, by a sum of money but consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with Section 16 of the Companies Act, 1862, and made up of various rights and liabilities contained in the contract, including the right to a certain sum of money. (Vide Borland's Trustee v. Steel Brothers and Co, Limited ([1901] 1 Ch. 279)).
14. What is taken over by the Indian company are the assets and business liabilities of M/s. Harrisons and Crosfield (UK) Ltd. in India and so in any event it cannot be said that the Indian company has taken over all the shares held by Indian citizens in Messrs, Harrisons and Crosfield (UK) Ltd. Counsel for the first respondent submitted that there is no bar for Indian citizens to hold shares in a U.K. company and in fact, so many Indian citizens are having shares in Messrs. Harrisons and Crosfield (UK) Ltd. In this view, the contention of the petitioner is not sustainable. I hold that even if the petitioner has got the shares of her father transferred to the petitioner and the second respondent and those were shares of Messrs. Harrisons and Crosfield (UK) Ltd., the petitioner and the second respondent cannot claim shares in Messrs. Harrisons Malayalam Ltd. and so, this court is not in a position to rectify the share register of the first respondent.
15. Counsel for the first respondent also submitted before me that there is no clear evidence in this case that the petitioner has obtained shares of Messrs. Harrisons and Crosfield (UK) Ltd. and if they have not obtained shares of Messrs. Harrisons and Crosfield (UK) Ltd., they cannot have any claim at all. To meet this argument, counsel for the petitioner submitted that Section 155 of the Companies Act has got a wider scope and width and that this court can make an investigation as regards the question whether the petitioner and the second respondent have obtained shares of Messrs. Harrisons and Crosfield (UK) Ltd. I feel that from the papers produced, though it is not conclusive, the possibility to a near certainty is that they have got an entitlement to hold shares in Messrs. Harrisons and Crosfield (UK) Ltd. As I said earlier, that alone is not sufficient for me to act under Section 155 of the Companies Act and rectify the share register. I do not want to say anything more on this aspect of the case.
16. The petition deserves to be dismissed and I do so. No costs.