TMI Blog2016 (5) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the premises, of the resolution of 12 September 2011 being vitiated by mala fides is, thus, clearly sustainable. There is no error of law in it. There were two contests on merits :(i) the locus of the Petitioners, Mehboob and Yasmin, to present the petition in the face of the subsequent Board resolution of 12 September 2011 omitting their names; and (ii) whether the board had sufficient cause to refuse the transmission. On the first question, the CLB found, and rightly so, that once the resolution of 12 September 2011 was held to be contrary to the provisions of law and set aside, the earlier resolution of 9 May 1992 stood restored and therefore, there is no question of the locus of the Petitioners to apply for transmission by survivorship. (I have already held the decision of the CLB to set aside the resolution of 12 September 2011 to be valid.) On sufficient cause so far as the refusal to transmit is concerned, the CLB rightly relied on Article 25 of the Articles of Association of the Company, under which, in case of death of one or more joint holders, the survivor/s is/are the only person/s recognized as having title to or interest in the shares. In the case of a will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker, late Mehboob Khan. The company owns a large immovable property admeasuring about 4.2 acres at Hill Road, Bandra (West), Mumbai, known as 'Mehboob Studio', which is hired out for films and advertisements as of this date. The dispute between the parties relates to transfer / transmission of shares held by descendants / successors-in-title of late Mehboob Khan. The family tree of late Mehboob Khan is shown below for the purposes of convenience of understanding the controversy. Mehboob Khan : Family Tree I (two wives) Fatimabibi (6 children) I Sardar Akhtar (no children) Ayub Khan (deceased) 14.3.08 I Iqbal Khan (Orig R8) Shaukat Khan (Orig R7) Najma Sayed (Orig R2) Mumtaz Khan Zubeida Imam I Aslam Khan Afzul Khan (1st marriage) (Respdts 3 4) Mehboob Khan Yasmin Khan (from 2nd marriage) (Orig Petitioners) SattarKhan (Orig R5) Hafiz Khan (Orig R6) (II) Prior to 1992, Ayub Khan ( Ayub ), son of late Mehboob Kha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of registration of the testator's marriage under the Special marriage Act, making bequest of 100% estate of the Mohammedan through a will possible.) (V) On 17 September 2007, Ayub executed his last will and testament by which he bequeathed the aforesaid shares in favour of Mehboob and Yasmin in keeping with the original proposal of including their names in the share certificates so as to enable a testamentary disposition. The balance 278 shaes (out of 1132 shares held by Ayub) were bequeathed to Farida. (VI) On 14 March 2008, Ayub passed away. On his death, the shareholding of the company was held as follows : (i) Estate of Ayub 1132 shares 22.64% (ii) Iqbal Khan (original Respondent No.8) 1134 shares 22.68% (iii) Shaukat Khan (original Respondent No.7) 1299 shares 25.98% (iv) Afzal Ayub Khan (original Respondent No.4) 117 shares 2.34% (v) Aslam Ayub Khan (original Respondent No.3) 116 shares 2.32% (vi) Sattar Khan (original Respondent No.5) 381 shares 7.62% (vii) Abdul Hafiz Khan (original Respondent No.6) 338 shares 6.56% (viii) Najma Sayed (original Respondent No.2) 429 shares 8.58% (ix) Zubeida Peshimam (da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as passed appointing Afzal, Aslam, Najma and two others as Directors of the company. (The other Directors were Iqbal Khan, Managing Director and Shaukat Khan, Director, the two other sons of late Mehboob Khan.) (XIV) By its letter dated 11 July 2011, the Company finally rejected the request of Mehboob and Yasmin to transmit the shares and called upon the latter to obtain appropriate orders from the court. (XV) In the premises, on 5 September 2011, Mehboob and Yasmin, respectively, filed Company Petition Nos. 40 of 2011 and 42 of 2011 for rectification of register of members in respect of 726 shares and 128 shares of Ayub jointly held by them with him. The petitions proceeded alternatively on the basis of the right of survivorship of Ayub and Yasmin as joint shareholders along with Ayub in respect of these shares and devolution of shares under the last will and testament of Ayub. Simultaneously, Farida filed a petition, being Company Petition No.41 of 2011, claiming devolution of 278 shares under the last will and testament of Ayub. 3 That is where the matters stood when the disputes were taken before the CLB under the captioned petitions. A few important developments in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drop of these facts, the company petitions of Mehboob, Yasmin and Farida under Section 111 of the Act seeking rectification of register of members (C.P. Nos.40, 41 and 42 of 2011) as well as the company petition filed by the three under Sections 397 and 398 of the Act (C.P. No.96 of 2011) along with the petition of Afzal, Aslam and Sattar (C.P. No.97 of 2011) were taken up together for hearing by the CLB. 6 By its impugned order passed on the company petitions of Mehboob and Yasmin for rectification, the CLB set aside the Board resolutions of 13 December 2008 (to the extent it related to Mehboob and Yasmin) and 12 September 2011 (resolving deletion of the names of Mehboob and Yasmin from the register of members) and directed the Company to transmit 726 shares to Mehboob and 128 shares to Yasmin and enter their names in the register in respect of the respective shares. An undertaking was, however, directed to be filed by the transferees not to deal with these shares without prior approval of this Court in the pending administration suit, i.e. Suit No.2855 of 2008. The company petition of Farida (C.P. No.41 of 2011) for rectification of register in respect of 278 shares of late Ay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sattar from the dismissal of their petition under Sections 397 and 397 (Co.App. No.65 of 2014). This order disposes of three appeals, namely, Co.App. Nos.55 and 56 of 2014 and Co.App.No.31 of 2015, forming part of the first group. These appeals deal with one particular subject, namely, rectification of register of members so as to transmit 726 and 128 shares to the sole names of Mehboob and Yasmin, respectively. Co.Appeal Nos.55 and 56 of 2014 Co.Appeal Nos.54 and 31 of 2015 10 Mr.Chinoy, learned Senior Counsel for the Appellants in Co.Appeal Nos.55 and 56 of 2014 and Co.Appeal No.31 of 2015, made the following submissions: (i) Learned Counsel submitted that the finding of the CLB that the resolution of 12 September 2011 passed by the Board of Directors was null and void, is without jurisdiction, and in fact a miscarriage of justice. By this resolution, the Board had actually resolved that the original transfer of shares from the sole name of Ayub to the joint names of Ayub and Mehboob in respect of 726 shares, and Ayub and Yasmin in respect of 128 shares was ultra vires the directors, and null and void as being violative of the Articles of the Company. It is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the rectification petitions, namely, Company Petition Nos.40, 41 and 42 of 2011. The parties had very much joined issues on the validity of the resolution of 12 September 2011 in Company Petition No.96 of 2011. After hearing the parties fully, the CLB passed an order holding the resolution to be illegal, whilst directing rectification of register of members, in Company Petition Nos.40 and 42 of 2011 of Mehboob and Yasmin, respectively. Merely because this order was passed in the rectification petitions of Mehboob and Yasmin instead of the oppression and mismanagement petition of Mehboob, Yasmin and Farida, it cannot possibly be suggested that the order is either without jurisdiction or amounts to miscarriage of justice. Both orders on the rectification petitions and the oppression and mismanagement petition were passed on the same day after hearing the parties. Learned Counsel for the Appellants has not been able to show a single plea which the Appellants could not take, or a single document which the Appellants could not produce, in support of the validity of the resolution of 12 September 2011 because of the dismissal of the amendment application of the original Petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entures of, the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. (2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Tribunal against any refusal of the company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1), either to register the transfer or transmission or to send notice of its refusal to register the same. (3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or, where no notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission, as the case may be, was delivered to the company. (4) If - (a) the name of any person - (i) is, without sufficient cause, entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments were to be accepted, that is to say, if the company could deal with its own grievance of subsistence of any entry or omission without sufficient cause by the simple expedient of omitting such offending entry or undoing the offending omission by making an entry itself, there is possibly no reason to provide for a right to apply to the company. For if it does take any of the aforesaid two actions, only the other two categories, namely, the person aggrieved or any member, would be aggrieved and may have to apply for rectification. Mr.Chinoy suggests that the very fact that entry or omission of a name without sufficient cause is made a subject matter of grievance implies that there could be an entry or omission with sufficient cause and who else could do it but the company itself. There is a fallacy in this argument and that arises if we consider Section 111 as a stand-alone provision and not in the back-drop of other provisions. Section 111 finds place in a group of sections, Sections 108 to 112, which is under the title Transfer of Shares and Debentures . Section 108 deals with the requisites of a valid transfer. It mandates the company not to register a transfer of shares (or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 108, 108A to 108I, 109 and 110 apply to such applications. In all these cases, the aggrieved person or any member, as the case may be, may apply to the CLB for rectification. In case, however, any entry or omission previously made subsists on the register, and there is no sufficient cause for its subsistence, any aggrieved person, member or the company may apply to the CLB for rectification. There is no question of any aggrieved person or member applying to the company or the company itself, being aggrieved, acting on such grievance and correcting the register accordingly. That is the scheme of Sections 108 to 111. Accepting Mr.Chinoy's submission would lead to dangerous consequences. In the case of a wrongful refusal to enter or omit or making of a wrongful entry or omission, etc., any member could apply to the company itself for rectifying the register and the company could then proceed to rectify. After all if the company could rectify suo motu, it may well rectify on the application of a person aggrieved or any member. In every such case, Mr.Chinoy would have to admit, the company could well be said to have the power to do so and the only contested question would be of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had no power to make such an allotment. It was a case of common mistake ; and some time after the allotment was made the mistake was discovered. If the parties had come to the Court, it is admitted that the Court would have ordered the company and its directors to do exactly what has been done. Then the only question is, Can it be necessary to come to the Court to get an order to do that which both parties are willing to do, and wish to be done ? I cannot hold that it is necessary, and I am therefore of opinion that Mr.Hartley is in the same position as if his name had not been placed on the register until after the contract had been filed. His name must, consequently, be removed from the list of contributories. 16 The decision of Delhi High Court in the case of His Highness Manabendra Shah Maharaja of Tehri Garhwal (supra), relied upon by Mr.Chinoy, was a case where the shareholder's case was that though he had applied for 500 shares, a mistaken entry was made in the register in respect of 50,000 equity shares; by a resolution subsequently passed by the Board of Directors that allotment of 50,000 shares was cancelled and the register was rectified. The Court held that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles of Company, the Board was bound to register the transmission in their favour after the death of Ayub. Mr.Jagtiani, learned Senior Counsel for the Respondents, supported this conclusion of the CLB by submitting that the power of the Board of Directors of rejecting or accepting a transfer or transmission must be exercised bona fide and in the interest of the company and the shareholders in general, and not mala fide or with an oblique motive or for a collateral purpose or arbitrarily. In Bajaj Auto Ltd. vs. N.K. Firodia 1970(2) Supreme Court Cases 550, the Supreme Court laid down three standpoints from which the exercise of powers of the directors in this behalf ought to be tested. The Supreme Court held as follows : 14. In the present appeals, the reasons of the Directors have to be tested from three points of view. First, whether the Directors acted in the interest of the company; secondly, whether they acted on a wrong principle; and, thirdly, whether they acted with an oblique motive or for a collateral purpose. This Court in M/s.Harinagar Sugar Mills Ltd. v. Shyam Sundar Jhunihunwala Others [(1962) 2 SCR 339 : AIR 1961 SC 1669] that the discretion of the Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution of 12 September 2011 being vitiated by mala fides is, thus, clearly sustainable. There is no error of law in it. 21 Further, it is important to note that there was no application before the CLB to cancel the entry of joint shareholding effected in favour of Mehboob and Yasmin in respect of 726 and 128 shares of Ayub by the Board resolution of 9 May 1992. The power of the then Board of Directors of the Company to add their names jointly with Ayub in the share certificates and make entries accordingly in the register was not a subject matter of challenge. Earlier, the resolution of 9 May 1992 was challenged by Najma in a company petition filed in the year 2003 before the Company Law Board, New Delhi (Company Petition No.108 of 2003), but there was no order for cancellation of the resolution or the entries made in pursuance thereof on that petition. Even on the petition of the Appellants herein, Afzal and Aslam, before the Company Law Board, New Delhi (Company Petition No.1757 of 2008) challenging the inclusion of Mehboob and Yasmin as joint shareholders for 726 shares and 128 shares of Ayub, no order was passed. The only question before the CLB in the present case was the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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