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2016 (5) TMI 1036 - BOMBAY HIGH COURT

2016 (5) TMI 1036 - BOMBAY HIGH COURT - TMI - Transmission of shares - rectification of register of members - validity of the refusal of the company to transmit 726 and 128 shares jointly held by Mehboob and Yasmin, respectively, with Ayub upon the latter's death - Held that:- In the present case, the resolution of the Board of Directors dated 12 September 2011 does not stand the scrutiny of these tests. During the brief period, i.e. between 4 April 2011 and 23 November 2011, when the Appellants .....

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on the Board, they unilaterally proceeded to cancel the entries, acting in their own interests and on a wrong principle. The conclusion of the CLB, 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 the .....

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r 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, Article 28(f) of the Articles came into play. The CLB held that the company was bound to follow its Articles and could not have denied t .....

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Petitioners were entitled to the relief of rectification of register, by entering their names as sole shareholders in respect of 726 and 128 shares. The conclusion is clearly in order. No error of law can be said to vitiate it. - COMPANY APPEAL (L) NO. 55, 56, 65 OF 2014, COMPANY PETITION NO. 40, 42, 97, 46, 41 OF 2011, COMPANY APPEAL NO. 31, 54, 56 OF 2015 - Dated:- 28-3-2016 - S.C. GUPTE, J. For The Appellant : Mr.Aspi Chinoy, Senior Advocate with Vaibhav Krishna & Tahir Parande I/b. Juri .....

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ications under Section 111 of the Companies Act, 1956 ( Act ), by which the first Respondent company was inter alia directed to transmit shares held by a shareholder of the company and rectify the register of members. Companion Company Appeal Nos.31 of 2015 and 54 of 2015 are cross appeals which impugn another order passed by the CLB on the same day on a petition filed by the same Petitioners under Sections 397 and 398 of the Act, complaining of the same facts as are the subject matter of the re .....

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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) .....

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rida Moriswala ( Farida ), (original Petitioners) as joint holders in respect of 726 and 128 shares, respectively, held by Ayub in his sole name. The entries were made in the share certificates and the names of the original Petitioners, Mehboob and Yasmin, were entered in the register of members as joint holders with Ayub in respect of the shares. Thus, 1992 onwards, 726 shares of the company have been held by Mehboob whilst 128 shares have been held by Yasmin, both jointly with Ayub. (III) In o .....

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the names were added in view of a proposed testamentary disposition during his life time in favour of the two, which was to take effect upon his death and that since that was not a transfer, the pre-emption clause in the Articles did not apply thereto.) Around the same time, i.e. in or about November 2003, Najma also filed another company petition, being Company Petition No.108 of 2003, under Sections 397 and 398 of the Act, complaining of oppression and mismanagement. (Once again, in reply to t .....

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egarding testamentary succession to the property of a Mohammedan do not apply in the event 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 testa .....

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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 (daughter of late Mehboob Khan) - 39 shares - 0.78% (x) Estate of Sardar Akhtar (late Mehboob Khan's second wife) - 25 shares (VII) On 4 April 2008, Mehboob, Yasmin and Farida called upon the company to effect transfer of 726 shares and 128 sha .....

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8, challenging the last will and testament purportedly executed by Ayub. (IX) On 26 August 2008, Afzal and Aslam also filed an administration suit, being Suit No.2855 of 2008, in this Court claiming entitlement by way of intestate succession to half the estate of late Ayub, being sons from the latter's first marriage, which inter alia included 566 shares out of 1132 shares of the company originally held by Ayub. (X) On 25 November 2008, this Court rejected the prayer for ad-interim reliefs i .....

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company, the Board noted the order in the notice of motion inter alia to the effect that all transactions would be subject to further orders in the motion and the suit and in pursuance thereof, decided not to transmit the shares and to keep the dividend on the shares in a separate account. (XII) In January 2011, the Company through its Advocates informed the Advocates of Mehboob and Yasmin that the company would not accede to their request for transmission of the shares unless appropriate direc .....

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ppropriate 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 te .....

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e Board noted that the original transfer of shares to the joint names of Mehboob and Yasmin along with late Ayub, which was accomplished in 1992, was in violation of the Articles of Association and that the Board was duty bound to take remedial steps for rectification / correction of entries made in the register of members. The Board of Directors by a majority of 6 : 1 resolved that the transfer of 726 shares and 128 shares by Ayub in favour of himself jointly with Mehboob and Yasmin, respective .....

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Farida filed Company Petition No.96 of 2011 under Sections 397 and 398 of the Act, complaining of oppression and mismanagement and challenging inter alia the resolution dated 12 September 2011. (IV) On 23 November 2011, original Respondent Nos.3 and 4 as well as the two other Directors, Sattar Khan and Afiz Khan, were removed as Directors of the company. The reconstituted Board passed a resolution rescinding all earlier resolutions passed by them during their tenure, including presumably the res .....

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ith Sattar Khan challenged the resolution of 23 November 2011, removing them as directors of the company, in a petition under Sections 397 and 398 (Company Petition No.97 of 2011). 5 In the backdrop 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 p .....

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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 Ayub by giving effect to the will executed by Ayub, was disposed of by reserving liberty to her to revive her p .....

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ent the CLB refused to grant her prayer for rectification. 7 By its order of the same date, i.e. 7 August 2014, the CLB dismissed the company petition of Mehboob,Yasmin and Farida under Sections 397 and 398 of the Act (C.P. No.96 of 2011), inter alia, on the ground that the grievance of Mehboob and Yasmin in respect of nontransmission of 726 and 128 shares respectively held by them as joint shareholders with late Ayub had already been brought to an end by final orders passed on C.P. Nos.40 and 4 .....

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gust 2014, the CLB dismissed the petition of Afzal, Aslam and Sattar under Sections 397 and 398 (C.P. No.97 of 2011). This order has been challenged by them in Company Appeal No.65 of 2014. 9 The appeals form four groups : (i) The appeals of Afzal and Aslam from the rectification orders passed on the petitions of Mehboob and Yasmin (Co.App.Nos.55 and 56 of 2014) and the appeal of Afzal and Aslam from the order on the oppression and mismanagement petition of Mehboob, Yasmin and Farida (Co.App. No .....

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e 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 .....

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which was passed during the pendency of the rectification petitions, was sought to be challenged by the Petitioners by introducing an amendment to their petitions, but the amendment application was dismissed as not pressed. Mr.Chinoy submitted that in the premises, the CLB could not have proceeded to set aside that resolution, particularly considering that the same did not form part of the challenge and his clients had no opportunity to deal with the same in their pleadings in the rectification .....

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s. 11 The contention of learned Counsel for the Appellants that the finding of the CLB on the Board resolution of 12 September 2011 was without jurisdiction and null and void by reason of dismissal (as not pressed) of the amendment application introducing a challenge to the resolution, appears to be hyper technical and is decisively devoid of any substance. The allegation is that the order is without jurisdiction and amounts to miscarriage of justice for two reasons - one, the resolution was not .....

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lative of the Articles, was very much a subject matter of challenge in the companion company petition, namely, Company Petition No.96 of 2011. In fact, that was one of the main grounds on which the grievance of Mehboob and Yasmin about oppression and mismanagement by the Appellants herein was premised. Company Petition No.96 of 2011 was heard by the CLB along with the rectification petitions, namely, Company Petition Nos.40, 41 and 42 of 2011. The parties had very much joined issues on the valid .....

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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 dismi .....

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ggrieved or any member of the Company would, is merely a permissive and enabling provision and it is not obligatory for the company to apply to the CLB for such rectification. It is submitted that the scheme of Section 111, particularly Clause (a)(ii) of Sub-section (4) thereof, does suggest that the Company itself could omit the name of any person from the register of members, provided of course it has a sufficient cause to do so; and if it does so without such sufficient cause, any aggrieved p .....

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975) II Delhi 594 and Smt.Biva Pyne vs. Pyne Properties P. Ltd. (2010) 153 Comp Cas 49 (CLB) in support of his submission that such rectification could be made by the Company. He also relies on the judgments of Hunter vs. Hunter {1936} A.C. 222 and Tett vs. Phoenix Property and Investment Co.Ltd. (1986) 2 B.C.C. 99140 to support the action of the Board in deleting the entries. 13 Section 111 deals with entries in the register of members and rectification of the register. Sub-sections (1) to (4) .....

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ate 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 r .....

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case may be, was delivered to the company. (4) If - (a) the name of any person - (i) is, without sufficient cause, entered in the register of members of a company, or (ii) after having been entered in the register, is, without sufficient cause, omitted therefrom; or (b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be, a member [including a refusal under sub-section (1)], the person aggrieved, or any member of t .....

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register any transfer or transmission, (b) entering or omission of a name without sufficient cause and (c) default or delay in entering or omitting any name. Insofar as grievance (a) is concerned, obviously the aggrieved person or any member alone could file an appeal. There is no question of a company carrying the matter before the CLB, since the appeal in this case actually challenges an action of the company, namely, refusal to register a transfer or transmission. So also, in the case of (c), .....

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omission in the register. If a name exists on the register, without there being a sufficient cause, or a name which originally existed stands omitted in the register, again without a sufficient cause, the company may be aggrieved and may, in that case, apply to the CLB for rectification of register. In other words, it is not the act of entering or omitting a name, but the subsistence of such entry or omission, which gives rise to a grievance insofar as the company is concerned. 14 If Mr.Chinoy&# .....

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grieved 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 section .....

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imself being a member. Section 109A provide for nomination of shares by a holder thereof and vesting of the shares in such nominee upon the death of the holder. Section 110 provides for the application for transfer and notice before registration of transfer. In this context, Section 111 deals with the various grievances, which may arise as a result of a wrongful entry or omission or refusal to register, or delay or default in registration. As the scheme of these Sections indicates, a company may .....

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ch of Section 110 or delays or makes a default, the person aggrieved or any member could apply. These are all wrongful refusals or delays or defaults. These are all actions or omissions of the company on applications for transfer or transmission. In addition to these categories of cases, there may be cases where a wrongful entry or omission may be subsisting in the register without a sufficient cause, that is to say, an entry or omission, no doubt made earlier by the company in the first place ( .....

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a transferor or (ii) a transferee or (iii) a transmittee or (iv) a legal representative of a holder. Sections 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 rectifica .....

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uld 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 sufficiency of the cause to do so. That, I am afraid, cannot be a correct interpretation of the law. 15 The reason for not reserving unto the company the power to correct a subsisting entry (as .....

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were duly entered on the register of members as allottees of shares. The directors later resolved to cancel the allotment and proceeded to remove their names from the register. This is what Madras High Court said in that case: 4. Before proceeding further, I may say I am disposed to regard the removal by the company of the applicants' names from the register of members as wholly illegal. The register of the members of a company is a public document and I know of no provision in the Companie .....

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r omission, and if there is no dispute, and if the circumstances are such that the Court would order rectification , the Board of Directors may itself effect the necessary correction (Halsbury's Laws of England, Fourth Edn. Vol.7, Para 306). In re Poole Firebrick and Blue Clay Company (known as Hartley's case) (187475) Law Reports 10 Ch. App.157, the law was stated by the Master of the Rolls in the following words : It is part of the duty of directors to keep a correct register of their .....

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stion 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 .....

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Court relied on the decision in Hartley's case and also the obligations of the McCardie J. in First National Re-insurance Company Ltd. vs. Greenfield [(1921 (2) K.B. 260] (13) to the following effect : With regard to the rectification of the register an application to the court was essential only when the company disputes the right to rectification. There is no reason why the directors, if they bone fide agree that the shareholder has a right to avoid the contract, should not thereupon asse .....

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ompany was that the Board had corrected this error to bring the shareholding to the correct position. The CLB in Biva Pyne, however, proceeded on the footing of a presumption that the register of members was also altered in keeping with the altered shareholding purportedly erroneously reflected in the annual returns. To the extent the CLB decision suggests that the company can alter its register either by entry in or omission from the register on its own and without recourse to the Court even in .....

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e the CLB order of the same date in Company Petition No.96 of 2011.) Firstly, because no court order was sought under Section 111(4) and secondly, because Mehboob and Yasmin were joint holders for over 19 years as per the register of members and under the Articles 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 Boa .....

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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 would be nullified if it were establi .....

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unless corrupt or mala fide motives were affirmatively pleaded and proved. It would be for the aggrieved transferor to show that the refusal to register transfer was exercised mala fide and not in the interest of the company and thereby the presumption of bona fide would be displaced. 15 The words 'bonafide and for the benefit of the company as a whole' have been considered in some English decisions. Reference may be made to the decision in Greenhalgh v. Arderne Cinemas Ltd. [(1950) 2 Al .....

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solution of the Board of Directors dated 12 September 2011 does not stand the scrutiny of these tests. During the brief period, i.e. between 4 April 2011 and 23 November 2011, when the Appellants were on the Board of the Company, they appear to have passed this resolution acting in their own interest. Their suit, challenging the will of Ayub, was pending before this Court. So also, was their petition challenging the joint holdership of Mehboob and Yasmin pending before the CLB, Principal Bench. .....

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r, 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 .....

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ssed. The only question before the CLB in the present case was the validity of the refusal of the company to transmit 726 and 128 shares jointly held by Mehboob and Yasmin, respectively, with Ayub upon the latter's death. 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 transmiss .....

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cerned, 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, Article 28(f) of the Articles came into play. The CLB held that the company was bound to follow its Articles and could not have denied transmission / registration of the shares in the sole names of Mehboob and Yasmin. The CLB fu .....

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