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A.J. Coelho Versus South India Tea & Coffee Estates Ltd.

2001 (4) TMI 939 - COMPANY LAW BOARD CHENNAI

C.P. Nos. 52 of 1995 and 84 of 1999 - Dated:- 20-4-2001 - S. Balasubramanian and K.K. Balu For the Petitioner: K.N.V. Ramani and R. Vidhya Shankar, Advs. For the Respondent: T. Raghavan and A.K. Mylsamy, Advs. ORDER 1. The petition in CP 52 of 1995 is filed under section 111(4) of the Companies Act, 1956 ('the Act') against South India Tea and Coffee Estates Limited ('the Company') and three others for the following reliefs :- (a) to rectify the register of members of the company .....

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mpugned shares. After the petition was filed, other legal heirs of the deceased M.A. Coelho were impleaded as petitioners Nos. 2 to 9. The petitioner No. 1 and 8 are sons; petitioner No. 2 and 7 are daughters and the other petitioners are wife and children of I.R. Coelho, deceased son of Mrs. Coelho. 2. The petition in CP 84 of 99 is filed by the petitioners holding 16.20 per cent of the total issued and paid up capital of the Company under sections 397 and 398 of the Act alleging that the affai .....

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leting the name of third/fourth respondent in respect of 21,000 rights shares which should have been allotted in favour of the petitioners; and (b) to supersede the existing board of directors of the company and order convening of the general body to manage the affairs of the company. 3. The main acts of oppression and mismanagement relate to placing of the shares of the deceased M.A. Coelho and the corresponding right shares in the name of the third respondent and the allotment of right shares .....

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common order. 4. The facts in brief as reiterated by Shri K.N.V. Ramani, the senior counsel for the petitioners are that the first petitioner, being son of the deceased G.J. Coelho and the deceased M.A. Coelho, is a member of the Company holding 7,000 equity shares of nominal value of ₹ 10 each. Mrs. M.A. Coelho, a member of the Company holding 3,250 shares in the Company died on 24-9-1981. Upon her death, the impugned shares devolved on her legal heirs, namely, her four daughters and four .....

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ed shares were shown as transferred in favour of the third respondent, who is the wife of the second respondent. The petitioners being the legal heirs are entitled to the impugned shares. The second respondent taking advantage of his position as the managing director of the Company placed the impugned shares in the name of third respondent, as if the shares were transferred in her favour. The second respondent further gave the benefit of right shares to the third respondent by allotting shares i .....

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e understanding among the members of the family and in accordance with the wishes of the deceased M.A. Coelho. Mrs. M.A. Coelho had not executed any instrument of transfer during her life time and for several years after her death the impugned shares were shown as belonging to the estate of the deceased M.A. Coelho. The deceased has not left behind her any will. No succession certificate has also been produced before the transfer of shares in favour of the third respondent. The impugned shares s .....

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he third respondent, being daughter-in-law cannot be a legal heir of the deceased M.A. Coelho. Since the third respondent is not a legal heir, the impugned shares cannot be transmitted in her favour. The Company has not adopted the procedure prescribed in article 16 of articles of association in case of transmission of shares in favour of the third respondent. The Company has violated the provisions of section 108 of the Act. Proviso to section 108(1) speaks of transmission of shares by operatio .....

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d respondent. Under article 16 of discretion should be exercised by the members of the Board in approving the transfer in favour of the third respondent. In the instant case, three of the directors were interested and hence discretion exercised by the Board is not valid. There has been no document to evidence any family arrangement by which the impugned shares were transmitted in favour of the third respondent. Even in a partition, it can be only between persons having antecedent title. There ca .....

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rding the transfer of impugned shares in favour of the third respondent . In the circumstances, the impugned shares are liable to be automatically restored to the name of the petitioners and other legal heirs. The transmission of impugned shares was never effected with consent of legal heirs of the ceased M.A. Coelho nor was approved at the Board meeting held on 23-7-1986. There was no understanding among the legal heirs of the deceased M.A. Coelho on appropriation and division of the assets and .....

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hts can flow. The impugned shares should therefore be restored to all the legal heirs of the deceased M.A. Coelho. Shri Ramani further submitted that the Company came out with a rights issue and though the first petitioner applied for the rights shares and advised the second respondent to appropriate surplus available in Adikcholc Estate Account towards consideration for the rights shares, the second respondent failed to allot the rights shares. This factor came to light only when the first peti .....

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for the rights shares. The first petitioner was eligible for 21,000 rights shares, which he was deprived of by the fraudulent acts of the second respondent. The rights shares due to the first petitioner were allotted to third/fourth respondent which is illegal. In the process, the second respondent has augmented the post rights holding controlled by him to 1,11,400 equity shares amounting to more than 51 per cent of the share capital, as against 35.83 per cent which his group held originally. Th .....

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to 9 in the year 1996. Mr. I.R. Coelho, one of the sons, since deceased in not a party before the CLB. Mr. Ramani has further submitted that the company railed to produce any copy of the Board Resolutions in support of the offer regarding issue of 1,80,000 equity shares by way of rights to the existing shareholders. The respondents have disputed the letter dated 21-4-1987 (Annexure A-9 at page 90 of CP 52 of 1995) by which the first petitioner had requested the second respondent to adjust the a .....

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lotment of shares including an extract from the bank account to find out whether the respondents had paid money for the rights issue, the Company failed to produce any of those documents, thereby adverse inference should be drawn against the respondents. The letters dated 21-4-1987 and 29-4-1987 (Annexures A-9 and A-10) will show that the Company did not comply with formalities for allotting the rights shares. It is apparent that the Company allotted the rights shares in favour of Mr. I.R. Coelh .....

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s borne out from the facts that no formal written applications were prescribed for rights issue and also no amount was insisted. The petitioner had not acquiesced the action of the company in allotment of the rights shares in favour of the respondent Nos. 2 and 3 by way of the adoption of annual accounts at the annual general meeting held on 30-9-1992. It is in these circumstances, the petitioners sought for the remedies sought in the petitions. Shri Ramani, in support of his legal contentions r .....

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death onwards. This would happen by virtue of operation of the law of succession. This position, that ownership of property rights vis-a-vis the shares held by the deceased in transferred to the heirs of a deceased holder, is recognised by necessary intendment by the proviso to section 108 of the Companies Act, 1956." (p. 5) • CIT v. Keshavlal Lallubhai Patel AIR 1965 SC 866 to state that- "partition is really a process in and by which a joint enjoyment is transformed into an enjo .....

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Mad. 421 and Pefer Alan Basi v. East India Pharmaceutical Works Ltd AIR 1976 Cal. 182 to state that- "A practice has grown up in Indian procedure of those in possession of important documents or information lying by, trusting to the abstract doctrine of the onus of proof, and failing, accordingly, to furnish to the Courts the best material for its decision. With regard to third parties, this may be right enough- they have no responsibility for the conduct of the suit, but with regard to th .....

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ny cannot make alterations in the register of Members and the alterations made were consequently unauthorised and illegal. • Tracstar Investments Limited v. Gordon Woodruff Ltd [1996] (1) CLJ 462 (CLB) and Killick Nixon Ltd v. Dhanraj Mills (P.) Ltd. [1983] 54 Comp. Cas. 432 Bom. to state that- ... any member of a Company aggrieved or not in regard to the shares can seek rectification of register of members of the Company. • Mannalal Khelan v. Kedar Nath Khetan AIR 1977 SC 185 to state .....

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Cas. 398. Gopal Krishanji Ketkar (supra) Even if the burden of proof does not lie on a party, the Court may draw an adverse inference if he withholds important documents in his possession which can throw light on the facts at issue. • Irudayan Ammal v. Salayath Mary- AIR 1973 Mad. 421 - to state that ... in case of non-production of material document by a party adverse inference must be drawn by the Court. • Peter Alan Basil v. East India Pharmaceutical Works Ltd. - AIR 1976 Cal. 182 .....

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acquired a plantation, known as 'Silver Cloud Estate' in Kudalur, which belonged to a partnership firm wherein the second respondent's father and his children were partners. After the demise of the father, the management of the estate was taken over by the second respondent, being the eldest son. In the year 1981, a company by name Silver Cloud Estates Private Limited was promoted and all the assets and properties belonging to the partnership firm, namely, Silver Cloud Estates vested .....

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on to the Company. Shri Raghavan further submitted that Mrs. M. A. Coelho died on 24-9-1981 leaving behind her, a number of properties and also the impugned shares. After the demise of Mrs. M.A. Coelho, the question of distribution of assets was discussed among the legal heirs and after such mutual discussion all the properties and the interest in the estate of the deceased M.A. Coelho were distributed among the legal heirs as per the understanding. The 2nd respondent was not allotted any share .....

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-1986. Ever since July, 1986, the impugned shares are standing in the name of the 3rd respondent. At no point of time, there was any protest by any of the legal heirs of the deceased M.A. Coelho or any other shareholder not was there any claim for rights share, relating to the deceased M.A. Coelho's share. The respondent Nos. 2 and 3 never acted fraudulently and in breach of the fiduciary duty. No shareholder at the annual general meeting held on 30-10-1986 opposed the resolution to increase .....

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res as part of her wealth in the returns filed under the Wealth-tax Act and has been paying income-tax on the dividend received in respect of the impugned shares. None of the petitioners had any time sought for registration of the impugned shares in their names. The impugned shares became the property of the 3rd respondent by virtue of a family arrangement among the legal heirs of the deceased M.A. Coelho. The family arrangement constitutes a valid transaction and the acquisition of property rig .....

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issue was 28-7-1987. The Company sent letters to all the shareholders on 3-4-1987. The last date for subscribing to the rights issue was 25-4-1987. The 1st petitioner received the rights issue application form, but did not make any payment. The 1st petitioner never made any request for adjustment from the Adikehole Estate Account. He did not chose to subscribe to the rights issue after having received rights issue offer. Even if the letter dated 21-4-1987 of the first petitioner, namely, A-9 is .....

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owed it will amount to the reduction of share capital. It is against the interest of the creditors and members. Neither the petitioners, nor any other legal heir of the deceased M.A. Coelho had raised the issue of entitlement to rights shares held in the name of the deceased M. A. Coelho. In view of the fact that the Company was not in a sound financial position, three family members renounced their entitlement. However, the respondent Nos. 2 and 3 invested their funds for allotment of shares. T .....

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h meeting the accounts for the year ending 31-3-1992 were adopted. The accounts for the year ended 31-3-1992 reflected the raised share capital and allotment of impugned shares made three years prior to adoption of the accounts for the said year. The rights shares were allotted to all the members who had applied. The 1st petitioner had not chosen to subscribe to rights shares and hence discrimination does not arise. The 1st petitioner has acquiesced the actions of the Company by proposing the ad .....

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he impugned shares. The claim of 1st petitioner is not bona fide and he has filed the petitions for collateral purpose in order to pressurise the 2nd respondent not to agitate his rights in regard to Silver Cloud Estates Private Limited. The delay of 11 years in approaching the CLB is inordinate and unexplained. The petitioners are not entitled to any relief on account of delay and laches. Shri Raghavan emphasized that the proceedings under section 111 are summary in nature. The CLB will have no .....

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ent in the year 1986. The petitioners' action to dispute the said transaction after a period of 11 years is barred by time. The CLB is a Court within the meaning of the Indian Limitation Act, 1963 and the present proceedings would be barred by the provisions of the Indian Limitation Act. The transmission of impugned shares reflected in the Annual Return is a public document. The petitioners have public notice of the transmission of the impugned shares even in the year 1986 by which time sect .....

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al heirs of the deceased M.A. Coelho impleading them as petitioners were filed on 1-1-1996. When the Depositories Ordinance came into existence with effect from 20-9-1995, section 111 is inapplicable in respect of a public limited Company. The petitioners cannot have any relief under section 111. Though Code of Civil Procedure is not applicable in proceedings before the CLB, the underlying principles will be made applicable to the effect that the applications filed by the legal heirs will be fro .....

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gement. Subsequent legal formalities are irrelevant. If there is a family arrangement, no other document is required. Shri Raghavan, in support to his above contentions relied on the following decisions : • Km. Kr. Kr. Ramanathan Chettiar v. N.M. Kandappa Goundan-AIR 1951 Madras 314. Tungabhadra Machinery Tools Ltd's case (supra) T.G. Veera Prasad v. Sree Rayalaseema Alakalies & Allied Chemicals Ltd. CP 2/111/SRB of 1991 Tungabhadra Machinery & Tools Ltd.'s case (supra) G.N. .....

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of Consolidation - AIR 1976 SC 807 - to state that "the Members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must b .....

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he Court has power to add new plaintiff at any stage of the suit, (under Order 1 Rule 10 of Civil Procedure Code, 1908) and in the absence of statutory provision like section 22 (of the Limitation Act, 1908), the suit would be regarded as having been commenced by the new plaintiff at the time when it was first instituted. But the policy of section 22 is to prevent fhis result, and the effect of the section is that the suit must be regarded as having been instituted by the new plaintiff when he i .....

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th the petitions are common. While in the 111 petition, there are nine petitioners and four respondents, in the 397 petition, there are two petitioners and five respondents. Even though as a point of law, allotment of shares, unless the same is contended to be against the provisions of the articles or the Act, the same cannot be considered in a 111 petition for rectification, yet, since the same issue has been agitated in the 397 petition also, we are considering this aspect in this order. 7. Fi .....

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utsiders and the Coelho family took control of the Company in 1971 at which time the entire share capital of the Company was held by the family members except 2000 shares. The same position continued even in the year 1986 except that some additional shares had been issued that too only to the family members. In 1986, there was no identifiable majority in the Company since the shares were more or less evenly distributed among the family members. The percentage of holding of the respondents at the .....

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created a new majority. The settled position of law is, that, if by allotment or issue of shares, a new majority is created, then the same could be considered to be an act of oppression. Keeping in view this legal proposition in mind, allegations contained in the petition have to be examined. In so far as the registration of 3,250 shares held in the name of the deceased M.A. Coelho, in the name of the third respondent is concerned, the challenge is that since the third respondent is not a legal .....

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Article 16 of dealing with transmission of shares provides as follows :- "The executors or administrators of a deceased shareholder or a holder of a succession certificate shall alone be recognised by the Company as having title to the shares, unless the Directors, in their discretion resolve to recognize the title of any person which is proved to their satisfaction with or without sufficient indemnity being given to the Company according as the Directors may decide. In case of the death of .....

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f the third respondent is that she was entitled to the same. Unfortunately, no board resolution has been produced before us so far to evidence that the board of directors had considered the provisions of article 16 before approving the registration of shares in the name of the third respondent. Even assuming as contended by Shri Raghavan that there was a family settlement, yet no record is produced to prove family settlement. Without any record relating to the family settlement, the Board of the .....

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d respondent and restoring these shares in the name of the deceased Mrs. M.A. Coelho with the liberty to the petitioners to comply with the requirements of article 16. However, in the present case, since the identity of all the legal heirs is apparent and since there are no disputes in regard to the legal heirs, we consider it appropriate to direct that simultaneously with the removal of the name of the third respondent from the register of members, these shares will be transmitted in the name o .....

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me of Mrs. M.A. Coelho are distributed among the legal heirs. In case these legal heirs are not interested in acquiring the proportionate shares, these shares will be retained in the name of third respondent. The legal heirs should exercise their option of getting these shares within a month from the date of transmission of shares as directed in the earlier paragraph, along with the remittance of consideration at the same value at which the shares were originally allotted and send the communicat .....

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nt took place only on 15-3-1989, i.e., after nearly a gap of two years. Even though, the contention of the first petitioner is that he had requested the company to allot shares against the credit balance available in the Adikehole Estate Account which also we have found to be substantiated by the statement of accounts (Exhibit P7) at pages 61 and 62 of the petition (CP 84 of 1999), responded denies to have received such a request. Even assuming that the respondents are right in their contention, .....

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