CL: Where a shareholder who has not appointed a nominee, dies intestate, company on receipt of written request from legal heir, accompanied by certificate evidencing death of shareholder and Succession Certificate or Letter of Administration, has to register shares in name of said legal heir
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[2013] 38 taxmann.com 282 (CLB - Mumbai)
COMPANY LAW BOARD, MUMBAI BENCH
Suman Kumar Sinha
v.
Baroda Crystal Glass Works Ltd.
SMT. VIMLA YADAV, MEMBER
C.P. NO. 22 OF 2012
JUNE 27, 2013
Section 59 of the Companies Act, 2013/Section 111A of the Companies Act, 1956 - Transfer of shares - Rectification of register on - Whether where a shareholder who has not appointed a nominee, dies intestate, company on receipt of written request from legal heir, accompanied by certificate evidencing death of shareholder and Succession Certificate or Letter of Administration, has to register shares in name of legal heir - Held, yes - Shares of respondent-company were held by certain persons belonging to same family - After death of those persons, entitlement of petitioner to said shares was adjudicated in succession case by Additional District Judge - On being satisfied, a succession certificate was also issued by aforesaid Court - Thereupon, petitioner made request for transmission of shares in his name - Respondent-company asked petitioner to furnish succession certificate and original share certificates - Despite petitioner's furnishing of succession certificate, shares were not transmitted - It was also undisputed that petitioner had been repeatedly pursuing matter with respondent-company for a long time and, thus, it was not a case of any delay and latches - Whether on facts, petition seeking a direction to respondent-company to rectify its Register of Members by inserting name of petitioner against shares in question was to be allowed - Held, yes [Para 14]
FACTS
| ■ | The shares of respondent-company were held by certain persons belonging to same family. After death of those persons, entitlement of the petitioner to said shares was adjudicated in succession case by the Additional District Judge. On being satisfied a succession certificate was also issued by the aforesaid Court. | |
| ■ | Thereupon, the petitioner made the request for transmission of shares in his name. Instead of complying with the request of the petitioner for rectification of the Register of Members, the respondents required the petitioner to produce a succession certificate. | |
| ■ | Even after production of succession certificate, the respondent-company again wrote to the petitioner to produce the original share certificates and assured him that upon the receipt of those documents only, the needful would be done. | |
| ■ | In aforesaid circumstances, the petitioner filed instant petition under section 111A seeking a direction to the respondent-company to rectify its Register of Members by inserting the name of the petitioner against shares in question of the respondent-company. |
HELD
| ■ | Where the directors under the articles of a company have uncontrolled and absolute discretion in regard to declining registration of transfer/transmission of shares, discretion does not mean a bare affirmation or negation of a proposal, rather discretion implies just and proper consideration of the proposal in the facts and circumstances of the case. | |
| ■ | In the exercise of that discretion the directors are required to act for the paramount interest of the company and for the general interest of the shareholders because the directors are in a fiduciary position both towards the company and towards every shareholder. The directors are, therefore, required to act bona fide and not arbitrarily and not for any collateral motive. | |
| ■ | If the articles permit the directors to decline to register transfer/transmission of shares without stating the reasons the Court would not draw unfavourable inferences against the directors because they did not give reasons. Where, however, the directors gave reasons the Court would consider whether they were legitimate and whether the directors proceeded on a right or wrong principle. | |
| ■ | 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 a collateral purpose. | |
| ■ | The discretion of the directors would be nullified if it was established that the directors acted oppressively, capriciously or in some other way mala fide. If the Court found that the directors gave reasons which were legitimate, the Court would not overrule that decision merely on the ground that the Court would not have come to the same conclusion. | |
| ■ | The discretion of the directors is to be tested as the opinion of fair and sensible men in the interest of the company. In the present case it is noted that the Board of the respondent-company has not considered the petitioner's proposal properly in a just manner. [Para 13] | |
| ■ | It is noted that in the present case the respondent-company has not yet refused transmission/transfer of shares. The word 'transmission' means devolution of title to shares otherwise than by transfer. On transmission of shares, the person to whom the shares are transmitted becomes the registered shareholder of the company and is entitled to all rights and subject to all liabilities attached to the shares. | |
| ■ | Transmission of shares should be effected by the company on receipt of intimation of death of a member and on production of necessary documents, such as: (i) Death certificate; (ii) request for transmission signed by the legal heir(s)/Legal Representatives/claimant(s) with their specimen signature(s); (iii) Succession Certificate or Letter of Administration or probate of will; (iv) Original share certificate(s); (v) Orders of the Court or of competent authority, if applicable; (vi) Permission under the Foreign Exchange Management Act, 1999, if applicable. | |
| ■ | The company may require documentary evidence to prove the identity of the legal heir or other claimants, such as PAN card, Passport, Ration Card, Voter's Identity Card, etc. The documentation required for effecting transmission of other securities including fixed deposits would remain the same. | |
| ■ | To facilitate transmission of shares in appropriate cases, the company may waive production of certain documents, such as Probate or Letter of Administration or succession certificate. However, in such cases, the company may insist on a suitable indemnity and affidavit. | |
| ■ | Section 109 provides for transfer of the shares by the Legal Representative of the deceased member. Section 109A provides for nomination by an individual in respect of his shares. Where a Nominee has been appointed, the shares shall vest in the nominee on the death of the member. As per section 109B, on death of the shareholder, the nominee has the option to elect either to register himself as the holder of the shares of the deceased or transfer the shares to any other person. The transferees need not be the legal heirs of the deceased shareholders(s). | |
| ■ | Where a sole shareholder who has not appointed a nominee, dies intestate, the company should on receipt of written request from the legal heir, accompanied by the certificate evidencing the death of the shareholder and the Succession Certificate or Letter or Administration, register the shares in the name of the legal heir. | |
| ■ | In the present case the respondent-company has time and again asked the petitioner to furnish succession certificate and original share certificates. But despite the petitioner's furnishing of the succession certificate the shares had not been transmitted. Further, it is noted that the petitioner has been repeatedly pursuing the matter with the respondent-company for a longtime and thus it was not a case of any delay or latches. The respondent-company cannot make the petitioner suffer for its own wrong. [Para 14] | |
| ■ | In view of the foregoing, the respondent-company is hereby required to rectify the Register of Members as per prayer of the petitioner. [Para 16] |
CASES REFERRED TO
Smt. Kamalabai v. Vithal Prasad Co. (P.) Ltd. [1993] 77 Comp. Cas. 231 (Kar.) (para 4), S.M. Hajee Abdual Hye Sahib v. K.N.S. Hajee Shaik Abdul Kader Labbai Sahib Co. (P.) Ltd. [1997] 13 SCL 198 (CLB. Chennai) (para 5), Shev Shetty v. Jamna Bai AIR 1956 Hyd. 59 (para 7),Renu Kana Dutta v. Gour Nitye Tea & Industries Ltd. [2007] 75 SCL 525 (CLB - Kol.) (para 7) and Finolex Industries Ltd. v. Anil Ramchand Chhabria [2000] 26 SCL 233 (Bom.) (para 8),
Vishwabhushan Kamble and Arijit Mujumdar for the Petitioner. Harmish Shah and Rakesh Sharma for the Respondent.
ORDER
1. In this Order I am considering Company Petition No. 22 of 2012 filed by the Petitioner U/s. 111A of the Companies Act, 1956 (hereinafter referred to as 'the Act') seeking a direction to the Respondent Company M/s. Baroda Crystal Glass works Ltd. to rectify its register of members by inserting the name of the petitioner against 24795 shares of the R-I Company.
2. The Petitioner's case is that 24795 shares were held by the following persons during their lifetime in the Respondent Company as under:
| S.No. | Shareholder | No. of Equity Shares | Date of Death |
| 1. | Late Mr. N. J. Gor | 16190 | 01.11.1956 |
| 2. | Late Mr. Shrish ChjandraN. Gor | 6210 | 11.01.2003 |
| 3. | Late Mrs. Sarlaben N. Gor | 1795 | 22.04.1984 |
| 4. | Late Mrs. Anila Gor | 600 | 31.01.1998 |
| Total | 24795 |
The entitlement of the Petitioner to aforesaid shares was adjudicated in Succession Case No. 88 of 2003 by the Learned Additional District Judge-Ill. Patna and on being satisfied a Succession Certificate dated 2 April 2012 was issued by the aforesaid Court.
3. Making a brief Statement on the facts of this case, the Counsel for the Petitioner pointed out that admittedly, Late Mr. Nandvandan J. Gor promoted various companies including R-I Company during his lifetime. He held 16190 shares in the R-I Company. Late Mr. Nandvandan J. Gor died on 1st November, 1956 leaving behind his wife and children, namely Mrs. Sarlaben N. Gor (wife), Mrs. Anila Sinha (Daughter) and Mr. Shrish Chandra N. Gor (Son). Under a family arrangement. Late Mrs. Anila Sinha and Late Mr. Shrish Chandra N. Gor relinquished their rights and interest in the estate of Late Mr. Nandvandan J. Gor in favour of Late Mrs. Sarla Ben N. Gor. Apart from holding 1795 shares of the R-l Company, Mrs. Sarlaben N. Gor also came to hold 16190 shares of the R-I Company held by Late Mr. Nandvandan J. Gor during his lifetime. Mrs. Sarlaben N. Gor died on 22 April, 1984 leaving behind a will dated 28 April. 1966, on which probate was granted by the Ld. District Judge, Patna on 3 September 1991 in Probate Case No. 132 of 1986. As per the aforesaid Will. Mrs. Sarlaben N. Gor bequeathed her entire estate to her daughter Mrs. Anila Sinha and son Mr. Shrish Chandra N. Gor. Late Mrs. Anila Sinha and Mr. Shrish Chandra N. Gor held 600 and 6210 shares of the Respondent No. l Company in their individual capacity. They also came to hold additional 17985 shares bequeathed by Late Mr. Sarlaben N. Gor to them. Mr. Shri Chandra N. Gor and Mrs. Anila Sinha Passed away on 11th January, 2003 and 31st January, 1998 respectively. On their demise, the Petitioner instituted Succession Case No. 88 of 2003 on which the Succession Certificate was issued holding that the Petitioner is entitled to 24795 shares of the R-I Company.
4. It was argued that the Respondents cannot refuse Rectification in the present matter. The Petitioner had made the request for transmission of shares in his name, for the first time, with a letter dated 15th September, 2005. The Respondents replied with a letter dated 19th October, 2005 stating that the matter is under consideration for necessary action. Instead of complying with the request of the Petitioner for rectification of the Register of Members, the Respondents issued a letter dated 23rd December, 2005 requiring the Petitioner to produce a Succession Certificate. The Petitioner thereafter made another request for rectification of Register of Members vide letter dated 19th September, 2009 followed with a letter dated 6th October. 2009. The Respondents reverted to the Petitioner in terms of letter dated 15th October, 2009 stating that matter shall be placed before the Board of Directors in the next Board Meeting and the Petitioner shall be intimated accordingly. It was pointed out that to the surprise of the Petitioner, the Respondents issued a letter dated 12th January, 2010 once again requiring the Petitioner to provide the Succession Certificate. The Petitioner responded to the aforesaid letter vide letter dated 23rd August, 2010 requesting the Respondents to act on the basis of the final order dated 4th November, 2004 passed in Succession Case No. 88 of 2003. The R-I Company once again wrote to the Petitioner on 27th September. 2010 to produce the Succession Certificate and the original share certificates and assuring the Petitioner that upon the receipt of the documents, the needful will be done. Thereafter, with great difficulty the Petitioner obtained the Succession Certificate and forwarded the same to the R-I Company vide a letter dated 15th April, 2012. The R-I Company did not give any reply to the letter dated 15th April, 2012 issued by the Petitioner and hence the present Company Petition was filed on 4th July, 2012. It was argued that the Respondents have failed and neglected to send any intimation of refusal to register the shares within 2 months from the date of delivery of intimation for transmission of shares of the Petitioner. Reliance was placed upon the judgment passed by the Karnataka High court in Smt. Kamalabai v. Vithal Prasad Co. (P.) Ltd. [1993] 77 Comp. Cas. 231 (Kar.) which reads as under:
"Lastly, it was argued by the respondent's counsel that article 16 of the articles of association provides for refusal to register the transfer of shares, and the directors of Respondent-Company are. in fact, of the view that Petitioner No. 2 is not a responsible person and petitioner no. 1 is a lady not well-versed in company matters. It is contended by the Petitioners counsel that these allegations have now been belatedly made to justify their arbitrary action refusing to effect the transmission of shares in the name of petitioners. On October 30, 1988, an application was sent by petitioner No. 1 after the death of her husband. The Respondent-company sent a reply as per annexure C. asking the petitioner to produce succession certificate. The succession certificate was produced and along with it the consent letter of petitioners Nos. 2 to 7 giving no objection for transfer / transmission of the shares in the names of the Petitioners. The respondent-company thereafter in spite of several reminders, including notice calling upon it to effect the rectification of register of members showing the name of the petitioner as shareholder in place of her deceased husband. Channabasappa, did not take any action. However the respondent-company by its reply letter dated February 21, 1990. stated that the matter will be placed before the next board of directors. There was no communication thereafter by the respondent-company either accepting or refusing transmission of shares in the names of petitioners. It is seen that the intimation for transmission of shares was given by the petitioners to the respondent-company, on October, 30, 1988, the respondent-company has asked to produce succession certificate which was produced by the petitioners. Thereafter the respondent-company by its letter dated February 21, 1990, intimated that it would place the matter before the Board. But. till today no action was taken by the respondent either to accept or refuse the grant of transmission of shares in the name of the Petitioners. Under Section 111, the company has power to refuse registration of shares, in pursuance of power under articles of association, but such refusal shall be made within two months of the date of delivery of intimation of transfer/ transmission of shares, and send the intimation of refusal to the person giving intimation of such transfer/ transmission. In the present case, the respondent has not refused to register the shares, nor sent any intimation of refusal to register the shares within two months from the date of delivery of intimation for transmission of shares. Mere silence by the directors of company may not be acquiescence, but sub-section (2) of section 111 of the Act requires the company to notify the person delivering intimation of transmission of shares, within two months of the refusal to register. Therefore, if two months elapsed, it would be clear that the directors can no longer refuse to register/ effect the transmission of shares. Since the respondent-company has not refused to effect transmission shares, pursuance of its power under its articles within two months, from the date of delivery of intimation of transmission of shares by the petitioners, the directors of respondent-company cannot now refuse the transmission of shares in favour of petitioners."
5. Further, it was contended that there is no Requirement of Original Share Certificates. The insistence of the Respondents for production of original share certificates for rectification of register of members the same apart from being a vexatious demand, is also not sustainable in the eye of law. It was pointed out that the CLB in the case of S.M. Hajee Abdual Hye Sahib v. K.N.S. Hajee Shaik Abdul Kader Labbai Sahib Co. (P.) Ltd. [1997] 13 SCL 198 (CLB. Chennai) has held that:
"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 position to produce 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."
6. Further, it was argued that the entitlement of the Petitioner to the shares of aforesaid has not been disputed by the Respondents in the reply filed in the Company Petition. Only much belatedly, after the commencement of the final argument and closure of the arguments of the Petitioner, an Affidavit was sought to be filed by the Respondents seeking to challenge the validity of the Succession Certificate granted in favour of the Petitioner. The Respondents sought to contend, by referring to Para 2 of the Will of Late Mrs. Sarlaben N. Gor, that apart from the persons named by the Petitioner in the Company Petition, Mrs. Sarojiniben Mehta was also one of the legal heirs of Late Mr. Nandvadan l. Gor On such ground, the Respondents attempted to create an impression before the CLB that the Succession certificate cannot be relied upon for the purpose of the present petition which deserves to be dismissal in view of the alleged discrepancy. It was argued that the Respondents cannot Challenge or Question the Succession Certificate. In view of provisions of Section 381 of the Indian Succession Act, 1925. which reads as under, the Respondents cannot even purport to challenge and/or in any manner question the Succession Certificate:
"381. Effect of certificate.— Subject to the provisions of this Part, the certificate of the District Judge shall, with respect to the debts and securities specified therein, be conclusive as against the person owning such debts or liable on such securities, and shall, notwithstanding any contravention of section 370. or other defect, afford full indemnity to all such persons as regards all payments made, or dealings had, in good faith in respect of such debts or securities to or with the person to whom the certificate was granted." The Petitioner's case is that the challenge sought to be laid by the Respondents to the Succession Certificate is wholly misplaced in view of Section 381 of the Indian Succession Act. 1925 and no question can be raised by the Respondents in the present Petition to the validity of the Succession Certificate. After the production of the Succession Certificate, it is the duty of the Company to register the shares mentioned in the Petition. Further, it was argued that the conclusive character of a Succession Certificate in relation to the debt or the security specified therein has been elaborately dealt with by the Allahabad High Court in Ganga Prasad Vs. Mt. Saeedan & Ors reported in AIR 1952 All 801. The debtor or the person liable on the securities mentioned in the succession certificate cannot challenge the same. The Court was pleased to hold as follows; (Para 3)
'3. This section, therefore, raises a conclusive presumption against the debtors that the person in whose favour a succession certificate is granted is entitled to receive the debts specified therein. The debtors cannot challenge this fact. The presumption raised by the succession certificate being conclusive and absolute it cannot be displaced even upon the ground of a previous decision to a contrary effect. Indeed the previous application for execution filed by the appellant should have been dismissed upon the preliminary ground that the applicant had not obtained a succession certificate with respect to the decretal amount; and as such the finding that the appellant was not the adopted son of Madan Lal and therefore, not the heir or the last decree-holder was wholly unnecessary.'
7. The Counsel for the Petitioner argued that a debtor or a person liable on a debt or a security cannot choose between the legal heirs of the deceased over and above the person holding the succession certificate. Refering to the judgment of the Hyderabad High Court (Now Andhra Pradesh High Court) in Shev Shetty v. Jamna Bai AIR 1956 Hyd. 59, it was read that:
" ... The debtor has no right to say that as between two heirs one is a preferential heir as against the other"
Further. Referring to the case of Renu Kana Dutta v. Gour Nitye Tea & Industries Ltd. [2007] 75 SCL 525 (CLB - Kol.), it was read out that:
"The objection by the company that stamp duty should have been paid on the market value and not on face value is not sustainable. It is for the court granting the succession certificate to determine the stamp duty payable. The company is not in anyway concerned about the stamp duty and as long as the legal heir produces a succession certificate from a competent court of law, it is the duty of the company to register the shares mentioned therein. Accordingly, I direct the company to transmit 332 equity shares impugned in the petition in the name of the petitioner, within 15 (fifteen) days of receipt of this order. I also direct the company simultaneously to release all the dividends due on the shares which remain unpaid. Since the petitioner has been able to lodge certificate relating only to 318 shares, the company will also issue duplicate share certificate within the same period for the remaining 14 shares."
8. Pointing out to the case of the Respondents that the Petition is barred by the limitation and the Petitioner ought to have approached the CLB in the year 2005 when the petitioner's first request for rectification of the register of the members was not entertained by the R-I Company, it was contended that the argument of the Respondent, apart from being legally unsustainable, is also indicative of the mala fide intent of the Respondents. The Respondents cannot even be permitted to raise such a ground, which is wholly inequitable inasmuch as the Respondents cannot take benefit of their own wrong. It was argued that the present Petition is not barred by limitation inasmuch as the period of limitation has to be reckoned from the date of delivery of the letter dated 12th April, 2012 on the R-I Company as the Petitioner was trying to comply with the requirements of the Succession Certificate as raised by the R-I Company. Without prejudice to the contention that the present Petition is not barred by limitation, it was pointed out that the Hon'ble Bombay High Court in Finolex Industries Ltd. v. Anil Ramchand Chhabria [2000] 26 SCL 233 (Bom.) has held as under:
'This is in case of refusal or failure of the company in registering the change in rights/ownership of shares of the company not sending the notice of refusal. The appeal had to be filed within two months of the receipt of notice of refusal, or where no notice had been sent by the company, within four months from the date on which the "instrument of transfer" or "intimation of transmission" was delivered to the company. The section applies to transactions inter-vivos and transmission by succession or by virtue of some other provision of law. Sub-Section (4) provides for an application for rectification of the register at the instance of a person aggrieved, member of the company or the company. Rectification of the register of members can be sought if without sufficient cause, the name of any person is wrongly entered in it or after having been duly entered, is wrongly omitted from it. Rectification application can also be made if the company makes default, causes unnecessary delay, 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). There is neither any time limit within which the company has to rectify the register, nor any limitation within which an application for rectification is to be made to the Company Law Board. This is in contrast to section 111 (2) which provides a limitation of two months for the company to register transfer or transmission; and a limitation of two months to file an appeal. Sub-Section (5) deals with the manner in which and what orders can be passed by the Company Law Board when hearing an appeal under sub-section (2) or an application under sub-section (4).'
9. The respondents' case is that the Company Petition is not maintainable on account of Laches as Nandavandan Gor Expired on 01-11-1956 intestate, leaving behind four heirs: 1) Wife, Sarladevi 2) Son Shirishchandra Gor 3) Daughter Anila (shroff) 4) Daughter Mrs. Sarojini Mehta, no request for transmission was made to the company to enter the names of the successors. By a family arrangement dated 15th January 1965 the shares of Nandavadan Gor devolving on Shirishchandra and Mrs. Anila Sinha were given to Saraladevi along with the other property. By her will dated 28th April 1956 Saraladevi gave all her shares along with other properties in equal proportion to her son Shirishchandra and daughter Mrs. Anil Sinha (including the shares received from Shirishchandra and Anila by virtue of the family arrangement). Saraladevi died on 22nd April 1984. Probate was taken from a court in Patna by order dated 3rd September 1991. Even on the basis of this probate order no application was made for transmission of shares to the company, by either Shirishchandra or Anil Sinha. By a declaration dated 17th October 1996 Mr. Shirishchandra Gor, an American citizen, gave all his shares to Mrs. Anila Sinha. No application was made to the company for changes. Mrs. Anila Sinha expired on 31st January 1998 at U. S. A. as a citizen of America leaving behind her Will dated 8th July 1997 No probate was taken. Mr. Shirishchandra Gor died on 11th January 2003 at U. S. A. as American Citizen. Birerdra Kumar Sinha himself an American citizen distributed estate of Anila Sinha and relinquished his rights in favour of Suman kumar Sinha. Thereafter Succession petition filed in Patna court for succession of properties belonging to Shirishchandra Gor and Anila Sinha. Further, it was argued that the Company Petition is not maintainable due to Contradictory statements that Nandavandan gor was survived by Wife, one son and one daughter, (one son and two daughters) and at the same time stating that Anila Sinha died intestate. (Anila Sinha died leaving behind her will dated 8th July 1997). Further. Statements made are without supportive documents e.g. Family arrangement of 15th January, 1965, Declaration by Shirish Gor dated 19th October 1996 and Birendra kumar Sinha distributed property of Anila Sinha and relinquished his rights.
10. It was contended that application for succession was made instead of probate for the Will of Anila Sinha. Suman Kumar Sinha was not successor when the application was made in 2005. Nandavandan Gor expired on 01.11.1956. Mrs. Anila Sinha expired on 31st January, 1998, Mr. Shirishchandra Gor died on 11th January 2003. Application to the R-I Company was made in 2005, this Company Petition has been filed in 2012.
11. Further, it was argued that most of the family arrangements Wills etc, were done after the family had migrated to America and had obtained American citizenship. They are still holding properties in India without valid registration. etc. It was pointed out that the family of Gors, the concerned persons, originally belonged to Bombay Province (Gujarat and Maharashtra State). The entire properties in question are located in Mumbai and Gujarat. The Family migrated to U.SA. and was settled there. Proceedings by L.I.C. to recover money from properties of Gors were going on in Bombay High Court at the same time probate and succession petition were filed in Patna courts.
12. In the facts of this case it is noted that the petitioner having been declared to be the sole surviving person entitled to the properties of late Mr. Shirish Chandra N. Gor and Late Mrs. Anila Shroff @ Anila Sinha requested the R-I Company as early as on 15.09.2005 to make necessary changes in the register of members of the R-I Company and enter the name of the Petitioner as a shareholder thereto. On 19.10.2005 the R-I Company informed him that the matter is under consideration and the Company shall revert back to the Petitioner in due course. On 23rd December, 2005 the R-I Company required him to provide a copy of the succession certificate and the original share certificates for taking necessary action. Thereafter on 19.09.2009 the Petitioner requested the R-I Company to register the shares held by late Nandvandan J. Gor, Sarlaben N. Gor. Anila Shroff @ Anila Sinha and Shirish Chandra N. Gor in the name of the Petitioner. He received no response. He issued a reminder on 06.10.2009. On 15.10.2009 the R-I Company replied to the Petitioner that the matter is being referred to the Board of Directors of the R-I Company for consideration. In reply to Petitioner's letter dated 19.09.2009 on 12.01.2010 the R-I Company required the Petitioner to furnish a copy of succession certificate. It is not denied that the Petitioner met the R-2 personally in the month of August 2010, the Petitioner was advised to make a fresh request and as such the Petitioner once again vide his letter dated 23.08.2010 requested the R-I Company to register the name of the Petitioner in the register of members of R-I Company. However, on 27.09.2010 once again the R-I Company required the Petitioner to furnish a copy of the succession certificate and also the original share certificates.
13. Where the directors under the Articles of a Company have uncontrolled and absolute discretion in regard to declining registration of transfer/transmission of shares, discretion does not mean a bare affirmation or negation of a proposal, discretion implies just and proper consideration of the proposal in the facts and circumstances of the case, in the exercise of that discretion the directors are required to act for the paramount interest of the company and for the general interest of the shareholders because the directors are in a fiduciary position both towards the company and towards every shareholder. The directors are, therefore, required to act bona fide and not arbitrarily and not for any collateral motive. If the Articles permit the directors to decline to register transfer/transmission of shares without stating the reasons the Court would not draw unfavourable inferences against the directors because they did not give reasons. Where, however, the directors gave reasons the Court would consider whether they were legitimate and whether the directors proceeded on a right or wrong principle. 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 a collateral purpose. The discretion of the directors would be nullified if it was established that the Directors acted oppressively, capriciously or in some other way mala fide. If the Court found that the Directors gave reasons which were legitimate, the Court would not overrule that decision merely on the ground that the Court would not have come to the same conclusion. The discretion of the Directors is to be tested as the opinion of fair and sensible men in the interest of the Company. In the present case it is noted that the Board of the R-I Company has not considered the Petitioner's proposal properly in a just manner.
14. It is noted that in the present case the Respondent-Company has not yet refused transmission/transfer of shares. The word "transmission" means devolution of title to Shares otherwise than by transfer. On transmission of Shares, the person to whom the Shares are transmitted becomes the registered shareholder of the company and is entitled to all rights and subject to all liabilities attached to the Shares. Transmission of Shares should be effected by the company on receipt of intimation of death of a Member and on production of necessary documents, such as:- (i) Death certificate; (ii) Request for transmission signed by the legal heir(s)/ Legal Representatives/claimant(s) with their specimen signature(s); (iii) Succession Certificate or Letter of Administration or probate of will; (iv) Original share certificate(s); (v) Orders of the Court or of competent authority, if applicable; (vi) Permission under the Foreign Exchange Management Act, 2000, if applicable. The company may require documentary evidence to prove the identity of the legal heir or other claimants, such as PAN Card, Passport. Ration Card, Voter's Identity Card. etc. The documentation required for effecting Transmission of other securities including fixed deposits would remain the same. To facilitate transmission of Shares in appropriate cases, the company may waive production of certain documents, such as Probate or Letter of Administration or Succession Certificate. However, in such cases, the company may insist on a suitable Indemnity and affidavit. Section 109 provides for transfer of the Shares by the Legal Representative of the deceased Member. Section 109A provides for nomination by an individual in respect of his Shares. Where a Nominee has been appointed, the Shares shall vest in the Nominee on the death of the Member. As per Section 109B, on death of the shareholder, the Nominee has the option to elect either to register himself as the holder of the Shares of the deceased or transfer the Shares to any other person. The Transferees need not be the legal heirs of the deceased shareholder(s). Where a sole shareholder who has not been appointed a nominee, dies intestate, the company should on receipt of written request from the legal heir, accompanied by the certificate evidencing the death of the shareholder and the Succession Certificate or letter of Administration, register the Shares in the name of the legal heir. In case the transmission is requested in favour of one or more but not all the legal heirs, the company may require a No Objection Certificate relinquishing their right on the said Shares or Deed of Relinquishment from other legal heir(s) for such transmission. In the present case the R-I Company has time and again asked the Petitioner to furnish Succession Certificate and original Share Certificates. But despite the Petitioner's furnishing of the Succession Certificate the Shares have not been transmitted. Further, it is noted that the Petitioner has since 2005 been repeatedly pursuing the matter with the R-I Company, This is not a case of any delay and latches. The R-I Company cannot make the Petitioner suffer for its own wrong.
15. Further. I note that in the facts and circumstances of the case, the Petitioner's prayer to R-l Company to issue Duplicate Share Certificates is not unjustified. The R-I Company shall be justified in asking the Petitioner to furnish an Indemnity Bond in this regard.
16. In view of the foregoing, the Respondents contentions are not found to be tenable. The R-I Company is hereby required to rectify the Register of Members as per prayer of the Petitioner within two weeks of receipt of this order. The Petitioner is required to furnish Indemnity Bond to the R-I Company on the furnishing of which the R-I Company is required to issue Duplicate Share Certificates within four weeks.
17. Company Petition No. 22 of 2012 is disposed off in the above terms. All Company applications stand disposed off. No order as to cost.
Regards
Prarthana Jalan
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