SECTIONS 150 TO 153B

Bombay High Court

COMPANIES ACT

[1997] 12 SCL 37 (BOM.)

HIGH COURT OF BOMBAY

Stock Holding Corpn. of India Ltd.

Bharat Petroleum Corpn. Ltd.

S.M. JHUNJHUNWALA, J.

COMPANY APPEAL NO. 1 OF 1995

SEPTEMBER 27, 1996/OCTOBER 3, 1996

Section 111, read with section 153, of the Companies Act, 1956 - Transfer of shares - Refusal to register - Appellant company (SHCOIL) was trustee of MSGF and LICMF - LICMF was holder of 400 shares of respondent company which stood registered in name of SHCOIL - LICMF sold shares to MSGF -SHCOIL applied transfer of these shares in name of 'SHCOIL A/c MSGF' -Whether in view of section 153 registration of transfer as sought could be entertained - Held, no

Section 153 of the Companies Act, 1956 - Trust not to be entered on register -Whether provisions of section 153 are mandatory - Held, yes - Whether while considering statutory obligations under section 153, if incidentally any loss of revenue is caused to Government that cannot override statutory obligation -Held, yes

Section 187C, read with section 153, of the Companies Act, 1956 - Declaration by person not holding beneficial interest in shares - Whether note as contemplated to be made in register of members in pursuance of section 187C infringes or dilutes requirements of section 153 - Held, no - Whether SEBI Mutual Fund Regulations and provisions contained in the Companies Act operate in different fields - Held, yes - Whether there is any inconsistency in provisions contained in sections 153 and 187C - Held, no

Section 22A(3) of the Securities Contracts (Regulation) Act, 1956, read with sections 153 and 187C of the Companies Act, 1956 - Free transferability and registration of transfers of listed securities - Appellant-company (SHCOIL) was trustee of various Mutual Funds which included MSGF and LICMF -LICMF was holder of 400 shares of respondent company which stood registered in name of SHCOIL - LICMF sold shares to MSGF - SHCOIL sought transfer of shares in the name of 'SHCOIL A/c MSGF' which was refused by respondent-company on ground of bar under section 153 of Companies Act -Whether in view of prohibition in section 153 of Companies Act, in share certificate which respondent-company was to issue, along with name of SHCOIL, name of beneficial owner of shares viz., 'A/c MSGF' as sought by SHCOIL could not be included - Held, yes - Whether respondent was bound only to make a note as per requirement of section 187C of Companies Act if proper application was made therefor - Held, yes

FACTS

The appellant SHCOIL was the trustee of various mutual funds including MSGF and LICMF. LICMF was holder of 400 shares of the respondent company and the same stood registered in the name of SHCOIL. LICMF sold the shares to MSGF. SHCOIL sought registration of transfer of the shares in the name of 'SHCOIL A/c MSGF'. The respondent company refused registration stating that since the transferor and the transferee in respect of the said shares was none other than SHCOIL, the registration of transfer as sought by the appellants in respect of the said shares could not be effected since in view of the provisions of section 153 no notice of trust can be taken by the respondents. A reference under section 22A(4)(C) of the SCRA was made to the CLB by the company and the CLB upheld the view of the company.

On appeal :

HELD

It is correct that section 187C makes it obligatory on the holder of the shares in a company to make a declaration to the company specifying the name and other particulars of the person who holds beneficial interest in such shares. It also makes it obligatory on a person who holds beneficial interest in a share or class of share of a company to make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed. Section 187C also makes it obligatory on the beneficial owner of shares to make a declaration to the company whenever there is a change in the beneficial interest in such shares. Sub-section (4) of section 187C makes it obligatory on the company to make a note of such declaration in the Register of Members notwithstanding anything contained in section 153. There was no controversy on this aspect of the matter since the respondent company had conceded that the respondent company was willing to make a note as per the requirement of section 187C in the Register of Members on the proper declarations being made. However, the question still remained for consideration whether in the share certificate which the company was to issue, along with the name of SHCOIL, the name of the beneficial owner of the said shares, viz., MSGF was also to be added issuing the share certificate in the name of 'SHCOIL A/c MSGF'. The note as contemplated to be made in the Register of Members in pursuance of section 187C does not infringe or dilute the requirements of section 153. A person in whose name the shares in a company are registered and who is the holder in respect thereof is entitled to exercise all statutory rights including right to receive notices of Annual General Meetings, Extraordinary General Meetings, right to attend such meetings and exercise vote as also right to receive dividends and other benefits. The accounting difficulties, if any, of the appellants since SHCOIL acted as trustee of various Mutual Funds could not override the statutory provisions. Moreover, in each share certificate issued by a company, the number of share certificate, the distinctive numbers of the shares as also the folio numbers are given which by themselves are sufficient to identify the shares so as to make it convenient even for the appellants to have the proper accounting of the shares in respect whereof the appellant acted as trustees. It was suggested by the appellants that if the registration of transfer of shares as desired by the appellants was not affected, then it would cause loss of revenue to the Government. However while considering the statutory obligations and the requirements the question pertaining to loss of revenue to the Government cannot be taken into consideration. When there is a bar under section 153, merely by exercising the right in accordance with the provisions of section 153 if incidentally any loss of revenue is caused to the Government, that cannot override the statutory obligations.

No doubt, the provisions contained in section 153 as also in section 187C are to be construed harmoniously but as SEBI Mutual Fund Regulations and the provisions contained in the Act operate in different fields, there is no inconsistency in the provisions contained in sections 153 and 187C.

As rightly held by the CLB, section 32 of the SEBI Act expressly provides that provisions of SEBI Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force. Even section 33 of the SEBI Act which indicates amendments to certain enactments does not indicate any amendment to section 153 to exempt the securities held in trust for Mutual Funds. Even SEBI guidelines on Mutual Funds do not provide that the securities held by a trustee on behalf of Mutual Fund should be registered in the Register of Members of a company in the manner suggested by the appellants. The custodial agreement was an agreement between the Mutual Funds and SHCOIL and even though the same might have been approved by SEBI, it did not bind the respondent company. The respondent company was bound by the provisions contained in the Act and could not be permitted to commit a breach thereof or to act in violation thereof. The CLB, on the facts and in the circumstances of the case, rightly upheld the decision of the Standing Committee of the Board of Directors of the respondent to refuse registration of transfer of the said shares.

The appeal was, therefore, dismissed.

V.R. Dhond for the Appellant. Virag V. Tulzapurkar and F. Palkhiwala for the Respondent.

JUDGMENT

1. Being aggrieved by the judgment and order dated 23-9-1994, passed by the CLB, upholding the refusal of Bharat Petroleum Corpn. Ltd., to register the transfer of shares from 1st Appellant to the 2nd Appellant, this appeal has been preferred by the appellants under the provisions of section 10F of the Companies Act, 1956 ('the Act').

2. Stock Holding Corpn. of India Ltd. ('SHCOIL') is a company incorporated under the Act and is promoted by several financial institutions, viz., Unit Trust of India, Industrial Development Bank of India, Industrial Credit & Investment Corporation of India, Life Insurance Corporation of India, Industrial Finance Corporation of India, Industrial Reconstruction Bank of India and General Insurance Corporation of India Limited and its subsidiaries. Bharat Petroleum Corpn. Ltd. was incorporated on 3-11-1952 under the provisions of the Companies Act, 1913 as 'Burmah Shell Refineries Limited' whose name was on 28-7-1977 changed to Bharat Petroleum Corpn. Ltd. It is a Government company within the meaning of section 617 of the Act.

3. A letter bearing No. SHC/BOM/MSGF 1-0134 dated 11-2-1994 was received by the respondents from the 1st Appellant with a request to effect registration of transfer of equity shares of the Respondents from SHCOIL to Stock Holding Corporation of India Limited (Account Morgan Stanley Growth Fund) ('SHCOIL A/c MSGF'). The said letter along with annexures thereto was received by the respondents on 15-2-1994. It was in respect of 400 equity shares of the respondents. On perusal of the said letter and the documents accompanied thereto it was noticed by the respondents that 400 equity shares of the respondents which were purchased by the LIC Mutual Fund and standing in the name of SHCOIL being the trustees of LIC Mutual Fund, were intended to be transferred in the name of SHCOIL A/c MSGF. The Standing Committee of the Board of directors of the respondents after considering the request for registering the transfer of the said 400 equity shares from SHCOIL to SHCOIL A/c MSGF formed the opinion that the registration of the transfer of the said shares ought to be refused and in the meeting held on 18-3-1994, the resolution reading as under, was passed :

"RESOLVED that the registration of transfer of 400 equity shares numbering from 4,87,06,401 to 4,87,06,800 as requested by Stock Holding Corporation of India Ltd., through four share transfer forms received on 15-2-1994 and shown in the Annexure I as transfer Nos. 1889 to 1892 from Stock Holding Corporation of India Ltd. to Stock Holding Corporation of India Ltd. (A/c Morgan Stanley Growth Fund) ought in good faith to be and the same be and is hereby, refused by the Company on the following reasons :—

(a) As per the provisions of the section 153 of the Companies Act, 1956, no notice of Trust can be taken by the Company and, therefore, the transfer cannot be registered in the name of Stock Holding Corporation of India Ltd. (A/c Morgan Stanley Growth Fund);

(b) As per the Press Notes dated 12/25th June, 1957, issued by the Government of India, Ministry of Company Law Administration, the shares in the Company being the property of the Trust can be held in the name of Trustees without the addition of the statement that they are Trustees;

(c) The Department of Company Affairs vide its letter No. 10/28/87- CL-V, Vol. IV, dated 16-2-1993, has confirmed the views that the shares in the Company being the property of the Trust can be held in the names of Trustees without the addition of the statement like A/c LIC Mutual Fund and reiterated that the Company cannot take note of Trust;

(d) If the proposed transfer is accepted without addition of 'A/c Morgan Stanley Growth Fund' the transfer would amount from Stock Holding Corporation of India Ltd. to Stock Holding Corporation of India Ltd. i.e. the transferor and the transferee would be the same person;

(e) As per section 187C(3), whenever there is a change in the beneficial owner, a notice is required to be given by such beneficial owner to the company, while the ostensible owner would continue to be the same person.

RESOLVED FURTHER that a reference under section 22A(4)(c) of SCR Act to the Company Law Board be and is hereby authorised to be made for its direction in the matter under section 22A(6) of SCR Act and copies thereof be and are hereby authorised to be sent to the Transferor and the proposed Transferee (indicated in the above referred transfer forms);

RESOLVED FURTHER that the Company Secretary, the Dy. Company Secretary and the Asstt. Company Secretary be and are hereby severally authorised to submit the above reference and such additional and/or supplemental applications, submissions, affidavits, modifications to the said reference and to take all other necessary actions as would be required for making reference and for pursuing the same to comply with the above decision including submissions of rejoinders, appeals etc. and appearance in person or through representative, on behalf of the Company."

4. The respondents made an application to the CLB, Western Region Bench, Bombay, under the provisions of section 22A(4)(c) of The Securities Contracts (Regulation) Act, 1956 ('the SCR Act'), seeking a direction on the opinion and decision of the respondents refusing registration of the transfer of the said shares as requested by the 1st appellants. In the Reference Application bearing No. 13/SC/CLB/WR of 1994, the judgment and order impugned in this appeal was passed. The CLB after considering the pleadings of the parties and the arguments advanced confirmed the decision taken by the Standing Committee of the board of directors of the respondents to refuse registration of transfer of the said 400 equity shares.

5. Mr. Dhond, the learned Counsel appearing for the appellants, has strenuously urged that mere fact that section 153 of the Act exists on the statute is no bar to the Company entering the name of 'A/c MSGF' in the Register of Members. The learned counsel further submitted that the Members of the CLB after holding that the provisions of section 153 have more or less become redundant, erred in confirming the decision taken by the Standing Committee of the board of directors of the respondents refusing to register the said shares pursuant to the application for transfer made by the 1st appellants. The learned counsel further submitted that section 187C of the Act had been introduced regardless to restrictions contained in section 153 and as such the object of introduction of section 187C is to dilute the effect of section 153. In the submission of the learned Counsel, on the insertion of section 187C, section 153 is impliedly repealed and there is no bar to the respondents taking note of fact that the said shares are held by the 1st Appellants as trustees of MSGF. Mr. Dhond further submitted that once note as per section 187C is made in the Register of Members, the share certificate must faithfully record such note, the idea of note being to give notice to the world at large about persons holding the said shares. The learned Counsel further submitted that by respondents refusing to register the transfer of the said shares a vested right to get the said shares transferred from trustees of one trust to trustees of another trust is taken away. In the submission of the learned Counsel, the transferors and the transferees in respect of the said shares are not same though may be same individuals but in different capacities. Mr. Dhond also submitted that sections 153 and 187C are to be read in harmony to protect rights of transferors and transferees.

Lastly it was submitted that the Mutual Fund belongs to special category and the SEBI Mutual Fund Regulations prescribe as to how the assets are to be held by a Mutual Fund and as such, the transfer of the said shares is to be registered in the name of the 2nd Appellants as per application made in respect thereof.

6. Mr. Tulzapurkar, the learned Counsel appearing for the respondents, submitted that while deciding the controversy involved, the Court is concerned with the existing position in law. While considering whether a transfer is to be registered or not, the Company is not required to note who the beneficial owner is in respect of the shares whose transfer is to be registered. Equally the Company is not required to go behind the legal ownership. In the submission of the learned Counsel, the Company is not required to look at any person other than the legal owner of the equity shares. Mr. Tulzapurkar further submitted that section 187C was introduced to avoid benami holding and at the time when section 187C was introduced, the Legislature did not deliberately repeal section 153 though section 153 was very much in mind of the Legislature at the time when section 187C was introduced. In the submission of the learned Counsel, section 153 has not been repealed either expressly or impliedly by insertion of section 187C nor the effect of section 153 has been diluted by insertion of section 187C. Mr. Tulzapurkar further submitted that SEBI (Mutual Funds) Regulations, 1993 and the provisions of the Act operate in separate and independent fields and the SEBI (Mutual Funds) Regulations have no overriding effect qua the provisions contained in the Act. In the submission of the learned Counsel, firstly, there is no inconsistency between SEBI (Mutual Funds) Regulations and the provisions contained in the Act and secondly, even if there is any inconsistency, provisions of the Act prevail. Mr. Tulzapurkar also submitted that as per the provisions contained in the Act only physical and juristic person can be holder of shares in a company and a trust, in this case MSGF, cannot be the holder of the shares in the company and as such, the name of MSGF cannot be shown in the Register of Members of the respondents as holder of the said shares. The learned Counsel further submitted that in fact the appellants intend to have the said shares registered in the name of MSGF as holder thereof which, in view of the provisions contained in the Act, cannot be done. Mr. Tulzapurkar further submitted that MSGF is like any other trust and no special right or status in its favour has been created under the provisions of the Act.

7. The main question which requires consideration in this appeal is of the effect of insertion of section 187C on section 153. Section 153 makes it obligatory on company not to take notice of any trust expressed, implied or constructive for being entered on the Register of Members or of debenture holders. Section 187C which was inserted by the Companies (Amendment) Act, 1974 with effect from 1-2-1975 makes provision for declaration by persons not holding beneficial interest in any share. There is no dispute that MSGF is not a legal entity to hold equity shares in its own name. It is a trust of which SHCOIL is a trustee. Similarly, there is no dispute that LIC Mutual Fund is not a legal entity so as to hold the equity shares in its name. LIC Mutual Fund is also a trust of which SHCOIL is a trustee. Though holder of the said shares is indisputably SHCOIL, prior to the sale thereof by LIC Mutual Fund, the beneficial owner was LIC Mutual Fund and on sale, the said MSGF has become the beneficial owner thereof. According to the respondents, since the transferor and the transferee in respect of the said shares is none other than SHCOIL, the registration of transfer as sought by the appellants in respect of the said shares cannot be effected since in view of the provisions of section 153 no notice of a trust can be taken by the respondents. The respondents refused to register the transfer also relying upon the Press Note dated 12/25-6-1957 issued by the Government of India, Ministry of Company Law Administration whereby it has been clarified that shares in a company, being the property of a trust, can be held in the names of its trustees being individuals, corporations, companies or societies registered under the Societies Registration Act, 1860 without the addition of the statement that they are trustees. Reliance has also been placed upon the letter bearing No. 10/28/87-CLV, Vol. IV dated 16-2-1993 addressed by the Department of Company Affairs confirming that the shares in the company being the property of the trust can be held in the name of the trustees without addition of the statement like 'A/c LIC Mutual Fund' and reiterating that the Company cannot take note of trust. On the facts of the case, the Standing Committee of the board of directors of the respondents recorded that if the proposed transfer of the said shares was to be accepted without addition of 'A/c MSGF' the transfer would amount to SHCOIL to SHCOIL, that is, transferor and the transferee would be the same person.

8. It is correct that section 187C makes it obligatory on the holder of the shares in a company to make a declaration to the company specifying the name and other particulars of the person who holds beneficial interest in such shares. It also makes it obligatory on a person who holds beneficial interest in a share or class of shares of a company to make a declaration to the company specifying the nature of his interest, particulars of the person in whole name the share stand registered in the books of the Company and such other particulars as may be prescribed. Section 187C also makes it obligatory on the beneficial owner of shares to make a declaration to the company whenever there is a change in the beneficial, interest in such shares. Sub-section (4) of section 187C makes it obligatory on the company to make a note of such declaration in the Register of Members notwithstanding anything contained in section 153. There is no controversy on this aspect of the matter since Mr. Tulzapurkar, the learned Counsel for the respondents, has fairly conceded that the respondent company is willing to make a note as per the requirement of section 187C in the Register of Members on the proper declarations being made. However, the question still remains for consideration is whether in the share certificate which the company is to issue, along with the name of SHCOIL, the name of the beneficial owner of the said shares, viz., MSGF is also to be added issuing the share certificate in the name of 'SHCOIL A/c MSGF'. The note as contemplated to be made in the Register of Members in pursuance of section 187C does not infringe or dilute the requirements of section 153. A person in whose name the shares in a company are registered and who is the holder in respect thereof is entitled to exercise all statutory rights including right to receive notices of Annual General Meetings, Extraordinary General Meetings, right to attend such meetings and exercise vote as also right to receive dividends and other benefits. The accounting difficulties, if any, of the appellants since SHCOIL acts as trustee of various Mutual Funds cannot override the statutory provisions. Moreover, in each share certificate issued by a company, the number of share certificate, the distinctive numbers of the shares as also the folio numbers are given which by themselves are sufficient to identify the shares so as to make it convenient even for the appellants to have the proper accounting of the shares in respect whereof the 1st appellants act as trustees.

9. Incidentally, it was suggested by the learned Counsel for the appellants that if the registration of transfer of shares as desired by the appellants is not affected, then it will cause loss of revenue to the Government. I am afraid, while considering the statutory obligations and the requirements, the question pertaining to loss of revenue to the Government cannot be taken into consideration. When there is a bar under section 153, merely by exercising the right in accordance with the provisions of section 153 if incidentally any loss of revenue is caused to the Government, that cannot override the statutory obligations.

10. No doubt, as submitted by the learned Counsel for the parties the provisions contained in section 153 as also in section 187C are to be construed harmoniously but as SEBI Mutual Fund Regulations and the provisions contained in the Act operate in different fields, I find no inconsistency in the provisions contained in sections 153 and 187C.

11. In the judgment and order impugned in the appeal, the CLB while considering the applicability of section 153 has held that so far as section 153 is concerned, no notice of any trust is to be entered in the Register of Members or debenture holders. The CLB has further held that the requirement of section 153 is mandatory and no exception therein has been provided for even in respect of shares held in trust on behalf of Mutual Funds. The CLB has further held that even in the Securities and Exchange Board of India Act, 1992 under which SEBI has issued guidelines for Mutual Funds, there is no provision to indicate that the SEBI Act supersedes the provisions of section 153. As rightly held by the CLB, section 32 of the SEBI Act expressly provides that provisions of SEBI Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force. Even section 33 of the SEBI Act which indicates amendments to certain enactments does not indicate any amendment to section 153 to exempt the securities held in trust for Mutual Funds. Even SEBI guidelines on Mutual Funds, on which reliance has been placed by the appellants, do not provide that the securities held by a trustee on behalf of Mutual Fund should be registered in the Register of Members of a company in the manner suggested by the appellants. The custodial agreement on which reliance has been placed by the appellants, is an agreement between the Mutual Funds and SHCOIL and even though the same might have been approved by SEBI, it does not bind the respondent company. The respondent company is bound by the provisions contained in the Act and cannot be permitted to commit a breach thereof or to act in violation thereof. The CLB, on the facts and circumstances of the case, rightly upheld the decision of the Standing Committee of the board of directors of the respondent to refuse registration of transfer of the said shares. Having held that, the Standing Committee of the board of directors of the respondents was justified to refuse registration of transfer of the said shares, the CLB proceeded to make certain observations about possibility of dilution of the provisions of section 153 by insertion of section 187C. These observations of the CLB are uncalled for since the CLB has in express terms held that the provisions of section 153 are mandatory and still continue to be on the statute and as such required to be followed.

12. In the result, the appeal being devoid of any merit is dismissed with costs.

BOMBAY HIGH COURT

[1997] 12 SCL 37 (BOM.)

HIGH COURT OF BOMBAY

Stock Holding Corpn. of India Ltd.

Bharat Petroleum Corpn. Ltd.

S.M. JHUNJHUNWALA, J.

COMPANY APPEAL NO. 1 OF 1995

SEPTEMBER 27, 1996/OCTOBER 3, 1996

FACTS

On appeal :

HELD

The appeal was, therefore, dismissed.

V.R. Dhond for the Appellant. Virag V. Tulzapurkar and F. Palkhiwala for the Respondent.

JUDGMENT

12. In the result, the appeal being devoid of any merit is dismissed with costs.

CLB

[2005] 61 scl 226 (clb - kol.)

Company law Board, Principal Bench, Kolkata

State Bank of India

Business Development Consultants (P.) Ltd.

S. Balasubramanian, Chairman

C.P. No. 109 of 2003

October 29, 2004

Section 397 of the Companies Act, 1956 - Oppression and mismanagement - Whether legal representative of deceased shareholder can file a petition under section 397/398 even though name of said representative is not entered in register of members of company - Held, yes - Deceased, holding 80 per cent shares in respondent No. 1 - Company, executed a will whereby he created a family trust and bequeathed those shares to that trust - Petitioner-bank was appointed as a trustee of that trust - Respondent Nos. 2 to 7 held an extraordinary general meeting (EOGM) wherein they issued additional shares to themselves but no notice for said EOGM was given to either respondent No. 8, who was wife of deceased, or deceased who was alive and was undergoing major operation on that date - Subsequently, after deceased’s death, respondents held board meeting wherein respondent Nos. 4 and 7 were appointed as additional directors in company and thereafter, another EOGM was held wherein further shares were allotted to contesting respondents beyond authorized capital - No notices for second EOGM were given to either petitioner-bank or respondent No. 8 - By issue of further allotment of shares, contesting respondents had come to control nearly 77 per cent shares in company - In circumstances, petitioner filed petition under section 397 - Whether petitioner, being legal representative of deceased, petition filed by it was maintainable notwithstanding fact that its name was not in register of members - Held, yes - Whether both allotments had been made only with a view to create a new majority and convert minority into majority - Held, yes - Whether allotment of further shares was oppressive to petitioner and respondent No. 8 and as such, deserved to be set aside - Held, yes - Whether since there was nothing on board minutes to indicate need for appointing respondent Nos. 4 and 7 as additional directors, their appointment was to be declared as invalid - Held, yes

Section 153 of the Companies Act 1956 - Trusts - Not to be entered on register - Whether no doubt section 153 mandates that no notice of any trust shall be entered on register of members of a company, yet, name of trustee can always be entered - Held, yes - Whether, therefore, on facts stated under head ‘Oppression and mismanagement’, name of petitioner, being sole trustee of trust to which impugned shares had been bequeathed by deceased, could be entered in register of members - Held, yes

Facts

The deceased was holder of 80 per cent share capital in respondent No. 1 - company. During his lifetime, he had executed a will thereby creating a family trust to which he bequeathed the said shares. The petitioner-bank was appointed as the trustee to manage the said trust. The petitioner alleged that with a view to take over the control of the property, respondent Nos. 2 to 7 had fraudulently and purportedly issued additional shares to themselves without making any offer to bank or to respondent No. 8, wife of deceased; that in the first EOGM purportedly held by the respondent Nos. 2 to 7, authorised capital was raised and no notice for the said EOGM was received by respondent No. 8 or by the deceased who was hospitalized at that time; that subsequently after deceased’s death, respondent Nos. 2 to 7 held board meeting to further increase the authorized capital of the company and also to allot further shares, and that they also appointed respondent Nos. 4 and 7 as additional directors in the said meeting. Thereafter, a second EOGM was held wherein further shares were allotted to the contesting respondents beyond the authorized capital. The petitioner also alleged that the respondents had siphoned off funds from the company and had also declined to register its name in the register of members of the company in respect of the shares held by the deceased. On basis of those allegations, the petitioner filed the instant petition seeking rectification of the register of member of the company by entering name of the petitioner and for setting aside the two allotments made. However, the respondents objected to maintainability of the petition on the ground that the petitioner was not a shareholder.s

Held

As far as the question of the maintainability of the petition in terms of section 399 was concerned, it was true that the name of the petitioner was not on the register of members of the company and as such, it was not a member. However, in terms of the Supreme Court’s judgment in the case of World Wide Agencies P. Ltd. v. Margarat Desor AIR 1990 SC 737, the bank, being the legal representative of the deceased who held 80 per cent shares in the company before the issue of further shares, could maintain the petition notwithstanding the fact that its name was not in the register of members. Accordingly, the instant petition was maintainable. [Para 9]

Insofar as the merits of the case were concerned, as regards the allotment of shares in the first EOGM, the admitted fact was that no notice for the EOGM was given to respondent No. 8 as well as the deceased who was alive on that date. It was also an admitted position that on the date of the first EOGM, the deceased was undergoing a major operation. It was inconceivable that on the day when the shareholder holding 80 per cent shares in the company and being the head of the family was undergoing the major surgery, the contesting respondents decided to hold an EOGM for increasing the authorized as well as paid up capital of the company for bona fide interests of the company. Obviously, it was with an ulterior motive. There was nothing on record to show that notices for said meeting were issued to other shareholders also. Further, there was nothing on record to show as to when and in which meeting of the board, the decision to increase the capital and to hold the EOGM was taken. Further, the allotment of shares appeared to have been a pre-medicated decision as even before the authorized capital was enhanced, the 3rd and 4th respondents had already made payments against the shares to be issued, as indicated in the minutes of the first EOGM. By issue of further shares in the first EOGM, the contesting respondents’ group had shares constituting more than 51 per cent shares in the company. Therefore, it was quite obvious that the shares were issued only to gain majority shareholding in the company by the contesting respondents, even though in the process legal compliance was also ensured. Coupled with this, there was also violation of the provisions of article 6 of the articles of association of the company according to which the shares were to be under the control of the board and as such, it alone had the power to issue further shares. Therefore, the allotment of shares resulting in creation of a new majority, which was a grave act of oppression against the deceased and respondent No. 8 had to be set aside accordingly. [Para 10]

As far as the second allotment was concerned, there were no reasons or justification for issue of the additional shares either in the minutes of board meeting or in the minutes of the second EOGM. By that allotment, the contesting respondents, as a group, had come to control nearly 77 per cent shares in the company as against 80 per cent shares originally held by the deceased/the petitioner. Therefore, it was crystal clear that both the allotments had been made only with a view to create a new majority and convert the majority into minority. The settled law is that the power to issue further shares should be exercised bona fide in the interest of the company and not for benefiting any group and that the directors cannot utilize the fiduciary powers purely for the purpose of destroying an existing majority or creating a new majority. Therefore, in the absence of any justification indicated in the minutes of the said meetings for increasing the capital of the company, the allotment made in the second EOGM was to be declared to be oppressive to the petitioner and respondent No. 8 and as such, deserved to be set aside. [Para 11]

As far as induction of two additional directors in the board meeting was concerned, there was nothing in the board minutes to indicate the need for appointing those persons as additional directors especially when the company was not carrying on any substantial business. Considering the fact that in the same board meeting, remuneration had also been fixed for both these additional directors, it appeared that their appointment was more for the purpose of remunerating them rather than for the purpose of meeting any requirement of the company. Therefore, their appointments were also declared as invalid. [Para 12]

As far as the transmission of shares standing in the name of the deceased in favour of the petitioner was concerned, it was found that the administrator had already done so. No doubt section 153 mandates that no notice of any trust shall be entered on the register of members of a company, yet, the name of the trustee can always be entered as was evident from press note dated 25-6-1957 issued by the Department of Company Affairs. That would indicate that shares can be registered in the name of trustees. In the instant case, the name of the petitioner, being the sole trustee of trust to which the impugned shares had been bequeathed by the deceased, could be entered in the register of members. As far as the applicability of the provisions of section 153B was concerned, it only deals with declaration as to the shares held in the trust and the non-applicability of that section in the instant case did not in any way affect the name of the petitioner being entered in the register of members in respect of the impugned shares. As far as the objection that the petitioner could not function as a trustee, was concerned, in terms of section 33 of the SEBI Act, read with section 6(1)(h) of the Banking Regulation Act, the petitioner was entitled to be engaged in the business of undertaking the administration of estate as a trustee and as such, there was no bar on the petitioner acting as a trustee. Accordingly, the impugned shares would be registered in the name of the petitioner which would also be in line with regulations 25 and 26 of Table A which had been adopted by the company. [Para 13]

Case referred to

World Wide Agencies P. Ltd. v. Margarat T. Desor AIR 1990 SC 737 (para 4).

Sudipto Sarkar, Sanjib Banerjee, P.N. Banerjee, Debdutta Sen and P.S. Adhikary for the Petitioner. S.N. Mukherjee, R. Banerjee, D. Das, Jayanta Mitra, P.C. Sen, Himandri Chakraborty, Mrs. Rekha Ghosh, Sutapa Dutta and Soumen Sen for the Respondent.

Order

1. M/s. Business Development Consultants Private Limited (the company) was incorporated in December, 1981 with late Jahar Sengupta, 2nd and 3rd respondents as subscribers to the Memorandum with 10 shares each. The authorized capital of the company was Rs. 60,000 comprising of 6000 equity shares of Rs. 10 each. As on 30th September, 2002, the deceased Jahar Sengupta held 4,800 shares constituting 80 per cent of the issued capital and respondents 2, 3, 4, 5 and 8 held 220 shares each and respondents 5 and 6 held 50 shares each and thus the entire authorized capital of 6,000 shares had been subscribed and paid up. Jahar Sengupta expired on 28th December, 2002. During his lifetime, he had executed a Will on 10th April, 2001 through which he also created a Trust known as Jahar Sengupta Family Trust to which he bequeathed the said shares. He had also appointed State Bank of India as Trustee to manage the Trust. State Bank of India obtained a probate of the Will by an order of Calcutta High Court.

2. This petition has been filed by State Bank of India in its capacity as the sole Trustee of Jahar Sengupta Family Trust and executor of the probated Will of Jahar Sengupta alleging that respondents 2 to 7 by enhancing the authorized capital of the company and allotting further shares to themselves have created a new majority in the company and have also appointed two directors with a view to gain control of the Board and they have also declined to register the name of the petitioner in the register of members of the company in respect of the 4,800 shares held by late Jahar Sengupta. The Bank has also alleged that the contesting respondents have siphoned of nearly Rs. 8 lakhs from the company. On the basis of these allegations, the petitioner has sought for various reliefs inter alia including for rectification of the Register of Members of the company by entering the name of the petitioner, for setting aside the two allotments made etc. The 8th respondent, being the widow of the Jahar Sengupta, is supporting the petitioner.

3. Shri Sarkar, Sr. Advocate appearing for the petitioner submitted : Jahar Sengupta held 80 per cent of the shares in the company. The respondents 2, 3 and 4 are his nephews and respondents 5 and 6 are close relatives of respondents 2, 3 and 4. The 7th respondent is a close associate of respondents 2 to 5. The shareholding as on 30th September, 2002 is undisputed and as a matter of fact in the Will of the deceased, it has been very clearly indicated that he held 4,800 shares out of 6,000 constituting 80 per cent of the issued capital in the company. (Page 28 of the Will). At page 36 of the Will, the deceased has very clearly stipulated that after his demise, these shares shall be transferred to Jahar Sengupta Family Trust and that the Board of the company shall approve the transfer. However, in spite of repeated requests by the Bank, the Board of the company had not effected the transfer in the name of the Bank as Trustee of the Trust. In terms of the Will, the State Bank, in its capacity as Trustee of the Trust has been entrusted with a lot of responsibilities but the contesting respondents by refusing to enter the name of the SBI in the Register of Members are obstructing the Bank from discharging its responsibilities in terms of the Will notwithstanding of the fact that in terms of the Will, the decision of the Bank on various matters shall be final and conclusive. The company owns a very valuable property at the center of Calcutta. With a view to take over the control of the property, the contesting respondents had fraudulently and purportedly, issued additional shares to themselves without making any offer either to the bank as a Trustee or to the 8th respondent. In an EOGM purportedly held on 9-12-2002 by the contesting respondents, the authorized capital had been raised from 60,000 to Rs. 1,10,000 and on the same date 5,000 shares were allotted to the 2nd and 3rd respondents at 2,500 shares each. No notice for the EOGM was received by the 8th respondent or by the deceased who was hospitalized at that time. Form No. 5 reflecting this allotment was filed only on 7-1-2003 after the demise of Jahar Sengupta. It is on record that from 2nd December, 2002 till his demise on 29-12-2002, late Jahar Sengupta was hospitalized and during his sickness the contesting respondents had purportedly allotted the shares on 9-12-2002. This allotment of 5,000 shares straightaway reduced the holding of the deceased to below 50%. Again on 7-2-2003, 10,240 shares were allotted in another EOGM, that too, only to the contesting respondents without any offer to the Bank, being the executor of the Will/Trustee. There is nothing on record to show that notices for the EOGM were given to the Bank or 8th respondent. Further, in terms of Article 6 of the AOA of the company, only the Board has the power to allot shares and the general body has no such powers. Further, any increase in authorized capital requires special resolution which could not have been passed without the presence of the petitioner. For the shares allotted on 7-2-2003, Form No. 5 was filed only on 7-3-2003. There is nothing on record to show as to when the contesting respondents brought money for the shares allotted to them. Even though for the first allotment, the contesting respondents have justified the same on the ground that the paid up capital had to be increased to Rs. 1 lakh in view of the provisions of section 3(3) of the Act, yet they have not given any justification for the second allotment and this allotment was made only with a view to reduce the petitioner to below 25%. The company was actually a proprietorship of late Jahar Sengupta. All the shares held by the contesting respondents as on 30th September, 2002 were gifted to them by the deceased and these respondents did not invest even a single pie for the shares. But now, they are trying to take control of the company and are preventing the petitioner from discharging its responsibilities cast on it by the Will. Having reduced the petitioner to a hopeless minority, the contesting respondents had also appointed the 4th and 7th respondents as additional directors on 11-1-2003. There was absolutely no need for additional directors and they were appointed only to gain absolute majority on the Board. Further when the petitioner sought for transfer/transmission of the shares held in the name of Jahar Sengupta in favour of the petitioner by its letters dated 5-9-2003, 12-9-2003, 13-9-2003, 6-10-2003 and 14-10-2003, the company did not take any action. In terms of Regulations 25 and 26 of Table A, which the company has adopted, the company was bound to register the name of the petitioner as the petitioner is the legal representative of the deceased. Even in terms of section 211 of Indian Succession Act, all properties of deceased vest in the executor of the Will and in terms of section 212 of the same Act, once probate is granted, the title of the executor is confirmed. There are a number of decisions to the effect that on the death of a shareholder, the shares held by him vest in the legal representative and the Board of Directors cannot refuse the registration of the shares in the name of that representative. Therefore, by refusing to enter the name of the petitioner in the Register of Members, the Board of Directors have acted in a manner highly oppressive to the petitioner.

4. The learned counsel further submitted that the contesting respondents are also guilty of siphoning of funds of the company. After they gained control of the company, they have withdrawn over Rs. 8 lakhs as is evident from the copies of the Bank statements enclosed with the petition and rejoinder. There are no details of the purpose for which such huge amount had been withdrawn. Perhaps, the amount so withdrawn had been invested by them for the additional shares issued after the demise of Jahar Sengupta. Therefore they should be directed to account for this huge withdrawal. As far as the locus standi of the petitioner to file the petition is concerned, the Supreme Court has held in World Wide Agencies (P.) Ltd. v. Margarat Desor AIR 1990 SC 737 that the legal representative of the deceased shareholder can file a petition under section 397/398 of the Act even though the name of the representative is not entered in the Register of Members of the company.

5. Shri Mookherjee, Sr. Advocate appearing for the 8th respondent submitted : His client is the widow of the deceased. The deceased had gifted shares not only to his wife but to all the contesting respondents and as such none of them made any investment in the company. A reading of the Will would indicate that the petitioner should continue to hold 80% shares in the company and it is to be the largest shareholder. In the Will, the deceased has specifically stipulated various payments to be made to all the respondents every month and this proportion cannot be changed. In the same way if the respondents had felt the need to increase the capital, it should have been done on proportionate basis so that the shareholding percentage of every shareholder remained the same. In the reply, the contesting respondents have taken a stand that the allotment made on 9th December, 2002 was with the knowledge and consent of the deceased as well as the 8th respondent and as such question of issuing notices to them for the EOGM did not arise [Para (3e) of the Reply]. There is nothing on record to show that either the deceased or the 8th respondent had consented for issue of additional shares on 9th December, 2002. The deceased could have never consented to the issue of shares as it would be completely against the provisions in the Will which he had executed in 2001 itself, wherein he had specifically indicated that 80% shares held by him would be vested in the Trust. The respondents have relied on Annexure R-1 to state that on an earlier occasion when 2000 equity shares where allotted, the general body had approved the same by a special resolution. Even though the general body approved the allotment, actually it was the Board which allotted the shares as is evident from Annexure R-1. The very fact which has been admitted by the respondents that no notice was given to the deceased and the 8th respondent for the EOGM on 7-12-2002 would nullify any decision taken in that meeting. The justification that capital was increased to meet with legal requirement is fallacious. If it was for legal compliance, the share capital should have been increased to Rs. 1 lakh only and not to Rs. 1.10 lakh. It was done only to increase the shareholding of the contesting respondents to 51% and thus to create a new majority. There is no explanation as to why offers were not made to the deceased and the 8th respondent. The main purpose of issue of further shares to the respondents was with a view to gain control of the property of the company wherein the 8th respondent is residing as the contesting respondents had developed a sort of animosity towards the 8th respondent as is evident from paragraph 3(n) of the Reply. Various provisions in the Will which have not been challenged by any of the contesting respondents, would clearly indicate that the Bank is to be the majority shareholder in the company and then only all the obligations cast on the Bank could be discharged by it. As per Annexure R-3 which is a copy of the minutes of EOGM held on 9-12-2002, 2,500 equity shares were allotted to the 3rd and 4th respondents each as applied for by them. In other words, even before the resolution to increase the authorized capital was passed, these two respondents had already applied for the shares. It would indicate that the allotment was with a pre-meditated plan. There is nothing in the minutes to indicate as to why either the deceased or the 8th respondent could not have been offered/allotted proportionate shares. This allotment was purportedly made when the deceased was in the hospital. Only after the 8th respondent joined as director of the company, the deceased had gifted shares to his nephews. Now they are trying to hijack the company. Insofar as the second allotment on 7-2-2003 is concerned, by these allotments the shareholding of the petitioner has been reduced from 43% to 23% and as such the contesting respondents are even in a position to pass special resolutions. Further, the allotment made on this day also suffers from legal infirmities. The authorized capital of the company was increased from Rs. 1.10 lakhs to Rs. 6 lakhs only on 7-2-2003 as per Annexure R-6. However, as is seen from the same minutes, the Board had issued 14,520 equity shares on 11-1-2003 itself. No shares could have been issued beyond the authorized capital of the company. However, having issued the shares on 11-1-2003 itself, again the approval of the general body was obtained for allotting 10,240 shares to the contesting respondents excluding the 8th respondent on the ground that she had not paid the application money for 4,280 shares issued to her on 11-1-2003. The sequence of events would indicate that the entire allotment was a sham transaction done only with a view to highjack the company. Further, in a Board Meeting held on 11-1-2003, various decisions fixing the remuneration of directors had been taken. All these decisions are contrary to the terms of the Will. Even though, according to the contesting respondents, the 8th respondent had attended this meeting and signed the minutes, the fact is that she did not attend the meeting and she was forced to sign the minutes. This would be evident from the fact that she was also forced to issue a cheque for Rs. 42,800 being the consideration for the shares proposed to have been issued to her but later on she had stopped payment of the cheque after coming to know of the ill designs of the contesting respondents. The contesting respondents are also guilty of siphoning of funds of the company. They have debited the accounts of the company with over Rs. 2 lakhs as legal expenses to contest the present proceedings. When these proceedings had been initiated against the ill deeds of the contesting respondents, the question of the company paying the litigation cost does not arise. Therefore, all the allotments made by the contesting respondents should be cancelled, they should be directed to account for all the withdrawal from the company and they should also be directed to repay the litigation cost charged to the company.

6. After the learned counsel for the petitioner and the 8th respondent concluded their arguments, Shri Jayanta Mitra, Sr. Advocate appearing for the contesting respondents suggested that the dispute could be compromised and accordingly the following order was passed on 19-3-2004.

“With the consent of Respondents the following directions are given as an interim measure :

(1) The share capital of the company shall be restricted to Rs. 1.00 lakh both authorised and paid up, and any other shares issued in addition to this will stand cancelled.

(2) Out of the 5,000 shares allotted on 9-12-2002, 4,000 shares shall be distributed proportionately among the existing shareholders and the balance 1,000 shares shall stand cancelled.

(3) All the shares issued on 7-2-2003 shall stand cancelled.

(4) Two directors appointed on 11-1-2003 shall stand discharged with immediate effect. I hereby appoint Shri P.N. Narielwala and Shri Aloke Mukherjee as directors with immediate effect.

(5) The Board shall take appropriate decision regarding transfer of 4,800 shares standing in the name of the deceased in favour of the Trustee.

(6) The Board shall ensure compliance with the terms of the Will of the deceased.

(7) The respondent No. 8, by virtue of the powers conferred on her, is authorized to appoint Shri Sukhendu Roy as a Director in terms of the Will.

(8) The statutory auditor will conduct a special audit of the accounts of the company effective from 1-1-2003.

(9) No refund of the amount in regard to the cancelled shares shall be made till the audit is over.

(10) For any Board meeting, 4 days notice in writing to be given to all the members of the Board. Final order will be passed on 23-4-2004 at 10.30 a.m. in consultation with all the parties.”

7. This order was taken on appeal by the contesting respondents to Calcutta High Court on the ground that their learned counsel had not given any consent to pass that order. The High Court directed the respondents to file an application before this Bench challenging the order dated 19-3-2004. When this application was moved on 23-4-2004, Shri Mitra submitted that while he had no quarrel with the contents of the order dated 19-3-2004, the terms contained in that order were to be finalized only in the hearing on 23-4-2004 and, therefore, the question of his giving consent to the terms of that order on 19-3-2004 did not arise. Shri Sen appearing for the 7th respondent also contended that his client would have never agreed for the terms contained in that order. However, Shri Sarkar and Shri Mookerjee vehemently argued that the said order was a consent order. Since, I desired that the petitioner and the 8th respondent should file their replies to the said application, while giving directions to do so, I also passed the following order : “Since the order dated 19-3-2004 has brought about changes in the Board, till the matter as to whether the order was a consent order or not is decided, the existing Board is suspended. I appoint Justice Suhas C. Sen, retired Supreme Court Judge, subject to giving his consent as the administrator with full powers of the Board”. In terms of this order, Justice Sen assumed charge as administrator. In the hearing held on 27th August, 2004, the learned counsel appearing for the contesting respondent, Shri Chakraborty submitted that his clients were willing to go out of the company on receipt of fair consideration for their shares which were held by them before additional shares were issued. This suggestion was not acceptable to the counsel for the petitioner and the 8th respondent and instead they desired that the consent order dated 19-3-2004 should be confirmed or else the petition should be decided on merits.

8. As far as the order dated 19-3-2004 is concerned, in view of the statement of the learned counsel Shri Mitra that while he had no quarrel with the terms contained in that order but they were the terms to be decided finally in the hearing on 23-4-2004, I would like to give the benefit of doubt and as such I am not confirming that order and will be deciding the petition on merits.

9. In the absence of any arguments on merits by the counsel of the contesting respondents, I shall be considering the merits of the case on the basis of the reply filed by the contesting respondents. They have questioned the maintainability of the petition in terms of section 399, on the ground that the petitioner is not a shareholder. As far as this objection is concerned, it is true that the name of the petitioner is not on the Register of Members of the company and as such is not a member. However, in terms of the Supreme Court judgment in Margarat Desor’s case (supra) the Bank, being the legal representative of the deceased who held 80% shares in the company before the issue of further shares, can maintain the petition notwithstanding the fact that its name is not in the Register of Members. Accordingly, I hold that this petition is maintainable.

10. Insofar as the merits of the case are concerned, the main allegations of oppression by the petitioner against the contesting respondents, relate to issue of further shares on two occasions and appointments of two additional directors. Insofar as the allotment of shares on 9-12-2003 is concerned, the admitted fact is that no notice for the EOGM was given to the 8th respondent as well as the deceased who was alive on that date. It is also an admitted position that it was on 9-12-2003 that the deceased was undergoing a major operation. It is inconceivable that on the day when the shareholder holding 80% shares in the company and also who was the head of the family was undergoing the major surgery, that the contesting respondents decided to hold an EOGM for increasing the authorized as well as paid up capital of the company for bona fide interests of the company. Obviously it was with an ulterior motive. There is nothing on record to show when notices for this meeting was issued to other shareholders also. Further, there is nothing on record to show as to when and in which meeting of the Board, the decision to increase the capital and to hold the EOGM was taken. As rightly pointed out by Shri Mookherjee, the allotment of shares appears to have been a pre-medicated one as even before the authorized capital was enhanced, the 3rd and 4th respondents had already made payments against the shares to be issued, as indicated in the minutes of the EOGM. Again as rightly pointed out by Shri Mookherjee, if the intention of the shareholders was to comply with legal requirements, there was no need to have issued 5,000 shares as with issue of 4,000 shares, the share capital would have been Rs. 1 lakh. By issue of 5,000 shares, the contesting respondents’ group had 5,980 shares out of 11,000 shares constituting more than 51% shares in the company. Therefore, it is quite obvious that 5,000 shares were issued only to gain majority shareholding in the company by the contesting respondent, even though, in the process, legal compliance was also ensured. Coupled with this, there is also violation of the provisions of Article 6 of the Articles of Association of the company according to which the shares are to be under the control of the Board and as such it alone has the power to issue further shares. Therefore, the allotment of 5,000 shares resulting in creation of a new majority, which is a grave act of oppression against the deceased and the 8th respondent, has to be set aside and accordingly I do so.

11. As far the second allotment is concerned, it is seen from the Board Minutes dated 11-1-2003 (Annexure R-7) that the Board had decided to increase the authorized capital of the company from Rs. 1.10 lakhs to Rs. 6 lakhs and also to allot 14,520 shares to 7 persons on payment. In the EOGM held on 7-2-2003, as is seen from the minutes (Annexure R-6), 10,240 shares were allotted to the contesting respondents excluding the 8th respondent on the ground that she had not sent any application money for 4,280 shares proposed to be allotted to her. I do not find any reasons or justification for issue of these additional shares either in the minutes of the Board Meeting on 11-1-2003 or in the minutes of the EOGM on 7-2-2003. By this allotment, the contesting respondents, as a group, have come to control nearly 77% shares in the company as against 80% shares originally held by the deceased/the petitioner. Therefore, it is crystal clear that both the allotments have been made only with a view to create a new majority and convert the majority into minority. The settled law is that the power to issue further shares should be exercised bona fide in the interest of the company and not for benefiting any group and that the directors cannot utilize the fiduciary powers purely for the purpose of destroying an existing majority or creating a new majority. Therefore, in the absence of any justification indicated in the minutes of the meetings on 11-1-2003 and 7-2-2003 for increasing the capital of the company, the allotment made on 7-2-2002 has also to be declared to be oppressive to the petitioner and the 8th respondent and as such deserves to be set aside and accordingly I do so.

12. As far as induction of two additional directors (Respondents 4 and 7) in the Board Meeting held on 11-1-2003 is concerned, there is nothing in the Board Minutes to indicate the need for appointing these persons as additional directors especially when the company was not carrying on any substantial business. Considering the fact that in the same Board Meeting, remuneration has also been fixed for both these additional directors, it appears that their appointment was more for the purpose of remunerating them than for the purpose of meeting any requirements of the company. Therefore, their appointments are also declared as invalid. One Deb Kishore Bhattacharjee, claiming himself to be a director of the company had applied for impleading himself as a party. He has relied on a letter issued by the 2nd respondent dated 3-12-2002, intimating him that he had been appointed as an additional director on 3-12-2002. According to the 8th respondent, there was no Board meeting on 3-12-2002 and as such there could have been no appointment of any additional director. I am not adjudicating on this issue as I have already suspended the Board and in view of the final direction that I propose to give for constitution of the Board.

13. As far as the transmission of shares standing in the name of late Jahar Sengupta in favour of the petitioner is concerned, I find that the learned administrator has already done so in the meeting held on 17th July, 2004. By an application dated 26-8-2004, the contesting respondents have raised an objection regarding the transmission of shares in favour of the petitioner. According to the respondents, the learned administrator has directed transmission of shares in favour of “State Bank of India as executor and Trustee of Jahar Sengupta Family Trust”. In terms of section 153 of the Act, no notice of any trust, express or implied or constructive can be entered on the Register of Members or of Debenture holders. Further, section 153B of the Act dealing with declaration as to shares and debentures held in Trust has been made inapplicable effective from 13th December, 2000 and this fact has not been noted by the learned administrator. Even though the State Bank of India Act permits the Bank to undertake the services of acting as Trustees, yet, SBI has to separately register with SEBI. The name of a Trust cannot be entered in the list of members unless it is registered under Societies Registration Act. Further, to hold the shares in its name, SBI should take permission from RBI. Therefore, the shares held by the deceased cannot be registered in the name of the Bank and should be entered in the name of the beneficiaries to the Will. I do not find any merit in these objections. No doubt, section 153 mandates that no notice of any Trust shall be entered on the Register of Members of a company, yet, the name of the Trustee can always be entered as is evident from Press Note dated 25th June, 1957 issued by the Department of Company Affairs which reads “It has been brought to the notice of the Government of India that in the share register of some companies Trustee or Trustees described as such are entered as members. Government are advised that under the relevant provisions of the Companies Act, 1956, shares in a company, being the property of a Trust can be held in the names of its Trustees being individuals, corporations, companies or societies registered under Societies Registration Act, 1960 without the addition of the statement that they are Trustees. Shares cannot be held in the name of the Trust as such unless it is a separate legal entity such as a registered society. Companies are requested that wherever necessary the shares registered should be rectified so as to comply with law as explained above”. This would indicate that shares can be registered in the name of Trustees. In the present case, the name of State Bank being the sole Trustee of Jahar Sengupta Family Trust to which the impugned shares have been bequeathed by the deceased can be entered in the Register of Members. As far as the applicability of the provisions of section 153B is concerned, it only deals with declaration as to the shares held in Trust and the non-applicability of this section presently does not in any way affect the name of State Bank being entered in the Register of Members in respect of the impugned shares. As far as the objection that State Bank cannot function as a Trustee is concerned, in terms of section 33 of SBI Act read with section 6(i)(h) of the Banking Regulations Act, State Bank is entitled to be engaged in the business of undertaking the administration of estate as a Trustee and as such there is no bar in State Bank acting as a Trustee. Accordingly, the impugned shares shall be registered in the name of State Bank of India which would also be in line with Regulations 25 and 26 of Table A which has been adopted by the company.

14. The respondents have also questioned the manner and mode of holding meetings by the learned administrator in their application dated 26-8-2004. According to them, various provisions of the Companies Act have been violated in convening general meetings by the learned administrator. I do not find any substance in these allegations. In terms of my order dated 23-4-2004, the learned administrator was to have the full powers of the Board as the then existing Board had been suspended by the same order. Therefore, the learned administrator could have exercised all the powers of the Board by himself. However, it appears that he has desired to take decisions in consultation with the members of the company and has accordingly as and when needed, called for meetings of the members. These meetings cannot be considered to be general meetings as envisaged under the Act. These meetings appear to be more in the nature of a consultative process and, therefore, the allegation of the respondents that the meetings have not been held in accordance with the provisions of the Act cannot be sustained. The contesting respondents have also filed certain other applications relating to various meetings held by the learned administrator, the details of which I am not elaborating, in view of the above finding.

15. In fine, the allotments made on 9-12-2002 and 7-2-2003 are cancelled. The share capital of the company shall remain at Rs. 60,000 comprising of 6,000 equity shares of Rs. 10 each. The Register of Members of the company shall be deemed to have been rectified with immediate effect, reflecting only the shareholding position as on 30-9-2002. The ROC, Calcutta, shall ignore the Returns of Allotments filed by the company relating to the allotments made on 9-12-2002 and 7-2-2003.The learned counsel for the respondents submitted that his clients would be willing to go out of the company on receipt of fair consideration for their shares computed on the basis of the present valuation of the assets of the company. No doubt, in a number of cases, this Board has directed either the company or one party to purchase the shares held by the other party. But in the present case, the circumstances are different. The admitted position is that all the contesting respondents received their shares by way of gift given by the deceased and all of them have been made beneficiaries in the Will either to receive certain payments every month or have been given some properties. Therefore, I am of the view that the decision whether the shares held by the contesting respondents should be purchased by the company or not should be left to the discretion of the Board of Directors. Accordingly I do so.

16.The learned administrator will convene a general meeting of the company at the earliest to transact the only business of election of directors. The voting shall be only on the basis of the shareholding as on 30th September, 2002. The number of directors to be elected will be the same as it existed as on 30-9-2002. To assist him in convening and holding the said meeting, the learned Administrator is authorized to appoint a practicing company secretary on such remuneration as he deems fit, which will be charged to the company. The directors so elected shall constitute the Board of the company and on such constitution, learned administrator shall stand relieved of his assignment as administrator. The company will pay a consolidated remuneration of Rs. 1.5 lakhs to the learned administrator for his service as administrator. There are allegations of siphoning of funds by the contesting respondents. The Board constituted in the general meeting shall examine all the payments/withdrawals made during the impugned period and the contesting respondents shall provide all necessary vouchers/documents etc. that are necessary for scrutiny. In case of any withdrawals/payments, which are unwarranted, then the contesting respondents responsible for the same shall reimburse the amount quantified by the Board. The litigation charges paid out of the company funds by the contesting respondents shall be reimbursed to the company by them. All the payments due by the contesting respondents as above shall be reimbursed within a period of 3 months. In computing the amount due by the contesting respondents, if any credit shall be given for the amount invested by them for the shares allotted to them on 9-12-2002 and 7-2-2003. The Board is also empowered to take a decision on purchase of the shares held by the contesting respondents by the company and in case the Board decides that the company should purchase the shares, the company is permitted to do so and is also authorised to reduce its share capital to the extent of the face value of the shares so purchased.

17. The petition is disposed of in the above terms.

[1988] 64 Comp. Cas. 492 (AP)

High Court of Andhra Pradesh

N. Satyaprasad Rao

V. L. N. Sastry

G. Ramanujulu Naidu, J.

CIVIL APPEAL. NO. 37 OF 1985 AND CIVIL PETITION NO. 1 OF 1985

February 11, 1987

S. Parvatha Rao for the Petitioners.

Y. Surya Narayana for S. Venkat Reddy, B. Narayana Reddy for the Respondents.

JUDGMENT

G. Ramanujulu Naidu, J.—The above company application, i.e., Company Application No. 37 of 1985, is filed by the petitioners in C. P. No. 1 of 1985 for an injunction, among other reliefs, restraining respondents Nos. 1 to 4 from managing and interfering with the affairs and business of the sixth respondent-company in any manner, pending disposal of the company petition.

Respondents Nos. 1 to 4 filed a counter-affidavit on August 12,1985. Later, the first respondent filed an additional counter-affidavit on October 30, 1986, objecting to the maintainability of the company petition itself at the instance of the petitioners, the objection being that the petitioners are not "members" as defined under section 41 of the Companies Act, 1956.

The authorised capital of the sixth respondent-company (hereinafter referred to as "the company") is Rs. 5 lakhs comprising Rs. 3 lakhs, being the equity share capital divided into 3,000 equity shares of Rs. 100 each, and Rs. 2 lakhs, being the preferential share capital divided into 2,000 cumulative redeemable preferential shares of Rs. 100 each. All the 3,000 equity shares of the company have been issued and subscribed. No preferential shares of the company have been so far issued.

It is asserted in paragraph 6 of the company petition that the present shareholders of the sixth respondent-company are 12 in number, that the first petitioner holds 75 shares of the company with distinctive numbers 2551 to 2625 under share certificate No. 10, that the second petitioner has acquired 300 shares of the company with distinctive numbers 391 to 500 and 801 to 990 under share certificate No. 15, that the third petitioner holds 375 shares of the company with distinctive numbers 2,626 to 3,000 under share certificate No. 11 and that all the three petitioners together hold 750 shares of the company.

In paragraph 13 of the company petition, it is amplified that the first and the third petitioners and four others were allotted shares on June 19, 1981, that the first respondent submitted a return of allotment dated July 4, 1981, in the prescribed form to the Registrar of Companies, that acquisition of 300 shares of the company by the second petitioner was approved by the board of directors of the company and that share certificate No. 15 dated August 17, 1981, was issued and signed by the first and the fifth respondents certifying that the second petitioner was the registered holder of the said 300 shares. It is also asserted in paragraph 15 of the company petition that petitioners Nos. 1 and 2 and the second respondent were appointed as the directors of the company at an extraordinary meeting of the general body held on June 12, 1983, and that a return dated February 4, 1983, in the prescribed form was also filed by the first respondent before the Registrar of Companies furnishing the particulars of the said appointment.

In the counter-affidavit filed on behalf of respondents Nos. 1 to 4 in the company petition, it is stated that it is unnecessary to canvass the version set out in paragraph 4 of the company petition. What is more, in paragraph 10 of the counter-affidavit, the averments in paragraph 13 of the company petition are admitted to be correct. Also in paragraph 12 of the counter-affidavit, the appointment of petitioners Nos. 1 and 2 and the second respondent as directors of the company at an extraordinary meeting of the general body held on January 12, 1983, is admitted, though it is added that the second petitioner and the second respondent were removed from the board of directors later.

It may be thus noted that the holding of the petitioners in the company as claimed by them is not only not denied but also admitted. It may be recalled that the company petition was filed under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act"). Inasmuch as the petitioners hold not less than l/10th of the issued share capital, they are entitled to seek redress under sections 397 and 398 of the Act.

Sri Y. Suryanarayana, however, submits that a petition for relief either under section 397 or section 398 of the Act is available only to members of the company and the petitioners not having been noted as members of the company in the register maintained for that purpose, the company petition is not maintainable.

It is, therefore, necessary to notice the relevant provisions of the Act. Section 41 of the Act defines "member" of a company and it runs thus:

"41(1). The subscribers to the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members.

(2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company".

Section 2(27) of the Act also defines a member in relation to a company as not including a bearer of a share warrant of the company issued in pursuance of section 114. Section 113 deals with issue of share certificates after allotment. Rule 4(1) of the Rules called the Companies (Issue of Share Certificates) Rules, 1960, hereinafter referred to as "the Rules", lays down that when a company issues any capital, no certificates of any share or shares in the company shall be issued except in pursuance of a resolution passed by the board. Rule 5 deals with the form and contents of a share certificate. Rule 6 requires the share certificate to be issued under the seal of the company, which shall be affixed in the presence of (i) two directors or persons acting on behalf of the directors under a duly registered power of attorney; and (ii) the secretary or some other person appointed by the board for that purpose. Rule 7 requires particulars of every share certificate issued in accordance with rule 4(1) to be entered in the register of members maintained in the form set out in the appendix to the Rules. Sections 114 and 115 of the Act deal with the issue and effect of share warrants to bearer. In particular, it is enacted therein that on the issue of share warrant, the company shall strike out of its register of members the name of the member then entered therein as holding the shares specified in the warrant as if he had ceased to be a member. Section 150(1) of the Act enjoins an obligation on every company (registered) to maintain a register of its members and enter therein the particulars more fully set out in clauses (a) to (d). Sub-section (2) of section 150 renders the company and every officer of the company who commits default punishable with fine.

It may be thus seen that the subscribers to the memorandum of a company become members of the company automatically and on its registration, they shall be entered as members in its register of members. Every other person who agrees in writing to become a member of the company and whose name is entered in the register of members shall be a member of the company. Once a person's name is entered as a member of the company in its register of members, it is not open to question his membership. The converse does not necessarily flow. Even if the prescribed register of the company does not incorporate the names of all its shareholders as members of the company, the particulars so entered in the register are not conclusive. The shareholders of the company, in whose favour share certificates are issued, can exercise rights as members of the company notwithstanding the omission of their membership as found in the prescribed register. In fact, section 150(1) of the Act casts a duty upon every company to maintain a register of its members and enter the relevant particulars more fully set out in clauses (a) to (d) thereof. Failure to comply with the mandatory duty enacted under section 150(1) is made punishable under sub-section (2) of section 150.

As already stated, it is not denied that the first petitioner holds 75 shares while the third petitioner holds 375 shares in the company. It is also not denied that the second petitioner has acquired 300 shares of the company. The distinctive numbers of the shares of the three petitioners as also the share certificate numbers given to them are furnished in the company petition. The first respondent also submitted the required returns to the Registrar of Companies certifying the holding of the three petitioners. In fact, petitioners Nos. 1 and 2, as also the second respondent, were appointed as directors of the company at an extraordinary meeting of the general body of the company held on January 12, 1983. It is, therefore, futile to contend that the petitioners have no right to maintain the company petition, they not having been shown as members of the company in the prescribed register. It is alleged in the company petition that the first respondent is guilty of not maintaining the various registers properly and not convening the annual meetings of the company.

There is also considerable force in the submission of Sri S. Parvatha Rao, learned counsel appearing for the petitioners, that the petitioners' names were duly entered in the prescribed register, that the same was, however, suppressed and not produced before the Commissioner appointed by this court and that in its place another register with defective particulars is brought into existence. In any event, the first respondent cannot take advantage of his failure to maintain the prescribed register properly to non-suit the petitioners.

Sri Y. Suryanarayana, learned counsel appearing for the respondents, however, submits that it is open to the petitioners to move this court for rectification of the defective entries in the prescribed register under section 155 of the Act. Section 155 of the Act is only an enabling provision and cannot be invoked in aid to defeat the rights of the petitioners to move this court for appropriate relief under sections 397 and 398 of the Act.

Lastly, it is urged by learned counsel for the respondents, that no resolution of the board of directors was passed for allotment of any shares to petitioners Nos. 1 and 3 and for purchase of the shares by the second petitioner, as required under rule 4 of the Rules. The submission does not deserve to be countenanced as in the counter-affidavit filed on behalf of the respondents in the main company petition, it is admitted that share certificates to petitioners Nos. 1 and 3 were validly issued.

The preliminary objection as to the maintainability of the company petition is, therefore, overruled.

Post the company application for further orders on February 20, 1987.