Case Laws Companies Act World Wide Agencies Pvt Ltd Vs Mrs Margarat T Desor

Case Laws Companies Act

World Wide Agencies Pvt Ltd Vs Mrs Margarat T Desor

PETITIONER:
WORLD WIDE AGENCIES PVT. LTD. AND ANR.

Vs.

RESPONDENT:
MRS. MARGARAT T. DESOR AND ORS.

DATE OF JUDGMENT19/12/1989

BENCH:
MUKHARJI, SABYASACHI (CJ)
BENCH:
MUKHARJI, SABYASACHI (CJ)
RAY, B.C. (J)

CITATION:
1990 AIR 737 1989 SCR Supl. (2) 545
1990 SCC (1) 536 JT 1989 Supl. 413
1989 SCALE (2)1473
ACT:
Companies Act, 1956—Sections 109, 397 and 398–Whether
a person not registered as member of company entitled to
move petition for winding up.

 

HEADNOTE:
The appellant No. 1 is a private limited Company incor-
porated under the Indian Companies Act. The Company had at
all relevant times 7 share-holders and the total number of
shares subscribed and paid up was 2010 shares. The appellant
No. 2 is a shareholder and a whole-time Director of the
Company. Consequent upon the death of one share-holder, Mr.
S.K. Desor, who had controlling interest in the Company, his
legal representatives, wife and children respondents herein.
filed a petition under Section 397 and 398 of the Act and in
the alternative prayed for winding up of the company. A
preliminary objection was raised on behalf of Mrs. Amrit K.
Singh, appellant No. 2 regarding the maintainability of the
petition on the ground that the respondents were not members
of the company as their names had not been recorded in the
register of members and as such they had no locus standi to
file the petition in question. A further objection was also
taken that a composite petition under Sections 397 and 398
of the Act with an alternative prayer for winding up of the
company was not maintainable.
A company Judge of the High Court before whom the peti-
tion came up for hearing held that the respondents who were
the wife and children of the deceased share-holder and who
having obtained Reserve Bank’s permission and letters of
administration according to law should be treated as members
for the purpose of maintaining a petition under Sections 397
and 398 of the Act. The company Judge also held that a
composite petition was maintainable.
Appellant No. 2 preferred an appeal against the order of
the Company Judge. The appellants also moved this Court
under Article 136 of the Constitution against the order of
the Company Judge. This court by its order dated 18th Janu-
ary 1989 stayed the further proceedings before the Single
Judge and directed expeditious disposal of the appeal. The
Division Bench dismissed the appeal holding that the peti-
tion under
546
Sections 397 and 398 was maintainable. Hence this appeal.
The same two questions as stated above arose for deter-
mination by this Court,
Dismissing the appeal, this Court,
HELD: Succession is not kept in abeyance and the proper-
ty of the deceased member vests in the legal representatives
on the death of the deceased and they should be permitted to
act for the deceased member for the purpose of transfer of
shares under Section 109 of the Act. [558D]
In some situations and contingencies, the ‘member’ may
be different from a ‘holder’. A ‘member’ may be a ‘holder’
of shares but a ‘holder’ may not be a ‘member’. [558E]
To hold that the legal representatives of a deceased
shareholder could not be given the same right of a member
under Sections 397 and 398 of the Act would be taking a
hyper-technical view which does not advance the cause of
enquiry or justice. [558B]
In the instant case, the legal representatives have been
more than anxious to get their names put on the register of
members in place of deceased member, who was the Managing
Director and Chairman of the company and had the controlling
interest. It would. therefore, be wrong to insist that their
names must be first put on the register before they can move
an application under Sections 397 and 398 of the Act. This
would frustrate the very purpose of the necessity of action.
[558F-G]
The decision of the English courts are not binding on
the courts in India. But the observations or the reasoning
are of persuasive value. [555C]
Re Jermyn Street Turkish Baths Ltd., [1970] 3 All E.R.
37; Re Bayswater Trading Co. Ltd.. [1970] 1 All E.R. 608;
James v. Quena Venture Nitrate Grounds Syndicate Ltd.,
[1896] 1 Chancery Division 456; Re Dlewellyn v. Kasintoe
Rubber Estate Ltd., [1914] 15 All E.R. 558; New Zealand Gold
Extraction Company, (Newberyvautin Process) Ltd. v. Peocock,
[1948] 1 Q.B. 622; Re Meyer Dougals Pty Ltd., [1965] V.R.
638; Kedar Nath Agarwal v. Jay Engg. Works Ltd. and Ors.,
[1963] 33 Company Cases 102; Rajahmundry Electric Supply
Corpn. Ltd. v. A. Nageshwara Rao and Ors., AIR 1956 SC 213;
Life Insurance Corporation of India v.Escorts Ltd. and Ors.,
AIR 1986 SC
547
1370 at p. 1412; Shanti Prasad Jain v. Kalinga Tubes, [1965]
35 Company Cases 363 and Bilasrai Joharmal and Ors. v. Akola
Electric Supply Co. Pvt. Ltd., 20 Company Cases 549, re-
ferred to.

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5 186 of
1989.
From the Judgment and Order dated 31.8.1989 of the Delhi
High Court in Company Appeal No. 35 of 1988.
F.S. Nariman, Ashok K. Mahajan and Subhash Sharma for
the Appellants.
Anil B. Devan and Vinoo Bhagat for the Respondents.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, CJ. Leave granted.
This is an appeal from the judgment and order of the
Division Bench of the High Court of Delhi, dated 31st Au-
gust, 1989. The appellant No. 1–M/s World Wide Agencies (P)
Ltd. is a private limited company incorporated under the
provisions of the Indian Companies Act, 1956 (hereinafter
referred to as ‘the Act’) to which Table ‘A’ of Schedule 1
to the Act applies, as stipulated under the Articles of
Association of the company. As per the memorandum of associ-
ation the appellant company was carrying on the business of
travel agents at G-40, Connaught Circus, New Delhi. The
authorised Share capital of the company was to the tune of
Rs.5 lakhs divided into 5000 equity shares of Rs. 100 each.
The paid up capital as per the last annual return filed by
the company with the Registrar of Companies, was
Rs.2,01,000. The company had at all relevant times 7 share-
holders and the total number of shares subscribed and paid
up was 2010 shares.
The appellant No. 2 Mrs. Amrit Kaur Singh, at all rele-
vant times, was a shareholder holding 545 fully paid up
shares in the share capital of the company, and was also the
whole-time working Director of the company, holding the
office from 1974 onwards. Late Mr. S.K. Desor was a British
national. He held 600 shares in the said company, acquired
by him from the Ex-Managing Director Mr. Amrik Singh Saluja
and his family. The respondents Nos. 2 & 3 to this appeal
are children of late Mr. S.K. Desor who died on 5th March,
1985. As per the certified copy of the annual return made up
to 15th February, 1984
548
the shareholders of appellant No. 1 (company) were as fol-
lows:
Mr. S.K. Desor 600 shares
Mrs. Amrit Kaur Singh 545 shares
Mr. Yash Pal Malhotra 250 shares
Mrs. Amrit Gupta 200 shares
Mrs. Savitri Devi Kohli 5 shares
Mr. A.S. Saluja 5 shares
Mr. Balwant Singh 405 shares
2010 shares
A petition under ss. 397 & 398 of the Act and in the
alternative for winding up of the company was filed by the
respondents on 25th March, 1985, wherein it was alleged that
on 12th March, 1985 respondent No. 1, being the widow of
late Mr. S.K. Desor, applied as a legal heir of late S.K.
Desor to the Board of Directors of the appellantcompany for
transmission of 850 shares held by her late husband. It is
stated that the shares of Yash Pal Malhotra had been ac-
quired by late Mr. S.K. Desor; and that respondent No. 1
filed an affidavit of her daughter Ms. Kim Paul, relinquish-
ing her claim to the shares of her late father. The Board of
Directors resolved that they had no objection to transmis-
sion of the shares held by Mr. S.K. Desor but the actual
transmission would take place on respondent No. 1’s obtain-
ing Reserve Bank of India’s permission and the succession
certificate. The respondent No. 1’s application for allot-
ment of 5 shares as per her letter of the same date was
allowed by the Board of Directors, and it was resolved that
in view of allotment of these shares, her interest in the
shares of her late husband, she be appointed as a Director
of the company, subject to Reserve Bank of India’s permis-
sion.
It is stated in the judgment under appeal that at the
said meeting of the Board of Directors, they recorded their
deep appreciation for the services rendered by late Mr. S.K.
Desor as Managing Directorcum-Chairman of the company, and.
mourned his passing away. The quorum of the said meeting was
two–Mrs. Amrit Gupta and Mrs. Savitri Devi Kohli. It is
recorded in the judgment under appeal that on 23rd March,
1985 the Board of Directors held another meeting. The
minutes of the meeting of 12th March, 1985 were confirmed by
the two above-mentioned Directors. The third Director, Mrs.
Amrit K. Singh, however, objected as she stated that she had
not been informed of the last meeting. Various averments had
been made in the petition with
549
regard to oppression and removal of certain valuables of
Mrs. Amrit K. Singh and illegal operation of the bank ac-
count etc. It was also asserted that Mrs. Singh was holding
545 shares benami and these in fact belonged to Mr. S.K.
Desor.
A preliminary objection was raised on behalf of Mrs.
Amrit K. Singh regarding the maintainability of the petition
on the ground that the appellants were not members of the
company as their names had not been recorded in the register
of members. A further objection was taken that a composite
petition under ss. 397 & 398 of the Act with an alternative
prayer for winding up of the company was not maintainable.
The learned single Judge of the High Court sitting as a
Company Judge dealt with the application and held that the
appellants who were the wife and children of late Mr. S.K.
Desor and had obtained letters of administration. u/s 290 of
the Indian Succession Act read with s. 273 of the Act, as
also the permission of the Reserve Bank of India, should be
treated as members for the purpose of maintaining a petition
u/ss. 397 & 398 of the Act. The learned single Judge also
held that a composite petition was maintainable.
The appellant Mrs. Amrit K. Singh filed an appeal for
herself and, as she alleged, as “Working Director” from the
judgment and order dated 21st September, 1988 of the learned
single Judge. It appears that the appellants, aggrieved
thereby, had also moved this Court under art. 136 of the
Constitution. This Court by its order dated 18th January,
1989 stayed the further proceedings before the learned
single Judge and directed expeditious disposal of the appeal
pending before the division bench or the High Court, from
the said order of 21st September, 1988 which had been admit-
ted on 13th October, 1988, for consideration by the Division
Bench of the High Court of the application for. directions.
By a judgment and order delivered on 31st August 1989 the
Division Bench dismissed the said appeal and held that the
petition u/s. 397 & 398 was maintainable by the respondents
in the facts and circumstances of the case, and that a
composite petition u/ss. 397,398 & 433(f) of the Act was
maintainable. Aggrieved thereby, the appellants preferred
this appeal to this Court.
We are concerned with two questions of law, namely,
whether the legal heirs of a deceased shareholder can be
treated as members of the company for the purpose of main-
taining a petition u/ss. 397 & 398 of the Act, and whether a
composite petition under ss. 397, 398 &
550
433(f) of the Act is maintainable. We had the advantage of
hearing Mr. F.S. Nariman, counsel for the appellants and Mr.
Anil Diwan for the respondents. It may be mentioned that
during the pendency of the appeal before the High Court,
without prejudice to the rights and contentions of the
parties, an emergent meeting of the Board of Directors was
directed by the High Court to be held on 28th January, 1989
to consider the question of registration of 450 shares
belonging to the deceased Mr. S.K. Desor in the name of Mrs.
Margarat T. Desor and her son Sameer K. Desor, being re-
spondents Nos. 1 & 3 respectively. It further appears that
as per the directions of the Division Bench, dated 27th
January, 1989 the court had appointed Chairman Mr. C.K.
Mahajan and Mrs. Margarat T. Desor were not permitted to
vote at the said meeting. At a meeting held subsequent
thereto, by a majority, it was resolved not to register the
respondents Nos. 1 & 3 as members. It must, however, be
noted that the Division Bench vide its order dated 27th
January, 1989 had directed that no effect would be given to
the said Resolution.
The question, therefore, which is material to be consid-
ered, is, whether the legal heirs of a deceased shareholder
whose names are not entered in the register of members, are
entitled to maintain petition u/ss. 397 & 398 of the Act. It
was contended on behalf of the appellants that ss. 397 & 398
of the Act must be strictly construed.
Section 397 of the Act which is in chapter VI of the Act
under the heading “Prevention of Oppression and Mismanage-
ment”, provides as follows:
“Application to Court for relief in cases of
oppression.(1) Any member of a company who
complains that the affairs of the company are
being conducted in a manner prejudicial to
public interest or in a manner oppressive to
any member or members including any one or
more of themselves may apply to the Court for
an order under this section, provided such
members have a right so to apply in virtue of
section 399.
(2) If, on any application under sub-section
(1), the Court is of the opinion–
(a) that the company’s affairs are being
conducted in a manner prejudicial to public
interest or in a manner oppressive to any
member or members, and
551
(b) that to wind-up the company would unfairly
prejudice such member or members, but that
otherwise the fact would justify the making of
a winding-up order on the ground that it was
just and equitable that the company should be
wound-up;
the Court may, with a view to bringing to an
end the matters complained of, make such order
as it thinks fit.”
On behalf of the appellants it was contended that the
right which is a specific statutory right, is given only to
a member of the company and until and unless one is a member
of the company, there is no right to maintain application
u/s 397 of the Act. Mr. Nariman contended that there was no
automatic transmission of shares in the case of death of a
shareholder to his legal heir and representatives, and the
Board has a discretion and can refuse to register the
shares. Hence, the legal representatives had no locus standi
to maintain an application u/ss. 387 & 398 of the Act. Mr.
Nariman submitted that the rights under ss. 397 & 398 of the
Act are statutory rights and must be strictly construed in
the terms of the Statute. The right, it was submitted, was
given to “any member” of a company and it should not be
enlarged to include “any one who may be entitled to become a
member”.
In order to decide the question involved, it would be
necessary to examine certain provisions of the Act. Section
2(27) of the Act states that “member” in relation to company
does not include a bearer of a share-warrant of the company
issued in pursuance of section 114 of the Act. Section 41 of
the Act provides as follows:
“(1) The subscribers of 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 agreed 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 26 of the English Companies Act, 1948 in sub-
stantially the same.
Section 109 of the Act states as follows:
“A transfer of the share or other interest in
a company of a
552
deceased member thereof made by his legal
representative shall, although the legal
representative is not himself a member, be as
valid as if he had been a member at the time
of the execution of the instrument of trans-
fer.”
In this connection, it would be relevant to refer to
Articles 25 to 28 of Table A of the Act, which deal with the
transmission of shares and which are in the following terms:
“25.(1) On the death of a member the survivor
where the member was a joint ,holder, and his
legal representatives where he was a sole
holder, shall be the only persons recognised
by the company as having any title to his
interest in the shares.
(2) Nothing in clause (1) shall release the
estate of a deceased joint holder from any
liability in respect of any share which had
been jointly held by him with other persons.
26.(1) Any person becoming entitled to a share
in consequence of the death or insolvency of a
member may, upon such evidence being produced
as may from time to time properly be required
by the Board and subject as hereinafter pro-
vided, elect, either–
(a) to be registered himself as holder of the
share; or
(b) to make such transfer of the share as the
deceased or insolvent member could have made.
(2) The Board shall, in either case, have the
same right to decline or suspend registration
as it would have had, if the deceased or
insolvent member had transferred the share
before his death of insolvency.
27. (1) If the person so becoming entitled
shall elect to be registered as holder of the
share himself, he shall deliver or send to the
company a notice in writing signed by him
stating that he so elects.
(2) If the person aforesaid shall elect to
transfer the share, he shall testify his
election by executing a transfer of the share.
553
(3) All the limitations, restrictions and
provisions of these regulations resulting to
the right to transfer and the registration of
transfers of shares shall be applicable to any
such notice or transfer as aforesaid as if the
death or insolvency of the member had not
occurred and the notice or transfer were a
transfer signed by that member.
28. A person becoming entitled to a share by
reason of the death or insolvency of the
holder shall be entitled to the same dividends
or other advantages to which he would be
entitled if he were the registered holder of
the share, except that he shall not, become
being registered as a member in respect of the
share, be entitled in respect of it to exer-
cise any right conferred by membership in
relation to meetings of the company:
Provided that the Board may, at any
time, give notice requiring any such person to
elect either to be registered himself or to
transfer the share, and if the notice is not
complied with within ninety days, the Board
may thereafter withhold payment of all divi-
dends, bonuses or other moneys payable in
respect of the share, until the requirements
of the notice have been complied with.”
Article 28 is more or less in para materia to articles
32 of Table A to the English Companies Act. It may also be
mentioned, as it’ has been mentioned by the High Court, that
s. 210 of the English Companies Act, before its amendment in
1990, was substantially the same as s. 397 of the Act.
As mentioned hereinbefore, it is the admitted case of
the parties that the regulation for management of the compa-
ny as contained in Table A to the Act apply to appellant No.
1 and the said relevant provision in the articles of associ-
ation of the company regarding transfer of shares is Article
17, which is as follows:
“No share shall be transferred to any person
other than a shareholder of the company so
long as any member of the company is willing
to purchase the same at fair value. This
clause shall not apply to the executor of
administrator of a deceased shareholder, if
there is will or to the heir or lineal decend-
ents where no letter of administration has
been taken.”
554
Mr. Nariman submits that in view of the specific provi-
sions of s. 397 of the Act only a member is entitled to move
a petition under ss. 397 and 398 of the Act and that member
is one whose name is in the register of members in view of
s. 41 of the Act, as mentioned hereinbefore. In this connec-
tion, it is was emphasised that not only must the applicant
be a member but in terms of s. 399 of the Act, he has to
fulfil the conditions laid down under clauses (a) and (b) of
s. 399 of the Act. These should be construed so as to mean
what the words say. According to Mr. Nariman, a member is
not, in view of the scheme of the Act, the representative of
a deceased member.
It is true that it must be a member and s. 41 of the Act
provides that a member of a company is a person who has
applied in writing and “whose name is entered in the regis-
ter of members” is entitled to move the petition. It appears
in this case that names of respondent Nos. 2 and 3 had not
then been entered in the register of members at the relevant
time when the application was made. But the name of Late
Shri S.K. Desor was still on the register of members and the
requisite shareholding for moving a petition under ss. 397
and 398 of the Act was held by him. This question, though
res integra so far as this country is concerned, has been
considered in England, where Pennycuick, J. had occasion to
consider this in Re Jermyn Street Turkish Baths Ltd., [1970]
3 All E.R. 57. The Company there was incorporated in 1946
and represented a joint venture by L and S. In 1952, S
transferred his shareholding to Mrs. P who became a director
of the company. L died in 1953 and thereafter Mrs. P was
mainly responsible for the company’s affairs. The petition-
ers therein were appointed administrators in L’s estate in
1960, and in 1961, at their request, the names of the peti-
tioners therein were entered in the register of members of
the company against the name of L as administrators of L. On
the questions whether the entry constituted merely a note of
the grant of administration or the registration of the
petitioners as members, and whether the petitioners were
members of the company for the purposes of presenting a
petition under s. 210 of the English Companies Act at p. 65
of the report, Pennycuick, J. noted that it was contended
before him that the petitioners therein were not members of
the company and hence had no locus standi to present the
petition bearing in mind that petition under s. 210 of the
English Companies Act could only be presented by a member of
the company. In the facts of that case, Pennycuick, J. held
that the petitioners were duly registered as members of the
company but he proceeded to hold that even if it were so,
the personal representatives of a deceased member must be
regarded as members of the company for the purposes of
555
S. 210 Of the English Companies Act. In this connection,
reference was made to the decision of Buckley, J. in Re
Bayswater Trading Co. Ltd., [1970] 1 All E.R. 608, where at
p. 609 of the report, it was held that ‘member’ would in-
clude representative of a deceased member for the purpose of
s. 353 of the English Companies Act. This judgment of Penny-
cuick, J. went up in appeal to the Court of Appeal and it
was reversed. See Re Jermyn Street Turkish Baths Ltd.,
[1970] 3 All E.R. 184. But on the point whether the repre-
sentative of a deceased member can maintain an action under
s. 210 of the English Companies Act, the views of Penny-
cuick, J. were not reversed or modified. Mr. Nariman submit-
ted that the observations of Pennycuick, J. were obiter for
the decision of the case. We are unable to agree. Indeed,
this was a point specifically referred to by Pennycuick, J.
as being raised and specifically decided. But we need not
detain ourselves with this controversy because the decision
of the English Courts are not binding in the courts of
India. But the observations or the reasoning are of persua-
sive value. We are clearly of the opinion that having regard
to the scheme and the purpose of ss. 397 and 398 of the Act,
the reasoning on a para materia provision of the English Act
would be a valuable guide. The said construction, appears to
us, to further the purpose intended to be fulfilled by
petitions under ss. 397 and 398 of the Act. It facilitates
solution of problems in case of oppression of the minorities
when the member is dead and his heirs or legal representa-
tives are yet to be substituted. This is an equitable and
just construction. This construction, as suggested by Penny-
cuick, J. does not militate against either equity or justice
of the such situation. We would, therefore, adhere to that
construction. In this connection, it may be mentioned that
in the 1972 Edition of Gore-Browne on Companies, it has been
stated as follows:
“It has recently been settled that the person-
al representatives of a deceased member, even
though they are not registered as members, are
entitled to present a petition under s. 210.
In Re. Jermyn Street Turkish Baths Ltd.,
Pennycuick, J. held that on its true construc-
tion section 210 required that the word
‘member’ should include the personal represen-
tatives of a deceased member, on whom title of
his shares devolved by operation of law.”
In 1st Supplement January 1978 of Gore-Browne on Compa-
nies, at para 16, it is stated that “while the shares remain
in the name of the deceased holder, his estate is prima
facie entitled to any subsequent benefits deriving from the
shares”. At p. 491 of Buckley on Companies
556
Act, 1948, the decision of Re Jermyn Street Turkish Baths
Ltd. ‘s case (supra) has also been referred to and it was
observed that for the purpose of the petition under s. 210
of the English Companies Act, ‘member’ includes the personal
representatives of a deceased member. Buckley also notes
that this decision referred herein was reversed without
affecting this point by the Court of Appeal. In Halsbury’s
Laws of England, 4th Edition, Vol. 7, para 1010, at p. 604,
same view has been expressed. The division bench of the
Delhi High Court also noticed that the view expressed in Re
Jermyn Street Turkish Baths (supra) also finds indirect
support from various other decisions of the English Courts.
Reference was made to the decision in James v. Buena Venture
Nitrate Grounds Syndicate Ltd., [1896] 1 Chancery Division
456; Re Dlewellyn v. Kasintoe Rubber Estate Ltd., [1914] 15
All E.R. 558 and New Zealand Gold Extraction Company (Newbe-
ryyautin Proces) Ltd. v. Peacock, [1894] 1 Q.B. 622. These
decisions do indicate that the right of members in similar,
though not identical situations, should be construed as
being belonging to the legal representative or heirs of
deceased members.
Our attention, however, was drawn to the decision of
Supreme Court of Victoria in Re Meyer Dougals Pty. Ltd.,
[1965] V.R. 638 by Gowans, J. Article 22 of Table A to the
Victorian Companies Act, 1938 (4602) provides as follows
that:
“22. A person becoming entitled to a share by
reason of the death, bankruptcy or insolvency
of the holder shall be entitled to the same
dividends and other advantages to which he
would be entitled if he were the registered
holder of the share, except that he shall not
before being registered as a member in respect
of the share be entitled in respect of it to
exercise any right conferred by membership in
relation to meeting of the company.”
Gowans, J. in that case found that there was a “careful
distinction between members and persons entitled to share by
reason of the death of a member but who are not registered
appear to deny the status of a member to a legal personal
representative who is not a member”. On an analysis of
various decisions, Gowans, J. was of the view that a de-
ceased’s estate and its representative may in a particular
context have to be treated as not a member and in view of
the provisions of s. 186(1) of the Victorian Companies Act,
1961 which provides “any member of a company who complains
that the affairs of the company are being conducted in
manner oppressive to one or more of
557
the members (including himself) may … apply to the court
for an order under that section”, Gowans, J. came to the
conclusion that there was no reason for treating the word
“members” in that section as not applying to a legal repre-
sentative who is not entitled to be accorded the right which
registration would give him to vote in regulating the con-
duct of the company’s affairs. The object of the section,
which is in para materia to s. 399 of the Act, was to pro-
vide a remedy for the case where, notwithstanding the fact
that a person possesses the right of a member enabling him
to participate in the conduct of the affairs of the company,
he can claim that he as a member or as one of a number of
members, is or are being oppressed by those who conduct the
affairs of the company. According to Gowans, J., it should
not be treated as applying to someone who is not so entitled
and cannot so claim. With respect, we are unable to accept
this view. Having regard to the purpose of the section as we
conceive it, it would not be just construction to deny the
legal representatives of the deceased member the right of
maintain a petition under ss. 397 and 398. We would prefer
to accept the view of Pennycuick, J. in Re Jermyn Street
Turkish Baths Ltd. ‘s case (supra). It appears to us that
this will be in consonance with the equity of the sections.
In Gower’s Principles of Modern Company Law, at p. 68,
reference has been made to Re Jermyn Street Turkish Baths
Ltd. ‘s, case (supra) and also to Re Meyer Douglas Pry Ltd.
‘s, case (supra), which, according to the learned author,
seems to be more convincing. Mr. Nariman also referred us to
the comments in Hahlo’s Casebook on Company Law, 2nd Edi-
tion, p. 35 1, where in footnote, reference was made to Re
Jermyn Street Turkish Baths Ltd. ‘s, case (supra), which
have been followed in some decisions. It was noted as fol-
lows:
“It appears doubtful whether personal repre-
sentatives of deceased shareholders, who
themselves are not, or cannot become, registered
as shareholders, can be regarded as
“members” for the purposes of s. 210 of the 1948 Act: Re
Cuthburt Cooper & Sons Ltd., [1937] Ch. 392 and Re Meyer
Douglas Ltd., [1965] V.R. 635 at 655.”
We do not agree for the reason mentioned before. It
further appears to us the Australian judgment does not
reconcile to logic in accepting that legal representative
can petition for winding-up, which is called the “sledge-
hammer remedy”, but would refuse the lesser and alternative
remedy of seeking relief against oppression and mismanage-
ment though the latter remedy requires establishment of
winding-up on just and equitable grounds as a precondition
for its
558
invocation. It would be rather incongruous to hold that the
case for winding-up on just and equitable grounds can be
made out by the legal representatives under s. 439(4)(b) of
the Act but not the other. This does not appear to be logi-
cal. It appears to us that to hold that the legal represen-
tatives of a deceased shareholder could not be given the
same right of a member under ss. 397 and 398 of the Act
would be taking a hyper-technical view which does not ad-
vance the cause of equity or justice. The High Court in its
judgment under appeal proceeded on the basis that legal
representatives of a deceased member represent the estate of
that member whose name is on the register of members. When
the member dies, his estate is entrusted in the legal repre-
sentatives. When, therefore, these vestings are illegally or
wrongfully affected, the estate through the legal represen-
tatives must be enabled to petition in respect of oppression
and mismanagement and it is as if the estate stands in the
shoes of the deceased member. We are of the opinion that
this view is a correct view. It may be mentioned in this
connection that succession is not kept in abeyance and the
property of the deceased member vests in the legal represen-
tatives on the death of the deceased and they should be
permitted to act for the deceased member for the purpose of
transfer of shares under s. 109 of the Act.
In some situations and contingencies, the “member” may
be different from a “holder”. A “member” may be a “holder”
of shares but a “holder” may not be a “member”. In that view
of the matter, it is not necessary for the present purpose
to examine this question from the angle in which the learned
Single Judge of the Calcutta High Court analysed the posi-
tion in the case of Kedar Nath Agarwal v. Jay Engineering
Works Ltd. and Ors., [1963] 33 Company Cases 102, to which
our attention was drawn.
Admittedly in the present case, the legal representa-
tives have been more than anxious to get theft names put on
the register of members in place of deceased member, who was
the Managing Director and Chairman of the company and had
the controlling interest. It would, therefore, be wrong to
insist their names must be first put on the register before
they can move an application under ss. 397 and 398 of the
Act. This would frustrate the very purpose of the necessity
of action. It was contended on behalf of the appellant
before the High Court that if legal representatives who were
only potential members or persons likely to come on the
register of members, are permitted to file an application
under ss. 397 and 398 of the Act, it would create havoc, as
then persons having blank transfer forms
559
signed by members, and as such having a financial interest,
could also claim to move an application under ss. 397 and
398 of the Act. The High Court held that this is a fallacy,
that in the case of persons having blank transfer forms,
signed by members, it is the members themselves who are
shown on the register of members and they are different from
the persons with the blank transfer forms whereas in the
case of legal representatives it is the deceased member who
is shown on the register and the legal representatives are
in effect exercising his right. A right has devolved on them
though the death of the member whose name is still on the
register. In our opinion, therefore, the High Court was
pre-eminently right in holding that the legal representa-
tives of deceased member whose name is still on the register
of members are entitled to petition under ss. 397 and 398 of
the Act. In the view we have taken, it is not necessary to
consider the contention whether as on the date of petition,
they were not members. In that view of the matter, it is not
necessary for us to consider the decision of this Court in
Rajahmundry Electric Supply Corpn. Ltd. v. A. Mageshwara Rao
& Ors., AIR 1956 SC 2 13. In view of the observations of
this Court in Life Insurance Corporation of India v. Escorts
Limited & Ors., AIR 1986 SC 1370 at p. 1412, it is not
necessary, in our opinion, to consider the contention as
made on behalf of the appellant before the High Court that
the permission of the Reserve Bank of India had been errone-
ously obtained and consequently amounts to no permission. In
the present context, we are of the opinion that the High
Court was right in the view it took on the first aspect of
the matter.
The second question was whether a combined petition
under ss. 397, 398 and 433(f) of the Act was maintainable.
In view of the observations of this Court in Shanti Prasad
Jain v. Kalinga Tubes, [1965] 35 Company Cases 363 and the
reasoning of the Bombay High Court in Bilasrai Joharmal &
Ors. v. Akola Electric Supply Co. Pvt. Ltd., 28 Company
Cases 549, we are of the opinion that the averments which a
petitioner would have to make to invoke the jurisdiction
under ss. 397 and 398 are not destructive of the averments
which are required to be made in a case for winding up under
s. 433(f) of the Act on the just and equitable ground,
though they may appear to be contradictory. As Halsbury’s
Laws of England, 4th Edition, Volume 7, at p. 604-605,
discusses that the prayer must be made stating that the
affairs are such which fulfil the requirement of winding up
but to wind up the company would unfairly prejudice that
part of the members, but otherwise the facts would justify
the making of a winding up order on the ground that it was
just and equitable that the company should be wound up, the
Court may, with a view to bringing to an end the
560
matters complained of, make such order as it thinks fit,
whether for regulating the conduct of the company’s affairs
in future or otherwise. We are of the opinion that averments
which a petitioner would have to make to invoke the juris-
diction of ss. 397 and 398 of the Act are not destructive of
the averments which are required to be made in a case for
winding up under s. 433(f) on the just and equitable ground,
though they may appear to be rather conflicting if not
contradictory. We are in agreement with the High Court that
the petition must proceed upto certain stage which is common
to both winding up and though there may be some difference
in procedure to be adopted, it is not such which is irrecon-
cilable and cannot simultaneously be gone into. Indeed these
are made in the manner indicated before. It has to be borne
in mind that a discretion is conferred on the court and it
is only when the Court is satisfied that the facts justify
the making of a winding up order on the ground that it is
just and equitable that the company should be wound up, but
if the Court is further of the opinion that it would be a
remedy worse than the disease, then the Court can examine
whether the alternative relief by way of a direction under
‘ s. 397 can be granted. This is a well accepted remedy
exercised by the Courts. We are, therefore, of the opinion
that the High Court.was right in the view that a composite
petition under ss. 397,398 and 433(f) of the Act is main-
tainable.
The appeal, therefore, must fail and is accordingly
dismissed. We dismiss the appeal with costs, which is as-
sessed at Rs.5,000.
Y. Lal Appeal dis-
missed.
561

 

 

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