Present: 1. Shri S. Balasubramanian, Vice-Chairman
2. Shri K.K.Balu, Member.
IN THE MATTER OF COMPANIES ACT, 1956 (1 OF 1956)
AND
IN THE MATTER OF THE M/S INDO-SCOTTISH BRAND PRIVATE LIMITED
Shri Xavier Joseph
RESPONDENT:
PRESENT ON BEHALF OF
PARTIES:
1. Shri C.M. Devan, Sr. Advocate ... for Petitioner.
2. Ms. Pushya Sitaraman,
Advocate ... for
Respondent.
O R D E R
(Date of Hearing: 16.08.2001)
K.K. BALU:
1. This is a petition under Section 111 of the
Companies Act, 1956 (“the Act”) against M/s Indo Scottish Brand Private Limited
(“the Company”) seeking directions for transmission of the shares impugned in
the petition in favour of the petitioner.
2. The facts of the petition, in brief, are that
Shri C.A. Mani holding 2,500 shares of the Company died on 23.04.1997 leaving
behind a registered Will dated 13.11.1995, bequeathing, inter-alia the said
shares in favour of the petitioner. By
virtue of the Will, the petitioner became entitled to the impugned shares. In spite of the repeated requests made by
the petitioner, the Company failed to transmit the impugned shares in favour of
the petitioner. Hence the petition.
3. According to the Company, the impugned shares
have not been bequeathed in favour of the petitioner, but only empowers the
petitioner to receive the amount of the shares. Accordingly, the Company made an offer to pay value of the shares
which was refused by the petitioner. In
view of the prohibition contained in the Articles, the shares cannot be
transferred to any non-member. The
directors are empowered to decline the registration of any transfer without
assigning any reason. Moreover, the
petitioner is an undesirable person on account of which the Board of Directors
declined to register the transfer of shares in favour of the petitioner.
4. Shri C.M.Devan, Senior Advocate for the
petitioner has read out the relevant recitals from Malayalam version of the
Will to show that the impugned shares have been bequeathed in favour of the
petitioner. By virtue of the Will, the
petitioner has become the absolute owner of the shares. He further pointed out that the petitioner
is entitled for the shares by virtue of operation of law and the Company cannot
refuse transmission of the shares in favour of the petitioner. In the
circumstances, he sought for intervention of this Bench directing the Company
to transmit the shares in favour of the petitioner.
5. Mrs. Pushya Sitaraman, in the course of her
submission reiterated that the Board of Directors of the Company is empowered
to refuse registration of transfer of shares by virtue of Articles 3 & 8
without assigning any reason. However,
she pointed out that the Board of Directors considered the request of the
petitioner for registration of the transmission and formed a bonafide opinion
that the request for transmission should be declined. In this connection, she referred to the copy of the resolution of
the Board of Directors annexed with the reply.
According to the Board of Directors, the petitioner is not a desirable
person to be admitted as a member in as much as he has been constantly
harassing the Company and drawing the Company into various litigations. She also submitted that as long as the
decision to refuse transmission is bonafide, the actions of the Board of
Directors cannot be questioned as held by the Supreme Court in Shailesh
Prabhudas Mehta Vs. Calico Dyeing and Printing Mills Ltd. (1994) 80 CC
64). However, she also
submitted that the directors of the Company are willing to purchase the shares
held by the petitioner on payment of fair value of the shares.
6. We have considered the pleadings and arguments of
the Counsel. In case of refusal to
register transfer/transmission the power to do so should be drawn from the
Articles of Association of the Company.
Unless the Articles provide for such powers to refuse register
transfer/transmission, the Board of Directors cannot exercise such powers. In the present case, even though the learned
counsel for the respondent relied on the Articles governing transfer, yet we
find that the Company has adopted provisions of Table ‘A’. As per Regulation 26(b) of Table ‘A’, the provisions relating to transfer are applicable in case of
transmission also. Article 8 of the
Articles of Association of the Company reads “a director may without assigning
any reason decline the registration on any transfer. It may also decline registration of transfer when the transfer
involves contravention of clause 3 of the Articles of Association.” This Article rests with the Board of
Directors absolute discretion in case of registration of transfer and in view
of Regulation 26(b) such discretion can be exercised in case of transmission
also. However, such powers are to be
exercised bonafide and in the interest of the Company. In the present case, the resolution of the
Board reads as follows:-
“It was
noted that the activities of the company continued to be at a stand still. The letter received from the Registrar of
Companies enclosing a copy of the petition received from Sri Xavier Joseph, s/o
late Sri C.A. Mani was considered. It
was noted that Sri Xavier Joseph wanted his name to be entered in the register
of members by transmission of shares from his deceased father in pursuance of
the latter’s Will. Sri XavierJospeh has
indicated in the petition that he had already sent a request to this effect in
April, 1998, but the request was not seen received in the company. In view of the understanding reached amongst
the directors earlier no new shareholders need be taken even if they be friends
or close relatives of the existing shareholders and also in view of the fact
that the Will of late Sri C.A.Mani entitles his son Mr.Xavier Joseph to only
receive the amount receivable in respect of the shares held by him, it was
decided in pursuance of the provisions in the Articles of Association of the
Company, to decline the request of Sri Xavier Joseph. The Finance Director Sri K.T. Joseph was authorised to
communicate this decision to the Registrar of Companies as well as to Sri
Xavier Joseph. It was also brought to
the notice of the Directors that Dr. Ashok M. Nair was not interested in taking
any portion of the shares held by the late Sri C.A.Mani. Consequently, it was decided that the shares
held by Late Sri C.A. Mani be taken equally by the remaining two members after
payment of the fair value of the shares to Sri Xavier Joseph.”
Even though the
Board of Directors had taken a view that as per the Will of Shri C.A. Mani, the
petitioner could only receive the consideration in respect of the shares held
by the petitioner’s father, we find that the Will bequeaths the shares to the
petitioner and as such the stand of the Company in this regard is not
correct. However, during the hearing it
was pointed out that even at the time when the petitioner’s father was alive,
the petitioner entered the factory premises and vandalized the properties of
the Company due to which it was decided that no new shareholder, even close
relatives of existing shareholders would be admitted as members and such
decision was taken in a board meeting held on 28.12.89. Since the Company is a private limited
company having small number of shareholders, if admission of a member would
result in disharmony among the members then in such a case refusal to register
transmission of shares could be considered to be bonafide and in the interest
of the Company In Calico Dyeing and Printing Mills
case as cited by the learned counsel for the respondent the company had similar
Articles and when the Company declined to register transmission of shares on
the ground that the decision to refuse was in the interest of the Company, the
Supreme Court upheld the decision of the Board. This indicates that as long as
the decision to refuse transmission is bonafide the Court will not
interfere. In the present case, since
the refusal to register transmission is found to be in the interest of the
Company, we do not propose to intervene on behalf of the petitioner and as such
we dismiss this petition. However,
while doing so, we also note that the Board of Directors have expressed their
willingness to purchase the shares held in the name of the petitioner’s father
and therefore in case the petitioner is willing to part with the shares, the
Board of Directors should arrange to have the shares purchased by other members
of the Company on a fair value to be determined by the statutory auditors of
the Company within three months from the date on which the Company receives the
letter of willingness from the petitioner.
7.
With the above
directions, the petition stands disposed of.
(K.K. BALU) (S.BALASUBRAMANIAN)
Dated this the day of
November, 2001