Case: World Wide Agencies Private Limited and Another Vs. Mrs. Margarat T. Desor and Others

This is an appeal from the judgment and order of the Division Bench of the High Court of Delhi, dt. 31st August, 1989. The appellant No. 1 - 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 association the appellant company was carrying on the business of travel agents at G-40, Connaugth 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 to all relevant times 7 shareholders and the total number of shares subscribed and paid up was 2010 sharesThe appellant No. 2 Amrit Kaur Singh, at all relevant 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 S. K. Desor was a British National. He held 600 shares in the said company, acquired by him form the Ex-Managing Director, Mr. Amrit Singh Saluja and his family. The respondents No. 2 & 3 to this appeal are children of late S. K. Desor who died on 5th March, 1985. As per the certified copy of the annual return made upto 15th February, 1984 the shareholders of appellant No. 1 (company) were as follows :Mr. S. K. Desor, 600 sharesMrs. Amrit Kaur Singh 545 shares,Mr. Yash Pal Malhotra, 250 sharesMrs. Amrit Gupta 200 shares,Mrs. Savitri Devi Kohli, 5 sharesMr. A. S. Saluja 5 shares,Mr. Balwant Singh 405 sharesIt 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 S. K. Desor as Managing Director-cum-Chairman of the company, and mourned his passing away. The quorum of the said meeting was two-Amrit Gupta and 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, Amrit K. Singh, however, objected as the stated that she had not been informed of the last meeting. Various averments had been made in the petition with regard to oppression and removal of certain valuables by Mrs. Amrit K. Singh and illegal operation of the bank account etc. It was also asserted that Singh was holding 545 shares benami and these in fact belonged to S. K. Desor.A preliminary objection was raised on behalf of 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 the winding up of the company was not maintainableThe 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 S. K. Desor and had obtained letters of administration under 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 under ss. 397 & 398 of the Act. The learned single Judge also held that a composite petition was maintainableThe appellant Amrit K. Singh filed an appeal for herself and, as she alleged, as "Working Director" from the judgment and order dt. 21st September, 1988 of the learned single Judge. It appears that the appellants, aggrieved there by, had also moved this Court under Art. 136 of the Constitution. This Court by its order dt. 18th January, 1989 stayed the further proceedings before the learned single Judge and directed expeditious disposal of the appeal pending before the division bench of the High Court, from the said order of 21st September, 1988, which had been admitted on 13th October, 1988, for consideration by the Division bench of High Court of the application for directions. By a judgment and order delivered on 31st August, 1989 [since reported at (supra)], the Division Bench dismissed the said appeal and held that the petition under ss. 397 & 398 was maintainable by the respondents in the facts and circumstances of the case, and that a composite petition under ss. 397, 398 & 433(f) of the Act was maintainable. Aggrieved thereby, the appellants preferred this appeal to this Court.

Court's reasoning:
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 the shall not, before 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 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 dividends, bonuses or other moneys payable in respect of the share, until the requirements of the notice have been complied with."Art. 28 is more or less in pari materia to art. 32 to 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 1980, was substantially the same as S. 397 of the ActAs mentioned hereinbefore, it is the admitted case of the parties that the regulation for management of the company as contained in Table A to the Act apply to appellant no. 1 and the said relevant provision in the articles of association of the company regarding transfer of shares is Art. 17, which is as follows :"No share shall be transferred to any other than a shareholder of the company so long as any member of the company is willing to purchases the same at fair value. This clause shall not apply to the executor or administrator of a deceased shareholder, if there is will or to the heir or lineal descendants where no letter of administration has been taken."In 1st Supplement January, 1978 of Gore-Browne on Companies, at para 16, it is 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 Act, 1848, 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 included 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 Halsburys Laws of England, 4th edition, Vol. 7, parsa 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 find indirect support from various other decisions of the English Court. Reference was made to the decision in James vs. Buena Venture Nitrate Grounds Syndicate Ltd. 1896 I Ch. D. 456. Re Delewllyn vs. Kasintoe Rubber Estate Ltd. 1914 (15) All E.R. 558, New Zealand Gold Extraction Co. (Mewberyyaution Process) vs. Peocock 1894 (1) Q.B. 622. These decisions to indicate that the right of members in similar, though not identical situations, should be construed as 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 Doouglas Pty. Ltd. 1965 V.R. 638 by Gowans, J. Art. 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 its 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 legal personal representative who is not a member". On an analysis of various decisions, Gowans, J. was of the view that a deceaseds 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 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 representative who is not entitled the right which registration would give him to vote in regulating the conduct of the companys affairs. The object of the section, which is in pari material to S. 399 of the Act, was to provide a remedy for the case where, notwithstanding the fact to at 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 number of members, is or are being oppressed by those who conduct the affairs of the company, is or are being oppressed by those who conduct the affairs of the company. According to Gowans, J., is 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 to 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 Gowers Principles of Modern Company Law, at p. 558, reference has been made to Re Jermyn Street Turkish Baths Ltd.s case (supra), and also to Re Meyer Douglas (P) Ltd.s case (supra), which, according to the learned author, seems to be more convincing. Nariman also referred us to the comments in Hahlos Case book on Company Law, 2nd Edition, p. 351 where in footnote, reference was made to Re Jermyn Street Turkish Baths Ltd.s cased (supra), which have been followed in some decisions. It was noted as follows:"Itappears doubtful whether personal representatives of deceased shareholders, who themselves are not a cannot become, registered as shareholders, can be regarded as "members for the purpose of S. 210 of the 1948 Act : Re Cutnburt Cooper & Sons Ltd. 1973 Ch. 392. Re Meyer Doouglas Ltd. [1965 V.R. 635 at 655]."We do not agree for the reason mentioned before, If 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 mismanagement though the latter remedy requires establishment of winding-up on just and equitable grounds as a precondition for its invocation. It would be rather incongruous to hold that the case for winding-up on just and equitable ground 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 logical. It appears to us that to hold that the legal representatives 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 hyper-technical view which does not advance the case 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 representatives. When, therefore, these vesting are illegally or wrongfully affected, the estate through the legal representatives 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 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 representatives on the death of the deceased and they should be permitted to act for the deceased member for the purposed 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 position in the case of Kedar Nath Agarwal vs. Jay Engineering Works Ltd. & Ors. [1963 33 Company Cases 102], to which our attention was drawnAdmittedly in the present 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 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 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 member and they are different from the persons with the blank transfer forms whereas in the case original 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 through 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 representatives 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 of the matter, it is not necessary for us to consider the decision of this court in Rajahmundry Electric Supply Corpn. Ltd. vs. A. Nageshwara Rao & Ors. AIR 1956 SC 213 . In view of the observations of this Court in Life Insurance Corpn of India vs. Escorts Ltd. & Ors. AIR 1986 SC 1370 at p. 1412, it is not necessary, in our opinion, to consider the contentions made on behalf of the appellant before the High court that the permission of the Reserve Bank of India had been erroneously obtained and consequently amounts to no permission. In the present context, we are 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 vs. Kalinga Tubes 1965 35 Comp Cas 363 (SC) and the reasoning of the Bombay High Court in Bilasrai Joharmal & Ors. vs. Akola Electric Supply Co. (P) Ltd. [28 Comp Cas 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 Halsburys 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 matters complained of, make such order as it thinks fit, whether for regulating the conduct of the companys affairs in future or otherwise. We are of the opinion that averments which a petitioner would have to make to invoke the jurisdiction 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 no contradictory. We are in agreement with 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 irreconcilable 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 grantedThis is a well accepted remedy exercised by the courts.