Case: World Wide Agencies Pvt. Ltd. And Anr Vs. Mrs. Margarat T. Desor And Ors

4. A petition under Sections 397 and 398 of the Act and in the alterative for winding up of the company was filed by the respondents on 25th March, l985, wherein it was alleged that on 21st March 1985 respondent No 1, being the widow of late Mr. S.K. Desor, applied as a legal hair of late S.K. Desor to the Board of Directors of thefor transmission of 850 shares held by her late husband. It is stated that the shares of Yash Pal Malhtora had been acquired by late Mr. S.K. Desor and that respondent No. 1 filed an affidavit of her daughter Ms. Kim Paul, relinquishing her claim to the shares of her late father. The Board of Directors refolved that they had no objection to transmission of the shares held by Mr. S.K. Desor but the actual transmission would take place on respondent No.obtaining Reserve Bank ofpermission and the succession certificate. The respondent No.application for allotment of 5 shares as for 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 m the tares of her late husband, she be appointed as a Director of the company, subject to Reserve Bank ofpermission.5. It is stated in the judgment under appeal that at the said meeting of the Borad of Directors, they recorded their deep appreciation for the services rendered by late Mr. S.K. Desor as Managingof the Company and mourned his passing away. The quorum of the said meeting was two Mrs. Amrit Gupta and Mrs. Savitri Devi Kholi. It is recorded in the judgment under appeal that on 23rd March, 1985 the Board pof Directors held another meeting. The minutes of the meeting of 12th March, 1985 were confirmed by the twoDirectors. 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 regard to oppression and removal of certain valuable by Mrs. Amrit K. Singh and illegal operation of the bank account etc. It was also assesrted that Mrs. Singh was holding 545 shares benami and these in fact belonged to Mr. S.K. Desor..6. 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 Sections 397 and 398 of the Act with an alternative prayer for winding up of the company was not maintainable.7. 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 childern of late Mr. S.K. Desor and had obtained letters of administration under section 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 sections 397 and 398 of the Act. The learned single Judge also held that a composite petition was maintainable.8. The appellant Mrs. Amrit K. Singh filed an appeal for herself and, as she alleged, asom 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, stayed the further proceedings before the learned single Judge and directed expenditious 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 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 under sections. 397 and 398 was maintainable by the respondents in the facts and circumstances of the case, and that a composite petition under sections. 397, 398 and 433 (f) of the Act was maintainable. Aggrieved thereby, the appellants have preferred this appeal to this Court.

Court's reasoning:
We are of the opinion that averments which a petitioner would have to make to invoke the jurisdiction of Sections 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 Section 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 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 Section 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 Sections 397, 398 and 433(f) of the Act isour opinion, therefore, the High Court wasright in holding that the legal representatives of deceased member whose namestill on the register of members are entitled to petition under Sections 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 and Ors. [AIR 1956 SC 213 ]. In view of the observations of this Court in Life Insurance Corporation of ‘India v. Escorts Limited and Ors. [AIR 1986 SC 1370 at p. 1412], it is not necessary, in our opinion, to consider the contention as made o n 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 opinion that the High Court was right in the view it took on the first aspect of the matter.It is true that it must be a member and Section 41 of the Act provides that a member of a company is a person who has applied in writing andname is entered in the register ofis entitled to move the petition. It appears in this case that names of respondent Nos. 2 and 3 had not that been entered in the register of members at the relevant time when the application was made. But the name of the Late Mr. S.K. Desor was still on the register of members and the requisite shareholding for moving a petition under Sections. 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 theaffairs. The petitioners therein were appointed administrators inestate in 1960 and in 1961, at their request, the names of the petitioners 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 Section 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 Section 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 Section 210 of the English Companies Act. In this connection, inference 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 thatwould include representative of a deceased member for the purpose of Section 353 of the English Companies Act. This judgment of Pennycuick, J. went up in appeal to the Court of Appeal and it was reversed. See Re Jermyn Street Turkish Baths Ltd. [1971 (3) All E.R. 184]. But on the point whether the representative of a deceased member can maintain an action under Section 210 of the English Companies Act, the views of Pennycuick, J. were not reversed or modified. Mr. Nariman submittedthe 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 controveresy because the decisions of the English Courts are not binding in the courts of India. But the observations or the reasoning are of persuasive value. We are clearly of the opinion that having regard to the scheme and the purpose of Sections 397 and 398 of thethe 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 of legal representatives are yet to be substituted. This is an equitable and just construction. This construction, as suggested by Pennycuick, J. does not militate against either equity or justice of the such situation. We would, therefore, adhere to that construction.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 forwhich is called the, but would refuse the lesser and alternative remedy of seeking relief against oppression and mismanagement though the latter remedy requires establishment ofon just and equitable grounds as a precondition for its invocation. It would be rather incongruous to hold that the case foron just and equitable ground can be made out by the legal representatives under Section 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 Sections 397 and 398 of the Act would be taking aview which does not advance 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 representatives. When, therefore, these vestings 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 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 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.Admittedly in the present case, the lagal 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 Sections 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 Sections 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 Sections 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 through the death of the member whose name is still on the register. Inour opinion, therefore, the High Court wasright in holding that the legal representatives of deceased member whose namestill on the register of members are entitled to petition under Sections 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 and Ors. [AIR 1956 SC 213 ]. In view of the observations of this Court in Life Insurance Corporation of ‘India v. Escorts Limited and Ors. [AIR 1986 SC 1370 at p. 1412], it is not necessary, in our opinion, to consider the contention as made o n 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 opinion that the High Court was right in the view it took on the first aspect of the matter.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 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 Section 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 Sections 397, 398 and 433(f) of the Act is