2023 (8) TMI 263 - AT - Companies Law

Legal heirs can substitute deceased members in company petition without becoming members. Precedents upheld.

The Tribunal ruled that the legal representatives of the deceased member are entitled to be substituted in a company petition under Sections 241 and 242 ... Oppression and mismanagement - plea of the Appellant is that in the absence of holding any Shares, in the Applicant’s company, the 2nd Respondent, cannot be a Party, to a Petition, under Section 241 to 244 of the Companies Act, 2013, as she is neither a Member of the Appellant Company nor she is so authorized to do so by the Deceased - HELD THAT:- It must be exhibited that the conduct of Majority Shareholders, was Oppressive to Minority, as Members, and this requires that the events are to be considered as part and parcel of sequential narration. The Hon’ble Supreme Court of India, in the decision SHANTI PRASAD JAIN VERSUS KALINGA TUBES LTD. [1965 (1) TMI 17 - SUPREME COURT], had held that the Law, has not defined Oppression and it is left to the Court, to decide on facts of each case, whether there is such Oppression, requiring action. A Succession Certificate, can be granted, not only in respect of the Debt, but also in regard to the Shares, in a Company. Where a Succession Certificate, was granted in respect of Shares, in a Company, the Company, cannot insist upon production of Probate or Letters of Administration. The 4th Respondent / 2nd Respondent / 2nd Petitioner, seeking Equitable Reliefs, under Section 241 of the Companies Act, 2013, on account of Oppression of their Rights, as Shareholders, and a Systematic Exclusion, from knowing / participating in the Management and the Affairs of the Appellant / 3rd Respondent / 1st Respondent Company. Further, the Petition, arose, in respect of the Family run Appellant / 3rd Respondent Company, in which, the 3rd and 4th Respondents / 1st and 2nd Respondents Family Wing, were specifically excluded from the Management, and Rights of the Shareholders, were denied. Appeal dismissed. Issues Involved:1. Substitution of Legal Heirs in Company Petition.2. Membership requirements under Sections 241 and 244 of the Companies Act, 2013.3. Transmission and transfer of shares.4. Applicability of legal precedents and statutory provisions.Summary:Substitution of Legal Heirs in Company Petition:The core issue revolves around whether the legal representatives of a deceased member can be substituted in a company petition under Sections 241 and 242 of the Companies Act, 2013. The Tribunal observed that the legal representatives of the deceased member, Mrs. M.V. Valli Murugappan, are entitled to be substituted in place of the deceased in the main company petition and connected applications. The Tribunal ruled that there is no mandate under any law that the legal representatives must become members of the company to be substituted in the proceedings.Membership Requirements under Sections 241 and 244 of the Companies Act, 2013:The Appellant argued that the 2nd Respondent, who had transferred all her shares and ceased to be a member, could not be substituted as a petitioner. The Tribunal held that the right to seek waiver under Section 244 can be exercised only by a member of the company. However, it emphasized that the legal representatives of a deceased member represent the estate of the deceased and are entitled to continue the proceedings initiated by the deceased.Transmission and Transfer of Shares:The Tribunal noted that the transmission of shares from the deceased to the legal heirs occurred on 18.02.2022, and the 2nd Respondent transferred her shares on 04.03.2022. Despite this transfer, the Tribunal allowed the substitution of the legal heirs, emphasizing that the estate of the deceased vests in the legal representatives upon death, and they should be allowed to continue the proceedings.Applicability of Legal Precedents and Statutory Provisions:The Tribunal referred to various legal precedents and statutory provisions to support its decision. It cited the decision in World Wide Agencies Pvt. Ltd. v. Margarat T. Desor & Ors., where the Supreme Court held that legal representatives of a deceased shareholder could be given the same rights as a member under Sections 397 and 398 of the Companies Act. The Tribunal also highlighted Rule 53 of the NCLT Rules, 2016, which allows the substitution of legal representatives in case of the death of a party during the pendency of proceedings.Conclusion:The Tribunal dismissed the appeal, upholding the impugned order that allowed the substitution of the legal heirs of the deceased member in the company petition. The Tribunal clarified that the dismissal of the appeal does not preclude the parties from raising all factual and legal pleas before the NCLT in the pending company petition.