TaxTMI 
TaxTMI 
2016 (5) TMI 1036
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....l Nos.31 of 2015 and 54 of 2015 are cross appeals which impugn another order passed by the CLB on the same day on a petition filed by the same Petitioners under Sections 397 and 398 of the Act, complaining of the same facts as are the subject matter of the rectification petitions in addition to some other facts. 2 The short facts of the case may be stated as follows : 2(I) In or about 1947, the first Respondent company - Mehboob Productions Pvt.Ltd. ("Company") - was incorporated by the reputed filmmaker, late Mehboob Khan. The company owns a large immovable property admeasuring about 4.2 acres at Hill Road, Bandra (West), Mumbai, known as 'Mehboob Studio', which is hired out for films and advertisements as of this date. The dispute between the parties relates to transfer / transmission of shares held by descendants / successors-in-title of late Mehboob Khan. The family tree of late Mehboob Khan is shown below for the purposes of convenience of understanding the controversy. Mehboob Khan : Family Tree I (two wives) Fatimabibi (6 children) I Sardar Akhtar (no children) Ayub Khan (deceased) 14.3.08 I Iqbal Khan (Orig R8) Sh....
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....e held in 1966. (The validity of registration of this marriage under the Special Marriage Act is a contentious issue between the parties. The significance of registration of marriage under the Special Marriage Act is that the restrictions under Shariat Law regarding testamentary succession to the property of a Mohammedan do not apply in the event of registration of the testator's marriage under the Special marriage Act, making bequest of 100% estate of the Mohammedan through a will possible.) (V) On 17 September 2007, Ayub executed his last will and testament by which he bequeathed the aforesaid shares in favour of Mehboob and Yasmin in keeping with the original proposal of including their names in the share certificates so as to enable a testamentary disposition. The balance 278 shaes (out of 1132 shares held by Ayub) were bequeathed to Farida. (VI) On 14 March 2008, Ayub passed away. On his death, the shareholding of the company was held as follows : (i) Estate of Ayub - 1132 shares - 22.64% (ii) Iqbal Khan (original Respondent No.8) - 1134 shares - 22.68% (iii) Shaukat Khan (original Respondent No.7) - 1299 shares - 25.98% ....
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....hereof, decided not to transmit the shares and to keep the dividend on the shares in a separate account. (XII) In January 2011, the Company through its Advocates informed the Advocates of Mehboob and Yasmin that the company would not accede to their request for transmission of the shares unless appropriate directions were obtained from the court in that behalf. (XIII) On or about 7 April 2011, at an EoGM of the Company, a resolution was passed appointing Afzal, Aslam, Najma and two others as Directors of the company. (The other Directors were Iqbal Khan, Managing Director and Shaukat Khan, Director, the two other sons of late Mehboob Khan.) (XIV) By its letter dated 11 July 2011, the Company finally rejected the request of Mehboob and Yasmin to transmit the shares and called upon the latter to obtain appropriate orders from the court. (XV) In the premises, on 5 September 2011, Mehboob and Yasmin, respectively, filed Company Petition Nos. 40 of 2011 and 42 of 2011 for rectification of register of members in respect of 726 shares and 128 shares of Ayub jointly held by them with him. The petitions proceeded alternatively on the basis of the right of....
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....f the Board which came into existence after the EoGM resolution of 4 April 2011, a petition (Company Petition No.96 of 2011) was filed by Mehboob, Yasmin and Farida complaining of oppression and mismanagement, under Sections 397 and 398 of the Act. On the other hand, Afzal and Aslam along with Sattar Khan challenged the resolution of 23 November 2011, removing them as directors of the company, in a petition under Sections 397 and 398 (Company Petition No.97 of 2011). 5 In the backdrop of these facts, the company petitions of Mehboob, Yasmin and Farida under Section 111 of the Act seeking rectification of register of members (C.P. Nos.40, 41 and 42 of 2011) as well as the company petition filed by the three under Sections 397 and 398 of the Act (C.P. No.96 of 2011) along with the petition of Afzal, Aslam and Sattar (C.P. No.97 of 2011) were taken up together for hearing by the CLB. 6 By its impugned order passed on the company petitions of Mehboob and Yasmin for rectification, the CLB set aside the Board resolutions of 13 December 2008 (to the extent it related to Mehboob and Yasmin) and 12 September 2011 (resolving deletion of the names of Mehboob and Yasmin from the register....
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.... on the petitions of Mehboob and Yasmin (Co.App.Nos.55 and 56 of 2014) and the appeal of Afzal and Aslam from the order on the oppression and mismanagement petition of Mehboob, Yasmin and Farida (Co.App. No. 31 of 2015); (ii) The appeal of Mehboob, Yasmin and Farida from the order on their oppression and mismanagement petition (Co.App. No.54 of 2015); (iii) Farida's appeal from the order on her rectification petition (Co.App. No.56 of 2015); and (iv) The appeal of Afzal, Aslam and Sattar from the dismissal of their petition under Sections 397 and 397 (Co.App. No.65 of 2014). This order disposes of three appeals, namely, Co.App. Nos.55 and 56 of 2014 and Co.App.No.31 of 2015, forming part of the first group. These appeals deal with one particular subject, namely, rectification of register of members so as to transmit 726 and 128 shares to the sole names of Mehboob and Yasmin, respectively. Co.Appeal Nos.55 and 56 of 2014 & Co.Appeal Nos.54 and 31 of 2015 10 Mr.Chinoy, learned Senior Counsel for the Appellants in Co.Appeal Nos.55 and 56 of 2014 and Co.Appeal No.31 of 2015, made the following submissions: (i) Learned Counsel submitted that the finding of the CLB tha....
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....d the original transfer of shares from Ayub to the joint names of Ayub and Mehbhoob, and Ayub and Yasmin, to be null and void as being violative of the Articles, was very much a subject matter of challenge in the companion company petition, namely, Company Petition No.96 of 2011. In fact, that was one of the main grounds on which the grievance of Mehboob and Yasmin about oppression and mismanagement by the Appellants herein was premised. Company Petition No.96 of 2011 was heard by the CLB along with the rectification petitions, namely, Company Petition Nos.40, 41 and 42 of 2011. The parties had very much joined issues on the validity of the resolution of 12 September 2011 in Company Petition No.96 of 2011. After hearing the parties fully, the CLB passed an order holding the resolution to be illegal, whilst directing rectification of register of members, in Company Petition Nos.40 and 42 of 2011 of Mehboob and Yasmin, respectively. Merely because this order was passed in the rectification petitions of Mehboob and Yasmin instead of the oppression and mismanagement petition of Mehboob, Yasmin and Farida, it cannot possibly be suggested that the order is either without jurisdiction or ....
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....on of the register. Sub-sections (1) to (4) of Section 111 deal with grievances which may arise in the matter and provide for appeal to the CLB. The sub-sections are quoted below : "111. POWER TO REFUSE REGISTRATION AND APPEAL AGAINST REFUSAL (1) If a company refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. (2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Tribunal against any refusal of the company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1), eithe....
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....y, but existence of a name or omission in the register. If a name exists on the register, without there being a sufficient cause, or a name which originally existed stands omitted in the register, again without a sufficient cause, the company may be aggrieved and may, in that case, apply to the CLB for rectification of register. In other words, it is not the act of entering or omitting a name, but the subsistence of such entry or omission, which gives rise to a grievance insofar as the company is concerned. 14 If Mr.Chinoy's arguments were to be accepted, that is to say, if the company could deal with its own grievance of subsistence of any entry or omission without sufficient cause by the simple expedient of omitting such offending entry or undoing the offending omission by making an entry itself, there is possibly no reason to provide for a right to apply to the company. For if it does take any of the aforesaid two actions, only the other two categories, namely, the person aggrieved or any member, would be aggrieved and may have to apply for rectification. Mr.Chinoy suggests that the very fact that entry or omission of a name without sufficient cause is made a subject matt....
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....or any existing member), which has no sufficient cause to subsist in the register. When such entry or omission exists, all three categories of persons are aggrieved, including the company itself. The redressal, in that case, could only be by the CLB in a rectification application. A Company may, in other words, refuse to register or make or omit an entry or delay or default in making or omitting one, all on the applications of (i) a transferor or (ii) a transferee or (iii) a transmittee or (iv) a legal representative of a holder. Sections 108, 108A to 108I, 109 and 110 apply to such applications. In all these cases, the aggrieved person or any member, as the case may be, may apply to the CLB for rectification. In case, however, any entry or omission previously made subsists on the register, and there is no sufficient cause for its subsistence, any aggrieved person, member or the company may apply to the CLB for rectification. There is no question of any aggrieved person or member applying to the company or the company itself, being aggrieved, acting on such grievance and correcting the register accordingly. That is the scheme of Sections 108 to 111. Accepting Mr.Chinoy's submis....
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....lf effect the necessary correction (Halsbury's Laws of England, Fourth Edn. Vol.7, Para 306). In re Poole Firebrick and Blue Clay Company (known as Hartley's case) (187475) Law Reports 10 Ch. App.157, the law was stated by the Master of the Rolls in the following words : " It is part of the duty of directors to keep a correct register of their shareholders. Here they allotted certain shares as fully paid up on the supposition that they had power to do so : the allottee accepted the shares on the same supposition. In fact, they had no power to make such an allotment. It was a case of common mistake ; and some time after the allotment was made the mistake was discovered. If the parties had come to the Court, it is admitted that the Court would have ordered the company and its directors to do exactly what has been done. Then the only question is, Can it be necessary to come to the Court to get an order to do that which both parties are willing to do, and wish to be done ? I cannot hold that it is necessary, and I am therefore of opinion that Mr.Hartley is in the same position as if his name had not been placed on the register until after the contract had been filed. H....
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....ors of the Company had no power to rectify the register on its own, without recourse to the Court, is thus correct and does not suffer from any error of law. 19 Even on merits, the CLB found the resolution of 7 September 2011 to be clearly mala fide and oppressive for two reasons. (See the CLB order of the same date in Company Petition No.96 of 2011.) Firstly, because no court order was sought under Section 111(4) and secondly, because Mehboob and Yasmin were joint holders for over 19 years as per the register of members and under the Articles of Company, the Board was bound to register the transmission in their favour after the death of Ayub. Mr.Jagtiani, learned Senior Counsel for the Respondents, supported this conclusion of the CLB by submitting that the power of the Board of Directors of rejecting or accepting a transfer or transmission must be exercised bona fide and in the interest of the company and the shareholders in general, and not mala fide or with an oblique motive or for a collateral purpose or arbitrarily. In Bajaj Auto Ltd. vs. N.K. Firodia 1970(2) Supreme Court Cases 550, the Supreme Court laid down three standpoints from which the exercise of powers of the dir....
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...., challenging the will of Ayub, was pending before this Court. So also, was their petition challenging the joint holdership of Mehboob and Yasmin pending before the CLB, Principal Bench. They were clearly aware that the entries of joint holdership of the two had to be rectified by seeking an appropriate order from the Court or the CLB. And yet, when they got an opportunity to be on the Board, they unilaterally proceeded to cancel the entries, acting in their own interests and on a wrong principle. The conclusion of the CLB, in the premises, of the resolution of 12 September 2011 being vitiated by mala fides is, thus, clearly sustainable. There is no error of law in it. 21 Further, it is important to note that there was no application before the CLB to cancel the entry of joint shareholding effected in favour of Mehboob and Yasmin in respect of 726 and 128 shares of Ayub by the Board resolution of 9 May 1992. The power of the then Board of Directors of the Company to add their names jointly with Ayub in the share certificates and make entries accordingly in the register was not a subject matter of challenge. Earlier, the resolution of 9 May 1992 was challenged by Najma in a compa....