TaxTMI 
TaxTMI 
2023 (8) TMI 263
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....4 & 5 : Mr. R. Sankaranarayanan , Senior Advocate For Mr. S. Manuraj, Advocate For the Respondent Nos.6 to 13 : Mr. Cibi Vishnu & Mr. Jerin Asher Sojan , Advocates JUDGMENT ( Physical Mode ) Justice M. Venugopal , Member ( Judicial ) : Introduction : The Appellant / 3rd Respondent / 1st Respondent, has filed the instant Comp. App (AT) (CH) No. 53 of 2022, before this 'Tribunal', as an 'Aggrieved Person', on being dissatisfied with the 'impugned order', dated 01.06.2022, in IA/14/CHE/2022 in CP/95/CHE/2021, passed by the 'National Company Law Tribunal', Division Bench-I, Chennai. 2. The 'National Company Law Tribunal', Division Bench - I, Chennai, while passing the 'impugned order', dated 01.06.2022 in IA/14/CHE/2022 in CP/95/CHE/2021 (Filed by the 'Respondent Nos. 1 & 2 / Applicants / Legal Heirs of 1st Petitioner), at paragraphs 18 to 21, had observed the following: 18. "In relation to IA14/CHE/2022 is concerned, it is seen that the after the demise of the original 1st Petitioner Mrs. M.V. Valli Murugappan, the 1,25,952 shares held by the 1st Petitioner were transmitted to the 1st and 2nd Applicant herein in the following manner; (i) Ms. Vall....
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....t the matter on 20.04.2022. 21. In the present case, the transfer of shares by the 1st and 2nd Applicant was effected on 04.03.2022 and the orders were passed by Hon'ble NCLAT on 23.03.2022 and the IA/14(CHE)/2021 and IA/15(CHE)/2021 was reserved for orders by this Tribunal on 06.04.2022. It is seen that the Hon'ble NCLAT vide its order dated 22.03.2022 has allowed for substitution of the name of the Applicants in the place of late Mrs. M V Valli Murugappan." and resultantly, allowed the 'Application', by directing the 'Applicants to cause necessary amendments in the 'Cause Title', wherever, it is necessary and file the amended 'Applications'. Appellant's Submissions : 3. According to the Learned Counsel for the Appellant, the 'Tribunal', had passed the 'impugned order' dated 01.06.2022 in IA/14/CHE/2022 in CP/95/CHE/2021 (Filed under Rule 53 of the NCLT Rules, 2016, by the Petitioner / Legal heirs of the 1st Petitioner), to bring on record the 'Petitioners / Applicants', in substitution of the '1st Respondent' ('M/s. M.V. Valli Murugappan' - Deceased), in main 'Company Petition' and connected 'Applications'. 4. The Learned Counsel for the Appellant, brings it ....
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....t', came to know that the 2nd Respondent (Ms. Vellachi Murugappan), transferred all her 62,851 Shares on 04.03.2022, in favour of the 4th Respondent (M/s. M.V. Murugappan, Hindu Undivided Family) and she ceased to be a 'Member' of the 'Appellant Company', with effect from 04.03.2022. 8. The Learned Counsel for the Appellant, adverts to the copy of the 'Benpos' of the 2nd Respondent, as uploaded by the 'Registrar', and 'Share Transfer Agent' (vide Page 120 of Vol. I of Appeal Paper Book - Diary No. 562 dated 04.07.2022), and points out that in the said 'Document Table', the 'Holder's Name', is mentioned as 'VELLACHI MURUGAPPAN', and at Serial No. 21, it is mentioned as 18.02.2022 (Benpos Date), 62,851 (Shares) in 'Buying' Column, the same 62,851 Shares, were shown under 'Selling' Column, as on 04.03.2022. Thereafter, the 'Shares', held by the 2nd Respondent were shown as 'Zero', in the remaining columns and that 'Benpos', is an 'Undisputed Document'. The numbers mentioned therein, are not 'denied', by the 1st and 2nd Respondents in their 'Counter'. 9. According to the Learned Counsel for the Appellant, the Respondent Nos.1 and 2, had suppressed the fact, before this 'Tribunal'....
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.... a 'Deceased Person', may sue or be sued, with regard to the 'Estate of the Deceased', only if the said 'Legal Representative', by an 'Operation of Law', becomes vested with the 'Estate of the Deceased', or by an 'Operation of Law', is enjoined, to represent the said 'Deceased Person'. 14. In effect, the 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'. 15. The Learned Counsel for the Appellant, strenuously takes a plea that in the instant 'Appeal', the 'Legal Heirs' of the 'Deceased Mrs. Valli Murugappan', Viz. Mrs. Valli Arunachalam and Mrs. Vellachi Murugappan, had already inherited the 'Deceased Shares', and after such inheritance, one of the 'Legal Heirs' / 'Mrs. Vellachi Murugappan', had transferred all her 'Shares', and her 'Shareholding', became 'NIL'. 16. To put it differently, according to the Appellant, the 'Names of the Legal Heirs', were already entered in the 'Register of Member' ('Benpos'), an....
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....as to enable members to file application under Section 241, etc.?" 19. The Learned Counsel for the Appellant, relies on the Judgment of this 'Tribunal', dated 16.02.2023, in T.A. No.15 of 2021 in Comp. App (AT) No. 235 of 2020 (TR), between Thyagaraja v. The Church of South India Trust Association & 11 Ors., wherein at Paragraph 12, it is observed as under: 12. "In the instant case, apart from not being a 'party' to the main 'Petition', the 'Appellant' herein is, admittedly, only a 'Member' of the Church and he has not filed any documentary evidence to substantiate that any of the requirements under Section 2(55) of the Companies Act, 2013, is met. Admittedly, there is a four layered 'Election Process' to become a 'Member' of the 'Company'. The persons acting as 'Member' of CSITA are in fact first elected by various Parishes falling under more than 20 'Dioceses' and these Parishes 'Member' elect people to the 'Diocesan Council' and also to the 'Synod Council' who in turn elect the process of the 'Company'. In this four layered process, it is not in dispute that the 'Appellant' herein has not passed through the layers to become the 'Member'. This 'Tribunal' is of the ear....
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....slumber or adopting an attitude of supine indifference. His cause, if any, cannot be espoused or projected by the applicant who is neither a director nor the managing director. However, I am unable to accept the argument of Mr. M. Subramaniam, learned counsel appearing for some of the respondents, that the present applicant cannot maintain the application because the main petition itself is not maintainable because the present applicant holds less than the required share strength as on the date even though on the date of filing of the main company petition there was satisfaction of the required strength by the present applicant and four others. In view of my decision in L, RM. K. Narayanan v. Pudhuithottam Estates Ltd., [1992] 74 Comp Cas 30 (Mad), this contention of Mr. M. Subramaniam does not deserve acceptance. In my aforesaid judgment it has been held by me as follows (head-note) : "Once a petition under sections 397 and 398 of the Companies Act, 1956, is validly presented, it is open to a shareholder to ask for substitution and prosecute the proceedings even though such a shareholder by himself could not have presented a petition under section 397 for want of....
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....became effective from March 8, 1983, by necessary entry in the share register whereafter the petitioner ceased to be a shareholder of the company. The petitioner disputes the fact of transfer of shares as also of the validity thereof. In these circumstances, the burden of proof that the petitioner has transferred all his shares in the company in favour of opposite party No. 2 as alleged in the counter-affidavit lay on the opposite parties and, therefore, the opposite parties were directed to lead evidence first. 13. On a discussion of the evidence on record, I, therefore, come to the conclusion that the petitioner has duly transferred his shares in the company in favour of opposite party No. 2 which has taken effect in the relevant registers of the company. The petitioner was, therefore, not a person having any share in the company and the petition filed by him under Sections 397 and 398 of the Act is, therefore, not maintainable." 22. The Learned Counsel for the Appellant, refers to the 'Order', dated 04.04.2012 in K. Venkatachalam and Ors. v. Premier Roller Floor Mills Ltd. & Ors., (vide Company Petition No. 36 of 2018), reported in (2013) 6 CompLJ 283 (CLB, Southern ....
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....se of prosecuting the company petition. The provisions of Section 397 and 398 clearly envisage the protection of the shareholders and the interest of the public. Sub-section (3) of Section 399 permits an individual shareholder to make an application under Section 397 or 398 "on behalf and for the benefit of all" shareholders of a company for appropriate reliefs, with a view to bring to an end the matters complained thereof. Thus, the proceeding under Section 397 or 398 is a representative proceeding. Even if the original petitioner does not want to continue the proceedings, it is open to the CLB to consider the merits of the case without dismissing the petition. There is, therefore, in my considered view, no need for any enabling provision for substitution of any other member for the original petitioner on the lines of Section 405, for further prosecuting the petition under Section 397/398, provided there is a valid petition before the CLB. In regard to the power of substitution in a Section 397 or 398 proceeding, beneficial reference is invited to the observations made by the Delhi High Court in V.K. Mathur v. K.C. Sharma - 1987 (vol.61) CC 143, which reads as under: - 7"....
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.... under the caption 'Substitution of Legal Representatives', which enjoins, as under: "Where a party to a proceeding pending before a Bench dies or is adjudged insolvent or, in the case of a company, being wound up, the proceeding shall not abate and may be continued by or against the executor, administrator or other legal representative of the parties or by or against the assignee, receiver or liquidator, as the case may be." and projects an argument that the 'Rule', specifically mentions that in the event of 'Death of a Party', during the 'pendency of the proceedings', before the 'Tribunal', the 'Legal Representative' of the 'Deceased Party', may 'apply', for being 'Brought on Record'. 28. The Learned Counsel for the Respondent Nos. 1 and 2, takes a 'plea' that, even in respect of 'proceedings' concerning 'Oppression and Mismanagement', the 'Impleadment' of 'Legal Heirs', are 'Allowed', and the fact that the 'Legal Representative', is not a 'Member' of the 'Company', has no 'bearing' in the 'Impleadment Petition / Application', and to support this contention, a reliance is placed on the decision of the Hon'ble Supreme Court of India in World Wide Agencies Pvt. Ltd. ....
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.... to the same, being granted by this 'Tribunal'. 31. The Learned Counsel for the Respondent Nos. 1 and 2, points out that this 'Tribunal', had 'allowed' the IA No. 129 of 2022, and finding of this 'Tribunal', through its 'Order', dated 23.03.2022, in regard to the 'Impleadment', had attained 'finality', since the same was not 'assailed', by the 'Appellant'. 32. Added further, it is pointed on behalf of the Respondent Nos. 1 and 2 that after the 'Order' dated 23.03.2022, passed in IA No.129 of 2022, the 'Appellant', had filed a 'Memo', in Comp. App (AT) (CH) No.54 of 2021, on 19.04.2022, 'bringing on record', before this 'Tribunal', that the 2nd Respondent, had 'transferred her 'Shareholding' in the 'Appellant', to the '4th Respondent'. Indeed, the 'aspect of Impleadment' of '2nd Respondent', was not 'agitated', before this 'Appellate Tribunal'. 33. It is represented on behalf of the Respondent Nos. 1 and 2 that the 'Appellant', had not agitated and / or has chosen to 'Waive', the point contained in their 'Memo', dated 19.04.2022 and further that once an 'Order', is passed on the basis of 'Consent of Parties', the same is not open to 'Re-agitation', 'Review' or any other 'Fo....
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.... of the 'Partner', so designated, shall be 'recorded', in the 'Register of Members'. 38. The other contention, put forward on behalf of the Respondent Nos. 1 and 2, is that the instant Comp. App (AT) (CH) No. 53 of 2022, is another endeavour, made by the 'Appellant', to 'delay the proceedings', before the 'National Company Law Tribunal', Chennai in CP/95/CHE/2021, and in fact, the instant 'Appeal', is 'academic', 'mala fide', and filed with an 'intent' to 'harass', the 'Respondent Nos. 1 and 2'. In short, according to the Respondent Nos. 1 and 2, the instant 'Appeal', filed by the 'Appellant', is an 'abuse of process of Law', and hence, the present 'Appeal', is to be 'dismissed with costs, in limine'. 1st and 2nd Respondents' Citations: 39. The Learned Counsel for the Respondent Nos. 1 and 2 / Petitioners, relies on the decision of the Hon'ble Supreme Court of India, in Dale & Carrington Invt. (P) Ltd. & Ors. v. P.L. Prathapan and Ors., reported in (2005) 1 SCC Page 212 at Spl. Page: 235 and 236, wherein, at Paragraph 33, it is observed as under: 33. "It is to be further noted that the entire scheme regarding purchase of shares in the name of mother of Prathapan w....
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....by the present applicant and four others. In view of my decision in L. RM. K. Narayanan v. Pudhuthottam Estates Ltd. [1992] 74 Comp Cas 30 (Mad), this contention of Mr. M. Subramaniam does not deserve acceptance. In my aforesaid judgment it has been held by me as follows (head-note): "Once a petition under sections 397 and 398 of the Companies Act, 1956, is validly presented, it is open to a shareholder to ask for substitution and prosecute the proceedings even through such a shareholder by himself could not have presented a petition under section 397 for want of the required share qualification. The court has, in such a case, only to consider whether the petition was a valid petition at the time of its presentation. The requirement as to the share qualification is relevant and material only at the time of institution of proceedings and once there is a valid petition and a shareholder seeks to substitute himself in order to merely continue such a valid petition, such a shareholder need not hold 10 per cent of the share capital. It is not incumbent upon the court to dismiss a petition because a proceeding under section 397 or 398 of the Act is a representative proceeding. E....
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....ation as directors as well as the factum of transfer of shares upon payment of the consideration amount in terms of the memorandum of understanding dated January 24, 2002 and have thereby by their conduct accepted the same and have waived their rights, if any, to challenge the said resignation and/or transfer of shares. The present application as such is bad in law by the principles of acquiescence and estoppel. Petitioners Nos. 1 to 6 having approbated the said transactions cannot reprobate the same. The claim made in the application is barred by the principles of approbate and reprobate. The other petitioners being petitioners Nos. 7 to 11 all being brothers and sisters of respondents Nos. 2 and 3 have withdrawn from the present proceedings unconditionally and have no grievances whatsoever. In order to maintain a petition under sections 397 and 398 as per the provisions of section 399, sub-section (1), the petitioners should hold either 10 per cent, or more shares of the subscribed capital or should constitute 10 per cent, or more of total members in the company. The present petition has been filed by 11 petitioners out of which petitioners Nos. 1 to 6 had transferred th....
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....d. [2008] 144 Comp Cas 634, 642 (CLB); (MANU/CL/14/2008) refers) 14. There is no quarrel with the legal principles laid down in the case law relied upon by the applicants/respondents regarding the maintainability of the company petition under sections 397 and 398, the requisite qualification under section 399 is mandatory. There is no dispute with the legal principle that this qualification/eligibility has to be calculated as on the date of filing of company petition." 42. The Learned Counsel for the Respondent Nos. 1 and 2 / Petitioners, falls back upon the decision of the Hon'ble Bombay High Court, in Harinarayan G. Bajaj v. Union of India & Ors., (2007) SCC OnLine Bom. 1041, wherein, at Paragraph 68, it is observed as under: 68. "To further support his contention that he continued to have the locus standi to maintain and prosecute the petition, the petitioner relied upon the decision of the Hon'ble Supreme Court in the case of Rajahmundry Electric Supply Corporation Limited v. A. Nageswara Rao9, 1955 DGLS 115 : A.I.R. 1956 S.C. 213 wherein the Hon'ble Apex Court held that the validity of a petition for oppression and mismanagement filed under the Com....
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....to the filing of the application had withdrawn their consent, and the petition, therefore, ceased to satisfy the requirements of the statute, and was no longer maintainable. This contention was summarily rejected and it was laid down that the validity of a petition must be judged on the facts as they were at the time of its presentation, and a petition which was valid when presented cannot, in the absence of a provision to that effect in the statute, cease to be maintainable by reason of events subsequent to its presentation, and neither the right of the applicant to proceed with the application nor the jurisdiction of the Court to dispose it of on its own merits could be affected. 8. The same reasoning should fully apply to a case where some of the petitioners have been permitted to withdraw from the petition. Accordingly, the preliminary objection put forward by Mr. Sikri cannot be sustained." 44. The Learned Counsel for the Respondent Nos. 1 and 2 / Petitioners, adverts to the 'Order' dated 25.11.2021 of the 'National Company Law Tribunal', Kolkata Bench, in the matter of Prasanta Kumar Mitra & Ors. v. India Steam Laundry (P) Ltd. & Ors., in CA No. 77 / KB / 2021 in ....
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.... Learned Counsel for the Respondent Nos. 4 & 5, adopts the Arguments of the 'Respondent Nos. 1 & 2'. R6 to R13 Contentions: 47. The Learned Counsel for the Respondent Nos. 6 to 13, adopts the Arguments of the 'Appellant', in toto. Legal Representative: 48. The Companies Act, does not define the term 'Legal Representative'. Section 2(11) of the Civil Procedure Code, defines 'Legal Representative', meaning 'a person who in 'Law', represents the estate of a deceased person, and includes any person who intermediates with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued. Meaning of 'Legal Representative': 49. By means of Art. 23 in Table F, on the death of a 'Member' ('Shareholder'), where the 'Member', held the 'Shares', in his 'Name', and did not 'appoint' a 'Nominee', his 'Legal Representatives', shall be only 'Persons', recognised by the 'Company', as having any 'Title', to his / her interest in 'Shares'. 50. It is relevantly pointed out that by 'Regulation 25 - Table A' of 'Schedule-I' to the 'Companies Act, 1956', upon the death of a 'Sha....
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....arily limited for the purpose of carrying on the Proceedings, and cannot have the effect of showering of any 'Right of Heirship', to the 'Estate' of the 'Deceased'. 57. At this juncture, this 'Tribunal', relevantly points out that a 'Legal Representative', can take up any plea, which may be 'appropriate', to his 'character' as 'LR'. As a matter of fact, the 'Legal Representatives' of a 'Defendant', cannot take a contrary stand to the one already taken by the 'Deceased', as opined by this 'Tribunal'. 58. It is to be remembered that in case of 'Substitution under Or 22 Rule 4 of the C.P.C.', 'Heirs', enter into the shoes of the 'Deceased', with all 'Rights and Liabilities', and are precluded from presenting a case, inconsistent with the fact setup by the 'Deceased'. 59. In 'Law', the 'Legal Representatives', can take the pleas of 'Original Party / Parties', 'Rights and Liabilities', that are to considered and not those of 'Legal Representatives'. The crucial question that will crop up for one's rumination is that, whether the 'Right to Sue survives'. 60. The 'Legal Representative' of the 'Deceased Member', is the 'Legal Owner', of 'Shares', held by the 'Deceased'. At this....
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....dered as part and parcel of 'sequential narration'. 67. The Hon'ble Supreme Court of India, in the decision Shanti Prasad Jain v. Kalinga Tubes Limited & Ors., AIR 1965 SC at Page 1535, 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'. Succession Certificate: 68. 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'. In fact, the 'Succession Certification', provides 'full indemnity', to the 'Company', as per decision in Pl. Tl. Thenappa Chettiar By Agent v. The Indian Overseas Bank Ltd. (1943), 13 Comp Cas 202 (Mad.). Evaluation: 69. Before the 'Tribunal' ('National Company Law Tribunal', Division Bench-I, Chennai), the Respondent Nos. 1 and 2 / Petitioners / Legal Heirs of 1st Petitioner, had filed IA/14/CHE/2022 in CP/95/CHE/2021 (under Rule 53 of the National Company Law Tribunal Rules, 2016), am....
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....connected 'Applications'. 73. Before the 'Tribunal', the Appellant / 3rd Respondent / Company, in its 'Counter', had inter alia, mentioned that the Respondents / Petitioners, after receipt of 'Shares', by way of 'Transmission of Shares', from the 'Name of their Late Mother', had consciously transferred the 62,851 Shares, in favour of M.V. Murugappan, HUF (4th Respondent in 'Appeal'). Further, the 2nd Respondent / 2nd Petitioner, had transferred all her 62,851 Shares, which were transmitted in her 'Name', and after 'Transferring the Shares', the 2nd Respondent / 2nd Petitioner, ceased to be a 'Member' of the 'Respondent', and hence, the Name of the 2nd Respondent / 2nd Petitioner, cannot be 'Substituted', in the 'Waiver Application', that was filed by her 'Demised Mother'. 74. The Appellant / 3rd Respondent / Company, had proceeded to observe in its 'Counter' in IA/14/CHE/2022 in CP/95/CHE/2021 that the 'Name of the 2nd Respondent / 2nd Petitioner', could not be 'Substituted', in the 'Waiver Application' (although a 'Legal Heir'), as she ceased to be a 'Member' of the 'Respondent', with effect from 04.03.2022, on which date, the 2nd Respondent / 2nd Petitioner, had 'transferre....
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....rd Week of February 2022, according to the Respondent Nos.1 and 2, the 'Appellant', was aware of the 'Transmission of Shares' of the '3rd Respondent', and in fact, on 04.03.2022, the '2nd Respondent', had transferred the entire 'Shareholding', in the 'Appellant / Company', to the '4th Respondent'. 82. It is the stand of the Respondent Nos. 1 and 2 that, RTA would upload the 'Benpos Statement' of the 'Shareholders', on a weekly basis, on its 'Official Website', and the 'Appellant', on exercising 'Diligence', would have knowledge of the 'Transfer of Shares', by the 'Respondent Nos. 1 and 2'. Therefore, by 11.03.2022, the 'Appellant / Company', by exercising 'Diligence', would have and should have known that the 'Appellant's Shares', were 'transferred', by the 'Respondent Nos.1 and 2', on 04.03.2022. Inspite of the same, the 'Appellant', had not opposed the 'Reliefs', that were prayed for, in IA No.129 of 2022 and indeed, by means of an 'Order', dated 23.03.2022, this 'Tribunal', had allowed the IA No. 129 of 2022 and the 'Order', relating to 'Impleadment', had attained finality. 83. It is represented on behalf of the Respondent Nos. 1 and 2, that after the 'Order', that was pas....