A J COELHO Vs. SOUTH INDIA TEA COFFEE ESTATES LTD

JUDGEMENT

(1.) THE petition in CP 52 of 1995 is filed under section 111(4) of the Companies Act, 1956 ('the Act') against South India Tea and Coffee Estates Limited ('the Company') and three others for the following reliefs :--

(2.) The petition in CP 84 of 99 is filed by the petitioners holding 16.20 per cent of the total issued and paid up capital of the Company under sections 397 and 398 of the Act alleging that the affairs of the' Company are being conducted in a manner prejudicial to the interest of the Company as well as respondents and seeking the following reliefs :--

(3.) THE facts in brief as reiterated by Shri K.N.V. Ramani, the senior counsel for the petitioners are that the first petitioner, being son of the deceased G.J. Coelho and the deceased M.A. Coelho, is a member of the Company holding 7,000 equity shares of nominal value of Rs. 10 each. Mrs. M.A. Coelho, a member of the Company holding 3,250 shares in the Company died on 24-9-1981. Upon her death, the impugned shares devolved on her legal heirs, namely, her four daughters and four sons. One of the sons, namely, Mr. I.R. Coelho died on 8-9-1990 leaving behind the petitioner Nos. 3 to 6 and 9, as his legal heirs. Between the year 1981, when Mrs. M.A. Coelho died and until the year 1986 the impugned shares were not transmitted in favour of her legal heirs, but continued in her name as borne out from the annual returns of the Company made up to 29-10-1981, 31-10-1983 and 31-10-1984, THE petitioners came to know from the annual return filed up to 30-10-1986 that entire impugned shares were shown as transferred in favour of the third respondent, who is the wife of the second respondent. THE petitioners being the legal heirs arc entitled to the impugned shares. THE second respondent taking advantage of his position as the managing director of the Company placed the impugned shares in the name of third respondent, as if the shares were transferred in her favour. THE second respondent further gave the benefit of right shares to the third respondent by allotting shares in the ratio of 3:1, i.e., 9750 shares on 15-3-1989. THE second respondent has, therefore, illegally placed 13,000 shares in favour of the third respondent to which otherwise all the legal heirs of the deceased M.A. Coelho are entitled. THE first petitioner had sent a legal notice on 24-4-1993 for which respondents 1 to 3 caused a reply dated 15-6-1993 making absolutely false and unsubstantiated allegations that the shares were transmitted in the name of the third respondent in accordance with the understanding among the members of the family and in accordance with the wishes of the deceased M.A. Coelho. Mrs. M.A. Coelho had not executed any instrument of transfer during her life time and for several years after her death the impugned shares were shown as belonging to the estate of the deceased M.A. Coelho. THE deceased has not left behind her any will. No succession certificate has also been produced before the transfer of shares in favour of the third respondent. THE impugned shares should have gone to all legal heirs of the deceased M.A. Coelho by virtue of the rule of succession. THE Company has been always held and managed as a family company based on maintaining an equilibrium among the members of the family in respect of the holdings. THE second respondent managed to secure a majority holding and the controlling interest of the Company by illegally placing the impugned shares in favour of the third respondent. Under sections 30, 33 and 40 of the Indian Succession Act, the third respondent, being daughter-in-law cannot be a legal heir of the deceased M.A. Coelho. Since the third respondent is not a legal heir, the impugned shares cannot be transmitted in her favour. THE Company has not adopted the procedure prescribed in article 16 of articles of association in case of transmission of shares in favour of the third respondent. THE Company has violated the provisions of section 108 of the Act. Proviso to section 108(1) speaks of transmission of shares by operation of law. On death of a shareholder, share devolved upon the legal heirs of the deceased shareholder. Later the Company recognises transmission. In transmission no act of the parties is involved. THE third respondent, not being a legal heir, is not entitled to the impugned shares. THE board of directors cannot recognise the transmission in favour of the third respondent. THEre has been no resolution by the board of directors for effecting the transmission of impugned shares in favour of the third respondent. Under article 16 of discretion should be exercised by the members of the Board in approving the transfer in favour of the third respondent. In the instant case, three of the directors were interested and hence discretion exercised by the Board is not valid. THEre has been no document to evidence any family arrangement by which the impugned shares were transmitted in favour of the third respondent. Even in a partition, it can be only between persons having antecedent title. THEre can be antecedent title only among the legal heirs of the deceased. THE third respondent cannot be a party to any such family arrangement and hence instrument of transfer is absolutely necessary. If there is no antecedent title among the parties, all the requisite formalities regarding the transfer shall have to be observed. THE provisions of section 108 are mandatory. THE respondents have taken a different sfand in their reply notice dated 15-6-1993. (Exhibit A-7 of page 82 of CP 52 of 1995) regarding the transfer of impugned shares in favour of the third respondenl. In the circumstances, the impugned shares are liable to be automatically restored to the name of the petitioners and other legal heirs. THE transmission of impugned shares was never effected with consent of legal heirs of ihe ceased M.A. Coelho nor was approved at the Board meeting held on 23-7-1986. THEre was no understanding among the legal heirs of the deceased M.A. Coelho on appropriation and division of the assets and interest in the estate of M.A. Coelho and consequent transmission of shares in favour of the respondent 3. However, whenever any such consensus was reached on certain specific items they were duly recorded in one form or another. THE impugned shares were left undivided and or yet to be divided among the legal heirs of the deceased M.A. Coelho. THE statutory returns filed by the first respondent company as well as Wealth-tax Return of third respondent are self-serving documents from which no rights can flow. THE impugned shares should therefore be restored to all the legal heirs of the deceased M.A. Coelho. Shri Ramani further submitted that the Company came out with a rights issue and though the first petitioner applied for the rights shares and advised the second respondent to appropriate surplus available in Adikcholc Estate Account towards consideration for the rights shares, the second respondent failed to allot the rights shares. This factor came to light only when the first petitioner secured the Annual Return from the Registrar of Companies, Coimbatore on 6-8-1992. Though the rights offer was made in March, 1987, the allotment of rights shares was made only on 15-3-1989, revealing the fraudulent conduct on the part of the respondent Nos. 2 and 3. While allotment of rights shares was made to all the other members of the family, the first petitioner alone was deliberately discriminated and shares were not allotted, in spite of the fact that the first petitioner applied for the rights shares. THE first petitioner was eligible for 21,000 rights shares, which he was deprived of by the fraudulent acts of the second respondent. THE rights shares due to the first petitioner were allotted to third/fourth respondent which is illegal. In the process, the second respondent has augmented the post rights holding controlled by him to 1,11,400 equity shares amounting to more than 51 per cent of the share capital, as against 35.83 per cent which his group held originally. Thus, there has been creation of new majority, which is an act of oppression. THE first petitioner's endeavour to settle the disputes amicably through intervention of family members did not fructify. THEre is no deliberate delay or laches in initiating the proceedings against the respondents. THE first petitioner filed this petition (CP 52 of 1995) on 7-8-1995 and all the remaining legal heirs except the daughters. Mrs. M.A. Saldhana and Ms. Rowcna Coelho, impleaded themselves as petitioners 2 to 9 in the year 1996. Mr. I.R. Coelho, one of the sons, since deceased in not a party before the CLB. Mr. Ramani has further submitted that the company railed to produce any copy of the Board Resolutions in support of the offer regarding issue of 1,80,000 equity shares by way of rights to the existing shareholders. THE respondents have disputed the letter dated 21-4-1987 (Annexure A-9 at page 90 of CP 52 of 1995) by which the first petitioner had requested the second respondent to adjust the amount that is due to the first petitioner in the Adikehole account towards the rights shares. However, the second respondent has not questioned the Setter dated 29-4-1987 (Annexure A-10, at page 91 of CP 52 of 1995) of the deceased I.R. Coelho, one of the brother of the first petitioner addressed to the second respondent containing similar request as in the letter dated 21-4-1987 sent by the first petitioner. Though the first petitioner has sought for production of certain documents regarding allotment of shares including an extract from the bank account to find out whether the respondents had paid money for the rights issue, the Company failed to produce any of those documents, thereby adverse inference should be drawn against the respondents. THE letters dated 21-4-1987 and 29-4-1987 (Annexures A-9 and A-10) will show that the Company did not comply with formalities for allotting the rights shares. It is apparent that the Company allotted the rights shares in favour of Mr. I.R. Coelho acting upon the letter dated 29-4-1987 (A-10) without remitting the money for allotment of rights shares. At the same time, the Company neither acted upon the letter dated 21-4-1987 of the first petitioner nor allotted the shares. Though, the rights issue was made in March, 1987, allotment was effected only in the year 1989 after a delay of two years. He further stated that the company is a family company and as such no strict formalities are meant to be applied in the matter of rights issue as borne out from the facts that no formal written applications were prescribed for rights issue and also no amount was insisted. THE petitioner had not acquiesced the action of the company in allotment of the rights shares in favour of the respondent Nos. 2 and 3 by way of the adoption of annual accounts at the annual general meeting held on 30-9-1992. It is in these circumstances, the petitioners sought for the remedies sought in the petitions. Shri Ramani, in support of his legal contentions relied on the following decisions :--