ORDER
K.K. Balu, Member
1. The petition in CP No. 36 of 2001 is filed under Sections 397 and 398 of the Companies Act, 1956 (“the Act”) alleging that the affairs of M/s. Vital Instrumentation Private Limited (“the Company”) are being conducted in a manner prejudicial to the interests of the petitioner. The reliefs made in the Petition as amended in C.A. No. 117/2002 are as under:-
(i) to declare that the petitioner’s husband late K. Ravindran is entitled to 3,350 equity shares in the Company and consequently direct the Company to rectify the register of members so as to include 1675 equity shares in the name of the petitioner;
(ii) to appoint an auditor to value the shares of the Company and the seventh respondents;
(iii) to direct the respondents to purchase 2,425 equity shares held by the petitioner in the Company and 25 equity shares in the seventh respondent company;
(iv) to supersede the Board of Directors of the Company;
(v) to appoint an administrator to take charge of the affairs of the Company and the seventh respondent company;
(vi) to direct the Company and the seventh respondent to pay dividends to the petitioner in respect of the shares held by her;
(vii) to appoint an auditor to investigate the affairs of the Company;
(viii) to direct the respondents to produce the statutory records and books of accounts of the Company; and
(ix) to declare that respondents 2 to 6 are unfit to act as directors of the Company and to surcharge respondents 2 to 6 for the loss caused to the Company on account of mismanagement.
2. The facts of oppression and mismanagement agitated in the petition relate to the following:
(a) non-payment of rent and amenity charges in respect of the premises of the petitioner occupied and used by the Company and the seventh respondent;
(b) failure to transmit the equity shares held by the deceased K. Ravindran in favour of the petitioner, being his legal heir;
(c) non-payment of dividend and non-issue of rights shares in respect of the impugned shares to the petitioner according to the entitlement;
(d) extortion of monies from the petitioner by respondents 2 to 6;
(e) exclusion of the petitioner from the day-to-day affairs of the Company and the seventh respondent company;
(f) non-issue of notice to the petitioner for the annual general meetings of the Company and the seventh respondent;
(g) siphoning of funds of the Company to the seventh respondent; and
(h) denying the petitioner her rights as a shareholder.
3. Ms. M. Vidya, Advocate for the petitioner, while initiating arguments submitted that the Company was incorporated in April 191 with the main objects of manufacturing, assembling and dealing with machinery and equipments required for hospitals and doctors. The petitioner’s husband Mr. K. Ravindran and respondents 4 & 6 were the subscribers to the Memorandum and Articles of Association, each subscribing to one equity share of Rs. 100/- each. They were the first directors of the Company. The petitioner’s husband held 3,350 equity shares and the petitioner is holding 750 equity share in the Company. The seventh respondent was incorporated in May 1995 by the petitioner’s late husband and the second respondent. The petitioner’s husband held 50 shares of Rs. 100/- each in the seventh respondent at the time of his death. According to the petitioner, the company and the seventh respondent company were in occupation of the premises belonging to the petitioner, even prior to the demise of her husband. However, both the Company and the seventh respondent had failed to pay the rent and amenity charges in respect of the said premises. On the other hand, the petitioner was compelled and coerced to pay a sum of Rs. 3,50,000/-, towards balance of the amount lent by the Company and the seventh respondent for construction of the super structure at the premises belonging to the petitioner for the use of the Company and the seventh respondent. Ms. Vidya reiterated that the Company as well as the seventh respondent failed to settle the arrears of rent and amenity charges in respect of the premises of the petitioner occupied by them, but extorted monies from her, in order to recover her premises from the Company and the seventh respondent company, in support of which Ms. Vidya referred to the correspondence exchanged between the parties placed at pages 212, 213, 215, 219, 220, 223-228, 230-232 & 234-236. Ms. Vidya pointed out that the petitioner’s husband died intestate on 29.10.1998 leaving behind the petitioner and his mother as the legal heirs. The petitioner is the legally wedded wife of the deceased Ravindran has evidenced from the legal heirship certificate dated 24.11.1998 (Page 2 of Compilation of documents by petitioner), Passport of the late Ravindran (Page 3 of Compilation of document by petitioner) and the LIC Policy of the late Ravindran (Page 7 of Compilation of documents by petitioner) and also the minutes of the Board Meeting held on 12.11.1998 of the Company, where the Board conveyed its condolences to the petitioner as the widow of the late Ravindran. She further pointed that the petitioner obtained an order of interim injunction in OA No. 442 of 1999 in CS No. 530 of 1999 on the file of High Court of Madras restraining Mrs. Lakshmi Kutty Ammal, her mother-in-law and Mr. K. Haridasan, her brother-in-law restraining them from, in any manner making any statement and signing any letters to third party regarding marital statutes of the applicant. The suit in OS No. 63 of 1999 before the civil court at Mahe by Mrs. Lakshmi Ammal is for declaration that the suit property belongs to the late Ravindran at Mahe. None of these proceedings are challenging the validity of the marriage that took place between the petitioner and the deceased Ravindran. The petitioner, therefore, being one of the legal heirs is entitled for 1,675 equity shares (50 per cent of 3.350 shares held by the petitioner’s husband) in the Company and 25 equity shares (50 per cent of 50 shares held by the petitioner’s husband) in the seventh respondent company and entitled to file a petition under Sections 397 and 398 for relief against mismanagement or oppression, in support of which she relied on World Wide Agencies (P) Ltd. v. Mrs. Margaret T. Desov — 1990 Vol.67 C.C. 607. Though the petitioner is entitled to these shares, both the Company and the seventh respondent company have been refusing to transmit the shares in her favour. Ms. Vidya produced the original share certificates held in the name of the petitioner’s husband and emphasised that these share certificates contain the Company seal, share certificate number, distinctive numbers, number of shares and signature of two directors. By virtue of Section 84(1), a share certificate issued under the common seal of the Company specifying the number of shares held by any member will be prima facie evidence of the title of the member of such shares. According to Ms. Vidya, the share certificates are in conformity with Rule 5 of the Companies (Issue of Share Certificate) Rules, 1960. According, the original share certificates specify the name of the petitioner’s deceased husband and the shares of which the certificates relate and the amount paid thereon. Shri Vidya, therefore, reiterated that the petitioner has prima-facie established that her husband is entitled to the impugned shares. She further referred to Gunshyam Chaturbuj v. Industrial Ceramics (P) Ltd. – (1995) 4 Comp.L.J. 51 to show that the share certificates is the only documentary evidence of title and that share certificate is a declaration by the Company that the person in whose name the certificate is issued is a shareholder in the Company. Ms. Vidya further relied on Dixon v. Kennaway Co. – (1990) CH 833 to show that where the share certificates are issued under the authority to the directors, it binds the Company even if the director’s authority is obtained by fraud and by connivance on the part of the secretary. Therefore, the Company in the present case is estopped from denying the deceased Ravindran’s title to the impugned shares. Though the respondents have agreed to purchase the shares held as well as inherited by the petitioner, they are not paying the fair price claimed by her. According to the petitioner, the market value of each share would be Rs. 300/- and the CLB in exercise of its jurisdiction under Section 397, 398 and 402 is empowered to direct the the respondents to purchase the impugned shares and in this connection she referred to Synchron Machine Tools v. U.N. Suresh Rao — 1994 Vol 79 C.C 868. The petitioner is denied of dividend by the Company and the seventh respondent Company since the death of her husband. The petitioner has also been not offered right shares as per the Articles of Association of the Company. The petitioner is not being permitted to participate in the affairs of the Company and the seventh respondent company and no notices are sent for the annual general meetings. The respondents are making use of seventh respondent company to siphon off the funds of the Company and denied the petitioner her rights as a shareholder. These acts of the respondents are oppressive and burdensome and therefore Ms. Vidya sought for the reliefs made in the petition.
4. Ms. Chitra Narayan, Advocate for the respondents while denying the acts of oppression and mismanagement in the affairs of the Company has categorically stated that the petitioner’s deceased husband held only 700 share in his name and not as claimed by the petitioner, in support of which she referred to the annual returns and the balance sheets of the Company for the periods from 1992-93 to 1998-99. She further pointed out that the balance sheets for the year 1994-95 was signed by the deceased Ravindran. She pointed out that the deceased Ravindran’s mother has filed civil suits against the petitioner, the Company and the seventh respondent company, wherein the marriage of the petitioner with the deceased K. Ravindran has been disputed. The mother of the deceased Ravindran, by her letter dated 14.10.99, (page 4 of Index to documents filed by respondents) claimed the shares held by her deceased son, as the sole legal heir, in pursuance of which, the Company advised the petitioner to obtain a succession certificate to enable it to transmit the impugned shares in favour of the petitioner, in accordance with Article 20(6) of Articles of Association of the company, which was never complied with by the petitioner and also pointed out that the Company having powers to insist on production of succession certificate as held in Narinder Kumar Sehgal v. Leader Valves Limited–1993 Vol 77 C.C. page 393. Ms. Chitra Narayan pointed out that the petitioner cannot seek for relief of declaration of the shareholding of the deceased Ravindran and such relief does not lie. The Company and the seventh respondent company are not in a position to transmit the impugned shares in favour of the petitioner on account of the dispute regarding the validity of the
marriage of the petitioner with the deceased K. Ravindran and non-production
of succession certificate by the petitioner. The act of non-transmission
of the impugned shares by the respondents cannot amount
to an act of oppression. The claim of Rs. 330/- for each share as claimed
by the petitioner is exorbitant. The third respondent was willing to
purchase 750 shares held by the petitioner at the rate of Rs. 100/- per
share. The petitioner cannot compel the respondents to purchase her
shares at a rate stipulated by her, failure of which cannot amount to an act
of oppression. Ms. Chitra Narayan pointed out that the petitioner
voluntarily made payment of Rs. 3.50 lakhs, which has been arrived after
taking into account the rent and amenity charges payable to the petitioner
in respect of her premises in occupation of the respondents as borne out
from the documents placed at 232, 234, 235. Accordingly, the payment
was made by the petitioner, in the normal course of action and there is no
coercion or compulsion by the respondents. The same cannot be an act of
oppression. She pointed out that no dividends were declared by the
Company after 1997-98 and that the original share certificates produced
by the petitioner at the time of arguments are not valid as they do not bear
date and the company’s common seal. According to the respondents, the
deceased was managing the affairs of the Company till his death and was
retaining the original share certificates in blank, which were misused by
the petitioner. The petitioner did not produce any document to show that
consideration has been paid for 2,600 shares by the deceased Ravindran.
Ms. Chitra Narayanan denied the charges that the Company never sent
notice for any annual general meeting. The Company has not issued any
shares on rights basis. Ms. Chitra Narayan, therefore, prayed for dismissal
of the petition.
5. Ms. Vidya in her reply submitted the following:-
Though the Company has contended that the deceased Ravindran was in
possession of blank share certificates, it failed to furnish the particulars in
regard to the number of such blank share certificates which were
prepared and signed and in possession of the late Ravindran and the
details of persons to whom such certificates were issued and the number
of certificates which were not issued etc. Though according to the
respondents, the petitioner has misused the blank share certificates, and
made a fraudulent claim, they failed to furnish full particulars of fraud.
Ms. Vidya pointed out that in cases of fraud, undue influence and
coercion, the parties pleading it must set forth full particulars as held in
Bishundeo Narain v. Seogeni Rani–AIR 1951 SC Pg 280. Therefore,
the plea of fraud must fail. The minutes of the board meetings, many a time, were not signed by the petitioner’s husband during his life time but by order directors and referred to the minutes of the board meeting held on 06.06.1996 signed by some other directors of the Company. The minutes book containing the proceedings of the Board of Directors produced at the time of hearing contain additions made just before production of the minutes book before the CLB. Similarly, several entries are inserted in the register of members just before its production before this Bench and therefore no value can be attached either to the minutes of the Board meeting or register of members produced by the respondent. The petitioner’s deceased husband had not signed the balance sheet until 1994-95. The annual return for the year ended 1994-95 and the balance sheet for the year 1994-95 were signed by the second respondent and not by the petitioner’s late husband. The respondents deliberately have not produced the annual return for the year 1993-94, when the last allotment said to have been made. Therefore, an adverse inference should be drawn against the respondents.
Article 23 provides that a person becoming entitled to share by reason of the death, insolvency or insanity of the holder shall be entitled to, to the same dividends and other advantages to which he would be entitled. By virtue of this Article, the petitioner being the legal heir of the deceased Ravindran and holding registered holder of 750 shares in the Company, is entitled to be appointed as chairperson and director of the Company and participate in the management and affairs of the Company, in support of which she relied on Synchron Machine Tools Private Limited v. U.M. Suresh Rao — 79 CC 868 to show that “if there was an understanding that persons investing in the shares of the company would be appropriately remunerated by way of salary and perquisites with a right to participate in the management of the company, in lieu of or in addition, to dividends, the interest crated by such an understanding has to be held as an component of the proprietary right of the said shareholder while applying equitable considerations.”
While concluding, Ms. Vidya pointed out that even in a case where the petitioner technically fails to make out a case of oppression or mismanagement, the CLB discharging equitable equity, should consider granting appropriate relief in favour of the petitioner and in this connection, she relied on Synchron Machine Tools P. Limited v. U.N. Suresh Rao — 79 CC 868.
6. We have considered the pleadings and arguments, both oral and written of Counsel for the petitioners as well as respondents.
7. The main acts of oppression relate to failure to transmit the impugned shares in favour of the petitioner, non-payment of rent and amenity charges for the premises in occupation and use of the respondents and non-payment of dividend. While, according to the petitioner, she is the legally wedded wife of the deceased K. Ravindran, it is contended by the respondents that the issue relating to the validity of the marriage of the petitioner is the subject matter of a civil suit in O.S.No. 53 of 1999 on the file of the Court of the Subordinate Judge, Mahe. It is observed that one Smt. P. Lakshmi Kutty Amma, mother of the deceased K. Ravindran has filed the above suit against the petitioner, the Company and the seventh respondent company for declaration that the suit properties belonging to his late son should be vested in her, being the sole legal heir of the deceased. The recitals contained in paragraph 4 of the plaint assumes importance in deciding the contentious issue, i.e., whether the respondents are justified in non-transmitting the impugned shares in favour of the petitioner. The relevant recitals read as under:-
“4) The son of the plaintiff Sri. Raveendran aforesaid happended to die as a bachelor. He had no wife and children. … There was no marriage in between Sri Ravindran and the first defendant herein. The 1st defendant herein was never married by Sri Raveendran. She has not been his legally wedded wife. As there was no marriage between them, much less any legal marriage, the 1st defendant never attained the status of wife or widow of late Raveendran. As she was not the legally wedded wife of late Raveendran, she is not and could not be a legal heir of late Raveendran. It is said that she used to reside with him in other places occasionally and at best here status is and could only be that of a concubine. It is known that she has no child or children born to her.”
The civil court at Mahe, before considering the relief made in OS No. 53/1999, will necessarily adjudicate the issue relating to the validity of the petitioner’s marriage with the deceased K. Ravindran. Admittedly, the petitioner, the Company and the seventh respondent are parties to the suit. The sit is still pending, in which case, the respondents will necessarily have to go by the verdict of the civil court. In this connection, it is relevant to point out that the Company has called for succession certificate from the petitioner for transmitting the impugned shares in favour of the petitioner in accordance with Article 20(6) of Article of Association of the Company, which has not so far been complied with by the petitioner. In facts of the present case, the Company was well within its powers to insist on the production of succession certificate as has been held in Leader Valves Limited cited supra. Therefore, this act of the respondents cannot amount to oppression. At this juncture, it will be futile to go into the arguments of Ms. Vidya in regard to legality of the petitioner’s marriage with the deceased K. Ravindran. The petitioner claims that the deceased Ravindran had 3,350 shares at the time of his death. We have seen the original share certificates produced at the time of the hearing. The share certificates, we find, are not dated and do not bear the seal of the Company as required under Rule 6 of the Companies (issue of Share Certificate) Rules, 1960. Therefore, the plea of the petitioner that she has established prim-facie title of her husband t the impugned shares must fail and the decisions cited in this behalf have no application to the facts in question before us. The annual returns for the years from 1992-93 to 1998-99 reveal that the deceased Ravindran held 700 shares. Moreover, the balance sheet for the year 1994-95 are found to be signed by the deceased Ravindran as the Managing Director of the Company. We are, therefore, do not hesitate to hold that the deceased Ravindran had only 700 shares in the Company which will be transmitted on production of the succession certificate by the petitioner. In relation to 750 shares in the name of the petitioner, while she claims Rs. 300/- for each share the third respondent offered Rs. 100/-. As the relationship between the parties is, admittedly strained, no useful purpose will be served by putting the petitioner in management of the Company. Admittedly no benefits accrued to these shares by way of dividend after the year 1997-98. In this situation, we deem it fit that the respondents shall purchase the petitioner’s 750 shares. The consideration for the shares shall be the investment made by the petitioner together with simple interest at the rate of 12 percent per annum compounded annually from 01.04.1998 till the date of payment. The consideration for the shares shall be paid on or before 31.03.2003. In case the shares are purchased by the Company, it is authorized to reduce the share capital of the company to the extent of face of the shares. The petitioner on receipt of the consideration, will hand over the original share certificates in respect of her 750 shares with the blank transfer forms to the purchaser of these shares. In regard to the claim for rent and amenity charges made by the petitioner, w find that the claim arises out of contractual rights and obligations between the petitioner on one hand and the Company and the seventh respondent on the other hand and not a claim arising out of her capacity as a shareholder. The petitioner has to enforce her claim, if so advised, through a competent court of law and the dispute in regard to the said claim cannot fall within the ambit of Section 397/398 proceedings. Similarly the contention of the petitioner that the respondents had extorted a sum of Rs. 3,50,000/- in order to get possession of the premises of the petitioner, is beyond the scope of this proceedings. The claim of the petitioner that respondents failed to pay dividend, issue shares on right basis and non-issue of notices for annual general meeting etc. do not merit consideration for want of details and do not warrant any relief.
8. With above directions, the petition stands disposed of, however, without any order as to costs.