BEFORE THE COMPANY LAW BOARD, WESTERN REGION BENCH 

Appearances : V. Mannadiar (Jyoti Saigal with him) for the Petitioner. B. G. Shroff (Kshity Vedak with him) for the Respondents. 

ORDER 

1. Shri Anand Hemant Patel has filed 7 appeals under section 111 of the Companies Act, 1956 (hereinafter 'the Act') for rectification of register of members of these companies for restoring the name of his father Late Shri Hemant Hari Patel ('Hemant Patel') in the register of members of these companies wherever the same has been omitted. Since the relief sought for by the petitioner is common in all these seven appeals and the facts are also identical, these appeals are being disposed of by this common order. 

2. The petitioner submits that the aforesaid seven companies are part and parcel of a group known as Ornate group. He further submits that the articles of association of these companies provide for equal representation for various groups and joined together to incorporate themselves into the company. He further submits that at the time of incorporation there were six groups each having one-sixth share in the capital of the company and the articles of association of the company clearly set out the same. The petitioner further submits that out of the original six groups, two have retired or resigned and their shareholding has been equally divided amongst the remaining four groups with the result that these remaining four groups, viz., Jaimal K. Shah group, Hemant Patel group, Suhas S. Pethe group and Amar Vadwani group, each became entitled to an equal one fourth share in the capital of the company and thus accordingly held by them. The petitioner further submits that his father Hemant Patel suddenly died of a massive heart attack on or about 3rd December, 1990 and he is the only son of Hemant Patel and at the relevant time studying in the United States of America. The petitioner further submits that on return from America during the course of enquiries he met his late father's associates who were the directors of the company, when he was informed that his late father's shares were still in his name and to the best of their knowledge not transferred or allotted to the three surviving groups. The petitioner further submits that the manner in which the shares of earlier groups have been dealt with by the company, it is a glorified partnership with the partners all having equal representation participation in the shares of the company. He further submits that the practice adopted by the company in respect of the shares held by any of the groups on retirement of the group is to divide the shares held by the retiring group equally amongst the others. The petitioner further states that being concerned about his father's one fourth share in these companies, the petitioner applied for permission to intervene in the petition pending in the Company Law Board (hereinafter 'the CLB') Principal Bench, having regard to the fact that respondents are companies, the name of a deceased shareholder cannot be deleted or omitted from the register of members without substituting the same with the name of the heirs and/or legal representatives or without following the due process of law. Accordingly, the petitioner has called upon these companies to transmit the shares held by his late father in the company but had not received any reply therefrom. The petitioner further submits that the CLB Principal Bench vide its order dated 12th May, 1997 has advised the petitioner to apply under section 111 of the Act for rectification of the register of members which the petitioner is doing by making these petitions. 

3. The petitioner's case is that his late father's name has been deleted mysteriously and/or omitted from the register of members of the respondent-companies. The petitioner submits that neither he nor any one on his behalf received any consideration in respect of the shares belonging to and/or held by his late father Hemant Patel nor he nor anyone on his behalf has signed any transfer documents in respect of the said shares. The petitioner further submits that any alleged transfer is impossible because of the earlier procedure followed by the company for transfer of the holdings of one group on the said group ceasing to be a part of the company. The petitioner has accordingly prayed that respondent-companies be directed by mandatory order to restore the name of Hemant Patel in the register of members of the company. He has sought for further directions to transmit the shares held by late Hemant Patel to his name. 

4. The respondent-company vide its reply dated 21st February, 1998 has confirmed that there are seven companies of the Ornate group and the parent company is Ornate Club (P.) Ltd. and the other six companies are its sister concerns' They have further confirmed in their reply that initially six groups were involved in the formation of these companies and further that all these groups are mentioned in the articles of association of the company and the two directors from each group were the first directors and permanent directors of the company. It is further confirmed that the Ashok Shah group and Suneet Rakhi group disassociated themselves from the company. The shareholding of the remaining four groups was then reconstituted and each group came to hold 25 per cent of the total equity of the company. The letter from petitioner's advocate wherein he claimed all the shares held by Hemant Patel group was placed before the meeting of the Board of directors held on 7th July, 1997. Jaimal Shah claimed to have purchased the shares of Hemant Patel during his life time and hence it was decided in the said meeting to address a letter to Jaimal Shah in this respect. Jaimal Shah in his reply once again claimed that he has purchased the shares of Hemant Patel in his life time. However, no proof of any transaction was furnished by him. The matter was accordingly considered by the Board of directors on 9th October, 1997. After a detailed discussion, the Board of directors passed a resolution by majority accepting the claim of the petitioner to the extent of shares held by Hemant Patel. The Board of directors also resolved to restore the name of Ms. Sudha Trivedi, a nominee of Hemant Patel, as a shareholder in respect of shares held by her. It was also decided that since the matter of rectification of members' register was before this Board, the resolution would be given effect to only after the petition was disposed of and after thus Board passed the necessary orders. 

5. The respondent-company in its reply further submitted that Jaimal Shah, the ex-managing director, has not taken any steps to maintain any statutory record or registers. A petition under section 397 and section 398 of the Act against the oppression and mismanagement committed by Jaimal Shah has been filed wherein the said Jaimal Shah has admitted that he has not maintained the statutory records or has not held minutes of the meetings of the Board of directors and shareholders as required by the provisions of the Act. Not a single primary record has been produced by Jaimal Shah to support his claim that he has purchased the shares held by Hemant Patel. It is further submitted that by creating false records to show that a part of the shares held by Hemant Patel was transferred to him and his wife, Jaimal Shah along with his wife have acted to their own personal benefit and completely in violation of the trust placed by the other directors of the company in them and also at the cost of the interest of the Patel group and the interest of the company. It is further submitted that the hon'ble Board may be pleased to pass the order on merits and the company will abide by the same. 

6. Jaimal Shah, former managing director and presently a director of the company, has also filed his submissions as an intervener in these proceedings. He submits that the present proceedings have been taken out at the behest of Suhas S. Pethe, D. B. Vedak and in collusion with Pravin Patel to prejudice his rights and contentions in relation to the shareholding in the company of the Ornate group of companies and also to deprive shareholders and members by attempting to give properties to Patel at a lower rate. It is further submitted that issues in the present petitions are also one of the issues pending in the Company Petition No. 68 of 1996 filed before Principal Bench of CLB and in High Court and the said petitions are pending and, therefore, he submitted that till the disposal of those petitions, the present petitions cannot be proceeded with and be stayed. It is further submitted that though Hemant Patel has expired on 3rd December, 1990, it is surprising that from 3rd December, 1990 till July 1997 nothing was done in the matter and suddenly when the proceedings are pending in the CLB and at other places, the present proceedings have been sought to have been filed with a view to pressurise him and prejudice his rights. Jaimal Shah denies that during the life time Hemant Patel was the owner of and entitled to 25 per cent of share capital of the respondent-company as falsely alleged. According to Shah actually Hemant Patel had not contributed a single paise, and monies in respect of the said shares were paid by him (i.e., Jaimal Shah). It is further submitted that pursuant to the agreement arrived at between him and Hemant Patel, it was a benami transaction on his behalf and it was agreed upon at that time that Shah would finance Hemant Patel for construction of building known as 'Pratik' which he was constructing as a developer and that in view of his financing him from time to time including finance to hold shares, he would pay Shah from the profit of the said project. The said loan was given by Shah in the name of his firm Acme Bobbins and Shuttles (P.) Ltd. and the same was confirmed by Hemant Patel from time to time. It is further submitted that Hemant Patel has signed a confirmation letter confirming that he had to pay Shah's company Acme Bobbins & Shuttles (P.) Ltd. a sum of Rs. 19,48,298 as on 2nd April, 1997. It is further submitted that prior to that on 17th May, 1983 his wife Neela J. Shah had also given to Late Hemant Patel a loan of Rs. 25,000, for which he has also passed a bill of exchange duly executed by Hemant Patel in favour of his wife. Under the circumstances, he denies that the father of the petitioner, i.e., Hemant Patel, during his life time was the owner and was entitled to beneficial ownership of shares in respondent-companies representing 25 per cent share capital of the company as falsely alleged and this fact is known to the petitioner and all other directors. Shri Shah has also disputed that the petitioner being the only son of Hemant Patel does not entitle him to take out and maintain this petition for getting benefit of estate of the deceased till he gets the letters of administration for the credits and estate of his father from the Testamentary Court. It is further submitted that actually since Hemant Patel was not in a position to repay these amounts, he transferred the shares as far back as 1989, which is much prior to his death. It is further submitted that actually the annual return filed with the Registrar of Companies by Pethe and Vedak had shown Shah's and his wife's stake to the extent of 50 per cent. It is further submitted that since the shares never belonged to Hemant Patel, the question of transferring them to the petitioner does not arise and the question of rectifying the register of members also does not arise. 

7. Shri V. Mannadiar, advocate appearing for the petitioner, while reiterating the submissions made in the petition, submitted that as per the arrangement and the provisions of the articles of association of the company it is clear that Hemant Patel was holding 25 per cent of the share capital of Ornate group of companies. He further submitted that the loan given by Jaimal Shah to Hemant Patel, is a separate and independent transaction and there is no nexus in the shares held by Hemant Patel and the loan given to him by Jaimal Shah. He submitted that it is clear from the articles of association and the shareholding pattern of the company that each of the four groups was holding 25 per cent shareholding in the Ornate group of companies. He further submitted that the plea taken by Jaimal Shah that he is the beneficial owner of these shares cannot be relied upon as the relevant forms for holding the beneficial shares have not been filed as required under section 187 of the Act. He further submitted that for the purpose of transfer of the shares proper transfer documents pursuant to the provisions of section 108 of the Act are required to be lodged with the company but in the present case no such documents have been lodged nor is there any resolution passed by the Board of directors approving the said transfer of shares. He further submitted that the company is not required to report the transfer of shares to the Registrar of Companies. The annual returns referred to by Jaimal Shah are prepared by the company and they cannot be a conclusive proof that the shares have been properly transferred or not. It is further submitted that Jaimal Shah, for his ulterior motive, rather than taking steps to realise the amount, has intentionally adjusted the same against the shares. He further submitted that as per the articles of association the transfer of shares has to be as per the procedure laid down in the articles of association of the company and as per the provisions of Act and submitted that Jaimal Shah should substantiate in any way his claim of transfer of shares in his favour. He submitted that late Hemant Patel was holding 25 per cent shareholding in all the Ornate group of companies and his name has been omitted without sufficient cause and as such the petitioner is entitled to seek restoration of the name of his father on the register of members of these companies. He further submitted that he is only seeking relief for the restoration of his father's name on the register of members and thereafter he would take appropriate proceedings in the appropriate forum for transmission of the said shares in favour of the legal heirs of Hemant Patel. 

8. B. G. Shroff, appearing on behalf of the respondent-companies, submitted that Board of directors after detailed discussion came to the conclusion that Jaimal Shah has failed to produce the satisfactory proof for transfer of shares and accordingly in their meeting held on 9th October, 1997 passed a resolution by majority accepting the claim of the petitioner. It was also decided that since the matter of rectification of register of members was before this Board, the resolution would be given effect to only after the petition was disposed of and the Board pass the necessary orders. 

9. Shri S. G. Kapadia, advocate and solicitor appearing on behalf of the intervener Jaimal Shah, submits that the present petitions have been filed with the ulterior motive and at the behest of Suhas S. Pethe, D. B. Vedak and in collusion with Pravin Patel. He further pointed out that no rejoinder has been filed by the company to his reply. He again reiterated that Jaimal Shah is the beneficial owner of the shares which were standing in the name of Hemant Patel and it is he who has financed these shares. He further submitted that later on in the settlement of the loan advanced, the shares have been transferred in favour of Jaimal Shah and his wife. He further invited our attention to section 370, 214 and 317 of the Hindu Succession Act, 1956 and submitted that these shares cannot be transmitted in favour of the petitioner. He further submitted that the orders in these petitions may be reserved till the petition filed under section 397/section 398 of the Act which is pending before the Principal Bench of the CLB is decided. He also placed reliance on CLB's decided case of Jagdish Chandra Champaklal Parekh v. Deccan Paper Mills Co. Ltd. [1991] 6 CLA 34 regarding transfer of pledged shares, in support of his contention that Jaimal Shah is the beneficial owner of the shares held out by Hemant Patel. 

10. We have considered the various averments made in the petition and the pleadings made at the time of hearing. Jaimal Shah has submitted that them present proceedings should be stayed till the Company Petition No. 68 of 1996 pending before the Principal Bench of CLB is disposed of. The petition pending before the Principal Bench is filed under section 397/section 398 of the Act for oppression of minority and the present petitioner under section 111 of the Act pertaining to the rectification of the register of members. In the present petitions somebody is seeking the restoration of the name of his deceased father whose name has been deleted from the register of members of the companies without sufficient cause. It has nothing to do with the oppression or mismanagement. In these petitions we are going into the question of the true membership in the companies and which may have bearing in taking a total view about the affairs of the company. In view of this we are not inclined to the suggestion that the present petition should not be decided till the petition under section 397/section 398 pending before the Principal Bench is decided. From the available material it is clear that Hemant Patel is one of the four promoters of the Ornate group of companies and 25 per cent of the share capital of the company was held by him or his nominees. Jaimal Shah in whose name the shares stand transferred, has taken the plea in his reply that Hemant Patel has never paid any money for these shares and it is he who has financed these shares and as such he is the owner of these shares and Hemant Patel was only holding these shares in a benami transaction on his behalf. He has also taken the plea that the loan was given from time to time to Hemant Patel by his firm Acme Bobbins & Shuttles (P.) Ltd. and the said Hemant Patel has signed a letter confirming that he has to pay the said Acme Bobbins a sum of Rs. 19,48,298 as on 2nd April, 1987. Jaimal Shah's wife has also given a loan of Rs. 25,000 to Shri Hemant Patel on 17th May, 1983 for which a bill of exchange has been duly executed. Shri Jaimal Shah's case is that the shares never belonged to Hemant Patel as he has not paid any consideration in respect of the same and, therefore, neither the petitioner nor anybody else is entitled to the shares as alleged. It is noted that no return of beneficial ownership pursuant to section 187C of the Act has been filed with the Registrar of Companies. Further, if the shares were held in benami then pursuant to sub-section (1) of section 4 of the Benami Transactions Prohibition Act, 1988, no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held, shall lie on behalf of the person claimed to be the real owner of such property. In view of the aforesaid legal position, it is clear that Jaimal Shah cannot enforce his claim against these shares as beneficial owner. From the letter of confirmation, which has been relied upon it is clear that Hemant Patel has confirmed that he has to pay certain amount to Acme Bobbins & Shuttles (P.) Ltd. along with the interest as on that date. Hemant Patel's confirmation letter indicates that he has borrowed funds from Acme Bobbins carrying interest. For the recovery of the said amount Jaimal Shah has to take steps in appropriate court of law. He cannot claim the ownership of these shares merely because he has to recover some money from Hemant Patel and accordingly transfer the shares in his name. Even if, for argument sake, it is presumed that the shares have been acquired by Jaimal Shah in consideration of the loan given to Hemant Patel then there should be an agreement to that effect which was not produced before us. The shares held by Hemant Patel cannot be transferred in the records of the company unless, pursuant to sub-section (1) of section 108 of the Act, the proper instruments of transfer duly stamped and executed on behalf of the transferor or transferee have been delivered to the company along with the share certificates. There is no pleading to this effect nor such documents were placed before us or have been relied upon. Further, from the company's reply it is clear that no such transfers have been approved by the Board of directors in any of their Board meetings. Apart from this it is also noted that the respondent-companies are private limited companies and a special procedure has been prescribed in the articles of association of each company whereby any member who intends to transfer his shares is required to give a notice to the Board of directors about his intention for such transfer. On receipt of such notice the Board of directors shall initiate action for disposal and transfer of the shares as per special procedure laid down in the articles of association of the company. Apparently, no such procedure has been followed before transferring/deleting the name of Hemant Patel. In fact, no documents like transfer deed for the alleged transfer or any Board resolution passed was brought to our notice in support of the claim that the petitioner's father's name has been properly deleted from the register of members. We are, therefore, convinced that Hemant Patel's name has been deleted from the register of members of these respondent-companies without sufficient cause. 

11. Accordingly, the respondent-companies are directed to restore the name of Hemant Patel in their register of members within 15 days from the receipt of this order. Insofar as the petitioner's request for the transmission of the shares held by Hemant Patel to his name is concerned, the petitioner will have to follow the procedure prescribed under the law for transmission of shares in his name.