Business Development Consultant P. Ltd. and Others vs State Bank of India and Another

Kalyan Jyoti Sengupta, J.—This appeal is directed against an order dated October 29, 2004, passed by the learned Chairman, Company Law Board in C.P. No. 109 of 2003 (2005) 128 CompCas 557 . By the impugned order the learned Company Law Board allowed the application made by State Bank of India, respondent No. 1 herein, under Sections 111, 397, 398, 399, 402, 403, 406 and 409 and u/s 11 of the Companies Act, 1956. The order impugned is a detailed and reasoned order. Section 10F of the Companies Act, 1956, has enabled the appellant to prefer appeal, and the scope of the aforesaid section is very limited. As such the said section is quoted hereunder:

Appeals against the orders of the Company Law Board.--Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within 60 days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding 60 days.

In this appeal there is no question of delay and there has been order of admission to hear it under the aforesaid provision.

Thus, it clear that the task of this Court is to examine the legal infirmity in the impugned order.

In order to appreciate the legal questions raised by the appellant some facts are required to be stated. The applicant before the Board, respondent No. 1 herein complained against the appellant''s, viz., the company and their directors and shareholders that they without following due procedure of law surreptitiously raised the share capital of the said company which was really promoted by one Jahar Sengupta, since deceased, who was once the sole proprietor of the said business, viz., Business Development Consultant. Thereafter he converted it into a family private limited company and the capital thereof was divided into a good number of shares. Out of the total shareholding he was holding almost all the shares and the remaining were distributed and given to his relations and kin who are appellant No. 2 to rest. Actually they did not subscribe those capitals with their own funds and the shares are really gifted to them.

It is alleged that on the date of death of the said original promoter Jahar Sengupta in the extraordinary general meeting the share capital was increased and subsequently further increase was made in order to render the holding of Jahar Sengupta, a minority. The said Jahar Sengupta, since deceased, before his death executed his last will and testament bequeathing amongst others the aforesaid shareholding appointing respondent No. 1, State Bank of India as a trustee of the trust created by the said will of Jahar Sengupta Trust Estate. The probate of the said will has been obtained. On receipt of the probate of the will it is alleged that respondent No. 1 did not apply for transfer or transmission of the shares in its name. It is further complained that the board of directors did not take any step for rectification of share register transmitting the shareholding in the name of the State Bank of India as an executor.

Without transmitting the same behind its back and without giving any notice the share capital was increased taking advantage of not transmitting the shareholding in favour of the State Bank of India.

The learned Board has granted all reliefs in favour of respondent No. 1 directing the company to effect transmission of the shares mutating the name of respondent No. 1 in place and stead of the deceased shareholder Jahar Sengupta. The meeting whereby the decision was taken for increase of share capital was also set aside as a result of the allotment of the further shares in favour of the new shareholders was cancelled. The appointment of additional director on the strength of the aforesaid increase in shareholding was also set aside and cancelled. The number of shares and composition of the directors were restored back on the date of the death of the said first promoter.

Challenging the aforesaid impugned decision learned Counsel appearing for the appellants contends that respondent No. 1 has no locus standi to make such application until and unless its name is effected in the share register by way of valid and lawful transmission of shares. The State Bank of India has now become a trustee of the trust estate and it cannot act as trustee of the trust that can be mutated in the share register. Moreover, the act of the State Bank is contrary to the Banking Regulation Act as well as the Reserve Bank guidelines. The trust body cannot be recognised u/s 153 of the Companies Act. This point has been erroneously decided in law by the Board and the same is liable to be set aside and cancelled. Learned Counsel for the appellant has relied upon two decisions in support of his submission. One is of English decision reported in George Attenborough and Son v. Solomon [1913] AC 76 and other two are Supreme Court decisions reported in Navnit Lal Sakarlal Vs. Commissioner of Income Tax, and Canara Bank v. National Thermal Power Corporation [2001] 104 Comp Cas 97 : [2001] 1 SCC 43.

Learned Counsel, Mr. S. Sarkar, appearing for the respondent, submits that there is no infirmity and illegality in the decision of the Board. The Reserve Bank of India has appointed the executor to discharge its duty and to fulfil the desire of the testator. It is not the trust, which is contemplated u/s 153 of the said Act. Moreover, there is no embargo to effect transmission in the name of State Bank of India, not in the name of the trust estate. Besides, under the provision of Sections 212, 213 and 214 of the Indian Succession Act the estate of the testator vests unto the executor and the qualification thereon can be any private individual, corporation or body corporate. So, in the real sense the State Bank of India has been discharging the duty of the executor not merely as the trustee. Under the provisions of the law as contended by the respondent there is no bar or embargo to act as a trustee. Under those circumstances, the order of the learned Board cannot be interfered with. Learned Counsel appearing for respondent No. 2 has supported the submission of Mr. Sarkar and submits that State Bank of India is to act as the executor and to discharge the statutory liability to give effect to the direction given by the testator to the beneficiaries. The State Bank of India has such locus standi. It is contended further that on the facts the Board has decided that all the meetings have been held without serving any notice and on facts it was decided that increase of share capital was not bona fide and it was done with oblique purpose. No proportionate allotment of increase of shares was offered to the State Bank of India. Under those circumstances, the decision of the Board cannot be interfered with.

I have heard respective contentions of learned Counsel for the parties and have carefully perused the order of the learned Board. I have already observed there is no scope under the law to examine the fact finding of the Board. On fact finding the Board came to the conclusion that there was no bona fide motive behind the increase of share capital and it was further found on fact by the Board that in order to get the majority shareholding of 51 per cent, all illegal steps were taken by appellant No. 2 to rest, so that the controlling interest of the said Jahar Sengupta is reduced to minority. It was further found by the Board that there is a large amount of diversion of funds and mismanagement in the affairs of the company with regard to the unnecessary expense incurred not for the benefit of the company.

Therefore, I have no option but to accept the decision of the Board on the facts, for I do not find the same is without material or irrational or absurd.

However, the decision on the facts is depending upon the question of law as to whether the State Bank of India has locus standi to make the application. The learned Board has discussed the law on this point and I have examined his findings on law and I am in total agreement with its conclusion on law. On top of that, I shall add that the State Bank of India is an executor and shall go on acting as an executor to implement the trust. Apart from other provisions of the law the State Bank of India has got a duty to perform under the Indian Succession Act, 1925, as legally the entire shareholding has been vested in it u/s 211 of the Indian Succession Act since the probate has been granted. In this respect also respondent No. 1, has the right and the locus standi to come in and to complain against the appellants. As far as the question of locus standi is concerned the learned board has rightly decided while applying the correct position of the law.

As far as the allegations of granting relief of transmission without waiting for the order of refusal by the board of directors is concerned I think there is no bar to grant complete and exhaustive relief under the law by the board. So, the decisions cited by learned Counsel for the appellants are of no assistance and those are considered by me to be inappropriate on the issues raised before this court. There cannot be any dispute with regard to the proposition of law laid down by the aforesaid decisions cited by him for those are miles away from the points. I, therefore, ignore the same.

Thus, the appeal is dismissed, interim order stands vacated. The board of directors has already been formed by the administrator appointed by the Company Law Board. The board shall function in accordance with law.

There will be no order as to costs.