Case Law Details
HIGH COURT OF BOMBAY
Prabodh Jamnadas Kothari
versus
Vikram Jamnadas Kothari
Notice of Motion No. 775 of 2012
SUIT NO. 694 OF 2012
Date of Pronouncement – 30.10.2012
JUDGMENT
1. The plaintiff has sued for declaration of the estate of his deceased father and for his 1/2 share, right, title and interest therein in respect of the properties set out in Exhibit-C to the plaint.
2. Properties at item Nos. 1 and 2 are the main properties with which the parties are at dispute. Item No. 1 relates to 49,010 shares of KNK Trading (P.) Ltd., stated to have been owned by the plaintiff’s father.
3. The plaintiff’s father has executed a Will in 2003 bequeathing the shares equally to his two sons the plaintiff and defendant No. 1. The defendants claim that the shares are transferred to defendant No.2, the wife of defendant No. 1 in 1999 itself. The plaintiff has challenged the transfer as fraudulent. The plaintiff has shown the annual returns of defendant No.5-company which shows the transfer effected in the first year of the incorporation of the company itself. The very first annual returns filed under section 169 of the Companies Act, 1956 (‘the Act’) shows the transfer executed in the name of defendant No. 2 of 49,000 shares (whereas 49,010 shares were actually transferred). The date of the transfer is not shown in the returns. It is contended that transfer has not taken place between the date of the first annual general meeting (‘AGM’) and the date of filing of the returns. The date of the filing of the returns is not shown in the returns. All later documents follow therefrom. The plaintiff has challenged all the documents emanating from the initial transfer. The defendants have sought to show that the father of the plaintiff and defendant No. 1 who was the director of the company signed such returns from year-to-year as also his personal tax returns.
4. The plaintiff claimed his share in that property, it being admittedly the biggest asset of the father.
5. There have been certain e-mail exchanges between the plaintiff and defendant No.3 as late as on 1st June, 2008 defendant No.3 son of defendant No. 1 has e-mailed the plaintiff not only the details about the property, but about the negotiations that he had for himself as also on behalf of the plaintiff. That interesting e-mail runs, thus :
“As of now I met with 3 developers, they are offering me very less value as the reason given was too much density of tenants on the property, and kindly note that the property is not 1,47,000 sq. feet but little over 1,18,000 sq. feet which I had told you as the front portion of the property was acquired by the Government for road widening purpose, its just that the BMC records are not updated of the same, people are ready to give us decent money for the property if we settle with the tenants and give them vacant plot with all required permissions to build, and kindly note too that I have been fair to you too till date and will continue to do so and never pressurised you to give me your share of the taxes and outgoings on the godown, though it is constantly burning a hole in my pocket, will update you of any new developments.”
6. Had the shares of the father been transferred as shown in the annual returns in 1999 itself such an e-mail would never have been written by the defendant No.3. The admissions contained in the e-mail is the circumstantial evidence prima facie showing that the transfer is not bona fide.
7. The very Will of the father which has been accepted by both the brothers, the plaintiff as well as defendant No. 1, bequeathing to both of them the shares in defendant No.5-company equally also shows that the father, until the date of the Will in 2003, held those shares.
8. The plaintiff’s share in that property, therefore, would require to be protected pending the notice of motion.
9. The property at item No.2 in Exhibit-C to the plaint is a flat at Marine drive which defendants 1, 2 and 3 claim to have purchased in 2006 out of their own separate funds. The plaintiff claims that that flat has been purchased from the amount received by the defendants upon the sale of the property at item No. 1 fraudulently and behind the back of the plaintiff. Defendants 1, 2 and 3 have produced their bank statements showing the amounts paid for the purchase of the flat being Rs. 1.90 crore. The defendants have also shown how the amounts came into their bank accounts. Defendant No. 1 claims to have the initial investment made in 2005 from the sale of one janta Godown which is another property of plaintiff, defendant No. 1 and defendant No.3 in which the plaintiff’s share has been paid and the share of defendant No. 1 has been utilised by him for the purchase of the flat. The initial receipt is shown to be invested in HDFC Mutual Funds on 28th February, 2005 which is redeemed on 11th April, 2006. His investment is out of the cheque amount received from the sale of Janta Godown. The other amounts are contributed by defendants 2 and 3. These are also shown from their bank accounts. They were also initially invested in HDFC Mutual Funds on 22nd March, 2005 which was redeemed on 11th April, 2006 and 10th October, 2005 which was redeemed on 11th April, 2006. The total amount has been invested in the flat on 13th April, 2006.
10. The property at item No. 3 is admitted to be the estate of the deceased. It was tenanted by the deceased. The defendants have offered that the plaintiff may reside in that property whilst he is in Mumbai.
11. The property at item No.4 which is an agricultural land which is stated to have been sold in 1968 to a Trust. The house property which is in Kutch, Gujarat is admitted by the defendants to be the estate of the father. The defendants agree to give the plaintiff his 1/2 share therein.
12. The defendants do not claim item No.5.
13. The defendants also offer item No.6 to the plaintiff which are shown to be the shares of a defunct company.
14. The property at item No.7 was tenanted by the private limited company in which the deceased as well as the plaintiff and defendant No. 1 are members. The landlord of this property is stated to be United Insurance Co. and the fact that the deceased had owned the property is admitted.
15. Half share of the plaintiff in item No.8 is stated to have been transferred to the plaintiff.
16. The bank account at serial No.9 shows the balance of Rs. 5,880.
17. There is not much dispute with regard to the movables in item No. 10.
18. The shares and securities of the deceased in item No.11 are shown to be transferred to the plaintiff towards his 1/2 share.
19. The main property forming a part of the estate of the deceased father of the parties is item No. 1. The plaintiff was desirous of acquiring his 1/2 share therein. There have been e-mails between the plaintiff and defendant No.3. After the aforesaid e-mail showing negotiations which were in progress even in 2008 sent by defendant No. 3 to the plaintiff, the plaintiff sent his e-mail dated 2nd June, 2008 alleging that for 5 years the defendant No. 3 had not done anything and calling upon him to take a decision. Under those circumstances, the plaintiff has alleged that a family arrangement-cum-compromise was agreed upon between the parties. The plaintiff and the two executors under the Will of the father are shown to have signed the family arrangement. That arrangement dated 12th July, 2008 records that items of the Will were discussed and agreed upon for a total value of Rs. 5 crore payable in two instalments by the end of the year to the plaintiff. That has not been paid. The plaintiff has accordingly sued to recover his above share from the defendants.
20. The plaintiff’s own case shows a crystallisation of the plaintiff’s share at Rs.5 crore in 2008.
21. Upon the transfer of item No. 1, defendants 1, 2 and 3 are stated to have received Rs. 48 crore in 2010. The plaintiff’s share shown in the family arrangement at Rs. 5 crore in 2008 would have augmented commensurately. The entire amount payable was payable by the end of the year 2008. Had that amount being paid it would have been invested by the plaintiff. The plaintiff’s share which is required to be protected pending the suit upon the prima facie case made out by the plaintiff, which is upon the admission of the execution of the Will by his father and the admitted relationship of the parties, would, therefore, require to be protected pending the notice of motion. Hence, the properties in Exhibit-C to the plaint must remain protected towards the plaintiff’s share. It may be clarified that though defendants 1, 2 and 3 have shown their independent right in the property at item No.2, since these defendants are prima facie seen to have transferred the property at item No. 1 to the other defendants under the transaction without bona fide full title, their property at item No.2 must remain injuncted against further transfer or creation of any further rights pending the notice of motion.
22. Hence, the following ad interim order is passed.
23. Defendants 1, 2 and 3 shall deposit Rs. 7.5 crore in this court towards plaintiff’s share in the estate of his deceased father within 4 weeks from today. If the amount is not deposited defendants shall not dispose of, alienate, encumber, part with possession, transfer or create any 3rd party rights in the properties at item Nos. 2, 3, 4, 6, 7 and 8 in Schedule Exhibit-C to the plaint pending the notice of motion.
24. Issue Regarding the Bar of Jurisdiction raised by defendant No.5 :
“Defendant No. 5 has sought to raise the issue of bar of this court’s inherent jurisdiction under section 10E(4C) read with section 111(4) and (7) of the Indian Companies Act (1 of 1956).”
25. Hence, the issue is framed and answered as follows :
“Whether the inherent jurisdiction of this court is barred – No.”
26. Since Item No. 1 relates to the claim of the plaintiff in the shares of private limited company held by the deceased as an estate of the deceased, it is contended by the defendants that this court’s jurisdiction in determination of whether item No. l forms an estate of the deceased is barred under section 10E(4C) read with section 111(4) and (7) of the Act as amended in 1988 and 2003. The relevant part of the sections which may bar or oust the civil courts jurisdiction runs, thus :
“PART. IA
BOARD OF COMPANY LAW ADMINISTRATION
10E. Constitution of Board of Company Law Administration…. – (4C) Every Bench referred to in sub-section (4B) shall have powers which are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely :
(a) discovery and inspection of documents or other material objects producible as evidence ;
(b) enforcing the attendance of witnesses and requiring the deposit of their expenses ;
(c) compelling the production of documents or other material objects producible as evidence and impounding the same ;
(d) examining witnesses on oath ;
(e) granting adjournments ;
(f) reception of evidence on affidavits.”
“111. Power to refuse registration and appeal against refusal -…….(4) If –
(a) the name of any person –
(i) is, without sufficient cause, entered in the register of members of a company ; or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom ; or
(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be a [member including a refusal under sub-section (1)],
the person aggrieved, or any member of the company, or the company, may apply to the Tribunal for rectification of the register….
(7) On any application under this section, the Tribunal –
(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from the register ;
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.”
27. Mr. Madon on behalf of the plaintiff argued that section 10E has been incorporated in the Act by the Amending Act, 1988 which came into force on 31st May, 1991. Under the same Act section 111 also came to be incorporated deleting section 155 which existed prior thereto in Act. Consequently, since 1991 the Company Law Board (‘CLB’) would have the power under the Code of Civil Procedure in respect of the aforesaid six matters which may be • referred to as the power to- record the evidence. This would be in cases where the entries in the register of members of the companies is wrongly effected or where the title of the applicant to enter or delete his name from the register has to be decided along with other questions in connection with such title as would be necessary to be determined.
28. This would otherwise be the civil court’s jurisdiction. Upon the amendment of the Act for all matters where an applicant would want his name to be added or deleted in the register of members, he would not apply after 1995 to the civil court or even to company court under rule 6 of the (Company Court) Rules, 1959, but he would have to make an application before CLB.
29. The plaintiff has never been a member of the company. His shares have not been transferred. The plaintiff has not sought to purchase the shares either. He has sought transmission of 50 per cent of the shares held by his father. The plaintiff only claims 50 per cent of the shares held by deceased father and bequeathed to the plaintiff. If the plaintiff applied before the CLB, he would be called upon to obtain a declaration of the civil court that he is entitled to 50 per cent shares which actually stood in the name of the father of the plaintiff. The civil court would have to determine the title of the deceased father and, thus, latter in the estate left by the father. This the CLB cannot determine. Only the civil court would determine title to an estate of a deceased. Further for such determination, the plaintiff would have to obtain probate of the Will of his deceased father. Without such probate the plaintiff will have no cause to apply before the CLB. Of course, the plaintiff shall have to apply before the CLB, but not before obtaining this court’s declaration and/or the probate.
30. In this suit there are complicated questions of fact relating to whether or not fraud has been played upon the plaintiff before the shares of the deceased father of the plaintiff came to be transferred in the name of the defendant No.2, his daughter-in-law. If the plaintiff would apply to the CLB for addition of his name in the register of members in respect of 50 per cent of those shares as a person having title to that extent and claiming such title, the plaintiff would have to lead evidence of the fraud before the question of title is decided as also the question in connection with the fraud which would be the evidence relating to negotiations by the correspondence by the aforesaid E-mails or otherwise between the brothers. The defendants have sold the shares which was the property of defendant No.5-company in which the deceased held those shares.
31. Of course, under section 10(E)(4C) and section 111(4) and (7) the tribunal would have otherwise had jurisdiction to add the plaintiff’s name. However, in view of the aforesaid facts the tribunal would have to determine whether the shares were transferred fraudulently to exclude the plaintiff or even his father.
32. Whether or not the tribunal could go to such extent in such determination was held affirmatively in the case of Public Passenger Service Ltd. v. MA Khadar [1966] 36 Comp. Cas 1 (SC). However it held that jurisdiction which was then with the company court under section 155 of the Act prior to the aforesaid amendment was discretionary and summary in nature and that the court could decline to entertain the petitions if they raised dispute and complicated questions requiring evidence.
33. In the case of Standard Chartered Bank v. Andhra Bank Financial Services Ltd. [2006] 6 SCC 94 also it has been held that if several disputed questions of fact arose, the company court (now CLB) should relegate the parties to a suit which is a more appropriate remedy for investigation and adjudication of such claims.
34. In the case of Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd. [1998] 17 SCL 463 (SC); which was after the amendment of 1988 came into force, the dictionary meaning of the expression ‘rectify’ came to be seen. It was shown to be ‘alter’ and, hence, it was held to imply the correctness of an error, mistake or defect and removal of defect or imperfections. It was held that though in matters falling within the peripheral field of rectification the company court (and now the CLB) would alone have jurisdiction, if the issues were not peripheral to rectification but were the issues regarding disputed civil rights, title or denial of any transaction they would have to be decided by the civil court. The very style of the judgment in para 26 makes this position clear :
“Otherwise under the garb of rectification one may lay claim to many such contentious issues for adjudication not falling under it” (section 155) and in para 27
“The court has to examine on the facts of each case whether an application is for rectification or something else.”
“….[What comes under rectification, not projected claims under the garb of rectification.”
35. Hence, though recognising that the company court (now CLB) would be the court of exclusive jurisdiction for applications for rectification of register of members, it is held that if the issues arose whether the plaintiff was the owner of the shares, whether there was fraud or forgery or there was dispute on the very title of the shares, those issues would be beyond the jurisdiction of the company court and would have to be decided by the civil court. This would be upon the issues that arise in an application. It may be mentioned that an issue arises when a material fact is alleged and disputed. Hence, mere mention of fraud may not take the matter out of the exclusive jurisdiction granted by the statute to the CLB, but when the “very title to the shares” is challenged and the court sees that that is at least prima facie shown, the civil court’s jurisdiction would not stand barred.
36. A further reading of para 26 indicates that in cases such as this the right of the applicant who claims that his name be entered in register of members of a company would have to be decided first before such an application is made :
“In other words, the court (Company Court/CLB) has discretion to find whether the dispute raised is really for rectification or is of such nature that unless decided first would not come within the perview of rectification.”
37. The right of plaintiff to receive his half shares in the estate of the deceased is admitted. What if the entire estate is disputed. That will depend upon whether or not the deceased had himself transferred the shares in his lifetime, so that that legacy had a deemed or whether the deceased held the shares in his name until his death and the purported transfer is forged, anti-dated and fabricated by defendant Nos. 1, 2 and 3. After that it decided, the question of rectification would arise and an application could be made.
37.1 Upon the authorities of Full Bench judgment of the Delhi High Court and Supreme Court (supra) Justice Rebello, as the Single Judge of this court, in the case of National Insurance Co. Ltd. v. Glaxo India Ltd. [1999] 20 SCL 243 (Bom.), concluded that when there were complicated questions of fact raised, the CLB cannot go into them. When there was dispute as to the “very transaction itself”, it would not be merely a matter for rectification. Those disputes would be on account of false documents and not merely if the name of the applicant was not entered for “wrong reasons”. When the ownership of the shares is disputed, it could not be a case exclusively pertaining to rectification which can be decided by the CLB. The exclusive jurisdiction of the company court (and now CLB) will, therefore, be “to that extent,” which is of “summary nature” as observed in the case of Ammonia Supplies Corpn. (P.) Ltd. (supra). To that extent the civil court’s jurisdiction will stand impliedly barred as no express bar is mentioned anywhere in the Act.
38. This case could not be a case which could be only a matter for rectification simplicitor. The application for rectification would be challenged. The plaintiff would have to meet the challenge. The plaintiff would have to show how the register of members does not only show the position for wrong reasons but shows such position upon a fraud being practised upon the plaintiff. It is only those matters which are held in the judgment in the case of National Insurance Co. (supra) to be beyond the jurisdiction of the company court and now CLB can be decided by the civil court, this case being one such.
39. Consequently the application for rectification cannot be filed in the CLB, for if filed it would be sent to this court for adjudication of title. The plaintiff claims “something else” also other than rectification being a seriously disputed question of title. He claims a declaration of his right to 50 per cent of his father’s equity holding. Hence, he has shown the shares as a part of his father’s estate which can be adjudicated upon only by a civil court. Such claims must, therefore, be directly filed in the civil court alone.
40. Hence, the preliminary issue of jurisdiction is answered in the negative.
41. Defendants 1 to 3 have claimed that the suit is barred by the law of limitation. Hence, the issue is framed and considered as follows :
‘”Whether the suit is barred by the law of limitation.”
42. The plaintiff has sued for the administration of the estate of his father. His father expired on 30th July, 2005 leaving behind the Will dated 3rd July, 2003. The parties were in correspondence with regard to the sale of the estate of the deceased as reflected in the aforesaid e-mail. The e-mail correspondence which transpired between the parties was between 1st June, 2008 to 7th September, 2009. The suit has been filed on 13th February, 2012.
43. The defendants 1 to 3 claim that the transfer of shares in 1999 was known to the father as well as the plaintiff himself and, hence, the period of limitation runs from the date of the initial transfer from the father to defendant No.2 dated 16th August, 1999.
44. The plaintiff has claimed that the effort relating to the transfer of shares of defendant No.5-company initially from the name of the deceased to the name of defendant No.2 and later to outsiders upon essentially the sale of the property of the father of the plaintiff and defendant No. 1 in item No. 1 of the schedule Exhibit-C to the plaint was brought to his knowledge in January 2012.
45. Mr. Madon himself contends that oral evidence upon the issue of .limitation would have to be led.
46. The plaintiff shall file his affidavit of evidence as also affidavit of documents.
47. The suit is adjourned to 10th December, 2012 for considering the admissibility of the documents of the plaintiff.
48. Certain letters and photocopy of letters written by the deceased are stated to have been sent to the plaintiff. The defendants dispute the genuineness of these letters. They are stated to have been sent by the deceased by post or by hand delivery to the plaintiff in the USA. Pending the suit these documents shall be kept in a sealed cover in the custody of the Prothonotary and Senior Master of this court without folding the documents.
