S. Balasubramanian, Chairman
1. In this petition filed under Section 11 1(4) of the Companies Act, 1956 (the Act) the petitioners have sought for rectification of the Register of Members of East India (P) Limited by removing the name of Shri R.S. Lodha (herein after referred to as RSL), the 2^nd respondent, in respect of 33715 shares which were earlier held in the name of Mrs. Priyamvada Devi Birla (herein after referred to as PDB) since deceased.
2. The facts of the case are that PDB held 33715 equity shares constituting 74.98% shares in the company. This company held substantial shares in Birla Corporation Limited and companies of MP Birla group. She expired on 3^rd July, 2004. She had no issues. She had executed her last Will at Testament on 18^thApril, 1999, naming Shri RSL as the sole beneficiary under the Will and also the executor to her Estate, On 9.7.2004, RSL applied to the company for transmission of the impugned shares to his own name as Executor to the Estate of PDB. By a letter dated 12.7.2004, the 6^th respondent, one of the directors of the company, returned the share certificates to RSL asking him to submit an attested copy of the will and also an indemnity in the prescribed form to enable the company to proceed further in the matter. On 14.7.2004, RSL submitted the aforesaid documents. In a Board meeting on 15.7.2004, two directors viz., the 41'1 and 6^th respondents, present in that meeting unanimously passed a resolution approving the transmission. The petitioners being the sisters of late M.P. Birla (MPB), the husband of PDB, claiming to be her legal heirs in intestacy, have challenged the transmission on various grounds and have sought for rectification of the register of members. The respondents have while questioning the locus standi of the petitioners, have also contended that two suits on similar grounds are pending in Calcutta High Court, in which some interim orders have also been passed, to avoid conflict of decisions, this matter should be deferred.
3. Before I record the arguments of the counsel, it is necessary to reproduce the relevant Article of the Articles of Association of the Company dealing with transmission of shares and also the relevant minutes of the Board meeting on 15.7.2004 in which the transmission was approved. Article 47 of the Articles of Association of the company reads "The executors or administrators or the holder of a succession certificate in respect of shares of a deceased member (not being one of several joint holders) shall be the only person whom the company shall recognize as having any title to the shares registered in the name of such member and in case of the death of any one or more of the joint holders of any registered shares, the survivors shall be the only persons recognized by the company as having any title to or interest in such shares but nothing herein contained shall be taken to release the estate of a deceased Joint holder from any liability on shares held by him jointly with any other person.
Before recognizing any executor or administrator or legal heir, the directors may require him to obtain a grant of probate or letters of administration or succession certificate or other legal representation as the case may be, from some competent court;
provided nevertheless and subject to Section 84 of the Estate Duty Act that in any case where the directors in their absolute discretion think fit, it shall be lawful for the directors to dispense with the production of probate or letters of administration or a succession certificate or such other legal representation upon such terms as to indemnity or otherwise as the directors may consider desirable; provided also that the holder of a succession certificate shall not be entitled to receive any dividends already declared but not paid to the deceased member unless the succession certificate declares (hat (he holder thereof is entitled to receive such dividends; provided also that if the member was a member of a joint Hindu family, the directors on being satisfied to that effect and on being satisfied that the shares standing in his name in fact belonged to (he joint family, may recognize survivors thereof as having title to the shares registered in the name of such member but this proviso shall in no way be deemed to modify or nullify the provisions contained in Article 13 thereof.
4. The relevant portion of the Minutes of the meeting on 15,5.2004 reads: "The Chairman placed on table letters dated 9.7.2004 and 14.7.2004 received from Shri Rajendra Singh Lodha, Executor, Estate of Smt. Priyamvada Birla (deceased), inter-alia informing that Smt. Birla died on 3.7.2004 and that by her last Will and Testament dated 18.4.1999, she appointed Shri Rajendra Singh Lodha as (he Sole Executor to her Estate and requesting the company to transmit 33715 shares of the company held by her to the name of "Rajendra Singh Lodha, Executor, Estate of Priyamvada Birla(deceased)". Copies of the death certificate and registered Will of Smt. Priyamvada Dirla as well as Indemnity Bond dated 14.7.2004 by Shri Rajendra Singh Lodha were also placed on table.
The Chairman also placed on table legal opinions received by the company, according to which the Board of Directors can dispense with the production of Probate or Letters of Administration or Succession Certificate for the purpose of transmitting shares held by a deceased shareholder in favour of (He Executor, He also stated that in the past on 17.9.1990, the Board had also allowed transmission of 1500 shares of the company in favour of Smt, Priyamvada Birla on the death of Shri M.P. Birla without production of any Letter of Administration, Probate or Succession Certificate.
The Directors discussed the matter in the light of provisions contained in Article 47 of the Articles of Association of the company which states that the directors at their absolute discretion may dispense with the production of Probate or Letters of Administration or Succession Certificate for the purpose of transmitting shares held by a deceased shareholder in favour of the Executor and in view of the past precedence, indemnity provided by Shri Rajender Singh Lodha as well as legal opinions received by the company, it was--
RESOLVED UNANIMOUSLY THAT all the shares in the company standing in the name of Late Priyamvada Birla be and are hereby transmitted to Shri Rajendra Singh Lodha, as Executor to the, Estate of Priyamvada Birla (deceased), by and under the terms of her last Will and Testament dated 18.4.1999, in terms of Article 47 of the Articles of Association of the company.
5. Shri Mookherjee and Shri Kapur, Senior Advocates, argued for the petitioners. Their submissions in a nut shell are: The mode and manner in which the transmission was approved by the Board clearly indicates the malafide intention of RSL to grab the property of PDB, whose Will is under challenge before the Calcutta High Court, Not only the transmission violates the provisions of the Articles, it could not have been done without production of probate. In terms of Article 47 of the Articles of Association of the company, if transmission were to be effected without production of probate, certain conditions have to be satisfied which have not been fulfilled. RSL sought for transmission by a letter dated 9.7.2004, which was a Friday, enclosing therewith a copy of the Will. There are no details as to how this letter was sent and who received the same in the company. There is no request in the letter seeking for dispensation with production of probate. On Monday, 12.7.2004, the 6^th respondent wrote to RSL asking him to send a copy of the Will and an indemnity bond enclosing therewith a proforma of the indemnity bond. Nothing is stated about production of probate. The power to dispense with the probate is with the Board in terms of Article 47. There is nothing on record to show that any Board meeting was held between 9^th and 12^th July, 2004 to decide either to dispense with the production of probate or to call for a copy of the Will or approving the draft indemnity bond. In the afternoon of 12.7.2004, the Will was read out to the family members. There was a wide coverage in the newspapers on 13^th, 14^th and 15^th July, 2004 regarding challenge to the purported Will, report on contest of the Will and lodging of cavcat (copies of press reports annexed at pages 69 to 83 of the rejoinder to R-2 reply). Thus the fact that the Will was being disputed was in the public domain. On 14^th July, 2004, the advocates of the petitioners wrote to RSL questioning the validity, correctness and legality of the purported Will. On the same day, RSL reportedly sent a copy of the purported Will and indemnity bond to the company, 15^th July, 2004 was the duty on which Shradh Ceremony of late PDB was performed. It is inconceivable that on the day of the Shradh, the Board of the company met and passed the resolution allowing the transmission in favour of RSL dispensing with the production of probate or letter of administration or succession certificate. The sequence of events would show that all the documents have been fabricated with pro dates. This presumption has to be drawn as the transmission was never disclosed till December, 2004 in any of the other proceeding.
6. In the purported minutes of 15.7.2004, no reason has been recorded as to why and how the Board decided to exercise its discretion to waive the production of probate. Four justifications are found in the minutes for approving the transmission: that in the year 1990, shares held in the name of M.P. Birla were transmitted to PDB without production of any letter of administration, probate or succession certificate; that Article 47 vests with the Board the discretion to dispense with these documents; that legal opinion has been obtained; that indemnity had been provided by RSL. All these grounds are fallacious and have been relied on only to justify the transmission in violation of Article 47. For instance, the Board could have never compared the transmission of shares of the MPB in, favour of his widow PDB with that of transmission to a rank outsider RSL. The very fact that legal opinions were obtained would indicate that these two instances are not similar. Therefore, there is no justification to rely on the precedence. Why, how, and when the legal opinion was obtained is not disclosed and even the opinions have not been disclosed. It is also not discloses as to who prepared the case sheet for the legal opinion and on what basis the case sheet was prepared. Even the dates of seeking the opinion and the date of receipt of the same have not been disclosed. Since certified copy of the Will was submitted by RSL only on 14^th, the company could not have obtained legal opinions on an unauthenticated copy of the Will. Further, The contents of indemnity is not in accordance with Article
47. He was not asked to give indemnity guaranteeing to produce probate on a later date nor any monetary guarantee or security has been insisted. The indemnity has been asked only after having pre-decided to approve the transmission without probate, An individual director could not have done so and therefore the whole thing is a cooked up story.
7. The counsel further argued: The directors of a company are bound by the Articles and since their powers are derived from the Articles, they must observe any restrictions imposed upon them by the Articles. (Palmer 24^th Edition paras 14-17). In the present case, the directors had not acted in accordance with the Article. The first portion of the Article 47 mandates that the Board shall recognize only the executors, administrators or holder of succession certificate, stipulating clearly that no one else could be recognized. Administrators arc appointed only by Courts and succession certificates are also granted only by Courts. Therefore, the word "executor" in the first sentence of Article 47 should be construed as the one who has obtained probate and till such time he obtains probate, he could not be recognized as the executor. In terms of Section 213 of Indian Successions Act, no right as executor or legatee can be established unless a competent court has granted probate Khaje Abibudla v. Ananga ILR 1942 (2) Cat, 363; Meyappa v. Nabana AIR 1916 PC 202; Basanta v. Gopal ATCWN W 136. In Clarclcc Pis v. Union of India , dealing with Section 213 of Succession Act,
the Supreme Court has observed that this section is a bar to everyone claiming under a Will whether he is plaintiff or defendant if no probate or letters of administration arc granted. Thus, it is evidently clear that the company could not have acceded to the request of RSL to enter his name in the register without a probate.
8. It was further submitted: The word "may" appearing in the second part of Article 47 has to be construed as "shall" in the context of the mandatory provision in the first part of the Article wherein the terms "shall" and "only" have been used, Therefore, to give effective meaning to the first part of the Article and to avoid repugnance, the word "may" used in second part of the Article has to be necessarily construed as "shall". In Principles of Statutory interpretation by Guru Prasana Singh (10^th Edition, Page 430), it is stated that when the context shows that power is coupled with an obligation, the word "may" which denotes discretion should be construed to mean "a command". Similarly, in the State of Madhya Pradesh v. Joginder Singh , it has been held that the word "may" is capable of
meaning "must" or " shall" in the light of the context. Therefore, any attempt to dilute the mandatory provision of the first part in the context of the word "may" used in the second part is fallacious. Further the third sentence of the Article which talks of the absolute discretion is only a proviso which authorizes the Board to dispense with production of probate. Dispensing with production of probate docs not mean or amount to the directors dispensing with obtaining of probate. Obtaining a probate is a mandate in terms of the first two parts of Article 47, The discretion to dispense with production can be used only when, for some reasons after obtaining probate, the applicant is unable to produce the same and therefore discretion cannot be used when there is no probate at all.
9. Arguing further, the counsel submitted: The reliance of the respondents on the provisions of Section 211 of the Succession Act that in terms of this Section, the property of the deceased person vests in the executor and as such RSL has the right to seek entry of his name in the register has no application. This Section is only to ensure that there is no vacuum on the death of a person but to establish the right as an executor, probate has to be obtained. In Hem Lolini Jutah v. Isolyne S. Base , the court has held that Section 213 of Succession Act creates n bar to the establishment of any right under a Will by an executor or a legatee unless probate or letter of administration of a Will has been obtained. Therefore, under no circumstances the directors could have recognized RSL as the executor and acceded to his request for entry of his name in the register of members.
10. Even the assumption of the directors that they had absolute discretion to dispense with probate is erroneous. In Shree Krishna Agency Ltd. v. CIT , it is held that even if absolute discretion is given to the directors, it does not confer any uncontrolled or unrestricted discretion. They cannot act arbitrarily or capriciously, Likewise, in Bajaj Auto v. N.K. Firodia , the Supreme Court has held that when the directors
have absolute and uncontrolled discretion to decline registration of transfer of shares, such discretion should be exercised bonafide, in the interest of the company/shareholders and not arbitrarily or for a collateral purpose. In the present case, the directors have exercised powers which they did not possess and have approved the transmission on wrong principle malafide, for an oblique purpose and with an ulterior motive to allow RSL to grab the company.
11. Arguing further, the learned Counsel submitted: The haste with which RSL had tried to grab control of the shares of the deceased within less than 5 days of her demise would indicate his malafide intention. Even before the Will was read out to the family members of the deceased on 12.7.2004, he applied for transmission to the company on 7.7,2004. Both the 4^th and the 6^th respondents have been in employment of MP Birla Group and have also been close associates of RSL for a long time. They pretty well knew that the company held/holds substantial shares in other group companies and therefore anybody in control of the majority shares held by FDD in the company, could control the entire MP Birla Group. Therefore, it is their bounden duty to be extremely careful in the matter of registration of transmission of the shares of PDB. By acting without following the provisions of Article 47 in letter and spirit, they have exposed themselves as stooges of RSL. Their contention that at the time of approval of transmission, there were no other claimants for the shares cannot be accepted since right from 13th July, 2004 i.e. two days prior to the date of transmission, many newspapers had carried the news that the Birla family was challenging the Will. The 4th and 6th respondents cannot claim ignorance of these press reports. The sequence of events and the manner in which the transmission was approved would clearly show that the Board had acted malafide for collateral and oblique purposes and on wrong principles.
12. While the company informed RSL about the transmission on 16.7.2004, he applied for probate immediately thereafter on 17.7.2004 i.e. after the transmission was approved. On 16.7.2004 (Annexure P-8), RSL was advised not to deal with or exercise any right in respect of the assets and properties of the deceased. But in his letter of the same date (Annexure P-9), he did not inform about the transmission. Again when a letter was written to the company 17.7.2004 asking the company not to transmit any shares, no reply was received and the fact that transmission had already been effected was also not disclosed. From the fact that the respondents had kept quite till December, 2004 regarding the transmission, it is evident that every action in this regard appears to have been predated. In Indian Chemical Products Ltd. v. Stata of Orissa , the Supreme Court has held that even if the Board had absolute powers in the matter of registration of transfers, such powers should be exercised reasonably and in good faith and the court can control the discretion if they act capriciously or in bad faith. In the present case, the Board has misused its discretion knowing fully well that the Will was under challenge.
13. Dealing with the locus standi of the petitioners, the learned Counsel submitted: The petitioners arc the sisters of MP Birla. Since he had no issue, on demise of both MPB and PDB, the petitioners would be the only persons to succeed to the estate of both the deceased in terms of Hindu Successions Act, 1956, Schedule (Class II). In the probate proceedings before Calcutta High Court, the court has recognized the petitioners as heirs on intestacy. Even RSL has admitted the right of the petitioners in the probate proceedings. If the Will of 1999 is held as invalid, the petitioners would inherit the entire estate of PDB. RSL has challenged mutual Wills of 1982. If the mutual Wills were held to be valid, RSL would have no right on the estates and if all the three Wills were to be declared invalid, then the petitioners would inherit the estate both MPB and PDB. Since the right of the petitioners to the estate of the deceased is contingent, they have not applied for entering their names in the register of members consequent upon the rectification of the register as sought for. It is not necessary that in an application under Section 111(4) of the Act the petitioners should seek entry of their names while seeking for rectification. Recently, in Claude Leela Pareakar v. Sakal Papers (P) Ltd. , the Supreme Court has held that where a
person's right to disputed shares is yet to be established, even then such a person can maintain an application for rectification of the register by removal of the name from the register of other parties who had no right to have their names on the register. Similar is the position in the present case and therefore, the locus standi of the petitioners cannot be questioned.
14. In so far as the contention that in the probate proceedings, the High Court has directed maintenance of status quo in regard to the shares and as such the CLB cannot pass any orders, it was submitted that the court was aware of the present pending proceeding before this Board and it has left the decision regarding rectification to be taken by the Board and as such there is no bar in this Board directing rectification.
15. Shri Mitra, Senior Advocate appearing for the company submitted; Only a member or an aggrieved person can file a petition under Section 111(4) for rectification. Admittedly the petitioners are not members. They also cannot be aggrieved persons since they are not claiming any interest in the shares either as beneficiaries or as executors. They have only sought for removal of the name of RSL without any consequent entry in the register i.e. their names, indicating very clearly that they are not claiming any interest in the shares, Further, neither of the petitioners is either a beneficiary or an executor of even the mutual Wills of 1982. Admittedly, they have supported grant of probate in respect of those Wills. Therefore, the existence of 1982 Wills cannot give any right to the petitioners to file the petition and as a matter of fact, the fact of existence of these Wills was never brought to the notice of company by the petitioners before the date of transmission. If at all, they could claim any right in the estate on intestacy, they have to get over 3 Wills. Under these circumstances, it is evident that the petitioners have no locus standi to file the petition as their interest in the shares is only contingent and not in prensenti. Further, any order of rectification would amount to the shares being in limbo as the shares would continue to remain in the name of PDB who is no more.
16. Dealing with merits, Shri Mitra submitted: To impugn the exercise of discretionary powers vested in the directors, the petitioners have to establish that the directors had acted against the interest of the company that they had acted on a wrong principle and that they had acted with an oblique motive or for a collateral purpose (Bajaj Auto case-Supra). RSL in whose favour the shares have been transmitted has been associated with several MP Birla Group companies as Chairman/Director for a very long time and he has always been acting in the interests of not only MP Birla Group of companies but in the interest of PDB also. She had absolute trust and confidence in him and had always consulted him in all matters relating to the group companies, trusts and charitable institutions. The very fact that RSL has been closely associated with MP Birla Group companies and also a close associate of PDB, itself was a good ground to exercise the discretion of the directors to accede to his request for transmission without probate. The 4th respondent who was present in the meeting on 15th July, 2004 had actually witnessed the execution of the Codicil dated 15th April, 2003 by PDB wherein she had reaffirmed the execution of the Will naming RSL as the executor. In Naresh Charandas Gupta v. Paresh Charandas Gupta , the Supreme Court has quoted with approval the decision in Hall v. Hall 1968 1 P&D 481 wherein it is stated that one could Will his/her estate to another person out of affection, sentiment of gratitude for past services and the like. (I do not understand the relevance of this case in the instant proceeding). Since the Will had been witnessed by 3 witnesses including a senior solicitor and duly registered, the Board of directors, even though the Will was unprobated, rightly exercised their discretion in favour of RSL as the same would be in the interest of the company.
17. He further submitted: To test whether the transmission was on wrong principle or not would depend on the construction of the Article. The first part of Article 47 clearly provides that transmission in favour of the executor of a Will is permissible. The word "executor" has been used simplicitor and there is no stipulation that he should have obtained probate. Even otherwise, the proviso to the Article specifically vests with the directors, absolute discretion to waive production of probate upon production of an indemnity. Once discretion is vested, the Article can never be considered to be mandatory. The respondent company is a closely held private company and the directors have been working with MP Birla Group for a long time and have the same office sitting next to each other and meeting several times daily in the normal course of work. On receipt of the application from RSL dated 9th July, 2004 seeking for transmission of the impugned shares, the company obtained the opinion of two senior advocates of Calcutta High Court on 12th July, 2004, On their opinion that the shares could be transmitted without probate but upon obtaining indemnity, the company asked RSL for an indemnity. Since RSL was closely associated with MP Birla Group and also with PDB for a long time and that the Will was a registered Will containing the signature of late PDB and as the 4th respondent had also witnessed the Codicil, the directors had no doubt about the authenticity of the Will and accordingly approved the transmission. It is wrong on the part of the petitioners to contend that in terms of Section 213 of the Indian succession Act, the company could not have recognized RSL as the executor without probate. The bar in Section 213 is only with reference to establishing the right of a person as an executor in a court of law. In terms of Section 211(1), the executor of a deceased person is his legal representative for nil purposes and the property of the deceased person vests in him as such and in terms of Section 307, he has the power to dispose of the properly either wholly or in part. In Akshay Kumar Paul v. Nandlal Das ILR 1946 (1) Cal, 432, it has been held that an executor of a Will need not take out probate before acting us such so long as he does not have to establish his right in a court of justice for which he will have to produce probate. In view of the provisions of Section 211 of the Act, the properly vests in the executor immediately upon the testator's death and the grant of probate only makes his title certain Raja Kakarlapudi v. Andhra Bank Ltd. . Under Section 211
and Section 307 of the Indian Succession Act, an executor derives his title by virtue of the Will and not from the date when the Will is probated. He represents the estate even before the grunt of probate and he can act as the executor and exercise powers given to him under the Will without obtaining probate Balliram Dhote v. Bhuipinder Nath Banerjee . In many other cases also the said
proposition has been approved. Since in terms of Section 211, the estate of late PDB had vested in RSL immediately on her demise, in terms of the discretion vested in the directors by Article 47, the Board had approved the transmission without probate on correct principle.
18. The directors had not acted either with an oblique motive or for a collateral purpose. Once it is established that the directors have acted in the interest of the company and on correct principle in approving the transmission, the question whether they have acted with an oblique motive or for a collateral purpose becomes immaterial. Even otherwise, it is an admitted position that RSL has been closely associated with MP Birla Group for a number of years and has gained absolute trust and confidence of late PDB. He has been the Chairman of the company from 1999. When he produced a copy of the Will witnessed by reputed persons including one of the directors of the company, there was nothing wrong in registering the transmission in his name. Board meeting held on 15.7.2004 had already been scheduled earlier and the transmission was only one of the businesses transacted on that day. RSL and his son did not attend this meeting. The shares were not transmitted in his own name but only as the executor of the estate of PDB.
19. Shri Sen, Sr. Advocate appearing for respondents 3 to 6 submitted: Since the petitioners allege fraud, manipulation of records etc, the CLB cannot examine the same in a summary proceeding under Section 111 especially when the matter is directly the subject matter of the probate proceedings. The CLB should avoid conflict of decisions. On merits, it is abundantly clear that the directors had acted diligently and did not act in haste. When the application for transmission was received, the company sought for a certified copy of Will and Indemnity Bond and also obtained legal opinions. When the company received these documents and finding that the Will has been properly executed and witnessed by reputed persons, the directors decided to approve the transmission. If they had not done so, they would have acted on wrong principle. The very fact that the witnesses to the Will have filed affidavits before Calcutta High Court affirming their signatures on the Will would vindicate the bonafide action of the directors. When the directors had taken a decision on the basis of valid documents as permitted by Article 47, no further enquiry needs to be made by this Board whether the directors had acted bonafide or malafide. In so fur us the factum of holding the Board meeting is concerned, no director has complained that he did not receive notice for the meeting, In Page 9 of the reply, the respondent directors have explained the entire sequence which has not been disputed in paragraph 'p' of the rejoinder. When the directors have exercised their discretion, the onus is on the petitioners to prove that the directors had acted wrongly. In Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala , the
Supreme Court has held (para 20) that rectification can be granted only if the transferor establishes that the directors had, in refusing to register the shares in the name of transferee, acted oppressively, capriciously, or corruptly or in some way malafide and not in the interest of the company. It has also held that such a plea has to be expressly raised and affirmatively proved by evidence. In the present case, other than making allegations on presumptions and assumptions, the petitioners, without any particulars have made this allegation and have sought for rectification, which is not permissible.
20. The learned Counsel appearing for RSL while adopting the arguments of the learned Counsel for the company and the other respondents, submitted: In terms of Section 211 of Succession Act, the estate had vested in RSL and therefore he was under legal obligation to take possession and control of the estate in terms of Section 319 of the said Act. Unless the shares were transmitted in his name, he would not receive notices for the general meetings and also the dividends, if any, declared. He has already opened a bank account as the executor of the estate of PDB and the dividend could be deposited in that account and used for preservation of the estate. Even in the High Court proceeding, the High Court has held that apparently the executor's right to control and administer the property of PDB during the pendency of the probate proceeding was a legal one and cannot be lightly interfered with. In Pushpa Varedra v. Thomas Cook case, this Board has held that on the basis of unprobated will, transmission can be allowed. Further, RSL has not derived any personal benefit by the transmission us his name is entered only in his capacity as "Executor" in terms of the various provisions of the Will.
21. I have carefully considered the pleadings arguments and the written submissions on behalf of the petitioners, 1^st and 2^nd respondents. At this juncture, it is necessary to note that the first petitioner had expired on 23.5.2004, where niter, petitioners 3 to 6 applied for substitution of their names in her place claiming that the 3^rd and 4^th petitioners are the legal heirs of the deceased and the 4^th, 5^th and 6^th petitioners are the trustees of the Trust created by the deceased to administer the properties that might accrue to her estate from the estate of PDB. It is also stated in the application that in the probate proceedings, the Calcutta High Court has already allowed substitution. Even though the respondents have objected to the substitution on the ground that they have already challenged the Calcutta High Court's order allowing substitution, since as of dale the Calcutta High Court's permitting substitution subsists, I am also allowing the substitution and accordingly adding them as petitioners 3 to 6.
22. The respondents have raised a preliminary objection on the maintainability of the petition on the ground that the petitioners have no locus standi. This petition has been filed under Section 111(4) of the Companies Act, 1956 which reads:.
(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 there from; 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 Company Law Board for rectification of the register.
23. From this Section, it is evident that the right to apply under Section 111(4) of the Act has been vested in a member or any person aggrieved. Admittedly, in the present case, the petitioners arc not members and they have filed this petition as aggrieved persons. The contention of the respondents is that since these petitioners have no personal interest in the shares as they have not sought for entry of their names in the register of members consequent on rectification sought for, they have no locus standi. In this connection, I may refer to the judgment of Bombay High Court in Killick Nixon case 54 CC 432 , wherein the arguments were that the rectification sought was for restoring/entering the names of dead persons in the Register of Members and that the petitioner, even though a Member, had no personal interest and as such was not an aggrieved person. Referring to the provisions of Section 111(4) the Court held "Thus, the section makes it clear that not only the person aggrieved but also any member of the Company may apply to the court for a rectification of the register of members. If the intention of the Legislature was to confine the remedy only to the aggrieved persons as contended by Shri Chagla, then there was no need to add a further category or "any member of the Company" after giving such right to "the person aggrieved," The clear provisions of the section, therefore, militate against accepting the limited construction sought to be placed by Shri Chagla on the provisions of the said section, Secondly, the object of the said provisions does not support his contention. Read as a whole, it appears that one of the intentions of the Legislature is to ensure a register of members, which reflects reality at any particular point to time. That is why the Legislature has extended this right to any member of the Company without compelling him to show a particular or a special prejudice caused to him by an incorrect or a wrong register of members. Hence, to confine the right to file the application only to an aggrieved member or a member who is in a position to show some special prejudice, will go counter to the object of the section. For both these reasons, we are unable to accept the said contention." Recently, the Supreme Court has considered the locus standi of a petitioner under Section 155 (presently Section 111(4) when the petitioner sought for rectification without seeking for entering her name in the register of members consequent on rectification Claude Lila Parulehur (Smt) v. Sakal Papers Private Limited . In that case, the petitioner had claimed
title to certain shares, the claim of which was pending in a suit. In the meanwhile, she filed and application under Section 155 of the Act for rectification of the register of members of the company seeking for removal of the names of those in whose favour the shares stood registered. She had not asked for entry of her name instead. On her locus standi being challenged on the ground that she had not sought for entry of her name in the Register of Members, the Supreme Court held that since her title to the shares was under dispute, she could not have prayed for entry on her name in the Register and that the petitioner could maintain an application under Section 155 for cancellation of transfer of the disputed shares to the other parties concerned and rectification of register by removal of said other parties' names there from, while, reserving her right to take action to have the disputed shares transferred in her own name. The ratio that emerges from these decisions, is that to maintain a petition under Section 111(4) of the Act, neither an aggrieved person nor a member needs to show any personal interest in the shares nor that they should seek entry of their names in the register of members consequent to the rectification sought for. It is an admitted position that even though the petitioners are not members, they arc the legal heirs of PDB and their right to the estate of late PDB would crystallize if all the 3 Wills which are under challenge were to be held invalid. In other words, as rightly pointed out by the counsel for the petitioners, they have a contingent right. The contention of the respondents that the petitioners should have a right in presenti can no longer hold good after the decision of the Supreme Court in the above case.
24. The respondents have raised another preliminary objection that the petitioners, along with others, having instituted suits Nos. 4375 and 4376 of 2004 before Calcutta High Court on similar grounds as that of in the present petition, they cannot seek any relief which may result in conflict of decisions. Certain cases of this Board were cited on the proposition that if a suit had been filed prior in time on a similar matter, this Board should stay its proceeding. It was also pointed out that in those suits, an interim order has been passed directing the maintenance of status quo in regard to the shares and properties of PDB and as such the CLB cannot pass any order contrary to the said order of the High Court. In Delstar Commercial & Financial Ltd. v. Sarvottam Vinijay Ltd. 2001 3 CLJ 442, relied on by the respondents, the petitioners had filed a suit for a declaration that they held 50% shares in the company, and in the petition under Sections 397/398 filed before this Board, they sough for certain reliefs on the basis that they were entitled to 50% shares in the company. To grant those reliefs this Board had to necessarily declare them to be entitled to 50% shares, the declaration of which they had already sought the High Court. In view of this, that petition was disposed of giving liberty to the petitioners to approach this Board, in case the High Court were to make such a declaration. In the present case, I have gone through the plaints in the suits. Even though the grounds pleaded in the suits are similar to the present petition, in the suits the petitioners have sought only for appointment of administrators to administer the estate of PDB and not for rectification. In other words, the suits have been filed for a different purpose and for different reliefs. Therefore, the question of conflict of decisions does not arise. In so far as the interim order is concerned, I find that in paragraph 35 of the order 2005 2 WBLR (Cal) 311), the High Court has directed " I therefore direct RSL to maintain the status quo with regard to the transfer of shares received and/or got hold of already in respect of (he companies from the deceased lady. This order of status quo will also cover any other shareholding in respect of other company which might be coming to his hands. This order shall cover other movable properties also". In paragraph 34, the learned judge has observed "It is also an admitted position that RSL has already got his name registered as the transferee qua executor of the Will yet to be probated in the company's register and then he has consolidated his position. If proceeding has been initiated before the Company Law Board alleging mismanagement, I should not make any observation in (his regard. The forum concerned will obviously decide the matter". From the directions and the observation, it is evident that the High Court was aware of the present proceeding before this Board and it has only directed RSL to maintain the status quo with regard to the shares to ensure that by his voluntary act, no change is effected. No fetters appear to have been placed on the CLB in ordering rectification if such a case is made out by the petitioners. Thus, I reject both the preliminary objections.
25. In so far as the merits of the case are concerned, both the sides have elaborately argued, citing various authorities, on the provisions of Sections 211 and 213 of Indian Successions Act. Since I do not consider that, to decide the present matter, recourse to the provisions of that Act is necessary, other them noting that these Sections have been quoted out of context by the counsel from both sides, I am not dealing with the same in detail. That is why, I have not recorded all the cases cited by the counsel in relation to the provisions of Succession Act. It is an admitted fact that the Directors had not relied on provisions of Section 211 while approving the transmission and as such it cannot be raised by them now. Even otherwise, while RSL could rely on this Section that the properties of PDB had vested in him immediately on her demise, the directors cannot rely on the same as they have to act in accordance with the Article. Likewise, when the provisions of Section 213 are specific that no right us an executor or a legatee could be established in any court of justice unless a court of competent jurisdiction has granted probate, which is the decision in all the cases cited by the counsel for the petitioners, reliance on this Section to impugn the decision of the Board of Directors, which is not a court of justice, has no relevance.
26. The foundation of the petition is that the directors of the company have not acted in accordance with Article 47 of AOA of the company in the sense that they could not have approved the transmission without production of probate, which according to the petitioners is a must in terms of the first and second part of Article 47. It was even argued that directors have no discretionary powers at all to transmit shares without probate. Considering the fact that the Articles of Association of a company is a contract between the members and the company and the members inter-se, the Articles have to be construed in the manner in which they are understood by members/company. The learned Counsel for the petitioners argued that "may" in the second part of the Article should be construed as "shall" and also the word "production" in the proviso does not amount to waiving of obtaining of probate etc. Such a construction of the Article is too legalistic. I would, therefore, examine the matter on the basis of the understanding of the Directors of the provisions of Article 47. It was argued at the bar by the counsel for the respondents that "executor" in the first line of the Article 47 is "executor simpliciter" and not one who has obtained probate. Such an understanding in not found in the Board resolution. A reference to the application prescribed by the company for seeking transmission would clearly indicate the understanding of the Board/Company. (I am assuming that the application has been prescribed by the company, as, when it was so pointed out by the counsel for the petitioners, there was not rebuttal). The heading of the application filed by PDB at the time of seeking transmission of the shares of MPB reads "Form to be completed and executed by the Survivor(s) or legal heirs or successors(s) holding succession certificate, probate of will or any other legal documents of the deceased shareholder". This would make it clear that the understanding of the Board/company is that only a person having probate of Will could apply for transmission. In the present case also, relying on the legal opinion that the Board can dispense with probate, the Board had resolved exercising its discretionary powers, to dispense with probate. Thus, the understanding of the Board itself was that probate was necessary, but the same could be dispensed with in exercise of its discretionary powers. Therefore, the only issue which requires determination is whether, the Board had correctly exercised its discretionary powers in accordance with Article
47. Before examining the same, it is necessary to note that the petitioners have even questioned the factum of the Board meeting on 15.7.2004 and contended that all records relating to the transmission are pre dated. For this contention, they have pointed out that 15.7.2004 was the day on which the "Shradh" ceremony of the deceased was performed and therefore, no Board meeting could have been held on that date. It is further contended that the respondents have not produced any documentary evidence regarding scheduling of this meeting earlier, by producing the notice for the meeting, agenda etc. Further, the transmission was never disclosed in any subsequent proceedings and even for their letter dated 17,7.2004 asking the company not to act on the basis of the Will, the company did not respond. According to the petitioners, they came to know of the transmission only on inspection of the records of ROC in December 2004. These facts, according to the petitioners would prove that no Board meeting was actually held on 15.7.2004, and all the records have been fabricated by pre-dating. The respondents contend that the Board meeting was held as had been earlier scheduled and that in addition to approving the transmission, other businesses had also been transacted in that meeting and that no director has complained of non receipt of notice for this meeting. In page 10 of the common reply of respondents 1,3 to 6, it is stated that "The company is not concerned with the alleged Shradh ceremony of the deceased". If it is the same stand of the other respondents to this reply who are directors of the company, then, such a cryptic response regarding an event concerning PDB by those closely associated with her for long during her life time is curious. Even though in the reply it is stated that this meeting was convened with due notice to directors, nothing has been produced to substantiate the same. One aspect that is abundantly clear is, that even if the Board meeting had been scheduled earlier, the matter of transmission could not have been included in the agenda as RSL sent the indemnity only on 14.7.2004 and the meeting was held on 15.7.2004. The absence of any satisfactory explanations to the issues raised by the petitioners on the factum of the meeting on 15.7.2004, might be a persuasive factor to agree with the petitioners, but I propose to examine the transmission on the basis that the meeting on 15.7.2004 was actually held and the decision to transmit was actually taken that day.
27. Both the sides have relied on various judgments on the exercise of discretionary powers, more particularly that of the Supreme Court in Bajaj Auto case wherein the court has laid down certain tests to examine whether discretionary powers vested in the Board of directors have been exercised properly or not. In that case, the court examined a case of refusal to register transfer of shares i.e. discretion exercised in a negative manner. In the present case, the positive action of the Board in exercise of its discretionary powers is under challenge. Therefore, since both the cases cover exercise of "discretionary powers", it would be appropriate to apply the tests laid down by the Supreme Court, in the present case.
28. In Bajaj Auto case, the Supreme Court has laid down three broad tests: (1) whether the discretionary powers have been exercised in the interest of the company (2) whether it was exercised on wrong principle; and (3) whether it was exercised malafide or for a oblique motive or for a collateral purpose. It is to be noted that the tests laid down by the Supreme Court are not mutually exclusive but are mutually inclusive.
29. It has been contended by the respondents that transmission of shares in favour of RSL is in the interest of the company. The respondents have elaborately dealt with both in the pleadings/arguments and the written submissions, how RSL has been associated with MPB family more particularly with PDB and the 1^st respondent company as director/Chairman etc. RSL has argued that the transmission was not in his personal name but only in his capacity as the Executor for the benefit of the Estate. Since the transmission is not in his personal name, how all the attributes of RSL as elaborately dealt with by the company, 4^th and 6^th respondents could justify the transmission on the ground that it was in the interest of the company? Assuming that the transmission effected was/is in the interests of the company, yet, the action of the Board has to pass the other two tests, which, as detailed herein after, it has not.
30.The next test to be applied is to see whether the Board had exercised the discretionary powers on wrong principle. In the present case, in addition, the circumstances in which the Board exercised its discretionary powers on 15.7.2004 have also to be examined. As the following analysis would reveal, the directors have definitely acted on wrong principle and the manner in which the decision was taken is also questionable.
31. Article 47 vests discretionary powers in "directors". Directors would mean the Board with a proper quorum. It would also mean that it is the directors, in a Board meeting (or through circular resolution as in the case of PDB), who have to exercise this discretion to waive production of probate and no individual director can exercise the powers vested in the Board. The admitted position in this case is that on receipt of the application from RSL dated 9^th July, 2004, it is the 6^th respondent, signing as a director of the company, asked for an indemnity bond in the format enclosed with the letter dated 12^th July, 2004. Seeking of indemnity bond would arise, in terms of Article 47, only when the Board decides to dispense with probate. In other words, dispensing with probate is the prerequisite to call for indemnity etc. It is on record that RSL, did not seek for dispensation with production of probate in his letter dated 9^th July, 2004, There is nothing on record to show that the letter of RSL was placed before the Board, When RSL himself had not sought for dispensation with probate, there was no need to have obtained legal opinions. In terms of the Article, as been understood by the directors, that in the normal course, probate was necessary and when RSL had applied for transmission, he should have been asked to produce probate drawing his attention to the provisions of the Article and in case, in response, he seeks dispensation with the same on the grounds of hardship and the like, the Board could have cither acceded to his request requiring him to produce the same within a set time frame or taken legal opinion. In the present case, there is nothing on record to show the need, the basis and the authority on which legal opinions were obtained as no Board meeting to consider the application of RSL is on record. Therefore, the pre requisite that the Board has to take a decision to seek for indemnity dispensing with production of probate is absent in the present case. An individual even if he is a director has no powers under the Article to take such a decision. In this connection, I may refer to the decision of this Board in Pushpa Vadera v. Thomas Cook (India) Ltd. 87 CC 921. In that case, the transfer agent of the company refused to accept the application for transmission without production of legal representation. This Board questioned his action on the ground that when the power to accept or reject transmission was in the Board, the transfer agent had no power to seek for legal representation. Similarly, in the present case, when the power to dispense with production of probate, is with the Board, no individual director could have, instead, asked for indemnity before the Board considered the application and decided to call for indemnity. On this ground alone that a single director had no power under the Article to take decision to call for indemnity, the decision of the Board could be set aside. It cannot even be argued that in the Board meeting held on 15.7.2004, the Board had approved the transmission without production of probate for the reason, the Board has in a way actually approved/ratified the decision of a single director to obtain indemnity bond without specifically mentioning so. In Sakal Paper case the Supreme Court has held that ratification in respect of an act which is incompetent is only possible by a person who would have been competent to do such act. In the present case, when the 6^th respondent alone had no competence to seek for indemnity, the Board could not have acted on the basis of the indemnity.
32. The Board has relied on the precedence of transmission of Shares of MPB in favour of PDB. As rightly pointed out by the counsel for the petitioners that case cannot be compared with the present case for more than one reason; PDB was the widow of MPB who had no issue; no indemnity was called for from her; no Will was produced by her; no legal opinion was obtained; the approval of transmission was obtained through a circular resolution. All these would indicate that the directors had no doubt about her entitlement to the shares of MPD, Compared to the case of PDB, in the present case, RSL is not in any way related to PDB; indemnity was called for; legal opinion was obtained; only two directors approved in a meeting even though a 3^rd uninterested director was on the Board (he had been given leave of absence). If the 4^th and the 6^th respondents had really believed that they could rely on the past precedence, they should have approved the transmission without asking for indemnity or legal opinion, as was done in the case of PDB, The very fact that legal opinion was obtained and indemnity was called for would indicate that, the directors were not sure of the entitlement of RSL, in spite of the Will, unlike in the case of PDB. Thus it is abundantly clear that both the cases are not similar and by relying on the precedence, the directors have acted on wrong principle.
33. As far as legal opinions arc concerned, neither the case sheet seeking for opinion nor the opinions expressed has/have been disclosed, in spite of the repeated mention to that effect by the counsel for the petitioners. If they had been produced, it could have been examined whether the directors had rightly relied on the opinions. The respondents have not adduced any reason as to why these documents, which are in their possession, could not be produced. Non production of these documents, in the teeth of the allegations of the petitioners that all documents connected with the transmission are fabricated/predated, could lead to drawing an adverse presumption in many ways. However, I do not propose to draw any adverse presumption, other than stating that I do not have the benefit of going through the points and the grounds of reference for opinions and the legal opinions expressed. Even otherwise, there is no explanation as to why the need arose to obtain legal opinion. If RSL had sought for transmission specifically seeking for dispensation with probate, the Board could have had a doubt whether his request could be considered and as such it could have obtained legal opinions. The admitted fact is that, in his application dated 7.7.2004, RSL had not sought for dispensation with probate. Therefore, relying on the uncalled for legal opinions, the Board had acted on wrong principle.
34. Thus, in view of my findings that the Board could not have relied on the earlier precedence, that an individual director could not have taken the decision to call for indemnity/seek legal opinion in breach of the provisions of Article 47 which vests such powers in the Board, that the Board could not have relied on the uncalled for legal opinions, the Board had definitely acted on wrong principle. In other words none of the grounds relied on by the 4^th and 6^th respondents for effecting the transmission without probate, is sustainable. One of the most important factor that I have noticed in the minutes of the Board meeting on 15.7.2004 is that no discussion is found as to why RSL could not have been asked to produce probate or why it was considered not necessary to seek for probate. Discretion is exercised to waive some requirement on the basis of justifiable material. It is not a case of RSL expressing some difficulties in producing probate or any other hardship nor it is a case wherein RSL sought for transmission citing precedence. The Board on its own found the precedence and applied the same, however, wrongly. Respondents have relied on the decision of this Board in Pushpa Vadedra case to urge that in that case, this Board had directed the company to register transmission without probate. In that case, knowing fully well that the petitioner was the legal heir, the Board of the company declined to register transmission on the ground that the value of the shares was high and as such probate should be obtained. Since the said stand of the Board was found to be unjustified, it was directed to transmit the shares without probate. Thus, the decision in that case has no application to the present case.
35. Now, the manner and the circumstances in which the decision to dispense with probate was taken on 15.7.2004. Shri Mitra forcefully contended that prompt and expeditious action by the directors cannot be construed as an act with malafide intention and as a matter of fact, it was contented that if the decision had been delayed, such a delay could have been construed to be with malafide intention. This argument could be valid if the decision had been taken on correct principle and bonafide. The expeditious decision in the case of PDB has not been questioned as it was taken honestly and on correct principle as her entitlement was not in dispute. However, from the narration below it would be evident that the contention of Shri Mitra is not correct. In the petition the petitioners have annexed various press reports wherein it has been stated that the Will was being challenged. In the reply, the respondents have pointed out that only one of such reports is dated 15^th July 2004 while all others are dated after 15.7.2004. They have contented that press reports cannot be relied on. One of the justifications pleaded by the 4^th and 6^th respondent directors for approving the transmission is that there was no other claim on the shares at the time when they had approved the transmission. The petitioners have enclosed with the rejoinder, copies of a number of press cuttings. Since the contents of these reports are relevant to examine the circumstances under which the transmission was effected, I am reproducing the relevant head lines of these news reports. The Economic Times dated 13.7.2004 " There are whispers about chance contest of Wills; The Telegraph dated 14.7.2004 "Birlas pit might against outsiders - Family elder B.K. Birla said our entire family is together to fight out the case in court". Economic Times dated 14.7.2004 "Family patriarchs to contest Priyamvada's Will, question authenticity -Birla's don battle gear to fight Lodha". Business Standard dated 15.7.2004 "First legal shots fired Birla 's Will-Lodha, Birla file caveat in court-Birla says Will may be fabricated". Financial Express dated 15,7.2004 "MP Birla's Will now in focus"; How can an outsider claim Birla assets". The Times of India dated 15.7.2004 "United Birlas fire first shot in war of Will. " Economic Times dated 15.7.2004 "Birlas open legal fire on "outsider" Lodha, Telegraph dated 15.7.2004 "Birla inheritance. battle debut in court". The Statesman dated 15.7.2004 "Outsider cannot take away family property-Birla's fire caveat in court". Under each of these headings, 3 to 6 columns of detailed stories have appeared. It is their own assertion of the 4^th and 6^th respondents that they are closely associated with MPB family and also with RSL. Therefore, any mention of RSL or Birla in a new paper would have definitely attracted their attention. If such a news had appeared in only one newspaper that too on a single day, one could presume that the directors might not have seen the news report. Their contention that news paper reports cannot not be relied was on the basis that the petitioners had enclosed only one such report in the dated 15.7.2004 in the petition and all others were subsequent to that dale, However, when now it is evident from the rejoinder that so many newspapers had carried the news, that too on two consecutive clays, it is difficult even to presume that the directors were not aware of the news reports that the Will, even if not already challenged, was likely to be challenged. Likewise, when so many papers have carried the news of challenge to the Will, the 4^th and 6^th respondents cannot say that news paper reports cannot be relied on. When discretionary powers are vested in the Board, that too absolute discretionary powers, the Directors have to exercise the same cautiously.
36. At this juncture, it is necessary examine as to why the Article stipulates production of probate. While in terms of Section 211 of the Succession Act, the property vests in the executor immediately on the death of the testator, the title of the executor becomes certain only on obtaining probate. This is what has been held by the courts in the cases cited by the counsel. The company has to ensure, at all times, that its register reflects the reality of containing the names of persons whose title to the shares is undisputed. Therefore, the company has to be satisfied that the person in whose favour the shares are transmitted has an undisputed title to the shares, which title one can claim, only when he obtains probate in his favour. If the Will is under challenge, there is no certainty of obtaining probate and consequently no certainty to the position of Executor. When the challenge to the Will was in the public domain, no fair and sensible person could have exercised the discretionary powers to waive production of probate. On the contrary, respondents 4 and 6 exercised their discretionary powers, as contended by the petitioners, only with the view to benefit RSL. Even assuming as contended by the 4^th and 6^th respondents, that when they look legal opinion and the decision to approve transmission, nobody else had made a claim on the shares, once the news of the challenge to the Will came to be in the public domain, the only course available to them was, if not to refuse transmission without probate, at least to refer the matter for legal opinion. I am making this reference to legal opinion only because one of the justifications given for dispensing with probate was the earlier obtained legal opinion. At that time, obviously, there was no challenge to the Will and when the circumstances had changed, the same should have been brought to the notice of the same Advocates who had given the opinion earlier for their fresh opinion. If the directors had done so, they would have acted on correct principle. It is an admitted fact that RSL, who had sent the indemnity bond on 14^th July had, filed a caveat on the same day (as seen from the headlines of Business Standard dated 15.7.2005) Thus, on the day when he sent the indemnity bond, he was aware that the Will was likely to be challenged and therefore he filed the caveat. This being the case, it was his bounden duty to inform the company of the said fact when he sent the indemnity bond. I am mentioning "bounden duty" only because, RSL is not only the executor of the Will but also the Chairman of the company and in law, the knowledge, of a director is the knowledge of the company. Being the Chairman of the company, his duly is to ensure that the Board acts in accordance with Articles. His absence from the Board meeting is of no consequence. Considering the fact, that all the parties involved in the transmission, RSL, 4^th and 6^th respondents were/are closely associated with each other as admitted by themselves, the inescapable conclusion that one could arrive at, is that, they had acted in concert to get the impugned shares transmitted in favour of RSL without production of probate by malafidely exercising the Board's discretionary powers. During the hearing, I specifically asked Shri Mitra, counsel for the company, as to the need for transmission, when according to him, in terms of Section 211, the estate had vested in RSL. He answered (as recorded by me in my notes) "Acting promptly does not mean malafide. I needed voting rights to protect the investment of the Estate us the company holds substantial shares in other Birla Companies". This oblique purpose has been facilitated by the 4^th and the 6^th respondents.
37. The counsel for the respondents contented that without particulars, the petitioners cannot allege malafide, collusion or fraud etc. On this contention, I would like to refer to the decision of Madras High Court in Shoe Specialities Ltd case 88 CC 471. It was a case on appeal against the order of this Board in a petition under Section 111(4). The respondents therein contended that since the petitioners were alleging fraud etc., the matter could be agitated only in a civil court. This Board held that it was not necessary as the matter could be decided on the material placed before it. In the appeal, the High Court quoted with approval Kerr on the Law of Fraud and Mistake, 7th edition (1952), at pages 672 and 673, wherein the learned author has said: "It is not, however, necessary, in order to establish fraud, that direct affirmative or positive proof of fraud is given. Circumstantial evidence is not only sufficient, but in many cases it is the only proof that can be adduced. In matters that regard the conduct of men the certainly of mathematical demonstration cannot be expected or required. Like much of human knowledge on all subjects, fraud may be inferred from facts that are established. Care must be taken not to draw the conclusion hastily from premises that will not warrant it, but a rational belief should not be discarded because it is not conclusively made out. If the facts established afford a sufficient and reasonable ground for drawing the inference of fraud, the conclusion to which the proof tends must, in the absence of explanation, or contradiction, be adopted. It is enough If from the conduct of a party the court is satisfied that it can draw a reasonable inference of fraud, or if facts be established, from which it would be impossible upon a fair and reasonable conclusion, to conclude but that there must have been fraud..." From this, it is clear that from the conduct of a party, court could draw inference of fraud etc even without the same being established in black and white.
38. In Bajaj Auto case, the Supreme Court has held that if the court found that the directors gave reasons which arc legitimate, the court would not overrule that decision merely on the ground that the court would not have come to the same conclusion. It further held that discretion of the directors is to be tested as the opinion of fair and sensible men in the interest of the company and if they acted upon wrong principle and for oblique motive and did not act bonafide, then the conclusion would be that the directors had acted arbitrarily and unjustifiably. In this context if we test the present case in the opinion of a fair and sensible person, it would be quite evident that on 15.7.2004, when there were widespread news of challenge to the Will, the decision to approve transmission without probate could not have been taken. Even though the petitioners have not placed any material to allege fraud, collusion etc, the facts and circumstance of this case would clearly lead only to that conclusion. Seeking for indemnity bond and legal opinion by a single director without the approval of the Board in violation of Article 47, holding a Board meeting on the day of Shradh, RSL sending the indemnity bond on the same day when he had filed a caveat in the court, the Board approving the transmission after the challenge to the Will came into the public domain, wrongly relying on precedence etc arc circumstantial evidences, which necessarily lead to the only conclusion that the entire episode is nothing but a fraud, perpetrated for an oblique and ulterior purpose ie., to allow RSL to exercise voting rights on the shares.
39. It was argued that the shares were not transmitted in the personal name of RSL but only in his capacity as the Executor of the Will of PDB. It is immaterial in what manner/names the shares stand in the Register of Members. The fact is that the name of PDB had been omitted from the Register of Members relying on an unprobated Will which, in the knowledge of the directors was under challenge. Thus, it is a ease of not only wrongful omission of the name of PDB but also resultant wrongful entry of the name of RSL as the Executor of the Estate of PDB. It was contended that restoration of the name of PDB would result in the shares being in limbo. The shares would not be in limbo as the same would continue to be a part of the estate of PDB administered by the executor and the estate would derive all the benefits accruing to the shares. In this connection, I may refer to the decision of this Board in CP No 58 of 2004 filed under Section 247/250 of the Act, which had also been upheld by Calcutta High Court. In that case, when the petitioners sought for investigation into the ownership of shares of various MPB group of companies including that of the 1^st respondent company, this Board held that there was no need for investigation as the estate of PDB was controlling the majority shares in the company and the issue who was entitled to control the estate was in the High Court. Thus, the shares being continued in the name of PDB would not be against the interest of her Estate. In so far as rectification is concerned, in terms of Section 111(4) if the name of a person is entered in the Register of Member's or omitted there from without sufficient cause, the same could be rectified. In Tracstar Investment Ltd. v. Gordon Woodroffe Ltd. 87 CC 941, this Board held that not only statutory violations, even fraudulent and malafide and other allied factors would give cause for seeking rectification on the ground that omission or entry was without sufficient cause. This decision was approved by the Division Bench of the Madras High Court in Shoe Specialties Ltd. v. Tracstar Investment Ltd. 88 CC 471. In the present case, as elaborated above, both the omission of the name PDB from and entry of the name of Executor in, the Register of Members, were not bonafide and done with an ulterior motive in violation of the provisions of Article 47. Thus, the petitioners have made out a case for rectification, and accordingly, I declare that the register of Members of the Company shall stand rectified with immediate effect by omitting the name of RSL as the executor of the estate and restoring the name of PDB in respect of 33715 shares impugned in the petition.
40. Before parting with the order, it is necessary to record that on 19^th June 2006, the advocates for the respondents appeared before me at Kolkota and filed the order of the Division Bench of Calcutta High Court dated 13.6.2006 and submitted that in view the undertaking of the counsel for Birlas as recorded in the order, issuing of this order should be deferred. The counsel for the petitioners who was present, pointed out that the undertaking was with reference only to the two pending proceeding which were to conic up for hearing before this Board on 21.6.2006 and not in relation to this order. I have seen the order of the court wherein the undertaking has been recorded as "It is submitted by the learned Advocate General appearing on behalf of Mr. G.P. Birla that even if the matter is fixed before the Company law Board they will try to have an adjournment in the said matter". Thus, I do not find any mention about the present petition, the hearing of which has already been concluded, in the said order and as such I am issuing this order, noting that, the other two petitions, which came up for hearing on 21.6,2006, were adjourned as per the order of the High Court.
41. Petition is disposed of in the above terms without any order as to costs.