Avanti Metals Private Limited vs Alkesh Gupta

[Per: Ms. Shreesha Merla; Member (Technical)] :

Aggrieved by the Impugned Order dated 26.07.2023 passed by the National Company Law Tribunal, Chennai Bench – II (NCLT) on 26.07.2023 in C.P./138(CHE)/2022, by which Impugned Order, the NCLT has allowed the Applications, M/s. Avanti Metals Pvt. Ltd., has preferred this appeal. The NCLT has observed as follows:

The Learned Counsel for the Appellant Mr. Arun Karthik Mohan submitted that the Appellant is a Private Limited Company in which Mr. Arun Gupta, was allotted 54,166 shares in the Appellant Company on 30.03.2015. While so, Mr. Arun Gupta died intestate on 22.11.2020, consequently his son Mr. Alkesh Gupta sought for transmission of the shares of Mr. Arun Gupta in his name by issuing a Demand Notice to the Appellant dated 01.11.2021. It is submitted that there are three Legal heirs: the first being Mrs. Kusum Gupta, his wife, the second being the eldest son, Mr. Alkesh Gupta and Mr. Kushal Gupta, the second son. It is submitted that the Respondent had issued the Notice without intimating the other legal heirs and subsequently approached the NCLT by way of C.P. No. 138/2022 filed under Section 58 of the Companies Act 2013, (hereinafter referred to as ‘the Act’) seeking transmission of the shares of Mr. Arun Gupta in proportion to his stated entitlement as a Legal heir, in his name.

It is argued that such transmission can only be done following the proper procedure and submitting the necessary documents namely, a. Original share certificate, b. Certified copy of death certificate and Legal heirship certificate. Succession Certificate d. Probate e. Specimen signature of the Successor etc. It is submitted that the NCLT has ordered the transmission of the shares without such necessary documentation, which is erroneous. Clauses 8.14 and 8.15 of the Articles of Association of the Appellant Company read as hereunder:

It is submitted that these two clauses mandate the requirement of a Succession Certificate. It is contended by the Learned Counsel for the Appellant that one of the other Legal heirs namely, Mrs. Kusum Gupta, wife of the deceased member, also filed an Appeal against the very same Impugned Order asserting rights over the subject shares on the basis of a family arrangement and alleging fraud. Company Appeal (AT) (CH) No. 76/2023, this Tribunal taking note of the grievances of Mrs. Kusum Gupta deemed it fit and proper to permit her to file an appropriate Application seeking recall of the Impugned Order dated 11.12.2023 in C.A. (AT) (CH) No. 76/2023. The Learned Counsel for the Appellant placed reliance on this Order which is reproduced as hereunder:

It is contended that having regard to the contentions of the other legal heirs a Succession Certificate is extremely important and the SEBI Circular dated 18.05.2022 does not further the case of the Respondent as that Circular is for cases where bond of Indemnity has to be furnished jointly by all legal heirs including the claimants. This is not so in the instant case and therefore, the Respondent cannot rely on the same.

It is also significant to mention that the First Respondent did not choose to file a Reply to the Appeal though an opportunity was given, but has instead chosen to argue his case and only rely on the SEBI Circular dated 18.05.2022.

The Learned Counsel for the Respondent Mr. Arunagiri strenuously argued that the deceased member / his father died intestate and he is only claiming one-third of this entitled shares. It is contended that none of the Sections of the Companies Act, 2013 mandate the requirement of a Succession Certificate and therefore, the NCLT was right in ignoring the clauses of the Articles of Association of the Appellant Company. It is strenuously argued that a Succession Certificate is not required by any operation of Law. The Learned Counsel places reliance on the following paragraphs of the SEBI Circular No. SEBI/HO/MIRSD/MIRSD_RTAMB/P/CIR/2022/65, dated 18.05.2022, in support of his argument that a Succession Certificate is not required for the transmission of the Shares and the relevant portion is reproduced as hereunder:

The Learned Counsel also placed reliance on the Judgment of the NCLT, Kolkata Bench in C.P. No. 1243/KB/2020 in which it is observed that in cases where there is no valid will, by operation of law, no Succession or Probate is required.

At the Outset, this Tribunal finds it relevant to reproduce Section 44 of the Companies Act, 2013 which reads as hereunder:

(Emphasis Supplied)

It is seen from the aforenoted Section that shares are construed as movable property governed by the Articles of Association of the Company and Article 8.15 mandates that a Succession Certificate is required for the transmission of the shares. When Section 44 of the Act provides that shares of any member in a Company are required to be transferred in the mode and manner provided for under the Articles of Association of the Company, the sole Respondent is bound to meet the requirements of the said article 8.15. The Judgment relied upon by the Learned Counsel for the Respondent in C.P. No. 1243/KB/2020 NCLT Kolkata Bench Order dated 20.02.2023, is not applicable to the facts of this case as the Petitioner in that matter was the only Legal Heir of the deceased Member. Whereas in this case, the record shows that the mother Mrs. Kusum Gupta / the wife of the deceased member filed Company Appeal (AT) (CH) No. 76/2023 seeking recall of the Impugned Order dated 11.12.2023. A Recall Application IA(CA)/167(CHE)/2023 is pending before the NCLT, Chennai, regarding the same subject shares. In the factual matrix of these rival claims, a Succession Certificate would provide legal indemnity to the Appellant, under Section 381 of the Indian Succession Act, 1925, against any third-party claims of other legal heirs.

This Tribunal in the matter of ‘M/s. Nalini Hari Vs. M/s. Mysore Stoneware Pipes and Potteries Limited’ in Company Appeal (AT) (CH) No. 55/2021 dated 05.12.2022 has recognised the importance of a valid Succession Certificate in a matter where the Applicant was seeking transmission of shares under Section 58 of the Act. In this matter this Tribunal upheld the refusal to direct transmission of shares even though a Succession certificate was issued, the same was under challenge. We find force in the contention of the Learned Counsel for the Appellant that considering the same ratio, the prayer of the first Respondent herein seeking transmission of Shares without even obtaining a Succession Certificate, cannot be sustained.

Further, the argument by the Learned Counsel for the first Respondent that the SEBI Circular dated 18.05.2022 is to be relied upon and that the said Circular prevails over and above the Articles of Association of the Appellant Company, is untenable, specifically keeping in view that the jurisdiction of SEBI extends only to limited Companies and not to unlisted private Companies such as the Appellant herein. Additionally, title to the Form E of the SEBI Circular reads as ‘Bond of Indemnity to be furnished jointly by all legal heirs including the claimants’. A bare perusal of this annexure establishes that the reference to non-production of Succession Certificate is to be construed in the context of all Legal heirs of the deceased having signed such an Indemnity Bond. The facts in the attendant case are distinctly different in as much as there are rival claims amongst the legal heirs. Therefore, this Tribunal is of the considered view that submission of a Succession Certificate, as provided for under the Articles of Association of the Appellant Company, is required for the transmission of shares of the deceased Member.

A Company cannot refuse `Transmission of Shares’, once the `legal heirs’ proves his/her entitlement to them, through a `Probate’, a `Succession Certificate’. It is to be pointed out that `transfer’ is an act of parties or law by which the title to the party is conveyed from one person to another. This would lapse by `Operation of Law’ or `Succession’. `Transmission of Shares’ on the basis of `will’ can raise complicated issues which require an `evidence’, to be read by the parties and need to be determined by a Court of Law.

It is needless for this `Tribunal’ to make a mention that a `will’ is probated by a `Competent Court’ is binding on the parties, unless it is set aside by a `Competent Forum’. If the `Probate Proceedings’ are pending in a `Civil Court’, then the `Petition’ under the `Companies Act’ for `rectification of register’ would not be maintainable. Where there is a dispute as to the heirship of a `deceased shareholder’, the Company could refuse `transfer of shares’, until such dispute is resolved by a `Competent Court of Law’.

The `Succession Certificate’, specifies the `debts’ and `securities’ entitles a `legal heirs’ not only to receive the `Interest’ or `Dividends’ but also to `negotiate’ or `transfer’ them, as per decision in `Themappa Chettiar’ Vs. `Indian Oversees Bank’, reported in (1943) 13 Comp. Cas. 202 (Madras). In regard to disputes pertaining to `Will’, parties are expected to get that dispute settled from a `Competent Court of Law’ as per decision in `C. Rajesh Kapoor’ Vs. `Tirupati Balaji Hotels P. Ltd.’, reported in (2017) 204 Comp. Cas 303. If the `Probate Proceedings’ are pending in `Civil Court’ then the `Petitioner’ under the `Companies Act’ for `rectification of register’ will not be `maintainable’. In the facts of the attendant matter on hand, the Company can effect `transfer of shares’, on the basis of `Succession Certificate’, as per Section 370 of the `Indian Succession Act, 1925’.

For all the foregoing reasons, this Company Appeal (AT) (CH) No. 87/2023 is allowed and the Impugned dated 26.07.2023 is set aside. Needless to add, NCLT shall proceed in accordance with law. No Order as to Costs.