Avanti Metals Private Limited vs Alkesh Gupta

(Filed under Section 421 of the Companies Act, 2013)

(Arising out of the Impugned Order dated 26.07.2023 in C.P. 138(CHE)/2022, passed by the National Company Law Tribunal, Chennai Bench - II)

In the matter of :

Avanti Metals Private Limited CIN: U15499TN1996PTC036060 Having its Registered Office at 7/1 & 4/3, Komal Road, Maruthur Village Mayiladuthurai - 609808 ...Appellant

Versus

Alkesh Gupta M/46, S/O. Arun Gupta OPG Towers, 4TH Floor, No. 133/11, Santhome High Road Mylapore, Chennai - 600004. ...Respondent

Present: For Appellant : Mr. Arun Karthik Mohan, Advocate For Respondent : Mr. V Arunagiri, Advocate

C.A. (AT) (CH) No. 87/2023 Page 1 of 13 ORDER

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

1. 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:

"It is seen from the reply filed by the respondent that Respondent has no objection to the said transfer save except formalities to be completed as per the Companies Act. However, the same is not specified in the reply of the respondent. Respondent submits that no will of the deceased has come to the knowledge of the respondent. Respondent is directed to transfer 18055 number of equity shares in the name of the Applicant after obtaining an indemnity to the satisfaction of the respondent within a period of

2 weeks from the date of this order.

From the above directions, this application is allowed and disposed off."

2. 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

C.A. (AT) (CH) No. 87/2023 Page 2 of 13 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.

3. 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:

C.A. (AT) (CH) No. 87/2023 Page 3 of 13

"8.14 On the death of a member, the surviving joint holder(s) where the member was a joint holder shall be the only person recognized by the company as having any title to or interest in the shares.

8.15 The executors or administrators or a holder of a succession certificate in respect of the estate of a deceased member not being one of the joint holders, shall be the only person(s) whom the company may be bound to recognise as having any title to the shares registered in the name of such member."

4. 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:

C.A. (AT) (CH) No. 87/2023 Page 4 of 13 C.A. (AT) (CH) No. 87/2023 Page 5 of 13

5. 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.

6. 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

C.A. (AT) (CH) No. 87/2023 Page 6 of 13 has instead chosen to argue his case and only rely on the SEBI Circular dated

18.05.2022.

7. 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:

"a. Page No.1:- "The LODR Amendment Regulations has inter alia enhanced the monetary limits for simplified documentation for transmission of securities, allowed 'Legal Heirship Certificate or equivalent certificate' as one of the acceptable documents for transmission"

C.A. (AT) (CH) No. 87/2023 Page 7 of 13 b. Page No. 7:- "Legal Heirship Certificate or its equivalent, along with (i) a notarized indemnity bond from the legal heir o(s)/claimant(s) to whom the securities are transmitted, as per the format specified provided in Annexure E"

c. Page 9: - Annexure E states "on my/our behalf, without insisting on production of a Succession Certificate/ Probate of Will / Letter of Administration or any Court order"

8. 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.

Assessment:

9. At the Outset, this Tribunal finds it relevant to reproduce Section 44

of the Companies Act, 2013 which reads as hereunder:

Section 44 :

"44. Nature of shares or debentures.--The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company."

(Emphasis Supplied)

C.A. (AT) (CH) No. 87/2023 Page 8 of 13

10. 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.

C.A. (AT) (CH) No. 87/2023 Page 9 of 13

11. 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.

12. 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

C.A. (AT) (CH) No. 87/2023 Page 10 of 13 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.

13. 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.

14. 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

C.A. (AT) (CH) No. 87/2023 Page 11 of 13 `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'.

15. 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'.

16. 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.

C.A. (AT) (CH) No. 87/2023 Page 12 of 13 Needless to add, NCLT shall proceed in accordance with law. No Order as

to Costs.

[Justice M. Venugopal] Member (Judicial)

[Shreesha Merla] Member (Technical) 17/01/2024 RO/TM

C.A. (AT) (CH) No. 87/2023 Page 13 of 13