Schneider Electric Sa vs Telemecanique Controls (I) Ltd.
2003 Latest Caselaw 93 Del

JUDGMENT

J.D. Kapoor, J.

1. The whole controversy for the limited purpose of the instant application revolves around the point "Whether the plaintiff company (in short "SESA") is the rightful successor-in-interest of the parent French company known as LTE which had entered into a joint venture with Indian company `CS' and floated the defendant company known as `TC' by investing equity of 38% each." Plaintiff company SESA is seeking injunction against the defendant-TC from holding the meetings of Board of Directors of the defendant company as at the time of constitution of the defendant-company both LTE and CS were having 38% share each and plaintiff-SESA being the successor-in-interest of LTE is entitled to have one Director on the Board of Directors of the defendant company.

2. The dilemma and difficulty of the defendant-TC is that it is not sure whether the plaintiff company is rightful successor of LTE or not as till 1997 the defendant had no information about the change of name of LTE and in 1997 SEI claimed to be the successors(transferees)-in-interest of the shares of LTE and on the premise of this claim, SEI was permitted to nominate its Director in the Board of Directors. In 2000 the plaintiff staked its claim as successor-in-interest of LTE for the first time on the basis of the alleged merger of LTE into SESA in the year 1997.

3. Mr. Arun Kathpalia, learned counsel for the defendant-TC contends that the defendant-TC allowed SEI to nominate its nominee on the Board of Directors on the bonafide belief on the representation of SEI that it was the successor in-interest of LTE and its representation on the Board of Directors continued for three years i.e for 1997, 1998 and 1999. It was only in the year 2000 when the plaintiff SESA started claiming the succession of LTE on the basis of the alleged merger that it made the defendant wake up and examine the bonafide of the plaintiff company as to its claim. The defendant started examining the records and unearthed the following facts:-

(i) That there were documents indicating that LTE was very much in existence;

(ii) That LTE continued receiving dividends through all these years sent by the defendant-TC including the year 2000;

(iii) That though SEI claimed itself to be the bonafide successor of LTE yet the dividends were sent to LTE as there was no application filed by SEI for transfer of the shares to its name or bringing its name as a Member in the Register of Members of the Company.

4. In support of the aforesaid doubts of the defendant as to the bonafide claim of the plaintiff as a successor of LTE, the learned counsel for the defendant has tried to receive support from the following documents:-

(i) Form 58 under the Patents Act, 1978 Rule 117 filed by Renfrey and Sagar, Attorney for LTE on 30th March, 1999 showing that not only does LTE very much exist but is working its patents in India;

(ii) Communication dated 6th September, 1999 from the aforesaid Attorney to the Controller of Patents under Rule 78(1) of the Patents Rules 1972 stating that its client LTE has changed its name to SEI;

(iii) The certification of Notary Public dated 5th April, 1999 stating that LTE continued to exist though under a changed name SEI. The English translation of the certification is as under:

 

  "I, undersigned Maitre 

         Notary at Paris, 

        witness that, in accordance with the Extracts from  

Trade Register, the firm"LA TELEMECANIQUE                 ELECTRIQUE" was named  

"TELEMECANIQUE" on 24 April 1989 

then "SCHNEIDER ELECTRIC" on 03 May 1994 

and became "SCHNEIDER ELECTRIC SA" on 15 November 

1994, domicited 40 avenue Andre Morizet 92100 BOULOGNE -BILLANCOURT France" 

 

 [ Schneider Electric SA referred in the certification is not the plaintiff as Schneider Electric Industries Sa was known as Schneider Electric SA in November, 1994 ]. 
 

(iv) Communication dated 23rd September, 1999 from the Examiner of Patents and Designs Office to M/s Renfrey & Sagar accepting the request under Rule 78(1) of LTE for alteration of the address of the service of the Patent in the Register of Patents from LTE to SEI. This communication indicates that on 23.9.1999 LTE was in existence and its name was changed to SEI on that date only.

5. It is contended with vehemence by Mr. Kathpalia, learned counsel for the defendant that had LTE been not in existence it would not have received and encashed the dividends sent by the defendant company to it in the years 1997, 1998, 1999 & 2000. These dividends were being sent to the LTE as the name of LTE alone figured in the Register of the Members of the Company and further that for the first time the letter dated 20th July, 1999 was sent by the SEI to the defendant company asserting the rights of succession to the rights of the LTE in the company and appointing Directors on its Board and the appointing Directors on the Board of the defendant TC. Subsequent communications in this regard referred by Mr. Kathpalia are:-

(i) The letter dated 26th September, 1999 sent by SEI to the Board of Directors of Defendant-TC asserting the rights of LTE as its successor in TC.

(ii) Letter dated 26.8.1999 sent by the SEI to the defendant TC.

(iii) Affidavit filed by SEI in the OMP 6/90 moved by defendant TC against LTE stating that:-

(a) LTE first changed its name to Telemecanique;

(b) Telemecanique then entered into a contract of contribution with SEI which was earlier known as Schneider Electric SA (SESA).

(c) The Schneider Electric SA (SESA) then changed its name to Schneider Electric Industries SA(SEI) on 7th May, 1999.

6. From the aforesaid documents the learned counsel tried to project that the plaintiff SESA was never in existence as successor-in-interest of LTE till 7th May, 1999 and till date SEI has been representing itself before the defendant-TC as successor-in-interest of LTE and, therefore, the plaintiff company which though called itself Schneider Electric SA has no rightful claim of nominating its Directors on the Board of defendant-TC.

7. According to Mr. Kathpalia grievance of the plaintiff is redressable only under the provisions of Section 111 of the Companies Act or in a title suit as the instant suit is a suit for permanent injunction simplicitor without any substantive relief and is against the provisions of the Companies Act as every Company is obliged to hold the Board Meetings as per provisions of Companies Act and there can be no injunction against such meetings. Section 111 of the Companies Act provides as under:-

111. Power to refuse registration and appeal against refusal:-

(1) If a company refused, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal.

(2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Company Law Board against any refusal of the company to register the transfer of transmission, or against any failure on its part within the period referred to in sub-section (1) either to register the transfer or transmission or to send notice of its refusal to register the same.

(3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or, where no notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission, as the case may be, was delivered to the company.

(4)If-

(a) the name of any person-

(i) is without sufficient cause, entered in the register of members of a company, or

(ii) after having been entered in the register, is without sufficient cause, omitted 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.

(5) The Company Law Board, while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order-

(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or

(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

(6)The Company Law Board, while acting under sub-section (5) may, at its discretion make-

(a) such interim orders, including any orders as to, injunction or stay, at it may deem fit and just;

(b) such orders as to costs as it thinks fit; and

(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.

(7) On any application under this section, the Company Law Board-

(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from the register;

(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.

(8) The provisions of sub-sections(4) to (7) shall apply in relation to the rectification of the register of debenture holders as they apply in relation to the rectification of the register of members.

(9) If default is made in giving effect to the orders of the Company Law Board under this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to one thousand rupees, and with a further fine which may extend to one hundred rupees for every day after the first day after which the default continues.

(10) Every appeal or application to the Company Law Board under sub-section (2) or sub-section (4) shall be made by a petition in writing and shall be accompanied by such fee as may be prescribed.

(11) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or interest of a member in, or debentures of, the company is transmitted by a sale thereof held by a Court or other public authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a public company:

Provided that the Company Law Board may, in lieu of an order under sub-sectopm (5), pass an order directing the company to register the transmission of the right unless any member or members of the company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him therefore or such order sum as the Company Law Board may determine to be a reasonable compensation for the right in all the circumstances of the case.

(12) If default is made in complying with any of the provisions of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.

(13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its articles to enforce the restrictions contained therein against the right to transfer the shares of such company.

8. According to Mr. Kathpalia the plaintiff company has tried to bye-pass the provisions of Section 111 as they have the right to get the matter decided by Company Law Tribunal if the defendant-TC has refused to Register the transfer or transmission by operation of law of the right to any shares or another of a Member. Apart from this, Mr. Kathpalia also contends that Section 41 of the Companies Act provides the status of a Member of a company to a person whose name is entered in the Register of Members of the company and since the name of even SEI what to talk of the plaintiff company is not entered in the Register of Members of the company as the name LTE still continues to be on the Register, the defendant-TC is not obliged to invite the nominee of the plaintiff company to the meetings of Board of Directors.

9. Mr. Kathpalia has strongly relied upon the letter dated 23rd August, 2001 sent by the plaintiff to the Board of Directors which gave rise to the instant suit by contending that the defendant-TC has never prevented the nominee of the plaintiff company from attending the meetings of the Board of Directors and it was the plaintiff itself which had through this letter expressed its unwillingness to attend the meetings. However, this contentions as assailed by Mr. Mukul Rohtagi, learned Addl. Solicitor General and rightly so in its very nature has rebouncing characteristic. Reproduction of this letter will show that this contention is self defeating and counter productive. Relevant extracts are as under:-

"It is indeed unfortunate that the Board of Telemecanique & Controls has systematically avoided taking a decision to issue duplice share certificates to Schneider Electric SA on one protext or the other, the latest being a cloud over Schneider Electric SA's capacity as the successor of LTE which is a frivolous stand considering the fact the Schneider's representatives have been on the Board since more than 4 years and regularly attending TC's Board Meetings and whose presence constitutes a quorum without which no Board Meeting of TC can be held as per Articles of Association.

It addition to recording Schneider Electric SA's concern at the high handed and unconventional manner in which the Directors representing CS on the Board have been functioning, Schneider Electric SA is forced to inform the Board that by virtue of the unreasonable and irrational stand taken by TC Schneider Electric SA representatives will not be attending any meeting of the Board of Director of TC henceforth.

This decision is taken with regret and Schneider Electric SA requests the Board of TC to reconsider its stand vis-a-vis issue of duplicate share certificates and has no objection if the present meeting is adjourned for a couple of hours to reconsider TC's stand if the Director's so decide."

10. Letters dated 4th December 2000 and 31st July, 2001 which were sent prior to this letter bear testimony to this.

11. The letter dated 4th December, 2000 from the plaintiff company to the defendant-TC asked the defendant-TC to issue the duplicate shares certificates and also referred to the Board meeting dated 31st July, 2000 where a suggestion was made by the defendant that the transmission of shares would be considered subject to documentary evidence by the plaintiff. Along with this letter the plaintiff company enclosed notarised copies of the following documents:-

(i) English version of the extract of the minutes of the joint general meeting of Telemecanique held on 9th June, 1997 approving the merger-takeover and dissolution of Telemecanique by its parent company, namely, Schneider S.A and the English version of the extract of the minutes of the general meeting held on 10th June, 1997 of Schneider S.A whereby the totality of its capital, assets and liabilities of Telemecanique were contributed by way of merger;

(ii) A notarised affidavit of Mr. J.P. JACAMON, CEO of SESA stating that all shares (395,200) held by LTE in TC were transmitted to Schneider S.A ( presently known as Schneider Electric S.A) pursuant to (i) above.

(iii) English version of the extract from the minutes of the ordinary and extraordinary general meeting held on 6th May, 1999 whereby the name of Schneider SA was changed to Schneider Electric SA."

12. According to Mr. Rohtagi this document itself shows that the question of transmission of shares in favor of the plaintiff was being considered by the defendant on various occasions and even prior to this letter the plaintiff was called upon to produce the documentary evidence. The letter dated 31st January, 2001 in respect of the defendant-TC shows that the defendant was not in a mood to accept the plaintiff company as the successor in interest of LTE and on one pretext or the other putting off the plaintiff lby impressing upon it to produce more documents. Some of the extracts of this letter are as under:-

"We have examined the documents and observe at the outset that while the request primarily involves the right of Schneider Electric SA to make an application for the issue of duplicate of the share scripts/certificates issued in the name of La Telemecanique Electric SA of France, the documents attached to Crawford Bayley's letter of December 16, 2000 refer to "Telemecanique" only, and we are left guessing whether "Telemecanique" and "La Telemecanique Electric SA" are one and the same legal entity or constitute two separate legal entities. If they constitute two legal entities, then we would like to have an explanation as to what relevance these documents have to the request for issue of duplicate share certificates in respect of shares held in the name of La Telemecanique Electric SA. If they constitute one and the same legal entity, we would want convincing evidence in support of this assertion."

13. The letter dated 6th December, 2001 sent by the nominee of the plaintiff to the defendant TC itself shows that the plaintiffs are interested in attending the meetings of the Board of Directors but their requests for bringing their names on the Registers was not taken into consideration and was being pushed under the carpet. Had there been any doubt in the minds of the defendant company about the aforesaid claim of the plaintiff company being successor-in-interest of the LTE or SEI being the rival claimant there was no point in inviting the nominees of the plaintiff company to the meeting of the Board of Directors.

14. At the outset it may be said that the defendant-TC is on sticky wicket even on its own field. It appears that Defendant-TC who is having 38% shares of LTE in its kitty is quibbling and one excuse or the other is not ready to accept plaintiff as its partner. The fact that defendant-TC did not prevent the nominee of SEI from attending the meetings of Board of Directors and this continued till August, 2001 is difficult to lose sight of.

15. It appears that the defendant is playing hide and seek with the plaintiff. If at all defendant-TC was not convinced about the claim of the plaintiff it could have called upon the plaintiff company to indemnify the amount of shares so as to obviate the future claim by any third party. Without facing a situation where no third party had preferred its claim to the shares of LTE as its successor-in-interest the defendant-TC was obliged to Register the plaintiff company as a Member in the Register of Members and invite them in their capacity as a Director to the Board meetings.

16. The contract of contribution by virtue of which Schneider SA became the successor-in-interest very clearly shows that the contract of contribution is with regard to the shares LTE held in the defendant company. When the LTE merged with Schneider SA the shares of LTE automatically went to Schneider SA and by no means these shares could have come to the share of SEI as SEI only inherited the name `Telemecanique' and Patents and Designs of LTE.

17. As regards the affidavit of the representative of the SEI it is clear that the SEI represented itself as a succesor-in-interest of LTE in respect of limited rights confining to its name and Patents and Designs and not in respect of the shares as the contract of contribution itself connotes the merger of LTE with Schneider SA in respect of the shares LTE held in the defendant-TC.

18. Merely because Schneider SA changed its name to SESA does not mean that SESA has no right to call itself successor-in-interest of LTE. Similarly change of name by SESA to SEI in respect of `Patents and Designs' does not mean SEI cannot claim itself successor-in-interest of LTE for the aforesaid limited purpose.

19. Apart from this, there are no rival claimants. Even if we assume that there are some, defendant-TC has not made any inquiry from any such claimant as to the shares of LTE. At the most it was LTE alone which could have represented to the defendant-TC that plaintiff was not its successor-in-interest. Changing the names of the Members of the company in the Register of Members is solely within the control of the defendant company and if the defendant refuses to change the same and continues making inquiries the plaintiff cannot be penalised or blamed nor its claim be dismissed out of hand. Aforesaid facts, communications/documents prima facie show that the plaintiff alone is the rightful successor-in-interest of LTE and the dilatory tactics of the defendant-TC is not registering its name in the Register have forced it to seek the injunction against the holding of the meetings of the Board of Directors without its statutory quorum. No Board meeting can be held without quorum or in violation of the Articles of Association.

20. In view of the aforesaid reasons and the past conduct of the defendant in allowing and inviting the plaintiff's nominee in the meeting of the Board of Directors and the readiness of the defendant even today to invite them as such without insisting the plaintiff to indemnify the shares shows the malafide of the defendant-TC. The defendant TC cannot have the benefit of 38% of shares of a person whom they do not at all recognize a Member of the company and at the same time hold the Board Meetings without quorum which is in violation of provisions of Company Act. In view of this, the interim relief sought is granted in terms of prayer 'A' of the application.