Legal heirs can pursue suit filed by deceased director against the company

SD Israni

It is a well settled legal proposition that on the death of any of the parties to a suit, the suit automatically abates on non-substitution of legal representatives within the period of limitation. However, the death of a plaintiff or defendant does not cause the suit to abate if the right to sue survives.

	When a member dies, his estate is entrusted in the legal representatives. , therefore, they must be enabled to petition in respect of oppression and mis-management
	SD Israni Practising Company Secretary

A question which arises in this context is, does the right to sue survive on the death of the plaintiff who had filed a suit against the company of which he was the director?

Recently, a similar question came up for the consideration of the Bombay High Court in the matter of Arjun Tukaram Shetgaokar & Ors v Urmila Vaikunth Desai (Dead) & Ors [2001 29 CC Case Law Bom-HC 2]. The point which arose for consideration in the nature of a revision application was, whether in the facts and circumstances of the case the right to sue survived in favour of the legal heirs (respondents in this case) upon the death of the director (the original plaintiff in this case).

The trial court had allowed the application filed by the legal heirs of the deceased director to bring them on record as the legal representatives of the deceased director in the suit. However, the other party feeling aggrieved by the order of the trial court, moved a revision application before the high court seeking the reversal of the said order of the trial court. The facts of the case indicate that the deceased director was the wife of the respondent No 1 herein and she was the mother of the respondent Nos 2, 3 and 4. As per the records, the deceased director was the holder of 50 per cent shareholding in the company prior to the resolution under challenge in the suit.

The contention of the petitioners in the revision application was that the cause of action to institute the suit by the deceased director had arisen in the board of directors meeting held on 30-6-1992 and if the plaintiff (the deceased director) was not a director, she could not have attended the meeting and hence there would have been no cause for filing the suit.

It was contended by the petitioners that it was a personal action by the late director of the company which came to an end on the death of the said director, as the office of the director cannot be inherited. According to them, the cause of action in the suit did not survive to the legal heirs who could not have participated in the meetings of the board of directors.

In support of their contention, the petitioners made a reference to the decision of the apex court in the matter of Smt Phool Rani v Naubat Rai Ahluwalia, (AIR 1973 SC 210). They also relied on the decision of the Bombay High Court in the case of Sitabai Ramchandra Jaltare v Masjid Nurun Mohalla Jingerwadi (AIR 1979 Bom 109), as also that of the Calcutta High Court in the matter of Muraka Paint & Varnish Works Ltd v Mohanlal Murarka (AIR 1961 Cal 252).

On the other hand, it was contended on behalf of the legal heirs that the suit was filed on the ground that the alleged resolution was not at all passed in the meeting and that on account of the alleged resolution, the share capital was sought to be increased resulting in the decrease of the share-holding of the respondents in the company.

It was also contended that, the right to sue in the suit survived in favour of the legal heirs as was evident from the decisions in the matter of Life Insurance Corporation of India v Escorts Ltd, (1986 1 SCC 264) and World Wide Agencies (P) Ltd v Mrs Margaret T dDesor (1990 67 Comp Cas 607).

The apex court in the Life Insurance case (supra) while considering the various provisions of the Companies Act, 1956 in relation to the rights of the shareholder has held that a share is a moveable property, with all the attributes of such property. The rights of a shareholder are to elect directors and to participate in the management through them and to apply to the court for relief in the case of mismanagement.

The apex court in the case of World Wide Agencies (supra) while considering the issue as to whether the legal representatives of a deceased member whose name is still on the register of members are entitled to file a petition under sections 397 and 398 of the Companies Act has held that:

“When a member dies, his estate is entrusted in the legal representatives. When, therefore, these vestings are illegally or wrongfully affected, the estate through the legal representatives must be enabled to petition in respect of oppression and mismanagement and it is as if the estate stands in the shoes of the deceased member”.

Keeping in view the above two decisions of the apex court, the Bombay High Court, in the case of Arjun Tukaram Shetaokar (supra), observed that the shareholder had the right to participate in the management through the elected director and apply to the court in case of mismanagement.

When such a shareholder died, his estate which included the shares, devolved upon his legal representatives and consequently the legal representatives of a shareholder acquired the right to approach the competent court for appropriate relief in case of mismanagement of the company.

Accordingly, the High Court held, that on the death of the director (the original plaintiff), the said shareholding became the part of the estate left behind by the deceased director. It applied the test laid down by the Apex Court in the above two decisions ie. Life Insurance case (supra) and World Wide Agencies case (supra) and held, that the legal representative of the deceased director acquired the right to the said 50 per cent shareholding in the said company.
Consequently, the right to sue in the said case survived upon the representatives.

Therefore, the High Court held, that it cannot be said that the relief which had been prayed in the suit and the grievances for which the suit had been filed were not available to the legal heirs (the respondents in the case).

As a result, the revision application was dismissed by the High Court and the legal heirs were permitted to pursue the suit filed by the deceased director in their capacity as the legal representatives of the deceased director.