Companies Act Case Law M S Madhusoodhanan & Anr Vs Kerala Kaumudi Pvt Ltd & Ors

CASE NO.:
Appeal (civil) 3253-58 of 1991

PETITIONER:
M.S. Madhusoodhanan & Anr.
RESPONDENT:
Vs.

Kerala Kaumudi Pvt. Ltd. & Ors.
DATE OF JUDGMENT: 01/08/2003

BENCH:
Ruma Pal & B.N. Srikrishna.
JUDGMENT:

 
J U D G M E N T

 

With CA Nos. 3260, 3259, 3261 of 1991

 

 

RUMA PAL, J.

 

An internecine dispute between the members of a family

relating to the controlling interests in companies has given rise to the

nine appeals which are being disposed of by this judgment. Given the

number and nature of the proceedings, to avoid any confusion, the

parties are referred to by their names and not in the capacity in which

they have sued or been sued except when describing the collective

stand of all the respondents in these appeals, when they are referred

to simply as ‘the respondents’.

The main protagonists in all the litigations are

Madhusoodhanan, Srinivasan, Ravi and Mani who are brothers, with

Madhusoodhanan on one side and Srinivasan, Ravi and Mani on the

other. The parents of the four were one K. Sukumaran and Madhavi

both of whom are deceased. K. Sukumaran died before the litigations

between the parties erupted and Madhavi died during the pendency

of the litigation. While she was alive she supported Srinivasan, Ravi

and Mani. The four brothers are married and have children. It is

unnecessary at this stage to clutter the narration of facts with the

names of the wives and children, who will be referred to by name

when the particular litigation in which they are involved is considered.

The dispute began with a struggle over the controlling interest in a

company by the name of Kerala Kaumudi Pvt. Ltd. (hereinafter

referred to as Kerala Kaumudi)

Kerala Kaumudi is a private company incorporated under the

Indian Companies Act, 1913 which was promoted in 1955 by the

parents of the four brothers. Besides Kerala Kaumudi other “family”

concerns were incorporated including Kaumudi Investments Pvt. Ltd.,

Kerala Exports (P) Ltd., Kaumudi News Pvt. Ltd., Laisa Publications

Pvt. Ltd., Shiv Printers & Publishers, Ravi Printers & Publishers Pvt.

Ltd., Kaumudi Films Outdoor Unit, Electronic & Equipment

Corporation and Ravi Transports. However, the core of the

controversy is the control of Kerala Kaumudi.

The business of Kerala Kaumudi (which was the flagship

company ) is to own and publish newspapers, journals and other

literary works and undertakings. Its authorised share capital is 20

lakhs divided into 2000 shares of Rs.1000/- each. The total number of

issued and paid up equity shares in Kerala Kaumudi was 1575.

During the life time of K. Sukumaran each of the brothers along with

their parents had shares in Kerala Kaumudi and the shareholding

was as follows:

Sr. No.

1. Mani 222 shares

2. Valsa Mani 84 shares

(Mani’s daughter)

 

3. Sukumaran Mani 84 shares

(Mani’s son)

 

4. Madhusoodhanan 390 shares

5. Srinivasan 390 shares

6. Ravi 390 shares

7. Madhavi 3 shares

8. Sukumaran 9 shares

9. Kaumudi Investments 3 shares

Private Ltd. _____

Total 1575 shares

Sukumaran died on 18th September 1981. He was the

Managing Director of Kerala Kaumudi from 1955 to 1973 and its

Chairman from 1973 till his death. He was succeeded as

Chairman by his widow Madhavi. Madhusoodhanan was

appointed as Managing Director of Kerala Kaumudi in 1973

immediately after Sukumaran died. On 25th January 1985,

Madhusoodhanan was appointed as Managing Director and Editor of

Kerala Kaumudi for life. He was also empowered to exercise the

powers given to the Director under Article 79 of the Articles of

Association. At the same time Srinivasan was appointed as

General Manager of Kerala Kaumudi for life and Ravi was appointed

as Director and Executive for life. To give effect to these

appointments, Article 69A and Article 74 of the Articles of

Association of Kerala Kaumudi were amended.

The disputes between the parties started soon after the death of

Sukumaran in September 1981. When these reached a head, on

29th November, 1984 a resolution was taken at a meeting (Ex. P-190)

of the company which was signed by the four brothers and Madhavi

by which the controlling interests in the different family companies

were agreed to be given to the four brothers on the basis of their

active interest in a particular concern. Kerala Kaumudi’s control was

to be with Madhusoodhanan. In implementation, Transfer of shares

in these companies were effected between the brothers and their

respective families. The disputes however did not abate. On 24th

October,1985 an agreement was entered into between the parties in

an attempt to resolve their differences. This agreement has been

exhibited in the proceedings as Ext. P1. On 23rd December 1985, a

second agreement (Ext. P-2) was entered into by which it was, inter

alia, agreed that all the various family controlled companies and firms

would be divided among the four brothers.

On 16th January 1986 a third agreement was entered into, which

has been marked as Ext. P.3. The parties to the third agreement

were Madhavi, Mani, Madhusoodhanan, Srinivasan and Ravi. Briefly

speaking, Ext.P3 is about the division of effective control of the

“family” concerns amongst the four brothers. It relates to the transfer

of Mani’s shares in Kerala Kaumudi to Madhusoodhanan. In addition,

the parties’ agreement that Madhusoodhanan would have the major

share holding in Kaumudi Investments Pvt. Ltd., Kerala Exports (P)

Ltd. and Kaumudhi News Pvt. Ltd., Mani the majority share holding

of 52 per cent in Laisa Publications Pvt. Ltd. (which has subsequently

changed its name to Kala Kaumudi Pvt. Ltd.), Srinivasan 52 per cent

in Shiv Printers and Publishers, and Ravi, the majority holding in Ravi

Printers and Publishers (P) Ltd., Kaumudi Films Outdoor Unit,

Electronic and Equipment Corporation and Ravi Transports, is also

recorded.

According to Madhusoodhanan, Mani and his children had

already transferred their entire holding of 390 shares in Kerala

Kaumudi to Madhusoodhanan in May 1985, prior to the third

agreement. As a result ,Mani and his children had no shares in

Kerala Kaumudi, Madhusoodhanan had 612 shares, and

Sreenivasan and Ravi had 222 shares each. Nine shares continued

to stand in the name of the late K. Sukumaran and three shares in the

name of Madhavi. In addition, the two children of Madhusoodhanan

had 84 shares each, Sreenivasan’s daughter, Anju had 168 shares,

Ravi’s son, Deepu, had 168 shares and KIPL continued to hold 3

shares.

On 23rd July 1986, a Board meeting of Kerala Kaumudi was

held at which Madhavi assumed the powers of the Managing Director

in purported ouster of Madhusoodhanan. The meeting is disputed by

Madhusoodhanan. He says that no such meeting was in fact held

and that the minutes were subsequently drawn up. A second Board

meeting, which is also disputed by Madhusoodhanan, was held on 1st

August 1986 in which a decision was taken to increase the paid-up

share capital of Kerala Kaumudi by issuing 425 additional shares of

Rs.1000/- each. At a Board meeting held on 8th August 1986 these

additional shares were issued to Ravi and Sreenivasan and one

share was transferred by Ravi to Mani. This meeting as well as the

allotment of the additional shares is not accepted by

Madhusoodhanan. On 16th August, 1986 at an Extraordinary General

Meeting Madhusoodhanan was removed as Managing Director of

Kerala Kaumudi and Article 74 of the Articles of the company deleted.

In this background, several proceedings were filed by the

parties against each other some of which may be taken up for

consideration together. The first lot consists of six matters relating

directly to Kerala Kaumudi and the share holding in Kerala Kaumudi.

The six are:

(i) C.P. No. 14 of 1986 filed by Madhusoodhanan for

rectification of the company’s share register under

section 155 of the Companies Act, 1956 by

cancellation of the allotment of 425 shares to Ravi

and Sreenivasan and for removal of the name of

Mani from the company’s share register.

(ii) Company petition, C.P. No. 31 of 1988 filed by KIPL

for similar reliefs.

(iii) A suit filed by Madhusoodhanan in the Munsif’s

Court, Trivandrum being O.S. No. 1329 of 1986

(subsequently re-numbered as C.S. No. 3/89, when

withdrawn to the High Court) for a decree declaring

that he continued to be the Managing Director of

Kerala Kaumudi and for a declaration that the Board

meetings held on 23.7.86, 1.8.86 and the meetings

subsequent thereto were illegal and ultra vires the

Articles of Association of the company.

(iv) A suit being O.S. No. 482/88 (subsequently re-

numbered as C.S. No. 5/89, when withdrawn to the

High Court) filed by KIPL against Kerala Kaumudi

for similar reliefs.

(v) A suit filed by Madhusoodhanan for specific

performance of the third agreement, Ex.P.3.(O.S.

No. 483/88, subsequently re-numbered as C.S. 6/89

when withdrawn to the High Court.)

(vi) C.P. No.26 of 1987 filed in 1987 by Mani and his

children for a declaration that the transfer of 390

shares by them to Madhusoodhanan pursuant to

the Board’s decision dated 21.5.85 was illegal and

void and for rectification of the share register by

recording them as the owners of 222, 84 and 84

shares respectively.

These six matters are now numbered as CA Nos. 3253-3258 of

1991 before us.

The second set of litigation being Company Petition No. 15 of

1986 was filed in 1986 by Mani’s wife Kastoori Bai, daughter Valsa,

Ravi’s wife Shylaja, and Sreenivasan’s wife Laisa as well as Madhavi

for rectification of the share register of KIPL. This is now numbered

as CA 3260 of 1991.

The third set consists of CP No.11 of 1987 ( now CA 3261 of

1991) filed by Vaishak, the minor son of Madhusoodhanan, for

rectification of the share register of Kerala Kaumudi.

The fourth set of proceedings originally consisted of two suits

filed before the Munsif’s Court, Trivandrum relating to the office

premises of Kerala Exports and KIPL. The suit filed by Kerala

Exports,(numbered on transfer as CS No. 2 of 1989) was for a

mandatory injunction to restrain Kerala Kaumudi, Sreenivasan, Ravi

and Madhavi from disturbing its functioning in Kaumudi Buildings.

O.S. No. 1569 of 1988 (subsequently numbered as CS 4 of 1989)

was a similar suit filed by KIPL before the Munsif’s Court for

restraining the defendants from preventing the peaceful functioning of

KIPL’s administrative office in Kaumudi Buildings.

All the original suits were transferred to the High Court under

the provisions of Section 446 of the Companies Act and were heard

along with the several company petitions noted earlier. About 296

documents were tendered in evidence by the parties. Seven

witnesses were examined. The four witnesses who deposed in

support of Madhusoodhanan were P.K. Kurien, Advocate (PW 1),

Mohan Raj, former Personal Assistant to Madhusoodhanan (PW 2)

Vasudevan, former Company Secretary (PW 3) and

Madhusoodhanan himself (PW 4). As far as the opponents were

concerned, Mani (RW 1), Srinivasan (RW 2) and Laisa Srinivasan

(RW 3) gave evidence in support of their stand.

The Single Judge decided CP No. 14 of 1986 in

Madhusoodhanan’s favour. The application for rectification was

allowed and the allotments of shares made in the meeting held on

8.8.86 were set aside and rectification of the share register of Kerala

Kaumudi by deleting the further allotment of 425 shares each to

Sreenivasan and Ravi was directed. The prayer for cancellation of

the transfer of one share in favour of Mani was, however, disallowed.

However, the petition filed by KIPL (CP No. 31 of 1986) which had

virtually asked for the same reliefs as in CP No. 14 of 1986 was

dismissed by the learned Single Judge on the ground of delay.

Madhusoodhanan’s suit (C.S. No. 3 of 1989) and KIPL’s suit (CS

No.5 of 1989), were decreed by holding inter alia that the meetings

held on 23.7.86, 1.8.86, and 17.8.86 in so far as they affected

Madhusoodhanan and by which Madhusoodhanan had been

removed as Managing Director and Article 74 of the Articles of

Association of the company was deleted, were illegal and invalid.

Madhusoodhanan was declared to be the Managing Director of the

Company. The suit filed by Madhusoodhanan for specific

performance of Ext. P3 (CS No. 6 of 1989) was also decreed. Mani

and his children’s application for setting aside the transfer of 390

shares (CP No.26/87) was dismissed. An arbitrator was appointed for

determining what amount was payable by Madhusoodhanan to Mani

for the shares transferred by Mani to Madhusoodhanan.

The second set of proceedings initiated by Mani’s wife and

others viz. CP No. 15 of 1986, for rectification of the share register of

KIPL and the third set filed by Madhusoodhanan’s minor son, Vaishak

for rectification of the share register of Kala Kaumudi (CP No. 11 of

1987) were dismissed.

The two suits filed by Kerala Exports and KIPL (CS 2 of 1989

and CS 4 of 1989 respectively) relating to their continued possession

in Kaumudi Buildings were decreed.

The aggrieved parties preferred appeals in each of the matters.

By a common judgment, the Division Bench reversed the findings of

the learned Single Judge in all of the appeals except in the appeal

from CS 2 of 1989. Nine Special Leave Petitions were filed in this

Court in the separate proceedings on which leave was granted on

27th August 1991.

We propose to deal with issues which can be said to be

common to the different sets of litigations before giving our

conclusions on each appeal separately.

The underlying question in the first set of litigations viz. who has

the controlling interest in Kerala Kaumudi has given rise in turn to the

following topics:

A) the transfer of shares by Mani and his children to

Madhusoodhanan.

B) The removal of Madhusoodhanan as Managing

Director ;

C) The issue of additional shares to Ravi and

Srinivasan, and

D) Specific performance of the agreement (Karar)

dated 16.1.1986.

Transfer of shares by Mani and his children to

Madhusoodhanan

In C. P. 26/87, Mani and his group prayed for rectification of the

share register of Kerala Kaumudi by deleting the name of

Madhusoodhanan as a shareholder in respect of the shares which

Mani and his group had transferred to him in 1985. The prayers

proceed on the basis that there was in fact a transfer of shares in

1985 which was, after two years, sought to be set aside. The

grounds on which this was asked for were :

A. The consideration for the transfer had not been

agreed upon and no consideration had in fact been

paid.

B. No proper documents had been executed

effecting the transfer.

C. Neither Valsa nor Sukumaran Mani, a minor

had any knowledge of the transfer and the

transfer of their shares was invalid.

D. Section 108 of the Companies Act, 1956 had

not been complied with in respect of any of

the transfers.

The learned Single Judge rejected all four contentions, and in

our view, rightly. The Division Bench held in favour of Mani and his

group on grounds which are legally and factually unsustainable for

the reasons stated in the following paragraphs.

The documentary evidence relating to the transfer, shows

without a shred of doubt that there was a valid transfer of shares. To

begin with the minutes of the meeting held on 19th March 1985 [Ex.

R-62(a)] which were signed by Mani, records:

“Shares of Sri M.S. Mani. All the shares in Kerala

Kaumudi owned by Sri M. S. Mani and family would

be pledged by him to Sri M. S. Madhusoodhanan

who shall extend financial facilities to Sri M. S.

Mani. The loan will be paid with 22 percent interest

by Sri Mani when Sri M. S. Madhusoodhanan shall

release the shares of Sri M. S. Mani. The modus

operandi of the transaction shall be decided in

consultation with barrister P.K. Kurien of Menon and

Pai”.

 

The intention of Mani and his group to transfer their

shareholding to Madhusoodhanan is evident from this. Although the

mode of transfer was subsequently changed, this intention was

affirmed at the Board meeting of Kerala Kaumudi held on 23rd April

85. The fifth and sixth resolutions as appearing in the minutes of the

meeting (Ex.P.-62(b)) which were also signed by Mani read as

under:

“Sri M. S. Mani

Letter of resignation from the direct directorship of

Kerala Kaumudi (Pvt) Ltd effective from 23. 4. 85

afternoon submitted by Sri M. S. Mani was

approved by the Board.

 

(6) Shares owned by Sri M. S. Mani and family in

Kerala Kaumudi (P) Ltd.

 

“Shares owned by Sri M. S. Mani and family in

Kerala Kaumudi (p) Ltd will be transferred to Sri M.

S. Madhusoodhanan forthwith on a consideration to

be mutually agreed between the transferor and the

transferee. The liabilities of Sri M. S. Mani to the

income tax department etc up to 31st March,1985

should be settled by Kerala Kaumudi (P) Ltd. before

finally deciding a consideration for the share

transfer. The Kerala Kaumudi (P) Ltd undertakes to

discharge the liabilities arising on account of

personal guarantees given by Sri M. S. Mani for the

company”. ( Emphasis supplied ).

 

The sixth resolution clearly envisages three distinct stages: an

immediate and unconditional transfer of shares, then, the settlement

of the Mani’s income tax liabilities by Kerala Kaumudi and, after both

these stages, the determination of the consideration for the transfer to

be mutually agreed on.

The Division Bench, therefore, erred in holding that the

agreement for transfer of shares was conditional on the determination

of the price of the shares and in concluding that as there had been no

such determination, no transfer could have taken place. The express

intention was to effect an immediate transfer of the shares and to

agree upon the consideration later. Section 9 of the Sale of Goods

Act, 1930 permits this.

Section 4 read with Section 2(10) of the Sale of Goods Act,

1930 require that the contract of sale must provide for the payment

of money as a consideration for the transfer of goods, or to put it

differently, that a price must be paid. But Section 9 of the 1930 Act

allows the parties not to fix the price at the time of the transfer and to

leave the determination of the amount of consideration to a later date.

An agreement which provides for the future fixation of price either by

the parties themselves or by a third party is capable of being made

certain and is not invalid as provided under Section 29 of the Contract

Act, 1872 [See: Illustration (e)] In view of such categoric and clear

statutory provisions, the submission of learned counsel representing

Mani that such a contract is void for uncertainty because the price

was not fixed, is unacceptable. The passage from Benjamin’s Sale of

Goods (1974 Edn.) relied on which says

“If the price is left to be agreed upon

subsequently between the parties, there

will ordinarily be no binding contract, on

the grounds of uncertainty, unless and

until they later reach agreement on a

price. Moreover, an agreement to leave

the price open to further negotiation will

normally exclude any inference that the

price should be a reasonable price in

accordance with the provisions of

section 8(2).”

 

 

may be an exposition of the law as it is in England and cannot be

seen as an authority on the interpretation of section 9(1) of the Sale

of Goods Act. Besides, the same passage cited goes on to say:

“But in accordance with the principle

that the Courts will endeavor to uphold

bargains which the parties believe

themselves to have concluded,

especially in the case of executed or

partially executed contracts, it may

sometimes be possible either to infer an

intention that at any rate a reasonable

price should be paid if no price is later

settled, or to have regard to other

circumstances, such as the course of

dealing between the parties.”

 

In this case, there can be no doubt that the first stage of the

agreement for the immediate transfer of shares was executed and the

Division Bench erred when it held to the contrary.

The questions as to what would be the reasonable price for the

shares, the mode of its determination and whether any consideration

has already been paid by Madhusoodhanan to Mani are considered

subsequently.

The minutes of the Board meeting held on 21st May 1985

[Exhibit P-62 ( C ) ] of Kerala Kaumudi record that the following share

transfer deeds were placed before the Board, namely, the deeds

relating to the transfer of 222 shares by M. S. Mani to

Madhusoodhanan, 84 shares by Valsa Mani to Madhusoodhanan, 84

shares by Sukumaran Mani to M. S. Mani and 84 shares by Mani to

Madhusoodhanan. The Board resolution goes on to record.

“After discussion the share transfers were approved

by the Board and the Managing Director and any

other Director was authorised to sign the relative

new share certificates to be issued in favour of Sri

M. S. Madhusoodhanan and to affix the common

seal of the company in the share certificates in the

presence of the Company Secretary”

 

The minutes of the Board meeting held on 21st May 1985 were

read and approved on 4th June 1985. Both meetings were attended

by Madhavi, Madhusoodhanan, Srinivasan and Ravi and the minutes

signed by Madhavi as Chairman. The transfer of the shareholding of

Mani and his children was also admittedly entered in the Company’s

Share Certificate Ledger (Ex. P-90).

It is evident from this that the share transfer forms which were

placed before the Board had been executed and were otherwise duly

completed, or else the question of the approval of such transfer would

not arise.

Apart from these minutes, are the minutes of the meeting held

on 26th August 1986, when Madhusoodhanan, was already effectively

removed from the control of Kerala Kaumudi . Item No 4 of the

minutes relates to the transfer of a share by Ravi to Mani.

Countering Madhusoodhanan’s objection to such transfer, the

minutes tellingly record:

“Smt. C.N. Madhavi pointed out that the sale

consideration of the shares held by Sri. M. S.

Mani which was around 24 percent of the total

shares of the company at the time of transfer

had not been paid by Sri. M. S.

Madhusoodhanan. She pointed out Sri M. S.

Mani was the senior most Director of the

company and he is the eldest son of late Sri.

Sukumaran, the founder of the company. She

also pointed out that Sri M. S. Mani is eligible

for 1/5 of the shares held in the name of his

father. She further pointed out that it is

prestigious for the company that Sri M. S.

Mani, the former senior Director and glorious

editor of the newspaper to be a shareholder of

the company”.

 

In the Annual Return of Kerala Kaumudi dated 27th June 1985

filed under section 159 of the Companies Act 1956 with the Registrar

of Companies, in the list of past and present members and debenture

holders, the names of all parties have been given Including the

names of Mani, and his children. However against their names It has

been mentioned that they had effected transfer of their shareholding

to Madhusoodhanan. Particulars of the transfer made by each as

well as the date of registration of the transfers have been given as

21st May 1985. (Ex. P-128).

On 1st March 1986 in keeping with the statutory requirement

relating to the ownership of newspapers, a statement was published

in Form IV. In the list of shareholders the names of

Madhusoodhanan, Ravi, Visakh Madhusoodhanan, Deepu Ravi, M.S.

Srinivasan, Julie Madhusoodhanan & Anju Srinivasan are mentioned.

There is no mention of Mani or either of his children as shareholders

(Ex.P — 86). There was no protest by Mani or any of the other

shareholders which would have naturally been made if the

statements were incorrect.

Even after the ouster of Madhusoodhanan from the Board of

Kerala Kaumudi, in the Annual Return dated 26 September 1986 (Ex.

P.128 (a) ), in the list of shareholders filed with the Registrar of

Companies as part of the Annual Return of Kerala Kaumudi, Mani is

shown as holding only one share and Madhusoodhanan as holding

612 shares in the company. This return has been filed under the

signatures of Srinivasan and Ravi as Managing Director and Director

of Kerala Kaumudi respectively together with a certificate by Ravi and

Srinivasan under section 161(2) of the Companies Act, 1956. They

certified that the return states the facts as they stood on the day of

the annual general meeting correctly and completely and that since

the date of the last annual return the transfer of all the shares and

debentures and the issue of all further certificates of shares and

debentures had been appropriately recorded in the books maintained

for the purpose.

This was again done in the Annual Return of Kerala Kaumudi

filed under the signature of Ravi and Srinivasan dated 28th July 1987

(Ex.P.131(a)). Madhusoodhanan is shown as holding 612 shares

and Mani is shown as holding only one share. Under section 164 of

the Companies Act, 1956, the annual returns, the certificates and

statements therein, “shall be prima facie evidence of any matters

directed or authorised to be inserted therein” under the Act.

The explanation given by Mani that he did not respond to

the statutory declarations although they did not show his name or the

names of his children as shareholders of Kerala Kaumudi because

there was an agreement to transfer the shares and because of the

close relationship between parties, is specious. According to Mani’s

evidence, he had not agreed to transfer his shares at all because the

consideration had not been fixed. Furthermore, the relationship

between the parties was anything but cordial. It was only after

Madhusoodhanan had initiated proceedings in 1986, that Mani, more

than two years after the transfer for shares filed the application for

rectification of the share register.

Even if there were any doubt on the issue, the fact which

settles the matter conclusively are the admissions in the counter

affidavit filed by Madhavi in CP No 14 of 1986 on behalf of herself

and on behalf of Ravi, Srinivasan and Mani (wherein Mani is referred

to as the “fifth counter petitioner” and Madhusoodhanan as “the

petitioner” ) She has affirmed:

(a) “In fact the fifth counter petitioner left the

company in the year 1985 and has transferred

all the 390 shares belonging to him and his

children (major daughter and minor son) to the

petitioner, receiving only a miniscule part of a

consideration and accepting the promise of

the petitioner to pay him the balance without

even insisting on formal documents to

evidence the promise of the petitioner “.

 

(b) “Once Article 74 was amended to the

petitioner’s liking, his attitude started changing

slowly. Even then we did not take it seriously.

That is why the fifth counter petitioner

transferred his shares to the petitioner, giving

him literally a strangle hold on the company”.

 

 

(c) ” He (Mani) and his minor son had held 306

shares in the company which he had

transferred to the petitioner in 1985″.

 

d) “The petitioner holds 612 equity shares of

Rs.1000/- each of the company”.

 

Mani has also said in an affidavit affirmed on 28th November,

1986 in Application 305/86 ( arising out of CP No.14/86).

“After the meeting was over the petitioner

and respondents 2 to 5 that is, the mother and

sons had informal talk in the same room.

During the course of this, the second

respondent asked the petitioner why he has

not paid the balance consideration for shares

transferred by me to him in 1985. The

petitioner said that he would pay the same as

and when he had money. The second

respondent thereupon suggested that the

petitioner may in that event transfer the

shares back to me”.

 

The one share which is shown in Mani’s name in the Annual

Return for 1986 and 1987 was sold by Ravi to Mani at a meeting held

on 26 August 1986. As has been recorded in the minutes ( Ex P-

62(N)) and affirmed in the same affidavit of Madhavi in C.P. No.

14/86 on behalf of Ravi, Srinivasan, Mani and herself:

“The meeting of the Board of Directors held on 26th

August,1986 expressly considered the question

whether the fifth respondent ( Mani ) is to be

selected as one whom it is desirable in the interest of

the company to admit to its membership. The

Board resolved that the fifth respondent (Mani) is not

only a desirable person, but his admission to the

membership of the company will enhance its

prestige and strengthen its administration. The

Board felt that in the circumstances it was essential

that the fifth respondent (Mani) was to be inducted

as a member of the company”.

 

That he was “admitted” to membership and “inducted” as a

member of the company by the transfer of one share on 26th August

1986 has been acknowledged by Mani himself in his affidavit affirmed

in the same proceedings on 28 November 1986.

This admission to membership was in terms of Article 24(a) of

the Articles of Association of Kerala Kaumudi, which directs that no

share shall be transferred to a person who is not a member so long

as any member or any person selected by the Directors as one whom

it is desirable in the interest of the company to admit to membership,

is willing to purchase the same at fair value. In other words a non-

member of the company can be sold a share of the company even

when a member wishes to purchase it, provided the Directors select

him as “a person whom it is desirable in the interest of the company

to admit to membership” and provided that such person is willing to

purchase the share.

If the transfer by Mani and his children of their entire

shareholding in Kerala Kaumudi to Madhusoodhanan had not been

effected, there was no question of “admitting” Mani to the

membership of the company. The minutes of the meeting held on 26

August 1986 which have been admitted by Srinivasan and the

affidavits of Madhavi and Mani thus prove that Mani and his family

held no shares in the company until the single share was transferred

by Ravi to Mani under Article 24(a) on 26th August 1986.

We have been unable to understand the logic of the Division

Bench by which it sidestepped this inevitable conclusion, when it said

“It is open to a party to take an extra precaution to ward off possible

disconcerting experiences while planning for the future “. Ignoring –

 

or at least not giving sufficient weight — to the wealth of evidence in

favour of the submissions of Madhusoodhanan, the learned judges of

the Appellate Court sought to base their assessment of the evidence

on the absence of documents, such as income tax returns of

Madhusoodhanan, which according to them would have shown the

acquisition of the additional shares by Madhusoodhanan from Mani,

an exercise which was entirely uncalled for in the face of the positive

evidence already on record and the repeated admissions of Mani and

his group before the Court.

Furthermore, under Section 194 of the Companies Act, 1956,

minutes of meetings kept in accordance with the provisions of

Section 193 shall be evidence of the proceedings recorded therein

and, unless the contrary is proved, it shall be presumed under

Section 195 that the meeting of the Board of Directors was duly

called and held and all proceedings thereat to have duly taken place.

The onus was on Mani to disprove that the transfers had not taken

place as recorded in the minutes of the Board meeting held on 21

May,1985, an onus that he has singularly failed to discharge.

Learned counsel for Mani submitted that the statutory presumption

was not available as Madhusoodhanan had admitted that no formal

meetings were held and that the minutes were prepared after

informal discussions by the Company Secretary and shown to

Srinivasan who signed the same after it was approved by

Madhusoodhanan. The submission is unacceptable for three

reasons. First: The Articles of Association of the Company (Art.81)

allow Directors to regulate their meetings as they think fit. Also Art.

89 says that a resolution in writing circulated to all the Directors and

assented to by a majority of them shall be as valid as a resolution

passed at a meeting of the Board of Directors. Second, Section

193(1) of Companies Act 1956 provides:

193(1) Minutes of proceedings of

general meetings and of Board and

other meetings. – Every company shall

cause minutes of all proceedings of

every general meeting and of all

proceedings of every meeting of its

board of directors or of every committee

of the Board, to be kept by making

within thirty days of the conclusion of

every such meeting concerned, entries

thereof in books kept for that purpose

with their pages consecutively

numbered”.

 

 

Therefore, the minutes may be prepared subsequently, but they

must be duly entered in the Minute Book and initialed and it is

nobody’s case that this was not done. Finally, Madhusoodhanan has

also said that formal meetings were held and that important decisions

were circulated to all members. In any event, our conclusion that the

transfer of shares by Mani and his children to Madhusoodhanan

would stand without the support of the statutory presumption under

Section 195 of the 1956 Act.

Exhibit P-3, the third agreement which was referred to at the

outset has a clause which relates to the sale of Mani’s shares in

Kerala Kaumudi to Madhusoodhanan which both sides have referred

to and relied upon but there has been no consensus as to the correct

interpretation of the clause. This controversy is addressed in detail in

connection with Madhusoodhanan’s suit for specific performance of

the agreement.

Had this clause been the only basis on which this Court were

called upon to decide whether there had been a transfer or sale of

the shares of Mani’s group to Madhusoodhanan, no doubt it would

have been difficult to determine what had in fact happened.

However, the clause is only one of a series of documents, the

authenticity of which cannot be disputed, which clearly show that the

transfer had taken place although the exact consideration may not

have been agreed upon or paid.

Mani did not attend the Board meeting held on 21st May 1985 or

any other till he was admitted to membership of Kerala Kaumudi on

26th August 1986. Apart from this telling circumstance supporting

Madhusoodhanan’s case, Srinivasan had attended and signed the

minutes of the meeting on 21st May, 1985. His claim that no such

meetings were in fact held and that whenever he signed the minutes

of the meetings held during the managing directorship of

Madhusoodhanan, he did so at the instance of the latter without being

aware of the contents of the minutes is hardly likely. The brothers

were already at daggers drawn and it is unbelievable that he would

place such unquestioning faith in Madhusoodhanan. Additionally, the

entries in the Attendance Register of Kerala Kaumudi (Ex. P-81) also

belies this assertion. Besides, the falsity of this explanation is

apparent from the minutes of the meeting held and the statutory

records submitted by Srinivasan after Madusoodhanan was removed

as Managing Director of Kerala Kaumudi which continued to state

that Mani and his children had transferred their shares in the

company to Madhusoodhanan.

The fact that all the parties, including Ravi, Srinivasan and Mani

himself, hardened businessmen all, not only proceeded on the basis

that there was effective transfer of Mani and his childrens’

shareholding to Madhusoodhanan but also certified the same to the

Registrar of Companies, and additionally affirmed that such transfer

had taken place on oath in their affidavits can only lead to the

conclusion that the transfer had been legally effected on the basis of

duly executed share transfer forms in compliance with the provisions

of the Companies Act, 1956.

Nevertheless, the respondents argue, there were in fact no

share transfer forms which were placed before the Board and the

only transfer forms executed by Mani and his children were invalid

because of non-compliance with Section 108 of the Companies Act,

1956.

In his examination in chief, in response to the question whether

he and his children had transferred their shareholding to

Madhusoodhanan, Mani said:

“When I decided to relinquish my

directorship, the Secretary brought the

required letter, which I signed. Later the

forms for transferring our shares to the

petitioner (Madhusoodhanan) were

brought. But I found that the

consideration column in those forms

were not filled. Petitioner told me that

the consideration can be fixed later and

the transfer may be effected

immediately. But I said that I will sign it

only after fixing the consideration. Even

so, in order to assure him that I will

transfer the shares, I signed the forms

and handed it over to my wife for keeping

them in safe custody. I knew that if the

matters were not finalised within 60 days

the forms cannot be made use of

thereafter. So I requested the petitioner

several times to fix up the consideration.

But he did not do so. I did not hand over

the forms to the petitioner”.

 

The admitted case therefore is that Mani and his children had

agreed to transfer their shareholding to Madhusoodhanan, but

according to them, such transfer never took place.

Mani produced the share transfer deeds, presumably from the

custody of his wife as Exhibits R 9-12. Exhibit R 9 is signed on 11.5

1985. It is an unstamped document and purports to record the

transfer of 222 shares by Mani to Madhusoodhanan. Similarly R. 10

is a share transfer form signed by Valsa on 11.5.85 transferring 84

shares to Madhusoodhanan. The document bears stamps of the

value of 720 rupees on the reverse. R.11 is a share transfer form

signed by Mani’s wife as a transferee recording the transfer of 84

shares by Sukumaran Mani to MS Mani. It is dated 11th May 1985.

It also bears stamps of the value of Rs 720. R.12 is a share transfer

form signed on 11th May 1985 by Mani transferring 84 shares to

Madhusoodhanan. The document is signed on 11th May 1985. All

the share transfer forms bear the stamp of what appears to be of the

office of the Registrar of Companies dated 20.4.85. All four exhibits

show that they have been entered in the Register of Transfers of

Kerala Kaumudi on 23rd May 1985 and bear the serial numbers 30,

33, 31 and 32 respectively.

There is a controversy as to whether these share forms were

the share forms which were placed before, and approved by the

Board of Directors of Kerala Kaumudi at the meeting held on 21st

May 1986. Madhusoodhanan claims that these are not the share

transfer forms. Mani and his group contend to the contrary. The

issue would be of importance if one were to allow the respondents to

resile from their admissions. We are not minded to do so.

Nevertheless, since the reasoning of the Division Bench rests to a

large extent on the question whether the transfer was in accordance

with S.108 of the Companies Act, it would be appropriate to

pronounce on this.

 

 

Section 108 of the Companies Act, 1956 insofar as it is relevant

provides:

“A company shall not register a transfer of

shares in, or debentures of the company,

unless a proper instrument of transfer duly

stamped and executed by or on behalf of the

transferor and by or on behalf of the

transferee and specifying the name, address

and occupation, if any, of the transfer has

been delivered to the company along with the

certificate relating to the shares or

debentures, or if no such certificate is in

existence, along with the letter of allotment of

the shares or debentures”

 

According to Mani, the share transfer forms were not duly

stamped and could not be given effect to under Section 108 of the

1956 Act. If Exhibits R9 to R12 are indeed the share transfer forms,

he would be correct. In our view they are, in all likelihood, not the

transfer forms which were placed before the Board of Directors on

21st May 1985.

It is on record, that Madhusoodhanan had made an application

for production of the original share transfer forms from the custody of

the company. It must be remembered that from March 1986,

Madhusoodhanan no longer had any control over the affairs of Kerala

Kaumudi. The papers, books and other records of the company were

in the custody and control of those who controlled Kerala Kaumudi

namely Srinivasan and Ravi. It is not improbable that the share

transfer certificates which had been placed before the Board meeting

were deliberately not produced.

The Division Bench held that exhibits R.9 to R.12 were the

“real” share transfer forms because they were dated 23.5.1985 and

the evidence of Madhusoodhanan was that he had signed only one

set of transfer forms in 1985. The Division Bench also relied upon

what appears to be an unsigned stamp of the office of the Registrar

of Companies dated 20th April 1985 although no one has pledged his

or her oath to it. Having come to the conclusion that the share

transfer forms produced by Mani, exhibits R.9 to R.12, were the “real”

transfer forms, the Division Bench set about demolishing those

documents as being invalid and not legally effective.

In our opinion, given the documentary evidence of completed

transfers, it is more than probable that the “real” share transfer forms

were never produced by Mani and his group and that exhibits R. 9 to

R. 12 were prepared in 1984 as claimed by Madhusoodhanan. Mani

has himself stated:

“At that time it was proposed to start Calicut

edition of the paper. But the high technology

machinery required for what further increased

the debts of Kerala Kaumudi. This caused

considerable financial strain. I put in some

suggestions for rectifying these matters. But

mother and brothers were not able to

appreciate my views. Therefore, I even told

them that I was prepared to relinquish all my

shares, 1/3rd each to my brothers. In that

connection some papers were also prepared.”

 

The Calicut edition of Kerala Kaumudi was started in

September 1984. It is possible “these papers” were Exhibits R-9 –

R-12. This inference is in keeping with the repeated admissions of

the respondents on oath and their conduct on the basis that the

transfer had legally taken place. An additional fact is Exhibit R18

which is a voucher for a cash payment of Rs.2370/- issued to Kerala

Kaumudi towards the “cost of share transfer stamps purchased”. It is

dated 16th May 1985 and signed by Madhusoodhanan, Srinivasan,

Madhusoodhanan’s wife and Ravi’s wife as well as the cashier , the

clerk, the accountant, the manager and the Secretary of Kerala

Kaumudi. The corresponding entries in the expense account of

Kerala Kaumudi which form part of this exhibit, show that the

accounts of Mani and Madhusoodhanan have been debited with the

amounts of Rs.420/- and Rs.1950/- respectively. It is improbable that

stamps having been purchased for the share transfers which was

recorded as effected four days later, they would not have been

utilised. In this state of the evidence it cannot reasonably be held

that Mani and his group have been able to establish that the transfer

of the 390 shares by them to Madhusoodhanan was effected in

violation of Section 108 or any other provision of the Companies Act,

1956.

The Annual Returns signed by Srinivasan and Ravi (Ex. P 28,

P 130 and P-131 (a)), statutory declarations (Exhibits P.86 to P.88)

for the years ending on 1st March 1986, 1st March 1987 and

1st March 1988 also signed by Srinivasan and Ravi, the affidavit of

Madhavi dated 25th November 1986, the affidavit of Mani dated

28th November 1986 and other documents in all of which repeated

admissions were made by Madhusoodhanan’s antagonists that Mani

and his children had transferred their shareholding to

Madhusoodhanan were brushed aside by the Division Bench on the

very weak explanation given by Mani as to why these repeated

admissions had been made even after the filing of the litigation

between the parties. The Division Bench erred in ignoring the

affidavits of Madhavi and Mani by saying that it “would not be

sufficient or strong enough to operate as a transfer of shares”.

Nobody can reasonably contend that a transfer of shares can be

effected by mere assertion in an affidavit. What the Division Bench

ought to have held was that all this evidence indicated that there were

in existence duly executed share transfer forms prepared in

conformity with the provisions of Section 108 of the Companies Act,

1956 which everyone had accepted and acted upon and which were

deliberately not produced.

On the question of the invalidity of the transfers of Valsa and

Sukumaran Mani to Madhusoodhanan, Valsa Mani was admittedly a

major on 21st May 1985. And yet the Division Bench held that Mani

continued to stand in a fiduciary relationship with her and therefore

“the transfer which purports to have been effected by Valsa Mani on

her own will clearly indicate the stamp of illegality and invalidity”. The

reasoning is incomprehensible and unacceptable. Valsa was an adult

and legally competent to enter into a contract of sale of her sharers to

Madhusoodhanan which she duly did.

As far as the shares of Sukumaran Mani are concened,in our

opinion, the learned Single Judge was right when he said that Mani’s

group could not question the transfer of the shares of Sukumaran

Mani on account of his minority, as Sukumar Mani had not effected

any transfer directly in favour of Madhusoodhanan. As Sukumaran

Mani was at the relevant point of time a minor, his shares were

transferred by his mother as guardian to his father, Mani, who had in

turn transferred the shares to Madhusoodhanan. The Appellate

Court was wrong when it held that the transfer of the shares of

Sukumaran Mani was “an absolute nullity in the eye of law” on the

ground that the initial transfer by Sukumaran Mani was invalid

because it was sought to be effected by Sukumaran Mani’s mother

who was not his legal guardian and who “figured as a guardian only

as a ruse for getting over the statutory provision”. The transfer of

Sukumaran Mani’s share through his mother to Mani has not been

challenged. Therefore the issue of Sukumaran Mani’s minority and

his mother’s competence to act as his legal guardian, were not issues

which could be relevantly raised before, or decided by the appellate

court.

Coming now to the question of consideration, the Division

Bench on an interpretation of Sec. 108 held that “the fixation of the

price was a condition precedent, even in relation to an important and

mandatory procedural formality like the payment of stamp duty to

make the transfer lawful and proper”.

We have already held that the relevant share transfer forms

must be taken to have been duly executed. Although Mani and

Madhusoodhanan had agreed to determine the actual consideration

later, clearly some consideration was agreed to be shown on the

share transfer forms. As noted, Exhibit R.18 produced by Mani’s

group is a voucher for the cost of share transfer stamps. The stamps

must have been purchased on the basis of the consideration which

was shown on the share transfer forms at the prescribed percentage

under the Stamp Act.

But it is also clear from the evidence on record that this was not

the “actual” price which was to be determined consensually by Mani

and Madhusoodhanan. On 19th January 1985, Mani wrote a letter to

Madhusoodhanan which has been exhibited as P-134. The letter

states:

“This is in continuation of discussion I had

with you, regarding the sale of Flow line machine,

Sheet-fed offset and the Cutting machine to me.

My offer is Rs 3 lakhs for all the three machines.

This amount may be deducted from the sale

value of shares you owe to me. Kindly let me

know your decision so that I can arrange to lift the

machines”.

 

 

Then we have the paragraphs from the affidavits of Madhavi and

Mani quoted earlier which talk of the “balance consideration”.

Finally is the lawyer’s notice dated 20.3.87 (Ex.P-83) sent on

behalf of the Mani to Madhusoodhanan threatening legal action

unless Madhusoodhanan paid “the balance sale consideration of

Rs.50 lakhs”. “Since Mani had positively asserted that he must get a

price between 50 and 75 lakhs, and that price negotiated was “in

between the said figures”.

Madhusoodhanan’s claim in this regard is inconsistent. At one

stage he claimed that the consideration for the transfer was recorded

in the transfer form. At another stage he said:

“As far as transferring the shares is

concerned, it is already transferred at

the face value by fixing the proper

stamps and the process have been

completed. The excess amount I will

pay on the shares will depend upon

finally when he transfers the 3 shares to

me; but I will not enter into a written

agreement, I will continue to pay as and

when the 5th respondent required

money”.

 

“The only agreement was that

whatever be and price paid for the

shares, that should not be known to

anybody else including our wives”.

 

 

Madhusoodhanan has claimed that he in fact paid Rs.10 lakhs

to Mani. In his letter dated 28.7.86 written to Srinivasan.

Madhusoodhanan had asserted (Exhibit P 11) that he had paid Rs 5

lakhs to M. S. Mani as part payment for his shares which had been

purchased by Madhusoodhanan and that this brought the total

payment made on this account to Rs 10 lakhs. Mani contended that

there was a total failure of consideration, a contention which was

accepted by the Appellate Court. The truth appears to lie somewhere

in between.

There is no dispute that the machines were in fact lifted by

Mani, pursuant to Ex. P.134. Exhibit R-14 evidences payment by

Kerala Kaumudi of Rs 3 lakhs to Madhusoodhanan for, ostensibly

purchasing property at Cochin for Kerala Kaumudi. The Division

Bench holds that “It is this money that is utilised for payment to Mani

as part consideration of the shares to be transferred by Mani and his

group.” However the Division Bench discounts this payment because

“The very transaction itself may be open to serious challenge. The

money of the company cannot be appropriated for a personal

purpose of a person having a fiduciary capacity vis-a-vis the

company”. As a statement of law this is a doubtful proposition. Be

that as it may, it is apparent that Mani received some consideration

for the transfers although the consideration may have moved from

Kerala Kaumudi to Mani. To sum up – the transfers by Mani and his

children were effected validly to Madhusoodhanan. Their prayer for

rectification of the share register is therefore rejected and the

decision of Division Bench in the appeal ( MFA 347/90) arising from

CP 26/87 is accordingly set aside.

The removal of Madhusoodhanan as Managing Director

 

That Madhusoodhanan had been continuing for some time as

Managing Director of Kerala Kaumudi is evident from the minutes of

the Board meeting held on 5th July 1983 (Ex.P.-62(g)). The minutes

of the Board meeting dated 25th January 1985 (Ex.p.62(H) records

the presence of Madhavi, Mani, Madhusoodhanan, Srinivasan and

Ravi and the unanimous resolution to appoint Madhusoodhanan as

Managing Director and Editor of the company for life. It also records

that Madhusoodhanan had been working as the Managing Director of

Kerala Kaumudi for 11 years as on that date, in other words since

1973. The decision to so appoint Madhusoodhanan was secured by

proposing an amendment to the Articles of Association of the

Company in the following manner:

“Mr. M.S. Madhusoodhanan, presently the

Managing Director and Editor be and is

hereby appointed the Managing Director and

Editor of the Company for life or until he

voluntarily retires on the existing

remuneration, which remuneration may be

revised by the Board from time to time with

the consent of Mr. M.S. Madhusoodhanan.

He shall also in exercise of his duties as

Managing Director exercise the powers given

to the directors under Article 79”.

 

It is not a dispute that an Extraordinary General Meeting was

held which approved this resolution and that the Articles of the

company were duly amended by the introduction of Article 74.

The last meeting of Kerala Kaumudi attended by

Madhusoodhanan was of 5 February 1986. It does not appear from

the minutes of the meeting (Exhibit P2 (J)) that anything of import

relevant to the issues to be decided in these appeals took place on

that day. Then comes the first meeting, which, according to

Madhusoodhanan ,was illegal . This was held on 23rd July 1986.

The minutes of the meeting (Exhibit P 62 (K)) show that Madhavi,

Madhusoodhanan, Srinivasan and Ravi were present. Several

resolutions were taken by the Board on that day which were opposed

by Madhusoodhanan. Of the several, the relevant are quoted:

“Resolved that Smt.C.N. Madhavi, Chairman shall

assume the executive powers of the Managing Director of

the company with immediate effect for efficient running of

the organisation”.

“Resolved that an extraordinary general body meeting be

convened at a date suitable for the Chairman to discuss

and take decisions on matters arising out of the above

decisions and that the Chairman be and is hereby

authorised to issue notices to all concerned”.

The fact whether any notices were at all issued to

Madhusoodhanan or to the other shareholders in his group including

his children or to K. I. P. L. is seriously disputed by them. According

to Mani and his group however, notices were duly issued of the

meeting which was due to be held on 1st August 1986.

The minutes of the meeting held on 1st August 1986 (P-62 (L.))

records that Madhavi, Srinivasan and Ravi attended the meeting.

Out of the various resolutions which were taken regarding the

administration of Kerala Kaumudi, what is important is the resolution

taken by the Board members unanimously to the following effect:

 

 

“Resolved that the issued share capital of the

company be and is hereby increased to Rs 20

lakhs by issuing additional shares worth Rs

4.25 lakhs (for 25 shares of Rs 1000 each) at

par. The Chairman was authorised to issue

notices to the existing shareholders to apply

for shares within seven days”.

 

Madhusoodhanan and K. I. P. L. say that since they did not get

any notice of the meeting and were not otherwise informed of what

had taken place, they did not apply for allotment of any part of the

additional shares which had been decided to be issued. As a result

in the next meeting which was alleged to have been held on 8th

August 1986,(Ex. P-62 M) between 9 a.m. and 10 a.m. at Madhavi’s

residence and attended only by Madhavi, Srinivasan and Ravi, 425

shares were allotted to Srinivasan and Ravi on applications

dated 4th August 1986 received from them — 212 shares being

allotted to Srinivasan and 213 shares to Ravi.

The next meeting which is the subject matter of challenge by

Madhusoodhanan is the meeting held on 26th August 1986. It was

attended by Madhusoodhanan, albeit, according to the minutes

[ Ex P – 62 (N) ], under protest. It was at this meeting that Mani was

admitted as a shareholder of Kerala Kaumudi by Ravi’s sale of one

share to him despite Madhusoodhanan’s objection.

However, the unkindest cut was yet to come. Madhavi, as

Chairman, proposed “that an extraordinary general meeting of the

company be convened to remove Sri M. S. Madhusoodhanan from

the directorship of the company for his actions against the interest of

the company and his misconduct”. Madhusoodhanan objected and

said that this could not be done without amending the Articles of

Association. The minutes go on to record that Madhavi pointed out

that Article 74 of the Articles of Association had already been deleted

at an extraordinary general meeting of the company held for that

purpose and also that the legal opinion was that the Board of the

prescribed number of members could convene a general body

meeting for removal of a Director in exercise of the powers under

section 284 of Companies Act, even if a person be appointed a

Director for life. A resolution was then taken to convene an

extraordinary general meeting on 25th September 1986 to pass the

following resolution:

“Resolved that Sri M. S. Madhusoodhanan be and is

hereby removed from being a Director of the company

with immediate effect in accordance with section 284 of

Companies Act 1956 and all other provisions in this

behalf of the Companies Act, 1956 and Articles of

Association of the company”.

 

The Extra Ordinary General Meeting of Kerala Kaumudi was

held on 25th September 1986 at its registered office. The resolution

to forthwith remove Madhusoodhanan as Director under section 284

of the Companies Act 1956 was passed taking into consideration the

additional shareholding of Ravi and Srinivasan. Madhusoodhanan

and his group did not vote.

On 27th September 1986 the Board of Directors of the Kerala

Kaumudi held a meeting attended by Madhavi, Srinivasan and Ravi,

at which Srinivasan was appointed as Managing Director of the

company, Mani was appointed as additional Director,

Madhusoodhanan was removed from the post of editor and Mani was

appointed in his place and stead. Madhusoodhanan’s final ouster

from the control of Kerala Kaumudi was thus completed.

According to Madhusoodhanan, resolutions quoted above

removing him as Managing Director of Kerala Kaumudi were illegal

because in terms of Article 74 of the Articles of Association of Kerala

Kaumudi, Madhusoodhanan was appointed the Managing Director

and editor of the company for life. It is contended that in accordance

with the Memorandum and Articles, 75 percent of the votes was

required to amend the Articles. Mani’s group (including Madhavi)

held only 50% of the shares of Kerala Kaumudi. The remaining 50%

shares were held by Madhusoodhanan and his family and KIPL. The

second submission of Madhusoodhanan and KIPL is that they were

not given any notice of the Board meeting which was purportedly

held on 1st August 1986 at which the decision was taken to offer

further shares for allotment and that they were not given any

opportunity to apply for the additional shares. It is also the

submission of Madhusoodhanan and KIPL that in fact no meeting

was held on 8th August, 1986, at which the further shares were

allotted to Ravi and Srinivasan.

Madhusoodhanan and KIPL’s applications Nos. CP 14/86 and

CP 31/88 were therefore filed for rectification of the share register of

Kerala Kaumudi as noted earlier and suit CS No. 3/89 was filed by

Madhusoodhanan for a declaration that he is the Managing Director

of Kerala Kaumudi, KIPL’s CS No. 5/89 was filed for cancellation of

the impugned annual general meetings and extraordinary general

meetings of Kerala Kaumudi.

A. Alteration of Article 74 of the Articles of Association of

Kerala Kaumudi

 

Sub-section (1) of section 31 of the Companies Act, 1956,

provides that the company may alter its articles only by special

resolution subject to the provisions of the Act and the conditions

contained in its memorandum. Our attention has not been drawn to

any condition in the memorandum of Kerala Kaumudi which

prescribes something different from the provisions of the Act for

effecting an alteration of the articles. Article 49 of the Articles of

Association of Kerala Kaumudi provides:

“Subject to the provisions of Sub-section (2) of

Section 81 of the Indian Companies Act, 1913,

relating to special resolutions, fourteen days’

notice at the least (exclusive of the day on

which the notice is served, or deemed to be

served but inclusive of the day for which notice

is given) specifying the place, the day and the

hour of meeting and, in case of special

business, the general nature of that business,

shall be given in manner hereinafter

mentioned, or in such other manner, if any, as

may be prescribed by the Company in General

Meeting to such persons as are, under the

Indian Companies Act, 1913 or the

Regulations of the Company, entitled to

receive such notices from the Company, but

the accidental omission to give notice to or the

non-receipt of notice by any member shall not

invalidate the proceedings at any General

Meeting.”

 

The corresponding section in the 1956 Act to Section 81 of the

Indian Companies Act, 1913, is section 189. The relevant extract of

section 81 of the 1913 Act reads:

“81. Extraordinary and special resolutions.

 

(1) A resolution shall be an extraordinary

resolution when it has been passed by a

majority of not less than three-fourths of

such members entitled to vote as are

present in person or by proxy (where

proxies are allowed) at a general

meeting of which notice specifying the

intention to propose the resolution as an

extraordinary resolution has been duly

given.

 

(2) A resolution shall be a special resolution

when it has been passed by such a

majority as is required for the passing of

an extraordinary resolution and at a

general meeting of which not less than

twenty-one days’ notice specifying the

intention to propose the resolution as a

special resolution has been duly given:

 

Provided that, if all the members entitled

to attend and vote at any such meeting

so agree, a resolution may be proposed

and passed as a special resolution at a

meeting of which less than twenty-one

days’ notice has been given.

…………………………………………….

 

(7) For the purpose of this section

notice of a meeting shall be

deemed to be duly given and the

meeting to be duly held when the

notice is given and the meeting

held in manner provided by the

articles, or under this Act”.

 

Therefore three conditions had to be fulfilled before any

alteration of the Articles could take place.

 

(i) Notice specifying the intention to

propose the resolution as an

extraordinary resolution must be given.

 

 

(ii) The resolution must be passed by 75%

of the members present and ;

 

 

(iii) Not less than 21 days notice of the

meeting must be duly given.

 

 

The requirements are cumulative and mandatory.

Coming now to the facts of this case, it is apparent that

none of the three preconditions for effecting an alteration in the

Articles of Kerala Kaumudi by deleting Article 74 were fulfilled. It may

be recalled that at the Board meeting held on 23rd July 1986

(Ex.P.62(K))in connection with Madhusoodhanan’s functioning as a

Managing Director, only a limited resolution was taken, namely, that

Madhavi “shall assume the executive powers of the Managing

Director with immediate effect for effective running of the

Organisation”. The resolution that an extraordinary general body

meeting be convened at a date suitable for the Chairman “to discuss

and take decisions on matters arising out of the above decisions” was

therefore confined to this limited resolution. Exhibit R -5 is the notice

dated 25th July 1986 purporting to call an extraordinary general

meeting of the shareholders of Kerala Kaumudi on 16th August 1986

at 11 AM to inter alia consider and if thought fit to pass as a special

resolution the following:

“Resolved that the consent of the Company be

and is hereby accorded in order to satisfy the

requirements of section 192 (c) and other

applicable provisions, if any, of the Companies

Act 1956, to ratify the following resolutions

adopted by the Board of Directors of the

Company at its meeting dated 23. 7. 1986.

 

1. “Resolved that Smt. C.N. Madhavi,

Chairman, shall assume the executive powers

of the Managing Director of the Company with

immediate effect for efficient running of the

Organisation”.

 

There is no mention whatsoever in the notice of any intention

or proposal to amend the articles of the company. The Explanatory

statement annexed with the notice states (in so far as it is relevant) ”

Special resolutions have been brought before the General Body,

since it is felt that the effect of the said resolutions taken by the Board

and being implemented may have the effect of curbing the powers of

the Managing Director vested with him by the General body”.

What has been deliberately and completely glossed over is that

Madhusoodhanan’s power was not sought to be merely curbed, but

completely denuded. At the Extraordinary General meeting held on

16th August 1986 (Ex.P 57 (a)), when the special resolution was

taken up for consideration, Madhavi said that she would like to submit

a report “in continuation of the Explanatory statement mentioned in

the notice” and then proposed that “another special resolution also be

passed deleting Article 74 of the Articles of Association of the

company”.

This acknowledges that there was no earlier extraordinary

general meeting deleting Art.74 as Madhavi had claimed in the

meeting dated 23.7.1986. Furthermore it shows that the special

resolution which was proposed in the notice was not the resolution

which was ultimately passed. In the garb of ratifying the resolution

taken by the Board of Directors on 23.7.1986 , what was in fact

“ratified” was not only the proposal to remove Madhusoodnan as

Director but also the immediate deletion of Article 74 of the Articles of

Association of the Company. The expression of intention in the

notice under section 81(1) (corresponding to Section 189 (2)(a) of the

1956 Act) should be sufficiently specific so as to effectively inform

each member of the company of the actual resolution sought to be

passed in the general meeting. The notice must be frank, open, clear

and satisfactory. If it is not, the notice is bad and the special

resolution vitiated and cannot be acted upon. “If any attempt is made

by the directors to get the sanction of the shareholders, it must be

made on a fair and reasonably full statement of the facts upon which

the directors are asking the shareholders to vote…and special

resolutions obtained by means of a notice which did not substantially

put the shareholders in the position to know what they were voting

about cannot be supported” (see Baillie v. Oriental Telephone and

Electric Co Ltd:[1915] 1 Ch. D 503,514-515;[1914-15] All E.R.Rep.

1420,1425,1426).

Since the further resolution to delete Art. 74 formed no part

of the notice of the Extraordinary General Meeting, which in all

fairness it should have, we have no doubt in our minds that the

special resolution on the basis of such defective notice is

insupportable in law and cannot be given effect to. This finding is

sufficient to hold that the deletion of article 74 of the Articles of the

company was invalid and that therefore Madhusoodhanan continued

to be the managing director of Kerala Kaumudi as claimed by him in

CS 3/89.

However we may also indicate briefly here our additional

reasons for reaching this conclusion. The notice (Ex.R-35) was

required to have been served on all the members of the company

either by post or personally in terms of Article 108 or section 53 of the

Act. The second imperative for a special resolution to be validly

passed is that notice of the general meeting must be ‘duly’ given. The

mode of service of notice on members has been provided for under

Article 108 which is similar to Section 53 of the 1956 Act in all

material respects. The two modes envisaged are personal service

and service by post. There is no other mode envisaged. We are not

satisfied that the service of the notice was effected either on

Madhusoodhanan or any other share holder in his group, including

KIPL by either of the modes specified.

The submission of the respondents that under Article 49 of the

Articles of Association of the Company even if no notice were given

of the Extraordinary General Meeting, this would not vitiate the

proceedings is misconceived. This was no ordinary general meeting,

but a meeting where a special resolution was to be passed. This had

to be done under section 81 of the 1913 Act, to which Article 49 is

expressly subject, and the requirement for giving due notice under

section 81 is mandatory. Furthermore, Article 49 speaks of an ”

accidental omission ” to give notice not officiating the proceedings. In

other words the omission must be bona fide, and not an omission

which was wilful as it was in this case.

Furthermore, The third condition to be fulfilled before the

Articles can be amended under section 81(1) of the 1913 Act,

(S. 189 (2) (c) of the 1956 Act ) is that at least 75 percent of the

members entitled to vote and voting must support the resolution. This

mandatory need to have the special resolution passed by a statutory

majority of 75% was also sought to be circumvented by the

respondents by the purported issue of additional shares to Ravi and

Srinivasan. Both these aspects are dealt with in connection with the

issue of additional shares.

B) Issue of additional shares.

In order to push through the so-called special resolution

deleting Article 74 with the requisite majority of 75 percent, it was

necessary from the respondents’ point of view to ensure that

Madhusoodhanan’s shareholding which was more than 50% of the

paid-up share capital of the company was reduced to 25 percent.

This was sought to be achieved by the respondents in two stages.

First, by taking a decision to increase the paid up share capital of the

Company by issuing an additional 425 shares. Second, by not giving

Madhusoodhanan or any of his group to any chance participate in the

fresh allotment of shares and ensuring that the shares were allotted

to Ravi and Srinivasan. The evidence on record amply bears this out.

As we have seen, Madhavi assumed charge as Managing

Director of the company on 23.7.86 with the object of ousting

Madhusoodhanan from his control over the affairs of Kerala Kaumudi.

This needed to be ratified by the general body of shareholders. The

minimum period of notice for a general body meeting under Article 49

read with Section 81 of the Act is “not less than 21 days”, that is there

should be a clear interval of 21 days and in computing the period the

date of the meeting and the date of service of the notice is to be

excluded. (See Nagappa Chettiar V. The Madras Race Club AIR

1951 Mad 831, 838; In re Hector Whaling Lt. [1936] 1 Ch.208). So

the notice dated 25. 7. 86 (Ex. R.-35) was issued for holding the

extraordinary general meeting on 16th August 1986 with the

requisite statutory majority of 75 percent .

A decision was taken by the respondents at the meeting of the

Board on 1st August 1986 (Ex..P-62(l)), to increase the share capital

of the company to Rs. 20 lakhs by issuing additional shares worth

Rs 4.25 lakhs. At the same meeting , the Chairman (Madhavi) was

authorised by the two other directors present namely Ravi and

Srinivasan “to issue notices to the existing shareholders to apply for

shares within seven days”. What is noteworthy is that the last day for

making an application for allotment of any of these additional shares

was fixed at seven days from the date of the Board meeting so that

Madhusoodhanan’s shareholding could be reduced to 25% before the

Extraordinary General Meeting to be held on 16th August 1986.

According to Madhusoodhanan and his group they neither

knew of the meeting dated 1st August 1986 nor did they receive any

notice with regard to the allotment of additional shares nor of the

meetings said to have been held on 8.8.86 and 16.8.86, in which the

allotment of additional shares to Ravi and Srinivasan were made and

later confirmed.

The Learned Single Judge held that no notice either of the

Board meeting held on 1st August 1986 or for the issue of additional

shares had been served on Madhusoodhanan. He also referred to

Articles 40, 41 and 18 of the Company to hold that the notice period

of seven days to apply for allotment of additional shares was far too

short. He upheld the contention of Madhusoodhanan that no

meetings were in fact held on 8.8.86 or 16.8.86 and that there was as

such no valid allotment of the additional shares to Ravi and

Srinivasan.Madhusoodhanan’s claim for rectification of the share

register of Kerala Kaumudi was accepted and a fresh allotment of the

additional shares was directed to be held. The Division Bench

disagreed on all counts with the learned Single Judge, in our view,

erroneously. Let us consider in the first place whether the notice of

the meeting dated 1st August 1986 was served on Madhusoodhanan.

The evidence produced by the respondents in this regard is as

follows:

(i) an entry dated 25th July 1986 in the local delivery book

of Kerala Kaumudi (Ex. R. 8 (a)) which shows against the

name and address of Madhusoodhanan that “one letter

regarding Board and General Body Meetings” was

acknowledged as having been received on behalf of

Madhusoodhanan by one Mohanraj , the then personal

assistant of Madhusoodhanan (P.W.2) who has written that he

“handed same over to Mrs Madhusoodhanan through Mr

Raghunathan, peon”. There is no remark under the column “By

whom delivered”.

(ii) an entry in the outward register of Kerala Kaumudi

(Ex.p 93 (p)) which shows that “one letter Board meeting on

1.8.86.Gl. Body meeting on 16.8.86” was dispatched on

25.7.86 to Madhusoodhanan with copies to Srinivasan, Ravi

and Mani.

(iii) an affidavit of Mohan Raj affirmed on 25th August

1986 in 0. S. 1329 of 1986 (Ex. R-7) in which he has affirmed

“sealed envelopes from the Chairman, Kerala Kaumudi (P) Ltd

was served on me on 25.7. 86 and 1.8.86 and I have signed the

local delivery book as a token of its acknowledgement and I

have duly forwarded the letters to Sri M.S. Madhusoodhanan”.

Not one of these pieces of evidence at all establish that the

notice dated 25th July 1986 of the Board meeting to be held on

1st August 1986 was served on Madhusoodhanan. As far as item (i)

is concerned, it certainly does not amount to personal service on

Madhusoodhanan as required under the Articles or section 53 of the

Companies Act, 1956. Apart from this fatal legal flaw, the exhibit

merely records that an unknown or at least an unnamed person

handed over a sealed envelope to Mohan Raj who then handed it

over to a peon, Raghunathan, who was to hand it over to Mrs

Madhusoodhanan. No one has come forward to say that the sealed

envelope contained the notice dated 25th July 1986. Assuming it did,

there is nothing to show that the envelope ultimately reached

Madhusoodhanan. The affidavit affirmed by Mohan Raj on

25th August 1986 (Ex R 7) contradicts the entry in the local delivery

book. Apart from anything else, Mohan Raj has himself admitted that

he had not forwarded the notice to Madhusoodhanan in several

documents namely in Exhibits P.36, P.46, P.53 and in an affidavit

exhibited as P.49, besides also giving oral evidence to this effect.

We find no reason to disbelieve Mohan Raj’s oral testimony as to the

circumstances under which he had affirmed the affidavit relied on by

the respondents.

As far as the outward register is concerned, it has not been

proved as to who dispatched the notice nor does the register show

how the dispatch was effected. It is unclear on what material the

Division Bench proceeded on the basis that it was sent by post

under certificate of posting. In any event, if this were indeed so,

where is the certificate? Its absence is significant .

Also significant is the absence of the actual notice alleged to be

dated 25th July 1986 of the Board meeting held on 1st August 1986

.Why was it not produced by the respondents? What did the notice

say? Did it indicate the intention to issue additional shares for the

purposes of increasing the share capital company as it should have?

We do not know. But we can only observe that the absence of the

notice raises a presumption against the respondents. And in so far as

the outward dispatch register is concerned, the mode of dispatch has

not been mentioned nor is there anything to show that the notice was

in fact dispatched. In the circumstances, we have no doubt that

Madhusoodhanan was not given any notice of the Board meeting

said to have been held on 1st August 1986.

The respondents have relied on Madhusoodhanan’s letter

dated 8th August 1986 to Srinivasan (Ex. P.35) in which he

complained that he had not been receiving his personal mail or letters

addressed to him as Managing Director since 4th August 1986 and

that the usual method of handing over such mail to his personal

assistant was not been followed, to contend that the notice dated

25th July 1986 had been duly served on Madhusoodhanan and

received by him.

The letter is a complaint regarding the complete blocking of all

mail both personal and official by the respondents since

4th August 1986. It cannot be construed as an admission that all mail

prior to that date had been duly received. In fact, on the same date

that exhibit P.35 had been written by Madhusoodhanan to Srinivasan,

he also wrote to Madhavi (Ex.P.24) that on 3rd August 1986 he came

to know “while holding discussions with the Deputy Manager of

Canara Bank, Trivandrum, that you purported to hold a Board

meeting on 1.8.86. I have had no notice of this meeting and

consequently this was illegal. Any decision taken there is invalid and

not binding on the company or me. You purported to pass a

resolution regarding the operating of the bank accounts. My power to

operate bank accounts of the company on my own as managing

director is not depended (sic) on any resolution of the board. The

board cannot take away those powers or make it necessary that

someone else who sign (sic) with me”. The letter was admittedly

received but not replied to. Apart from the categorical assertion of

lack of notice of the meeting held on 1.8.86, it is clear from the

contents of the letter that Madhusoodhanan had no knowledge of

what actually transpired there.

Since Madhusoodhanan did not know of the meeting held on

1st August 1986, he was not aware, as the respondents were, either

that additional shares were being issued or that the application for

additional shares had to be made within seven days of the meeting.

Exhibit R. 26 Is a Notice Dated 1.8.86 issued under the

signature of Madhavi. It refers to financial difficulties faced by the

company which made it necessary for the Board by its Resolution

dated 1.8.86 to issue 425 equity shares of Rs.1000/- each for

subscription to the existing shareholders. The notice which appears

to be addressed to Madhusoodhanan, his two children, Srinivasan

and his daughter, Ravi and his daughter and finally to KIPL finally

states: “You are eligible to apply for additional shares within seven

days”.

Article 40 of the Articles of the company requires all new shares

to be offered to all existing shareholders “in proportion, as nearly as

the circumstances admit to the amount of the existing shares to which

they are entitled”. The offer is required to be made by notice

“specifying the number of shares offered, and limiting the time within

which the offer, if not accepted, will be deemed to be declined…”

The notice, exhibit R-26, is not in this form at all.

However, the respondents have sought to rely upon the

following evidence in support of their contention that

Madhusoodhanan was given an opportunity to apply for the additional

shares by service of a notice dated 1.8.86. :

(a) an entry in the local delivery book of Kerala Kaumudi

(Ex. R-8 (b)) which ostensibly records that on 1st August 1986,

Madhusoodhanan, Managing Director, Kerala Kaumudi,

Trivandrum was “Authorised to issue notices to the existing

shareholders & one letter for Board meeting”. There is an

unidentified signatory who has acknowledged receipt of this

document on 1-8-86.According to Srinivasan’s oral testimony,

the signature is that of Mohan Raj

(b) Exhibit P. 93 (a) is an entry in the outward register of

Kerala Kaumudi indicating the dispatch of the notice

(c) A Certificate of Posting dated 1.8.86 (Ex.R.25) which

purports to relate to service of the notice on Madhusoodhanan,

his children and KIPL

Both the learned Single Judge and the Division Bench accepted

that the signature of the person acknowledging receipt of the notice

was Mohan Raj . Where they have differed is whether this amounted

to service upon Madhusoodhanan, his children or on KIPL either in

fact or in law. The learned single judge held it did not. The Division

Bench disagreed. Considering the facts, we have no hesitation in

holding the learned Single Judge was right.

We have already held that service on Mohan Raj did not

amount to personal service within the meaning of Article 108 of the

Articles of Association of the Company or Section 53 of the

Companies Act, 1956. Even on the factual score, for the reasons set

out by us earlier in connection with service of the notice dated

25-7-86, we are not satisfied that Madhusoodhanan was in fact

served with a notice through Mohan Raj. Besides, the relevant entry

does not refer to the notice.

As far as the certificate of posting is concerned, it is not

explained why it does not record the dispatch of notices to any other

shareholder. When the relationship between the parties was already

so embittered, proof of service of notice by certificate of posting

must be viewed with suspicion. Judicial notice has been taken that

certificates of posting are notoriously “easily” available. What was

seen as a possible but rare occurrence in 1981 (Ummu Saleema v.

B.B.Gujral (1981) 3 SCC 317) is now seen as common . Thus in Shiv

Kumar v. State of Haryana 1994(4) SCC 445,447), this Court said:

“We have not felt safe to decide the

controversy at hand on the basis of the

certificates produced before us, as it is not

difficult to get such postal seals at any point of

time”.

 

Despite this ground reality and on a misinterpretation of the

provisions of section 53,the Appellate Court came to the indefensible

conclusion that “evidence regarding dispatch of a communication

under certificate of posting attracts the irrebuttable statutory

presumption under section 53 (2) (b) that the notice had been duly

served”, that ” it is not open now to project a plea of absence of

service of notice and a substantiation thereof by evidence” and that

even if it were proved that the notice did not reach the addressee, the

evidence could not be ” formally accepted and formally acted upon by

the court” such contrary evidence ” being necked(sic) out at the

threshold”.

This Court in Ummu Saleema’s case (supra) said that a

certificate of posting might lead to a presumption if the letter was

addressed and was posted, that it, and in due course, reached the

addressee. “But, that is only a permissible and not an inevitable

presumption. Neither section 16 nor section 114 of the Evidence Act,

compels the Court to draw a presumption. The presumption may or

may not be drawn. On the facts and circumstances of case, the

Court may refuse to draw the presumption. On the other hand the

presumption may be drawn initially but on a consideration of the

evidence the Court may hold a presumption rebutted and may arrive

at the conclusion that no letter was received by the addressee or that

no letter was ever dispatched as claimed”.

This general rule regarding certificates of posting has not been

changed under section 53 of the Companies Act., although it does

provide that if a document is sent by post in the manner specified,

“service thereof shall be deemed to be effected”. The word “deemed”

literally means “thought of” or, in legal parlance “presumed”.

There is a distinction between “presumption” and “proof”. A

presumption has been defined as “an inference, affirmative or

disaffirmative of the truth or falsehood of a doubtful fact or proposition

drawn by a process of probable reasoning from something proved or

taken for granted” (Izhar Ahmad V. Union of India :AIR (1962) SC

1052, 1060). They are rules of evidence which attempt to assist the

judicial mind in the matter of weighing the probative or persuasive

force of certain facts proved in relation to other facts presumed or

inferred (ibid.). Sometimes a discretion is left with the Court either to

raise a presumption or not as in Section 114 of the Evidence Act.

On other occasions, no such discretion is given to the Court so that

when a certain set of facts are proved, the Court is bound to raise the

prescribed presumption. But that is all. The presumption may be

rebutted.

While construing section 28-B. of the U.P. Sales Tax Act

which inter alia provides that if a transit- pass is not produced at the

check post on entry and at the point of exit, “it shall be presumed that

the goods carried thereby have been sold within the State”, the

contention that the phrase “it shall be presumed that ” meant that “it

shall be conclusively held” was negatived. After referring to section 4

of the Evidence Act it was held by this Court in M/s. Sodhi Transport

Co. v. State of U.P. :AIR (1986 ) SC 1099, 1105: ):

“The words “shall presume” require the Court

to draw a presumption accordingly, unless the

fact is disproved. They contain a rule of

rebuttable presumption. These words i.e.

“shall presume” are being used in the Indian

judicial lore for over a century to convey that

they lay down a rebuttable presumption in

respect of matters with reference to which they

are used and we should expect that the U.P.

legislature also has used them in the same

sense in which Indian Courts have understood

them over a long period and not as laying

down a rule of conclusive proof. In fact these

presumptions are not peculiar to the Evidence

Act. They are generally used wherever facts

are to be ascertained by the judicial process”

 

It was accordingly held that the words “shall presume”

contained in section 28B of the U.P Sales Tax Act only require the

authorities concerned to raise a rebuttable presumption that the

goods must have been sold in the State if the transit pass is not

handed over at the check post at point of exit and that it was open to

the transporter to still prove that the goods had been disposed of in a

different way. (See also Syed Akbar V. State of Karnataka: AIR

(1979) SC 1848; State of Madras v. Vaidyanatha: AIR (1958)

SC 61)

Raising of a presumption, therefore, does not by itself amount

to proof. The result of a mandatory requirement for raising a

presumption cast on Court, as there is under section 53 (2) of the

Companies Act, is that the burden of proof is placed on the person

against whom the presumption operates for disproving it. It is only if

such person is unable to discharge the burden, that the court will act

on the presumed fact. (See Dahyabhai V. State of Gujarat: AIR

(1964) SC 1563). A presumption however is of course not always

rebuttable. But the mere use of the word “shall” before the word

“presume” or other like word does not mean that the presumption is

irrebuttable or conclusive. An irrebuttable presumption is couched in

different language, normally indicating that proof of one set of facts

shall be “conclusive proof” of a second set. An example of this is

Rule 3 of the Rules framed in 1956 under section 18 of the

Citizenship Act, 1955 which was the subject matter of challenge in

Izhar Ahmad’s case (supra). Section 53(2) contains no such

language.

Consequently, the words “shall presume” in section 53

subsection (2) means a rebuttable presumption which the Court must

raise provided the basic facts namely the due posting of the

document is proved, the onus being on the addressee to show that

the document referred to in the certificate of posting was not received

by him.

In the present case, the certificate of posting is suspect.

Assuming that such suspicion is unfounded, it does not in any event

amount to conclusive proof of service of the notice on

Madhusoodhanan or on any of the other addressees mentioned in

the certificate as held by the Division Bench. Except for producing

the dispatch register and the certificate of posting, no one on behalf

of the respondents came forward to vouch that they had personally

sent the notice through the post to Madhusoodhanan and his group.

Madhusoodhanan had written two letters contemporaneously dated

4.8.86 and 8. 8.86 (Ex.P-24 and Ex.P-35) to Srinivasan, the General

Manager of Kerala Kaumudi and to Madhavi complaining that he was

not receiving any mail at all. These letters were admittedly received

but not replied to by the respondents. It is also apparent from a

perusal of those letters that Madhusoodhanan had no knowledge

whatsoever of the notice for application for allotment of additional

shares. Had there been such notice it is improbable that

Madhusoodhanan who was fighting for retaining his control over

Kerala Kaumudi, would have risked losing such control by abstaining

from applying for the additional shares.

In the circumstances we hold that Madhusoodhanan and his

group were not served with the notice dated 1.8.86 . It is therefore

unnecessary to decide whether the period prescribed in the notice to

apply for the shares was too short or contrary to the Articles of

Association of Kerala Kaumudi.

Once we have held that Madhusoodhanan and his group, all of

whom held shares in Kerala Kaumudi, were not given notice to apply

for allotment of the additional shares, it must be held that the

subsequent allotment of the shares to Ravi and Srinivasan at the

meeting held on 8.8.86 and the affirmation of such allotment at the

meeting allegedly held on 16.8.86 were vitiated thereby and invalid.

Although there appears to be substance in the submission of

Madhusoodhanan, as accepted by the learned Single Judge , that no

meetings were in fact held on 8.8.86 or on 16.8.86, in view of our

finding relating to the non-service of the notice dated 1.8.86, we

refrain from deciding the issue.

We, therefore, set aside the decision of the Division Bench in

MFA 330/90, AS No. 164/90 and AS No. 165/90 and affirm the

judgment and order of the learned Single Judge in CP 14/86 and the

decree in CS No. 3/89 and CS No. 5/89 including the directions in

connection with the allotment of the additional 425 shares.

KIPL’s application CP 31/88 was dismissed by the Single Judge

and the appeal therefrom (MFA 559/90) also rejected. Since the

subject matter of KIPL’s application is covered by Madhusoodhanan’s

application CP 14/86 and was for identical reliefs, we merely dispose

of the appeal in terms of this judgment without any further

observation.

Specific Performance of the Karar 16th January, 1986

The last proceeding relating to Kerala Kaumaudi was CS 6/89

which was a suit filed by Madhusoodhanan for specific performance

of the Karar dated 16th January 1986.

We have already held that by May, 1985, Mani and his group

had transferred their shareholding in Kerala Kaumudi to

Madhusoodhanan, and that as a result of such transfer

Madhusoodhanan and his group held more than 50% of the shares in

the company. On 15th July 1985, Madhavi is alleged to have executed

two agreements and a will transferring the 9 shares of the late

Sukumaran and her own 3 shares to Ravi and Srinivasan [Ex.R.-59,

Ex.R.-59(a) and Ex.R. 60]

It is in this background that the agreement dated 16th January

1986 must be read. The original of which is in Malayalam and which

has been described by the parties as the Karar, has 11 clauses. It is

admittedly written by Mani and is signed by Madhavi, Mani,

Madhusoodhanan, Srinivasan and Ravi. It seeks to record the

partition of assets by mutual consent. Clause 1 of the Karar provides

that Madhavi would be the chairman of Kerala Kaumudi during her

lifetime. Clause 2 provides that there will be no change in the

existing share structure during the lifetime of Madhavi and that after

the death of Madhavi, the shares of Kerala Kaumudi should be so

given that Madhusoodhanan gets 50% of the total shares of the

company including the shares owned by Mani, and Srinivasan and

Ravi get 25% each. It was also agreed that the shares of the late

Sukumaran and Madhavi should be divided according to this

percentage. The shares of KIPL in Kerala Kaumudi were also to be

given to Madhusoodhanan, Ravi and Srinivasan in the same ratio.

Then comes clause 3. While there is no controversy on the

translation of clauses 1, 2, 4, 5, 6, 7, 8, 9, 10 or 11, the translation of

clause 3 is seriously in dispute. We give the three different versions

as put forward by Madhusoodhanan, the respondents and finally the

official translator of this Court.

 

A) “Mr M. S. Mani is selling some of his shares in

Kerala Kaumudi to Mr M. S. Madhusoodhanan and

the price of that share will be informed to the other

parties in time”.

 

B) “the value of the shares of Kerala Kaumudi which

is to be sold by M. S. Mani to M. S.

Madhusoodhanan will be informed to others at the

appropriate time”.

 

C) “the price paid by M. S. Madhusoodhanan on the

sale of Kerala Kaumudi shares by M. S. Mani will be

intimated to other parties as and when (it is done)”.

 

Having regard to our finding on the question of transfer of

Mani’s 390 shares to Madhusoodhanan in May, 1985, perhaps the

appropriate translation is the one put forward by the official translator

which is set out above as (C). This difference of opinion, however,

is really of no moment, because the subject matter of

Madhusoodhanan’s claim for specific performance is limited to that

part of the Karar which provides for the division of shares of the late

Sukumaran and Madhavi in the percentage of 50: 25: 25 between

Madhusoodhanan, Ravi and Srinivasan, on Madhavi’s death. Before

considering the merits of this claim, we may briefly refer to the

remaining clauses of the Karar. Clauses 4 to 10 relate to the division

of assets and shareholding in various family concerns so that each of

the brothers had 52 percent shareholding in different concerns as

specified below:

Mani Laisa Publications Private Ltd

Madhusoodhanan Kaumudi Investment Private Ltd ;

Kaumudi Exports Private Ltd;

Kaumudi News Service Private Ltd

 

Ravi Ravi Printers and Publishers Private Ltd;

Kaumudi Films Outdoor Unit ; Electronics

and Equipment Corporation; Ravi Transport

 

Srinivasan Srinivasan Printers and Publishers Private

Ltd.

 

 

All other establishments were required to be closed down and

Madhusoodhanan was appointed for that purpose. Clause 9 provides

that if any shareholder in any of the concerns wishes to sell his

shares, they must be offered to the “52% shareholders” at a price to

be fixed by the others. If the 52% shareholders refuse to

purchase the share, the others would have to do so at the value fixed

by the concerned company’s auditors according to the Company’s

balance-sheet for the previous year. Clause 10 provides that the

agreement would bind the four brothers and their heirs in the event of

the death of any one of them before the agreement was completely

implemented. The last clause in the Karar is clause 11. It provides

that all pending litigation regarding the subject matter of the Karar,

should be withdrawn and that all disputes should be mutually settled,

and if this is not possible the matter should be referred to an

acceptable third party whose decision would be binding.

On 2nd December 1987 Madhavi died and on

10th October 1988, Madhusoodhanan filed C. S. 6/89 for transfer of

50% of the late Sukumaran and Madhavi’s shares to him and the

transfer of 50% of KIPL’s shareholding in Kerala Kaumudi to Ravi and

Srinivasan in terms of the Karar. The defendants in the suit were

Mani, Srinivasan, Ravi, Kerala Kaumudi and KIPL. They first filed a

four page written statement in which they contended that the suit was

not maintainable, that the suit was bad for mis-joinder and non-

joinder of parties, that the suit had been improperly valued and

proper court fees not paid, that the suit was barred by limitation, that

the Karar was barred by the provisions of the Specific Relief Act,

1963 and that the court did not have the jurisdiction to entertain the

suit.

The learned Single Judge decided each of the issues raised in

favour of Madhusoodhanan and decreed the suit. The Division

Bench allowed the appeal (A.S. 211/9). The reasons which

persuaded the Division Bench to allow the appeal were first: no steps

had been taken by Madhusoodhanan for determination of the price of

390 shares or the ‘inherited shares’ or for making the same known to

the other parties or for carrying out the other provisions in the Karar —

in particular closing down of Blue Travels, Kaumudi Hotels and Blue

Transports. Second, there was no averment in the plaint regarding

consideration and no relief sought for in relation to the fixation or

payment of consideration. Third, in contravention of Section 16 of the

Specific Relief Act there was no averment in the plaint about the

preparedness of Madhusoodhanan to pay the consideration; fourth,

since there had been no transfer of the 390 shares, it was not

possible to enforce the Karar in respect of the bulk of shares

regarding which specific performance had been claimed. Fifth,

Madhusoodhanan could not claim specific performance of only that

part of the agreement which was in his favour without performing the

obligations which were cast on him by the other clauses. These

clauses were inseparable and part performance of the agreement

was not possible. Sixth, there was an undue delay in filing the suit.

Seventh, compared to the assets owned by Kerala Kaumudi and

KIPL, both of which were to go to Madhusoodhanan in terms of the

Karar, the worth of Kala Kaumudi (allotted to Mani) and Ravi Printers

(allotted to Ravi) was insignificant, the last fact justifying the court’s

refusal to grant specific performance of the Karar under section 20 of

the Specific Relief Act. The appeal was, therefore, allowed and the

suit dismissed.

We have already said that except for clauses 1, 2,3 and 11, all

the other clauses of the Karar related to the division of the several

concerns among the four brothers. In deciding whether the

agreement should be implemented, the Appellate Court overlooked

the basic fact that each of brothers had been given the majority

shareholding of 52 percent in the companies specified against their

names in the Karar. Since the other three brothers had taken the full

benefit of the Karar, they were bound to comply with all its terms. It

was not open to them to accept that portion of the Karar which was in

their favour and jettison the rest. And the Karar which is in the nature

of a family settlement seeking to settle disputes between brothers,

having been already acted upon at least to the extent that the four

brothers were each given the majority shareholding in the different

companies as mentioned in the Karar, should not be lightly interfered

with. (See: K.K. Modi versus K.N. Modi and others: (1998) 3 SCC

573).

The Division Bench has not adverted to this all. It is also on

record that Madhusoodhanan had transferred the bulk of his

shareholding in the companies which were to be under the majority

control of the other three brothers. The learned Single Judge had

held that Madhusoodhanan had given evidence that he had taken

steps for closing down the companies not mentioned in the Karar.

This finding has not been questioned. All the clauses except for the

transfer of the ‘inherited shares’ to Madhusoodhanan had been acted

on. Madhusoodhanan was entitled to insist on the performance of

this clause as well.

The respondents cited Article 29 of the Articles of the

company in support of their argument that exhibits R. 59 and 60

overrode the Karar insofar as it required that 50% of the shares of the

late K. Sukumaran and Madhavi had to be transferred to

Madhusoodhanan on Madhavi’s death. Article 29 says that the

executors or administrators of the deceased sole holder of a share

shall be the only persons recognised by the company as having any

title to the share. It was the contention of the respondents that

insofar as the Karar provided for the transfer of the shares of the late

Sukumaran and Madhavi to Madhusoodhanan , it was contrary to

Article 29 of the Articles of Association of the company and could not

be enforced. This submission is made on the basis of the decision of

this Court in V.B. Rangaraj versus B. Gopalakrishnan: (AIR 1992 SC

453).

That decision must be understood and read after enunciating

certain basic principles relating to the transfer of shares and in the

background of earlier decisions on the subject. It is settled law that

shares are movable properties and are transferable. As far as private

companies like Kerala Kaumudi are concerned, the Articles of

association restrict the shareholder’s right to transfer shares and

prohibit any invitations to the public to subscribe for any shares in, or

debentures of, the company. This is how a “private company” is now

defined in section 3 (1) (iii) of the Companies Act, 1956 and how it

was defined in section 2 (1 3) of the 1913 Act.

Subject to this restriction, a holder of shares in a private

company may agree to sell his shares to a person of his choice.

Such agreements are specifically enforceable under section 10 of the

Specific Relief Act, 1963, which corresponds to section 12 of the

Specific Relief Act, 1877. The section provides that specific

performance of such contracts may be enforced when there exists no

standard for ascertaining the actual damage caused by the non-

performance of the act agreed to be done; or when the act agreed to

be done is such that compensation in money for its nonperformance

would not afford adequate relief. In the case of a contract to transfer

movable property, normally specific performance is not granted

except in circumstances specified in the Explanation to section 10.

One of the exceptions is where the property is “of special value or

interest to the plaintiff, or consists of goods which are not easily

obtainable in the market”. It has been held by a long line of authority

that shares in a private limited company would come within the

phrase “not easily obtainable in the market” (See: Jainarain Ram

Lundia v. Surajmull Sagarmull & Ors. : A.I.R (36) (1949) F.C. 211,

218;). The Privy Council in The Bank of India Ltd versus J.A.H.

Chinoy: (A.I.R. 1950 P.C. 90) said: “it is also the opinion of the Board

that, having regard to the nature of the company and the limited

market for its shares, damages would not be an adequate remedy”

specific performance of a contract for transfers of shares in a private

limited company could be granted.

In 1965, this Court while dealing with proceedings rising out of

sections 397, 398, 402 and 403 of the Companies Act, 1956 in the

case of S.P. Jain versus Kalinga Tubes: A. I. R. 1965 SC 1535, had

occasion to consider the effect of an agreement relating to the issue

of new shares in a company between two shareholders and an

outsider. It may be noted at the outset that there is a distinction

between the issue of new shares by a company and the transfer of

shares already issued by a shareholder. In the first case, it is the

company which issues and allots the new shares. In the second, the

transaction is a private arrangement and the company comes into the

picture only for the purposes of recognition of the transferee as the

new shareholder. Therefore, while it is imperative that the company

should be a party to any agreement relating to the allotment of new

shares, before such an agreement can be enforced, it is not

necessary for the company to be a party in any agreement relating to

the transfers of issued shares for such agreement to be specifically

enforced between the parties to the transfer.

In S.P. Jain’s case, the company was a private limited company

to begin with. An agreement was entered into between two

shareholders and S.P. Jain, who was not a member, which internally

provided that S.P. Jain would be allotted shares after the share

capital of the company was increased equal to those held by the said

two shareholders. The company was not a party to it nor were the

other shareholders. In terms of the agreement there was an increase

in the share capital and shares were allotted to S.P. Jain. Some

years later, after the company had been converted into a public

company, a decision was taken by the company to issue fresh

shares. The shares were not allotted to S.P. Jain. Alleging

oppression by the majority shareholders, S.P. Jain filed proceedings

in which it was contended that the subsequent allotment of the new

shares was in violation of the agreement between S.P. Jain and the

two shareholders. In this context, this Court rejected S.P. Jain’s plea

on the grounds that S.P. Jain was not a member of the company

when the agreement was entered into; the company was not a party

to the agreement and was not bound by its terms; there was no

provision in the agreement as to what would happen if and when the

share capital was actually increased beyond the increase at the time

of the agreement. Therefore it was held that as far as the company

was concerned, it was free to dispose of shares as its directors or

shareholders in a general meeting considered proper without regard

to the agreement.

The decision does not in any way hold that the transfer of

shares agreed to between shareholders inter se does not bind them

or cannot be enforced like any other agreement.

In Rangaraj’s case, relied upon by the respondents, an

agreement was entered into between the members of the family who

were the only share holders of a private company. The agreement

was that for all times to come each of the branches of the family

would always continue to hold equal number of shares and that if

any member in either of the branches wished to sell his share/shares,

he would give the first option of purchase to the members of that

branch and only if the offer so made was not accepted, the shares

would be sold to others. This was a blanket restriction on all the

shareholders, present and future. Contrary to the agreement, one of

the shareholders of one branch sold his shares to members of the

second branch. Such sale was challenged in a suit as being void and

not binding on the other shareholders. This Court rejected the

challenge holding that the agreement imposed a restriction on

shareholders’ rights to transfer shares which was contrary to the

articles of association of the company. It was therefore held that

such a restriction was not binding on the company or its

shareholders. The decision is entirely distinguishable on facts.

There is no such restriction on the transferability of shares in the

Karar. It was an agreement between particular shareholders relating

to the transfer of specified shares, namely those inherited from the

late Sukumaran and Madhavi, inter se. It was unnecessary for the

company or the other shareholders to be a party to the agreement.

As provided in clause 10 of the Karar, Exhibits R-59 and R-60 did not

obviate compliance with the Karar. Both Ex. R-59 and R-60 were

executed on 15.7.85 several months prior to the Karar. The parties

who had consciously entered into the agreement regarding the

transfer of their parents shares are therefore obliged to act in terms of

the Karar. The defence of Ravi and Srinivasan based on Ex.R-59

and R-60 should not, in the circumstances, have been accepted by

the Division Bench. Having regard to the nature of the shareholding,

on the basis of the law as enunciated by the Federal Court and Privy

Council in the decisions noted above, it must be held that the Karar

was specifically performable.

As far as the question of consideration is concerned, we have

already held that parties can agree to subsequently determine the

price at which the shares were sold and section 9 of the Sale of

Goods Act, 1930 expressly provides that such contracts are perfectly

legal. Besides, the Karar in terms does not call upon parties to

determine the consideration. All it says is that once the consideration

was determined by Madhusoodhanan and Mani, it would be made

known to the others. Since there was no such determination, there

was no question of informing anyone. The finding that there was no

determination of the consideration in respect of the inherited shares

as a ground for holding that the Karar was not specifically

performable is similarly incorrect as the determination of the price

formed no part of the Karar.

Coming to the reasoning of the Division Bench with regard to

non-compliance with section 16 of the Specific Relief Act, 1963. The

section provides :

“S.16. Personal bars to relief.- Specific

performance of a contract cannot be enforced

in favour of a person –

 

x x x x x x x x x x x x x x x x x x x x x x x x x x

 

(c) who fails to aver and prove that he has

performed or has always been ready and

willing to perform the essential terms of the

contract which are to be performed by him,

other than terms of the performance of which

has been prevented or waived by the

defendant.

 

Explanation.- For the purpose of clause (c),-

 

(i) where a contract involves the

payment of money, it is not essential for

the plaintiff to actually tender to the

defendant or to deposit in court any

money except when so directed by the

Court;

 

(ii) the plaintiff must aver performance

of, or readiness and willingness to

perform, the contract according to its true

construction.”

 

We called for the plaint filed by Madhusoodhanan in order to

verify whether the Division Bench was correct in coming to the

conclusion that section 16 of the Specific Relief Act had not been

complied with. We found that paragraph 14 of the plaint reads :

 

“the plaintiff was always ready and willing to

perform his part of the agreement and is even

now ready to perform his part of contract. The

transfer of shares in respect of other

companies have already taken place in

accordance with the Karar dated 16 -1-86”.

 

 

In view of this clear averment, the finding of the Division

Bench regarding the contravention of section 16 of the Specific

Relief Act, was perverse.

On the question of delay the cause of action arose when

Madhavi died in December,1987. It cannot reasonably be said that

filing of the suit ten months later was unreasonably delayed since

some time must be given to see whether the parties did what they

were required to do under the Karar after Madhavi ‘s death.

Finally, the exercise of discretion by the Division Bench

purportedly under section 20 of the Specific Relief Act was contrary to

the terms of the section itself. Guidelines for the exercise of the

Court’s discretion to decree specific performance of an agreement

have been statutorily laid down in sub-section (2). The Division Bench

appears to have relied on clause (a) of section 20(2) to deny specific

performance of the Karar by holding that Madhusoodhanan had

obtained an unfair advantage over others under the Karar because

he had been allotted the more ‘substantial’ companies. This logic flies

in the face of clause (a) of sub-section (2) to section 20 and the

explanation thereto – which say :

“S.20. Discretion as to decreeing specific

performance.- x x

 

(2) The following are cases in which the court

may properly exercise discretion not to decree

specific performance –

 

(a) where the terms of the contract or the

conduct of the parties at the time of entering

into the contract or the other circumstances

under which the contract was entered into are

such that the contract, though not voidable,

gives the plaintiff an unfair advantage over the

defendant;

 

x x x x x x x x x x x x x x x x x x x x x x x x x x x

 

Explanation 1.- Mere inadequacy of consideration,

or the mere fact that the contract is onerous to the

defendant or improvident in its nature, shall not be

deemed to constitute an unfair advantage within

the meaning of clause (a) or hardship within the

meaning of clause (b).”

 

This section is an instance of such legislative clarity that it

needs no paraphrasing to highlight its intent. The Division

Bench was clearly wrong in its foray into the question of the

value of the assets allotted under the Karar. It has, despite

Explanation 1 to Section 20(2) refused specific performance of

the Karar on one of the excluded grounds viz., inadequacy of

consideration.

The parties are at loggerheads and it is unlikely that they will

mutually agree to a price to be paid for the 390 transferred shares or

the ‘inherited shares’ as envisaged at the meeting held on 23rd April,

1985 (Ex. P.62(b)) or to a mutually acceptable third party in terms of

clause 11 of the Karar dated 16th January, 1986 (Ex.P-3). The

solution to this impasse is available under sub Section 9(2) of the

Sale of Goods Act, 1930 read with Art. 25 of the Articles of

Association of Kerala Kaumudi. Under the first if the price is not fixed

in the manner agreed to in the contract of sale, the buyer shall pay

the seller a reasonable price and what would be a reasonable price

would be dependent on the circumstances of the case. Article 24 of

the Articles of Association of the company speaks of the ‘fixed price’

and the ‘fair price’. Both of these relate to the ostensible price shown

on the transfer deeds. Nevertheless for the purposes of this case,

Article 25 which lays down guidelines for the resolution of disputes

between the transferor and transferee, may be relied on. It says:

Article 25: “The fair value of a share

shall be fixed by the Company by a resolution

passed by a majority of not less than three

fourths of the holders of such shares declaring

the fair value. Such resolution shall remain in

force for two years from the date of its passing

or until annulled whichever is earlier. If at the

time a transfer notice is given no resolution

fixing the fair value is in force: then any

difference in regard thereto shall be referred

to two arbitrators, one to be appointed by

each party and the provisions of the Indian

Arbitration Act, 1940, shall apply”.

 

Although the learned Single Judge in disposing of CP 26/87

gave directions for the appointment of Arbitrators, to determine the

value of the shares, in our view it would be more appropriate to do

so in decreeing the suit for specific performance of the Karar. It is

also not clear from the material on record, in which of the brothers’

name 9 shares of the late Sukumaran and the 3 shares of Madhavi

now stand. Who ever is recorded as the owner of the shares shall

further transfer six of those shares to Madhusoodhanan.

For all these reasons, we have no hesitation in setting aside the

decision of the Appellate Court and restoring the decree as passed

by the Trial Court as modified below.

“Madhusoodhanan will appoint one Arbitrator and Mani and his

children, Sukumaran and Ravi will appoint one Arbitrator within one

month to decide the following matters. Failing this any one of them

may move this Court to appoint an Arbitrator to decide:

(a) What was the fair value of one share

of Kerala Kaumudi (P) Ltd. on

21.5.1985?

 

(b) What amount was paid or adjusted

by or on behalf of M.S.

Madhusoodhanan to M.S. Mani

towards the value of shares ? What

is the balance amount due from

Madhusoodhanan to Mani and his

children in respect of the transfer of

the 390 shares transferred to M.S.

Madhusoodhanan.

 

(c) What would be the value of one

share on the date of Madhavi’s

death ?

 

It will be open to the parties entitled to the consideration as

determined by the Arbitrators to recover the sums due to them from

Madhusoodhanan”.

Rectification of the Share register of KIPL

The application for the rectification of the share register of

KIPL under Section 155 of the Companies Act was filed by Mani’s

wife and daughter — Kastoori and Valsa respectively, Srinivasan’s

wife — Laisa, and Ravi’s wife –Shylaja. Of the 1000 shares issued of

KIPL, Madhavi had 10, Kastoori had 240, Valsa had 10,

Madhusoodhanan’s wife, Geetha, had 250,Laisa had 250 and Shylaja

and 240 shares in 1985. On 4th March 1985, Laisa who, along with

Geetha, was a director of the company till then, resigned. She has

admitted her resignation in her evidence when she said “I became

the director of the company in 1972. I became a shareholder of the

company in 1972. I’m not a director of the company now. In March,

1985 I ceased to be a director. I resigned my directorship in March,

1985”.

According to Madhusoodhanan, at the Board meeting held on

4th March 1985, which was attended by Geetha and Laisa, Laisa’s

resignation was accepted and he was appointed as additional

director. At the same meeting, the Board approved the transfer of

shares by Laisa, Shylaja, Madhavi and Kasturi to Madhusoodhanan,

Ravi ‘s minor sons-Deepu and Darsan, Valsa (Mani’s daughter) and

Srinivasan so that the shareholding in KIPL became as follows :

Geetha 250 shares

Madhusoodhanan 270 shares

Srinivasan 160 shares

Valsa 160 shares

Deepu Ravi 80 shares

Darsan Ravi 80 shares

According to the four applicants for rectification, they had

effected no such transfer. Of the four, only Laisa came forward to

give evidence in support of the case for rectification of the share

register of KIPL [Ex. P-123 (F)] by restoring the position with regard

to the shareholding as it existed prior to March 1985. In her

deposition Laisa admitted that she had signed the attendance register

of KIPL (Ex.P.-123) which showed that she had attended the Board

Meeting on 4th March 1985. She also admitted that she had signed

the minute books of the company including the minutes of the

meeting held on 4th March 1985 as well as blank share transfer

forms . However she has come forward with this explanation :

“I have given blank share transfer forms and

other papers signed when Sri

Madhusoodhanan brought them to me. I

signed those blank transfer forms and papers

because Mr Madhusoodhanan was looking

after the affairs of all sister concerns and my

husband told me to sign whatever papers be

brought by Mr Madhusoodhanan”.

 

The learned Single Judge dismissed the application for

rectification. He held that the 4 brothers had admitted their

signatures in Exhibit P-190 which is a record of decisions taken at a

meeting held on 29.11.1984 when one of the decisions taken was to

entrust separate concerns to each of the brothers, depending upon

who was taking an active interest in the company. The decision was

implemented by the share transfers in the sister concerns of Kerala

Kaumudi and it was not disputed that in respect of Laisa Publications,

Srini Printers, Ravi Printers etc, the respective brothers who were in

control of those concerns were given 52 percent shares. As far as

KIPL was concerned it was decided :

“3 (b). In Kaumudi Investments and Kaumudi

Exports 52 percent of shares will be held by Sri. M.

S. Madhusoodhanan and family and 16 percent

each of shares will be held by Sri.M.S. Mani and

family,Sri M. S. Srinivasan and family and Sri M.

S. Ravi and family”.

 

This was effected as far as KIPL was concerned on 4th

March,1985. It was held that the evidence showed clearly that all the

necessary steps had been taken to effect the share transfers and that

it was immaterial that the petitioners were not parties to exhibit P-190

because the share transfer deeds had been signed and the

signatories were bound by that, particularly when they had not

established that they had signed the share transfer documents under

any misrepresentation, fraud or undue influence or mistake.

The Division Bench reversed the decision of the learned single

judge in M. F. A. No 312 of 1990. It was held that since exhibit P-3,

or the Karar, had not been accepted as a valid document, “the

projected basis of the transfer disappears” and “the further recording

in the minutes of the company would not be sufficient to give legal

efficacy to the transfer of shares”.

Since we have held that the Karar was a valid agreement, this

reason of the Division Bench will not stand. Besides, as observed by

the learned single judge, all the necessary documents had been duly

executed to effect the transfers of the shareholding as approved in

the meeting held in March 1985. In the annual return of KIPL in

respect of the year ending on 30 September 1985, this share holding

is reflected. (Ex.P-212). Further this is in keeping not only with the

Karar but also with Ex.P.190 according to both of which

Madhusoodhanan and his group were to have 52 percent

shareholding in KIPL and the remaining three brothers – 16 percent

each.

The explanation given by Laisa that she used to sign whatever

papers had been sent by Madhusoodhanan is unbelievable. The

Division Bench by relying upon a narrative in a biography of Norman

Birkett (The Life of Lord Birkett of Ulverston by H. Montgomery Hyde)

chose to accept it. According to Laisa herself, she had been a

director of the company, operated the banking accounts and

otherwise done whatever was necessary in the discharge of her

duties as a director since 1972. As we have noted earlier, differences

between the 4 brothers had been simmering for a long time which

manifested itself in 1984. This was also noted by the Division Bench

when it said, “in the year 1984, differences became somewhat

apparent”. In the circumstances, Laisa’s facile explanation, that she

signed every document in 1985 because of her faith and trust in

Madhusoodhanan is clearly false.

The next reason given by the Division Bench for allowing the

application for rectification was that the original share transfer deeds

had not been produced. Madhusoodhanan had filed an application

for production of the original share transfer deeds. He said that he

could not produce the share transfer deeds because they were in the

administrative office of KIPL and that he had been prevented from

entering that office. That the administrative office of KIPL is within the

Kerala Kaumudi premises in a separate room was also the finding of

the Division Bench. Madhusoodhanan and his group’s grievance that

they were being denied access to KIPL’s office since April, 1986 was

not rejected by the Division Bench as not genuine. But the Division

Bench observed “A mere alibi of inability to enter the office, cannot be

accepted as a sufficiently strong reason for their grievous omission”.

This conclusion is as startling as it is unreasonable. For the reasons

given earlier in connection with transfer of shares in Kerala Kaumudi,

we are of the view that here also, the minutes and the other records

of the company, which prima facie raise a presumption of their

veracity, have not been sufficiently disproved by the evidence

tendered on behalf of the petitioners in the application for rectification.

Apart from the provisions of the Companies Act, Article 41 of

the Articles of Association of KIPL (Ex. P-180) also provides :

“Where minutes of the proceedings of any

general meeting of the company or of any

meeting of the Board of Directors has been

made and signed in accordance with

provisions contained in the preceding article 10

unless the contrary is proved, the meeting

shall be deemed to have been duly called and

held and all proceedings thereat to have duly

taken place, and in particular, all appointment

of directors made at the meeting shall be

deemed to be valid”.

 

The only evidence or “proof” to the contrary in this case is

Laisa’s unacceptable oral evidence. Therefore the minutes of the

meeting held on 4th March, 1985 must be taken to have correctly

recorded the transfer of shares resulting in the present shareholding,

the appointment of Madhusoodhanan as additional director and the

resignation of Laisa as a director of KIPL.

The next reason given by the Division Bench for permitting

rectification of the share register of KIPL was that no price had been

fixed for the shares and that there were not even negotiations with

parties regarding such fixation of price. This is, for reasons already

stated, an incorrect statement of the law. Moreover in this case there

is the additional factor which has persuaded us to hold that the

Division Bench was wrong, namely Article 16 of the Articles of

Association of KIPL which says :

“the Board of Directors shall fix price at which

the shares for the time being forming part of

the capital of the company may be purchased

in pursuance of transfer notice and the price

thus fixed shall be known as the ‘fair value’.

Until the ‘fair value’ has been fixed as herein

provided, a sum equal to the capital paid up on

any share shall be deemed to be the fair value

of such share.”

 

The Division Bench’s final conclusion that there had been a

non-compliance with section 108 of Companies Act because there

was no indication about any purchase of stamps or about the share

transfer deeds having been duly stamped, is an exercise in

speculation. The Articles of Association of KIPL themselves require

compliance with section 108 before any transfer can be effected.

When the minutes recorded that share transfer deeds had been

placed before the Board, when the transfers were approved by the

Board in the presence of the only witness for the petitioners, and

when none of the documents which were duly maintained by the

company recording the transfers of the shares had been disproved,

we cannot uphold a finding that the share transfer deeds must have

been improperly stamped or executed in violation of the provisions of

Section 108 of Companies Act.

No further reason has been given by the Division Bench for

upholding the prayer for rectification of the share register of KIPL.

We have, therefore, no compunction in setting aside the decision of

the Division Bench and restoring that of the learned Single Judge

dismissing the application.

 

Rectification of the Share Register of Kala Kaumudi

 

The next matter is the application for rectification of the Share

Register of Kala Kaumudi filed by the minor son of Madhusoodhanan,

Visakh ( CP 11/87; MFA No. 285/90; CA 3261/91). This appeal need

not detain us as both the courts below have concurrently held that the

application had no merit.

In keeping with the Karar, Mani and his family have the

controlling interest in the company. In June 1985, of the 500 issued

shares, Mani and his family held 260, Madhusoodhanan and his

children held 80 shares, Srinivasan and his children held 80 shares

and Ravi and his children held 80 shares after effecting share

transfers by the brothers and their respective groups inter se. A

decision was taken by the Board of Directors to increase the paid-up

capital of company from Rs 5 lakhs to Rs 10 lakhs by the issue of 500

equity shares of Rs 1000 each. Notice of this was given to the

applicant who received it but did not apply to be allotted any of the

additional shares. Mani and his wife, Kasturi, offered to purchase

279 shares each. The offer was accepted and additional shares

issued in the name of Mani and his wife. According to Visakh, he had

not been given notice of the offer of the additional shares. The trial

court considered the various exhibits tendered in evidence by Mani

and his group, including the local delivery book (Ex. R.-48), which

was signed by Madhusoodhanan, the father and guardian of Visakh,

to negative the submission of Visakh. We see no reason to interfere

with this finding of fact. It is true that the Division Bench proceeded

on an erroneous basis when it held that the learned Single Judge had

dismissed the application on the ground of delay. Since we have

upheld the factual finding of the court of the first instance, this

misreading of the Trial Court’s judgment by the Division Bench is of

no consequence.

We accordingly dismiss the appeal being C.A. 3261/91

without any order as to costs.

Civil Suit No. 4 of 1989

This brings us to the remaining appeal which arises from a

decree passed in a suit filed by KIPL. The suit was originally

numbered as OS 1569/88 when it was filed in the Munsiff’s court in

Trivandrum. After it was withdrawn on 16 February 1989 by the order

of the High Court, it was renumbered as C. S. 4/89. In the suit, KIPL

had prayed for a decree of permanent injunction restraining Kerala

Kaumudi or any of its Directors or staff or anyone claiming through or

under them or any of their agents from disturbing or preventing the

peaceful functioning of KIPLs administrative office or in any way

obstructing the peaceful possession and enjoyment of the said

premises by the defendants until KIPL was evicted under due

process of law.

That the administrative office of KIPL was in Kaumudi

Buildings, Pettah, Trivandrum cannot be in dispute in view of the

categorical finding of the Division Bench to this effect, as noted

earlier. According to KIPL, the entire administration of KIPL was

carried on from this office. It has been further averred in its plaint,

that Geetha, Madhusoodhanan’s wife, had been denied access to the

administrative office when she went there along with a staff in August

1986. She was informed by the reception office that the keys to the

room were with Srinivasan who refused to hand over the keys to

Geetha.

Srinivasan filed a written statement on behalf of Kerala

Kaumudi in which it was denied that KIPL had its administrative office

in Kaumudi Buildings. According to Srinivasan, Geetha used to sit in

Madhusoodhanan’s office when he was the Managing Director of

Kerala Kaumudi.

On behalf of the plaintiffs, entries in the telephone directory

(Ex.p-181), notices and letters issued by the income tax office

addressed to KIPL at Kaumudi Buildings (Ex-p 182, 184 and 185) as

well as a letter from the Commissioner of Income Tax (Ex.P. 183)

similarly so addressed were proved by Madhusoodhanan. Srinivasan

has been unable to explain why the letters and notices to KIPL by the

concerned authorities should be addressed to Kaumudi Buildings

unless KIPL was functioning from that place. Additionally, Srinivasan

also said, in his evidence, “All the sister concerns of Kerala Kaumudi

had postbox No 99 and post office was instructed to put the

correspondence addressed to the sister concerns in that postbox

No”. The postbox number in question was Kerala Kaumudi’s. He

also said, “At the time when application for telephone was given,

applications were given in the name of all sister concerns as well as

Kerala Kaumudi, in order to get telephone easily. These telephones

were allotted. All the telephones are installed in Kerala Kaumudi

Buildings “and that for all the sister concerns the telex No is the

same. In view of all this evidence, including the admission by

Srinivasan, amply justifies the conclusion reached by the Trial Court

while decreeing the suit that KIPL had an office in Kaumudi Buildings

to which members of its management and staff have the right of

access.

A similar suit had been filed by Kaumudi Exports which was

decreed by the learned Single Judge on substantially the same

evidence. (C. S. No 2 of 1989). The appeal from the decree was

dismissed by the Division Bench (A S. No 205 of 1990). No further

appeal has been preferred by the respondents.

Logically, the Division Bench should have also rejected the

appeal preferred from the decree in CS No 4/49. However the

Division Bench rejected the appeal on the sole ground that although

KIPL had been denied access in 1986, the suit had been filed only in

1988. According to the Division Bench “The inaction for a period of

two years can be taken to have resulted in the extinction of the

present possession. If the plaintiff does not have present possession,

injunction could not be an available relief”. This strange piece of

reasoning appears to proceed on the basis that the period of

limitation for extinction of a possessory right is two years which it is

not. Besides the claim of KIPL was that it was being denied access.

The denial was a continuous one. It was therefore open to KIPL to

file a suit while such denial continued by seeking to injunct the

obstructers from continuing with the obstruction. Srinivasan’s

evidence and the documents referred to hereinabove prove beyond a

shadow of doubt, that the administrative office of KIPL was in

Kaumudi Buildings. That is also what the Division Bench has held.

Having come to this conclusion, the division bench erred grievously in

denying KIPL the relief it claimed only on the ground of delay, as if

what was being dealt with by the Division Bench were an interlocutory

application for interim relief.

This appeal, C. A. 3259/91 , is therefore allowed.

To sum up: Civil Appeals 3253-58 of 1991 from M. F. A

330/90 are allowed, and the decision of the Trial Court affirmed with

the directions earlier specified. Civil Appeals 3260 and 3261 of

1991are dismissed. Civil Appeal No. 3259 of 1991 is also allowed .

The decision of the Division Bench is set-aside and the decree of the

Trial Court is restored.

Before concluding our judgment in all these appeals, we would

like to record our displeasure in the manner in which the paper books

have been prepared. Documents which are vital for decision on the

several issues raised, continue to remain in Malayalam without being

translated , several exhibits as well as the pleadings, such as plaints,

written statements etc are not on record. Therefore, although our

decisions in these nine appeals, except for two, are in favour of

Madhusoodhanan and his group, we make no order with regard to

the costs to which the appellants would otherwise have been entitled.

 

 

 

 

 

 

Ascertainment of price – (1) The price in a contract of sale may be fixed by the contract or may be left to

be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.

(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the

seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances

of each particular case.

3

 

87

 

 

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