Case Law Details

Case Name : N. Ram Vs N. Ravi (Madras High Court)
Appeal Number : C.A.NOS. 6 & 7 OF 2011
Date of Judgement/Order : 01/07/2011
Related Assessment Year :
Courts : All High Courts (3789) Madras High Court (283)

HIGH COURT OF MADRAS

N. Ram v/s. N. Ravi

C.A.NOS. 6 & 7 OF 2011

JULY 1, 2011

JUDGMENT

1. Respondents Nos. 1 to 11 invoked the provisions of sections 397, 398, 402, 403, 404, 406 and Schedule XI read with section 9 of the Companies Act, 1956, to challenge the resolutions passed by the board of directors of M/s. Kasturi and Sons Ltd., held on April 18, 2011 and the notice dated April 21, 2011, calling for an extraordinary general meeting on May 20, 2011.

2. In the petition filed, the following interim reliefs were claimed :

“(1)  To stay the resolutions passed at the meeting of board of directors held on April 18, 2011, removing the powers and designations of the first and the second petitioner family editorial directors and the purported appointment of the eleventh respondent.

(2)  To restrain the respondents from proceeding with the extraordinary general meeting on May 20, 2011, or on any other date pursuant to the notice dated April 21, 2011, in connection with special business item ‘1’ in so far as the first and the second petitioners are concerned and in connection with the appointment of the eleventh respondent or any other person.

(3)  To grant an injunction restraining respondents Nos. 2 to 8 from proposing or passing any board of shareholder resolutions with respect to any editorial removal, ‘succession’, ‘retirement’, ‘professionalisation’ plan or Corporate Governance Policies without the unanimous consent of all the shareholders.

(4)  To appoint an interim independent chairman in the place of the second respondent to conduct future board meetings and general body meetings.

(5)  For a direction directing the respondents to maintain status quo with respect to the shareholding and composition of the board in the first respondent-company.

(6)  For such or other orders as this hon’ble Board may think fit and proper in the circumstances of the case and thus render justice.”

3. On an earlier occasion, 10 out of 11 petitioners had filed C. P. No. 25 of 2010, which was decided on October 22, 2010. The relief portion of the order passed in C. P. No. 25 of 2010 (N. Murali (HUF) v. Kasturi and Sons Ltd. [2011] 166 Comp Cas 501/109 SCL 169/13 taxmann.com 34 (CLB – Chennai) reads as under (page 524 of 166 Comp Cas) :

“(i)  The reliefs (a) and (b) to implement permanent editorial succession plan of retirement for the editorial board members and permanent Corporate Governance Policy on the basis of the informal discussion among the editorial directors are declined. The board of directors and the shareholders are hereby directed to consider these issues in the meeting of the board of directors as well as the shareholders and take a decision in this matter as observed in paragraphs 16 and 17 supra without much delay.

(ii)  Regarding reliefs (c) and (d) I hereby set aside the decision taken by the board of directors on March 20, 2010 to the extent it reallocates the functions of the senior managing director (petitioner No. 2) and direct that the position prior to March 20, 2010, shall be restored as far as allocation of departments concerning petitioner No. 2. This will not affect the continuation of respondent No. 3 K. Balaji as the managing director and his functions can be appropriately determined by the board without affecting the position and status of petitioner No. 2 as senior managing director.

(iii)  For the reasons stated at paragraph 10 of this order above, relief (e) regarding the appointments of respondent No. 12 as European correspondent of Business Line and respondent No. 13 as Washington correspondent of The Hindu is declined.

(iv)  Relief (f) is declined.

(v)  No order as to costs. All interlocutory applications are dismissed and all interim orders are vacated.”

4. By way of interim measure, the hon’ble Company Law Board passed the impugned order on May 20, 2011 (N. Ravi v. Kasturi and Sons Ltd. [2011] 166 Comp Cas 543 (CLB – Chennai)), the operative part of which, reads as under (page 554 of 166 Comp Cas) :

“The far reaching consequence of the proposals is that a shareholder of the company will be perpetually debarred from holding the post of editor of The Hindu, which in my view is contrary to the tradition and practice followed by the company since its inception. Besides, it is doubtful whether the proposed advisory board which consists of members of the rival groups would be able to effectively guide the non-family editor in discharging his duties, I am of the prima facie view that except ‘the wholesale removal of the family editors’, the present proposals do not take in any other aspect. The board had not addressed the aspects (retirement entry and exit norms, etc.), referred to in my earlier order. It also appears that the board has given a go by to the idea of framing guidelines for succession or rather they have limited the directions of the Company Law Board only to the extent of removing the entire family editors. However, I am not staying the holding of the extraordinary general meeting. The issue is the role of the family in the company and in my view it has to be decided by the shareholders. Learned senior counsel appearing for the company and other respondents submitted that the resolutions regarding the removal of family editors even if approved in the extraordinary general meeting will not be implemented immediately. At this juncture, the petitioners have produced before me a copy of the agenda for the board meeting scheduled to be held on May 20, 2011 and one item is to consider the decisions of the shareholders taken at the extraordinary meeting to be held on May 20, 2011 and pass necessary resolutions. For the reasons discussed above, I decline to restrain the respondents from proceeding with extraordinary general meeting on May 20, 2011. But I am inclined to restrain the respondents from implementing the resolutions proposed as special business in the extraordinary general meeting on item ‘1’ in the notice, until further orders. The company is also directed to record the dissent if any expressed by the petitioners and other shareholders. It is observed that the holding of the extraordinary general meeting and the decisions taken therein shall be subject to the result of the company petition. In the light of my above order C. A. No. 109 of 2011 stands closed. The respondents to file counter within four weeks. The company petition adjourned to August 23, 2011 at 10.30 a.m.”

5. The appellants are aggrieved by the impugned part of the order, vide which, the company has been restrained from implementing the resolution, to be passed in as special business in the extraordinary general meeting under item “1” in the notice, until further orders.

6. Mr. C. A. Sundaram, learned senior counsel for the appellants contended that the main ground to challenge the board resolution by respondents Nos. 2 to 11 is with regard to their position/status current and expected in the operations and running of the editorial side of the company. According to learned senior counsel, this can be agitated only in the civil forum and not before the hon’ble Company Law Board.

7. The stand of the appellants is that under sections 397 and 398 of the Companies Act, 1956, the hon’ble Company Law Board, can only deal with the acts of oppression and mismanagement resulting from conduct of the affairs of the company. It is also the case set up by the appellants that in the previous proceedings, the hon’ble Company Law Board was pleased to lay down, that it was for the directors to think about the desirability of having a permanent succession plan as well as editorial framework and there can be no judicial intervention based on alleged and informal talk in the family.

8. That categorical finding was recorded, that it was for the directors and shareholders of the company to decide the modalities of such succession without compromising professional considerations. It is the case of the appellants that it was in view of the direction issued by the hon’ble Company Law Board, that issues of implementation of an editorial succession plan of retirement and a permanent corporate governance policy was considered by the board of directors of the company, and a policy decision was taken to effect professionalisation of the company, as also various publications run and managed by it. The board of directors also considered the issue of the Code of Editorial Value for the company.

9. It is also the case of the appellants that it was after due deliberation that decision was taken in the board meeting, to adopt the Code of Editorial Values for Kasturi and Sons Ltd., and to consider convening of the meeting of the shareholders of the company to consider and decide editorial succession in pursuance to the order dated December 22, 2010, passed by the hon’ble Company Law Board.

10. The case of the appellants further is that the policy decision was taken to separate the ownership of M/s. Kasturi and Sons Ltd., from its management, in the following terms :

“9. There is no wall but there is a firm line between the business operations of the company and editorial operations and content. Pursuant to the abovementioned values and objectives, it is necessary to create a professionalism in the editorial functioning independent of shareholder interference so as to maintain an impartiality, fairness and objectivity in editorial and journalistic functioning.”

11. It was in pursuance to the decision taken, that resolution was circulated for convening the extraordinary general meeting of the company on May 20, 2011. The issue under Item No. 1 was decided in furtherance to the policy of M/s. Kasturi and Sons Ltd., to separate ownership from the management, and pertained to the appointment of one Siddharth Varadarajan, Associate Editor and National Bureau Chief, the Hindu.

12. The order of the hon’ble Company Law Board is challenged by the appellants on the following grounds :

(i)  Whether the private grievance of shareholders pertaining to their personal interests qua specific positions of power/status in the company can be the subject-matter of a petition under sections 397 and 398 of the Companies Act ?

(ii)  Whether the Code of Editorial Values of the company pertaining to the separation of ownership from management of the company adopted on April 18, 2011 and holding of the extraordinary general meeting and resolution passed was only the next step to implement the editorial values agreed to, therefore, cannot be the subject-matter of either petition under sections 397 and 398 nor it will be within the jurisdiction of the hon’ble Company Law Board to stay the implementation of the order ?

(iii)  That the hon’ble Company Law Board committed an error in entertaining the company application and passing interim reliefs, without first adjudicating on the issue of the maintainability of the company petition, as the grievances raised in the company petition was personal and individualistic in nature, which did not in any manner deal with the conducting of the affairs of the company.

(iv)  That the hon’ble Company Law Board erred in interfering with the policy decision of the appellant-company, which stood approved by the board of directors after much deliberation and discussion.

(v)  That the order passed staying implementation of the resolution passed in the extraordinary general meeting was against the interests of the company and furthermore, the appointment of Siddharth Varadarajan was in the interest of the company.

(vi)  It is also the case of the appellants that the choice of Siddharth Varadarajan was made out of 3 alternative names presented by respondent No. 12 wherein respondents Nos. 1 to 11 did not present any other alternative to the appointment.

(vii)  It is also the case of the appellants that the hon’ble Company Law Board failed to appreciate, that the articles of association of the appellant-company were silent on the issue of the management of its newspapers and other product, therefore it was for the wisdom of the board of directors and shareholders of the company to take decisions including the one to run the company professionally.

(viii)  That reasoning in the impugned order with regard to advisory board being unable to effectively guide the non-family editor in discharging the duties was not substantiated by any evidence.

(ix)  That re-organisation of the appellant-company was contemplated not only on the editorial side but also on the business side. It was in view of the order passed by the hon’ble Company Law Board that re-organisation of the management had to wait till the end of August, 2011, in the interests of respondent No. 3.

(x)  It is also the case that there was no violation of the order passed by the hon’ble Company Law Board dated October 22, 2010, in C. P. No. 25 of 2010.

13. On the grounds referred to above, it is prayed that the appeals be accepted.

14. Learned senior counsel appearing on behalf of the appellants contended, that the following questions of law arise for consideration in these appeals :

 (i)  To what extent, the hon’ble Company Law Board can interfere with the policy decision of the board of directors ?

(ii)  Whether the hon’ble Company Law Board can pass interim orders without recording that the decision taken therein would not be in the interest of the company ?

(iii)  Whether it is open to the hon’ble Company Law Board to pass interim order without recording the prima facie case ?

(iv)  Whether the shareholders had only property right in the company and did not have any right with regard to executive appointments ?

15. Another connected appeal is filed by the company pleading therein that the material points arising in the case have not been considered by the hon’ble Company Law Board and, that the condition as envisaged under section 397 of the Companies Act, are not prima facie fulfilled, therefore, in the absence of prima facie case being made out, no interim order could be passed.

16. Learned senior counsel for the appellants vehemently contended that the impugned order staying the resolution is contrary to the findings recorded by the hon’ble Company Law Board, in C. P. No. 25 of 2010, decided on October 22, 2010 – N. Murali (HUF) (supra), wherein it was recorded as under (page 521 of 166 Comp Cas) :

“It may be a legitimate expectation but the members of the company cannot entertain any expectation which will go beyond the legal rights conferred on them by the constitution of the company. The editor is the ‘living articulate voice’ of the newspaper and The Hindu is a newspaper which can claim a grand succession of eminent editors during its 132 years of glorious existence. Continuing litigation and constant upheavals will cause great and irreparable harm to that reputation. There is some force in the contention of the petitioners that as the younger generation members are coming in, the oldest members had to make way for those in between. Evidently, and admittedly the note on the Code of Corporate Governance Guidelines of the company sent by the second petitioner was placed at the board meeting of February 18, 2010 and is under consideration by the board of directors. It is on record that, in the board meeting dated August 21, 2009, Ms. Malini Parthasarathy (respondent No. 11) has expressed her concern regarding the delay in the matter of evolving a framework and guidelines for succession indicating how roles of different persons in the editorial were going to evolve. She also emphasised that the factors like one’s particular experience, orientation, qualification and actual practical contribution in the area should figure in succession guidelines. Evidently, this note was also taken on record. The clause in the articles regarding the retirement at the age of 65 was deleted in 1991 not based on any discussion in the board of directors, but based on the amended provisions of the Act as per which there is no age qualification now for a person to retire as a director. So the issue on succession was never decided by the board or shareholders. Viewed in this background, the proposal by the petitioners and respondent No. 11 to frame a Corporate Governance Policy cannot be described as an attempt to gain control of the company or to remove Shri Ram as the editor-in-chief. Since the board of directors reallocated the non-editorial side in order to broad-base the management of the company and to involve all the whole-time directors, it is desirable that such a decision is taken at the editorial side also.”

17. It was the contention of learned senior counsel for the appellant that though certain observations were made with regard to succession, but in the final order, the only direction issued was that it was for the board of directors as well as shareholders to take a decision with regard to this, therefore, it was not open to the hon’ble Company Law Board now to restrain implementation of the order passed/to be passed by the shareholders in the extraordinary general meeting.

18. Learned senior counsel for the appellants also vehemently contended that the decision was taken after due deliberation and getting report from the professional source. It was only in pursuance of due deliberation that the Board resolution was passed and notice issued to the shareholders for holding of the extraordinary general meeting, so that it could be considered by the shareholders of the company.

19. It is also the contention of learned senior counsel for the appellants that there was no occasion for the hon’ble Company Law Board to interfere with the implementation of the decision by the board of directors, specially when the hon’ble Company Law Board had recorded that the decision would be subject to final decision in the case.

20. Learned senior counsel for the appellants in support of the contention, that it is not open to the hon’ble Company Law Board to issue injunction, placed reliance on the judgment of the hon’ble Supreme Court in the case of Life Insurance Corpn. of India v. Escorts Ltd. [1986] 59 Comp Cas 548, wherein, the hon’ble Supreme Court has been pleased to lay down as under (page 631) :

“A company is, in some respects, an institution like a State functioning under its ‘basic constitution’ consisting of the Companies Act and the memorandum of association. Carrying the analogy of constitutional law a little further, Gower describes ‘the members in general meeting’ and the directorate as the two primary organs of a company and compares them with the legislative and the executive organs of a Parliamentary democracy where legislative sovereignty rests with Parliament, while administration is left to the Executive Government, subject to a measure of control by Parliament through its power to force a change of Government. Like the Government, the directors will be answerable to ‘Parliament’ constituted by the general meeting. But in practice (again like the Government), they will exercise as much control over Parliament as that exercises over them. Although it would be constitutionally possible for the company in general meeting to exercise all the powers of the company, it clearly would not be practicable (except in the case of one or two-man-companies) for day to day administration to be undertaken by such a cumbersome piece of machinery. So, the modern practice is to confer on the directors the right to exercise all the company’s powers except such as the general law expressly provides must be exercised in general meeting (Gower’s Principles of Modern Company Law). Of course, powers which are strictly legislative are not affected by the conferment of powers on the directors as section 31 of the Companies Act provides that an alteration of an article would require a special resolution of the company in general meeting. But a perusal of the provisions of the Companies Act itself makes it clear that in many ways the position of the directorate vis-a-vis the company is more powerful than that of the Government vis-a-vis Parliament. The strict theory of parliamentary sovereignty would not apply by analogy to a company since under the Companies Act, there are many powers exercisable by the directors with which the members in general meeting cannot interfere. The most they can do is to dismiss the directorate and appoint others in their place, or alter the articles so as to restrict the powers of the directors for the future. Gower himself recognises that the analogy of the Legislature and the executive in relation to the members in general meeting and the directors of a company is an over-simplification and states ‘to some extent a more exact analogy would be the division of powers between the Federal and the State Legislature under a Federal Constitution’. As already noticed, the only effective way the members in general meeting can exercise their control over the directorate in a democratic manner is to alter the articles so as to restrict the powers of the directors for the future or to dismiss the directorate and appoint others in their place. The holders of the majority of the stock of a corporation have the power to appoint, by election, directors of their choice and the power to regulate them by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another . . .

Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every director, the managing agent, if any, the secretaries and treasurers, if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting. The Life Insurance Corporation of India, as a shareholder of Escorts Ltd., has the same right as every shareholder to call an extraordinary general meeting of the company for the purpose of moving a resolution to remove some directors and appoint others in their place. The Life Insurance Corporation of India cannot be restrained from doing so nor is it bound to disclose its reasons for moving the resolutions.”

21. It was contended that the impugned order cannot be sustained.

22. Learned senior counsel thereafter referred to a judgment of this court in the case of Vivek Goenka v. Manoj Sonthalia [1995] 83 Comp Cas 897, (Mad.) wherein this court was pleased to lay down as under (page 908) :

“It is the duty of this court to recognise the corporate democracy of a company in managing its affairs. It is not for this court to restrict the powers of the board of directors. The board of directors in various resolutions have appointed the sixth defendant as executive director, managing editor and chairman. It will not be open to this court to interdict the functions of the board-managed company. As rightly contended by Mr. P. Chidambaram, learned senior advocate, it will not be open to this court to interfere with the day to day functions, management and administration of a company unless it is established that the decisions taken by the board are ultra vires the Act or the articles of association of the company. At this interlocutory stage this court is concerned only with the prima facie case and balance of convenience as disclosed by the documents produced by both parties. It is for the plaintiff to let in oral evidence at the time of trial and establish his case.”

23. The contention of learned senior counsel was that it is not for the hon’ble Company Law Board to stay implementation of the resolution, especially when it was dealing with the day to day affairs and the management of the company.

24. Learned senior counsel for the appellants also relied on a judgment of the hon’ble Supreme Court in the case of Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan [2004] 122 Comp Cas 161/54 SCL 601;

25. It was the contention of learned senior counsel that the hon’ble Company Law Board ignored the basic law, that the shareholders can watch the proprietary interest in the company and cannot question the functioning or policies of the company, therefore, the company petition itself was not competent.

26. Learned senior counsel for the appellants in Company Appeal No. 7 of 2011, while supporting the argument addressed by learned senior counsel for the appellants in Company Appeal No. 6 of 2011, vehemently contended that the relief under sections 397 and 398 of the Companies Act, 1956, could only be granted in case prima facie case was made out that the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members, or in case it is held that the material changes are brought about in the management or control of the company either by any alternation in its board of directors or managers or in the ownership of the company’s shares, or if it has no share capital, in its membership in a manner that by reason of such change, it is likely to result in a manner prejudicial to the public interest or in any manner prejudicial to the interest of the company and in that case, the object should be to bring to an end or preventing the matters complained of or apprehended. The contention of learned counsel was that the positive finding has to be recorded, that the action taken is prejudicial to the interest of the company or to the public interest, but not for individual interest.

27. With regard to the maintainability of the appeals, learned senior counsel for the appellants placed reliance on the judgment of the hon’ble Rajasthan High Court in the case of Gharib Ram Sharma v. Daulat Ram Kashyap [1994] 80 Comp Cas 267, wherein, the hon’ble Rajasthan High Court was pleased to lay down that any decision, order under section 10F of the Companies Act includes order, which does not finally decide rights of parties.

28. On the contention referred to above, it is prayed that these appeals be accepted and the impugned part of the hon’ble Company Law Board, staying implementation of resolutions proposed as special business in the extraordinary general meeting on item “1” be set aside.

29. Mr. A. L. Somayiji, learned senior counsel appearing for respondent No. 1 and respondent No. 3 vehemently contended, that the impugned order is not appealable, as it is based on the consent of the party. In support of the contention, learned senior counsel referred to the impugned order, wherein, it has been noticed as under :

“Learned senior counsel appearing for the company and other respondents submitted that the resolutions regarding the removal of family editors even if approved in the extraordinary general meeting will not be implemented immediately.”

30. The contention of learned senior counsel for the respondents, therefore, is that the impugned order, being consent order, is not appealable.

31. Learned senior counsel for the appellants explained that even after the extraordinary general meeting, some time is required for implementing the order by passing the board resolution. It was not a consent, but submission that no interim order is called for, without waiting for reply from the appellants. It was pointed out that in case of consent order, there is no necessity to give reasons for stay. The reading of the impugned order shows that it cannot be said to be consent order.

32. Learned senior counsel for the respondents contend that it is a case of prima facie oppression of minority shareholders, as by the resolution, Siddharth Varadarajan, associate editor and National Bureau Chief, The Hindu, is to be appointed editor of the Hindu, reporting to Mr. N. Ram, editor-in-chief, The Hindu, in such time as the board of directors of the company may decide.

33. It is also the contention in garb of professionalisation, an attempt has been made to remove the minority shareholders, holding the position in the editorial board of the company. Reference was made to explanatory statement pointing out that the decision of the board was to have a structure in which the ownership of the company was separated from the day to day management and functioning. The professionalisation of top management, by which all senior positions would no longer be reserved for shareholders to attract new, young talent and bring in fresh ideas, thus, the contention of learned senior counsel for the respondents was that the object is only to oppress the minority group of shareholders.

34. It was next contended by learned senior counsel for the respondents that the board resolution passed is contrary to the earlier decision, wherein, the board was directed to consider the question of succession, but in the resolution, no such consideration had taken place, that is why, the hon’ble Company Law Board held that prima facie case was made out for grant of interim order, which does not call for any interference, especially when it is not a final order and is operative only till further orders.

35. It is also the contention of learned senior counsel that the impugned order is not a final order, because all the interim reliefs were not considered, therefore, order would not be appealable.

36. In support of this contention, learned senior counsel for the respondents placed reliance on the judgment of the hon’ble Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 ; to contend that when question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order though it may arise on findings, which cannot be appealed against.

37. The contention of learned senior counsel for the respondents is that questions now raised were not raised before the hon’ble Company Law Board, therefore, these cannot be said to be question of law, and the appeal not be competent.

38. Learned senior counsel for the respondents, thereafter, placed reliance on the judgment of the hon’ble Rajasthan High Court in the case of Sunshine Buildhome (P.) Ltd. v. Madhusudan Garg [2008] 143 Comp Cas 598/88 SCL 44, wherein, the hon’ble Rajasthan High Court has been pleased to lay down as under (headnote) :

“In a petition filed by the respondents for relief against oppression and mismanagement, the Company Law Board passed interim orders on the applications filed by the respondents staying the operation of one bank account and permitting operation of all other bank accounts under the joint signatures of both parties. The appellants challenged the interim orders and raised a question of law, whether the Company Law Board had jurisdiction to pass any interim order without any relief sought with regard to the same in the main petition filed before it and whether a person who had been removed as director could be allowed to sign cheques on behalf of the company :

Held, dismissing the appeals, that the interlocutory orders related only to the management and for better functioning of the company’s affairs. The Company Law Board had exercised its discretion, which could not be termed perverse, so as to warrant interference by the court. The appellants in their reply to the company application filed before the Board had not raised any objection regarding jurisdiction. The questions raised in the appeal could not be said to be questions of law having arisen out of the interim orders to be entertained under section 10F of the Companies Act, 1956.”

39. Finally it was contended by learned senior counsel for the respondents that the hon’ble Company Law Board was fully justified, as the appellants deliberately violated the earlier order passed by the hon’ble Company Law Board, directing to consider the policy of succession, etc.

40. The last contention of learned senior counsel for the respondents was that as it is only ad-interim order, it is always open to the appellants to go to the hon’ble Company Law Board to redress their grievance.

41. Learned counsel for respondent No. 2 contended that as per the report submitted, the following guiding principles were enabled for governance of framework :

(1) Delink ownership from executive board and management – shareholding does not necessarily imply automatic right to being part of executive board or management.

–  Set up a family council to discuss strategic and family-related requirements, offer inputs to the executive board, provide broad strategic directions, and take care of shareholders’ interest

–  Set guidelines and qualification criteria for inducting family members into the executive board and the management team(2) Professionalise the executive board

–  Re-constitute the Board to include representatives from the family, management team and reputed external professionals

–  Set up a transparent process of selecting family members into the Board, with a fixed number of seats, and fixed tenure, with possible rotation of family members on the Board3. Create transparent guidelines to select individuals to key management positions

–   For all top administrative and editorial positions, evaluate all eligible candidates-internal (family, professional) and external

–  Create an advisory council of luminaries with impeccable standing, with the ability and intent to make the best decisions for the company. This advisory council can help select successors to top positions (including the next editor-in-chief)4. Bring in professionals at all levels into the organisation, and make leadership decisions purely based on performance

–  Ensure there is no “de-facto” glass ceiling for professionals in the organisation structure

–  Ensure family members are selected to management roles purely based on merit, judged against the same set of metrics as professionals

–  Conduct transparent performance dialogues to evaluate performance of senior professionals and family members(5) Codify the core editorial values that all titles of KSL should abide by

–  The family council should create an editorial policy, to preserve the core values of the company. Once codified, this should be binding, across all titles of KSL.

–  The management team and the executive board should be responsible to ensure these core values are adhered to on a business-as-usual basis, with the family council intervening only if and when these principles are at threat of being compromised.

42. The contention of learned counsel, therefore, was that the appellants violated the guiding principles.

43. Learned counsel for respondent No. 2 contended that while passing the resolution, the appellants have completely ignored the qualification of respondent No. 2, the executive editor of The Hindu, the whole-time director of M/s. Kasturi and Sons Ltd. The company under the garb of professionalisation cannot remove respondent No. 2 from the post of executive editor of The Hindu. Reference was also made to the management function, being performed by the directors, which are as under :

Family branch No. Name of the director Directorial designation Management function
G. Narasimhan 1. N. Ram (R2) WTD Editor-in-Chief (w. e. f. 27-07-2003)
2. N. Murali (P3) WTD Senior managing director since 20-03-2010
3. N. Ravi (P1) WTD Editor (w. e. f. January, 1991)
G. Kasturi 4.  K. Balaji (R3) WTD Managing Director since 20-03-2010
5. K. Venugopal (R4) WTD Joint editor-Hindu & Business Line (w. e. f. 2005)
6. Lakshmi Srinath (R5) WTD Group events (w. e. f. 20-03-2010)
S. Rangarajan 7. Ramesh Rangarajan (R6) WTD Advertising (w. e. f. 20-03-2010)
8.  Vijaya Arun (R7) WTD General Administration, Welfare, CSR (w. e. f. 20-03-2010)
9. Akila Vijay Iyengar (R8) WTD Overseas business (w. e. f. 20-03-2010)
S. Parthasarathy 10. Nirmala Lakshmanan (R9) WTD Joint editor (w. e. f. 1996)
11. Dr. Nalini Krishnan (R10) WTD Employee Health and Welfare, CSR (w. e. f. 20-12-2010)
12. Malini Parthasarathy (P2) WTD Executive editor (w. e. f. August, 2008). Held the same designation earlier between 1996-2004

44. The contention, therefore was that the action of the appellants is oppressive to the minority shareholders. The contention was also raised that instead of special resolution, ordinary resolution was required to be passed. The contention of learned counsel for respondent No. 2, therefore, was that once the act is found to be oppressive, then no fault can be found with the order passed by the hon’ble Company Law Board to call for any interference by this court.

45. It is also the contention of learned counsel for respondents Nos. 1 to 4 that no question of law arise in these appeals, therefore, appeal is not competent, as appeal under section 10F of the Companies Act, 1956 can be entertained only on question of law.

46. It is prayed that the appeals, being without any merit, may kindly be dismissed.

47. On consideration, I find force in the contention raised by learned senior counsel appearing on behalf of the appellants. The hon’ble Company Law Board, cannot issue injunction in implementing the decision to be taken by the shareholders in its meeting, unless the prima facie finding is recorded, that the decision is prejudicial to the public interest or the company at large.

48. This view was taken by the hon’ble Company Law Board on an earlier occasion while rejecting the relief claimed against the decision to do away with family succession and it was left to the board of directors and shareholders, to consider this issue. It was always open to the shareholders to take a decision, in view of the earlier order.

49. The hon’ble Company Law Board also failed to take note of the fact that the respondents were yet to file their counter, it was stated that the decisions to be taken in the extraordinary general meeting were likely to take sometime, therefore, there was no urgency to pass the impugned order on May 18, itself, especially when the order could be made subject to the final decision to be taken by the hon’ble Company Law Board.

50. The hon’ble Supreme Court in the case of Escorts Ltd. (supra), had categorically laid down that it is not open to the Company Law Board to issue injunction with regard to functioning of the company.

51. As already observed above, in the order passed, no finding has been recorded regarding the resolution of the board of directors, that the matter placed before the extraordinary general meeting was prima facie prejudicial to the public interest or functioning of the company.

52. It is also well-settled that the shareholders can only watch the proprietary interest in the company and cannot object to the day to day decision and functioning of the company.

53. In this case, by placing the matter before the shareholders, the board of directors were seeking consent of the shareholders. If any civil rights of the parties were likely to be affected, then that can be the subject-matter of a civil suit, but certainly will not be falling under sections 397 and 398 of the Companies Act.

54. The resolution also prima facie cannot be said to be against the earlier order of the hon’ble Company Law Board, as the relief with regard to succession, was specifically declined, leaving it open to the board of directors and its shareholders to take a final decision.

55. The observations made in the previous order, on which reliance was placed by the respondents, were more in the nature of advice, and an enforceable order.

56. The contentions of learned senior counsel for the appellants, and that of counsel appearing for the company, deserve to be accepted.

57. The contention of learned senior counsel for the respondents that the impugned order was not appealable cannot be accepted in view of the law laid down by the hon’ble High Court of Rajasthan in the case of Gharib Ram Sharma (supra). The judgment of the hon’ble Supreme Court in the case of Scindia Steam Navigation Co. Ltd. (supra) on which reliance was placed by learned senior counsel for the respondents will not be applicable to the facts of the present case, as the question of law under consideration in the said case was under the Income-tax Act, 1961. Whereas the decision of the hon’ble Rajasthan High Court is directly interpreting section 10F of the Companies Act.

58. The contention of learned senior counsel for the respondents, that the question of law raised cannot be adjudicated for want of question, having been raised before the hon’ble Company Law Board, deserves to be noticed to be rejected, as admittedly application was opposed and even before the appellants could file their reply, the order was passed, which cannot be said to be an interim order, as no next date is fixed for considering the prayer for interim relief, but the case was fixed for final disposal of the company petition itself.

59. The judgment of the hon’ble Rajasthan High Court in the case of Sunshine Buildhome (P.) Ltd. (supra), also does not apply to the facts of the present case, as in the said case, interlocutory order passed was held to be for better management and functioning of the company. The hon’ble Rajasthan High Court, therefore, dismissed the appeal.

60. In the present case, dispute was with regard to individual rights of the respondents. The hon’ble Company Law Board nowhere recorded or held that the decision would not be in the interest of the company or its management. The appointment of editors has been made subject to supervision by the respondents. Finding of the hon’ble Company Law Board that it would not be possible to check functioning of non family members, is not based on any material. Nor any reasons have been given to come to this conclusion.

61. The decision of the hon’ble Company Law Board, is otherwise contrary on the face of record, inasmuch as, it did not stay holding of the extraordinary general meeting for want of prima facie case, whereas at the same time, the operation of the decision has been ordered to be stayed, even though the decision was subject to final decision.

62. There is also no material or finding recorded as to how the principles laid down with regard to the governance of framework were violated by passing of the resolution.

63. The contention of learned counsel for respondent No. 2 that the management of the editorial is changed and that the qualification of respondent No. 2 has not been considered cannot be the subject-matter of the petition under sections 397 and 398 of the Companies Act, 1956, specially when he has been included in the editorial board to supervise the editorial functions.

64. The memorandum and articles of association do not stipulate the family succession, nor does the Companies Act any way project the family succession or bars decision by the board of directors and shareholders to run the company in a professional manner.

65. For the reasons stated above, the impugned order passed by the hon’ble Company Law Board cannot be sustained. Consequently, these appeals are allowed and the decision of the hon’ble Company Law Board, staying implementation of the decision taken in the extraordinary general meeting is ordered to be set aside.

66. It is made clear that any observation made herein above, be not taken to be the final opinion on the merit of the controversy, as it is for the hon’ble Company Law Board to consider the matter in detail after the respective parties file their pleadings and the matter is heard finally.

67. The hon’ble Company Law Board is directed to dispose of the main company petition at the earliest, preferably within six months of the receipt of copy of this order. No costs.

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Category : Company Law (3486)
Type : Judiciary (10265)
Tags : high court judgments (4094)

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