Appellant: M.S. Madhusoodhanan And Another
Respondent: Kerela Kaumudi (P) Ltd. And Others
Bench: Ruma Pal J. And B.N. Srikrishna J.
Court: Supreme Court
Decided On: 01-08-2003
Citation: (2003) 117 Comp. Cas 19 (Sc)
- Kerela Kaumudi, a private limited company, incorporated under the companies
Act, 1913 was promoted by Sukumaran who was its Managing Director and later
Chairman and after his death he was succeeded by his widow Madhavi as Chairman.
They had four sons Madhusoodhanan, Srinivasan, Ravi and Mani who were main
protagonists in litigation. The four brothers are married and have children.
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.
- Besides Kerela Kaumudi, family had other concerns also that were Kaumudi
Investments Pvt. Ltd., Kerela Export (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 Kerela
- During the lifetime of K. Sukumaran each of brothers along with their parents
had shares in Kerela Kaumudi and the Shareholding was as follows:
|Valsa Mani (Mani's Daughter)
|Sukumaran Mani (Mani's Son)
|Kaumudi Investments Private Ltd.
On 29-11-1984 a resolution was taken at a meeting of the company which
was signed by the four brothers and Madhavi by which the controlling interests in
the different family was agreed to be given to the four brothers on the basis of
their active interests in a particular concern.
- On 25-1-1985, Madhusoodhanan was appointed as the Managing Director and
Editor of Kerela 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 the General Manager of Kerela Kaumudi for
life and Ravi was appointed as the Director and Executive for life. To give
effect to these appointments, Article 69-A and Article 74 of the Articles of
Association of Kerela Kaumudi were amended.
- According to Madhusoodhanan, Mani and his children had already transferred
their entire holding of 390 shares in Kerela Kaumudi to Madhusoodhanan in May
1985. As a results Mani and his children had no shares in Kerela Kaumudi,
Madhusoodhanan had 612 shares, and Srinivasan and Ravi had 222 shares each.
- On 23-7-1986, a Board meeting of Kerela Kaumudi was held at which Madhavi
assumed the powers of the Managing Director in purported ouster of
Madhusoodhanan. The meeting is disputed by Madhusoodhanan.
- A second Board meeting, which is also disputed by Madhusoodhanan was held on
1-8-1986 in which a decision was taken to increase the paid-up share capital of
Kerela Kaumudi by issuing 425 additional shares of Rs 1000 each.
- At a Board meeting held on 8-8-1986 these additional shares were issued
to Ravi and Srinivasan and one share was transferred by Ravi to Mani. This meeting
as well as the allotment of the additional shares is not accepted by
- On 16-8-1986 at an extraordinary general meeting Madhusoodhanan was removed
as Managing Director of Kerela Kaumudi and Article 74 of the Articles of the
company was deleted.
- In this background, several proceedings were filed by the parties
against each other. The first lot consists of six matters relating directly
Kaumudi and the shareholding in Kerela Kaumudi that are:
- Petition 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 Srinivasan and for removal of the name
of Mani from the Company's share register.
- Company Petition filed by Kaumudi Investment Pvt. Ltd. for similar reliefs.
- A suit filed by Madhusoodhanan in Munsif's Court, Trivandrum for decree
declaring that he continued to be the Managing Director of Kerela Kaumudi and
for declaration that the Board meeting held on 23-7-1986, 1-8-1986 and the
meetings subsequent thereto were illegal and ultra vires the Articles of
Association of the Company.
- A suit filed by Kaumudi Investment Pvt. Ltd. against Kerela Kaumudi for
- A suit filed by Madhusoodhanan for specific performance of the third
- Petition filed 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
21-5-1985 was illegal and void and for rectification of the share register by
recording them as the owners of 222, 84 and 84 shares respectively.
- The second set of litigation being company petition was filed in 1986 by Mani's wife Kastoori Bai, daughter Valsa, Ravi's wife Shylaja, and Srinivasan's
wife Laisa as well as Madhavi for rectification of the share register of Kaumudi
Investment Pvt. Ltd.
- The third set consists of petition filed by Vaishak, the minor son of
Madhusoodhanan, for rectification of the share register of Kerela Kaumudi.
- The fourth set of proceedings originally consisted of two suits filed
before the Munsif's Court, Trivandrum relating to the office premises of Kerela Exports
and Kaumudi Investment Pvt. Ltd. The suit filed by Kerela Exports was for a
mandatory injunction to restrain Kerela Kaumudi, Srinivasan, Ravi and Madhavi
from disturbing its functioning 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.
- The Single Judge of the High Court decided in favor of Madhusoodhanan. The
application for rectification was allowed and the allotments of shares made in
the meeting held on 8-8-1986 were set aside and rectification of the share
register of Kerela Kaumudi by deleting the further allotment of 425 shares each
to Srinivasan and Ravi was directed. However, the prayer for cancellation of the
transfer of one share in favor of Mani was disallowed. Therefore, the petition
filed by Kaumudi Investment Pvt. Ltd. asked for the same relief was dismissed on
the ground of delay. Madhusoodhanan's suit and Kaumudi Investment Pvt. Ltd.'s
suit was decreed by holding that meeting and delete of articles were illegal and
invalid. The suit filed for specific performance was also decreed. Mani and his
children's application for setting aside the transfer of 390 shares was
dismissed. The second and third set were dismissed while two suits filed by
Kerela Exports and Kaumudi Investment Pvt. Ltd.related to possession in Kaumudi
Buildings were decreed.
- But the judgment of the Single Judge was reversed by the Division Bench
of the High Court. Nine special leave petitions were filed in separate
proceedings on which leave was granted.
The prime question is who has the controlling interest in kerela Kaumudi but
this included concern about following particulars:
- The transfer of shares by Mani and his children to Madhusoodhanan
- The removal of Madhusoodhanan as the Managing Director
- The issue of additional shares to Ravi and Srinivasan; and
- Specific performance of the agreement (karar) dated 16-1-1986.
RELEVANT STATUTORY PROVISIONS:
Section 11, The Indian Contract Act,1872. Who are competent to contract:
Section 4, The Sale of Goods Act, 1930. Sale and agreement to sell:
- Every person is competent to contract who is of the age of majority according to
the law to which he is subject, and who is of sound mind and is not disqualified
- Section 2(10) of The Sale of Goods Act, 1930 defines "price" means the money
consideration for a sale of goods. 
Section 9, The Sale of Goods Act, 1930. Ascertainment of price:
- A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.
- A contract of sale may be absolute or conditional.
- Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
- An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.
Section 53, The Companies Act, 1956. Service of documents on members by company:
- 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.
- 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.
- A document may be served by a company on any member thereof either personally, or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notice to him.
- where a document is sent by post:
- Service thereof shall be deemed to be effected by properly addressing,
prepaying and posting a letter containing the document, provided that where
a member has intimated to the company in advance that documents should be
sent to him under a certificate of posting or by registered post with or
without acknowledgement due and has deposited with the company a sum
sufficient to defray the expenses of doing so, service of the document shall
not be deemed to be effected unless it is sent in the manner intimated by
the member; and
- such service shall be deemed to have been effect:
- in the case of a notice of a meeting, at the expiration of forty- eight
hours after the letter containing the same is posted, and
- in any other case, at the time at which the letter would be delivered in
the ordinary course of post.
- A document advertised in a newspaper circulating in the neighborhood of
the registered office of the company shall be deemed to be duly served on
the day on which the advertisement appears, on every member of the company
who has no registered address in India and has not supplied to the company
an address within India for the giving of notices to him.
- A document may be served by the company on the joint holders of a share
by serving it on the joint- holder named first in the register in respect of
- A document may be served by the company on the persons entitled to a
share in consequence of the death or insolvency of a member by sending it
through the post in a prepaid letter addressed to them by name, or by the
title of representatives of the deceased, or assignees of the insolvent, or
by any like description, at the address, if any, in India supplied for the
purpose by the persons claiming to be so entitled, or until such an address
has been so supplied, by serving the document in any manner in which it
might have been served if the death or insolvency had not occurred.
Authentication of Documents and Proceeding.
Section 108, The Companies Act, 1956. Transfer not to be registered except on
production of instrument of transfer:
- 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
transferee, 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:
Provided that where, on an application in writing made to the company by the
transferee and bearing the stamp required for an instrument of transfer, it
is proved to the satisfaction of the Board of directors that the instrument
of transfer signed by or on behalf of the transferor and by or on behalf of
the transferee has been lost, the company may register the transfer on such
terms as to indemnity as the Board may think fit: Provided further that
nothing in this section shall prejudice any power of the company to register
as shareholder or debenture holder any person to whom the right to any
shares in, or debentures of, the company has been transmitted by operation
1A. Every instrument of transfer of shares shall be in such form as may be
Every such form shall, before it is signed by or on behalf of the transferor and before any entry is made therein, be presented to the prescribed authority, being a person already in the service of the Government, who shall stamp or otherwise endorse thereon the date on which it is so presented, and
Every instrument of transfer in the prescribed form with the date of such presentation stamped or otherwise endorsed thereon shall, after it is executed by or on behalf of the transferor and the transferee and completed in all other respects, be delivered to the company:
In the case of shares dealt in or quoted on a recognized stock exchange, at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of the presentation of the prescribed form to the prescribed authority under clause (a) or within twelve months from the date of such presentation, whichever is later;
In any other case, within two months from the date of such presentation.
1B. Notwithstanding anything contained in sub- section (1A), an instrument of
transfer of shares, executed before the commencement of section 13 of the
Companies (Amendment) Act, 1965 or executed after such commencement in a form
other than the prescribed form, shall be accepted by a company-
- a. in the case of shares dealt in or quoted on a recognised stock exchange, at any time not later than the expiry of six months from such commencement or the date on which the register of members is closed, in accordance with law, for the first time after such commencement, whichever is later;
- b. in any other case, at any time not later than the expiry of six months from such commencement.
1C. Nothing contained in sub-sections (1A) and (1B) shall apply to-
A. any share-
- which is held by a company in any other body corporate in the name of a director or nominee in pursuance of sub-section (2), or as the case may be, sub-section (3), of section 49, or
- which is held by a corporation, owned or controlled by the Central Government or a State Government, in any other body corporate in the name of a director or nominee, or
- in respect of which a declaration has been made to the Public Trustee under section 153B, if-
the company or corporation, as the case may be, stamps or otherwise endorses, on the form of transfer in respect of such share, the date on which it decides that such share shall not be held in the name of the said director or nominee or, as the case may be, in the case of any share in respect of which any such declaration has been made to the Public Trustee, the Public Trustee stamps or otherwise endorses, on the form of transfer in respect of such share under his seal, the date on which the form is presented to him, and
the instrument of transfer in such form, duly completed in all respects, is delivered to the-
- body corporate in, whose share such company or corporation has made investment in the name of its director or nominee, or
- company in which such share is held in trust, within two months of the date so stamped or otherwise endorsed; or
B. any share deposited by any person with-
- the State Bank of India, or
- any scheduled bank, or
- any banking company (other than a scheduled bank) or financial institution approved by the Central Government by notification in the Official Gazette (and any such approval may be accorded so as to be retrospective to any date not earlier than the 1st day of April, 1966), or
- the Central Government or a State Government or any corporation owned or controlled by the Central Government or a State Government, by way of security for the repayment of any loan or advance to, or for the performance of any obligation undertaken by, such person, if-
the bank, institution, Government or corporation, as the case may be, stamps or otherwise endorses on the form of transfer of such share-
- the date on which such share is returned by it to the depositor, or
- in the case of failure on the part of the depositor to repay the loan or advance or to perform the obligation, the date on which such share is released for sale by such bank, institution, Government or corporation, as the case may be, or
- where the bank, institution, Government or corporation, as the case may be, intends to get such share registered in its own name, the date on which the instrument of transfer relating to such share is executed by it; and
C. the instrument of transfer in such form, duly completed in all respects, is delivered to the company within two months from the date so stamped or endorsed. any share which is held in any company by the Central Government or a State Government in the name of its nominee, except that every instrument of transfer which is executed on or after the 1st day of October, 1966 in respect of any such share shall be in the prescribed form.
1D. Notwithstanding anything in sub-section (1A) or sub-section (1B) or sub-section (1C)], where in the opinion of the Central Government it is necessary so to do to avoid hardship in any case, that Government may on an application made to it in that behalf, extend the periods mentioned in those sub-sections by such further time as it may deem fit whether such application is made before or after the expiry of the periods aforesaid; and the number of extensions.
Section 159, The Companies Act, 1956. Annual return to be made by company having a share capital:
- Every company having a share capital shall, within sixty days from the day on which each of the annual general meetings referred to in section 166 is held, prepare and file with the Registrar a return containing the particulars specified in Part I of Schedule V, as they stood on that day, regarding-
- its registered office,
- the register of its members,
- the register of its debenture holders,
- its shares and debentures,
- its indebtedness,
- its members and debenture holders, past and present, and
- its directors, managing directors, managing agents, secretaries and
treasurers, managers and secretaries, past and present: Provided that if
any of the five immediately preceding returns has given as at the date
of the annual general meeting with reference to which it was submitted,
the full particulars required as to past and present members and the
shares held and transferred by them, the return in question may contain
only such of the particulars as relate to persons ceasing to be or
becoming members since that date and to shares transferred since that
date or to changes as compared with that date in the number of shares
held by a member.
Explanation- Any reference in this section or in section 160 or 161 or in any
other section or in Schedule V to the day on which an annual general meeting is
held or to the date of the annual general meeting shall, where the annual
general meeting for any year has not been held, be construed as a reference to
the latest day on or before which that meeting should have been held in
accordance with the provisions of this Act.
2. The said return shall be in the Form set out in Part II of Schedule V or as
near thereto as circumstances admit and where the return is filed even though
the annual general meeting has not been held on or before the latest day by
which it should have been held in with the return a statement specifying the
reasons for not holding the annual general meeting.
3. The conditions subject to which any manufacturing into stock and given notice
of the conversion to the Registrar. the list referred to in paragraph 5 of Part
I of Schedule V shall state the amount of stock held by each of the members
concerned instead of the shares so converted previously held by him.
Section 161(2) of The Companies Act, 1956:
The copy of annual return filed
with the Registrar along with the return a certificate signed by the signatories
of the return, stating:
a) that the return states the facts as they stood on the day of the annual
general meeting aforesaid, correctly and completely;
aa) that since the date of the last annual return the transfer of all shares and
debentures and the issue of all further certificates of shares and debentures
have been appropriately recorded in the books maintained for the purpose;
b) in the case of a private company also,
a. that the company has not, since the date of the annual general meeting with
reference to which the last return was submitted, or in the case of a
first-return, since the date of the incorporation of the company, issued any
invitation to the public to subscribe for any shares or debentures of the
b. that, where the annual return discloses the fact that the number of members
of the company exceeds fifty, the excess consists wholly of persons who under
sub-clause (b) of clause (iii) of sub-section 1 of section 3 are not to be
included in reckoning the number of fifty.
Section 189, The Companies Act, 1956. Register of contracts or arrangements in
which directors are interested:
- Every company shall keep one or more registers giving separately the particulars of all contracts or arrangements to which sub-section (2) of section 184 or section 188 applies, in such manner and containing such particulars as may be prescribed and after entering the particulars, such register or registers shall be placed before the next meeting of the Board and signed by all the directors present at the meeting.
- Every director or key managerial personnel shall, within a period of thirty days of his appointment, or relinquishment of his office, as the case may be, disclose to the company the particulars specified in sub-section (1) of section 184 relating to his concern or interest in the other associations which are required to be included in the register under that sub-section or such other information relating to himself as may be prescribed.
- The register referred to in sub-section (1) shall be kept at the registered office of the company and it shall be open for inspection at such office during business hours and extracts may be taken therefrom, and copies thereof as may be required by any member of the company shall be furnished by the company to such extent, in such manner, and on payment of such fees as may be prescribed.
- The register to be kept under this section shall also be produced at the commencement of every annual general meeting of the company and shall remain open and accessible during the continuance of the meeting of any person having the right to attend the meeting.
- Nothing contained in sub-section (1) shall apply to any contract or arrangement-
- for the sale, purchase or supply of any goods, materials or services if the value of such goods and materials or the cost of such services does not exceed five lakh rupees in the aggregate in any year; or
- by a banking company for the collection of bills in the ordinary course of its business.
- Every director who falls to comply with the provisions of this section and the rules made thereunder shall be liable to a penalty of twenty-five thousand rupees.
Section 193(1) of The Companies Act, 1956: 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
Section 195, The Companies Act, 1956. Presumptions to be drawn where minutes
duly drawn and signed: Where minutes of the proceedings of any general
meeting of the company or of any meeting of its Board of directors or of a
committee of the Board have been kept in accordance with the provisions of
section 193, then. Until the contrary is proved, the meeting shall be deemed to
have been called and held, and all proceedings thereat to have duly taken place,
and in particular, all appointments of directors or liquidators made at the
meeting shall be deemed to be valid.
Section 10, The Specific Relief Act, 1963. Specific relief Cases in which
specific performance of contract enforceable:
Except as otherwise provided, the specific performance of any contract may,
in the discretion of the court, be enforced:
a) when there exists no standard for ascertaining actual damage caused by the non-performance of the act agreed to be done; or
b) when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.
Unless and until the contrary is proved, the court shall presume:
Section 12, The Specific Relief Act, 1963. Specific performance of part of contract:
that the breach of a contract to transfer immovable property cannot be adequately relieved by compensation in money; and
that the breach of a contract to transfer movable property can be so relieved except in the following cases:
where the property is not an ordinary article of commerce, or is of special value or interest to the plaintiff, or consists of goods which are not easily obtainable in the market;
where the property is held by the defendant as the agent or trustee of the plaintiff.
Section 16, The Specific Relief Act, 1963. Personal bars to relief:
Except as otherwise hereinafter provided in this section the court shall not direct the specific performance of a part of a contract.
Where a party to a contract is unable to perform the whole of his part of it, but the part which must be left unperformed by only a small proportion to the whole in value and admits of compensation in money, the court may, at the suit of either party, direct the specific performance of so much of the contract as can be performed, and award compensation in money for the deficiency.
Where a party to a contract is unable to perform the whole of his part of it, and the part which must be left unperformed either:
forms a considerable part of the whole, though admitting of compensation in money; or
does not admit of compensation in money, he is not entitled to obtain a decree for specific performance; but the court may, at the suit of other party, direct the party in default to perform specifically so much of his part of the contract as he can perform, if the other party:
in a case falling under clause (a), pays or has paid the agreed consideration for the whole of the contract reduced by the consideration for the part which must be left unperformed and a case falling under clause (b), [pays or had paid] the consideration for the whole of the contract without any abatement; and
in either case, relinquishes all claims to the performance of the remaining part of the contract and all right to compensation, either for the deficiency or for the loss or damage sustained by him through the default of the defendant.
When a part of a contract which, taken by itself, can and ought to be specifically performed, stands on a separate and independent footing from another part of the same contract which cannot or ought not to be specifically performed, the court may direct specific performance of the former part.
Explanation: For the purposes of this section, a party to a contract shall be deemed to be unable to perform the whole of his part of it if a portion of its subject matter existing at the date of the contract has ceased to exist at the time of its performance.
Specific performance of a contract cannot be enforced in favor of a person:
- who would not be entitled to recover compensation for its breach; or
- who has become incapable of performing, or violates any essential term of, the contract that on his part remains to be performed, or acts in fraud of the contract, or wilfully acts at variance with, or in subversion of, the relation intended to be established by the contract; or
- 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 the performance of which has been prevented or waived by the defendant. Explanation: For the purposes of clause (c):
- 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;
- the plaintiff must aver performance of, or readiness and willingness to perform, the contract according to its true construction.
Section 20(2), The Specific Relief Act, 1963. The following are cases in which the court may properly exercise discretion not to decree specific performance:
- 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; or
- Where the performance of the contract would involve some hardship on the defendant which he did not foresee, whereas its non-performance would involve no such hardship on the plaintiff; or
- Where the defendant entered into the contract under circumstances which though not rendering the contract voidable, makes it inequitable to enforce specific performance.
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).
The question whether the performance of a contract would involve
hardship on the defendant within the meaning of clause (b) shall, except in
cases where the hardship has resulted from any act of the plaintiff subsequent
to the contract, be determined with reference to the circumstances existing at
the time of the contract.
Section 38, The Specific Relief Act, 1963. Perpetual injunction when
Section 22 of The Limitation Act, 1963. Continuing breaches and torts:
- Subject to the other provisions contained in or referred to by this Chapter, a perpetual injunction may be granted to the plaintiff to prevent the breach of an obligation existing in his favor, whether expressly or by implication.
- When any such obligation arises from contract, the court shall be guided by the rules and provisions contained in Chapter II.
- When the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of, property, the court may grant a perpetual injunction in the following cases, namely:
- where the defendant is trustee of the property for the plaintiff;
- where there exists no standard for ascertaining the actual damage caused, or likely to be caused, by the invasion;
- where the invasion is such that compensation in money would not afford adequate relief;
- where the injunction is necessary to prevent a multiplicity of judicial proceedings.
In the case of a continuing breach of contract or in the case of a continuing
tort, a fresh period of limitation begins to run at every moment of the time
during which the breach or the tort, as the case may be, continues.
Article 54 of The Limitation Act, 1963 stipulates that the limitation for filing
the suit for specific performance of the contract is three years from the date
fixed for the performance or if no such date is fixed, when the Plaintiff has
noticed that performance is refused.
Decision Of The Case:
- The transfer of shares by Mani and his children to Madhusoodhanan
Court held in favor of Madhusoodhanan and stated that there was transfer of
shares by Mani and his children to him and rejected prayer for rectification of
share register on the basis of following observation:
Meeting and Share Transfer Details:
On the meeting of 19-03-1985, Mani provided that all the shares in Kerela Kaumudi owned by Mani and family would be pledged to Madhusoodhanan who shall extend financial facilities to Mani. (This evident the intention of Mani and his group to transfer their shareholding to Madhusoodhanan.)
On the Board meeting of 23-04-1985, it was affirmed and resolution passed which envisaged three particulars i.e, an immediate and unconditional transfer of shares, then, the settlement of Mani's income tax liabilities by Kerela Kaumudi and further, the determination of the consideration for the transfer to be mutually agreed on. Conclusively, the meeting expressed an immediate transfer of shares where future consideration agreed.
Statutory provisions represented that contract is valid even if price not fixed under Section 9 of the Sale of Goods Act, 1930 which 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, and according to Section 29 of the Contract Act, 1872 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.
In the Board meeting of 04-06-1985 share transfer deeds were approved and signed by Madhavi as Chairman. (This evident that the share transfer had been executed and duly completed.)
The annual return of Kerela Kaumudi (dated 27-06-1985) filed under section 159 of the Companies act, 1956 with the Registrar of Companies, mentioned name of Mani and his children in the list of past members and debenture- holders and also included that they had effect transfer of their shareholding to Madhusoodhanan.
In the statement of Form IV, ownership of newspapers, the name of Mani was not mentioned in the list of shareholders.
In the annual return dated 26-09-1986 and 28-07-1987, Mani is shown as holding only one share that was sold by Ravi to Mani at a meeting held on 26-08-1986 and Madhusoodhanan as holding 612 shares in the Company. According to Section 164 of the Companies Act, 1956, the annual returns, the certificates and statement therein "shall be prima facie evidence of any matters directed or authorized to be inserted therein" under the Act.
- The removal of Madhusoodhanan as the Managing Director
According to Section 81of the Companies Act,1913 (corresponding to Section 189
of the companies Act,1956) three conditions had to be fulfilled before any
alteration of the Articles of Association of a company could take place:
Court held that the removal of Madhusoodhanan as the Managing Director and alteration of Article 74 is invalid and against the provisions of Companies Act, 1913 and therefore, Madhusoodhanan continued to be the Managing Director of Kerela Kaumudi.
Notice specifying the intention to propose the resolution as an extraordinary resolution must be given means the notice must inform each member of the company and it should be frank, open, clear and satisfactory.
Notice of the meeting must be duly given either by personal service or service by post at least 21 days before.
Resolution must be passed by 75% of the members present.
In the Case, Madhusoodhanan was Managing Director and Editor of the Company for life according to Article 74 of the Articles of Association and held 50% shares.
In the Board meeting dated 23-07-1986 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 organization" and other 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 above decisions".
Following this a notice was passed to call an extraordinary general meeting of the shareholders of Kerela Kaumudi on 16-08-1986 to consider and pass Board's resolution dated 23-07-1986 as a special resolution.
There was no mention in the notice of any intention or proposal to amend the Articles of the company. The explanatory statement annexed with the notice stated "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." Madhusoodhanan's power not sought to be merely curbed, but completely denuded.
On the extradordinary general meeting dated 16-08-1986 special resolution was taken up for consideration, Madhavi submitted 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."
Notice does not mention about resolution to delete Article 74 and special resolution which was proposed in the notice was not the resolution which was ultimately passed in the grab of ratifying the resolution taken by the Board of Directors on 23-07-1986, what was in fact "ratified" was not only the proposal to remove Madhusoodhanan as Director but also the immediate deletion of Article 74 of the Articles of Association of the company. Thus, the special resolution on the basis of such defective notice is insupportable in law and cannot be given effect.
Even, service of notice was not provided to Madhusoodhanan or any other shareholder in his group.
The special resolution passed by a statutory majority of 75% was sought to be circumvented by the respondents by the purported issue of additional shares to members belonging to their group.
It is apparent that none of the three pre condition were fulfilled for effecting an alteration in the Articles of Kerela Kaumudi by deleting Article 74.
- The issue of additional shares to Ravi and Srinivasan:
Court observed that Madhusoodhanan who also held shares in Kerela Kaumudi has
right to be updated regarding internal activity and to receive notice but he
neither knew of the meeting dated 1-08-1996 nor did he receive any notice with
regard to the allotment of additional shares nor of the meetings said to have
been held on 8-08-1986 and 16-08-1986, in which allotment of additional shares
to Ravi and Srinivasan was made and later confirmed. Thus, the allotment of
shares to Ravi and Srinivasan were invalid.
- Alteration of Article 74 required to be passed with 75% majority and for this it was necessary to ensure that Madhusoodhanan's shareholding which was more than 50 per cent of the paid-up share capital of the company was reduced to 25 per cent. This sought to be achieved in two stages.
- By taking decision to increase the paid-up share capital of the Company by issuing an additional 425 shares.
- By not giving Madhusoodhanan or any of his group any chance to participate in the fresh allotment of shares and ensuring that the shares were allotted to Ravi and Srinivasan.
- Thus, on the Board meeting dated 1-08-1986 a resolution was taken to issue additional shares worth 4.25 lakh in order to increase the share capital of the company to Rs 20 lakhs.
- Notice was directed among existing shareholders to apply for shares within seven days. The last day for making an application for allotment of any of these additional shares was fixed at seven days from the date of Board meeting so that Madhusoodhanan's shareholding could be reduced 25% before the extraordinary general meeting to be held on 16-08-1986.
- Specific Performance Of The Agreement (Karar) 16-01-1986
- Resolution of agreement dated 16-01-1986 has 11 clauses and mentioned about Karar, signed by Madhavi, Mani, Madhusoodhanan, Srinivasan and Ravi.
- Clauses 1 of the Karar provides that Madhavi would be the Chairman of Kerela
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 Kerela Kaumudi should be so given that
Madhusoodhanan gets 50 per cent of the total shares of the Company including the
shares owned by Mani, and Srinivasan and Ravi get 25 per cent each. Clause 3
provides that transfer of Mani shares to Madhusoodhanan must be informed to
Clause 4 to 10 relates to the division of assets and shareholding
in various family concerns so that each of the brothers had 52 per cent
shareholding in different concerns. Clause 9 provides that if any shareholders
in any of the concerns wishes to sell his shares, they must be offered to the 52
per cent shareholders at a price to be fixed by the others. Clause 11 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.
- Thus, each of the brothers had been given the majority of the
shareholding of 52 per cent in the companies specified against their names
in the Karar.
- Since the other three brothers of the plaintiff Madhusoodhanan 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 favor
and jettison the rest.
- Shares are movable properties and are transferable while in private
companies Articles of Association restricts 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 under Section 3(1)(iii) of The
Companies Act, 1956 and Section 2(13) of the Companies Act, 1913. But, 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 Specific Relief Act, 1963, which corresponds to Section 12 of
the Specific Relief Act,1877.
Court held that the parties who had consciously entered into the agreement
regarding the transfer of their parent shares are therefore, obliged to act in
terms of the Karar. Court directed them to appoint arbitrators and determine
value of shares for specific performance of Karar.
Eventually, Court held that the Madhusoodhanan has controlling interest of
Kerela Kaumudi.Referred Case:
- Syed Akbar v. State of Karnataka: Supreme Court held that in civil proceedings, a mere preponderance of probability is sufficient and the defendant is not necessarily entitled to the benefit of every reasonable doubt.
- Shanti Prasad Jain v. Kalinga Tubes Ltd.: Supreme Court held that oppression must be a continuing fact and it should be proved in continuity and not in isolation with other transactions. In order to prove that the oppression by the majority shareholders continued it is necessary to show that management process of the company was against the principles of fair play, fair deal, probity and detriment to the interests of a particular class of members. The violation of proprietary rights as shareholder must be there in order to bring successful claim.
- Nagappa Chettiar v. Madras Race Club: Court held that if the majority purport to do any act by passing only an ordinary resolution or without passing a special resolution in the manner required by law, any member or members can bring an action to restrain the majority.
- Baillie v. Oriental Telephone Co.: Court held that action brought by minority shareholder is enough to restrain company on action over special resolution if sufficient notice had not been given to shareholders.
- K.K. Modi v. K.N. Modi: Court held that following attributes are necessary for considering an agreement as an arbitration agreement:
- The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement.
- The jurisdiction of the tribunal to decide the rights of the parties must derive from their consent, or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration.
- The agreement must contemplate that substantive rights of the parties will be determined by the agreed tribunal.
The case deals with internecine disputes between the members of a family
relating to controlling interests in company named Kerela Kaumudi. The dispute
has given rise to nine appeals which are being disposed of by Supreme Court
judgment. The main protagonists are Madhusoodhanan, Srinivasan, Ravi and Mani
where Madhusoodhanan on one side and Srinivasan, Ravi and Mani on the other
I support the decision of Supreme Court, which was decided in favor of
Madhusoodhanan. The application for rectification of share registration on the
name of Mani and his Children was rejected as they had no shares in Kerela
Kaumudi. Meetings dated 23-07-1986, 01-08-1986 and 16-08-1986 was held against
the law and invalid as there was no proper notice of meeting was circulated and
resolutions passed in mentioned meeting was quite of personal interests.
Further, the removal of Madhusoodhanan as Managing Director and alteration of
Article 74 was invalid and against the provision of The Companies Act, 1956. An
arbitrator was appointed for determining what amount was payable by the
Madhusoodhanan to Mani for the shares transferred by Mani to Madhusoodhanan.
Court concluded its decision mainly on the basis of Section 53, 108, 189,
161(2), 193 and 195 of The Companies Act, 1956.End-Notes:
- Dr. G.K. Kapoor and Dr. Sanjay Dhamija, Taxmann's Company Law (Taxmann
Publishing (P.) Ltd. 23rd Edition, 2021)
- Sudipto Sarkar and R Yashod Vardhan, Sarkar Specific Relief Act (LexisNexis
- The Indian Contract Act, 1872 8 (Universal Lexis Nexis 2019)
- The Sale of Goods Act, 1930 - https://www.indiacode.nic.in
- Companies Act, 1956 - https://www.mca.gov.in
- Company Act,1956 - https://www.mca.gov.in
- Company Act, 1956 - https://www.mca.gov.in
- Company Act, 1956 - https://www.mca.gov.in
- Sudipto Sarkar and R Yashod Vardhan, Sarkar Specific Relief Act 111 (LexisNexis 2017)
- Sudipto Sarkar and R Yashod Vardhan, Sarkar Specific Relief Act 157 (LexisNexis 2017)
- Sudipto Sarkar and R Yashod Vardhan, Sarkar Specific Relief Act 264 (LexisNexis 2017)
- Sudipto Sarkar and R Yashod Vardhan, Sarkar Specific Relief Act 369 (LexisNexis 2017)
- Sudipto Sarkar and R Yashod Vardhan, Sarkar Specific Relief Act 727 (LexisNexis 2017)
- The Limitation Act, 1963 - https://www.indiacode.nic.in
- AIR 1979 SC 1848
- AIR 1965 SC 1535
- AIR 1951 Mad 831
- 84 LJ Ch 409
- 1998 3 SCC 573