TMI Blog1993 (4) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... ointing additional directors. The plaintiff/applicant also prays for declaration and permanent injunction in respect of various acts committed by the sixth defendant/sixth respondent along with other directors, particularly Nusli Wadia (seventh defendant) and Venu Srinivasan (eighth defendant). Many interlocutory applications have been filed by the plaintiff/applicant in this suit. The plaintiff/applicant had also filed C.S. No. 1247 of 1992 against NPBS and nine others. The defendants include Nusli Wadia, Venu Srinivasan, Mrs. Saroj Goenka and her three daughters. This suit challenges the transfer of shares in the aforesaid board meeting held on January 5, 1991, and also seeks for a declaration that 24.32 per cent. shares have been held in trust for the benefit of the plaintiff's brother. Serious allegations have been made regarding the holding of the board meeting on January 5, 1991, and the extraordinary general meeting on January 23, 1991. According to the plaintiff, no notice has been given in respect of these meetings and the same were conducted clandestinely. The resolutions passed therein were filed before the Registrar of Companies through the office of Sundaram Clayto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of temporary injunction restraining respondents Nos. 6 to 12/defendants Nos. 6 to 12 from interfering in any manner in the plaintiff/applicant's powers as joint managing director of the third respondent/third defendant company pending disposal of the suit. Application No. 4718 of 1992 : To direct the restoration of all powers vested in the applicant/plaintiff in respondents Nos. 1 to 5/defendants Nos. 1 to 5 consequent to the resolutions passed in the board meeting of the first respondent/first defendant held on September 26, 1990, pending disposal of the suit. Application No. 4719 of 1992 : To direct the applicant/plaintiff, Mrs. Saroj Goenka and the sixth respondent/sixth defendant to be appointed as joint representatives of the respondent/defendant companies under section 187 of the Companies Act. A common affidavit has been filed in all the above applications. According to the applicant/plaintiff, in furtherance of conspiracy, the alleged board meeting was held on January 5, 1991, wherein far reaching resolutions were passed, viz. ( a )Appointing defendants Nos. 7 to 9 as directors and thereby making the plaintiff and his mother/the fourteenth defendant a help ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their conspiracy, they have appointed R.A. Shah/the twelfth defendant as a director of the second defendant at the board meeting held on June 24, 1992. ( k )The manner in which the first defendant owns or controls the other defendant companies has been set out in the plaint. ( l )At the board meeting held on September 26, 1990, RNG formally laid down the plan for succession and subsequently the articles of the first defendant were also amended to implement the decisions taken at the board meeting. ( m )After the death of RNG, and particularly after the enormity of the fraud was revealed on March 17, 1992, the sixth defendant has adopted a hostile attitude against the plaintiff and Mrs. Saroj Goenka. He has also embarked upon a course of action to systematically humiliate the plaintiff by removing all the administrative powers vested in him as joint managing director of the southern newspapers. The actions taken by the sixth defendant have been fully set out in paragraph 21( a ) to ( d ) of the affidavit. ( n )The plaintiff became aware of the appointment of defendants Nos. 7 to 9 as additional directors in March, 1991. At that time, no action was taken keeping in mind the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The seventh defendant was present. ( d )In the board meeting held on September 24, 1991, the plaintiff was again present. The seventh defendant was in the chair. The eighth defendant was present. ( e )In the board meeting held on February 4, 1992, the plaintiff was present. The seventh defendant was in the chair and the eighth defendant was present. ( f )In the board meeting held on June 24, 1992, the plaintiff was present. The seventh defendant was in the chair and the eighth defendant was present. ( g )In the board meeting held on September 5, 1992, the plaintiff was present. The seventh defendant was in the chair. The plaintiff objected to the seventh defendant taking the chair but not to his being present at the meeting as director. The eighth defendant was also present and no objection was taken by the plaintiff. Until the suit was filed, the plaintiff never challenged the induction or attendance of defendants Nos. 7 and 8 or leave of absence granted to the ninth defendant at the board meetings, in any letter or proceeding. In answer to the submissions made by Mr. P. Chidambaram, Mr. K. Parasaran, learned senior counsel, submits that the plaintiff was given only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the third defendant company as well. ( d )At the board meeting held on September 5, 1992, the plaintiff was present. The seventh defendant was in the chair. The eighth defendant was present. At this meeting, the sixth defendant, Vivek Goenka, was redesignated as managing director of the second defendant company. Mr. K. Parasaran, learned senior counsel for the plaintiff, in reply submits that the appointment of defendants Nos. 7 to 9 was deliberately suppressed and that the sixth defendant became a permanent representative of the second defendant company by fabricating the minutes of the first defendant company dated August 31, 1990. My attention was drawn to pages 29 and 34 of the plaintiff's documents. Thus, it is contended that the seventh defendant's self-appointment as sole representative of the first defendant company and the consequent extraordinary general body meeting held on February 21, 1991, were deliberately concealed as part of a fraudulent conspiracy. Though the participation of the plaintiff in the board meetings was admitted, it was argued, that he participated in the said meetings ignorant of the fraud being played upon him. It is further contended that aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present or have participated in the meeting. Thus, it is submitted that these facts were deliberately suppressed from the plaintiff and that the fraud was revealed only later. I am of the view that the prayer asked for in O.A. No. 762 of 1992 is misconceived, as rightly contended by Mr. P. Chidambaram, learned senior counsel for the sixth defendant, in so far as defendants Nos. 4 and 5 companies are concerned. Defendants Nos. 10 to 12 are not directors of these two companies. The most significant aspect of this application read with other applications is that there is no prayer seeking an injunction against defendants Nos. 7 to 9 in respect of the third defendant company, which is the most crucial company so far as the plaintiff is concerned. In so far as the first defendant company is concerned, defendants Nos. 10 and 12 were inducted as directors on June 24, 1992, and the plaintiff was present at the said meeting. According to the minutes placed before this court, there was no dissent. According to the version of Mrs. Saroj Goenka of the minutes, she and the plaintiff dissented. It is also not disputed that the eleventh defendant is not a director of the first defendant company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sixth defendant is not the chairman and executive director of the fourth defendant company. The only directors of the fourth defendant company are Mrs. Saroj Goenka, the plaintiff and the sixth defendant. The resolution was passed by that board appointing the sixth defendant as managing editor, with the approval of both Mrs. Saroj Goenka and the plaintiff. In so far as the third defendant company is concerned, the sixth defendant was appointed as managing editor at the board meeting held on September 24, 1991, and it was also reiterated at the board meeting held on June 24, 1992. So far as the chairman and executive director arc concerned, the sixth defendant was appointed as the executive director of the third defendant company at the board meeting held on November 1, 1989, and has been functioning as such for the last 3 years. He was appointed as chairman at the board meeting held on September 5, 1992. Above all, the plaintiff was present and the seventh defendant was in the chair. No grounds have been urged to grant injunction against the sixth defendant for functioning as managing editor and/or chairman and executive director of the third defendant company. At this stage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. 768 of 1992 has been filed by the plaintiff to injunct defendants Nos. 6 to 12/respondents Nos. 6 to 12 from interfering with the plaintiff's powers as joint managing director of the third respondent/third defendant company. As observed by me earlier, this application also has to abide by the decision rendered by me in Applications Nos. 841, 5129 and 5998 of 1992 dated April 13, 1993 (since reported in Vivek Goenka v. Manoj Sonthalia [1993] 2 MLJ 1 ; [1995] 83 Gomp Cas 897). It is contended by Mr. K. Parasaran, learned senior counsel for the plaintiff, that the plaintiff became a director of the third defendant company in 1980 itself. The board meeting dated June 24, 1991, is seriously disputed in the light of the medical evidence, which came to be disclosed on February 23, 1993. Again, it is repeated that the appointment of defendants Nos. 10 to 12 on June 24, 1992, has been disputed. The minutes have been fabricated and in any event, defendants Nos. 10 to 12 were appointed by virtue of the illegal majority obtained by inducting defendants Nos. 7 to 9. The appointments of defendants Nos. 6 to 12 is itself disputed. The appointment of defendants Nos. 7 to 9 in the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plaintiff, submits that the minutes constitute the succession plan of RNG and that the said plan was implemented by amending the articles, interlocking the rights and interests of the plaintiff and the sixth defendant, and making RNG supreme till his life time. In any event, it is the plaintiff's case, that the handing over of the shares to Nusli Wadia was to be done by both the grandsons. However, only the plaintiff's shares were illegally transferred to RNG's name by virtue of the conspiracy between defendants Nos. 6 and 7. Even the shares held in the joint names were not transferred where Vivek Khaitan's name was shown as the first shareholder. He submits that the minutes are not a pious wish and hence, as recorded in the minutes, defendants Nos. 1 to 5 companies have to be run by the plaintiff and the sixth defendant as a team and any resolution in violation of this specific directive would be contrary to the RNG's succession plan. Mr. P. Chidambaram, learned senior counsel for the sixth defendant, in reply to the above argument contends that the whole prayer is misconceived and the minutes referred to are the minutes of the board meeting of the first defendant company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, a body corporate may appoint only one representative. There is no question of appointing joint representatives. In so far as the first defendant company is concerned, as rightly contended by Mr. P. Chidambaram, section 187 of the Companies' Act is not applicable because it is composed of shareholders who are individuals, who will exercise their power to elect/appoint directors who will manage and represent the company. In so far as the second defendant company is concerned, it is the first defendant company which has to appoint its representative, which means that the board of directors of the first defendant company will appoint a representative to represent the first defendant company in the meetings of the second defendant company. Similarly, in so far as the third defendant company is concerned, it is the board of directors of the second defendant company who will appoint a representative to represent the second defendant company in the meetings of the third defendant company. In so far as the fourth defendant company is concerned, it was originally a wholly owned subsidiary of the fifth defendant company and as long as it was so, it was the board of directors of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Companies Act does not require that the board of directors must reflect the shareholding pattern. The proper legal position is that the shareholders who are in a majority can elect directors of their choice. The Act does not authorise the majority to eliminate the minority by wrongful means. In a family owned company, a large shareholder cannot be removed from management on the plea of corporate democracy. Mr. P. Chidambaram, learned senior counsel for the sixth defendant, submits that all the defendant companies have the power to appoint additional directors and, therefore, defendants Nos. 7 to 9 have been validly appointed. In reply to this argument, Mr. K. Parasaran, learned senior counsel for the plaintiff, submits that there is no dispute about the power to appoint additional directors, but the same has been done by fraudulent exercise of that power. The real case, according to the learned senior counsel for the plaintiff, is regarding the conspiracy and fraud perpetrated by the sixth defendant with the active connivance of defendants Nos. 7 and 8 against the plaintiff. Mr. K. Parasaran further submits that the conspiracy has started not on January 5, 1991, but mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in approving the appointment of defendants Nos. 7 to 9 in defendants Nos. 3 and 5 companies on June 24, 1991, and June 26, 1991, respectively, assumes significance not only from the point of view of the maintainability of the plaintiff's challenge to the resolution of the board of directors of the third defendant company but also from the point of view of the credibility of the plaintiff and the positive attempt on the part of the plaintiff to mislead this court in material respects. The circular resolutions for the appointment of defendants Nos. 7 to 9 on the board of defendants Nos. 3 and 5 companies clearly establish the following : ( a )RNG had initiated the move to appoint these three persons as additional directors. ( b )He was present at the meeting of the third defendant company held on June 24, 1991. ( c )It was considered by all the directors including the plaintiff that it was desirable to appoint defendants Nos. 7 to 9 on the board of directors on account of their eminence, in that, such appointment was to be made in the various companies in the group for uniformity of policy and better co-ordination of the operations of the companies. In fact, defendants Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that in his letter of November 12, 1990, the plaintiff admits that RNG had, on September 26, 1990, asked him to return the shares and that RNG had lost faith in him. The plaintiff had tried to impose upon RNG the minutes prepared by Mr. Gurumurthy in which there was a marked emphasis upon the creation of a trust and that the plaintiff and the sixth defendant were to have equal status in the company. On account Of this controversy, RNG had lost faith in Mr. Gurumurthy, who had to disassociate himself from the "Express" group of companies in October, 1990. ( b )The plaintiffs assertion that the letter dated November 12, 1990, and the share transfer forms were extracted from the plaintiff by the seventh defendant on the ground that both the plaintiff and the sixth defendant were to execute transfer deeds in favour of RNG which is ex facie false as would appear from the letter dated November 12, 1990, which speaks of only loss of confidence in the plaintiff and not in the sixth defendant. The plaintiff, by letter dated November 12, 1990, sent the transfer deeds with regard to his exclusive shares or shares where he was the first holder and not with regard to 12.16 per cent. shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company are explained by the simple fact that the plaintiff and certain officers close to him in the Madras office, viz. , Mr. L. Seshan and Mr. N. Rajendrakumar were not sending the record when asked for by RNG in Bombay. They were not co-operating either with RNG or with the sixth defendant. They could not be trusted at this stage for filing the returns. ( g )The assertion that the cancelled pronote was not sent back to the plaintiff by RNG is an absolutely irrelevant circumstance and is not indicative of conspiracy. The pronote which was given in consideration of RNG transferring 37 per cent. shareholding to the plaintiff was cancelled. A letter to that effect was duly signed by RNG and sent to the plaintiff. The fact that only a letter was sent and the pronote was not sent is not a circumstance indicating conspiracy since in view of the cancellation, the pronote ceased to have any effect in law. ( h )The alleged circumstance that Mr. L. Seshan prepared the statement of assets and liabilities of RNG after his death and showed the shares as not transferred clearly corroborates the fact that Mr. Seshan is actively in collusion with the plaintiff as is demonstrated by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the directors, was invalid and the resolution passed to terminate the services of the general manager would be inoperative. However, on the peculiar facts of that case, it was held that the termination of services was effected by the chairman's telegram and letter which were subsequently ratified. Relying on the above decision, Mr. K. Parasaran submits that the board meetings of January 5, 1991, of the first defendant company and of January 23, 1991, of the second defendant company would be invalid and the resolutions passed therein are inoperative as no notice was given to the plaintiff and his mother, who are the other directors of the first defendant company, and to the plaintiff and Mrs. Saroj Goenka, who are the other directors of the second defendant company. According to Mr. P. Chidambaram, learned senior counsel for the sixth defendant, the above decision is in favour of the sixth defendant and against the plaintiff. It is seen from para 14 of the said decision that it was open to a regularly constituted meeting of the board of directors to ratify that action which, though unauthorised, was done on behalf of the company and that the ratification would always relate ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 478. In the above case, the company had filed a suit for recovery of certain sums of money. The plaint was signed by one of the directors. It was contended that the said director had no authority to institute the suit on behalf of the company. The defendant who had raised this objection was also a shareholder. The High Court observed that this defendant had actually participated in the appointment of the director who was representing the company. Further, this person had also functioned as director for several years. In such cases, the parties were held not entitled to question the powers of individual directors. Similarly, the shareholders who had joined in the appointment as directors without taking exception would be estopped from objecting to the validity of his appointment. In my opinion, this decision is really in favour of the defendants and not in favour of the plaintiff/applicant as contended by learned senior counsel for the plaintiff. It is specifically established that the plaintiff has joined in the appointment of defendants Nos. 7 to 9 and defendants Nos. 10 to 12 and has also participated in the board meetings subsequent to their appointment. The only contention r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objections regarding the meeting have been taken in the plaint. The conduct of the plaintiff in this case will show that objection was not taken by him when the additional directors were present at the meetings. The burden of proof is on him to show that he had no notice. In the decision in Shuttleworth v. Cox Brothers and Co. Ltd. [1927] 2 KB 9, it was held that it was not for the court to manage the affairs of the company and that is for the shareholders and the directors. It is argued on behalf of the plaintiff that in the light of the above case, the court was concerned with the alteration of the articles of a company and hence, the said decision will also not be applicable to the facts of the present case. I am unable to accept the said contention. The decision has been relied on by learned senior counsel for the sixth defendant only for the purpose of showing that it is for the shareholders to decide whether it is for the benefit of the company and not for the court and that it was also not for the court to manage the affairs of the company and it is for the shareholders and the directors. In my opinion, the principle laid down in the above decision is applicable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act and the articles of association of the company and that the fundamental principle of corporate democracy, which is at the very foundation of the company law, was recognised by this court earlier and between March, 1991, and September, 1992, the plaintiff and Mrs. Saroj Goenka sat on the board of directors of the first and the third defendant companies and did not demur. In fact, the minutes show that the new directors appointed on January 5, 1991, were welcomed on the board. The main prayer in C. S. No. 1246 of 1992 is concerned with the validity of the meeting of the board of directors of the first defendant company held on January 5, 1991, and the board of directors meeting of the second defendant company held on January 23, 1991, and certain other resolutions for appointing additional directors. In my view, 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. I have consistently taken this view in my earlier orders. At this interlocutory stage, this court is concerned on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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