TMI Blog2003 (8) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs by the issue of 500 equity shares of Rs 1,000 each. Notice of this was given to the applicant who received it but did not apply to be allotted any of the additional shares. Mani and his wife, Kasturi, offered to purchase 279 shares each. The offer was accepted and additional shares issued in the name of Mani and his wife. According to Visakh, he had not been given notice of the offer of the additional shares. The trial court considered the various exhibits tendered in evidence by Mani and his group, including the local delivery book (Ex. R.-48), which was signed by Madhusoodhanan, the father and guardian of Visakh, to negative the submission of Visakh. We see no reason to interfere with this finding of fact. It is true that the Division Bench proceeded on an erroneous basis when it held that the learned Single Judge had dismissed the application on the ground of delay. Since we have upheld the factual finding of the court of the first instance, this misreading of the Trial Court’s judgment by the Division Bench is of no consequence. - CIVIL APPEAL NOS. 3253 TO 3261 OF 1991 - - - Dated:- 1-8-2003 - MRS. RUMA PAL AND B.N. SRIKRISHNA, JJ. A.T.M. Rangaramanujan, Gopal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital is 20 lakhs divided into 2,000 shares of Rs. 1,000 each. The total number of issued and paid up equity shares in Kerala Kaumudi was 1575. During the lifetime of K. Sukumaran each of the brothers along with their parents had shares in Kerala Kaumudi and the shareholding was as follows : Sr. No. 1. Mani 222 shares 2. Valsa Mani 84 shares (Mani s daughter) 3. Sukumaran Mani 84 shares (Mani s son) 4. Madhusoodhanan 390 shares 5. Srinivasan 390 shares 6. Ravi 390 shares 7. Madhavi 3 shares 8. Sukumaran 9 shares 9. Kaumudi Investments 3 shares (P.) Ltd. Total 1575 shares 5. Sukumaran died on 18th September, 1981. He was the Managing Director of Kerala Kaumudi from 1955 to 1973 and its Chairman from 1973 till his death. He was succeeded as Chairman by his widow Madhavi. Madhusoodhanan was appointed as Managing Director of Kerala Kaumudi in 1973 immediately after Sukumaran died. On 25th January, 1985, Madhusoodhanan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment Corporation and Ravi Transports, is also recorded. 8. According to Madhusoodhanan, Mani and his children had already transferred their entire holding of 390 shares in Kerala Kaumudi to Madhusoodhanan in May 1985, prior to the third agreement. As a result, Mani and his children had no shares in Kerala Kaumudi, Madhusoodhanan had 612 shares, and Sreenivasan and Ravi had 222 shares each. Nine shares continued to stand in the name of the late K. Sukumaran and three shares in the name of Madhavi. In addition, the two children of Madhusoodhanan had 84 shares each, Sreenivasan s daughter, Anju had 168 shares, Ravi s son, Deepu, had 168 shares and KIPL continued to hold 3 shares. 9. On 23rd July, 1986, a Board Meeting of Kerala Kaumudi was held at which Madhavi assumed the powers of the Managing Director in purported ouster of Madhusoodhanan. The meeting is disputed by Madhusoodhanan. He says that no such meeting was in fact held and that the minutes were subsequently drawn up. A second Board meeting, which is also disputed by Madhusoodhanan, was held on 1st August, 1986 in which a decision was taken to increase the paid-up share capital of Kerala Kaumudi by issuing 425 add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was filed in 1986 by Mani s wife Kastoori Bai, daughter Valsa, Ravi s wife Shylaja, and Sreenivasan s wife Laisa as well as Madhavi for rectification of the share register of KIPL. This is now numbered as CA 3260 of 1991. 12. The third set consists of CP No.11 of 1987 ( now CA 3261 of 1991) filed by Vaishak, the minor son of Madhusoodhanan, for rectification of the share register of Kerala Kaumudi. 13. The fourth set of proceedings originally consisted of two suits filed before the Munsif s Court, Trivandrum relating to the office premises of Kerala Exports and KIPL. The suit filed by Kerala Exports, (numbered on transfer as CS No. 2 of 1989) was for a mandatory injunction to restrain Kerala Kaumudi, Sreenivasan, Ravi and Madhavi from disturbing its functioning in Kaumudi Buildings. O.S. No. 1569 of 1988 (subsequently numbered as CS 4 of 1989) was a similar suit filed by KIPL before the Munsif s Court for restraining the defendants from preventing the peaceful functioning of KIPL s administrative office in Kaumudi Buildings. 14. All the original suits were transferred to the High Court under the provisions of section 446 of the Companies Act and were heard along with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir continued possession in Kaumudi Buildings were decreed. 18. The aggrieved parties preferred appeals in each of the matters. By a common judgment, the Division Bench reversed the findings of the learned Single Judge in all of the appeals except in the appeal from CS 2 of 1989. Nine Special Leave Petitions were filed in this Court in the separate proceedings on which leave was granted on 27th August, 1991. 19. We propose to deal with issues which can be said to be common to the different sets of litigations before giving our conclusions on each appeal separately. 20. The underlying question in the first set of litigations viz. who has the controlling interest in Kerala Kaumudi has given rise in turn to the following topics : ( A )The transfer of shares by Mani and his children to Madhusoodhanan; ( B )The removal of Madhusoodhanan as Managing Director ; ( C )The issue of additional shares to Ravi and Srinivasan; and ( D )Specific performance of the agreement (Karar) dated 16-1-1986. ( A ) Transfer of shares by Mani and his children to Madhusoodhanan. 21.1 In C. P. 26/87, Mani and his group prayed for rectification oftheshare register of Kerala Kaumudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family in Kerala Kaumudi (P.) Ltd. will be transferred to Sri M.S. Madhusoodhanan forthwith on a consideration to be mutually agreed between the transferor and the transferee. The liabilities of Sri M.S. Mani to the income tax department etc. up to 31st March,1985 should be settled by Kerala Kaumudi (P.) Ltd. before finally deciding a consideration for the share transfer. The Kerala Kaumudi (P.) Ltd. undertakes to discharge the liabilities arising on account of personal guarantees given by Sri M.S. Mani for the company." [Emphasis supplied] The sixth resolution clearly envisages three distinct stages: an immediate and unconditional transfer of shares, then, the settlement of the Mani s income tax liabilities by Kerala Kaumudi and, after both these stages, the determination of the consideration for the transfer to be mutually agreed on. 21.5 The Division Bench, therefore, erred in holding that the agreement for transfer of shares was conditional on the determination of the price of the shares and in concluding that as there had been no such determination, no transfer could have taken place. The express intention was to effect an immediate transfer of the shares and to agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and whether any consideration has already been paid by Madhusoodhanan to Mani are considered subsequently. 21.8 The minutes of the Board meeting held on 21st May, 1985 (Exhibit P-62 (C)) of Kerala Kaumudi record that the following share transfer deeds were placed before the Board, namely, the deeds relating to the transfer of 222 shares by M.S. Mani to Madhusoodhanan, 84 shares by Valsa Mani to Madhusoodhanan, 84 shares by Sukumaran Mani to M.S. Mani and 84 shares by Mani to Madhusoodhanan. The Board resolution goes on to record. "After discussion the share transfers were approved by the Board and the Managing Director and any other Director was authorised to sign the relative new share certificates to be issued in favour of Sri M.S. Madhusoodhanan and to affix the common seal of the company in the share certificates in the presence of the Company Secretary." 21.9 The minutes of the Board meeting held on 21st May 1985, were read and approved on 4th June, 1985. Both meetings were attended by Madhavi, Madhusoodhanan, Srinivasan and Ravi and the minutes signed by Madhavi as Chairman. The transfer of the shareholding of Mani and his children was also admittedly entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.14 Even after the ouster of Madhusoodhanan from the Board of Kerala Kaumudi, in the Annual Return dated 26 September, 1986 [Ex. P.128 ( a )], in the list of shareholders filed with the Registrar of Companies as part of the Annual Return of Kerala Kaumudi, Mani is shown as holding only one share and Madhusoodhanan as holding 612 shares in the company. This return has been filed under the signatures of Srinivasan and Ravi as Managing Director and Director of Kerala Kaumudi respec- tively together with a certificate by Ravi and Srinivasan under section 161(2) of the Companies Act, 1956. They certified that the return states the facts as they stood on the day of the annual general meeting correctly and completely and that since the date of the last annual return the transfer of all the shares and debentures and the issue of all further certificates of shares and debentures had been appropriately recorded in the books maintained for the purpose. 21.15 This was again done in the Annual Return of Kerala Kaumudi filed under the signature of Ravi and Srinivasan dated 28th July, 1987 [Ex. P.131( a )]. Madhusoodhanan is shown as holding 612 shares and Mani is shown as holding on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and sons had informal talk in the same room. During the course of this, the second respondent asked the petitioner why he has not paid the balance consideration for shares transferred by me to him in 1985. The petitioner said that he would pay the same as and when he had money. The second respondent thereupon suggested that the petitioner may in that event transfer the shares back to me." 21.18 The one share which is shown in Mani s name in the Annual Return for 1986 and 1987 was sold by Ravi to Mani at a meeting held on 26 August 1986. As has been recorded in the minutes [Ex P-62(N)] and affirmed in the same affidavit of Madhavi in C.P. No. 14/86 on behalf of Ravi, Srinivasan, Mani and herself : "The meeting of the Board of Directors held on 26th August,1986 expressly considered the question whether the fifth respondent (Mani) is to be selected as one whom it is desirable in the interest of the company to admit to its membership. The Board resolved that the fifth respondent (Mani) is not only a desirable person, but his admission to the membership of the company will enhance its prestige and strengthen its administration. The Board felt that in the circumstances it was ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 194 of the Companies Act, 1956, minutes of meetings kept in accordance with the provisions of section 193 shall be evidence of the proceedings recorded therein and, unless the contrary is proved, it shall be presumed under section 195 that the meeting of the Board of Directors was duly called and held and all proceedings thereat to have duly taken place. The onus was on Mani to disprove that the transfers had not taken place as recorded in the minutes of the Board meeting held on 21 May,1985, an onus that he has singularly failed to discharge. Learned counsel for Mani submitted that the statutory presumption was not available as Madhusoodhanan had admitted that no formal meetings were held and that the minutes were prepared after informal discussions by the Company Secretary and shown to Srinivasan who signed the same after it was approved by Madhusoodhanan. The submission is unacceptable for three reasons. First: The Articles of Association of the Company (Art.81) allow Directors to regulate their meetings as they think fit. Also Art. 89 says that a resolution in writing circulated to all the Directors and assented to by a majority of them shall be as valid as a reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging directorship of Madhusoodhanan, he did so at the instance of the latter without being aware of the contents of the minutes is hardly likely. The brothers were already at daggers drawn and it is unbelievable that he would place such unquestioning faith in Madhusoodhanan. Additionally, the entries in the Attendance Register of Kerala Kaumudi (Ex. P-81) also belies this assertion. Besides, the falsity of this explanation is apparent from the minutes of the meeting held and the statutory records submitted by Srinivasan after Madusoodhanan was removed as Managing Director of Kerala Kaumudi which continued to state that Mani and his children had transferred their shares in the company to Madhusoodhanan. 21.26 The fact that all the parties, including Ravi, Srinivasan and Mani himself, hardened businessmen all, not only proceeded on the basis that there was effective transfer of Mani and his childrens shareholding to Madhusoodhanan but also certified the same to the Registrar of Companies, and additionally affirmed that such transfer had taken place on oath in their affidavits can only lead to the conclusion that the transfer had been legally effected on the basis of duly execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office of the Registrar of Companies dated 20-4-1985. All four exhibits show that they have been entered in the Register of Transfers of Kerala Kaumudi on 23rd May, 1985 and bear the serial numbers 30, 33, 31 and 32 respectively. 21.30 There is a controversy as to whether these share forms were the share forms which were placed before, and approved by the Board of Directors of Kerala Kaumudi at the meeting held on 21st May, 1986. Madhusoodhanan claims that these are not the share transfer forms. Mani and his group contend to the contrary. The issue would be of importance if one were to allow the respondents to resile from their admissions. We are not minded to do so. Nevertheless, since the reasoning of the Division Bench rests to a large extent on the question whether the transfer was in accordance with section 108 of the Companies Act, it would be appropriate to pronounce on this. 21.31 Section 108 of the Companies Act, 1956 insofar as it is relevant provides : " Transfer not to be registered except on production of instrument of transfer. - (1) A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rala Kaumudi. This caused considerable financial strain. I put in some suggestions for rectifying these matters. But mother and brothers were not able to appreciate my views. Therefore, I even told them that I was prepared to relinquish all my shares, 1/3rd each to my brothers. In that connection some papers were also prepared." The Calicut edition of Kerala Kaumudi was started in September 1984. It is possible "these papers" were Exhibits R-9 - R-12. This inference is in keeping with the repeated admissions of the respondents on oath and their conduct on the basis that the transfer had legally taken place. An additional fact is Exhibit R-18 which is a voucher for a cash payment of Rs. 2,370 issued to Kerala Kaumudi towards the "cost of share transfer stamps purchased". It is dated 16th May, 1985 and signed by Madhusoodhanan, Srinivasan, Madhusoodhanan s wife and Ravi s wife as well as the cashier, the clerk, the accountant, the manager and the Secretary of Kerala Kaumudi. The corresponding entries in the expense account of Kerala Kaumudi which form part of this exhibit, show that the accounts of Mani and Madhusoodhanan have been debited with the amounts of Rs. 420 and Rs. 1,950 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned, in our opinion, the learned Single Judge was right when he said that Mani s group could not question the transfer of the shares of Sukumaran Mani on account of his minority, as Sukumaran Mani had not effected any transfer directly in favour of Madhusoodhanan. As Sukumaran Mani was at the relevant point of time a minor, his shares were transferred by his mother as guardian to his father, Mani, who had in turn transferred the shares to Madhusoodhanan. The Appellate Court was wrong when it held that the transfer of the shares of Sukumaran Mani was "an absolute nullity in the eye of law" on the ground that the initial transfer by Sukumaran Mani was invalid because it was sought to be effected by Sukumaran Mani s mother who was not his legal guardian and who "figured as a guardian only as a ruse for getting over the statutory provision". The transfer of Sukumaran Mani s share through his mother to Mani has not been challenged. Therefore the issue of Sukumaran Mani s minority and his mother s competence to act as his legal guardian, were not issues which could be relevantly raised before, or decided by the appellate court. 21.39 Coming now to the question of consideration, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a written agreement, I will continue to pay as and when the 5th respondent required money. The only agreement was that whatever be and price paid for the shares, that should not be known to anybody else including our wives." 21.44 Madhusoodhanan has claimed that he in fact paid Rs. 10 lakhs to Mani. In his letter dated 28-7-1986 written to Srinivasan. Madhusoodhanan had asserted (Exhibit P 11) that he had paid Rs. 5 lakhs to M.S. Mani as part payment for his shares which had been purchased by Madhusoodhanan and that this brought the total payment made on this account to Rs. 10 lakhs. Mani contended that there was a total failure of consideration, a contention which was accepted by the Appellate Court. The truth appears to lie somewhere in between. 21.45 There is no dispute that the machines were in fact lifted by Mani, pursuant to Ex. P-134. Exhibit R-14 evidences payment by Kerala Kaumudi of Rs. 3 lakhs to Madhusoodhanan for, ostensibly purchasing property at Cochin for Kerala Kaumudi. The Division Bench holds that "It is this money that is utilised for payment to Mani as part consideration of the shares to be transferred by Mani and his group". However the Division Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to be decided in these appeals took place on that day. Then comes the first meeting, which, according to Madhusoodhanan ,was illegal . This was held on 23rd July, 1986. The minutes of the meeting [Exhibit P-62 (K)] show that Madhavi, Madhusoodhanan, Srinivasan and Ravi were present. Several resolutions were taken by the Board on that day which were opposed by Madhusoodhanan. Of the several, the relevant are quoted : "Resolved that Smt.C.N. Madhavi, Chairman shall assume the executive powers of the Managing Director of the company with immediate effect for efficient running of the organisation. Resolved that an extraordinary general body meeting be convened at a date suitable for the Chairman to discuss and take decisions on matters arising out of the above decisions and that the Chairman be and is hereby authorised to issue notices to all concerned." The fact whether any notices were at all issued to Madhusoodhanan or to the other shareholders in his group including his children or to K.I.P.L. is seriously disputed by them. According to Mani and his group however, notices were duly issued of the meeting which was due to be held on 1st August, 1986. 22.4 The minutes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 284 of Companies Act, even if a person be appointed a Director for life. A resolution was then taken to convene an extraordinary general meeting on 25th September, 1986 to pass the following resolution : "Resolved that Sri M.S. Madhusoodhanan be and is hereby removed from being a Director of the company with immediate effect in accordance with section 284 of Companies Act, 1956 and all other provisions in this behalf of the Companies Act, 1956 and Articles of Association of the company." The Extra Ordinary General Meeting of Kerala Kaumudi was held on 25th September, 1986 at its registered office. The resolution to forthwith remove Madhusoodhanan as Director under section 284 of the Companies Act, 1956 was passed taking into consideration the additional shareholding of Ravi and Srinivasan. Madhusoodhanan and his group did not vote. 22.7 On 27th September, 1986 the Board of Directors of the Kerala Kaumudi held a meeting attended by Madhavi, Srinivasan and Ravi, at which Srinivasan was appointed as Managing Director of the company, Mani was appointed as additional Director, Madhusoodhanan was removed from the post of editor and Mani was appointed in his place and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deemed to be served but inclusive of the day for which notice is given) specifying the place, the day and the hour of meeting and, in case of special business, the general nature of that business, shall be given in manner hereinafter mentioned, or in such other manner, if any, as may be prescribed by the Company in General Meeting to such persons as are, under the Indian Companies Act, 1913 or the Regulations of the Company, entitled to receive such notices from the Company, but the accidental omission to give notice to or the non-receipt of notice by any member shall not invalidate the proceedings at any General Meeting." 22.11 The corresponding section in the 1956 Act to section 81 of the Indian Companies Act, 1913, is section 189. The relevant extract of section 81 of the 1913 Act reads : "81. Extraordinary and special resolutions . - (1) A resolution shall be an extraordinary resolution when it has been passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy (where proxies are allowed) at a general meeting of which notice specifying the intention to propose the resolution as an extraordinary resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other applicable provisions, if any, of the Companies Act, 1956, to ratify the following resolutions adopted by the Board of Directors of the Company at its meeting dated 23-7-1986. 1. Resolved that Smt. C.N. Madhavi, Chairman, shall assume the executive powers of the Managing Director of the Company with immediate effect for efficient running of the Organisation." 22.14 There is no mention whatsoever in the notice of any intention or proposal to amend the articles of the company. The Explanatory statement annexed with the notice states (in so far as it is relevant) "Special resolutions have been brought before the General Body, since it is felt that the effect of the said resolutions taken by the Board and being implemented may have the effect of curbing the powers of the Managing Director vested with him by the General body". 22.15 What has been deliberately and completely glossed over is that Madhusoodhanan s power was not sought to be merely curbed, but completely denuded. At the Extraordinary General meeting held on 16th August, 1986 [Ex. P-57 ( a )], when the special resolution was taken up for consideration, Madhavi said that she would like to submit a report " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either by post or personally in terms of Article 108 or section 53 of the Act. The second imperative for a special resolution to be validly passed is that notice of the general meeting must be duly given. The mode of service of notice on members has been provided for under Article 108 which is similar to section 53 of the 1956 Act in all material respects. The two modes envisaged are personal service and service by post. There is no other mode envisaged. We are not satisfied that the service of the notice was effected either on Madhusoodhanan or any other share holder in his group, including KIPL by either of the modes specified. 22.19 The submission of the respondents that under Article 49 of the Articles of Association of the Company even if no notice were given of the Extraordinary General Meeting, this would not vitiate the proceedings is misconceived. This was no ordinary general meeting, but a meeting where a special resolution was to be passed. This had to be done under section 81 of the 1913 Act, to which Article 49 is expressly subject, and the requirement for giving due notice under section 81 is mandatory. Furthermore, Article 49 speaks of an "accidental omission" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents at the meeting of the Board on 1st August, 1986 [Ex. P-62(l)], to increase the share capital of the company to Rs. 20 lakhs by issuing additional shares worth Rs. 4.25 lakhs. At the same meeting , the Chairman (Madhavi) was authorised by the two other directors present namely Ravi and Srinivasan "to issue notices to the existing shareholders to apply for shares within seven days". What is noteworthy is that the last day for making an application for allotment of any of these additional shares was fixed at seven days from the date of the Board meeting so that Madhusoodhanan s shareholding could be reduced to 25 per cent before the Extraordinary General Meeting to be held on 16th August, 1986. 23.4 According to Madhusoodhanan and his group they neither knew of the meeting dated 1st August, 1986 nor did they receive any notice with regard to the allotment of additional shares nor of the meetings said to have been held on 8-8-1986 and 16-8-1986, in which the allotment of additional shares to Ravi and Srinivasan were made and later confirmed. 23.5 The Learned Single Judge held that no notice either of the Board meeting held on 1st August, 1986 or for the issue of additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit merely records that an unknown or at least an unnamed person handed over a sealed envelope to Mohan Raj who then handed it over to a peon, Raghunathan, who was to hand it over to Mrs. Madhusoodhanan. No one has come forward to say that the sealed envelope contained the notice dated 25th July, 1986. Assuming it did, there is nothing to show that the envelope ultimately reached Madhusoodhanan. The affidavit affirmed by Mohan Raj on 25th August 1986 (Ex. R-7) contradicts the entry in the local delivery book. Apart from anything else, Mohan Raj has himself admitted that he had not forwarded the notice to Madhusoodhanan in several documents namely in Exhibits P.36, P.46, P.53 and in an affidavit exhibited as P.49, besides also giving oral evidence to this effect. We find no reason to disbelieve Mohan Raj s oral testimony as to the circumstances under which he had affirmed the affidavit relied on by the respondents. 23.7 As far as the outward register is concerned, it has not been proved as to who dispatched the notice nor does the register show how the dispatch was effected. It is unclear on what material the Division Bench proceeded on the basis that it was sent by post under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was admittedly received but not replied to. Apart from the categorical assertion of lack of notice of the meeting held on 1-8-1986, it is clear from the contents of the letter that Madhusoodhanan had no knowledge of what actually transpired there. 23.11 Since Madhusoodhanan did not know of the meeting held on 1st August, 1986, he was not aware, as the respondents were, either that additional shares were being issued or that the application for additional shares had to be made within seven days of the meeting. 23.12 Exhibit R. 26 is a Notice Dated 1-8-1986 issued under the signature of Madhavi. It refers to financial difficulties faced by the company which made it necessary for the Board by its Resolution dated 1-8-1986 to issue 425 equity shares of Rs. 1,000 each for subscription to the existing shareholders. The notice which appears to be addressed to Madhu-soodhanan, his two children, Srinivasan and his daughter, Ravi and his daughter and finally to KIPL finally states: "You are eligible to apply for additional shares within seven days". 23.13 Article 40 of the Articles of the company requires all new shares to be offered to all existing shareholders "in proportion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When the relationship between the parties was already so embittered, proof of service of notice by certificate of posting must be viewed with suspicion. Judicial notice has been taken that certificates of posting are notoriously "easily" available. What was seen as a possible but rare occurrence in 1981 ( Mst. L.M.S. Ummu Saleema v. B.B. Gujaral [1981] 3 SCC 317) is now seen as common. Thus in Shiv Kumar v. State of Haryana [1994] 4 SCC 445, this Court said : "We have not felt safe to decide the controversy at hand on the basis of the certificates produced before us, as it is not difficult to get such postal seals at any point of time." Despite this ground reality and on a misinterpretation of the provisions of section 53,the Appellate Court came to the indefensible conclusion that "evidence regarding dispatch of a communication under certificate of posting attracts the irrebuttable statutory presumption under section 53 (2)( b ) that the notice had been duly served", that "it is not open now to project a plea of absence of service of notice and a substantiation thereof by evidence" and that even if it were proved that the notice did not reach the addressee, the evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have been sold within the State", the contention that the phrase "it shall be presumed that" meant that "it shall be conclusively held" was negatived. After referring to section 4 of the Evidence Act it was held by this Court in Sodhi Transport Co. v. State of U.P. AIR 1986 SC 1099 : ". . . The words shall presume require the Court to draw a presumption accordingly, unless the fact is disproved. They contain a rule of rebuttable presumption. These words i.e., shall presume are being used in Indian judicial lore for over a century to convey that they lay down a rebuttable presumption in respect of matters with reference to which they are used and we should expect that the U.P. Legislature also has used them in the same sense in which Indian Courts have understood them over a long period and not as laying down a rule of conclusive proof. In fact these presumptions are not peculiar to the Evidence Act. They are generally used wherever facts are to be ascertained by the judicial process." (p. 1105) It was accordingly held that the words "shall presume" contained in section 28B of the U.P Sales Tax Act only require the authorities concerned to raise a rebuttable presumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 8-8-1986 (Ex. P-24 and Ex. P-35) to Srinivasan, the General Manager of Kerala Kaumudi and to Madhavi complaining that he was not receiving any mail at all. These letters were admittedly received but not replied to by the respondents. It is also apparent from a perusal of those letters that Madhusoodhanan had no knowledge whatsoever of the notice for application for allotment of additional shares. Had there been such notice it is improbable that Madhusoodhanan who was fighting for retaining his control over Kerala Kaumudi, would have risked losing such control by abstaining from applying for the additional shares. 23.25 In the circumstances we hold that Madhusoodhanan and his group were not served with the notice dated 1-8-1986 . It is therefore unnecessary to decide whether the period prescribed in the notice to apply for the shares was too short or contrary to the Articles of Association of Kerala Kaumudi. 23.26 Once we have held that Madhusoodhanan and his group, all of whom held shares in Kerala Kaumudi, were not given notice to apply for allotment of the additional shares, it must be held that the subsequent allotment of the shares to Ravi and Srinivasan at the meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of Madhavi and that after the death of Madhavi, the shares of Kerala 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. It was also agreed that the shares of the late Sukumaran and Madhavi should be divided according to this percentage. The shares of KIPL in Kerala Kaumudi were also to be given to Madhusoodhanan, Ravi and Srinivasan in the same ratio. Then comes clause 3. While there is no controversy on the translation of clauses 1, 2, 4, 5, 6, 7, 8, 9, 10 or 11, the translation of clause 3 is seriously in dispute. We give the three different versions as put forward by Madhusoodhanan, the respondents and finally the official translator of this Court. ( A )"Mr. M.S. Mani is selling some of his shares in Kerala Kaumudi to Mr. M.S. Madhusoodhanan and the price of that share will be informed to the other parties in time". ( B )"the value of the shares of Kerala Kaumudi which is to be sold by M.S. Mani to M.S. Madhusoodhanan will be informed to others at the appropriate time". ( C )"the price paid by M.S. Madhusoodhanan on the sale of Kerala Kaumudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.5 On 2nd December, 1987 Madhavi died and on 10th October, 1988, Madhusoodhanan filed CS 6/89 for transfer of 50 per cent of the late Sukumaran and Madhavi s shares to him and the transfer of 50 per cent of KIPL s shareholding in Kerala Kaumudi to Ravi and Srinivasan in terms of the Karar. The defendants in the suit were Mani, Srinivasan, Ravi, Kerala Kaumudi and KIPL. They first filed a four page written statement in which they contended that the suit was not maintainable, that the suit was bad for mis-joinder and non-joinder of parties, that the suit had been improperly valued and proper court fees not paid, that the suit was barred by limitation, that the Karar was barred by the provisions of the Specific Relief Act, 1963 and that the court did not have the jurisdiction to entertain the suit. 24.6 The learned Single Judge decided each of the issues raised in favour of Madhusoodhanan and decreed the suit. The Division Bench allowed the appeal (AS 211/9). The reasons which persuaded the Division Bench to allow the appeal were first: no steps had been taken by Madhusoodhanan for determination of the price of 390 shares or the inherited shares or for making the same know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .K. Modi v. K.N. Modi [1998] 3 SCC 573). 24.8 The Division Bench has not adverted to this all. It is also on record that Madhusoodhanan had transferred the bulk of his shareholding in the companies which were to be under the majority control of the other three brothers. The learned Single Judge had held that Madhusoodhanan had given evidence that he had taken steps for closing down the companies not mentioned in the Karar. This finding has not been questioned. All the clauses except for the transfer of the inherited shares to Madhusoodhanan had been acted on. Madhusoodhanan was entitled to insist on the performance of this clause as well. 24.9 The respondents cited Article 29 of the Articles of the company in support of their argument that exhibits R. 59 and R. 60 overrode the Karar insofar as it required that 50 per cent of the shares of the late K. Sukumaran and Madhavi had to be transferred to Madhusoodhanan on Madhavi s death. Article 29 says that the executors or administrators of the deceased sole holder of a share shall be the only persons recognised by the company as having any title to the share. It was the contention of the respondents that insofar as the Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would not be an adequate remedy" specific performance of a contract for transfers of shares in a private limited company could be granted. 24.11 In 1965, this Court while dealing with proceedings rising out of sections 397, 398, 402 and 403 of the Companies Act, 1956 in the case of S.P. Jain v. Kalinga Tubes AIR 1965 SC 1535, had occasion to consider the effect of an agreement relating to the issue of new shares in a company between two shareholders and an outsider. It may be noted at the outset that there is a distinction between the issue of new shares by a company and the transfer of shares already issued by a shareholder. In the first case, it is the company which issues and allots the new shares. In the second, the transaction is a private arrangement and the company comes into the picture only for the purposes of recognition of the transferee as the new shareholder. Therefore, while it is imperative that the company should be a party to any agreement relating to the allotment of new shares, before such an agreement can be enforced, it is not necessary for the company to be a party in any agreement relating to the transfers of issued shares for such agreement to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , present and future. Contrary to the agreement, one of the shareholders of one branch sold his shares to members of the second branch. Such sale was challenged in a suit as being void and not binding on the other shareholders. This Court rejected the challenge holding that the agreement imposed a restriction on shareholders rights to transfer shares which was contrary to the articles of association of the company. It was therefore held that such a restriction was not binding on the company or its shareholders. The decision is entirely distinguishable on facts. There is no such restriction on the transferability of shares in the Karar. It was an agreement between particular shareholders relating to the transfer of specified shares, namely those inherited from the late Sukumaran and Madhavi, inter se . It was unnecessary for the company or the other shareholders to be a party to the agreement. As provided in clause 10 of the Karar, Exhibits R-59 and R-60 did not obviate compliance with the Karar. Both Ex. R-59 and R-60 were executed on 15-7-1985 several months prior to the Karar. The parties who had consciously entered into the agreement regarding the transfer of their parents sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that paragraph 14 of the plaint reads : "the plaintiff was always ready and willing to perform his part of the agreement and is even now ready to perform his part of contract. The transfer of shares in respect of other companies have already taken place in accordance with the Karar dated 16-1-1986." In view of this clear averment, the finding of the Division Bench regarding the contravention of section 16 of the Specific Relief Act, was perverse. 24.17 On the question of delay the cause of action arose when Madhavi died in December, 1987. It cannot reasonably be said that filing of the suit ten months later was unreasonably delayed since some time must be given to see whether the parties did what they were required to do under the Karar after Madhavi s death. 24.18 Finally, the exercise of discretion by the Division Bench purportedly under section 20 of the Specific Relief Act was contrary to the terms of the section itself. Guidelines for the exercise of the Court s discretion to decree specific performance of an agreement have been statutorily laid down in sub-section (2). The Division Bench appears to have relied on clause ( a ) of section 20(2) to deny specific pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of this case, Article 25 which lays down guidelines for the resolution of disputes between the transferor and transferee, may be relied on. It says : "Article 25 - The fair value of a share shall be fixed by the Company by a resolution passed by a majority of not less than three fourths of the holders of such shares declaring the fair value. Such resolution shall remain in force for two years from the date of its passing or until annulled whichever is earlier. If at the time a transfer notice is given no resolution fixing the fair value is in force: then any difference in regard thereto shall be referred to two arbitrators, one to be appointed by each party and the provisions of the Indian Arbitration Act, 1940, shall apply." Although the learned Single Judge in disposing of CP 26/87 gave direc-tions for the appointment of Arbitrators, to determine the value of the shares, in our view it would be more appropriate to do so in decreeing the suit for specific performance of the Karar. It is also not clear from the material on record, in which of the brothers name 9 shares of the late Sukumaran and the 3 shares of Madhavi now stand. Whoever is recorded as the owner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Geetha 250shares Madhusoodhanan 270shares Srinivasan 160 shares Valsa 160 shares Deepu Ravi 80 shares Darsan Ravi 80 shares 25.3 According to the four applicants for rectification, they had effected no such transfer. Of the four, only Laisa came forward to give evidence in support of the case for rectification of the share register of KIPL [Ex. P-123 (F)] by restoring the position with regard to the shareholding as it existed prior to March 1985. In her deposition Laisa admitted that she had signed the attendance register of KIPL (Ex.P.-123) which showed that she had attended the Board Meeting on 4th March, 1985. She also admitted that she had signed the minute books of the company including the minutes of the meeting held on 4th March, 1985 as well as blank share transfer forms . However she has come forward with this explanation : "I have given blank share transfer forms and other papers signed when Sri Madhusoodhanan brought them to me. I signed those blank transfer forms and papers because Mr Madhusoodhanan was looking after the affairs of all sister concerns a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keeping not only with the Karar but also with Ex.P-190 according to both of which Madhusoodhanan and his group were to have 52 per cent shareholding in KIPL and the remaining three brothers - 16 per cent each. 25.7 The explanation given by Laisa that she used to sign whatever papers had been sent by Madhusoodhanan is unbelievable. The Division Bench by relying upon a narrative in a biography of Norman Birkett (The Life of Lord Birkett of Ulverston by H. Montgomery Hyde) chose to accept it. According to Laisa herself, she had been a director of the company, operated the banking accounts and otherwise done whatever was necessary in the discharge of her duties as a director since 1972. As we have noted earlier, differences between the 4 brothers had been simmering for a long time which manifested itself in 1984. This was also noted by the Division Bench when it said, "in the year 1984, differences became somewhat apparent". In the circumstances, Laisa s facile explanation, that she signed every document in 1985 because of her faith and trust in Madhusoodhanan is clearly false. 25.8 The next reason given by the Division Bench for allowing the application for rectification was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch fixation of price. This is, for reasons already stated, an incorrect statement of the law. Moreover in this case there is the additional factor which has persuaded us to hold that the Division Bench was wrong, namely Article 16 of the Articles of Association of KIPL which says: "the Board of Directors shall fix price at which the shares for the time being forming part of the capital of the company may be purchased in pursuance of transfer notice and the price thus fixed shall be known as the fair value . Until the fair value has been fixed as herein provided, a sum equal to the capital paid up on any share shall be deemed to be the fair value of such share." The Division Bench s final conclusion that there had been a non-compliance with section 108 of Companies Act because there was no indication about any purchase of stamps or about the share transfer deeds having been duly stamped, is an exercise in speculation. The Articles of Association of KIPL themselves require compliance with section 108 before any transfer can be effected. When the minutes recorded that share transfer deeds had been placed before the Board, when the transfers were approved by the Board in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay. Since we have upheld the factual finding of the court of the first instance, this misreading of the Trial Court s judgment by the Division Bench is of no consequence. 26.3 We accordingly dismiss the appeal being C.A. 3261/91 without any order as to costs. Civil Suit No. 4 of 1989 27.1 This brings us to the remaining appeal which arises from a decree passed in a suit filed by KIPL. The suit was originally numbered as OS 1569/88 when it was filed in the Munsiff s court in Trivandrum. After it was withdrawn on 16th February, 1989 by the order of the High Court, it was renumbered as C. S. 4/89. In the suit, KIPL had prayed for a decree of permanent injunction restraining Kerala Kaumudi or any of its Directors or staff or anyone claiming through or under them or any of their agents from disturbing or preventing the peaceful functioning of KIPLs administrative office or in any way obstructing the peaceful possession and enjoyment of the said premises by the defendants until KIPL was evicted under due process of law. 27.2 That the administrative office of KIPL was in Kaumudi Buildings, Pettah, Trivandrum cannot be in dispute in view of the categorical finding of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther appeal has been preferred by the respondents. 27.6 Logically, the Division Bench should have also rejected the appeal preferred from the decree in CS No. 4/49. However the Division Bench rejected the appeal on the sole ground that although KIPL had been denied access in 1986, the suit had been filed only in 1988. According to the Division Bench "The inaction for a period of two years can be taken to have resulted in the extinction of the present possession. If the plaintiff does not have present possession, injunction could not be an available relief". This strange piece of reasoning appears to proceed on the basis that the period of limitation for extinction of a possessory right is two years which it is not. Besides the claim of KIPL was that it was being denied access. The denial was a continuous one. It was therefore open to KIPL to file a suit while such denial continued by seeking to injunct the obstructers from continuing with the obstruction. Srinivasan s evidence and the documents referred to hereinabove prove beyond a shadow of doubt, that the administrative office of KIPL was in Kaumudi Buildings. That is also what the Division Bench has held. Having come to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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