TMI Blog2010 (10) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... petition was filed. In 1991, the board was expanded from nine to 12, to accommodate three members from each of the four families. Since the complete implementation of the agreement in 2000, the board comprises 12 members. The board has five editorial directors, including the 2nd respondent, N. Ram, who became the editor-in-chief in June 2003. 2. The petition is filed under sections 397, 398, 402, 403, 404, 406 and Schedule X r/w section 9 of the Companies Act, 1955 ('the Act'). Petitioners belong to the branch of inheritors of Shri G. Narasimhan, who was one of the four cousin brothers. The petitioners allege oppression and mismanagement by Respondents 2 to 10. It alleges failure to implement an editorial framework of retirement and succession, by which the 2nd respondent should have retired as editor-in-chief of all publications when he turned 65 on 4-5-2010, giving way to his brother and 4th petitioner N. Ravi, as agreed to by the editorial members of the board on 25-9-2009. At a board meeting on 18-2-2010, when Petitioners 2 and 4 circulated a document on corporate governance and retirement age of family members, the 2nd respondent said he did not agree to the retirement plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed in 'The Hindu' the next day. The minutes of the 20-3-2010 meeting was sent to the 2nd petitioner on 31-3-2010 by the company secretary. It was only through the minutes, which only mentioned the allocation of circulation to the 2nd petitioner, that the petitioners came to know that none of their objections have been considered and all the resolutions passed. The 2nd petitioner wrote to the company secretary to inform him that the minutes did not reflect the actual deliberations and sent him his version of the minutes. A resolution dated 31-3-2010 authorised the 3rd respondent as MD to convene the board meetings. The petition says the respondents are opting for circulars to circumvent board meetings. The petitioners apprehend that Respondents 2 to 10 may alienate certain fixed assets to clear the debts of the subsidiary. They say the respondents are using the publication for self-promotion. 5. The petitioners seek: (a)to implement a permanent editorial succession plan of retirement for the editorial board members on the lines of the editorial framework on retirement and succession, providing for retirement at the age of 65, as agreed upon by editorial members of the board on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t members of their own group. The 2nd and 4th petitioners themselves had approved as directors the appointment of the 12th and 13th respondents. The petitioners had suppressed the fact that the 2nd petitioner had applied for approval to the Central Government. The appointments have been made in accordance with section 314 of the Act. Questioning the appointments is wholly mala fides. The allegation of mismanagement of a subsidiary company by the 6th respondent is false since all decisions were approved by the board and most of them signed by the 2nd petitioner as managing director of the company. The petition is part of the 2nd petitioner's desire to gain absolute control of the company, with the help of the 4th petitioner. The reason for the petitioners' allegation appears to be the ambition of the 4th petitioner to be the editor-in-chief and the 11th respondent to be the editor. Counter of R 2: 7. R2 adopts the counter filed by R1 Company. He was appointed as Editor-in-chief as per the Board resolution dated 27-6-2003 "to improve the editorial efficiency and performance" of the Company's publications, "including the restructuring of the editorial framework and functions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urth petitioners. Courter of R6: R6 adopted the counter affidavit filed by the company. He is the whole time director from 21-6-1991 and handling the advertisement and circulation department. Originally he was handling the advertisement department and circulation under the supervision of second petitioner. It is stated that the second petitioner was reluctant to forward the files to him. He denied the allegation that he has mismanaged the subsidiary company (SPIL) and caused loss to the company. The second petitioner is instigating the workers against other directors. Counter of R9: R9 has been the whole time director and joint editor of 'The Hindu' from 1991. She filed the counter affidavit also on behalf of her son - R13. She adopts the counter filed by R1. The qualifications of R13 are detailed in the counter. In the informal meeting of the editorial directors held on 25-9-2009 no decision was taken with regard to the retirement of R2 or succession issues. It was decided that the issues could be decided only by the Board. R13 has been appointed unanimously by the Board and the alleged charges of nepotism are denied, Second petitioner is not giving due respect to lady dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the idea in his letter of 25-9-2009. The second respondent agreed with this suggestion at the meeting of editorial directors on 25-9-2009 that the retirement should be on the basis of norms rather than be left to individuals to decide and that he himself would retire on 4-5-2010 when he turned 65. This declaration was taken in good faith by all the editorial directors present at the meeting and by the other directors on being told about it. The second respondent at the instigation of some of the other respondents went back on his commitment at the meeting of the Board on 18-2-2010. The above minutes are a proof that the discussions on the issue are a sequel to the prior discussions and commitment made in September 2009. The deep sense of grievance of the fourth petitioner, ninth and eleventh respondents who were ousted from their duties when the second respondent took over as Editor-in-chief on 27-6-2003 was remaining unaddressed even as the next generation families were being inducted into senior positions. The commitment on retirement was part of the ongoing succession planning in the organization when as the younger generation members were being inducted into the affairs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and the benefit of the entire family. He was appointed as the editor of the Hindu in 19-1-1991. As a result of his effort, there was an improvement in the circulation of Hindu from 1990-2003. The appointments of R12 R13 are directly linked with the other oppressive action in divesting the second petitioner of all his responsibilities in a mala fide manner. Allocation of advertisement department to the sixth respondent who has mismanaged a wholly owned subsidiary is a dear case of nepotism. When the second respondent was appointed as Editor-in-chief in 2003, four directors (4th petitioner, R9, R10 R11) expressed their protest and walked out of the meeting. R2 is colluding with non-editorial directors in breaking his commitment to retire at the age of 65. 10. Issues: (1)Whether the treatment meted out to the second petitioner by the respondents has been unfair and oppressive. (2)Whether respondents 2 to 10 are conducting the affairs of the company in a manner oppressive to the petitioners and prejudicial to the interest of the company and public interest. (3)Whether there was editorial frame work for retirement and succession for the editorial board members. (4)Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiar v. A F Harvey Ltd. [1967] 37 Comp. Cas. 212 9.National Buildings Construction Corprn. v. S. Raghunathan [1998] 7 SCC 66 10.Westfort Hi-Tech Hospital Ltd. v. V.S. Krishnan [2007] 76 SCL 185 (Ker.) 11.Government of West Bengal v. Chatterjee Petrochem (Mauritius) Co. [2008] 143 Comp. Cas. 837 (Cal.) 12.Union of India v. Hindustan Development Corprn. [1993] 3 SCC 499 13.Ashok Kumar Oswal v. Vardhman Polytex Ltd. [2002] 38 SCL 223 (CLB - New Delhi) 14.G. Kasturi's case (supra) 15.Shirmati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. [1974] 44 Comp. Cas. 390 (Delhi) 16.Dr. Mrs. Bahoo J. Coyajee v. Shanta Genevieve Pommeret Parulakar [1995] 84 Comp. Cas. 534 (Bom.) 17.Kasinath Tapuriah v. Incab Industries Ltd. [1998] 93 Comp. Cas. 725/[1995] 6 SCL 201 (Cal.) 18.Sunil Dev v. Delhi District Cricket Association [1994] 80 Comp. Cas. 174 (Delhi) 19.Priyanka Overseas (P.) Ltd. v. Pasupati Fabrics Ltd. [2007] 139 Comp. Cas. 451/ 79 SCL 259 (CLB - New Delhi) 11. Issues 1 to 5: The learned counsel for the petitioners invited my attention to certain factual aspects in support of the claim of quasi-partnership and legitimate expectation. Article 3(a) of the Memorandu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also relied on the decision in Polymer Papers Ltd.'s case (supra) and argued that principle of quasi-partnership is applicable not withstanding the fact that the company is a listed company and if the same is managed in the same manner as that of a closely held family. The above decision held that once the facts and circumstances of a case indicate that on piercing the corporate veil, the real structure is found to be not that of a company, equitable considerations applicable to a partnership could be applied to that company, in the above case the petitioners invoked the principles of quasi-partnership on the basis of the Memorandum of Understanding and it was held that the company was being managed as a closely held family establishment. It was also held that since the sons of the original promoters got gainful employment in the company, it was managed in the guise of a closely held company and hence the principles of partnership and legitimate expectation could be applied in that case. The decision further held that even though the petitioner could not complain against his removal as managing director, it was observed that the disputed board meeting for his removal was convened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are seeking to strip of the powers of the majority of directors who represent majority shareholders. The powers of the Board of directors cannot be curtailed, as directors are acting in a fiduciary obligation to the company. As per the Articles of Association the managing director subjects to the superintendents of the Board. The curtailment of the second petitioner's powers is not shown to be prejudicial to the interest of the company. There cannot be any legitimate expectation on the editorial side because, in the past, even non-family members have been editors of the company. While the proposal on the code of Corporate Governance is under consideration, there cannot be any legitimate expectation or any retirement based on any succession plan. The Board is yet to take a decision in this matter. The second respondent came in as Editor-in-chief for the interest of the company and the newspaper. The appointment of R3 as managing director was approved by the majority of the directors on the Board. The Article 257 provides for more than one managing director. The allocation of work among directors is the Board's prerogative and is completely an internal management of the company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. He is equating the reallocation of work in the company as his virtual removal as managing director. It would be open to the Board to transact any business in the meeting, albeit not mentioned, as an item in the agenda. In the past, the second petitioner was appointed as managing director by a circular resolution. The decision in Priyanka Overseas (P.) Ltd.'s case (supra) is not applicable to the facts of the case because there is no removal of the petitioner No. 2, but only a reallocation of his duties. Even if it amounts to withdrawal of powers/removal there is justification because the second petitioner was subverting the decisions of the Board and general body and also in view of the tack of confidence expressed by the other directors/shareholders. There is no legitimate expectation on editorial side inasmuch as several non-family members were appointed as Editor-in-chief, Because the appointment of respondents 12 13 were approved in the Board meetings and shareholders meeting and forms of approval were signed by the second petitioner, he cannot challenge the decisions to which he has been a party. The Central Government his accorded its approval to the said appo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d those posts except to note that the decisions of their appointments were taken unanimously by the board of directors. The mandatory approval required under section 314(1B) of the Companies Act has since been obtained from the Central Government. Even if there is any irregularity in this regard, it is only a compoundable offence. At the same time the respondents are aggrieved by the conduct of the 2nd petitioner, approaching the Central Government for refusal of approval. It is obviously unfair for the 2nd petitioner to do so after being a party to the decision of the board. Such conduct can be found to be an action contrary to the interests of the company. The petitioners explained that his agreement was part of a wide understanding as per which the 2nd respondent would retire at the age of 65. However, the 2nd respondent withdrew himself from that commitment and according to the second petitioner that prompted him to retaliate. Prima facie, the conduct of the 2nd petitioner seems to be undesirable, justifying the deprivation of any equitable relief but taking into account the totality of the circumstances. I am leaving it as it is. Now the disputed appointments have become a fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f different persons in the editorial were going to evolve. She also emphasised that the factors like one's particular experience, orientation, qualification and actual practical contribution in the area should figure in succession guidelines. Evidently, this note was also taken on record. The clause in the articles regarding the retirement at the age of 65 was deleted in 1991 not based on any discussion in the Board of directors, but based on the amended provisions of the Companies Act as per which there is no age qualification now for a person to retire as a director. So the issue on succession was never decided by the Board or shareholders. Viewed in this background, the proposal by the petitioners and R11 to frame a Corporate Governance Policy cannot be described as an attempt to gain control of the company or to remove Shri Ram as Editor-in-chief. Since the Board of directors reallocated the non-editorial side in order to broad-base the management of the company and to involve all whole time directors, it is desirable that such a decision is taken at the editorial side also. 17. Being an incorporated entity, the company is at liberty to effect any change in its structure, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or three decades, he was a director. In 2006 he was unanimously elected as Managing Director, As per the understanding arrived at the meeting of the directors on 18-2-2010, N. Murali will retire from the day to day affairs of the company in August 2011 when he reaches the age of 65. Moreover, his term of appointment is to expire only on 10-4-2011. This being the admitted position, the decision to trim his powers taken on 20-3-2010 seems to be surprising. Charges were raised against him by his own brother and cousins without any notice or putting the same on the agenda. The nature of the urgency in taking this type of action against the Managing Director is not properly explained to me. Though he was elevated as Senior Managing Director, it was done only for the purpose of creating a space for the 3rd respondent to become Managing Director. Following the stripping of powers, only one out of the original seven functions, now remains with the 2nd petitioner. There is justification for him to argue that it was a vindictive and punitive action, perhaps in retaliation to his objection to the foreign appointments of the 12th and 13th respondents. Without giving him an opportunity to expla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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