TaxTMI 
TaxTMI 
2011 (7) TMI 1011
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....) To restrain the respondents from proceeding with the extraordinary general meeting on May 20, 2011, or on any other date pursuant to the notice dated April 21, 2011, in connection with special business item '1' in so far as the first and the second petitioners are concerned and in connection with the appointment of the eleventh respondent or any other person. (3) To grant an injunction restraining respondents Nos. 2 to 8 from proposing or passing any board of shareholder resolutions with respect to any editorial removal, 'succession', 'retirement', 'professionalisation' plan or Corporate Governance Policies without the unanimous consent of all the shareholders. (4) To appoint an interim independent chairman in the place of the second respondent to conduct future board meetings and general body meetings. (5) For a direction directing the respondents to maintain status quo with respect to the shareholding and composition of the board in the first respondent-company. (6) For such or other orders as this hon'ble Board may think fit and proper in the ci....
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.... be perpetually debarred from holding the post of editor of The Hindu, which in my view is contrary to the tradition and practice followed by the company since its inception. Besides, it is doubtful whether the proposed advisory board which consists of members of the rival groups would be able to effectively guide the non-family editor in discharging his duties, I am of the prima facie view that except 'the wholesale removal of the family editors', the present proposals do not take in any other aspect. The board had not addressed the aspects (retirement entry and exit norms, etc.), referred to in my earlier order. It also appears that the board has given a go by to the idea of framing guidelines for succession or rather they have limited the directions of the Company Law Board only to the extent of removing the entire family editors. However, I am not staying the holding of the extraordinary general meeting. The issue is the role of the family in the company and in my view it has to be decided by the shareholders. Learned senior counsel appearing for the company and other respondents submitted that the resolutions regarding the removal of family editors even if approved in the extr....
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....formal talk in the family. 8. That categorical finding was recorded, that it was for the directors and shareholders of the company to decide the modalities of such succession without compromising professional considerations. It is the case of the appellants that it was in view of the direction issued by the hon'ble Company Law Board, that issues of implementation of an editorial succession plan of retirement and a permanent corporate governance policy was considered by the board of directors of the company, and a policy decision was taken to effect professionalisation of the company, as also various publications run and managed by it. The board of directors also considered the issue of the Code of Editorial Value for the company. 9. It is also the case of the appellants that it was after due deliberation that decision was taken in the board meeting, to adopt the Code of Editorial Values for Kasturi and Sons Ltd., and to consider convening of the meeting of the shareholders of the company to consider and decide editorial succession in pursuance to the order dated December 22, 2010, passed by the hon'ble Company Law Board. 10. The case of the appellants further is that the policy ....
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....ant-company, which stood approved by the board of directors after much deliberation and discussion. (v) That the order passed staying implementation of the resolution passed in the extraordinary general meeting was against the interests of the company and furthermore, the appointment of Siddharth Varadarajan was in the interest of the company. (vi) It is also the case of the appellants that the choice of Siddharth Varadarajan was made out of 3 alternative names presented by respondent No. 12 wherein respondents Nos. 1 to 11 did not present any other alternative to the appointment. (vii) It is also the case of the appellants that the hon'ble Company Law Board failed to appreciate, that the articles of association of the appellant-company were silent on the issue of the management of its newspapers and other product, therefore it was for the wisdom of the board of directors and shareholders of the company to take decisions including the one to run the company professionally. (viii) That reasoning in the impugned order with regard to advisory board being unab....
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.... beyond the legal rights conferred on them by the constitution of the company. The editor is the 'living articulate voice' of the newspaper and The Hindu is a newspaper which can claim a grand succession of eminent editors during its 132 years of glorious existence. Continuing litigation and constant upheavals will cause great and irreparable harm to that reputation. There is some force in the contention of the petitioners that as the younger generation members are coming in, the oldest members had to make way for those in between. Evidently, and admittedly the note on the Code of Corporate Governance Guidelines of the company sent by the second petitioner was placed at the board meeting of February 18, 2010 and is under consideration by the board of directors. It is on record that, in the board meeting dated August 21, 2009, Ms. Malini Parthasarathy (respondent No. 11) has expressed her concern regarding the delay in the matter of evolving a framework and guidelines for succession indicating how roles of different persons in the editorial were going to evolve. She also emphasised that the factors like one's particular experience, orientation, qualification and actual practical con....
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.... Corpn. of India v. Escorts Ltd. [1986] 59 Comp Cas 548, wherein, the hon'ble Supreme Court has been pleased to lay down as under (page 631) : "A company is, in some respects, an institution like a State functioning under its 'basic constitution' consisting of the Companies Act and the memorandum of association. Carrying the analogy of constitutional law a little further, Gower describes 'the members in general meeting' and the directorate as the two primary organs of a company and compares them with the legislative and the executive organs of a Parliamentary democracy where legislative sovereignty rests with Parliament, while administration is left to the Executive Government, subject to a measure of control by Parliament through its power to force a change of Government. Like the Government, the directors will be answerable to 'Parliament' constituted by the general meeting. But in practice (again like the Government), they will exercise as much control over Parliament as that exercises over them. Although it would be constitutionally possible for the company in general meeting to exercise all the powers of the company, it clearly would not be practicabl....
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....in accordance with the provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every director, the managing agent, if any, the secretaries and treasurers, if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting. The Life Insurance Corporation of India, as a shareholder of Escorts Ltd., has the same right as every shareholder to call an extraordin....
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....of 2011, while supporting the argument addressed by learned senior counsel for the appellants in Company Appeal No. 6 of 2011, vehemently contended that the relief under sections 397 and 398 of the Companies Act, 1956, could only be granted in case prima facie case was made out that the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members, or in case it is held that the material changes are brought about in the management or control of the company either by any alternation in its board of directors or managers or in the ownership of the company's shares, or if it has no share capital, in its membership in a manner that by reason of such change, it is likely to result in a manner prejudicial to the public interest or in any manner prejudicial to the interest of the company and in that case, the object should be to bring to an end or preventing the matters complained of or apprehended. The contention of learned counsel was that the positive finding has to be recorded, that the action taken is prejudicial to the interest of the company or to the public interest, but not for individual interest. 27....
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....t has been made to remove the minority shareholders, holding the position in the editorial board of the company. Reference was made to explanatory statement pointing out that the decision of the board was to have a structure in which the ownership of the company was separated from the day to day management and functioning. The professionalisation of top management, by which all senior positions would no longer be reserved for shareholders to attract new, young talent and bring in fresh ideas, thus, the contention of learned senior counsel for the respondents was that the object is only to oppress the minority group of shareholders. 34. It was next contended by learned senior counsel for the respondents that the board resolution passed is contrary to the earlier decision, wherein, the board was directed to consider the question of succession, but in the resolution, no such consideration had taken place, that is why, the hon'ble Company Law Board held that prima facie case was made out for grant of interim order, which does not call for any interference, especially when it is not a final order and is operative only till further orders. 35. It is also the contention of learned senio....
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....ompanies Act, 1956." 39. Finally it was contended by learned senior counsel for the respondents that the hon'ble Company Law Board was fully justified, as the appellants deliberately violated the earlier order passed by the hon'ble Company Law Board, directing to consider the policy of succession, etc. 40. The last contention of learned senior counsel for the respondents was that as it is only ad-interim order, it is always open to the appellants to go to the hon'ble Company Law Board to redress their grievance. 41. Learned counsel for respondent No. 2 contended that as per the report submitted, the following guiding principles were enabled for governance of framework : (1) Delink ownership from executive board and management - shareholding does not necessarily imply automatic right to being part of executive board or management. - Set up a family council to discuss strategic and family-related requirements, offer inputs to the executive board, provide broad strategic directions, and take care of shareholders' interest - Set guidelines and qualification criteria for inducting family members into the executive board and the management team (2) ....
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....management function, being performed by the directors, which are as under : Family branch No. Name of the director Directorial designation Management function G. Narasimhan 1. N. Ram (R2) WTD Editor-in-Chief (w. e. f. 27-07-2003) 2. N. Murali (P3) WTD Senior managing director since 20-03-2010 3. N. Ravi (P1) WTD Editor (w. e. f. January, 1991) G. Kasturi 4. K. Balaji (R3) WTD Managing Director since 20-03-2010 5. K. Venugopal (R4) WTD Joint editor-Hindu & Business Line (w. e. f. 2005) 6. Lakshmi Srinath (R5) WTD Group events (w. e. f. 20-03-2010) S. Rangarajan 7. Ramesh Rangarajan (R6) WTD Advertising (w. e. f. 20-03-2010) 8. Vijaya Arun (R7) WTD General Administration, Welfare, CSR (w. e. f. 20-03-2010) 9. Akila Vijay Iyengar (R8) WTD Overseas business (w. e. f. 20-03-2010) S. Parthasarathy 10. Nirmala Lakshmanan (R9) WTD Joint editor (w. e. f. 1996) 11. Dr. Nalini Krishnan (R10) WTD Employee Health and Welfare, CSR (w. e. f. 20-12-2010) 12. Malini Parthasarathy (P2) WTD Executive editor (w. e. f. August, 2008). Held the same designation earlier between 1996-2004 44. The contention, therefore was that the ac....
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....he company. 52. It is also well-settled that the shareholders can only watch the proprietary interest in the company and cannot object to the day to day decision and functioning of the company. 53. In this case, by placing the matter before the shareholders, the board of directors were seeking consent of the shareholders. If any civil rights of the parties were likely to be affected, then that can be the subject-matter of a civil suit, but certainly will not be falling under sections 397 and 398 of the Companies Act. 54. The resolution also prima facie cannot be said to be against the earlier order of the hon'ble Company Law Board, as the relief with regard to succession, was specifically declined, leaving it open to the board of directors and its shareholders to take a final decision. 55. The observations made in the previous order, on which reliance was placed by the respondents, were more in the nature of advice, and an enforceable order. 56. The contentions of learned senior counsel for the appellants, and that of counsel appearing for the company, deserve to be accepted. 57. The contention of learned senior counsel for the respondents that the impugned order was not appe....