TMI Blog2011 (7) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... y general meeting is ordered to be set aside - C.A.NOS. 6 & 7 OF 2011 - - - Dated:- 1-7-2011 - VINOD K.SHARMA, J. C.A. Sundaram, B. Giridhar Rao, S.N. Mookerjee and J.R. Jayant Adhitya for the Appellant. A.L. Somayiji, Krishna Srinivasan and R. Sankara Narayan for the Respondent. JUDGMENT 1. Respondents Nos. 1 to 11 invoked the provisions of sections 397, 398, 402, 403, 404, 406 and Schedule XI read with section 9 of the Companies Act, 1956, to challenge the resolutions passed by the board of directors of M/s. Kasturi and Sons Ltd., held on April 18, 2011 and the notice dated April 21, 2011, calling for an extraordinary general meeting on May 20, 2011. 2. In the petition filed, the following interim reliefs were claimed : "(1) To stay the resolutions passed at the meeting of board of directors held on April 18, 2011, removing the powers and designations of the first and the second petitioner family editorial directors and the purported appointment of the eleventh respondent. (2) 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of petitioner No. 2 as senior managing director. ( iii ) For the reasons stated at paragraph 10 of this order above, relief (e) regarding the appointments of respondent No. 12 as European correspondent of Business Line and respondent No. 13 as Washington correspondent of The Hindu is declined. ( iv ) Relief (f) is declined. ( v ) No order as to costs. All interlocutory applications are dismissed and all interim orders are vacated." 4. By way of interim measure, the hon'ble Company Law Board passed the impugned order on May 20, 2011 ( N. Ravi v. Kasturi and Sons Ltd. [2011] 166 Comp Cas 543 (CLB - Chennai)), the operative part of which, reads as under (page 554 of 166 Comp Cas) : "The far reaching consequence of the proposals is that a shareholder of the company will 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with regard to their position/status current and expected in the operations and running of the editorial side of the company. According to learned senior counsel, this can be agitated only in the civil forum and not before the hon'ble Company Law Board. 7. The stand of the appellants is that under sections 397 and 398 of the Companies Act, 1956, the hon'ble Company Law Board, can only deal with the acts of oppression and mismanagement resulting from conduct of the affairs of the company. It is also the case set up by the appellants that in the previous proceedings, the hon'ble Company Law Board was pleased to lay down, that it was for the directors to think about the desirability of having a permanent succession plan as well as editorial framework and there can be no judicial intervention based on alleged and informal 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o implement the editorial values agreed to, therefore, cannot be the subject-matter of either petition under sections 397 and 398 nor it will be within the jurisdiction of the hon'ble Company Law Board to stay the implementation of the order ? ( iii ) That the hon'ble Company Law Board committed an error in entertaining the company application and passing interim reliefs, without first adjudicating on the issue of the maintainability of the company petition, as the grievances raised in the company petition was personal and individualistic in nature, which did not in any manner deal with the conducting of the affairs of the company. ( iv ) That the hon'ble Company Law Board erred in interfering with the policy decision of the appellant-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 Varad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of prima facie case being made out, no interim order could be passed. 16. Learned senior counsel for the appellants vehemently contended that the impugned order staying the resolution is contrary to the findings recorded by the hon'ble Company Law Board, in C. P. No. 25 of 2010, decided on October 22, 2010 - N. Murali (HUF) ( supra ), wherein it was recorded as under (page 521 of 166 Comp Cas) : "It may be a legitimate expectation but the members of the company cannot entertain any expectation which will go 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 pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior counsel for the appellants that there was no occasion for the hon'ble Company Law Board to interfere with the implementation of the decision by the board of directors, specially when the hon'ble Company Law Board had recorded that the decision would be subject to final decision in the case. 20. Learned senior counsel for the appellants in support of the contention, that it is not open to the hon'ble Company Law Board to issue injunction, placed reliance on the judgment of the hon'ble Supreme Court in the case of Life Insurance 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 administratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The holders of the majority of the stock of a corporation have the power to appoint, by election, directors of their choice and the power to regulate them by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another . . . Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court in the case of Dale Carrington Investment (P.) Ltd. v. P.K. Prathapan [2004] 122 Comp Cas 161/54 SCL 601; 25. It was the contention of learned senior counsel that the hon'ble Company Law Board ignored the basic law, that the shareholders can watch the proprietary interest in the company and cannot question the functioning or policies of the company, therefore, the company petition itself was not competent. 26. Learned senior counsel for the appellants in Company Appeal No. 7 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order shows that it cannot be said to be consent order. 32. Learned senior counsel for the respondents contend that it is a case of prima facie oppression of minority shareholders, as by the resolution, Siddharth Varadarajan, associate editor and National Bureau Chief, The Hindu, is to be appointed editor of the Hindu, reporting to Mr. N. Ram, editor-in-chief, The Hindu, in such time as the board of directors of the company may decide. 33. It is also the contention in garb of professionalisation, an attempt 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locutory orders related only to the management and for better functioning of the company's affairs. The Company Law Board had exercised its discretion, which could not be termed perverse, so as to warrant interference by the court. The appellants in their reply to the company application filed before the Board had not raised any objection regarding jurisdiction. The questions raised in the appeal could not be said to be questions of law having arisen out of the interim orders to be entertained under section 10F of the Companies 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was that the appellants violated the guiding principles. 43. Learned counsel for respondent No. 2 contended that while passing the resolution, the appellants have completely ignored the qualification of respondent No. 2, the executive editor of The Hindu, the whole-time director of M/s. Kasturi and Sons Ltd. The company under the garb of professionalisation cannot remove respondent No. 2 from the post of executive editor of The Hindu. Reference was also made to the 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents were yet to file their counter, it was stated that the decisions to be taken in the extraordinary general meeting were likely to take sometime, therefore, there was no urgency to pass the impugned order on May 18, itself, especially when the order could be made subject to the final decision to be taken by the hon'ble Company Law Board. 50. The hon'ble Supreme Court in the case of Escorts Ltd. ( supra ), had categorically laid down that it is not open to the Company Law Board to issue injunction with regard to functioning of the company. 51. As already observed above, in the order passed, no finding has been recorded regarding the resolution of the board of directors, that the matter placed before the extraordinary general meeting was prima facie prejudicial to the public interest or functioning of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual rights of the respondents. The hon'ble Company Law Board nowhere recorded or held that the decision would not be in the interest of the company or its management. The appointment of editors has been made subject to supervision by the respondents. Finding of the hon'ble Company Law Board that it would not be possible to check functioning of non family members, is not based on any material. Nor any reasons have been given to come to this conclusion. 61. The decision of the hon'ble Company Law Board, is otherwise contrary on the face of record, inasmuch as, it did not stay holding of the extraordinary general meeting for want of prima facie case, whereas at the same time, the operation of the decision has been ordered to be stayed, even though the decision was subject to final decision. 62. There is also no material or finding recorded as to how the principles laid down with regard to the governance of framework were violated by passing of the resolution. 63. The contention of learned counsel for respondent No. 2 that the management of the editorial is changed and that the qualification of respondent No. 2 has not been considered cannot be the subject-matter of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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