M.S. Madhusoodhanan & Anr Vs. Kerala Kaumudi Pvt. Ltd. & Ors [2003] Insc 346 (1 August 2003)
Ruma Pal & B.N. Srikrishna.
With CA Nos. 3260, 3259, 3261 of 1991 RUMA PAL, J.
An internecine dispute between the members of a family relating to the controlling interests in companies has given rise to the nine appeals which are being disposed of by this judgment. Given the number and nature of the proceedings, to avoid any confusion, the parties are referred to by their names and not in the capacity in which they have sued or been sued except when describing the collective stand of all the respondents in these appeals, when they are referred to simply as 'the respondents'.
The main protagonists in all the litigations are Madhusoodhanan, Srinivasan, Ravi and Mani who are brothers, with Madhusoodhanan on one side and Srinivasan, Ravi and Mani on the other. The parents of the four were one K. Sukumaran and Madhavi both of whom are deceased. K. Sukumaran died before the litigations between the parties erupted and Madhavi died during the pendency of the litigation. While she was alive she supported Srinivasan, Ravi and Mani. The four brothers are married and have children. It is unnecessary at this stage to clutter the narration of facts with the names of the wives and children, who will be referred to by name when the particular litigation in which they are involved is considered.
The dispute began with a struggle over the controlling interest in a company by the name of Kerala Kaumudi Pvt. Ltd. (hereinafter referred to as Kerala Kaumudi) Kerala Kaumudi is a private company incorporated under the Indian Companies Act, 1913 which was promoted in 1955 by the parents of the four brothers. Besides Kerala Kaumudi other "family" concerns were incorporated including Kaumudi Investments Pvt. Ltd., Kerala Exports (P) Ltd., Kaumudi News Pvt. Ltd., Laisa Publications Pvt. Ltd., Shiv Printers & Publishers, Ravi Printers & Publishers Pvt. Ltd., Kaumudi Films Outdoor Unit, Electronic & Equipment Corporation and Ravi Transports. However, the core of the controversy is the control of Kerala Kaumudi.
The business of Kerala Kaumudi (which was the flagship company) is to own and publish newspapers, journals and other literary works and undertakings. Its authorised share capital is 20 lakhs divided into 2000 shares of Rs.1000/- each. The total number of issued and paid up equity shares in Kerala Kaumudi was 1575.
During the life time 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 Private Ltd. _____
Total 1575 shares
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 appointed as Managing Director and Editor of Kerala Kaumudi for life. He was also empowered to exercise the powers given to the Director under Article 79 of the Articles of Association. At the same time Srinivasan was appointed as General Manager of Kerala Kaumudi for life and Ravi was appointed as Director and Executive for life. To give effect to these appointments, Article 69A and Article 74 of the Articles of Association of Kerala Kaumudi were amended.
The disputes between the parties started soon after the death of Sukumaran in September 1981. When these reached a head, on 29th November, 1984 a resolution was taken at a meeting (Ex. P-190) of the company which was signed by the four brothers and Madhavi by which the controlling interests in the different family companies were agreed to be given to the four brothers on the basis of their active interest in a particular concern. Kerala Kaumudi's control was to be with Madhusoodhanan. In implementation, Transfer of shares in these companies were effected between the brothers and their respective families. The disputes however did not abate. On 24th October,1985 an agreement was entered into between the parties in an attempt to resolve their differences. This agreement has been exhibited in the proceedings as Ext. P1. On 23rd December 1985, a second agreement (Ext. P-2) was entered into by which it was, inter alia, agreed that all the various family controlled companies and firms would be divided among the four brothers.
On 16th January 1986 a third agreement was entered into, which has been marked as Ext. P.3. The parties to the third agreement were Madhavi, Mani, Madhusoodhanan, Srinivasan and Ravi. Briefly speaking, Ext.P3 is about the division of effective control of the "family" concerns amongst the four brothers. It relates to the transfer of Mani's shares in Kerala Kaumudi to Madhusoodhanan. In addition, the parties' agreement that Madhusoodhanan would have the major share holding in Kaumudi Investments Pvt. Ltd., Kerala Exports (P) Ltd. and Kaumudhi News Pvt. Ltd., Mani the majority share holding of 52 per cent in Laisa Publications Pvt. Ltd. (which has subsequently changed its name to Kala Kaumudi Pvt. Ltd.), Srinivasan 52 per cent in Shiv Printers and Publishers, and Ravi, the majority holding in Ravi Printers and Publishers (P) Ltd., Kaumudi Films Outdoor Unit, Electronic and Equipment Corporation and Ravi Transports, is also recorded.
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.
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 additional shares of Rs.1000/- each. At a Board meeting held on 8th August 1986 these additional shares were issued to Ravi and Sreenivasan and one share was transferred by Ravi to Mani. This meeting as well as the allotment of the additional shares is not accepted by Madhusoodhanan. On 16th August, 1986 at an Extraordinary General Meeting Madhusoodhanan was removed as Managing Director of Kerala Kaumudi and Article 74 of the Articles of the company deleted.
In this background, several proceedings were filed by the parties against each other some of which may be taken up for consideration together. The first lot consists of six matters relating directly to Kerala Kaumudi and the share holding in Kerala Kaumudi.
The six are:
(i) C.P. No. 14 of 1986 filed by Madhusoodhanan for rectification of the company's share register under section 155 of the Companies Act, 1956 by cancellation of the allotment of 425 shares to Ravi and Sreenivasan and for removal of the name of Mani from the company's share register.
(ii) Company petition, C.P. No. 31 of 1988 filed by KIPL for similar reliefs.
(iii) A suit filed by Madhusoodhanan in the Munsif's Court, Trivandrum being O.S. No. 1329 of 1986 (subsequently re-numbered as C.S. No. 3/89, when withdrawn to the High Court) for a decree declaring that he continued to be the Managing Director of Kerala Kaumudi and for a declaration that the Board meetings held on 23.7.86, 1.8.86 and the meetings subsequent thereto were illegal and ultra vires the Articles of Association of the company.
(iv) A suit being O.S. No. 482/88 (subsequently re- numbered as C.S. No. 5/89, when withdrawn to the High Court) filed by KIPL against Kerala Kaumudi for similar reliefs.
(v) A suit filed by Madhusoodhanan for specific performance of the third agreement, Ex.P.3.(O.S.
No. 483/88, subsequently re-numbered as C.S. 6/89 when withdrawn to the High Court.) (vi) C.P. No.26 of 1987 filed in 1987 by Mani and his children for a declaration that the transfer of 390 shares by them to Madhusoodhanan pursuant to the Board's decision dated 21.5.85 was illegal and void and for rectification of the share register by recording them as the owners of 222, 84 and 84 shares respectively.
These six matters are now numbered as CA Nos. 3253-3258 of 1991 before us.
The second set of litigation being Company Petition No. 15 of 1986 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.
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.
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.
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 the several company petitions noted earlier. About 296 documents were tendered in evidence by the parties. Seven witnesses were examined. The four witnesses who deposed in support of Madhusoodhanan were P.K. Kurien, Advocate (PW 1), Mohan Raj, former Personal Assistant to Madhusoodhanan (PW 2) Vasudevan, former Company Secretary (PW 3) and Madhusoodhanan himself (PW 4). As far as the opponents were concerned, Mani (RW 1), Srinivasan (RW 2) and Laisa Srinivasan (RW 3) gave evidence in support of their stand.
The Single Judge decided CP No. 14 of 1986 in Madhusoodhanan's favour. The application for rectification was allowed and the allotments of shares made in the meeting held on 8.8.86 were set aside and rectification of the share register of Kerala Kaumudi by deleting the further allotment of 425 shares each to Sreenivasan and Ravi was directed. The prayer for cancellation of the transfer of one share in favour of Mani was, however, disallowed.
However, the petition filed by KIPL (CP No. 31 of 1986) which had virtually asked for the same reliefs as in CP No. 14 of 1986 was dismissed by the learned Single Judge on the ground of delay.
Madhusoodhanan's suit (C.S. No. 3 of 1989) and KIPL's suit (CS No.5 of 1989), were decreed by holding inter alia that the meetings held on 23.7.86, 1.8.86, and 17.8.86 in so far as they affected Madhusoodhanan and by which Madhusoodhanan had been removed as Managing Director and Article 74 of the Articles of Association of the company was deleted, were illegal and invalid.
Madhusoodhanan was declared to be the Managing Director of the Company. The suit filed by Madhusoodhanan for specific performance of Ext. P3 (CS No. 6 of 1989) was also decreed. Mani and his children's application for setting aside the transfer of 390 shares (CP No.26/87) was dismissed. An arbitrator was appointed for determining what amount was payable by Madhusoodhanan to Mani for the shares transferred by Mani to Madhusoodhanan.
The second set of proceedings initiated by Mani's wife and others viz. CP No. 15 of 1986, for rectification of the share register of KIPL and the third set filed by Madhusoodhanan's minor son, Vaishak for rectification of the share register of Kala Kaumudi (CP No. 11 of 1987) were dismissed.
The two suits filed by Kerala Exports and KIPL (CS 2 of 1989 and CS 4 of 1989 respectively) relating to their continued possession in Kaumudi Buildings were decreed.
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.
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.
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.
Transfer of shares by Mani and his children to Madhusoodhanan In C. P. 26/87, Mani and his group prayed for rectification of the share register of Kerala Kaumudi by deleting the name of Madhusoodhanan as a shareholder in respect of the shares which Mani and his group had transferred to him in 1985. The prayers proceed on the basis that there was in fact a transfer of shares in 1985 which was, after two years, sought to be set aside. The grounds on which this was asked for were :
A. The consideration for the transfer had not been agreed upon and no consideration had in fact been paid.
B. No proper documents had been executed effecting the transfer.
C. Neither Valsa nor Sukumaran Mani, a minor had any knowledge of the transfer and the transfer of their shares was invalid.
D. Section 108 of the Companies Act, 1956 had not been complied with in respect of any of the transfers.
The learned Single Judge rejected all four contentions, and in our view, rightly. The Division Bench held in favour of Mani and his group on grounds which are legally and factually unsustainable for the reasons stated in the following paragraphs.
The documentary evidence relating to the transfer, shows without a shred of doubt that there was a valid transfer of shares. To begin with the minutes of the meeting held on 19th March 1985 [Ex.
R-62(a)] which were signed by Mani, records:
"Shares of Sri M.S. Mani. All the shares in Kerala Kaumudi owned by Sri M. S. Mani and family would be pledged by him to Sri M. S. Madhusoodhanan who shall extend financial facilities to Sri M. S.
Mani. The loan will be paid with 22 percent interest by Sri Mani when Sri M. S. Madhusoodhanan shall release the shares of Sri M. S. Mani. The modus operandi of the transaction shall be decided in consultation with barrister P.K. Kurien of Menon and Pai".
The intention of Mani and his group to transfer their shareholding to Madhusoodhanan is evident from this. Although the mode of transfer was subsequently changed, this intention was affirmed at the Board meeting of Kerala Kaumudi held on 23rd April
85. The fifth and sixth resolutions as appearing in the minutes of the meeting (Ex.P.-62(b)) which were also signed by Mani read as under:
"Sri M. S. Mani Letter of resignation from the direct directorship of Kerala Kaumudi (Pvt) Ltd effective from 23. 4. 85 afternoon submitted by Sri M. S. Mani was approved by the Board.
(6) Shares owned by Sri M. S. Mani and family in Kerala Kaumudi (P) Ltd.
"Shares owned by Sri M. S. Mani and 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.
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 agree upon the consideration later. Section 9 of the Sale of Goods Act, 1930 permits this.
Section 4 read with Section 2(10) of the Sale of Goods Act, 1930 require that the contract of sale must provide for the payment of money as a consideration for the transfer of goods, or to put it differently, that a price must be paid. But Section 9 of the 1930 Act allows the parties not to fix the price at the time of the transfer and to leave the determination of the amount of consideration to a later date.
An agreement which provides for the future fixation of price either by the parties themselves or by a third party is capable of being made certain and is not invalid as provided under Section 29 of the Contract Act, 1872 [See: Illustration (e)] In view of such categoric and clear statutory provisions, the submission of learned counsel representing Mani that such a contract is void for uncertainty because the price was not fixed, is unacceptable. The passage from Benjamin's Sale of Goods (1974 Edn.) relied on which says "If the price is left to be agreed upon subsequently between the parties, there will ordinarily be no binding contract, on the grounds of uncertainty, unless and until they later reach agreement on a price. Moreover, an agreement to leave the price open to further negotiation will normally exclude any inference that the price should be a reasonable price in accordance with the provisions of section 8(2)." may be an exposition of the law as it is in England and cannot be seen as an authority on the interpretation of section 9(1) of the Sale of Goods Act. Besides, the same passage cited goes on to say:
"But in accordance with the principle that the Courts will endeavor to uphold bargains which the parties believe themselves to have concluded, especially in the case of executed or partially executed contracts, it may sometimes be possible either to infer an intention that at any rate a reasonable price should be paid if no price is later settled, or to have regard to other circumstances, such as the course of dealing between the parties." In this case, there can be no doubt that the first stage of the agreement for the immediate transfer of shares was executed and the Division Bench erred when it held to the contrary.
The questions as to what would be the reasonable price for the shares, the mode of its determination and whether any consideration has already been paid by Madhusoodhanan to Mani are considered subsequently.
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" 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 the Company's Share Certificate Ledger (Ex. P-90).
It is evident from this that the share transfer forms which were placed before the Board had been executed and were otherwise duly completed, or else the question of the approval of such transfer would not arise.
Apart from these minutes, are the minutes of the meeting held on 26th August 1986, when Madhusoodhanan, was already effectively removed from the control of Kerala Kaumudi . Item No 4 of the minutes relates to the transfer of a share by Ravi to Mani.
Countering Madhusoodhanan's objection to such transfer, the minutes tellingly record:
"Smt. C.N. Madhavi pointed out that the sale consideration of the shares held by Sri. M. S. Mani which was around 24 percent of the total shares of the company at the time of transfer had not been paid by Sri. M. S. Madhusoodhanan. She pointed out Sri M. S. Mani was the senior most Director of the company and he is the eldest son of late Sri. Sukumaran, the founder of the company. She also pointed out that Sri M. S. Mani is eligible for 1/5 of the shares held in the name of his father. She further pointed out that it is prestigious for the company that Sri M. S. Mani, the former senior Director and glorious editor of the newspaper to be a shareholder of the company".
In the Annual Return of Kerala Kaumudi dated 27th June 1985 filed under section 159 of the Companies Act 1956 with the Registrar of Companies, in the list of past and present members and debenture holders, the names of all parties have been given Including the names of Mani, and his children. However against their names It has been mentioned that they had effected transfer of their shareholding to Madhusoodhanan. Particulars of the transfer made by each as well as the date of registration of the transfers have been given as 21st May 1985. (Ex. P-128).
On 1st March 1986 in keeping with the statutory requirement relating to the ownership of newspapers, a statement was published in Form IV. In the list of shareholders the names of Madhusoodhanan, Ravi, Visakh Madhusoodhanan, Deepu Ravi, M.S. Srinivasan, Julie Madhusoodhanan & Anju Srinivasan are mentioned.
There is no mention of Mani or either of his children as shareholders (Ex.P -- 86). There was no protest by Mani or any of the other shareholders which would have naturally been made if the statements were incorrect.
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 respectively 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.
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 only one share. Under section 164 of the Companies Act, 1956, the annual returns, the certificates and statements therein, "shall be prima facie evidence of any matters directed or authorised to be inserted therein" under the Act.
The explanation given by Mani that he did not respond to the statutory declarations although they did not show his name or the names of his children as shareholders of Kerala Kaumudi because there was an agreement to transfer the shares and because of the close relationship between parties, is specious. According to Mani's evidence, he had not agreed to transfer his shares at all because the consideration had not been fixed. Furthermore, the relationship between the parties was anything but cordial. It was only after Madhusoodhanan had initiated proceedings in 1986, that Mani, more than two years after the transfer for shares filed the application for rectification of the share register.
Even if there were any doubt on the issue, the fact which settles the matter conclusively are the admissions in the counter affidavit filed by Madhavi in CP No 14 of 1986 on behalf of herself and on behalf of Ravi, Srinivasan and Mani (wherein Mani is referred to as the "fifth counter petitioner" and Madhusoodhanan as "the petitioner") She has affirmed:
(a) "In fact the fifth counter petitioner left the company in the year 1985 and has transferred all the 390 shares belonging to him and his children (major daughter and minor son) to the petitioner, receiving only a miniscule part of a consideration and accepting the promise of the petitioner to pay him the balance without even insisting on formal documents to evidence the promise of the petitioner ".
(b) "Once Article 74 was amended to the petitioner's liking, his attitude started changing slowly. Even then we did not take it seriously.
That is why the fifth counter petitioner transferred his shares to the petitioner, giving him literally a strangle hold on the company".
(c) " He (Mani) and his minor son had held 306 shares in the company which he had transferred to the petitioner in 1985".
(d) "The petitioner holds 612 equity shares of Rs.1000/- each of the company".
Mani has also said in an affidavit affirmed on 28th November, 1986 in Application 305/86 ( arising out of CP No.14/86).
"After the meeting was over the petitioner and respondents 2 to 5 that is, the mother 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".
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 essential that the fifth respondent (Mani) was to be inducted as a member of the company".
That he was "admitted" to membership and "inducted" as a member of the company by the transfer of one share on 26th August 1986 has been acknowledged by Mani himself in his affidavit affirmed in the same proceedings on 28 November 1986.
This admission to membership was in terms of Article 24(a) of the Articles of Association of Kerala Kaumudi, which directs that no share shall be transferred to a person who is not a member so long as any member or any person selected by the Directors as one whom it is desirable in the interest of the company to admit to membership, is willing to purchase the same at fair value. In other words a non- member of the company can be sold a share of the company even when a member wishes to purchase it, provided the Directors select him as "a person whom it is desirable in the interest of the company to admit to membership" and provided that such person is willing to purchase the share.
If the transfer by Mani and his children of their entire shareholding in Kerala Kaumudi to Madhusoodhanan had not been effected, there was no question of "admitting" Mani to the membership of the company. The minutes of the meeting held on 26 August 1986 which have been admitted by Srinivasan and the affidavits of Madhavi and Mani thus prove that Mani and his family held no shares in the company until the single share was transferred by Ravi to Mani under Article 24(a) on 26th August 1986.
We have been unable to understand the logic of the Division Bench by which it sidestepped this inevitable conclusion, when it said "It is open to a party to take an extra precaution to ward off possible disconcerting experiences while planning for the future ". Ignoring - or at least not giving sufficient weight -- to the wealth of evidence in favour of the submissions of Madhusoodhanan, the learned judges of the Appellate Court sought to base their assessment of the evidence on the absence of documents, such as income tax returns of Madhusoodhanan, which according to them would have shown the acquisition of the additional shares by Madhusoodhanan from Mani, an exercise which was entirely uncalled for in the face of the positive evidence already on record and the repeated admissions of Mani and his group before the Court.
Furthermore, 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 resolution passed at a meeting of the Board of Directors. Second, Section 193(1) of Companies Act 1956 provides:
193(1) Minutes of proceedings of general meetings and of Board and other meetings. - Every company shall cause minutes of all proceedings of every general meeting and of all proceedings of every meeting of its board of directors or of every committee of the Board, to be kept by making within thirty days of the conclusion of every such meeting concerned, entries thereof in books kept for that purpose with their pages consecutively numbered".
Therefore, the minutes may be prepared subsequently, but they must be duly entered in the Minute Book and initialed and it is nobody's case that this was not done. Finally, Madhusoodhanan has also said that formal meetings were held and that important decisions were circulated to all members. In any event, our conclusion that the transfer of shares by Mani and his children to Madhusoodhanan would stand without the support of the statutory presumption under Section 195 of the 1956 Act.
Exhibit P-3, the third agreement which was referred to at the outset has a clause which relates to the sale of Mani's shares in Kerala Kaumudi to Madhusoodhanan which both sides have referred to and relied upon but there has been no consensus as to the correct interpretation of the clause. This controversy is addressed in detail in connection with Madhusoodhanan's suit for specific performance of the agreement.
Had this clause been the only basis on which this Court were called upon to decide whether there had been a transfer or sale of the shares of Mani's group to Madhusoodhanan, no doubt it would have been difficult to determine what had in fact happened.
However, the clause is only one of a series of documents, the authenticity of which cannot be disputed, which clearly show that the transfer had taken place although the exact consideration may not have been agreed upon or paid.
Mani did not attend the Board meeting held on 21st May 1985 or any other till he was admitted to membership of Kerala Kaumudi on 26th August 1986. Apart from this telling circumstance supporting Madhusoodhanan's case, Srinivasan had attended and signed the minutes of the meeting on 21st May, 1985. His claim that no such meetings were in fact held and that whenever he signed the minutes of the meetings held during the managing 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.
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 executed share transfer forms in compliance with the provisions of the Companies Act, 1956.
Nevertheless, the respondents argue, there were in fact no share transfer forms which were placed before the Board and the only transfer forms executed by Mani and his children were invalid because of non-compliance with Section 108 of the Companies Act, 1956.
In his examination in chief, in response to the question whether he and his children had transferred their shareholding to Madhusoodhanan, Mani said:
"When I decided to relinquish my directorship, the Secretary brought the required letter, which I signed. Later the forms for transferring our shares to the petitioner (Madhusoodhanan) were brought. But I found that the consideration column in those forms were not filled. Petitioner told me that the consideration can be fixed later and the transfer may be effected immediately. But I said that I will sign it only after fixing the consideration. Even so, in order to assure him that I will transfer the shares, I signed the forms and handed it over to my wife for keeping them in safe custody. I knew that if the matters were not finalised within 60 days the forms cannot be made use of thereafter. So I requested the petitioner several times to fix up the consideration.
But he did not do so. I did not hand over the forms to the petitioner".
The admitted case therefore is that Mani and his children had agreed to transfer their shareholding to Madhusoodhanan, but according to them, such transfer never took place.
Mani produced the share transfer deeds, presumably from the custody of his wife as Exhibits R 9-12. Exhibit R 9 is signed on 11.5 1985. It is an unstamped document and purports to record the transfer of 222 shares by Mani to Madhusoodhanan. Similarly R. 10 is a share transfer form signed by Valsa on 11.5.85 transferring 84 shares to Madhusoodhanan. The document bears stamps of the value of 720 rupees on the reverse. R.11 is a share transfer form signed by Mani's wife as a transferee recording the transfer of 84 shares by Sukumaran Mani to MS Mani. It is dated 11th May 1985.
It also bears stamps of the value of Rs 720. R.12 is a share transfer form signed on 11th May 1985 by Mani transferring 84 shares to Madhusoodhanan. The document is signed on 11th May 1985. All the share transfer forms bear the stamp of what appears to be of the office of the Registrar of Companies dated 20.4.85. 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.
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 S.108 of the Companies Act, it would be appropriate to pronounce on this.
Section 108 of the Companies Act, 1956 insofar as it is relevant provides:
"A company shall not register a transfer of shares in, or debentures of the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transfer has been delivered to the company along with the certificate relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures" According to Mani, the share transfer forms were not duly stamped and could not be given effect to under Section 108 of the 1956 Act. If Exhibits R9 to R12 are indeed the share transfer forms, he would be correct. In our view they are, in all likelihood, not the transfer forms which were placed before the Board of Directors on 21st May 1985.
It is on record, that Madhusoodhanan had made an application for production of the original share transfer forms from the custody of the company. It must be remembered that from March 1986, Madhusoodhanan no longer had any control over the affairs of Kerala Kaumudi. The papers, books and other records of the company were in the custody and control of those who controlled Kerala Kaumudi namely Srinivasan and Ravi. It is not improbable that the share transfer certificates which had been placed before the Board meeting were deliberately not produced.
The Division Bench held that exhibits R.9 to R.12 were the "real" share transfer forms because they were dated 23.5.1985 and the evidence of Madhusoodhanan was that he had signed only one set of transfer forms in 1985. The Division Bench also relied upon what appears to be an unsigned stamp of the office of the Registrar of Companies dated 20th April 1985 although no one has pledged his or her oath to it. Having come to the conclusion that the share transfer forms produced by Mani, exhibits R.9 to R.12, were the "real" transfer forms, the Division Bench set about demolishing those documents as being invalid and not legally effective.
In our opinion, given the documentary evidence of completed transfers, it is more than probable that the "real" share transfer forms were never produced by Mani and his group and that exhibits R. 9 to R. 12 were prepared in 1984 as claimed by Madhusoodhanan. Mani has himself stated:
"At that time it was proposed to start Calicut edition of the paper. But the high technology machinery required for what further increased the debts of Kerala 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 R18 which is a voucher for a cash payment of Rs.2370/- 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.1950/- respectively. It is improbable that stamps having been purchased for the share transfers which was recorded as effected four days later, they would not have been utilised. In this state of the evidence it cannot reasonably be held that Mani and his group have been able to establish that the transfer of the 390 shares by them to Madhusoodhanan was effected in violation of Section 108 or any other provision of the Companies Act, 1956.
The Annual Returns signed by Srinivasan and Ravi (Ex. P 28, P 130 and P-131 (a)), statutory declarations (Exhibits P.86 to P.88) for the years ending on 1st March 1986, 1st March 1987 and 1st March 1988 also signed by Srinivasan and Ravi, the affidavit of Madhavi dated 25th November 1986, the affidavit of Mani dated 28th November 1986 and other documents in all of which repeated admissions were made by Madhusoodhanan's antagonists that Mani and his children had transferred their shareholding to Madhusoodhanan were brushed aside by the Division Bench on the very weak explanation given by Mani as to why these repeated admissions had been made even after the filing of the litigation between the parties. The Division Bench erred in ignoring the affidavits of Madhavi and Mani by saying that it "would not be sufficient or strong enough to operate as a transfer of shares".
Nobody can reasonably contend that a transfer of shares can be effected by mere assertion in an affidavit. What the Division Bench ought to have held was that all this evidence indicated that there were in existence duly executed share transfer forms prepared in conformity with the provisions of Section 108 of the Companies Act, 1956 which everyone had accepted and acted upon and which were deliberately not produced.
On the question of the invalidity of the transfers of Valsa and Sukumaran Mani to Madhusoodhanan, Valsa Mani was admittedly a major on 21st May 1985. And yet the Division Bench held that Mani continued to stand in a fiduciary relationship with her and therefore "the transfer which purports to have been effected by Valsa Mani on her own will clearly indicate the stamp of illegality and invalidity". The reasoning is incomprehensible and unacceptable. Valsa was an adult and legally competent to enter into a contract of sale of her sharers to Madhusoodhanan which she duly did.
As far as the shares of Sukumaran Mani are concened,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 Sukumar 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.
Coming now to the question of consideration, the Division Bench on an interpretation of Sec. 108 held that "the fixation of the price was a condition precedent, even in relation to an important and mandatory procedural formality like the payment of stamp duty to make the transfer lawful and proper".
We have already held that the relevant share transfer forms must be taken to have been duly executed. Although Mani and Madhusoodhanan had agreed to determine the actual consideration later, clearly some consideration was agreed to be shown on the share transfer forms. As noted, Exhibit R.18 produced by Mani's group is a voucher for the cost of share transfer stamps. The stamps must have been purchased on the basis of the consideration which was shown on the share transfer forms at the prescribed percentage under the Stamp Act.
But it is also clear from the evidence on record that this was not the "actual" price which was to be determined consensually by Mani and Madhusoodhanan. On 19th January 1985, Mani wrote a letter to Madhusoodhanan which has been exhibited as P-134. The letter states:
"This is in continuation of discussion I had with you, regarding the sale of Flow line machine, Sheet-fed offset and the Cutting machine to me.
My offer is Rs 3 lakhs for all the three machines.
This amount may be deducted from the sale value of shares you owe to me. Kindly let me know your decision so that I can arrange to lift the machines".
Then we have the paragraphs from the affidavits of Madhavi and Mani quoted earlier which talk of the "balance consideration".
Finally is the lawyer's notice dated 20.3.87 (Ex.P-83) sent on behalf of the Mani to Madhusoodhanan threatening legal action unless Madhusoodhanan paid "the balance sale consideration of Rs.50 lakhs". "Since Mani had positively asserted that he must get a price between 50 and 75 lakhs, and that price negotiated was "in between the said figures".
Madhusoodhanan's claim in this regard is inconsistent. At one stage he claimed that the consideration for the transfer was recorded in the transfer form. At another stage he said:
"As far as transferring the shares is concerned, it is already transferred at the face value by fixing the proper stamps and the process have been completed. The excess amount I will pay on the shares will depend upon finally when he transfers the 3 shares to me; but I will not enter into 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".
Madhusoodhanan has claimed that he in fact paid Rs.10 lakhs to Mani. In his letter dated 28.7.86 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.
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 Bench discounts this payment because "The very transaction itself may be open to serious challenge. The money of the company cannot be appropriated for a personal purpose of a person having a fiduciary capacity vis-a-vis the company". As a statement of law this is a doubtful proposition. Be that as it may, it is apparent that Mani received some consideration for the transfers although the consideration may have moved from Kerala Kaumudi to Mani. To sum up - the transfers by Mani and his children were effected validly to Madhusoodhanan. Their prayer for rectification of the share register is therefore rejected and the decision of Division Bench in the appeal ( MFA 347/90) arising from CP 26/87 is accordingly set aside.
The removal of Madhusoodhanan as Managing Director That Madhusoodhanan had been continuing for some time as Managing Director of Kerala Kaumudi is evident from the minutes of the Board meeting held on 5th July 1983 (Ex.P.-62(g)). The minutes of the Board meeting dated 25th January 1985 (Ex.p.62(H) records the presence of Madhavi, Mani, Madhusoodhanan, Srinivasan and Ravi and the unanimous resolution to appoint Madhusoodhanan as Managing Director and Editor of the company for life. It also records that Madhusoodhanan had been working as the Managing Director of Kerala Kaumudi for 11 years as on that date, in other words since 1973. The decision to so appoint Madhusoodhanan was secured by proposing an amendment to the Articles of Association of the Company in the following manner:
"Mr. M.S. Madhusoodhanan, presently the Managing Director and Editor be and is hereby appointed the Managing Director and Editor of the Company for life or until he voluntarily retires on the existing remuneration, which remuneration may be revised by the Board from time to time with the consent of Mr. M.S. Madhusoodhanan.
He shall also in exercise of his duties as Managing Director exercise the powers given to the directors under Article 79".
It is not a dispute that an Extraordinary General Meeting was held which approved this resolution and that the Articles of the company were duly amended by the introduction of Article 74.
The last meeting of Kerala Kaumudi attended by Madhusoodhanan was of 5 February 1986. It does not appear from the minutes of the meeting (Exhibit P2 (J)) that anything of import relevant to the issues 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.
The minutes of the meeting held on 1st August 1986 (P-62 (L.)) records that Madhavi, Srinivasan and Ravi attended the meeting.
Out of the various resolutions which were taken regarding the administration of Kerala Kaumudi, what is important is the resolution taken by the Board members unanimously to the following effect:
"Resolved that the issued share capital of the company be and is hereby increased to Rs 20 lakhs by issuing additional shares worth Rs 4.25 lakhs (for 25 shares of Rs 1000 each) at par. The Chairman was authorised to issue notices to the existing shareholders to apply for shares within seven days".
Madhusoodhanan and K. I. P. L. say that since they did not get any notice of the meeting and were not otherwise informed of what had taken place, they did not apply for allotment of any part of the additional shares which had been decided to be issued. As a result in the next meeting which was alleged to have been held on 8th August 1986,(Ex. P-62 M) between 9 a.m. and 10 a.m. at Madhavi's residence and attended only by Madhavi, Srinivasan and Ravi, 425 shares were allotted to Srinivasan and Ravi on applications dated 4th August 1986 received from them -- 212 shares being allotted to Srinivasan and 213 shares to Ravi.
The next meeting which is the subject matter of challenge by Madhusoodhanan is the meeting held on 26th August 1986. It was attended by Madhusoodhanan, albeit, according to the minutes [ Ex P - 62 (N) ], under protest. It was at this meeting that Mani was admitted as a shareholder of Kerala Kaumudi by Ravi's sale of one share to him despite Madhusoodhanan's objection.
However, the unkindest cut was yet to come. Madhavi, as Chairman, proposed "that an extraordinary general meeting of the company be convened to remove Sri M. S. Madhusoodhanan from the directorship of the company for his actions against the interest of the company and his misconduct". Madhusoodhanan objected and said that this could not be done without amending the Articles of Association. The minutes go on to record that Madhavi pointed out that Article 74 of the Articles of Association had already been deleted at an extraordinary general meeting of the company held for that purpose and also that the legal opinion was that the Board of the prescribed number of members could convene a general body meeting for removal of a Director in exercise of the powers under 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.
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 stead. Madhusoodhanan's final ouster from the control of Kerala Kaumudi was thus completed.
According to Madhusoodhanan, resolutions quoted above removing him as Managing Director of Kerala Kaumudi were illegal because in terms of Article 74 of the Articles of Association of Kerala Kaumudi, Madhusoodhanan was appointed the Managing Director and editor of the company for life. It is contended that in accordance with the Memorandum and Articles, 75 percent of the votes was required to amend the Articles. Mani's group (including Madhavi) held only 50% of the shares of Kerala Kaumudi. The remaining 50% shares were held by Madhusoodhanan and his family and KIPL. The second submission of Madhusoodhanan and KIPL is that they were not given any notice of the Board meeting which was purportedly held on 1st August 1986 at which the decision was taken to offer further shares for allotment and that they were not given any opportunity to apply for the additional shares. It is also the submission of Madhusoodhanan and KIPL that in fact no meeting was held on 8th August, 1986, at which the further shares were allotted to Ravi and Srinivasan.
Madhusoodhanan and KIPL's applications Nos. CP 14/86 and CP 31/88 were therefore filed for rectification of the share register of Kerala Kaumudi as noted earlier and suit CS No. 3/89 was filed by Madhusoodhanan for a declaration that he is the Managing Director of Kerala Kaumudi, KIPL's CS No. 5/89 was filed for cancellation of the impugned annual general meetings and extraordinary general meetings of Kerala Kaumudi.
A. Alteration of Article 74 of the Articles of Association of Kerala Kaumudi Sub-section (1) of section 31 of the Companies Act, 1956, provides that the company may alter its articles only by special resolution subject to the provisions of the Act and the conditions contained in its memorandum. Our attention has not been drawn to any condition in the memorandum of Kerala Kaumudi which prescribes something different from the provisions of the Act for effecting an alteration of the articles. Article 49 of the Articles of Association of Kerala Kaumudi provides:
"Subject to the provisions of Sub-section (2) of Section 81 of the Indian Companies Act, 1913, relating to special resolutions, fourteen days' notice at the least (exclusive of the day on which the notice is served, 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." 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 has been duly given.
(2) A resolution shall be a special resolution when it has been passed by such a majority as is required for the passing of an extraordinary resolution and at a general meeting of which not less than twenty-one days' notice specifying the intention to propose the resolution as a special resolution has been duly given:
Provided that, if all the members entitled to attend and vote at any such meeting so agree, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one days' notice has been given.
....................................................
(7) For the purpose of this section notice of a meeting shall be deemed to be duly given and the meeting to be duly held when the notice is given and the meeting held in manner provided by the articles, or under this Act".
Therefore three conditions had to be fulfilled before any alteration of the Articles could take place.
(i) Notice specifying the intention to propose the resolution as an extraordinary resolution must be given.
(ii) The resolution must be passed by 75% of the members present and ;
(iii) Not less than 21 days notice of the meeting must be duly given.
The requirements are cumulative and mandatory.
Coming now to the facts of this case, it is apparent that none of the three preconditions for effecting an alteration in the Articles of Kerala Kaumudi by deleting Article 74 were fulfilled. It may be recalled that at the Board meeting held on 23rd July 1986 (Ex.P.62(K))in connection with Madhusoodhanan's functioning as a Managing Director, only a limited resolution was taken, namely, that Madhavi "shall assume the executive powers of the Managing Director with immediate effect for effective running of the Organisation". The resolution 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" was therefore confined to this limited resolution. Exh