2003 (8) TMI 360 - SC - Companies Law

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? Whether the transfer was in accordance with section 108 of the Companies Act, it would be appropriate to pronounce on this? Whether the Division Bench was correct in coming to the conclusion that section 16 of the Specific Relief Act had not been complied with? Held that - Appeal dismissed. keeping with the Karar, Mani and his family have the controlling interest in the company. In June 1985, of the 500 issued shares, Mani and his family held 260, Madhusoodhanan and his children held 80 shares, Srinivasan and his children held 80 shares and Ravi and his children held 80 shares after effecting share transfers by the brothers and their respective groups inter se. A decision was taken by the Board of Directors to increase the paid-up capital of company from Rs 5 lakhs to Rs 10 lakhs by the issue of 500 equity shares of Rs 1,000 each. Notice of this was given to the applicant who received it but did not apply to be allotted any of the additional shares. Mani and his wife, Kasturi, offered to purchase 279 shares each. The offer was accepted and additional shares issued in the name of Mani and his wife. According to Visakh, he had not been given notice of the offer of the additional shares. The trial court considered the various exhibits tendered in evidence by Mani and his group, including the local delivery book (Ex. R.-48), which was signed by Madhusoodhanan, the father and guardian of Visakh, to negative the submission of Visakh. We see no reason to interfere with this finding of fact. It is true that the Division Bench proceeded on an erroneous basis when it held that the learned Single Judge had dismissed the application on the ground of delay. Since we have upheld the factual finding of the court of the first instance, this misreading of the Trial Court s judgment by the Division Bench is of no consequence.

Issues Involved:
1. Transfer of shares by Mani and his children to Madhusoodhanan.
2. Removal of Madhusoodhanan as Managing Director.
3. Issue of additional shares to Ravi and Srinivasan.
4. Specific performance of the agreement (Karar) dated 16-1-1986.
5. Rectification of the share register of KIPL.
6. Rectification of the share register of Kerala Kaumudi.
7. Injunction against Kerala Kaumudi regarding KIPL's administrative office.

Issue-wise Detailed Analysis:

(A) Transfer of Shares by Mani and His Children to Madhusoodhanan:
1. Contentions and Evidence: Mani and his group sought rectification of the share register by deleting Madhusoodhanan's name, claiming no consideration was agreed upon or paid, no proper documents executed, lack of knowledge by minors, and non-compliance with Section 108 of the Companies Act, 1956. The Single Judge rejected these contentions, citing documentary evidence of valid transfer, including minutes of meetings and affidavits. The Division Bench's contrary decision was deemed legally and factually unsustainable.
2. Legal Provisions and Findings: Section 9 of the Sale of Goods Act, 1930 allows for future determination of price, making the transfer valid despite the price not being fixed initially. The statutory presumption under Section 195 of the Companies Act, 1956, supports the validity of the minutes unless proven otherwise. The evidence indicated that the share transfer forms were duly executed and the transfers were recorded in the company's statutory documents.
3. Conclusion: The transfer of shares by Mani and his children to Madhusoodhanan was valid, and the prayer for rectification of the share register was rejected, setting aside the Division Bench's decision.

(B) Removal of Madhusoodhanan as Managing Director:
1. Background and Resolutions: Madhusoodhanan was appointed Managing Director for life by a resolution in 1985. Subsequent resolutions in 1986 purported to remove him and delete Article 74 of the Articles of Association, which provided for his lifetime appointment.
2. Legal Requirements: Alteration of Articles requires a special resolution with 75% majority and 21 days' notice. The notice for the 1986 meeting did not specify the intention to amend the Articles, and no proper notice was served on Madhusoodhanan.
3. Findings: The deletion of Article 74 was invalid due to non-compliance with statutory requirements, and the subsequent resolutions removing Madhusoodhanan were also invalid. The Single Judge's decision was upheld, affirming Madhusoodhanan's position as Managing Director.

(C) Issue of Additional Shares:
1. Process and Notice: The decision to issue additional shares was taken without proper notice to Madhusoodhanan, and the short notice period for applying for shares was contrary to the Articles of Association.
2. Evidence and Findings: No evidence proved that Madhusoodhanan received the notice. The alleged meetings on 8th and 16th August 1986 were also disputed.
3. Conclusion: The allotment of additional shares to Ravi and Srinivasan was invalid due to lack of proper notice and procedural irregularities. The Single Judge's decision for rectification of the share register was affirmed.

(D) Specific Performance of the Karar Dated 16-1-1986:
1. Agreement and Clauses: The Karar provided for division of shares and assets among the brothers, including the transfer of shares of the late Sukumaran and Madhavi.
2. Performance and Consideration: The Karar had been partially performed, and the remaining clauses were enforceable. The Division Bench's reasoning on non-compliance with Section 16 of the Specific Relief Act and delay was incorrect.
3. Conclusion: The decision of the Division Bench was set aside, and the decree for specific performance of the Karar was restored with directions for arbitration to determine the fair value of shares.

Rectification of the Share Register of KIPL:
1. Share Transfers: The transfers were effected in 1985 as per the Karar and recorded in the company's documents. The Single Judge found the transfers valid.
2. Division Bench's Decision: The Division Bench's reasoning on the invalidity of the Karar and non-compliance with Section 108 was incorrect.
3. Conclusion: The Single Judge's decision dismissing the application for rectification was restored.

Rectification of the Share Register of Kerala Kaumudi:
1. Application by Visakh: The application had no merit, as the notice for additional shares was duly served, and the factual findings were upheld.
2. Conclusion: The appeal was dismissed.

Injunction Against Kerala Kaumudi Regarding KIPL's Administrative Office:
1. Denial of Access: KIPL's administrative office was in Kaumudi Buildings, and access was denied in 1986.
2. Evidence and Findings: Documents and admissions proved KIPL's office was in Kaumudi Buildings. The Division Bench's reasoning on delay was incorrect.
3. Conclusion: The Single Judge's decree for permanent injunction was restored.

Summary Conclusion:
The Supreme Court allowed the appeals in favor of Madhusoodhanan and his group, restoring the decisions of the Single Judge in most matters, except for the appeals related to the rectification of the share register of Kerala Kaumudi by Visakh, which was dismissed. The Court emphasized the validity of the Karar, the procedural irregularities in the removal of Madhusoodhanan and the issue of additional shares, and upheld the specific performance of the Karar with directions for arbitration.

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