Madras High Court
Vivek Goenka vs Manoj Sonthalia on 13 April, 1993
Equivalent citations: [1995]83COMPCAS897(MAD)
Author: Ar. Lakshmanan
Bench: Ar. Lakshmanan
JUDGMENT
Ar. Lakshmanan J.
1. Applications Nos. 841 and 5129 of 1992 were filed by the sixth defendant in the suit for the following reliefs:
2. Application No. 841 of 1992:
To pass an order of injunction restraining the plaintiff/respondent herein from exercising any powers or functions in excess of what has been conferred upon him by resolution dated September 5, 1992, by the board of directors of the third defendant company, pending disposal of the above suit.
3. Application No. 5129 of 1992:
To vacate the order dated October 1, 1992, passed by this court to the extent that in interim direction has been made to maintain the status quo as on October 1, 1992, so far as the office and powers of the plaintiff as the joint managing director of the third defendant is concerned.
The plaintiff in C.S. No. 1246 of 1992 is the only respondent in these two applications.
4. Application No. 5998 of 1992 was filed by the plaintiff for the following relief:
This court should be pleased to ensure that the applicant's powers as joint managing director of the third defendant company as on June 24, 1992, are maintained pending disposal of the above suit. The sixth defendant is the only respondent in that application.
5. The short facts are as follows:
The plaintiff has filed C.S. No. 1246 of 1992, against the first defendant company (in short "NPBS"), four other newspaper companies and six other persons. There are in all 14 defendants. This suit is primarily concerned with the validity of a board meeting of the second defendant, Indian Express (Bombay) Limited, held on January 23, 1991, and certain resolutions for appointing additional directors. The plaintiff also prays for declaration and permanent injunction in respect of various acts committed by the sixth defendant along with other directors, particularly Nusli Wadia, the seventh defendant and Venu Srinivasan, the eighth defendant. Many interlocutory applications have been filed by the plaintiff in this suit.
6. The plaintiff has also filed C.S. No. 1247 of 1992 against NPBS and nine others. The defendants include Nusli Wadia, Venu Srinivasan and Mrs. Saroj Goenka and her three daughters. This suit challenges the transfer of shares in the aforesaid board meeting held on January 5, 1991, and also seeks for a declaration that 24.32 per cent. shares have been held in trust for the benefit of the plaintiff's brother.
7. Serious allegations have been made regarding the holding of the board meeting on January 5, 1991, and the extraordinary general meeting on January 23, 1991. According to the plaintiff, no notice has been given in respect of these meetings and the same were conducted clandestinely. The resolutions passed therein were filed before the Registrar of Companies through the office of Sundaram Clayton Ltd., of which the eighth defendant is the managing director. According to the plaintiff, this was done with the intention to suppress from the plaintiff and his mother the fact of the illegal share transfer. The are sons as to why the meetings and the resolutions passed are invalid have been set out in detail in the plaint. Therefore, I am not repeating the same here. Similarly, in the other suit (C.S. No. 1247 of 1992), it is stated that the shares were neither intended to be nor were transferred as there was no consideration for the same. According to the plaintiff, the shares were retained only in trust. The reasons as to why the share transfers are null and void have been set out in the plaint in that suit, with which we are not presently concerned.
8. Several applications were heard on September 30, 1992, and October 1, 1992, by my learned brother, J. Kanakaraj J. The learned judge passed an interim order directing the maintenance of status quo as on October 1, 1992. Another interim order was passed by my learned brother, Thanikkachalam J., on October 28, 1992, in O.A. Nos. 841 and 5129 of 1992 as under:
"After hearing learned counsel appearing on both sides, all the parties are directed to abide by the resolution dated June 24, 1992, September 5, 1992, and September 13, 1992, and maintain status quo as directed by this court on October 1, 1992. The respondent is permitted to file counters in these applications in two weeks.
Post these applications after two weeks."
9. O.A. Nos. 841 and 5129 of 1992 were filed by the sixth defendant for an interim injunction restraining the plaintiff from exercising any powers or functions in excess of what has been conferred upon him by resolution dated September 5, 1992, passed by the board of directors of the third defendant company or in the alternative to vacate the order passed by J. Kanakaraj J. on October 1, 1992, on the ground that the plaintiff had violated the undertaking given to the court. The two violations referred to were:
(i) the applicant/plaintiff accepted the resignation of Mr. A.C. Venkatakrishnan;
(ii) the applicant/plaintiff had declared bonus and ex gratia payment for the employees.
10. It was urged before my learned brother Thanikkachalam J. that the power of the plaintiff was restricted to recruitment, appointment, promoting or altering the terms and conditions of employees and hence, there was no bar on accepting the resignation and that the plaintiff had not acted in excess of his power. As far as payment of bonus is concerned, this was done under a wage settlement arrived at under section 18 of the Industrial Disputes Act and those persons drawing more than Rs. 2,500 were entitled to get ex gratia payment as Deepavali bonus. After hearing the arguments, Thanikkachalam J. directed that the parties should bide by board resolutions dated June 24, 1992, September 5, 1992, and September 13, 1992, the status quo ordered by J. Kanakaraj J. was continued.
11. According to the plaintiff, the resolutions have to be read in the background of the board meeting held on September 26, 1990, wherein the late R.N. Goenka declared both his grandsons (the sixth defendant and the plaintiff) as his successors and emphasised the fact that both should work together as a team and with a sense of mission and that R.N. Goenka's desire was made binding by amending the articles of association of the first defendant company. In fact, even in the resolutions of April 7, 1991, referred to by the sixth defendant, the resolutions give equal powers for borrowing funds, etc., to both the plaintiff and the sixth defendant and that the full powers continued till June 24, 1992, when the directions of R.N. Goenka to work as a team was destroyed by the sixth defendant usurping complete control and powers and that by subsequent resolutions dated September 5, 1992, and September 13, 1992, substantial powers of management of the plaintiff as joint managing director were taken away making him a joint managing director only in name.
12. It is urged by the plaintiff that by three resolutions dated June 24, 1992, September 5, 1992, and September 13, 1992, the powers of the plaintiff as joint managing director were systematically eliminated. It is further urged that the resolutions were not to be acted upon as, according to the plaintiff, the method of delegation of powers was to be discussed by the plaintiff and the sixth defendant. Although no such discussion took place, by a circular dated July 25, 1992, various centers of "Indian Express" were informed only of the resolution without mentioning the further discussions that had to take place.
13. As regards the resolutions dated September 5, 1992, the plaintiff submits that no such resolution was passed, which has been set out in paragraphs 2 and 3 of the counter. According to the plaintiff, this resolution has been subsequently fabricated.
14. As regards the circular resolution dated September 13, 1992, it is contended that within eight days of the board meeting, a circular resolution was passed taking away the powers of signing cheques. By this resolution, the plaintiff can sign cheques above Rs. 2 lakhs only jointly with some employees at Bombay, which, according to the plaintiff, is a deliberate act of humiliation. The plaintiff's counsel also submits that the correctness of the resolution is doubtful. It is further stated by the plaintiff that the above resolutions are also contrary to the provisions of the Companies Act, particularly section 291. Under the said section, the board can delegate powers subject to the provisions contained in the Act or in the memorandum, articles, etc. Section 2(26) defines a managing director as a director entrusted with substantial powers of management, the words "substantial powers of management" were substituted for "any power of management" by the Companies (Amendment) Act, 1960. Therefore, according to Mr. Arvind P. Datar, learned counsel for the plaintiff, the board of directors cannot pass resolutions taking away substantial powers of management of a managing director or a joint managing director. Such resolutions, which take away substantial powers, will be void, therefore, on joint reading of section 291 read with section 2(26) of the Companies Act, the resolutions dated June 24, 1992, September 5, 1992, and September 13, 1992, will not be valid in so far as they take away the substantial powers of management. It is further argued that the plaintiff has furthers personal bank guarantees of Rs. 10 crores and accepted to sign further guarantees for Rs. 26 crores for Indian Express (Bombay) Limited and has also furnished personal guarantees in excess of Rs. 10 crores for the third defendant, of which he is the joint managing director.
15. It is, therefore, contended that the plaintiff's power is restored with substantial powers of management which he enjoyed before June 24, 1992, so that he may function as a joint managing director. He also submits that this court may impose any safeguards it deems fit while restoring the powers of the plaintiff.
16. The sixth defendant, who is the only contesting respondent in Application No. 5998 of 1992 submits that no case has been made out for the grant of relief and that the plaintiff is seeking orders for restoration of his alleged powers of management contrary to the valid resolutions of the board. According to the sixth defendant, he himself has individually held 50.40 per cent. shares since 1986 and 50.58 per cent. shares since December, 1989. They relied on the annual returns submitted by the company and signed by the parties. It is stated that the case of the plaintiff that 24.32 per cent. shares transferred by R.N. Goenka to the plaintiff and the sixth defendant in joint names (12.16 per cent. to the plaintiff and the sixth defendant and 12.16 per cent. to the sixth defendant and the plaintiff) were for the benefit of Anilkumar Sonthalia has only to be stated to be rejected as such, which according to the sixth defendant, is contrary to the express provisions of the Companies Act, particularly section 187C. It is to be noticed that the said Anilkumar Sonthalia is not a party to the present proceedings. The said Anilkumar has not even filed an affidavit in support of the contention of the plaintiff. The admitted facts are as set out in the pleadings. The sixth defendant is the admitted owner of 62.72 per cent. shares and the plaintiff has no shares. According to the plaintiff, at best he would be entitled to 37.12 per cent. shares of NPBS. On November 12, 1990, the plaintiff wrote a letter to the seventh defendant (Nusli Wadia). The seventh defendant forwarded the same vide his letter dated January 2, 1991. The copy of the said letter of the seventh defendant has also been marked to the sixth defendant and the plaintiff. The plaintiff does not deny or dispute that he had sent the letter dated November 12, 1990, and hence, according to the sixth defendant, the plaintiff cannot now make a grievance of the effect of his own voluntary acts.
17. In so far as the transfer effected on January 5, 1991, is concerned, according to the sixth defendant, the same is reflected in the annual return which is signed by C. Rajendra Kumar, company secretary, whose affidavit is relied on by the plaintiff. According to Mr. P. Chidambaram, learned senior counsel, the minutes of the board of directors meeting held on September 26, 1990, contain only a pious wish of R.N. Goenka. It is, according to learned senior counsel, not a resolution. The plaintiff in his capacity as a director alleges no knowledge of the board of meeting of January 5, 1991, which according to Mr. P. Chidambaram, learned senior advocate, is falsified by the minutes of the next board meeting of the first defendant company on April 7, 1991, presided over by the plaintiff. The seventh defendant was present at the meeting. The plaintiff did not ask the seventh defendant why and how he was present. Also leave of absence was given to defendants Nos. 8 and 9. The plaintiff has signed the minutes as chairman. Subsequently, the meetings of the board have been held on several dates in 1991 and 1992, which have been attended by defendants Nos. 7 and 8 and leave of absence has been given to the ninth defendant. The plaintiff at no time asked defendants Nos. 7 and 8 why and how they were present. It is stated that the plaintiff does not hold any shares in the first defendant company as on date. However, he continues as a director by virtue of invitation and courtesy and he can remain as a director only by the courtesy and invitation of the other directors and/or shareholders of the company.
18. According to the sixth defendant the documents filed in the proceedings conclusively establish as under:
(a) The plaintiff does not hold any shares today.
(b) The sixth defendant has always had since 1986 an absolute majority in the first defendant company in his awn name and right.
(c) The sixth defendant is the effective owner of 62.72 per cent. of shares of the first defendant company.
(d) The first and third defendant companies are board managed companies and the board of directors may exercise all the powers by virtue of section 291 of the Companies Act and the articles of association of the company.
(e) All powers exercised by the sixth defendant today as chairman, executive director and managing director were given to him by the board of directors.
(f) The fundamental principles of corporate democracy, which are at the very foundation of the company law, were recognised by this court earlier and between March, 1991, and September, 1992, the plaintiff and Mrs. Saroj Goenka sat on the board of directors of the first and third defendant and did not demur. In fact, the minutes show that the new directors appointed on January 5, 1991, were welcomed on the board.
(g) There is no allegation that the board of directors misconducted itself. It is only when the board dealt with the powers of the applicant that false allegations are levelled against the board.
19. These are the contentions of both parties. Let me now consider the submissions made by both parties at length.
20. The applicant in Application No. 5998 of 1992 is the plaintiff and the applicant in Applications Nos. 841 and 5129 of 1992 is the sixth defendant in the suit. The main prayer in the suit C.S. No. 1246 of 1992 is concerned with the validity of the meeting of the board of directors of the first defendant company held on January 5, 1991, and the board of directors' meeting of the second defendant company held on January 23, 1991, and certain other resolutions for appointing additional directors. The plaintiff had also filed C.S. No. 1247 of 1992 against the first defendant and six others challenging the transfer of shares in the meeting of the board of directors held on January 5, 1991, and for a declaration that 24.32 per cent. shares have been held in trust for the benefit of the plaintiff's brother Mr. Anil K. Sonthalia.
21. In order to appreciate the controversies between the parties and the contentions raised by Mr. Harish N. Salve, learned senior advocate and Mr. Arvind P. Datar for the plaintiff, Mr. P. Chidambaram, learned senior advocate for the sixth defendant, Mr. Navroz H. Seervai, learned senior advocate for the seventh defendant and Mr. Arun Jetley, learned senior advocate for defendants Nos. 1 to 3, it is necessary to refer to the following facts.
22. Admittedly, the late Mr. R.N. Goenka is the founder of the Indian Express group of companies, which is publishing "Indian Express" in English and other newspapers in Tamil, Telugu, Kannada, Marathi and Gujarathi from different cities. The first defendant was incorporated on August 10, 1970, and it is the parent (apex) company of the Indian Express group and controls defendants Nos. 2 to 5. The second defendant is the subsidiary company of the first defendant and the third defendant is the subsidiary of the second defendant. There is also no controversy that on December 24, 1976, the late R.N. Goenka transferred 76.56 per cent. of his shares in Nariman Point Building Services and Trading (P.) Ltd., Madras (in short "NPBS") to the sixth defendant and the plaintiff. 50.40 per cent. was given to the sixth defendant and 24.96 per cent. to the plaintiff and the balance of 24.32 per cent. was retained by late R.N. Goenka and the balance of 0.32 per cent. was held in equal shares by the daughters, i. ., Mrs. Krisha Khaitan, who expired during 1987, and Mrs. Radha Devi Sonthalia, the fourteenth defendant and the mother of the plaintiff.
23. On August 28, 1989, the late R.N. Goenka (hereinafter in short called "RNG") transferred 24.32 per cent. retained by him in favour of the plaintiff and the sixth defendant. The shares were transferred in two parts. In the first part, the sixth defendant is the first joint shareholder and in the second part, the plaintiff is the first joint shareholder. The plaintiff along with his letter dated November 12, 1990, addressed to the seventh defendant enclosed 6,240 equity shares of the first defendant, 3,040 equity shares of the first defendant standing in the joint names of the plaintiff and the sixth defendant, and 4,000 preference shares of the first defendant. It is mentioned in the said letter, the share certificates were enclosed to the seventh defendant as desired by the late R.N. Goenka on September 26, 1990, in the presence of the seventh defendant. It is also mentioned in the said letter that sending the share certificates as mentioned therein would restore the faith and trust that seemed to have been lost by the grandfather. Incidentally, it must be pointed out that this letter is found in the compilation of the plaintiff's additional documents at page 55. There is also no dispute or denial of execution of the said letter and in fact, the plaintiff would also place reliance on the said letter. It is thereafter, a meeting of the board of directors of the first defendant company was held on January 5, 1991, at Bombay. At the said meeting, defendants Nos. 7 to 9 were appointed as additional directors and they participated in the said meeting after their appointment. The late R.N. Goenka and the sixth defendant had participated. In the said meeting, certain shares were transferred in the name of R.N. Goenka, which were standing in the names of the plaintiff and the sixth defendant either individually or jointly. According to the plaintiff, the said meeting is invalid because he had no notice of the said meeting and, therefore, there was no occasion for grating leave of absence. It is relevant to notice that the whole case of the plaintiff rests on the validity or otherwise of the aforesaid meeting held on January 5, 1991.
24. It is rightly pointed out by Mr. P. Chidambaram that the controversy between the parties started only from January 5, 1991. There is also no controversy that the sixth defendant has been holding 50.40 per cent. shares of NPBS even in 1986 and 50.56 per cent. in September, 1989. It is also not in dispute that he became the first joint shareholder of 12.16 per cent. in 1989, and is entitled to exercise his rights as the first joint share holder in respect of the said 12.16 per cent. In fact, the plaintiff and the sixth defendant had also signed the annual return of NPBS made up to March 31, 1988, and December 27, 1989, evidencing the aforesaid shareholding. These annual returns are found in pages 1 to 16 of compilation 'B' furnished by the sixth defendant. The return as on November 30, 1991, has been sent to the Registrar of Companies on December 30, 1991, by one Rajendra Kumar, secretary of the company. In this return, the plaintiff has not signed but the sixth defendant and the company secretary had signed.
25. Next comes the meeting of the board of directors of NPBS held on April 7, 1991, and the plaintiff was elected as the chairman of the said meeting. It is interesting to find that defendants Nos. 6 and 7 participated in the said meeting and leave of absence was granted, inter alia, to defendants Nos. 8 and 9. It is also significant to notice that the plaintiff did not question as to how the seventh defendant was present and as to why leave of absence was given to defendants Nos. 8 and 9 (Mrs. Mulgakar and Mr. Venu Srinivasan). The plaintiff has signed the minutes of the meeting as is seen from pages 26 and 27 of the compilation 'B'. Admittedly, the meetings of the board of directors were held in 1991 and in 1992. These meetings have been attended by defendants Nos. 7 and 8 and leave of absence was given to the ninth defendant.
26. A meeting of the board of directors of the third defendant/Indian Express (Madurai) Ltd., was held on June 24, 1992, and the said meeting was attended by defendants Nos. 6, 7, 10 and 11 apart from the plaintiff. In the said meeting, the appointment of the sixth defendant as the managing editor at the meeting held on September 24, 1991, was reaffirmed and the sixth defendant was given certain powers and was put in charge of editorial staff to the exclusion of all others. Even prior to that, the sixth defendant was appointed as executive director at the meeting of the board held on November 1, 1989. The plaintiff was also present at the board meeting held on September 24, 1991, at which the sixth defendant was appointed as managing editor unanimously. This meeting was attended by the plaintiff and defendants Nos. 6 to 8. Mrs. Saroj Goenka, the daughter in-law of R.N. Goenka, was elected as chairperson of the said meeting.
27. On September 5, 1992, the board of directors of the third defendant company was held at Bombay. This meeting was attended by the plaintiff and defendants Nos. 6 to 8, 11 and 13. In the said meeting the sixth defendant was appointed as chairman of the board of directors. This resolution was carried by a majority and the plaintiff and Mrs. Saroj Goenka voted against the proposal. It was further resolved at the said meeting to delimit the powers of the plaintiff and Mrs. Saroj Goenka. By the subsequent circular resolutions dated September 13, 1992, the financial powers of the sixth defendant, the plaintiff and Saroj Goenka were delimited.
28. The following facts will emerge from what is stated above:
(a) Defendants Nos. 1 and 3 are board-managed companies and the board of directors are entitled to exercise all the powers by virtue of section 291 of the Companies Act and the articles of association of the company.
(b) The sixth defendant has been indisputably holding majority shares in the first defendant company even ignoring the disputed share transfers.
(c) The plaintiff does not hold any share in the first defendant company.
(d) The plaintiff h s been accepting the appointment of defendants Nos. 7 to 9 as directors in the first defendant company by his own conduct by participations in several meetings of the board of directors along with the said defendants.
(e) The sixth defendant was appointed as executive director on November 1, 1989, during the lifetime of the late R.N. Goenka and as managing editor unanimously at the meeting held on September 24, 1991, which was reaffirmed on June 24, 1992, after the demise of R.N. Goenka.
(f) The sixth defendant was appointed as chairman at the meeting held on September 5, 1992, by majority.
(g) The powers and functions are spelt out by the board if directors at the meetings held on June 24, 1992, and September 5, 1992, and subsequently by the circular resolution dated September 13, 1992.
29. It is the duty of this court to recognise the corporate democracy of a company in managing its affairs. It is not for this court to restrict the powers of the board of directors. The board of directors in various resolutions have appointed the sixth defendant as executive director, managing editor and chairman. It will not be open to this court to interdict the functions of the board-managed company. As rightly contended by Mr. P. Chidambaram, learned senior advocate, it will not be open to this court to interfere with the day-to-day functions, management and administration of a company unless it is established that the decisions taken by the board are ultra vires the Act or the articles of association of the company. At this interlocutory stage this court is concerned only with the prima facie case and balance of convenience as disclosed by the documents produced by both parties. It is for the plaintiff to let in oral evidence at the time of trial and establish his case.
30. Mr. Harish N. Salve and followed by Mr. Arvind P. Datar would submit by referring to articles of association 2A, 18A, 34A, 35A, 36 and 43A of the company and submit that both the plaintiff and the sixth defendant were declared as successors of R.N. Goenka and they were directed to work as a team with a sense of mission. It was further contended that the share certificates with blank transfer forms were sent on November 12, 1990, with a view to enable R.N. Goenka to retain the shares in trust and that no transfer to R.N. Goenka was ever intended. Regarding the board meeting held on January 5, 1991, it was submitted that no notice, which is mandatory under section 286 of the Companies Act, was given to the plaintiff and the fourteenth defendant. On the very same ground, the extraordinary general meeting and the board meeting held on January 23, 1991, is also sought to be assailed, He also invited my attention to pages 331, 346, 442 and 446 of compilation 'A' in C.S. No. 1246 of 1992 filed by the plaintiff.
31. According to Mr. Arvind P. Datar, the plaintiff was not informed about the appointment of additional directors or about the transfer of shares. Learned counsel for the plaintiff raised an impassioned plea that the plaintiff has given a personal guarantee on behalf of the company to the tune of several crores of rupees and that he has been stripped of his powers as joint managing director in stages and that he has been subjected to humiliation. All these events, according to learned counsel, are against the theme of the late Goenka that the plaintiff and the sixth defendant, who are his grandsons, should "work as a team". Therefore, it is contended that the plaintiff should be given powers befitting his status as joint managing director.
32. I have given my anxious consideration to the above contention. I am unable to countenance any one of them. No doubt, it would not have been the intention of the late Ramnath Goenka to make the plaintiff a nonentity or a zero in relation to the affairs of the company. It is not for the court to dictate to the board as to how it should function. When the matter comes before the court, the court is not concerned with inter se relationship of the parties. But, it has to keep in mind the corporate democratic principles, this court strongly feels that both the sixth defendant and the plaintiff should sink their differences and disputes and work unitedly to preserve and further develop the empire built by the late Ramnath Goenka.
33. Mr. Navroz H. Seervai for the seventh defendant and Mr. Arun Jetly for defendants Nos. 1 to 3 adopted the arguments of the learned senior advocate, Mr. P. Chidambaram. Mr. Arun Jetly, learned senior counsel, invited my attention to section 187(c) of the Companies Act and submitted that the case of the plaintiff that 24.32 per cent. shares were held for the benefit of Anil Kumar Sonthalia cannot be accepted in view of section 187(c) of the Act. However, this is matter which has to be decided in the application filed in C.S. No. 1247 of 1992.
34. If the grievance of the plaintiff is that this is a case of oppression of the minority by the majority, then, it is for him to move the appropriate forum constituted under the Companies Act.
35. Mr. P. Chidambaram, learned senior counsel, raised a preliminary objection with regard to the right of the plaintiff being heard in Application No. 5998 of 1992. According to him, the plaintiff has disobeyed the directions contained in the order dated October 1, 1992, of my learned brother, J. Kanakaraj J. and of my learned brother, K.A. Thanikkachalam J., dated October 28, 1992, and, therefore, the plaintiff is not entitled to the equitable relief. Since I have dealt with and decided the applications on the merits, there is no need to go into this argument of learned senior counsel, Mr. P. Chidambaram.
36. For the foregoing reasons, Application No. 5998 of 1992 is dismissed, and in view of the earlier order passed in Applications Nos. 841 of 1992 and 5129 of 1992, no further orders are necessary to be passed except to state that the plaintiff will exercise his powers or functions in accordance with the resolutions dated September 5, 1992, passed by the board of directors of the third defendant company. The order dated October 1, 1992, of J. Kanakaraj J. is only an interim order and the same is subject to this order and for the reasons stated herein. Hence, Application No. 841 of 1992 is ordered and no further directions are necessary in Application No. 5129 of 1992.