Kerala High Court
Vardhaman Publishers Limited, ... vs Mathrubhumi Printing And Publishing ... on 27 August, 1990
Equivalent citations: [1991]71COMPCAS1(KER)
JUDGMENT K. John Mathew, J.
1. C.P. No. 29 of 1989 is a petition under Section 155 of the Companies Act, 1956, filed by Vardhaman Publishers Ltd. (hereinafter referred to as "Vardhaman") for rectification of share register of Mathrubhumi Printing and Publishing Co. Ltd. (hereinafter referred to as "Mathrubhumi"). C. P. No. 30 of 1989 is a similar petition filed by Dharmayug Investments Ltd. (hereinafter referred to as "Dharmayug" ). C. P. No. 42 of 1989 is a petition filed by three shareholders of Mathrubhumi (hereinafter referred to as the share transferors) who transferred their shares to Vardhaman and Dharmayug. That is also a petition under Section 155 of the Companies Act, for rectification of share register of Mathrubhumi. C. P. No. 46 of 1989 is another company petition filed by Vardhaman for similar reliefs in respect of some other shares of Mathrubhumi purchased by them.
2. Mathrubhumi is a company registered as a public company limited by shares on February 15, 1922, under the Indian Companies Act, 1913.
3. The share transferors transferred their shares to Vardhaman and Dharmayug and lodged the share transfer applications with Mathrubhumi for registration of transfer. The details of the shares and the respective dates of lodgment etc., are given in Appendix I, II and III to this judgment. The date of lodgment of shares to effect registration of transfer in respect of the shares involved in C. P. Nos. 29 and 30 of 1989 was February 1, 1989. In C. P. No. 46 of 1989 the dates of lodgment were April 2, 1989 and March 8, 1989. C. P. Nos. 29 and 30 of 1989 were filed on March 7, 1989. C. P. No. 46 of 1989 was filed on May 23, 1989. C. P. No. 42 of 1989, which is a petition filed by some of the transferors of shares, was filed on May 22, 1989.
4. C. P. No. 29 of 1989.--Vardhaman purchased 82 equity shares from the petitioners in C. P. No. 42 of 1989 and others. The date of transfer, names of the transferors, the distinctive numbers of shares, etc., are given in Appendix I to this judgment. Vardhaman, which is a public limited company, is a wholly owned subsidiary of Bennet Coleman and Co. Ltd., which publishes the newspaper The Times of India. The purchase of shares by Vardhaman was pursuant to the authorisation given to it by the resolution of its board of directors dated January 5, 1989, to purchase shares in Mathrubhumi up to 10% of its subscribed equity share capital. The instruments of transfer were delivered on February 1, 1989, to Mathrubhumi after fulfilling the required formalities. The articles of association of Mathrubhumi did not confer on its directors power or authority to refuse registration of share transfers.
5. However, Mathrubhumi and its board of directors were not registering the transfer of shares. Thus, there was default and delay on their part. The transfer ought to have been registered in the board meeting of Mathrubhumi held on February 3, 1989. From the conduct of Mathrubhumi and its directors it has become clear that they will not register the transfer unless this court orders registration of transfer. The board of directors of Mathrubhumi was attempting to refuse registration of transfer by assuming power for the board to decline registration of transfer. They had issued a notice dated February 3, 1989, for holding an extraordinary general meeting of Mathrubhumi on March 13, 1989, for adding a new clause, No. 17, to the articles of association of Mathrubhumi. The notice and meeting are illegal and mala fide and are attempts to defeat the rights of Vardhaman. In any case, the proposed resolution does not afford any justification to delay or refuse registration of share transfers because the resolution cannot affect the share transfer which has already been made for valuable consideration. Vardhaman has lawfully and validly purchased the said shares for valuable consideration. They have a right to have the share transfer registered in their name. Mathrubhumi and its directors are legally bound to register the transfer. They have no right to refuse registration. They have defaulted in their duty and have caused unnecessary delay in registering the transfer. Certain directors of Mathrubhumi were spreading a misleading propaganda that the purchase of shares by Vardhaman was an attempt of The Times of India to take over Mathrubhumi through its subsidiaries. This allegation was strongly denied. These was no such intention or design behind the purchase of shares. The board of directors of Mathrubhumi owns and controls about 75% of the subscribed equity share capital of Mathrubhumi. The board of directors of Vardhaman has authorised the purchase of only 10% of the subscribed equity capital of Mathrubhumi. Vardhaman and Dharmayug can thus purchase not more than 20% of the equity share capital. Under Section 372 of the Companies Act, Vardhaman and Dharmayug cannot purchase more than 10% each in the subscribed equity capital of Mathrubhumi. Therefore, the story of taking over is abolutely baseless and legally impossible. A suit was filed by one shareholder, Pot-tengadi Chandu, as O. S. No. 156 of 1989 on February 15, 1989, before the Munsiff's Court, Kozhikode, for a permanent injunction restraining Mathrubhumi from transferring the shares. He also obtained an ex parte interim injunction to that effect. Mathrubhumi did not take any steps to get the ex parte stay vacated. On the other hand, they allowed the ex parte injunction to be extended. This was one of the methods adopted by Mathrubhumi to delay and stall the registration of share transfer. The explanatory statement sent along with the notice of the extraordinary general meeting did not disclose material facts and was defective in several other respects mentioned in the petition. The resolution enabling assumption of arbitrary power of rejecting transfer of shares and to forfeit the shares was mala fide. The petition was, therefore, filed for rectification of share register and to direct Mathrubhumi to enter the name of the petitioner (Vardhaman) in its register of members in respect of the shares mentioned in the petition. There was also a prayer for restraining Mathrubhumi from holding the extraordinary meeting scheduled to be held on March 13, 1989.
6. In the counter-affidavit dated March 17, 1989, filed by the secretary on behalf of Mathrubhumi, it was contended that the company petition was premature and not maintainable. The alleged lodging of the transfer applications was admitted. Those transfer applications had to be processed. It was not admitted that the instruments were in the prescribed form duly stamped and completed. There was not sufficient tune for Mathrubhumi to process the documents so as to place the transfer applications in the board meeting held on February 3, 1989. Further, on scrutiny of the documents it was found that certain clarifications had to be obtained from the transferee-company and for that purpose the secretary of Mathrubhumi had addressed a letter dated February 21, 1989, and reply dated February 24, 1989, was received. The board of directors of Mathrubhumi was yet to meet. It was also submitted that the Munsiffs Court, Kozhikode, had restrained the company from transferring its equity shares or from considering pending applications, if any, for such transfer, by order in 0. S. No. 156 of 1989. The injunction order was extended up to March 26, 1989. That order was suspended by the District Court, Kozhikode, by order dated March 16, 1989. In view of those proceedings, Mathrubhumi could not take up for consideration the application for transfer of shares submitted by the petitioner. It was also contended that Mathrubhumi had two months' time from February 1, 1989, to consider the applications for transfer. So, there was no delay on the part of the company or its directors. In the extraordinary general meeting of Mathrubhumi held on March 13, 1989, the articles of the company were altered adding Article 17 which conferred power on the board to decline to register the transfer of any equity share, under the circumstances mentioned in that article. The averment in the petition that some of the directors of Mathrubhumi were spreading a propaganda that The Times of India's attempt was to take over Mathrubhumi was totally incorrect and malicious. Any such statement may be the personal opinion of the directors and not the opinion of the board. All these matters will be considered by the board of directors. The allegation that O. S. No. 156 of 1989 was filed before the Munsiffs Court at the instance of Mathrubhumi was also denied. Accordingly, the respondent prayed for dismissal of the company petition.
7. In the additional counter-affidavit on behalf of Mathrubhumi filed on March 22, 1989, it was mentioned that the board of directors met on March 20, 1989, and unanimously decided to decline to register the transfer of shares. The decision was duly communicated to the petitioner company as well as to the transferors.
8. The petitioner filed a rejoinder affidavit on March 24, 1989, wherein it was mentioned that a rejoinder affidavit has been filed in C. P. No. 30 of 1989 and that may be adopted as the rejoinder in this company petition also. In the rejoinder in C. P. No. 30 of 1989 (which may be referred to at this stage itself for convenience sake) it was pointed out that it is a clear instance of mala fides on the part of Mathrubhumi that on the very day on which copy of the counter-affidavit was served on the petitioner's advocates a board meeting of Mathrubhumi was held and unanimously rejected the transfer of shares. The notice of that meeting would have been issued in any event prior to March 17, 1989. But that fact was suppressed in the counter-affidavit. There was no bar on the first respondent from convening the board meeting after March 9, 1989, The fact that the board meeting was convened on March 20, 1989, was deliberately suppressed in the first counter-affidavit with the object of filing the subsequent additional counter-affidavit mentioning the holding of the board meeting and the decision taken thereon. The alleged ground that the petition was premature is not valid. The averments in the counter-affidavits were answered in detail. It was further mentioned in the rejoinder that the board meeting held on February 3, 1989, specifically discussed the question of share transfers. Mathrubhumi was unable to point out any infirmities in the lodging of the share transfer applications. The letter dated February 21, 1989, was addressed after receipt of the notice of the extraordinary general meeting. Even though the board meeting for considering the share transfer was delayed, the decision to hold the E.G.M. to amend the articles was taken with undue haste and was mala fide, capricious and arbitrary. The altered articles did not confer on the board of directors any authority to refuse registration of transfer. The special resolution passed for altering the articles itself was void and not according to law. There was no 21 days' notice for the resolution. The resolution was totally different from the resolution proposed in the notice. The explanatory statement for the special resolution was not in accordance with law. The petitioner reiterated the allegation that O. S. No. 156 of 1989 was filed by the plaintiff therein at the instance of Mathrubhumi.
9. On behalf of respondents Nos. 4 to 7 who are some of the share transferors, their constituted attorney, P. R. Krishnamoorthy, who is the executive director of The Times of India filed an affidavit dated March 24, 1989, adopting and accepting the various contentions and averments of the petitioners and denying every allegation in the counter-affidavits on behalf of Mathrubhumi, which are inconsistent with the facts contained in the petition and statements in rejoinders. It was also stated therein that they have received the consideration for the transfer of shares in full and have executed the documents and papers necessary for such transfer conferring full title on the transferees in respect of the relevant shares. The contentions regarding the illegalities and mala fides of the notice of the extraordinary general meeting held on March 13, 1989, and the decision of the board of directors were also adopted by them.
10. On behalf of Mathrubhumi an additional counter-affidavit dated March 29, 1989, was filed. In the said counter-affidavit it was mentioned that on March 20, 1989, the board of directors of Mathrubhumi unanimously decided to decline to register the transfer of shares in favour of the petitioners. That fact was mentioned in the additional affidavit of March 22, 1989. However, the grounds on which the board of directors declined to register the transfer applications were not stated in that additional affidavit. Therefore, it was prayed that leave may be granted to file the additional counter-affidavit. The applications for transfer of shares were taken up as item No. 4 of the agenda. On scrutiny it was found that the instruments of transfer were defective and were not duly stamped. Transfer applications lodged by respondents Nos. 2, 3, and 4 though stamped were not cancelled. The instruments of transfer of other respondents were not stamped, but adhesive stamps were affixed on separate sheets of papers which, it was noted, were not even attached to the concerned transfer forms. There was no indication at the space left in the application form that stamps were affixed on separate sheets of paper. Based on the report of the company's secretary and accounts manager before whom the transfer applications were lodged to the effect that adhesive stamps affixed on the separate sheets of paper were cancelled only at the time when they were presented, the board noted that such cancellation was improper and illegal and the transfer deeds were not duly stamped. The manner of cancelling the stamps by drawing a line across the stamps was not proper. Transfer deed in respect of 20 shares showing the transferor's name as Dr. Sulochana Unnikrishnan (Smt. C. K. Unnikrishnan Nair) was defective since no such member was on the company's register of members bearing that name. The names and addresses of the persons lodging the transfer had not been, filled up. Photocopies of the transfer applications were produced along with the affidavit as annexure A series. Photocopy of the minutes of the extraordinary general meeting held on March 13, 1989, was produced as annexure B. A photocopy of the notice for the board meeting called on March 20, 1989, was produced as annexure C. Photocopy of the minutes of the board meeting was produced as annexure D,
11. On behalf of the petitioner a rejoinder for this additional counter-affidavit dated May 18, 1989, was filed. In that affidavit, the petitioner answered the different grounds relied on in the additional counter-affidavit. It was submitted that the two principal purported grounds were not valid, bona fide or legitimate. It was not true that the Times of India was desirous of starting Malayalam versions of Illustrated Weekly and Filmfare. A quotation from an article in the Illustrated Weekly was made out of context. The very said article points out that an understanding had been reached between the mangagements of Mathrubhumi and The Times of India to share each other's printing and publication facilities. If the said article and the contents are correct then they are correct in toto and not in patches. However, it was emphatically denied that the Times of India had any intention to start a Malayalam edition of Illustrated Weekly or Filmfare. The Times of India cannot be considered as a competitor to Mathrubhumi. The board of directors of Mathrubhumi wrongly referred to various past events to draw support for its allegation that the Times of India was an undesirable person. The reliance placed on the Vivian Bose Commission report and the judgment of the Bombay High Court in Bennet Coleman and Co. v. Union of India [1977] 47 Comp Cas 92 was not justified and it was uncalled for. Neither the present chairman nor the managing director were in the picture during or at the time of the Vivian Bose Commission or its report. Nothing was found against them in the said commission report. Thus, the facts of the said commission and its report were totally irrelevant for the purpose of consideration of the share transfers. A petition under sections 397, 398 and 402 of the Companies Act was filed against the then management of Bennet Coleman and Co. At that time, none of the present directors except Mr. Narendrakumar was the director of the company. Since the proceedings were carried on for a very long time, those in management at that time voluntarily made a statement before the Bombay High Court that they would submit to the orders of the High Court without admitting the correctness of the allegations made in the petition. In view of this statement made by the directors who had resigned at that point of time, the High Court passed a workable order reconstituting the board of directors of Bennet Coleman and Co. for a period of 7 years consisting of 4 nominees including the chairman appointed by the Bombay High Court, 3 nominees of the Government and 3 nominees of the shareholders of the company including the said Narendrakumar. Thereafter, Dr. Ram S. Tarneja was appointed by the reconstituted board as the deputy general manager. He became the general manager after a couple of years and was inducted as a managing director in 1983. Therefore, the reference to the judgment of the Bombay High Court was totally misleading and mala fide. The court appointed board's tenure terminated in 1976. Since then, the present chairman of Bennet Coleman and Co. Ltd., Mr. Ashok Kumar Jain, occupies the said position. He has been the past president of the Federation of Indian Chambers of Commerce and Industry and he is at present a director of the Reserve Bank of India. One of the managing directors, Dr. Ram S. Tarneja, had been a past President of the All India Management Association, Indian and Foreign Newspaper Society (now Indian Newspaper Society--INS), Audit Bureau of Circulation and Indian Merchants Chamber, Bombay. Shri Sham Lal, a well known journalist is also a director of Bennet Coleman and Co. The allegation that the transfer of shares was designed to serve the business interests of the directors of The Times of India was strongly repudiated. Records to show that The Times of India is holding a high respect in journalistic circles were also produced along with the affidavit It was also alleged that the present chairman and managing director of Mathrubhumi, M. P. Veerendrakumar is a planter. He is a politician and a member of the Legislative Assembly. Thus, the present management of Mathrubhumi has large business interests and is also politically connected. Another director and principal shareholder, P. V. Chandran, was a director of Kerala Rubber Plantations P. Ltd. He has other large business interests including transport and film production. This is clear from the auditor's report for the year ending July 31, 1988. The petitioners also contended that in the context of freedom of the press guaranteed by the Constitution the question of big business or monopoly is totally irrelevant. The allegation that the shares were purchased in order to destabilise Mathrubhumi was also strongly repudiated. The directors of Mathrubhumi, their friends and relatives and employees themselves control more than 75 per cent, of the shares. So, the contention that the transferees' desire was to get control of the management of Mathrubhumi was mala fide and put forward with an oblique motive. According to the affidavit, the value of one share of Mathrubhumi is much more than Rs. 15,000. In view of this, these shares are very sound investments. It cannot be said that the investment is not by way of bona fide commercial investment. The prime object of investment is accretion to or appreciation of the value of the investment. The allegation that the transferees have a poor track record and were not desirable persons or their association with the company would be detrimental to the interests of the company was repudiated as unfounded. A large number of irrelevant circumstances have been taken into consideration by the board of directors for declining registration of shares. The present chairman and managing director were not even shareholders of Mathrubhumi prior to 1977. It was after 1977 that they slowly started acquiring shares in the company in order to gain control over it. So much so, it is not correct to say that the present management is the guardian of the alleged laudable objects and traditions of Mathrubhumi. The chairman, Mr. Veerendrakumar, and director, Mr. Chandran, are acquiring further shares in Mathrubhumi in their own names or in the names of relatives or associates.
12. The petitioners also alleged that the board of directors of Mathrubhumi have ante-dated and fabricated records and arbitrarily exercised their powers to execute their pre-conceived decision. According to them, the transfer applications were considered in the board meeting held on February 3, 1989, and it was decided not to register the transfer. The chairman had also communicated this decision to the executive director of The Times of India. The minutes of the meeting of February 3, 1989, were prepared after February 5, 1989. Though the board meeting was purportedly held on February 3, notice of the extraordinary general meeting was received by the shareholders only on or after February 15, 1989. Some facts and circumstances and events are relied on in the affidavit in support of this contention. The transfer forms were duly stamped and the contention that some of them were not duly stamped was clearly an afterthought. The company very well knows who Dr. Sulochana Unnikrishnan is. Her name was N. Sulochana before her marriage. The signature is not disputed. She has filed an affidavit to the effect that she and Dr. Sulochana Unnikrishnan are one and the same person. The address ic the same. Mathrubhumi has issued a receipt in her name, produced as annexure A-20. The resolution passed in the extraordinary general meeting was substantially different from the resolution proposed in the notice.
13. Mathrubhumi filed a counter-affidavit dated November 9, 1989, on the amended petition reiterating their contentions. In the affidavit it was stated that the inclusion of Clause 17 in the articles was in the larger interests of Mathrubhumi and that it was only by a sheer accident that the decision to call the extraordinary general meeting to amend the articles was taken at the time when the applications for share transfer from the petitioners were pending. The holding of the extraordinary general meeting was valid and it was properly convened. The shareholding of the present board and their members put together may be just above 50% of the capital. No individual director owns more than 7% of the total equity capital.
14. The petitioner filed an affidavit in reply dated December 1, 1989, in answer to the averments in the affidavit of Mathrubhumi wherein they reiterated their earlier allegations.
15. C. P. No. 30 of 1989 is a similar company petition filed by Dhar-mayug Investments Ltd. That petition is for rectification of the share register of Mathrubhumi, after ordering registration of transfer of 318 shares details of which are given in Appendix II deposited by Dharmayug on February 1, 1989. In that petition also affidavits, counter-affidavits and rejoinders which are similar to those filed in C. P. No. 29 of 1989 were filed.
16. C. P. No. 42 of 1989 is a petition filed by three shareholders of Mathrubhumi (transferors) who transferred their shares to Vardha-man and Dharmayug for rectification of share register of Mathrubhumi after ordering registration of transfer of shares. In the petition it was stated that in view of the policy and method of working adopted by the present management of Mathrubhumi, the transferors were finding it extremely embarrassing to continue to hold their shares in Mathrubhumi. There was a systematic modus operandi adopted by the persons presently managing the company to isolate and throw out the transferors from the company and to force them to sell their shareholding in Mathrubhumi. The transferors had, therefore, no alternative but to sell their shareholding in Mathrubhumi. Consequently, after negotiations, it was decided that the transferors would sell to Dharmayug their respective shareholding at a price as agreed upon between the parties. Till 19th June, 1977, the present Chairman, Sri Veerendra Kumar, had not a single share in the said company. In 1956, Mr. V. M. Nair, the maternal grandfather cf petitioner No. 1 in C. P. No. 42 of 1989, was appointed managing director of Mathrubhumi. From March, 1959, he was also appointed as editor of Mathrubhumi daily and Mathrubhumi weekly. He continued in that position till the date of his demise on 12th May, 1977. Till then the shareholding pattern remained more or less the same excepting for a very few transfers. There was no block of shares which could be stated as the controlling block or which could exert its influence over the management or policy of the newspaper. The newspaper had prior to India's freedom promoted and propagated the national freedom movement and thereafter had championed the ideals of Mahatma Gandhi and Pandit Jawaharlal Nehru. One Krishna Gounder owned approximately 250 equity shares in the company. The present managing director and his brother are his grandsons. The said Krishna Gounder had bequeathed all his shares solely to his son, M. K. Jinachandran. Mr. Veerendrakumar's father, M. K. Padmaprabha, was not given any shares. 50 shares held by late V. M. Nair were transferred to the first petitioner on the death of Sri V. M. Nair. Thereafter, the first petitioner was appointed a member of the board of directors on June 18, 1977. After the death of Sri V. M. Nair the present chairman started acquiring large blocks of shares from various shareholders of the company. At about the same time another director, Sri P. V. Chandran, also started acquiring shares in the company in large numbers and subsequently became a director. Thus the diffused shareholdings of the company started getting concentrated basically in the hands of Sri Veerendra Kumar and Sri P. V. Chandran and their associates. The turning point in the history of Mathrubhumi was the passing away of Sri V. M. Nair when commercial and political interests got control of the company with their own objectives of controlling the newspaper for their own purposes. In 1979, Sri M. P. Veerendra Kumar took over as managing director. Ever since his object was to run the company as his private property to the exclusion of the interest of the company and its shareholders and public interest. By 1987 he and his relatives and associates had about 750 shares. He also brought Sri P. V. Chandran and his relatives into the company. By the end of 1987 they together had full control of the company to the exclusion of others. The petition catalogues some of his acts which are alleged to be oppressive, burdensome and harsh. The first petitioner who was an executive director of the company from June, 1978, to March, 1981, was asked to submit his resignation and he had to comply with the same. However he was appointed as editor of Mathrubhumi. From October 1, 1984, to December 1, 1987, the first petitioner was the editor. Towards the end of 1986, Mr. Veerendra Kumar took over as general secretary of the State Janata Party and wanted his own personal interests to be served at the expense of public interest. The first petitioner consistently refused to fall in line with the said approach and carried on his editorial work in accordance with the original policy of the paper to promote the cause of national interest. Subsequently, he secured the first petitioner's resignation on December 1, 1987. Afterwards the first petitioner was appointed as director, newspaper development, but no work was assigned to him. No facilities were given to him. Ultimately, on May 30, 1988, the said post itself was abolished. Although in the annual general meeting held on January 18, 1989, the first petitioner's name was proposed as a director, he was prevented by Mr. Veerendrakumar and his associates with their overwhelming voting power from getting elected as a director. It was in these circumstances that the petitioners and their relatives decided that there was no alternative but to dispose of their shares in a manner that would benefit the company and in consonance with public interest by sale of the said shares to Vardhaman, which was owned by The Times of India, The petition further states that all the formalities required for the transfer were duly complied with. The further averments and prayers in the petition are similar to the averments and prayers in the other petitions.
17. On behalf of Mathrubhumi a counter-affidavit dated November 9, 1989, was filed. In the counter-affidavit it is stated that the reasons for the sale of shares are absolutely irrelevant and have no bearing on the issue to be decided by this court. The averments in paragraph 5 about the alleged hostile conduct on the part of the present management towards the petitioners was denied. The petitioners got a fantastic price for the shares they held and that might have prompted them to sell their shares. The policy and ideals of the newspaper evolved by the original founders are maintained even now. Mr. Veerendrakumar became a director of the company in 1978. He was appointed as managing director in 1979 on the premature and untimely death of Sri M. J. Krishnamohan. There was no design or intention on the part of any one to get control over the management of the company. The allegation that Mr. Veerendrakumar interfered with the editorial matters was not true. The further averments in the petition are all incorrect and cannot constitute oppressive acts as alleged. The first petitioner did not function properly as director, News Paper Development, and was misusing his office and abusing his powers. This ultimately led to the abolition of that post.
18. A reply affidavit dated January 15, 1990, was filed by the first petitioner controverting the averments in the counter-affidavit.
19. C. P, No. 46 of 1989 is another petition filed by Vardhaman under Section 155 of the Companies Act for rectification of share register of Mathrubhumi. This application is in respect of 55 shares purchased by the first petitioner from petitioners Nos. 2 and 3 and respondents Nos. 2, 3 and 4. The share transfer applications in respect of those shares were lodged with Mathrubhumi between March 2, 1989 and March 8, 1989, as detailed in annexure A to the petition. The distinctive numbers of the shares and other details are furnished in appendix 3 to this judgment. The further averments in the petition are similar to the averments in C. P. Nos. 29 and 30 of 1989. A counter-affidavit on behalf of Mathrubhumi dated November 9, 1989, is filed by the secretary of the company. The counter-affidavit refers to the counter-affidavit in C. P. No. 29 of 1989 and prays that it may be treated as part of the counter-affidavit in this company petition also. The respondent filed the share transfer forms as well as the stamps produced, along with application, C.A. No. 493 of 1990. A reply affidavit dated December 1, 1989, was filed on behalf of the petitioner. In the reply affidavit there is a prayer to treat the petitioner's reply affidavit in C. P. No. 29 of 1989 as part of the affidavit in reply.
20. Therefore, the points to be decided are:
(1) Whether the instruments of transfer were proper and duly stamped ? Whether the resolution of the board of directors in respect of stamps on the instruments of transfer proper ?
(2) Whether the alteration of the articles of Mathrubhumi was valid ? Whether the alteration of the articles and refusal to register transfer of shares was mala fide and not in good faith ?
(3) Whether Article 17 is applicable to this case ?
(4) Even in case Article 17 is applicable, whether there were sufficient grounds under that article to refuse transfer ? Whether the grounds relied on by the board are extraneous, irrelevant and ultra vires Article 17 ?
(5) What is the order to be passed ?
21. Point No. 1 : The proceedings of the meeting of the board of Mathrubhumi held on March 20, 1989, are filed as annexure R-1 (f) to the counter-affidavit filed on behalf of Mathrubhumi dated January 9, 1989. The first defect mentioned is that none of the stamps affixed on the following transfer forms have been cancelled ; (a) Transfer form dated February 6, 1989, of T. S. Javandheeswaran in favour of Vardhaman for 5 shares. (b) Transfer form dated February 6, 1989, of T. S. Eswaran in favour of Vardhaman for 9 shares, (c) Transfer form dated February 6, 1989, of T. S. Ramakrishnan in favour of Vardhaman for 9 shares. These are shown as the first three items in annexure (C. P. No. 29 of 1989). Since those transfer forms are not duly stamped as required under Section 108 of the Companies Act read with Section 12(2) of the Stamp Act, the decision of the board of directors refusing to register transfer of those shares is valid.
22. No stamps were affixed on the transfer forms which were dealt with in defect No, 2 of the board resolution, but were furnished separately by affixing the stamps on separate sheets of paper. The board considered this as not duly stamped since the stamps were not affixed on the transfer form itself. A perusal of the share transfer applications is sufficient to show that it is physically impossible to affix the required stamps on the forms themselves. The stamps were affixed on separate sheets of paper and produced along with the share transfer forms. According to the minutes, the sheets were not attached to the concerned transfer forms. However, according to the petitioners they were affixed to the transfer forms. In any view of the case the stamps affixed on sheets of paper were also produced along with the share transfer applications. Those transfer forms ought to have been treated as duly stamped as required under Section 2 (11) of the Indian Stamp Act. That clause is as follows :
" 'Duly stamped' as applied to an instrument means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with law for the time being in force in India."
23. It is sufficient that the stamps are used in accordance with law. The stamps in question were used for the purpose of share transfer applications in question. In the application of a taxing enactment to a subject the emphasis should be on the collection of the revenue and not on the form. It was physically impossible to affix all the stamps on the transfer application itself and so the provision "duly stamped" should be understood in a reasonable way. The main question is whether revenue is collected and whether there was any undervaluation. The other question is whether the stamps were duly cancelled so that it cannot be used again. I, therefore, hold that the applications dealt with in reason No. 2 are duly stamped.
24. Another objection was that some of the adhesive stamps were cancelled at the time of lodging. They were not cancelled at the time of execution of the transfer deeds. From a reading of the resolution it is not clear as to which stamps were cancelled at the time of lodgment. In the report submitted by the secretary and accounts manager dated February 10, 1989, it is stated that on February 1, 1989, one S. Gopalakrishnan, chartered accountant, Trivandrum, and one Prem Mohan of Indira Bhavan and one Mohan came to their office at Calicut. The said S. Gopalakrishnan handed over to the secretary seven transfer applications mentioned in the report. There were separate sheets on which the share transfer stamps were affixed. None of the stamps affixed on the respective sheets were cancelled in any manner. When remarked that the stamps are not seen cancelled, Sri. S. Gopalakrishnan drew a single line across the stamps before handing over to the secretary. The cancellation was done on February 1, 1989, only.
25. Another objection is that cancellation was done by drawing a single line across the stamps. According to the board of directors of Mathrubhumi, this was not proper cancellation.
26. Under Section 10 of the Stamp Act, except as otherwise expressly provided in the Act, all duties with which any instruments are chargeable shall be paid and such payment shall be indicated on such instruments by means of stamps according to the provisions in the Stamp Act. Section 11 provides for the use of adhesive stamps and Section 12 provides for cancellation of adhesive stamps. Under Section 12(1)(a), whoever affixes any adhesive stamp to any instrument shall cancel the same so that it cannot be used again. It is true that stamping and cancelling the stamp should be done simultaneously. But that does not mean that the stamp must be invariably put before the signature is made.
27. In Sumitra Debi Gour v. Calcutta Dyeing and Bleaching Works, AIR 1976 Cal 99, a learned single judge of the Calcutta High Court held that although the signature, stamping and cancelling the stamp could be done simultaneously, that does not mean that the stamp must invariably be put before the signature is made and that perhaps in one case the signature is made and immediately thereafter the stamp is put and cancelled. In K.A. Lona v. Dada Haji Ibrahim Hilari and Co., AIR 1981 Ker 86, a Division Bench of this court had to consider the validity of a promissory note, since the contention was that the pronote was materially altered. The contention was that when the note was signed no stamps had been affixed and the stamps must have been affixed subsequently and purported to be cancelled by drawing two lines. This court held that there is nothing to suggest that normally the only way of cancelling stamps is by signing it. Accordingly the court held that cancellation by drawing two lines across the stamps was proper cancellation, and will satisfy the expression "so that it cannot be used again". This court explained that those words only mean that the stamps cannot be used again in the normal course. The expression does not imply that the cancellation must be made in such a way as to make it impossible to any dishonest person to use the stamp once again fraudulently. The test to see if a stamp has been effectually cancelled is to see whether an ordinary, honest, law-abiding citizen would on seeing the stamp believe that it is already cancelled and, therefore, refrain from using it or would believe that it has not already been used and, therefore, would proceed to use it once again. In Prafulla Kumar Rout v. Orient Engineering Works P. Ltd. [1986] 60 Comp Cas 65, a learned single judge of the Orissa High Court held that adhesive stamps affixed on the reverse of a transfer deed and cancelled by putting cross marks in ink over them, rendering them unfit for use, amounts to proper cancellation in the language of Section 12 of the Indian Stamp Act (see also Firm Kishori Lal Banarsi Das v. Firm Ram Lal Tek Chand, AIR 1921 Lah 120, J.N. Ezekiel v. E. Mordecai, AIR 1937 Rang 408, Punjab Zamindars Bank Ltd. v. Babu Mohammad Shaffi, AIR 1938 Lah 505 and A. Narayana v. Dr. J. Sarojini Devi, AIR 1963 AP 378.
28. In these transfer applications the stamps were cancelled when it was lodged before the company. Even in case the contention on behalf of Mathrubhumi that the stamps were cancelled after actual execution and only just before they were presented in the Mathrubhumi office is correct, that will not be a material defect under the Stamp Act. There may be some difference in respect of negotiable instruments where the subsequent stamping or cancellation may be a material alteration of the instrument, but that is not the case in respect of share transfer applications. The Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments. It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The provisions of the Act are conceived in the interests of the revenue. It is well known that in commercial practice the system of transferring shares and debentures by blank transfer deeds prevails. When a person transfers shares or debentures a duty amounting to a certain percentage of the consideration is to be paid. But the practice is that the deed is filled up blank and passes with shares or with certificate of shares from hand to hand until occasion arises to make use of it and then the person in whose hands at the time the certificate happens to be, fills up the transfer deed in his own favour and the transfer deed then becomes effectual. It may thus cover a very large number of transfers. The validity of such a transaction is not being considered here. But the practice that is prevailing in transfer by blank transfer deed cannot be interfered with by interpreting the provisions of the Stamp Act. In Hindustan Steel Ltd. v. Dilip Construction Co., AIR 1969 SC 1238, at page 1240, the Supreme Court held as follows :
"The Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments ; it is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The stringent provisions of the Act are conceived in the interests of the revenue. Once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of the initial defect in the instrument."
29. The Supreme Court also referred to Section 42(2) of the Act which expressly renders an instrument when certified by endorsement that proper duty and penalty have been levied in respect thereof as if it had been duly stamped. Section 35 of the Stamp Act provides for payment of stamp duty and penalty. In the case of an instrument not duly stamped, Section 40 empowers the Collector to stamp instruments which are impounded. Section 41 provides for instruments not duly stamped by accident. Section 42 provides for endorsement of instruments on which duty has been paid under sections 35, 40 or 41. These provisions throw considerable light on the interpretation of the provisions of the Stamp Act. As held by the Supreme Court, technical contentions on the basis of the Stamp Act cannot be accepted. Therefore, the decision of the board about the defects in respect of stamps and their cancellation, except the cases where stamps were not cancelled at all are illegal and it is, accordingly, set aside.
30. Point No. 2 : Validity of alteration of articles : According to Mathrubhumi, its board of directors decided to hold an extraordinary general meeting of the company in its meeting held on February 3, 1989. The contention on behalf of Vardhaman and Dharmayug is that no such board meeting was held. Some circumstances are relied on in support of this contention. The minutes show that it was signed only on February 14, 1989. The notice of the extraordinary general meeting was published in the newspapers only on February 18, 1989. According to the petitioners, the notices were despatched only on February 16, 1989. The affidavit on behalf of Mathrubhumi sworn to by its secretary and dated November 9, 1989, or any other affidavit does "not specifically reply to the averment in the affidavit of the executive director of Times of India, Sri Krishnamoorthy, that the managing director of Mathrubhumi, Sri Veerendrakumar, told him that the company had in its meeting held on February 3, 1989, decided not to transfer the shares. It was also submitted that if at all this statement was to be denied, the denial ought to have been made by Sri Veerendrakumar himself because the statement was in respect of the personal conversation between Sri Krishnamoorthy and Sri Veerendrakumar. It was further submitted that the reason for the holding of the extraordinary general meeting, namely, the request from one of the shareholders, Sri Chandu, to empower the board of directors to reject share transfer applications was not in existence on February 3, 1989. The main circumstance relied on in support of the argument that the letter from Chandu was not in existence on February 3, 1989, is that the letter refers to some false reports in newspapers about Mathrubhumi. According to the petitioner, the paper report started from 11th or 12th of February alone. There was no such report on February 3, 1989. That is an indication that the letter was actually written after llth or 12th of February. The letter of Sri Chandu is produced along with the counter-affidavit on behalf of the first respondent dated November 9, 1989, at annexure R-1 (c). The explanation to this contention is sought to be furnished by the company by producing two paper cuttings, namely, annexure R-l (a) to that counter-affidavit of the paper the Indian Post dated November 16, 1989, and annexure R-1 (b) to that counter-affidavit of the paper report in Clarity dated November 20, 1988. Those reports are to the effect that Sri Ramnath Goenka of Indian Express is seriously considering the taking-over of Mathrubhumi and Sri Veerendrakumar, managing director of the paper, has met Mm several times to finalise the deed. In Clarity it was also reported that Mathrubhumi is losing its circulation by the change in the policy introduced by Sri Veerendrakumar and that it has already come down to 4 lakhs from the previous 5.4 lakhs. According to learned counsel for the petitioners, the reference to these two Bombay newspapers in English which have practically no circulation in Kerala, itself will show that there was no such publication in any Malayalam language papers before February 3, 1989. Learned counsel further submitted that since the letter from Sri Chandu was in Malayalam he was not used to reading English newspapers and in any case it was not likely that he saw either the Indian Post or Clarity before he wrote his letter bearing date January 20, 1989. However, I do not think that such a meticulous examination of the wording in the letter or a specific finding as to whether it was written before February 3, 1989, is called for in this company petition. Moreover, the said Sri Chandu was not afforded any opportunity in this proceeding to explain his letter. Therefore, the contention that the letter was written after February 3, 1989, cannot be accepted for the purposes of these company petitions. The contention that the averment made by Sri Krishnamoorthy that Sri Veerendrakumar told him that the board decided on February 3, 1989, not to effect transfer was not specifically replied to and, therefore, that contention ought to be accepted as true also seems to be a submission which requires further investigation before acceptance.
31. Whether the notice and explanatory statement of the extraordinary general meeting are legal and valid. Annexure A-4 in C. P. No. 29 of 1989 is the notice and explanatory statement for the special resolution of the extraordinary general meeting of March 13, 1989. Section 171(1) of the Companies Act requires 21 days' notice for a general meeting of the company. The notice in question was dated 3rd February, 1989, and the date of the meeting was fixed on 13th March, 1989. It would appear that the petitioners are mainly attacking the explanatory statement in the notice. In paragraph 17 of C. P. No. 29 of 1989, it is stated that the notice was issued on February 3, 1989. Although the petitioners have pointed out some circumstances to show that the notice was actually issued only after 14th of February and that there was no 21 days' notice and, therefore, the notice was not proper, such a contention is not pointedly urged or established by the petitioners. No objection regarding the contents and manner of service of notice and the persons on whom it was served were also urged. So much so, it has to be held that Mathrubhumi has complied with the requirements under sections 171 and 172 of the Companies Act. The main objection in this connection is regarding the explanatory statement required to be annexed to the notice. Section 173(2) of the Companies Act provides that where any items of business to be transacted at the meeting are deemed to be special, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business. The explanatory statement annexed to the notice is as follows :
"Explanatory statement : The company has received a letter from an equity shareholder drawing its attention to the reports damaging the reputation of the company appearing in a section of the press and also to the need for taking power for the board to take appropriate action against equity shareholders who indulge in such activities, and also to the reports about likely transfer of equity shares which will be prejudicial to the interests of the company. The board has adopted Table A as its articles of association ( subject to certain specific provisions ). The regulations of Table A do not confer any right to take action in such eventualities. It is, therefore, deemed necessary to acquire powers for the board by making appropriate provisions in the articles of association. The special resolution is intended to confer such powers on the board and is accordingly placed before the meeting."
32. The first objection to the statement is that the real purpose of the resolution was suppressed. According to the petitioners, the real purpose was to refuse registration of transfer of shares to the Times of India. It was submitted that the real purpose is disclosed from the statement in the letter of Sri Madhavankutty circulated among its shareholders under Section 188, by the company (annexure A-9 to Company Petition No. 29 of 1989). The letter of Mathrubhumi mentions that the statement of Sri Madhavankutty relates to the subject-matter of the special resolution in question. That statement refers to the attempt of the Times of India to buy shares of Mathrubhumi. The object of enacting Section 173 is to secure that all facts which have a bearing on the question on which shareholders have to form their judgment are brought to the notice of the shareholders so that the shareholders can exercise an intelligent judgment. Therefore, the material facts concerning the item of business to be transacted must be placed before the shareholders. The provisions contained in Section 173 are mandatory and not directory and any disobedience of the provisions in that section must lead to the nullification of the action taken--see Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd, [1971] 41 Comp Cas 377 (Bom).
33. According to the petitioners, the explanatory statement did not disclose the entire facts and the real purpose of the alteration was not mentioned therein. According to them, the alteration was intended only for refusing the registration of transfer of shares to the Times of India. The alteration was for such a collateral purpose and the alteration is illegal on that ground also. It was also contended that the letter of Sri Chandu was misquoted in the statement. It was also submitted that the statement did not disclose the nature of the concern or interest of the directors in the special resolution. The submission is that by the alteration of the articles the directors will get absolute power to reject any share transfer thereby forcing the shareholders to sell the shares to themselves or their nominees. I am of the view that these objections are without merit. The true nature of the business to be transacted at the general meeting was to empower the board of directors to reject any application for transfer of shares which will be prejudicial to the interests of the company. That was disclosed in the explanatory statement. From a reading of the statement the members were able to understand and appreciate the nature of the business proposed to be considered at the meeting. The reference to Sri Chandu's letter in the explanatory statement cannot be termed as a misquoting of the letter. In the letter (annexure R-l(c) to the counter-affidavit on behalf of the first respondent in C. P. No. 29 of 1989 dated November 9, 1989) it was stated that a group of persons were indulging in various false propaganda against Mathru-bhumi and such meaningless propaganda was also appearing in different papers. The letter also suggested that the board of directors should have the power to stop the transfer of shares to those who are acting against Mathrubhumi or to those who are acting contrary to the purpose for which Mathrubhumi was established. No doubt a summary of the letter could have been incorporated in the explanatory statement. But it cannot be said that there was any statement in the explanatory statement which can be termed as a misquoting of the letter. As such, there was no suppression of any material fact. The personal concern or interest of the directors in the special resolution suggested by learned counsel for the petitioners is farfetched. Subsection (2) of Section 173 only mentions "the nature of the concern or interest if any" of every director in the concerned item of business. By the alteration the power is conferred on the board of directors as a whole and not on any single director. In any view of the case the wording of the resolution itself was self-explanatory which did not require any further explanatory statement about the powers to be conferred on the board of directors. Accordingly I hold that the notice and explanatory statement of the extraordinary general meeting were legal and valid.
34. Whether the resolution as passed was materially different from the resolution as proposed in the notice : In the resolution as proposed in the notice there were two clauses in the new Article 17. Clause (b) related to forfeiture of equity shares. The minutes of the extraordinary general meeting (annexure R-l(e) to the counter-affidavit on behalf of the first respondent in C. P. No. 29 of 1989, dated November 9, 1989) shows that the alteration as proposed in the notice was proposed, duly seconded and the chairman said that the formal special resolution was before the meeting. Subsequently, Dr. N. V. Krishna Warrier as well as Sri P. Kumaranunni moved amendments to the special resolution. The amendment proposed by Sri Kumaranunni was supported by the transferors of shares as well as Sri P. R. Krishnamoorthy, executive director of the Times of India and Dr. Ram S. Tarneja, who were allowed to participate in the meeting on the basis of the powers of attorney in their favour. The amendment proposed by Sri Kumaranunni was rejected after putting it to vote. The amendment proposed by Dr. Krishna Warrier was approved by the general body. The proposed Clause (b) in Article 17 was accordingly not approved. There was also some variation in the wording of Clause (a) by which the board was given absolute discretion to decline to register the transfer without assigning any reasons. This was an amendment which was duly moved in the extraordinary general meeting in which the petitioners also participated. They cannot now be heard to say that the resolution as passed was different from the resolution as proposed in the original notice, even though the power given to the board to decline to register the transfer without assigning any reasons in its absolute discretion was not envisaged in the original proposal.
35. A contention was raised that Article 17 is vague and on that ground it is void under Section 29 of the Contract Act. It was submitted that no reasonable man can identify a person who will be a desirable person in the eyes of the board of directors. So also it is not clear as to what are the laudable objects which will be considered by the board of directors. Since those objects cannot be found either from the memorandum or the articles of the company no shareholder can freely transfer the shares in view of Article 17. So much so, the provisions contained in the article are unworkable. It is also void under Section 31(1) of the Companies Act. It was further submitted that Article 17 was incorporated in order to see that the shares are transferred only to the directors or to their nominees. These contentions may have to be examined in an appropriate case if and when the provisions of the articles are misused by the board. It is not necessary to enter any specific finding on these contentions in this case.
36. Whether the alteration of articles and refusal to register transfer of shares were mala fide and not in good faith : The contention on behalf of the petitioner is that Mathrubhumi had decided to refuse registration of transfer of shares on 3rd February, 1989, itself. However, since the board had no power to refuse registration the articles had to be altered conferring power on the board to refuse registration. Several circumstances referred to earlier in this judgment were relied on on behalf of the petitioners to show that the letter of Sri Chandu would not have been in existence on 3rd of February. In the telex message sent by the executive director of the Times of India to the managing director of Mathrubhumi (annexure A-15 to the rejoinder affidavit dated May 18, 1989 ) it was mentioned that if no reply was received to the telex, it will be taken that "your earlier decision to resist transfer continues." In paragraph 15 of that affidavit Sri P. R. Krishnamoorthy stated that when he met Sri Veerendra Kumar at Trivandrum on 4th February, 1989, Sri Veerendra Kumar made it absolutely clear to him that "the board of directors had unanimously decided not to register the transfer of shares." Krishnamoorthy requested Veerendrakumar to reconsider the decision in the light of his discussions and in view of the categorical statement made by Krishnamoorthy that there was no intention to take over the company or to destabilise the company in any manner. The telex referred to earlier was sent on February 13, 1989. Annexure A-16 was a telegram from Vardhaman conveying the same message to Mathrubhumi. Annexure A-17 was the reply dated February 21, 1989, from Mathrubhumi to Krishnamoorthy with copies to Vardhaman and Dharmayug. In that letter the secretary of Mathrubhumi did not deny the statement that the board of directors had decided not to register the share transfers but only called for some further information. In annexure A-17, it was stated that he had completed scrutiny of the papers and certain documents and clarifications mentioned in the letter were required. No defects other than those pointed out in the letter were found out at that stage. Therefore, the argument on behalf of the petitioners is that the real purpose in altering the articles was to enable the board of directors to refuse registration of transfer of the petitioners shares and that was only a collateral purpose. It was in order to achieve this end that the board relied on Sri Chandu's letter for convening the extraordinary general meeting. Therefore, the alteration of articles followed by the refusal to register transfer of shares was mala fide and was not in good faith. It was also submitted that the contention of mala fides permeates the entire action of Mathrubhumi right from the lodging of share transfer applications to the rejection of those applications.
37. Sometimes an act may serve two or more purposes, some authorised and some unauthorised. The general rule is that the action will be lawful provided that the permitted purpose is the true and dominant purpose behind the act, even though some secondary or incidental advantage may be gained for some purpose which is outside the authority's powers. No doubt where the permitted purpose is a mere pretext for a dominant purpose which is ultra vires, the action may not be lawful, (see Westminster Corporation v. London and North Western Railway Co. [1905] AC 426 (HL) and R. v. Brixton Prison Governor [1963] 2 WB 302). In the latter case, Lord Denning said that everything depended upon the purpose with which the act was done and that the courts can always go behind the face of the order in order to see whether the powers entrusted have been exercised lawfully or not. In this case, the probabilities are in favour of the conclusion that the board of directors of Mathrubhumi desired to assume the power to reject share transfers. Therefore, that purpose may be termed as the dominant purpose. That purpose cannot in any sense of the word be termed as an unlawful purpose. No doubt the board has to exercise its powers reasonably and in good faith. The words "in good faith" means only for legitimate reasons. Lord Macnaghten in Roberts v. Hopwood [1925] AC 578 at page 603 stated that:
"Bona fide here cannot simply mean that they are not making a profit out of their office or acting in it from private spite, nor is bona fide a short way of saying that the council has acted within the ambit of its powers and, therefore, not contrary to law. It must mean that they are giving their mind to the comprehension and their wills to the discharge of their duty towards the public, whose money and local business they administer."
38. Vanghan Williams L.J. in Westminster Corporation v. London and North Western Railway Co. [1904] 1 Ch 759 at page 767 said :
"You are acting mala fide if you are seeking to acquire land for a purpose not authorised by the Act."
39. The words "bad faith" are often used as interchangeable with unreasonableness and with extraneous considerations. Since it cannot be said that the decision to alter the articles was unlawful or unreasonable and the dominant object (according to the petitioners) which is to assume power, to reject the transfer cannot be termed as an extraneous consideration, the contention that the alteration of articles and refusal to register transfer of shares are mala fide and not in good faith, cannot be accepted. Accordingly, I hold that the alteration of articles of Mathrubhumi is valid.
40. Point No. 3 : On February 1, 1989, the petitioner in C. P. No. 29 of 1989 lodged with the company 82 shares for transfer in their favour. On the same date the petitioner in C. P. No. 30 of 1989 deposited 318 shares for transfer in their favour. On March 7, 1989, the petitioners filed C. P. Nos. 29 and 30 of 1989 before this court. They also moved interim petitions before this court for restraining the holding of an extraordinary general meeting proposed to be held on March 13, 1989, in order to alter the articles. Those petitions were dismissed by this court on March 10, 1989, with a direction that "any decision taken in the extraordinary general meeting or any decision taken by the board of directors will be subject to the final order on this company petition". In C.P. No. 46 of 1989, the first petitioner therein purchased 55 shares on different dates and applied to the company to register the transfer on different dates between March 2, 1989, and March 8, 1989. That company petition was filed on May 23, 1989. On March 13, 1989, the extraordinary general meeting of the company resolved to alter the articles of association of the company by including a new article, namely, Article 17, which conferred on the board of directors the right to decline to register transfer of any equity share in the company subject to the provisions of that article. On March 20, 1989, the board of directors of the company declined to register the transfers in favour of the petitioners.
41. Article 17 as incorporated is as follows :
"The board shall have the right in its absolute discretion and without assigning any reasons, to decline to register the transfer of any equity share in the company, whether fully paid up or not, to a person or persons whether individuals, companies, or otherwise, who in the opinion of the board, would not be desirable or whose association with the company may be detrimental to the interests of the company or may affect the laudable objects of the company or who alone or with others may have other competing business."
42. According to the petitioners, the transfers were completed in January and February and the transfer applications were lodged before March 8, 1989. Before March 13, 1989, the articles did not give any discretion to the board to reject share transfers. Therefore, according to the petitioners, Article 17 will not apply and the action taken by the board under Article 17 was illegal. However, according to the company, the board was entitled to decide the question on the basis of Article 17.
43. It is admitted that before the alteration of the articles the company had no power under the articles of the company or under Clause 21 of Table A in Schedule I to the Companies Act, to decline to register the transfer of these shares. There is no contention that the shares in question were not fully paid shares.
44. Section 82 of the Companies Act provides that the shares of any member shall be movable property transferable in the manner provided by the articles of the company. Being movable property, normally transfer will be complete by delivery. However, transfer of shares requires to be entered in the share register in order to complete the transfer as provided under sections 106 to 108 of the Companies Act, It is well-settled that there is no inherent power to refuse to register a transfer and that any power to refuse to register transfers must be conferred by law or the articles of association. It is also settled that registration of transferred shares is not to be refused arbitrarily or for collateral purposes (see Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1990] 67 Comp Cas 518 (SC)). The transfers of shares in question were completed in January and February, 1989, and were lodged with the company before March 8, 1989, on which date the company had no power to decline to register the transfer of those shares. Therefore, if the unaltered articles are to apply the transfers ought to have been registered.
45. Article 17 which conferred power on the board of directors to decline to register a transfer of any equity share was introduced on March 13, 1989, by altering the articles of the company. In order to examine the applicability of Article 17 it is necessary to understand the effect of the memorandum and articles. Under Section 36 of the Companies Act, the memorandum and articles shall bind the company and the members thereof to the same extent as if they had been signed respectively by the company and by each member and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles. The articles of the company constitute a contract between each member of the company and the company is duty bound to act in accordance with the articles. It is also a public document and members of the public who want to deal with the company or its members can get a certified copy of the same from the Registrar of Companies or inspect the same (see Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [1964] 34 Comp Cas 405 (CA)). If a third party has acted on the basis of the articles and purchased the shares paying the price thereof, it is neither fair nor just to apply to that transaction a provision which was not in existence on the date of transfer. The transferability of shares which is provided under Section 80(2) of the Companies Act can be controlled only by a provision in the articles or under any other law. So much so, where a member of the public has acted on the basis of the then existing articles, normally, he is entitled to get the transfer of shares registered in his name. On the date of transfer itself the beneficial interest in the shares passed to the transferees and the transfer of shares was complete when duly executed and stamped transfer deeds were delivered to the company irrespective of the fact whether the company registers it or not (see K.N. Narayanan v. ITO [1984] 55 Comp Cas 182 (Ker)) Until the transfer is registered, the transferor will be treated as a trustee for the transferee in respect of the rights relating to the shares so transferred (see R. Mathalone v. Bombay Life Assurance Co. Ltd., AIR 1953 SC 385 ; [1954] 24 Comp Cas 1). Although shares should be taken to have been transferred to the transferee he will not be able to exercise the rights of a shareholder until his name is entered in the books of the company. All these provisions assure free transferability of shares which is a necessary requirement for attracting savings towards corporate investment.
46. The contention on behalf of Mathrubhumi is that the articles contained a provision for amendment and the members of the public must be deemed to have known about that provision also. So, when the articles are altered, the altered provisions will apply. Under Section 31(2) of the Companies Act, any alteration of the articles shall be as valid as if originally contained in the articles. Therefore, the alteration will have retrospective effect. Such a contention cannot be accepted. The provisions in Section 31(2) of the Companies Act can only relate to the procedural validity of the altered articles. The form and other formalities to be complied with for framing articles are contained in Sections 26 to 30 of the Companies Act. Section 31(2) of the Companies Act cannot mean that the altered article will take effect with retrospective effect. The alteration of articles will not affect concluded transactions. As per the original articles, there was a subsisting contract that the shares were freely transferable and that there was no power in the board to reject the transfer. If a member had entered into a contract on that basis and finalised the transaction and the property in the shares had passed, the transferee has already become the beneficial owner of the shares. On that day itself the right to have the transferred shares registered in the name of the transferee became crystallised and, therefore, any later alteration of articles will not affect such transactions. This view appears to have been accepted by some judicial authorities as well as most of the authors of text books.
47. Following cases in which the applicability of altered articles was considered were referred to by learned counsel on either side :
(1) Pepe v, City and Suburban Permanent Building Society [1893] 2 Ch 311 : In March, 1888, the plaintiff became a subscriber or member of the defendant society in respect of two shares, and paid the full value thereof by December, 1889. He also purchased in the same month two other shares. The plaintiff had not charged or encumbered any of these shares. By Rule 5 of the Society's Rules in force when the plaintiff joined the society, any member, upon giving one month's notice in writing, might withdraw his investments at any monthly meeting. On January 5, 1891, the plaintiff gave notice in writing of his wish to withdraw his investments. But he did not leceive payment. In May, 1892, the society altered Rule 5 by giving the directors power in their discretion to make prior payment to any member having not more than $ 50 standing to his credit. The plaintiff commenced this action to have it declared that the alteration of the rule was not binding on him. Chitty J. held that the plaintiff was still a member of the society and it followed that under his contract with the society he remained subject to the rules when duly altered. Therefore, it was held that the altered rule was binding on the plaintiff.
In Allen v. Gold Reefs of West Africa Ltd. [1900] 1 Ch 656 one of the articles (Article 29) of a limited company provided that it should have a lien on all debts and liabilities of any member to the company upon all shares not being fully paid held by such member. The company had allotted fully paid-up shares to one Zuccani as the nominee of the vendor by way of purchase money for the property acquired by the company. At the time of his death he held 27,885 fully paid-up shares. The company had also allotted to him 60,000 ordinary shares not paid-up. Calls were made from time to time in Zuccani's life-time on these unpaid-up shares, but he did not pay the calls when they became due. Zuccani died on April 4, 1897, leaving a will. The plaintiffs were his executors. At the time of his death he owed the company the arrears of call amounts for the unpaid-up shares, besides interest. The plaintiffs did not get themselves registered as members of the company in respect of any of Zuccani's shares. On February 9, 1897, a notice was issued by the company for an extraordinary general meeting to be held on February 18, 1897, for the purpose of altering Article 29 of the articles of association, by which the words "not being fully paid" was to be omitted. The meeting was held on 18th February and the special resolution was then passed. Thus, the company claimed to extend their lien to all fully paid-up shares. On June 4, 1897, the company sent a notice requiring payment of the balance call amount and interest. It was also stated therein that in the event of nonpayment by the time appointed in the notice, those shares would be liable to be forfeited. The amounts demanded were not paid. Therefore, subsequently the directors passed a resolution purporting to forfeit the partly paid-up shares. On January 29, 1897, the directors had refused to register a transfer of some of Zuccani's fully paid-up shares. However, finding that the articles gave no power to the company or its directors to refuse to register a transfer of fully paid-up shares, they passed the transfer. The plaintiffs thereupon brought this action to obtain a declaration that the defendant-company had no lien upon the fully paid-up shares and an injunction to restrain forfeiture of the partly paid-up shares. The main question in the case was whether the company had power to alter its original articles by giving itself a lien upon the fully paid-up shares. The court held that how shares shall be transferred and whether the company shall have any lien on them, are clearly matters of regulation properly prescribed by the company's articles of association. The court also held that the articles can be altered so as to impose a lien or restriction in respect of a debt contracted before and existing at the time when the articles were altered, if the alteration was done bona fide and for the benefit of the company. However, it was specified that it does not follow "that the altered article may not be inapplicable to some particular fully paid-up shareholder. He may have special rights against the company, which do not invalidate the resolution to alter the articles, but which may exempt him from the operation of the articles as altered". In the judgment, Pepe v. City and Suburban Permanent Building Society [1893] 2 Ch 311 was referred to and was considered to be a decision closely in point. Lindley M. R., in his judgment, observed as follows (at page 673 of [1900] 1 Ch) :
"But, although the regulations contained in a company's articles of association are revocable by special resolution, a special contract may be made with the company in the terms of or embodying one or more of the articles, and the question will then arise whether an alteration of the articles so embodied is consistent or inconsistent with the real bargain between the parties. A company cannot break its contracts by altering its articles, but, when dealing with contracts referring to revocable articles, and especially with contracts between a member of the company and the company respecting his shares, care must be taken not to assume that the contract involves as one of its terms an article which is not to be altered."
48. Vaughan Williams L. J., in his judgment, stated as follows (at page 676 of [1900] 1 Ch) :
"But I think that we are all agreed that cases might occur in which a member might have acquired, by contract or otherwise, special rights against the company which would exclude him from the operation of the altered article."
(iii) In Arthur Francis Whinney v. Gulf Line Ltd. [1909] SC 732 the holder of fully paid shares in a limited company, and also of partly paid up shares on which a call was due, transferred the fully paid shares to a third party for consideration. The transferee presented the transfer for registration. According to the existing regulations of the company the transferee was entitled to be put on the register. Thereafter the company, by a special resolution altered the articles of association with the effect of giving the company a lien on all shares registered in the name of a member for all calls due on any shares registered in the name of such member, and refused to register the transfer until the call due on the partly paid shares had been paid. In the petition for rectification of the register, Clerk LJ., after considering Pepe v. City and Suburban Permanent Building Society [1893] 2 Ch 311 and Alien v. Gold Reefs of West Africa Limited [1900] 1 Ch 656, posed the question before the court and the answer thereto as follows :
"The question is whether, if a shareholder is entitled, under the existing regulations of the company, to transfer his shares, and if the transferee has the right to demand that the transfer shall be registered, it is a good answer for the company to say that they decline to register, because since the date when the transfer was presented for registration they have passed a resolution giving them the power to refuse to register it. I think it is not a good answer, and that this case has no relation to the cases where the company has been held entitled to alter its regulations. The person holding the shares was entitled to transfer them, his transferee was entitled to be registered, and that right could not be taken away by something subsequently done by the company solely for the purpose of preventing the registration of the transfer."
Lord Ardwall, concurring with this judgment, observed as follows :
"It is perfectly clear under the articles of association that the registration of transfers of the unpaid shares might have been objected to until the amount due in respect of them was paid up, but with regard to these 10,023 shares there is equally no doubt that when, the transfer was presented to the respondents on June 3, 1908, for registration, it was the absolute right of the petitioner to have the transfer registered, and I think it would be grossly inequitable if that right were held to be defeated by any resolution subsequently passed. The petitioner purchased the shares on the footing that they were free of liability, and it is out of the question that the respondents' campany should be entitled to put burdens upon them by resolutions passed after the date of purchase. The petitioner, in my opinion, is in the same position in which he was on June 3, 1908, when he presented the transfer for registration, and I think that we should now order the register to be rectified, so as to give effect to the transaction."
49. In Sidebottom v. Kershaw, Leese and Co. Ltd. [1920] 1 Ch 154, the company passed a special resolution to alter its articles by introducing a power for the directors to require any shareholder who competes with the company's business to transfer his shares at their full value to the nominees of the directors. The plaintiffs who were carrying on a competing business brought this action for a declaration that the resolution was invalid. After referring to Alien v. Gold Reefs of West Africa Ltd. [1900] 1 Ch 656 and other cases, Lord Sterndale M.R. posed the following question and answer (p. 165 of [1920] 1 Ch) :
"When the directors of this company introduced this alteration giving power to buy up the shares of members who were in competing businesses did they do it bona fide for the benefit of the company or not ? It seems to me quite clear that it may be very much to the benefit of the company to get rid of members who are in competing businesses."
50. The authors of different text bonks have considered this question in the following manner. Buckley on the Companies Acts, 14th (1981) Edition, Volume 1, Page 203.
"In the absence of restrictions in the articles, or by agreement with the company outside the articles, the shareholders may transfer their shares without any consent, and the directors have no discretionary power to refuse to register a transfer bona fide made.
Thus a shareholder may make transfers of his shares to nominees so as to increase his voting power, and the directors cannot refuse to register the transfers. The case does not resemble that of directors issuing new shares so as to obtain a majority of voting power. The only obligation on the transferor is to find a transferee legally competent to take the shares. And where a transferee has presented a transfer which under the articles as they stand entities him to be registered, the company cannot by a subsequent alteration of its articles defeat his right."
51. Gore-Browne on Companies, 44th Edition, Volume 1, Chapter B-1. "Alteration of articles : -- The articles of a company, or any part of them may, subject to the provisions of the Act and to the conditions in the memorandum, at any time be altered or deleted by special resolution, others being substituted as circumstances render necessary."
52. After considering the various decisions the learned author states as follows :
"In any case it is clearly established that no majority of shareholders can by altering the articles retrospectively affect, to the prejudice of non-consenting owners of shares, the rights already existing under a contract, nor take away a right already accrued : e.g., after a transfer of shares is lodged the company cannot create a right of lien so as to defeat the transfer. But every shareholder is presumed to know that rights conferred by the articles alone are subject to alteration by special resolution of the company. He cannot restrain such an alteration, even though to his own prejudice, unless the alteration would amount to a breach of contract or he can show that the alteration in the articles is not made bona fide and for the benefit of the company as a whole. But it is far from easy to say in what cases there is a contract, for in Alien v. Gold Reefs of West Africa Ltd., Lindloy M.R. says (at p. 673): 'A company cannot break its contracts by altering its articles of association ; but when dealing with contracts referring to revocable articles, and especially with contracts between a member of the company and the company respecting his shares, care must be taken not to assume that the contract involves as one of its terms an article which is not to be altered'. Vaughan Williams L.J. (at p. 676) said: 'A resolution may alter the regulations of the company but cannot retrospectively affect existing rights. I take it to be clear that the alteration must be made in good faith, and I take it that an alteration in the articles which involved oppression of one shareholder would not be made in good faith'. Romer L.J. (at p. 679) shows that the articles alone may confer on classes of shareholders rights which are unalterable without their consent."
53. Halsbury's Laws of England, 4th Edition, page 381 :
"554. How far articles may be altered.--Only such alterations are valid as would have been valid if originally contained in the articles. Any alteration must be made in good faith for the benefit of the company as a whole, that is of the corporators as a general body. Subject to this, articles may be freely altered. It is for the shareholders and not the court to determine whether or not the alteration is for the benefit of the company, and the court will not readily interfere with an alteration made in good faith unless it is of such a character that no reasonable person, could have regarded it as made for the benefit of the company. The alteration may affect the rights of a member as between himself and the company by retrospective operation, since the shares are held subject to the statutory power of altering the articles."
54. In the footnote the learned author has also referred to Mc Arthur v. Gulf Line [1909] SC 732.
55. Palmer's Company Law, 24th (1987) Edition, Volume 1, Page 101, Chapter 14-20 :
"It is now necessary to consider some older decisions in which the courts held that an alteration of articles was not invalid on the ground that it affected the existing rights of shareholders adversely and even may result in their de facto expropriation. Such alteration of articles may thus have retrospective effect. However, today these decisions must be treated with caution because such alteration may constitute unfairly prejudicial treatment and in appropriate circumstances may enable the affected shareholder to petition the court for protection under Section 459."
56. After referring to Alien v. Gold Reefs of West Africa Ltd. [1900] 1 Ch 656, Sidebottom v. Kershaw, Leese and Co. [1920] 1 Ch. 154, Pepe v. City and Suburban Permanent Building Society [1893] 2 Ch 311 and McArthur v. Gulf Line [1909] SC 732, the learned author observes as follows in Chapter 14-21:
"But in a company limited by shares, when after a transfer is presented for registration, the company alters its articles by restricting the right to transfer the shares, with a view to preventing the registration of the particular transfer, the alteration does not deprive the applicant of his right to have the transfer registered in accordance with the articles before alteration."
57. The only case in which the facts are similar to the facts of the present case is McArthur v. Gulf Line [1909] SC 732. With great respect, I adopt the reasoning in that judgment and hold that Article 17 is not applicable in this case.
58. C. P. Noa. 2S and 30 of 1989 were filed before the alteration of articles. Any order passed in these company petitions will have to relate back to the date of filing of the petitions. In that view the altered articles will not affect those transfers.
59. Point No. 4 : Whether the grounds of rejection are extraneous and irrelevant and have no nexus to the object of transfer or whether the grounds themselves are ultra vires Article 17 : The minutes of the meeting of the board of directors dated March 20, 1989, is produced as annexure R-1 (f) to the counter-affidavit in C. P. No. 29 of 1989 on behalf of Mathrubhumi dated November 9, 1989. At item 4 in the agenda the applications for transfer of shares were considered by the board. The first portion of the minutes deals with the defects in the transfer applications themselves. That aspect is discussed elsewhere in this judgment. Thereafter, the board considered the reasons for refusing the share transfer. This court has already held in another part of this judgment that Article 17 will not apply to the transfers in question. Even in case Article 17 is applicable, the further question whether the grounds relied on by the board are extraneous, irrelevant and ultra vires Article 17 requires consideration.
60. Generally, the court will not interfere where the directors have applied their mind and come to the conclusion that it would be against the interest of the company to register a particular person as a member (see M. G. Amirthalingam v. Gudiyatham Textiles Pvt. Ltd. [19721 42 Comp Cas 350 (Mad)). In the absence of materials to prove that the directors failed to exercise the discretion vested in them bona fide or that they acted oppressively, capriciously, corruptly or mala fide, a petition under Section 155 is not maintainable. Normally, it is for the petitioners to prove that the decisions to decline transfer were oppressive, capricious, etc. It is settled that if the articles permit the directors to decline to register transfer of shares without stating the reasons, the court would not draw any unfavourable inference against the directors merely because they did not give reasons (see Bajaj Auto Ltd. v. N. K. Firodia, [1971] 41 Comp Cas 1; [1971] 2 SCR 40 ; AIR 1971 SC 321). However, if the directors chose to give reasons for refusal of registration of transfer the court would look into such reasons to find out whether they were legitimate or otherwise (see South Indian Bank Ltd. v. Joseph Michael [1978] 48 Comp Cas 368 (Ker)). Thus, the grounds for rejection mentioned in the minutes of the board of directors have to be examined in order to find out whether they were legitimate reasons.
61. The first ground relied on by the directors is that the transferees are undesirable and their association with Mathrubhumi would be detrimental to its interests and would affect its laudable objects. The resolution states as follows: Vardhaman and Dharmayug are wholly owned subsidiaries of Bennet Coleman and Co. Around April, 1946, the controlling interest of the Tunes of India was acquired by the Dalmia Jain group. Towards the end of 1955 it came under the control of Shanti Prasad Jain, who along with R. Dalmia were the main and controlling persons of the group. In 1965, the controlling shareholding of the company passed into the hands of Shanti Prasad Jain and his family members, who still retain such control. This group was alleged to have committed various malpractices, and the Central Government appointed a commission of enquiry in 1956 popularly known as "the Vivian Bose Commission". In its report various illegalities and malpractices perpetrated by the group were mentioned. In 1963, the Central Government ordered investigation into the affairs of Bennet Coleman and Co. Ltd. The Union of India filed various applications before the Companies Tribunal seeking removal of various directors and appointment of a special officer to manage and conduct the affairs of the company. These proceedings stood transferred to the Bombay High Court which thought it fit to reconstitute the company's board of directors and the court handed over the management of the company to the reconstituted board for a period of 7 years. The company unsuccessfully challenged this order before a Division Bench of the Bombay High Court.
62. A copy of the report of the Vivian Bose Commission was made available to the court. No member of the present management was subject to scrutiny by the Vivian Bose Commission. No member of the present management was subject to scrutiny by the Bombay High Court except Sri Narendrakumar, who was accepted as a director by that court. The Bombay High Court order proceeded on the footing that none of the charges made in the petition before that court against the then management were admitted (See Bennet Coleman and Co. Ltd. v. Union of India [1977] 47 Comp Cas 92 (Bom)). Therefore, it is clear that the statement in the resolution that a commission of enquiry was appointed in 1956 to enquire into the alleged malpractices of the group which is now controlling the company is factually incorrect. The allegations against the former directors which itself was not established before the Bombay High Court cannot be a ground for holding that the present directors can be termed as undesirable on account of those allegations. So this ground can be termed as non-existent and not relevant. It is raised as a result of misreading of the materials. No reasonable man will come to the conclusion arrived at by the board of directors on the materials considered by the board.
63. Another ground mentioned in the resolution is that over the years the Times of India group has come to be known among the public and particularly in journalistic circles as a big business group with considerable money power, the editorial policies of which have been largely designed to serve its own business interests rather than to serve as an instrument of free press in India. Mathrubhumi has steadfastly over the years kept itself aloof from big business and monopoly interests. As annexure A-13 to the rejoinder affidavit dated March 29, 1989, filed on behalf of the first respondent in C. P, No. 29 of 1989, extract from a publication known as The World's Great Dailies by Wasting House Publishers, U.S.A., is filed. Therein it is mentioned that Times of India is one of the 50 great dailies of the world. It is described as a champion of freedom and integrity in India, the well-being of all segments of the Indian society, international amity, civil liberties, etc. ; and it opposes vigorously tyranny and bureaucratic corruption, high-handedness and bungling in Government. It is described as a journal which avoids publishing anything which, in its view, would incite regionalism, casteism and communalism. Annexure A-12 in that affidavit is a copy of a letter dated February 15, 1989, written by several editors to the chairman, Bennet Coleman Co. Ltd., wherein it is mentioned that the Times of India is usually looked upon by people as a model to be followed. No specific material is relied on in the minutes for the allegation that the editorial policies of the Times of India have been largely designed to serve its own business interest rather than to serve as an instrument of the free press in India. Therefore, this was a ground not supported by any material considered by the board. The resolution also states that Mathrubhumi has "steadfastly over the years kept itself aloof from big business and monopoly interests". In the rejoinder affidavit dated May 18, 1989 (paragraph 7-XI), it is mentioned that the Second Press Commission found that Mathrubhumi has also business interests anchor is connected with business interests such as plantations. The press commission clearly found that the present chairman and the managing director of the company is a planter, while another director and principal shareholder, Mr. P. V. Chandran, was a director of Kerala Rubber Plantations (P) Ltd. In the affidavit it was also stated that Mr. Chandran has other large business interests including transport and film production. That is clear from the auditors' reports for the year ended 31st July, 1988. Mr Chandran and his brother, Gangadharan, have large business interests. The chairman and the managing director is also a politician and is a member of the Kerala Legislative Assembly elected on the Janata Party ticket. He was also a Minister for a short period in the present Kerala Ministry. It is clear that the present managing director and most of the other directors had no part in the running of the paper at its early stages. They came in only much later. T'here is some force in the argument that they are interested in purchasing further shares of Mathrubhumi. Therefore, the contention on behalf of the petitioners that the statement in the resolution of the board of directors that Mathrubhumi has kept aloof from big business, is not true, appears to be incorrect.
64. Another ground stated is that the Times of India was attempting to gain control over Mathrubhumi by purchasing its shares. There is evidence to the effect that Times of India put forward a proposal to start a Cochin edition of the Times of India with the help of Mathrubhumi. The letter of the executive director of the Times of India dated February 13, 1989, indicated to the shareholders that the managerial expertise of the Times of India was available if the board of directors of Mathrubhumi wanted to take advantage of the same. Vardhaman and Dharmayug are authorised to purchase only up to 10% each in the equity share capital of Mathrubhumi. The shares now lodged for transfer are only about 13%. According to the petitioners, the present directors and their supporters held more than 75% of the shares. However, according to the respondents, they hold only slightly above 50%. In any view of the case they hold the majority of the shares in Mathrubhumi. Reference was made to Clause 7 of the memorandum of association of Mathrubhumi, where one of the objects of the company was to enter into partnership or arrangement with any person or company carrying on any business which Mathrubhumi is authorised to carry on. Therefore, according to the petitioners, if the proposal for co-operation between the Times of India and Mathrubhumi was accepted, that would have been only in consonance with the objects for which Mathrubhumi was founded. In the resolution of the board it is not stated as to how the Times of India will get control over Mathrubhumi, if the shares in question were transferred to the Times of India. Under these circumstances, the ground stated in the resolution that the transfer of shares was not to be allowed since it was an ill-disguised attempt to get control over Mathrubhumi and to force the company to accept the proposal made by the Times of India to start a Cochin edition, was also not valid or legitimate.
65. No material was placed before the board of directors in support of the ground that the Times of India was trying to acquire further shares in Mathrubhumi either for forcing the company to accept the proposal or to destabilise the company or to get control of its management.
66. The Times of India is not publishing any Malayalam publication. They have denied that they intend to start any Malayalam publication. Reliance was placed on a statement in an article published in the Illustrated Weekly of India, which is one of the publications of the Times of India, to the effect that the Times of India was intending to publish Malayalam versions of the Illustrated Weekly of India and Film. Fare, using Mathrubhumi's distribution net work. The answer to this contention is that the quotation from the article was extracted out of context. The very said article pointed out that an understanding had been reached between the management of the Times of India and Mathrubhumi to share each other's printing and publication facilities. The article also pointed out that Times of India's executive director, Mr. Krishnamoorthy, informed Mr. Veerendrakumar about the purchase of shares of Mathrubhumi and Mr. Veerendrakumar welcomed the decision. Thus, if the said article and the contents thereof are correct, then they are correct in toto and not in patches. Even so, it was emphatically denied that the Times of India had any intention to start Malayalam editions of the publications. It is not necessary in this case to enter any specific finding as to which of these versions is correct, because such a finding will not have any relevancy to the questions in issue in this case.
67. Sri K. K. Venugopal, learned counsel appearing on behalf of Mathrubhumi, contended that the purchase price for the shares was exorbitant and not a commercial investment but only to corner the shares thus leading to a take over of Mathrubhumi. However, Sri G. Ramaswamy, learned counsel appearing for the Times of India, submitted that shares of Mathrubhumi are not quoted in any stock exchange. Its equity capital is 3,479 equity shares of Rs. 5 each. About 500 shares are not effective either because the persons are dead or their addresses are not known. So, the effective number is roughly 2,900 shares. If the shares of Mathrubhumi are valued on the basis of break-up value of shares, or on the basis of capitalisation of earnings or valuation of assets basis (market value of assets less liabilities), it will be above Rs. 15,000 per share. A scrutiny of the balance-sheet of the company would show that its assets including reserve, if divided by the sum total of the number of equity shares, will be more than Rs. 15,000. If the net profit for a period of past 3 to 5 years is taken and it is capitalised for say 10 years, out of which the value of the preferential shares are deducted, the value per equity share will be Rs. 40,000. Learned counsel also pointed out that there was no specific reply to the averment in paragraph 7--xviii to the effect that the value of the share will be more than Rs. 15,000. Therefore, the statement in the resolution that the price ranging from Rs. 12,500 to Rs. 15,000 per share was excessive, was also not correct.
68. On a reading of the entire resolution it has to be held that none of the grounds relied on for refusing transfer of shares were valid or legitimate. Some of the grounds mentioned are not even relevant. Therefore, I hold that even if Article 17 is applicable to the transfers in question, no proper grounds as envisaged in Article 17 were available for rejecting the application for share transfers.
69. The Times of India has a further case that there was considerable delay in taking a decision on the applications for transfer and that itself is a ground for setting aside the decision of the board. It was pointed out that at the first board meeting after lodging of shares itself the board considered the applications and decided to reject the same. However, that decision was not recorded in the minutes since the board had no power to reject share transfers at that time. It was also submitted that subsequently the company colluded with Sri Chandu and obtained a stay from the munsiff's court in order to avoid taking a decision. It was also submitted that even after stay from the appellate court the board did not take a decision till Article 17 was added to the articles of association. Although there is some force in these arguments I am not inclined to accept the ground of delay as a ground for interfering with the decision of the board. On the face of the materials available, Mathrubhumi is entitled to say that scrutiny of the shares was not complete before the first board meeting after lodgment of shares. So also there was in fact a stay order from a civil court. The petitioners have not established that the delay in taking a decision on the transfer applications justifies interference by this court.
70. Whether the resolution of the board is violative of the principles of natural justice : According to the petitioners, the contents of the resolution show that it is highly defamatory to the petitioners as well as the Times of India. According to the petitioners, the Times of India commands a world-wide reputation and has international standing in relation to its business. The resolution of the board condemns the Times of India without even hearing them.
71. Therefore, according to the petitioners, the resolution containing the factual allegations as well as conclusions were defamatory and affects the reputation of the company. Therefore, the board ought to have followed the principles of natural justice and should have given an opportunity to explain at least the factual grounds relied on. In support of this contention learned counsel for the petitioners relied on the judgment in Chingleput Bottlers v. Majestic Bottling Co. AIR 1984 SC 1030. I do not think that in cases similar to the one with which we are concerned, an opportunity to the transferees of the shareholders is called for. It is not at all practicable also. In any view of the case the petitioners have challenged the various grounds relied on against them and this court has considered those grounds in this judgment. Under these circumstances, it is not necessary to examine this contention in great detail. Suffice it to hold that the resolution is not violative of the principles of natural justice.
Summary of the findings :
Point No. 1 : All the applications for transfer except the applications where stamps were not cancelled at all were proper and duly stamped.
Point No. 2 : The notice and explanatory statement of the extraordinary general meeting of Mathrubhumi of March 13, 1989, were legal and valid. The contention that alteration of the articles and refusal to register shares were mala fide, cannot be accepted. The alteration of the articles of Mathrubhumi is valid.
Point No. 3 : Article 17 is not applicable in this case.
Point No. 4 : Even if Article 17 is applicable no proper grounds were available for rejecting the application for share transfers.
72. In the result the petitions are disposed of as follows :
C.P. No. 29 of 1989 : The resolution of the board of directors of Mathrubhumi Printing and Publishing Co. Ltd., Calicut, dated March 20, 1989, is set aside in respect of the shares, details of which are given at items 1, 2 and 3 of Appendix V of this judgment. Mathrubhumi is directed to register the transfer of these shares in the name of Vardhaman Publishers Ltd. and to rectify its register of members accordingly. Mathrubhumi will give notice of the rectification to the Registrar under Section 156 of the Companies Act within 30 days of this judgment. They will also file a copy of this order before the Registrar of Companies along with Form No. 21 set out in Appendix I of the Companies (Central Government) General Rules and Forms within thirty days. Time taken for drawing up the judgment of the court and in obtaining a copy of this judgment shall be excluded in computing the period of 30 days. If they fail to comply with the above-said directions within the time specified, the petitioners will be entitled to have this judgment executed and the acts required to be done by Mathrubhumi done so far as practicable through an officer appointed by the court at the cost of Mathrubhumi. The prayer for setting aside the resolution in respect of shares which are detailed as serial Nos. 1, 2 and 3 to Appendix IV to this judgment is disallowed. Mathrubhumi is directed to return to the petitioner these shares with the share transfer applications and uncancelled stamps within 30 days. There will be no order as to costs.
C. P. Nos. 30 and 42 of 1989 : The resolution of the board of directors of Mathrubhumi Printing and Publishing Co. Ltd., Calicut, dated March 20, 1989, is set aside in respect of the shares, details of which are given at items 4, 5, 6 and 7 of Appendix V to this judgment. Mathrubhumi is directed to register the transfer of these shares in the name of Dharmayug Investments Ltd. and to rectify its register of members accordingly. Mathrubhumi will give notice of the rectification to the Registrar of Companies under Section 156 of the Companies Act within 30 days of this judgment. They will also file a copy of this order before the Registrar of Companies along with Form No. 21 set out in Appendix 1 of the Companies (Central Government) General Rules and Forms within thirty days. Time taken for drawing up the judgment and in obtaining a copy of the judgment shall be excluded in computing the period of 30 days. If they fail to comply with the above-said directions within the time specified, the petitioners will be entitled to have this judgment executed and the acts required to be done by Mathrubhumi done so far as practicable through an officer appointed by the court at the cost of Mathrubhumi. There will be no order as to costs.
C. P. No. 46 of 1989 : The resolution of the board of directors of Mathrubhumi Printing and Publishing Co. Ltd., Calicut, dated March 20, 1989, is set aside in respect of the shares, details of which are given at items 8, 9, 10, 11 and 12 of Appendix V to this judgment. Mathrubhumi is directed to register the transfer of these shares in the name of Vardhaman Publishers Ltd. and to rectify the register of members accordingly. In respect of shares Nos. 2933 and 2560 (transferors K. T. Raghavan and Radha K. Menon respectively) the petitioner will pay the transfer fee to Mathrubhumi. Mathrubhumi will return the share transfer application in respect of shares Nos. 666 and 667 (transferor S. Asok Kumar) to the petitioner who will re-present the application showing the correct name of the transferor and return the same to Mathrubhumi. The petitioner will pay the transfer fee to Mathrubhumi in respect of shares Nos. 1868 to 1715 (transferor, K. V. Govindankutty Nair) as well as shares Nos. 421 to 423 (transferor, T. V. Balathilaka Kuru^). Mathrubhumi will give notice of the rectification to the Registrar under Section 156 of the Companies Act within 30 days of this order. They will also file a copy of this order before the Registrar of Companies along with Form No. 21 set out in Appendix I of the Companies (Central Government) General Rules and Forms within thirty days. Time taken- for drawing up the judgment and in obtaining a copy of the judgment shall be excluded in computing the period of 30 days. If they fail to comply with the above said directions within the time specified, the petitioners will be entitled to have this judgment executed and the acts required to be done by the Mathrubhumi done so far as practicable through an officer appointed by the court at the cost of Mathrubhumi. There will be no order as to costs.