Company Law Board
K.N. Shanth Kumar vs The Printers (Mysore) Private Limited ... on 27 March, 2007
Equivalent citations: (2008)1COMPLJ373(CLB), [2008]81SCL327(CLB)
ORDER
K.K. Balu, Vice-Chairman
1. This Bench by an ex-parte interim order dated 20.02.2007 directed that the respondents will maintain status quo in regard to position of the petitioner as Editor of the publications namely, Sudha and Mayura until further order.
2. Shri S.S. Naganand, learned Senior Counsel, representing the respondents 1 and 2 while urging for vacation of the ex-parte interim order submitted:
3. The Company has been managed by the board of directors, consisting of independent directors and also members who do not belong to the family of the petitioner and respondents 2 and 3 and has never been run on the principles of partnership. The Editors of publications have changed from time to time and the appointment of Editor has not been done by the board of directors. The only grievance of the petitioner regarding his removal from the position of Editor being a single act cannot constitute an act of oppression, whereas continuous acts which are oppressive can alone be the ground for a petition under Section 397 of the Companies Act 1956. The change of Editorship and consequent filing of declarations as required under the Press and Registration of Books Act, 1867 are not amenable to the jurisdiction of the CLB. It has been the practice in the Company for the managing director to appoint the Editor and the petitioner's appointment as Editor was not by the board of directors, but by the second respondent. The second respondent being the joint managing director is occupying the position of a managing director as envisaged in Section 2(26) of the Act. By virtue of Section 2(26) coupled with Article 22(b) of the articles of association of the Company, the second respondent has substantial powers of management of the Company. Furthermore, the Company has granted a power of attorney in favour of the second respondent empowering him to employ, dismiss and remunerate workers of the Company. In this context, appointment of the second respondent as Editor of the publications followed by the statutory declarations are decisions taken by the competent person in the normal course of business. The second respondent vested with the power of changing the Editor of publications filed necessary statutory declarations before the District Magistrate for authentication of such declarations. The question of cancellation of the authentication by the Magistrate does not apply in view of the fact that the circumstances mentioned in Section 8B of the Act, 1867 are absent in the present case.
4. The members of the board have been discussing from time to time the division of departments among the whole time directors but not the appointment of Editor for the publications. However, no decision has been so far taken by the board of directors in the matter of division of departments among the whole time directors. The second respondent never misused his position as the joint managing director of the Company, especially when there is no requirement of approval of the board of directors for appointing or removing the Editor. The appointment of the petitioner as Editor was decided by the joint managing director on the lines of the appointment of any employee of the Company. The appointment of Editor is being an administrative issue does not affect the petitioner's rights as a shareholder.
5. The petitioner filed writ petitions before the High Court of Karnataka challenging the authentication of the declarations appointing the second respondent herein as Editor of the publications namely, Deccan Herald and Prajavani which came to be unconditionally withdrawn by him. Pursuant to the appointment of the second respondent as Editor, the requisite declarations have been filed with the Magistrate and further acted upon in respect of the publications Deccan Herald and Prajavani as borne out by the respective issues. The issues relating to Deccan Herald and Prajavani would indicate the change of Editorship in the name of the second respondent. The second respondent having acted lawfully and complied with the statutory requirements, petitioner cannot raise any dispute in this regard, especially when no prima facie case has been made out by him. There is no balance of convenience in his favour. The Magistrate has not so far initiated any proceeding under Section 8B of the Act 1867 and the Magistrate is competent person to go into cancellation of the declaration in respect of the petitioner before making any endorsement for change of the editorship in the name of the second respondent. The second respondent being the joint managing director originally appointed the petitioner as Editor of the publications and has the power to remove him from editorship. If the appointment of the second respondent as Editor is violative of the provisions of the Act 1867, and illegal, the CLB is not to adjudicate the disputes in question. The petitioner tailed to show that there are circumstances warranting an order of winding up of the Company on just and equitable grounds in which case no relief can be granted to the petitioner in regard to Section 397 of (he Act as reiterated by the Supreme Court in Hanuman Prasad Bagri and Ors. v. Bagress Cereals P.Ltd. and Anr. (200J) Vol. 1-5 CC 493.
6. Shri Aditya Sondhi representing the third respondent pointed out that the petitioner was not appointed as Editor of the publications by the board of directors of the Company but only by the joint managing director. No one has vested right to claim the Editorship, the second respondent came to be appointed as Editor in the normal course of business.
7. Shri K.G. Raghavan, learned Senior Counsel while opposing the prayer for vacation of the ex-parte interim order submitted:
8. The appointment of Editor can be exercised only by the board of directors and not the managing director of the Company. The petitioner herein has held the position of Editor of the publications since the year 2001, as borne out by copies of the declaration filed under the Act 1867, endorsement of the Magistrate and the issuer of periodicals published thereon. These declarations in respect of the petitioner have not been cancelled by the Magistrate and further appointment of the second respondent as Editor has not been authenticated in accordance with the provisions of the Act, 1867. Nevertheless, the publications effected in respect of Deccan Herald and Prajavani would show that the second respondent is the Editor, which is violative of Section 5 of the Act, 1867 attracting the penal provisions for printing/publishing the periodical without confirming to the Registration of Newspapers (Central) Rules, 1956. Section 398 provides relief in case the affairs of the Company are conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the Company. The division of departments among the whole time directors is within the power of board of directors is brought out by the minutes of various board meeting forming part of this Bench. The resolution passed at the board meeting held on 23.01.2002 shows that the appointment of Editors of the Company has been exercised by the Board of Directors. When the issues relating to the promotion and re-designation of the officials of the publications came for discussion at a board meeting of the Company, the directors recorded that in all important matters consultation with the whole time directors would be advisable. When the third respondent had resigned from the post of managing director, director and editor, the board of directors requested him to reconsider his decision to resign from these posts but ultimately accepted his resignation at the meeting held on 19.10.2001. It is, therefore, far from doubt, that the second respondent is not vested with the absolute power of appointing the Editor of the publications and thus not made out a prima facie case for his continuance as the Editor of the publication. The appointment of the second respondent as Editor without sanction of the board of directors is not sustainable. The petitioner has been heading the editorial department as reflected in the minute, of various board meetings and no change in the division of department has so far been approved by the directors, but such decision has been deferred by the board of directors. The second respondent would not suffer any prejudice in lawfully continuing the services of the petitioner as the Editor of the publications. In Section 397/398 petition, violation of any law/regulations can be gone into for the purpose of moulding appropriate reliefs under Section 402 as held by this Board in Krishna Das Paul v. Calcutta Chemical Company Limited (1998) 5 Comp L.I 569. The Supreme Court in Kamal Kumar Dutta and Anr. v. Ruby General Hospital Ltd. and Ors. (2006) 7 SCC 613 held that Section 398 deals much about the mismanagement or apprehension of mismanagement in the affairs of the company and therefore, the grievances of members need not exist to claim any remedy against the acts of mismanagement.
9. I have heard the arguments of learned Senior Counsel for the parties. The short issue for my consideration is whether there is any justification to vacate the expire interim order directing the respondents to maintain status quo in regard to position of the petitioner as editor of the publications, namely Sudha and Mayura, in the facts and circumstances of the present case. It is on record that the first respondent Company engaged in the business of publishing newspapers and periodicals is managed by the petitioner second respondent and the wife of third respondent being the whole time directors under the supervision of the board of directors constituted by among others, three non-executive directors. The petitioner has been the editor, as borne out by the declaration dated 27.03.2002 filed as required under the Act, 1867. While according to the second respondent, the appointment of editor is not done by the board of directors, but only by the managing director, the petitioner claims that the second respondent proclaimed himself to be the Editor without the authority of the board of directors of the Company and filed the requisite declarations under the Act, 1867. In this context, the communication dated 17.02.2007 of Sri M.K. Govardhan Kumar, an independent director of the Company assumes importance which reads as under:
It is surprising to see through our own news papers that some developments have taken place in The Printers (Mysore) Pvt. Ltd, especially regarding change of Editor. This subject was discussed many times in the Board with inconclusive decision. Hence we request you to kindly call for an immediate Board meeting and to explain why this major decision was taken without the consent of the Board
10. The grievance of Sri M.K. Govardhan Kumar is that the major decision regarding change of editor has been taken without the consent and knowledge of the board Sri Kuldip Nayar, yet another independent director expressed his shock in his communication dated 18.02.2007 addressed to the Chairman of the Company on the removal of the petitioner as Editor thus: "I was never consulted nor has there been any board meeting." It is relevant to observe from the relevant records that department comprising of advertisement, circulation and personnel is under the control of the second respondent, while the petitioner is looking after the department with finance, material production and editorial. The issue of division of departments among the whole time directors came up for consideration at the board meetings held on 23.01.2002, 10.06.2004, 09.08.2004, 17.09.2004. 18.11.2004, 05.02.2005, 21.03.2005 and 24.02.2006. However, the board of directors after detailed discussions decided to defer this item of agenda for its next meeting and suggested at more than one board meeting to form a committee of members to make a study of departments to be handled by each director and place the same before the next meeting of the board. The board of directors at the meeting held on 24.02.2006 decided to maintain the present status quo and deferred the matter in relation to division of departments among the whole time directors. The relevant copies of minutes of these board meetings are forming part of the company petition and are not in dispute. The concern expressed by the independent directors unequivocally indicate that the subject regarding change of Editor came up for consideration of the board of directors on many an occasion and remained inconclusive, as pointed out by Sri M.K. Govardhan Kumar. It is relevant to observe that division of departments, inspite of repeated discussions at several of the board meetings, could never be resolved, whereas appointment of the second respondent as Editor has been reportedly made, without even reference to the members of the board. The plea of the second respondent that it is the matter relating to division of departments but not the appointment of Editor which came to be discussed at various board meetings, does not hold good in the light of the communications of the independent directors, discussed supra, according to which the alleged change of Editor is without the consent of the board. Furthermore, any major decision will have to be made in consultation with the whole time directors, in terms of the decision of the board of directors of the Company. Clause 22(b) of the articles of association stipulates that the managing director shall subject to the supervision, control and directions of the board of directors, have substantial powers of management and shall exercise all those powers of the management vested with the board of directors of the Company and not specifically required u" be exercised only at a meeting of the board of directors of the Company. It is therefore, abundantly clear that the power of managing director is not absolute, but only subject to the supervision, control and directions of the board of directors. The minutes of the board meeting dated 19.10.2001 establish the fact that the resignation of the third respondent from the post of director, managing director and editor was accepted by the board of directors of the Company. The agenda regarding appointment of Editors of the Company, pursuant lo a communication dated 12.01.2002 of Ms. Parulshah, wife of third respondent addressed to the board of directors came to be deliberated at a board meeting, upon which the board felt that there was no need for appointing anyone else as Editor in the place of the petitioner, which was concurred by the second respondent. The relevant extracts of the minutes of such board meetings have been produced by the third respondent. It therefore, follows that any appointment of Editor will only be with sanction of the board of directors of the Company. The assertion of the second respondent regarding the alleged removal of the petitioner and his appointment as Editor is supported by mere pleadings without any documentary proof whatsoever, save the disputed statutory declarations. The existing records would reveal that appointment of the second respondent as Editor is, prima facie, without sanction of the board. Even otherwise, if the joint managing director had exercised his power as claimed by him, such exercise of the power of appointment ought to have been in consultation of the board of directors of the Company. The remaining contentious issues including the purported violations of the provisions of the Act 1867, would be considered while disposal of the Company petition on its merits In view of the foregoing conclusions, I deem it fit that the board of directors of the Company will convene a board meeting to deliberate and decide the appointment of Editor for the publications namely Sudha, Mayura, Deccan Herald and Prajavani, and arrange to file necessary declarations under the Act, 1867 Any decision of the board of directors taken in this behalf is, however subject to outcome of the main petition. The whole process shall be completed by 30.04.2007. Till such time, the order of status quo in terms of the order dated 20.02.2007shall remain in force. Ordered accordingly.