Company Law Board
Abp Private Limited, Manipal Media ... vs United News Of India (Uni) And Ors. on 21 January, 2008
Equivalent citations: [2008]142COMPCAS688(CLB), (2008)3COMPLJ162(CLB)
ORDER
S. Balasubramanian, Chairman
1. There are two main allegations in the petition. One relates to allotment of shares to one Media West, the 4th respondent, alleging that this issue and allotment of shares has not only changed the character of the company but also has resulted in creation of a new and absolute majority. The second allegation is that immediately after Media West became a shareholder, by coopting 4 of the nominees of Media West, the control and management of the company has been handed over to Media West. With these allegations, the petitioners have sought for canceling the allotment and for declaring the Board meeting wherein the 4 nominees were coopted as null and void.
2. The facts of the case are that United News of India (UNI) was incorporated under Section 25 of the Companies Act, 1956 (the Act) in the year, 1961 with the main object to promote the spread of knowledge, Political, Cultural, Art, History, Sports and other useful objects of public interest and to disseminate news to the general public both about Indian and foreign affairs. In terms of Article 4 of the AOA, no shares shall be allotted or transferred to any person other than the owner or owners of newspapers published in the Union of India. The authorized capital of the company is Rs. 25 lacs consisting of 25000 equity shares of Rs. 100/- each. 20397 shares had been issued of which 10189 shares were subscribed and paid up leaving a balance of 10208 shares unsubscribed out of the right issue made in 2003. Before the allotment impugned in the petition on 2.9.2006, the company had 28 members holding shares in the company. Before the impugned allotment, the 1st petitioner held 22% shares and petitioners 2,3 and 4 collectively held 15.16% shares. The company has been in financial difficulties during the past few years. In a Board meeting held on 21.8.2006, the Board appointed a committee to suggest measures to revive the company. In a meeting on 2.9.2006, the committee considered 3 offers for acquiring the balance shares of 14,811 shares of the authorized capital, which remained unissued/unsubscribed and recommended to the Board to accept the offer of Media West for Rs 32.05 crores. On 2.9.2006, Media West remitted a sum of Rs 5 crores. In a Board meeting held on the same day, the Board accepted the offer of Media West and allotted 10189 shares which remained unsubscribed out of the right issue made in 2003 with the decision that the balance 4603 unissued shares would be offered as right issue and unsubscribed shares out of the same would also be allotted to Media West. Media West paid the balance on 23.9.2006 by way of a cheque which was encashed by the company on 25.9.2006. Share scripts were handed over to Media West on the same day and one of its nominees attended the AGM on 26.9.2008 which was held in the morning. In a Board meeting on the same day in the afternoon, 4 nominees of Media West were appointed as Additional Directors pursuant to a request made by Media West by a letter dated 25.9.2006. Both the allotment of shares and appointment of 4 directors have been impugned in the petition. In a Board meeting held on 9.9.2006, a committee of management was constituted with 5 members of which Media West had 3 of its nominees. Initially, when the petition was mentioned on 5.12.2006, I passed the following interim order: "Petition mentioned and arguments on interim reliefs heard. Prima facie it appears the allotment of shares to Media West is in violation of Article 4 and that cooption of 4 directors, immediately after the general meeting on the same day does not appear to be bonafide. In view of this, I direct that the status quo with regard to shareholding should be maintained and that no board meeting should be held without the leave of this Board. I also direct maintenance of status quo with regard to fixed assets of the company." Thereafter, the 1st respondent filed an application CA 462/2006 seeking for modification of the said order and after hearing the parties I passed the following order on 14.12.2006. Subject to final order on the allotment of shares to the 4th respondent and on cooption of 4 directors on 26.9.2006, I direct the company to maintain the status quo as of date in regard to the shareholding in the company as also its fixed assets. The company is permitted to hold Board meetings with 10 days notice to all the directors along with agenda and the 4 directors co-opted on 26.9.2006 may attend and participate in the Board meetings but they shall not vote on any resolution that may come up for a decision in the Board meetings". Media West got a Road Map prepared for revival of the company for consideration of the Board which the Board declined to consider and the Committee of management was disbanded in a Board meeting on 12.5.2007, that is during the pendency of the present proceeding. Media West filed an application seeking for a direction to the Board to consider the Road Map while the 1st petitioner filed an application alleging that Media West has taken over the management inspite of the order of this Bench. Arguments were advanced on both the petition and the applications.
3. The 2nd respondent is the Chairman of UNI, 3rd respondent is the GM of UNI, the 4th is Media West to which shares were allotted, the 5th respondent is a nominee director of Media West and he control Essel group of which Media West is a part, Respondents 6 to 16 are directors of UNI, of which respondents 6 to 8 are the nominees of Media West and the 16 respondent is the nominee of the first petitioner. Media West has filed its reply and a common reply has been filed on behalf of respondents 1 to 3, by the 3rd respondent who is the general manager of UNI.
4. Before I elaborate the arguments of the counsel, I consider it appropriate to extract the relevant Articles of the AOA of the company which have a bearing on the issues raised in the petition.
Article 4: Shares can be allotted or transferred only to owners of newspapers. "Notwithstanding anything contained in these Articles no share or shares shall be allotted or transferred to any person other than the owner or owners of a newspaper or newspapers published in the Union of India. The "Owners" referred to above may be an individual residing in India or a body corporate with its registered office situated in the Union of India. The decision of the Board as to whether a person is eligible to become or be or remain a member of the company shall be final and binding".
Article 8: Allotment of shares: Subject to the provisions of Section 81 of the Act, the shares shall be under the control of the Board who may allot or otherwise dispose of the same to such persons subject to Article 4 on such terms and conditions and either at a premium or at par or subject to the provisions of Section 79 of the Act at a discount and at such terms as the Board may think fit.
Article 47: "Right Issue: Subject to any direction to the contrary that may be given in the meeting that sanctions the increase in capital, all new shares shall be offered to the persons who, at the date of the offer, holders of the shares of the company in proportion as near as circumstances admit, to the capital paid up on these shares at the date, and such offer shall be made by notice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined;and after the expiration of such time as specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such a notice is given, that he declines to accept the shares offered, the Board may dispose off the same in such manner as they think most beneficial to the company. The offer aforesaid shall be deemed to include all rights exercisable by the persons concerned to renounce the shares offered to him or any of them in favour of any other person and the notice referred to above shall contain a statement of these rights". The highlighted portion of the Article is a reproduction of Section 81(1)(d) of the Act which deals with right issue of shares.
Article 89: Appointment of Additional Director: "The company in general meeting may, and from time to time, to appoint any other qualified person as a Director, either to fill up a casual vacancy or as an addition to the Board, but so that the total number of Directors shall not at any time exceed the maximum number fixed. Any Director so appointed shall hold office only until the conclusion of the next following Annual General Meeting of the company but shall be eligible for re-election at such meeting".
Article 90 Who can be appointed Director: (a) Except as mentioned in Sub-clauses (b) of this Article no person shall be a Director of the company unless he is himself a member of the company or is nominated by a member which is a body corporate and holding shares in the company.
(b) Subject to the maximum number of Directors not exceeding fifteen as stated in Clause 85 hereinabove, the Directors may co-opt as Directors not more than two person who are men prominent in the public life of India, and such co-opted Directors need not be members of the company. Such co-opted Directors may hold office for such time as may be prescribed by the Board of Director at the time they are co-opted and/or may be re-appointed from time to time. The regulation under Article 101 shall not apply to such co-opted Directors.
5. Arguments of Shri Sarkar, Senior Advocate, appearing for the petitioners: The company is a non profit organization registered under Section 25 of the Act and the main object of the company is to collect and disseminate the news and information. No portion of the income is to be distributed either directly or indirectly as dividend or in any manner to the members of the company. The company has to collect and disseminate the news and information without any bias. That is the reason why in terms of Article 4, the membership is restricted to owners of newspapers and consolidation of shares in a single shareholder has never been envisaged. Members of the board are always nominated with the restriction that no member can have more than one nominee. There is no, relationship between the shareholding and number of nominees. So far no single member had controlled the board. For instance even though the 1st petitioner held 22% shares, it never had more than one nominee. In the present case, the 4 respondent is not an owner of any newspaper and it belongs to Essel group, It is only an investment company. Since it is an investment company, its sole object should be to earn return on its investment. Since the company cannot declare any dividend, the motive of investing of Rs. 32 crores in the shares by Media West require consideration. In terms of Article 90, only a shareholder could be a director or he should be the nominee of a body corporate which is a member, the exception being that two persons who are prominent in public life could be co-opted as directors and they need not be members of the company. The signatories to the memorandum were individuals closely connected with newspaper management. M/S Media West; only holds shares in another media company which owns DNA and does not own any newspaper by itself. Even in their reply to the petition, the 1st, 2 and 3 respondents themselves have admitted that shareholding of members is really of little consequence as no dividend would be paid. If it is so, there is absolutely no justification for the 4th respondent to invest Rs. 32 crores. Its motive is obviously to take control of the properties of the company and also use the infrastructure etc of UNI for the benefit of Essel group.
6. The allotment of impugned shares to the 4th respondent is illegal. The company is a public company governed by the provisions of Section 81 of the Act. Therefore, before any allotment of new shares to an outsider, the approval of the shareholders should have been obtained in terms of Section 81(1A). In the present case, right shares were issued in January, 2003 of 12538 shares of which only 2330 shares were subscribed leaving a balance of 10208 shares. No steps were subsequently taken to offer these shares to any of the members. Instead in September, 2006 i.e. after 4 years, these shares were allotted to Media West. This could not have been done without getting the approval of the general body and the board of directors had without any authority allotted these shares to the 4th respondent. On this ground alone, the allotment should be set aside.
7. Not only being illegal, the allotment, done in a clandestine manner is also oppressive to the general body of shareholders as by this allotment, the 4th respondent came to hold more than 50% shares in the company and has thus become an absolute majority. Creation of a new majority has always been considered to be oppressive. It is true that the financial position of the company has not been satisfactory during the past few years. The company issued right shares in the year 2003 and the 1st and 2nd petitioners got shares allotted to them. Thereafter, there is nothing on record to show that the Board of the company took any step to remedy the financial position subsequently. The manner in which the allotment has been made would indicate that the entire exercise was only to benefit the 4th respondent. As per the draft minutes circulated to the directors in respect of the board meeting held on 21.8.2006, it is recorded that taking note of the financial position of the company, the board appointed a sub committee of 3 directors, viz., the 2nd, 9th and 10th respondents, to examine ways of reducing expenses, funds plan for reduction of staff through debt or equity or thorough combination of both and to take steps as may be necessary to effect the above within the next 120 days. It is to be noted that the agenda for this board meeting did not contain any business relating to appointment of a sub committee. This decision has been taken under the agenda item regarding staff position. From the mandate given to the sub committee, it is evident that it had no authority to decide on allotment of shares. However, the company has now produced a fabricated minutes in which it is stated that the sub committee was to examine ways and means to infuse funds through debt and equity or through a combination of both. The sub committee co-opted one Shri Ravinder Kumar, the 11th respondent as an additional member without any aumority of the board. On 2.9.2006, the sub committee placed its report before the board. As per this report, the committee itself met at 10.30AM on that day and that 3 parties had expressed interest in reviving the company through participation in equity and debt. The three parties were Gujarat Samachar, Media West and Sandhya Prakash. On the basis that on technical and price aspects, the offer of Media West of Rs. 32.04 crores for 14811 shares constituting 59.24% of the enhanced capital in the company was the best offer and as such the committee recommended acceptance of this offer. The board meeting was held at 2.00PM on the same day and the board accepted the recommendation of the committee. The board also decided that initially only the unsubscribed portion of issued capital of 10208 shares could be allotted to the 4th respondent and balance 4603 shares would be offered to all shareholders at a premium and in case the other shareholders do not subscribe, then, the same would be offered to the 4th respondent. In the report of the committee, there is no mention as to how proposals were invited, what valuations were conducted, why merchant bankers were not appointed and whether the fund requirements of the company were determined. In the sub committee's report, there is no mention as to whether it had met earlier. If it had not met, there are no details as to how offers were invited, from whom they were invited and under whose authority, they were invited/received. Further, now it has been disclosed that Media West gave its offer on 9.6.2006, that is, even before the sub committee was formed and Gujarat Samachar gave its proposal immediately on 22.8.2006. In its offer, the 4th respondent had clearly indicated that it would offer 5% as control premium over the fair price to be determined. The offer of the 4th respondent was never placed in the meeting of the board on 21.8.2006. It is to be noted that M/S Earnest & Young had been engaged to suggest ways and means of reviving the company but on 14th August, 2006, the Board decided to abandon the same, that is, after receipt of offer of the 4th respondent on 9.8.2006. It is seen from the sub committee's report that the committee had offered 57% shares to Media West. How can the committee make such an offer without the approval of the board? One of the mandates given to the sub committee was to recommend staff reduction but in the proposal of the 4 respondent, there is no proposal regarding reduction of staff. The 4th respondent paid the consideration for the shares of Rs. 32 crores on 23.9.2006 and the shares were allotted on 25.9.2006 and AGM was on the next date on 26.9.2006. No disclosure was made in the AGM about this allotment. Immediately after the AGM, 4 nominees of the 4th respondent were appointed as the additional directors. In the notice dated 20.9.2006 for the board meeting on 26.9.2006, there was no agenda regarding appointment of additional directors. As a matter of fact, immediately on allotment of shares on 25.9.2006, the 4th respondent sent a letter seeking for appointing 4 of its nominees and on the next day, it was done. It is to be noted that two of the directors had sought for deferment of the board meeting of 26.9.2006 till the allotment of shares to the 4th respondent was sorted out. But their request for deferment was not accepted. Further, in that meeting by a single resolution, all the four nominees of the 4th respondent were appointed as additional directors even though there should have been a separate resolution for each director. Further, as per the committee report, the offer of the 4th respondent of Rs. 32.04 crores was higher than that of Sanjay Prakash Limited of Rs. 25 crores. This statement is incorrect as by a letter dated 4.9.2006, M/S Sanjay Prakash has offered Rs. 40 crores. It is to be noted that in the board meeting held on 21.8.2006, the sub committee was given a period of 120 days to come up with financial restructuring of the company but in a haste, the offer of the 4th respondent was accepted within a short period. The board meeting on 2.9.2006 in which the shares were allotted, was attended only by 6 directors of which 3 were the committee members and one was Shri Ravinder Kumar who was co-opted as a member of the committee. 3 directors were absent. In the notice for this board meeting dated 26.8.2006, there was no agenda either for consideration of the committee's report nor for allotment of shares. Such an important item of allotment of shares which would create an absolute majority could not have been considered in a board meeting without being included in the agenda. Had it been included, other three directors would have attended the meeting. It is inconceivable that the committee meets at 10.30AM, prepares its report and submits the same to the board at 2.00PM and the board takes such a crucial decision without circulation to all the directors for their comments. The entire exercise is nothing but a fraud with the premeditated design to allot shares only and exclusively to the 4th respondent.
8. In the company, no investment company is a shareholder. No doubt that certain individuals are holding shares in the company but their shareholding is insignificant. Media West cannot equate itself with these individuals. The company itself has stated in its reply that it had a accumulated surplus of Rs. 22.94 crores as on 31st March, 2000 and profit for the year 1999-2000 was Rs. 4.27 crores and because of the Wage Board award which was notified on 5.12.2000, a huge amount of Rs. 9.52 crores had to be paid as arrears. That is the reason why the sub committee was given the mandate to suggest was and means to reduce staff/expenses. Instead of examining this aspect, the committee had offered majority shares to Media West. No doubt, the board has the power to dispose of unsubscribed shares but it could not have been done after 4 years. If the company had needed funds in 2006, it could have offered the unsubscribed shares to the existing members and in view of the financial position, other shareholders would have subscribed to the shares. It is a settled law that before allotment of shares, the company should quantify the funds needed. In the present case there is nothing to show how the company assessed its financial requirement at Rs. 32 crores. If the company had assessed its requirement, it could have offered shares only to the extent which would meet its requirement. What the board of directors has actually done is nothing but auctioning the shares, that too, not openly but in a clandestine manner. After the allotment was made, the nominee director of the 1st petitioner objected to the said allotment by a letter dated 19.9.2006. On 21.9.2006, the 2nd respondent, the Chairman of the company wrote to the 1st petitioner stating that Essel Group had evinced interest in picking up the unsubscribed capital of the company in the previous year and this fact was communicated to the Chairman of the Is petitioner. This would indicate that Essel Group was actively pursing the matter of acquiring the majority shares. When the nominee director Is petitioner had very specifically requested the Chairman of the company by a letter dated 19.9.2006 not to take any further steps regarding allotment of shares, the company should not have accepted money from Media West on 23.9.2006. This itself would show that the Chairman/the Committee members had determined to allot the shares to Media West. By this allotment, the holding of the 1st petitioner has come down from 29% to 10.88%. thus, depriving the 1st petitioner of its right to block special resolutions. Further since the AGM was being held on 26.9.2006, the entire matter could have been placed before the general body. It is on record that two of the directors sought for deferment of the board meeting on which was not acceded to. Assuming that the reference to the sub committee was incorrectly recorded, then, the basis of functioning of sub committee goes. It is to be noted that the draft minutes of the board meeting dated 21.8.2006 were approved only after the sub committee submitted its report. From the minutes of the board meeting on 2.9.2006, it can be seen that minutes of the board meeting held on 21.8.2006 were read and confirmed and there is nothing in the minutes to show that the draft minutes were amended to indicate that the words "infuse funds" was approved to be incorporated in place of the words "funds plans for reduction of staff. Thus, it is evidently clear that the sub committee was never authorized to explore infusion of funds.
9. Even the appointment of 4 of the nominees of Media West as directors is against the long standing practice of the company. At no time, any of the shareholders had more than one nominee on the board. Even the 1st petitioner holding 22% shares had only one nominee. The manner in which these nominees were appointed is also questionable. Media West paid the money on 23.9.2006, share scripts were issued on 25.9.2006. Immediately thereafter Media West sent a letter for appointment of 4 directors and in a board meeting held immediately after the AGM, its nominees were appointed as the directors. These appointments have to be construed with the offer of Media West wherein it had specifically asked for management control. Because of the object of the company, there can be no single majority shareholder together with management control. No news collecting agency can be under the control of a single shareholder as the neutrality of collecting news would be vitiated.
10. It is on record that at no time the shareholders were cautioned about the alleged precarious financial position of the company. As a matter of fact, the directors' report for the year 2005-2006 projects a rosy picture about the financial position of the company in the near future. Even though, this directors' report was approved on 2.9.2006 by which time the shares were allotted to Media West, the same does not find a place in the directors' report. In a company registered under Section 25 of the Act, the level of transparency needed is more than a normal company.
11. Even though the petitioners have made allegations against the committee members, yet, none of them chose to file an affidavit. The reply has been affirmed only by the general manager who is only an employee and who can have no knowledge of the board as he is neither a member of the board nor the sub committee. Similarly, Media West cannot defend the allegations against the directors of the company. The very fact that the directors have not filed any affidavit rebutting the allegations, the allegations should be deemed to be correct and as such should be sustained. Allegations that the 1st petitioner did not apply for additional shares at the time of right issue and that it had discontinued its subscription have been made against the 1st petitioner. These allegations cannot be sustained as due to change in the circumstances, the 1st petitioner would have changed its views. When there is going to be a change in the management structure, the shareholders should have been taken into confidence and the board by itself could not have changed the structure/Even assuming that funds were needed, instead of allotting the entire block of shares to Media West, the same could have been broad based by allotting a certain percentage of shares to all the three.
12. The learned Counsel relied on the following cases:
i. Clemens v. Clemens Bros. Ltd. 1976 2 AER 268: Reduction of the shareholding below 25% is an act of oppression.
ii. Needle Industries case : Creation of a new majority is an act of oppression.
iii. Pearson Education v. Prentice Hall of India : Bringing down shares below 25% by fresh allotment of shares is an act of oppression/mismanagement. In the present case, the 1st petitioner held 29% shares along with its nominee which has come down because of the allotment of shares to Media West.
iv. Howard Smith v. Ampol Petroleum 1974 1 AER 1126: Directors cannot use their fiduciary powers to create a new majority. In the present case, even assuming that the company needed funds, the mode and manner adopted by the company in allotment of shares is questionable. At no time, the board had quantified the money needed and as a matter of fact, they have practically auctioned the shares that too not transparently. Therefore, the allotment cannot be sustained only on the ground that the company needed funds.
v. Dale and Carrington : It is the fiduciary responsibility of directors to make full disclosure before making allotment of shares.
vi. Martin Castelino v. Alpha Omega Ship Management Pvt. Ld. 104 CC 687 CLB: Without being included in the agenda, the board cannot increase the capital.
vii. Dr. T.M. Paul v. City Hospital Pvt. Ltd. 97 CC 216 Ker.: Adoption of resolutions without including them in agenda amounts to a fraud.
viii. Martin Castellino v. Alpha Omega 104 CC 867: Allotment of shares, without being in the agenda is invalid.
13. Submission of Shri Mookheriee appearing for Media West: The foundation of the petition is that the company is one registered under Section 25 of the Act for carrying on the business of news agency and there could be no single majority with management control. It is to be noted that this company was incorporated by persons with similar businesses and in with competition with each other, yet, they started the company in a formal form. Clause 3 of the memorandum of UNI permits the company to publish newspaper which means that the company could carry on the competing business against its own members. Two of the subscribers, namely, subscriber 6 and 7 were also subscribers to the memorandum of PTI. Even though there is commonality of subscribers, the clauses in the Memorandum and Articles of UNI are in variance with that of the PTI. Some of the provisions of the memorandum of PTI are: Clause 5: The members have to be owners of newspapers and subscribing to one of the services of the company. Clause 6: The control of the company news service shall not be in the hands of any one interest, group or section; that integrity and independence and freedom from bias of the news service is to be maintained by the company and it should render unbiased and reliable news service to the subscribers. In terms of Clause 7 of the memorandum of PTI, no person shall be entitled to hold more than 1000 shares. The articles of PTI also provide for pre-emption right in case of transfer, compulsory acquisition of shares in certain contingencies. A comparison of the Memorandum/Articles of PTI with that of UNI would indicate that (1) Section 81 is applicable to UNI and not to PTI (2) There is no limit regarding shareholding in UNI while maximum of 1000 shares has been fixed in PTI (3) It is not mandatory for members of UNI to subscribe to the services of UNI unlike PTI where its members have to subscribe to one of the services to remain as members. (4) There is no specific provision in UNI regarding control of management unlike that of PTI. Thus it is very clear that the founding fathers of UNI never envisaged that a member cannot have majority shares or that the company cannot be under the control of any single shareholder. During the arguments, it was alleged that the motive of Media West to acquire the shares was to gain control over the properties of UNI. From the documents relating to the properties of UNI handed over during the hearing, it could be seen that none of the properties could be sold or transferred. Further, this allegation is not found either in the petition nor in the rejoinder but advanced only during the arguments. Another grievance regarding majority shares is that if the company is under the control of a single shareholder, unbiased collection of news would be vitiated. This allegation is without any basis and as a matter of fact there is no averment in any of the pleadings by the petitioners that association of Essel Group would be prejudicial to the interests of the company. The sole object of Essel group is to make the company to have a global presence. It is to be noted that 10% of income of Essel Group goes for charity. Even during the deliberations before the committee, Media West had very clearly indicated that it would revive the company with the cooperation of the existing shareholders. This would show that Media West did/does not propose to have complete control over the affairs of the company. It is to be noted that in its letter dated 9.8.2006, Media West desired to have the valuation done which the committee did not want as the committee was aware that the valuation would be negative. Further, from the letter of the Chairman to the Chairman of the 1st petitioner on 21.9.2006, it is evident that the 1st petitioner was fully aware that Essel group had evinced interest in picking up the unsubscribed capital of the company as early as in 2005. In the petition itself at page 14, para (1), it is stated that the 1st petitioner had no objection in holding discussion with interested persons for inducting funds only with the condition that the same would not compromise the independence or autonomous status of the company. Thus, none of the allegations against Media West would merit any consideration.
14. In the petition itself, the petitioners have admitted that the company was in need of funds and the same is also reflected in the annual reports of the company. Even though the 1st and 2nd petitioners accepted the right shares made in 2003, 3rd and 4th petitioners did not subscribe. The very fact that the right offer permitted the members to apply for additional shares would indicate that there is no restriction in the number of shares that a member can hold. When shares remain unsubscribed, the board has the full discretion to dispose of the same in a manner that it thinks most advantageous to the company. In the annual report for 2004-2005, the auditors have opined that to keep the company as a going concern, the company has to improve its finances and profitability and in the next report, the auditors have noted that the company had taken steps in the regard in its meeting on 21.8.2006. Therefore it is abundantly clear that the company was/is in need of funds.
15. In a board meeting held on 9.11.2006 in which 11 directors were present, it was decided to constitute a committee of management. The 16th respondent who is the nominee of the 1st petitioner was requested to be a member of the committee which he declined. In that meeting, he did not raise any objection either on the allotment of shares to Media West or on appointment of its 4 nominees as directors. Having not expressed any reservation in this meeting on the allotment of shares as well as appointment of the committee of management, the 1st petitioner has filed this petition thereafter raising grievance on the allotment as well as appointment. The 16th respondent had written a letter on 24.4.2007 to all the directors of the company complaining that the nominee of Media West viz. Shri P.C. Lahiri had taken over the entire management by writing various letters to the employees. This allegation is factually incorrect. By writing the letters, Shri Lahiri had only sought for suggestions from employees to improve the working of the company. A reading of these letters would indicate that his effort is to make UNI as a global entity and towards betterment in every respect of the functioning of the company. Even otherwise, all the suggestions received would be subject to the approval of the board. In the affidavit filed on 4.7.2007, the 4th respondent has clearly brought out the need for additional funds for completion of construction of buildings at Bhopal, Jaipur, Indore etc. where Government had allotted land at concessional rate. In the same affidavit, projection of short fall in the revenue of the company in the next few years has also been given. In all, UNI may require additional Rs 30 crores to implement the "Project Road Ahead" as prepared by Media West for revival of the company. The contents of the report which was placed before the board has not been challenged by the petitioners. A copy of the project Road Ahead has been enclosed in CA No. 178 of 2007 wherein Media West has sought for directions to the board to implement the same. Further, the committee of management which was constituted on 9.11.2006 with three nominees of Media West and two other directors was disbanded by the board on 12.5.2007, thus, depriving the company of valuable services of professionals. In the reply to the said application, while appreciating the intention of Media West to make the company a world class news agency, the only reservation expressed by the company is that the matter is sub judice before this Board. Even for disbanding the committee of management, the only reason given was that the matter was sub judice before this Board. The company is facing a deficits of Rs. 50 lacs per month and the efforts of the company to obtain overdraft from the bank have also failed.
16. As far as the allotment of unsubscribed right shares is concerned, it is to be noted that there is no time limit fixed either in the Articles or the Act within which the board could exercise its right of disposal of the shares. As a matter of fact, as late as on 26.9.2005, 100 shares were allotted at par to a shareholder without any objection from anyone. Therefore, to say that board has no authority to allot unsubscribed right shares after a lapse of four years has no basis. In terms of Article 47, the board has absolute powers to allot the unsubscribed shares to the best advantage of the company. In its reply, the company has furnished a copy of the shareholding of the company that owns DNA which is a newspaper. From this statement, it can be seen that Media West not only holds 47% shares in that company, and it is also the largest shareholder in that company. Six of its nominee also hold shares in Media West. Owner does not mean only those having a legal title. It would also include others who are part of "Owner". The term "Owner" has to be construed in a broader manner. From the list of shareholders of UNI, it can be seen that some of the members, being individuals, are not owners of a newspaper and some of them were even original subscribers. Therefore, the petitioners cannot contend that Media West cannot be admitted as a member. Even one of the object of Media West as per its Memorandum is to make investment in print media. If need be, Media West is prepared to pay more also so that the allegation that Sandhya Prakash has quoted more would no longer survive.
17. Summing up his arguments, Shri Mookerjee submitted that this petition is a motivated petition filed by persons who were in full knowledge of the financial position of the company and who never came forward to assist the company and as a matter of fact they even deprived the company of its revenue by discontinuing their subscription. Therefore the petition should be dismissed. He relied on the following cases on the various propositions advance by him:
a. Hindustan Lever v. State of Maharashtra : The properties belong to the company and the company belongs to the shareholders. It would mean that shareholders are owners of the company. In the present case, since Media West is the largest shareholding holding 49% shares in DNA, it is an owner of DNA, thus, satisfying Article 4 of the AOA.
b. Mohan Ram Shastri v. Swadharma Swarajya Sangha 83 CC 272: The right of the petitioners under Section 25 of the Act is only to ensure that the charitable objects of the company are carried out and certainly the personal benefits of the petitioners do not at all come into the picture. The Scope of Section 397 of the Act is rather curtailed in the case of a Section 25 company. In such a company, the shareholders do not have a proprietary right as is understood in a commercial company. A member or a director will have no personal interest in a Section 25 company as the object of the company is wholly charitable. In the present case, none of the proprietary rights of the petitioners have been affected by the allotment of shares to Media West.
c. Kilpest Pvt. Ltd. v. Shekhar Mehra 87 CC 615 SC: Equitable principles should not be readily invoked as an incorporated company is bound to comply with the provisions of the Act.
d. Abnash Kaur v. Lord Krishna Sugar Mills ILR 1972 2 Del. 413: Suresh Chandra Marwaha v. Lauls Pvt. Ltd. LXV1973 PLR 558: No need to have an item included in the agenda for being discussed and decided in a Board meeting.
18. Submissions of Shri Dave, Sr. Advocate appearing for the company: The main allegation in the petition as spelt out in paragraph (jj) of the petition relates to allotment of shares and appointment of nominees of Media West. It is a settled law that a single isolated act cannot constitute oppression in terms of Section 397. Even otherwise, the facts of the case would indicate without any shadow of doubt that the allotment of shares as well as the appointment of directors are for the benefit of the company. The 1st petitioner never took any interest in the affairs of the company as is evident from the fact that its nominee viz. 16th respondent had attended only two out of 18 board meetings that took place during the last few years. Even the other petitioners did not bother about the affairs of the company. 3rd and 4th petitioners did not apply for the right shares offered in 2003. The 1st, 2nd and the 4th petitioners also discontinued their subscription to the services of the company. In terms of Article 8 of the AOA, the shares shall be under the control of the board which may allot the shares either at par or at premium on such terms and conditions as it may deem fit. Article 47 vests with the board the power to dispose of the unsubscribed shares in such manner as the board thinks most beneficial to the company. This is in line with Section 81(1)(d) of the Act. Article 47, which deals with the powers of the board to dispose of unsubscribed shares, does not refer to Article 4. Article 105 permits delegation of the powers of the board to a committee and the decisions taken by a committee signed by all the members of the committee shall be valid as if the same was decided in a board meeting. Likewise, in terms of Article 99, all the decisions in a board meeting have to be taken by majority directors. Thus in the present case, the allotment of shares recommended by the committee and approved by majority of the board, being beneficial to the interest of the company, cannot be questioned as the same is binding on the petitioners. Even though, the petitioners have questioned the eligibility of Media West to become a member in terms of Article 4, a careful reading of Article 4 would indicate that the owner referred to in that Article could be either an individual or a body corporate and that the decision of the board as to whether a person is eligible to become a member shall be final and binding. Media West not only holds 49% shares in DNA which is a newspaper, Media West is also engaged in visual media. When UNI was formed, there was no TV and since the object of the company is collection and dissemination of news, the same cannot be restricted only to print media.
19. It is not the case of the petitioners that company is not in need of funds. In the petition itself the petitioners themselves have repeatedly averred that the company is in need of funds. The right issue made in 2003 to mobilize about Rs. 12 lacs did not succeed. Even at par, the petitioners never evinced interest in acquiring the unsubscribed shares. In paragraph (i) of the petition, the petitioners have admitted that there was an erosion of the subscribers' base which caused the company's revenue to decline considerably. As a matter of fact, even the 1st 2nd and the 4th petitioners discontinued their subscription to the company notwithstanding the fact that the company heavily depends on subscription by leading newspapers. This action of the petitioners would indicate that they have lost faith in UNI The petitioners have alleged that as per the draft minutes of the board meeting held on 21.8.2006, the committee had not been empowered to infuse funds through debt and equity while the minutes filed with the reply indicates so and thus they have alleged fabrication of the minutes. Actually there was an error in the recording of the draft minutes and the same was corrected and approved in the Board meeting. It is to be noted that in the note circulated at the time of the board meeting on 9.11.2006, the 16th respondent himself has stated in para 3 of the note that the sub committee was to examine infusion of funds through debt and equity. From the tenor of this note, it is evident that the petitioners have not questioned raising of funds and therefore they cannot question the subsequent ministerial act of the company accepting money from Media West and allotting shares against the same. Further, the 1 petitioner was fully aware that the 2nd respondent was exploring the modalities of reviving the company and had been discussing with the Chairman of the 1st petitioner. In para (1) of the petition, it is very clearly averred that such a discussion took place with the Chairman of the 1st petitioner and that he had made it clear that it had no objection to holding discussions with interested persons for inducting fresh funds in the company only with the condition that the same would not jeopardize the independence or autonomous character of the company. Equity would clearly non suit the 1st petitioner as it had acquiesced raising of funds from interested parties. Further, there is not even a single averment in the petition as to how as a shareholder, Media West would compromise the independence of the company. Mere unsupported apprehension or presumption cannot lead to grant of reliefs sought for. In a proceeding under Section 397, it is the interest of the company which is paramount and by the impugned allotment, the directors have acted in the best interest of the company. It is on record that the committee had accepted the highest offer made by Media West. Even the contention of the petitioners that there cannot be a single majority shareholder in the company is contrary to their own stand in paragraph (r) of the petition wherein they pointed out that M/S Sanjay Prakash Limited has made a better offer. It is further stated in paragraph (u) of the petition that if the unsubscribed shares had been offered to the existing shareholders, there was a possibility that they would have accepted the shares. This stand is contradictory to the earlier stand of the 1st petitioner as when the 2nd respondent approached the 1st petitioner earlier, it only expressed its no objection to holding discussions with interested parties and never offered to subscribe to the shares.
20. The petitioners have questioned the co-option of Shri Ravindra Kumar, a director, in the committee. It is to be noted that Shri Ravindra Kumar was the Chairman of UNI for two terms and therefore had a thorough working knowledge of UNI and therefore the committee availed his valuable experience. In his letter dated 25.5.2006, the Chairman of the 1st petitioner had questioned the allotment on the ground that neither the authorization of the 1st petitioner nor its nominee on the board of the company had been taken for allotment of shares to Media West. This claim is absolutely baseless as it is for the board of UNI to take a decision and the concurrence of shareholders is not necessary especially when the 16th respondent being the nominee of the 1st petitioner never bothered to attend board meetings of UNI. While talking of independence, the 1st petitioner brought political pressure to stop the board meeting held on 26.9.2006 which is evident from the fact that by a letter dated 25.9.2006, the Minister for Information & Broadcasting requested the postponement of the said meeting. The petitioners have also raised an objection on holding of a board meeting immediately after the AGM on 26.9.2006. From the chart enclosed with the reply, it could be seen that for a number of years, the practice of the company has been to hold a Board meeting on the same day after the AGM.
21. Summing up his arguments, Shri Dave submitted: This petition was filed only after M/S Sanjay Prakash filed a suit in Delhi High Court challenging the allotment of shares to Media West and as such it is a motivated petition. But for the timely action taken by the board of directors in raising funds for the company through allotment of shares to Media West, even the continued existence of UNI would have become doubtful. By this allotment, none of the shareholders had been affected and as a matter of fact, in view of the huge premium paid by Media West, the value of shares held by the members also has gone up. Internal management is not a justiciable issue unless malafide is established. In the present case, at no stretch of imagination, any malafide on the part of either the committee or the board could be claimed.
22. The learned Counsel relied on the following cases:
a. Nurcomb v. Nurcomb 1985 3 CLJ 163 CA: Proceedings should be for the benefit of the company and not for any other purpose. The court has to satisfy that the persons coming forward is a proper person. In the present case, the petitioners never supported the company in time of its needs. They discontinued their subscription, thus, depriving the company of substantial revenue.
b. Kalinga Tube case : The court has to decide whether there is oppression by taking into consideration the facts of each case. There must be continuous acts on the part of the majority shareholders continuing up to the date of the petition showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary right as a shareholder. In the present case, the acts complained of are isolated acts and the acts complained of have not in any way affected the proprietary rights of the petitioners. Further, even the allegation that the shareholding of the 1st petitioner has come down cannot be taken note of as the 1st petitioner itself had consented to the company finding out an interested person to in West.
c. Gaekwad case : In para 63 of the judgment, it has been held that by allotment of shares even if a director is benefited incidentally, the allotment cannot be considered to be oppressive. Para 76: The directors owe no duty to advise the shareholders to subscribe to shares. Para 172: In case of pre-emptive right, there is no need to make repeat offers.
d. Sunil Dev v. Delhi and District Cricket Association 80 CC174: A practice which has been in vogue for long time which has been accepted by every one without any challenge, then, the practice itself becomes an indication that the rules and Articles of Association which are framed by way of internal management were understood in that sense. In the present case, the company has treated both individuals and corporate as owners for the purpose of allotment of shares and therefore allotment to Media West cannot be questioned now on the ground that it does not own a newspaper.
e. Shiv Nath Rai Bajaj v. Nafabs India Pvt. Ltd. 108 CC 642: An act beneficial to a company cannot be set aside.
23. Submissions of Shri Sarkar in rejoinder: The allegations of the petitioners are against the directors but by design or otherwise, none of the directors has chosen to rebut the allegations by filing their replies. There is nothing on record to show the Board had determined the quantum of funds needed by the company. It is a settled law that before raising funds through issue of shares, the board should quantify the funds needed and decide on the method of raising the funds. The board of directors has not indicated in any meeting that the company needed Rs. 32 crores, that to be raised by issue of shares. The respondents have attributed knowledge to the 1st petitioner about the interest of the Essel group in acquiring the shares. By a letter dated 25.9.2006 addressed to the 2nd respondent, the Chairman of the 1st petitioner has clearly stated that at no point of time, he was informed of the proposal for allotment of shares to Media West and therefore the respondent cannot take a stand that the 1st petitioner had acquiesced to the said allotment. Even otherwise, there can be no such claim of knowledge in so far as the other petitioners are concerned and they can independently prosecute this petition. The 2nd respondent had written a letter to the Chairman of the 1st petitioner on 21.9.2006 wherein he had stated that in the last year, the board had discussed the possibility of inducting fresh capital with appropriate share premium to help the company. There is no record to show that such a discussion for inducting fresh capital was at any time discussed in any board meeting. It is further stated in the said letter that the Chairman of the 1st petitioner was informed of Essel's interests in picking up unsubscribed capital in the last year. What was the response of the Chairman of the 1st petitioner has not been indicated. It is to be noted that in the same letter, the 2nd respondent had indicated that the process of allotment of shares would be stopped if the Chairman of the 1st petitioner could indicate other better options. However, even without waiting for a reply, share scripts were delivered to Media West on 25.9.2006. It is on record that on 25.9.2006, the Chairman of the 1st petitioner had suggested deferring the allotment and placing the matter before the AGM which was on 26.9.2006. Therefore, there is absolutely no basis to claim that all the petitioners had either consented or acquiesced for allotment of majority shares to Media West and for appointment of 4 of its nominees as directors. The petitioners are not making any allegations against Media West. Their grievance is against the conduct of the board of directors in handing over the company to Media West without consultation with the shareholders and without transparency. Even when when the committee report was placed before the board on 2.9.2006, the letters of offers considered by the committee were not placed before the board. Even the letter of offer of Zee dated 9.8.2006 was not placed before the board in its meeting on 21.8.2006, even though in the letter of the 2nd respondent dated 21.9.2006 to Media West, he had stated that the board decided to appoint a sub committee to evaluate Media West offer along with others which might have been received. From the minutes of that meeting, it can be seen that no such discussion took place. Since by allotment of shares to Media West, an absolute new majority was being created, the matter should have been placed before the general body and the board by itself could not have taken the decision.
24. In the agenda for the board meeting on 21.8.2006, there was no item relating to financial position of the company. On the contrary, there was a proposal for evaluation by M/S Earnest & Young. From the minutes of the board meeting held on 21.8.2006, it can be seen that without any agenda, the board decided to appoint a committee. The letter of Media West dated 9.8.2006 was not placed before the board. The copy of the minutes of 21.8.2006 enclosed with the petition was annexed to the notice for the board meeting convened on 2.9.2006. How the mandate to the committee was changed in the board meeting on 2.9.2006 and by whom has not been disclosed. Further, in the agenda for the board meeting on 2.9.2006, there was no item either relating to consideration by the board of the minutes of the committee meeting nor allotment of shares. It is really surprising/a mystery that sub committee which met at 10.30AM could meet all the parties and have the discussions with them and finalize its report and place it before the board at 2.00PM. There is nothing on record to show as to how the three parties came to know of the meeting of the committee and by whom and how they were invited for the meeting etc. has not been disclosed. Only during the hearing of the petition, the offers of the three parties were disclosed. When the 1st petitioner had objected to the allotment of shares by a letter dated 18.9.2006 and by which time Media West had not deposited the entire consideration, the company should not have accepted the balance money on 23.9.2006 and delivered the share certificates on 25.9.2006. When the respondents assert that the allotment is in the interests of the company, when Sandhya Prakash had offered Rs. 40 crores on 4.9.2008, by which time Media West had not deposited the entire amount, the Board should have considered the better offer. Further, the directors' report was approved on 2.9.2006 on which date allotment of shares had been made to Media West but die directors' report did not mention the same especially when according to the respondents, the main consideration for allotment of shares was for revival of the company. The shareholders are entitled to know the steps taken by the company for its revival.
25. The allegations of the petitioners are not of oppression. The petition is a derivative action by minority shareholders invoking the provisions of Section 397 to protect the interests of the company as creating a new majority and handing over the entire control to such a majority would completely change the character of the company. A comparison has been attempted to be made of the Articles of UNI and PTI. It is to be noted that for a long period of time, no shareholder had more than one nominee irrespective of his/its shareholding and no change in the long practice can be allowed.
26. FINDINGS: I have considered the pleadings and arguments of the counsel. Media West and the petitioners have filed their written submissions also. Before dealing with the allegations relating to allotment of shares to Media West and appointment of its 4 nominees as directors, I shall deal with certain issues relating to the maintainability of the petition. Shri Dave, relying on the decision in Kalinga Tube case that there should be continuous acts on the part of the majority shareholders continuing up the date of the petition showing that the affairs of the company are being conducted in a manner oppressive to some part of the members, contended that the allegation relating to allotment of shares to Media West, being a single and an isolated act cannot constitute oppression in terms of Section 397. Even though this contention, as a general proposition is valid and correct, yet, this Board has consistently taken the view that in case of allotment of shares, even if it is a single act, since it has continuous effect, allegation relating to the same can be entertained in a petition under Section 397. In the present case both the allotment of shares as well as change in the composition of the Board will have lasting effect and as such can be agitated in a petition under Section 397/98. In this connection, the judgment of Calcutta High Court in Tea Brokers P Ltd. v. Hemendra Prosad 1998 5 CLJ 463 may be referred to wherein also such a decision has been given. Therefore, ratio of the decision Kalinga Tubecase cannot be applied in the present case.
27. Shri Mookherjee contended that Section 397 can be invoked only if the proprietary rights of shareholders are infringed. He submitted that in a company registered under Section 25- of the Act, the shareholders do not have any proprietary right and since UNI is a Section 25 company, the petitioners cannot claim that any of their proprietary rights has been infringed to invoke the provisions of Section 397. On this contention, he relied on the judgment in Swarajya Sangha case. In the said judgment, Madras High Court had considered two petitions CP 12 of 1982 filed under Sections 397/398 and CP 13 of 1982 filed under Section 155 of the Act. In the first petition, there were six allegations. The court dismissed the petition observing "Six items of complaint leveled against the respondents have been well met and answered. The right of the petitioners under Section 25 of the Act is only to ensure the performance of a charitable trust and certainly the personal benefits of the petitioners do not come into the picture. Hence I am of the view in the case of a Section 25 company, the scope of Section 397 of the Act is curtailed'. The court further observed "The right of the petitioners under Section 25 of the Act is only to ensure that the charitable objects of the company are carried out and certainly the personal benefits of the petitioners do not at all come into the picture. The scope of Section 397 of the Act is rather curtailed in case of a Section 25 company". The court also noted that there was inordinate delay and latches in seeking remedies. In so far as the second petition is concerned, the court dismissed the petition on merits. Thus, the Court had actually dealt with each and every allegation and dismissed the petition on merits. The Court did not hold that a petition under Section 397 in respect of a Section 25 company' would not lie at all but has only held that the scope is limited. In the present case, even though, oppression in the nature of reducing the voting power of the petitioners below 25% has been advanced, yet, in the rejoinder argument, Shri Sarkar pointed out that the petition is as a measure of derivative action by minority shareholders to protect the interest of the company as creating a new majority and hading over the entire control of the company to such a majority will change the complete character of the company. It is to be noted that the Madras High Court has clearly stated that to ensure that the Charitable objects of the company are carried out, a petition can be filed under Section 397 even in respect of a Section 25 company. In the present case, the allegation is that the character of the company itself is being changed by the acts complained of. Every shareholder, be it a normal company or a Section 25 company, has the right to ensure that the character of the company is not changed. Therefore, I do not find any impediment in proceeding with the petition. Shri Mookherjee argued to state that in respect of the incorporated companies, equitable considerations should not be liberally applied-when action taken is in accordance with Articles/Act. On this proposition, he relied on Kilpet case. In that case what the Supreme Court has stated is that partnership principles should not be applied liberally to incorporated companies. Even this observation has been over ruled by the Supreme Court in Geakwad case. It is to be noted nearly four decades back, the Supreme Court itself has held that even legal acts could be oppressive meaning thereby that equitable considerations would over weigh legal rights in a petition under Section 397. As recently as in November, 2007, in Chander Mohan Jain v. CRM Digital Synergies Pvt Ltd. (CP 83 of 2007 dated 21.11.2007), this Board has held that equitable considerations can be super imposed over the rights under the Articles if the exercise of the right would result in disastrous consequences. In the present case, the allegation is that the result of the impugned actions taken by the board of directors have resulted in change in the character of the company itself. If so, then, the allegations can be entertained in this petition.
28. The next objection raised by the company on the maintainability is that since the petitioners have never taken interest in the affairs of the company that two of the petitioners did not take the right shares, that three of them have discontinued their subscription, that the nominee of the 1st petitioner Viz. the 16th respondent had attended only 2 out of the 18 Board meetings etc, they are not proper persons to find fault in the measures taken by the company for revival of the company and prosecute the petition. Shri Dave relied on the decision in Nurcombe case in this regard. It is further pointed out that the 1st petitioner was fully aware that Zee group had evinced interest in taking up the shares and that the 1st petitioner never raised any objection and therefore it has acquiesced to the allotment. It is further contended that in the Board meeting held on 9.11.2006 when the 16th respondent representing the 1st petitioner was present, he never raised any objection on the allotment or appointment of directors. In so far as the knowledge attributable to the 1st petitioner is concerned, the letter of the 2nd respondent to the Chairman of the 1st petitioner dated 21.9.2006 has been relied on. This letter refers to some informal discussions. The principle of waiver or acquiescence can be applied/invoked only when the same is done in a formal manner and not as it has happened in the present case. In a corporate management, there is no place for informality. (I note that even though the 1st petitioner discontinued its subscription in 2001, yet it subscribed to the right shares in 2003). It is the contention of the; company itself that the 1st petitioner has shown disinterest in the-affairs-of the company by discontinuing its subscription and that its nominee does not attend any Board meeting etc., If it be the case, granting that what all has been stated in the letter dated 21.9.2001 are true and correct, the alleged concurrence of the 1st petitioner, which has no interest in the company, that the company can look for an investor is of no consequence. Assuming that the 1st petitioner was consulted in view of its being the largest shareholder, then, when in the last line of the letter dated 21.9.2006, the 2nd respondent had stated "I am awaiting your immediate response so that I and those who are involved in the decision that has been taken and implemented can take appro. decision" no further step of accepting the balance money from Media West and handing over the share scripts till the reaction of the 1st petitioner has been received should have been taken. Any way since the other three petitioners could independently prosecute this petition, the knowledge and consent attributed to the 1st petitioner is of no avail.
29. The petitioners have relied on the reports of Bhabotosh Dutta Committee 1975 and Kuldeep Nayar Committee to urge that the founding fathers had envisaged that to ensure independence and neutrality in the collection and dissemination of unbiased news, the control of UNI should not be with a single entity. On the contrary, Shri Mookerjee brought out the distinct differences between the Articles of PTI and UNI to urge that the intention of the founders should be gathered only with reference to the terms of the Articles. I agree with his stand. In a recent case of interpretation of the amended Civil Procedure Code, it was urged before the Supreme Court that while interpreting the amended provisions, the statement of the Law Minister in the Parliament while introducing the Bill should be taken into account. The Supreme Court held that the interpretation should be restricted to what the Legislature had enacted. Similarly, it is the Articles which have to be taken into account to decide the allegations not no those of the recommendations of the committees.
30. Initially, Shri Sarkar argued, relying on the cases of Clemens v. Clemens and Prentice Hall that reduction of the shareholding of the petitioners from 29% to below 29% by the allotment of the impugned shares is an act of oppression. This grievance would no longer survive after he made a statement at the bar that the petitioners' case is not of oppression but it is by way of a derivative action.
31. Having dealt with the maintainability of the petition, I shall deal with allegations against Media West. The allegations are two fold- that its motive for investment and for gaining control of the company is to get control of the properties of the company and to use the company to promote the interests of Essel Group. Actually these allegations would not merit any consideration as in his rejoinder, Shri Sarkar specifically stated that the petitioners have no grievance against Media West and their grievance are only against the conduct of the board. However, since these allegations were extensively argued, I shall deal with the same to avoid similar allegations being repeated later by the petitioners. In so far as the allegation that the motive of Media West is only to comer the properties of the company is concerned, documents relating to the properties of the company were placed during the hearing by Shri Mookerjee. The main asset of the company is the building at Rafi Marg, New Delhi. This is a land allotted on lease by the Government of India for construction of a composite building to house the UNI and four other participating news media. It is also stipulated in the allotment letter that the land could be used to house only the said news media and not for any other purpose without the prior approval of the Government. Likewise, the land at Bangalore has been leased to UNI by Corporation of City of Bangalore for a period of 30 years specifically stating that the said land shall be used for the purpose of establishing a branch office and UNI shall not part with the possession of the scheduled land in any manner whatsoever. The land at Hyderabad has been leased to UNI for a period of 60 years by the Government of Andhra Pradesh with the specific stipulation that UNI shall not transfer the right granted by the agreement to any other person without the previous sanction of the Government. The lands at Bhopal, Indore and Jaipur are also leased by the respective state governments with the same stipulation that the land cannot be used for any alternate purpose without the consent of the lessors. Only the flat at Mumbai and Nasik are owned by the company. While the former has been given on rent, the flat at Nasik is used by UNI's Bureau at Nasik. Thus, I find that there is no scope for dealing with the properties by Media west to impute any motive to its in investing in the company. Further, it is to be noted that besides Media West, two others had also expressed interest in investing Rs. 25 crores and Rs. 25/27 crores in UNI. Thus, the allegation that the motive of Media West is to grab the properties of UNI does not stand to scrutiny, more so, when no such allegation has been made either in the petition or in the rejoinder. It is a settled law that without a pleading a new case cannot be sought to be made in the arguments. In so far as the other allegation that the Essel group would use the company for its own group interest is concerned, the same is mostly based on certain press interviews given by the Esssl group Chairman wherein he had outlined the steps that he would take to revive/develop UNI. From these statements, I cannot draw any inference that UNI would be used to promote the affairs of Essel group. Thus, I do not find any substance in this allegation also.
32. The primary allegation in the petition relates to allotment of shares to Media West. In most of the cases of complaints of further issue of shares, the main ground would be that shares had been issued/allotted with an ulterior motive even though the company is not in need of funds. In the present case, the petitioners themselves have repeatedly stated in the petition about the poor financial condition of the company. The, auditors of the company have in their report commented adversely on the financial position of the company. Even during the hearing it was pointed out that the monthly short fall of funds has been to the tune of Rs 50 lakhs and that in cases of certain lands, notices of cancellation of the leases have been received by the company as no construction has been commenced within the stipulated period mostly on account of non availability of funds. During the hearing, I also brought to the notice of the counsel that employees of UNI had written to this Board that their emoluments had not paid, obviously for want of funds. Thus, there can be no ground to challenge the allotment on the ground that the company was not in need of funds.
33. The allotment to Media West has been challenged on various grounds: that Media West could not have been admitted as a member in view of the restrictions in Article 4 of the AOA; that by this allotment, a new majority has been created; that the unsubscribed shares could not have been allotted after a period of 4 years without the consent of the shareholders; that the said allotment has reduced the shareholding of the petitioners below 25%, thus, depriving them of controlling special resolutions: that the procedure followed for allotment lacks transparency etc.
34. Admission of Media West as a member: The company and Media West have contended that in terms of Article 4, Media West could be admitted as a member. Alternatively, it is also argued in terms of the powers vested in the Board by Article 47, it could allot unsubscribed shares at its discretion to anyone including Media West even if does not qualify under Article 4. Article 4 stipulates that no share or shares shall be allotted or transferred to any person other than the owner or owners of a newspaper or newspapers. In view of the language in the Article being in a negative form, this provision is mandatory and therefore only an owner of a news paper could be admitted as a member. The Article further elaborates that the owner could be either an individual or a body" corporate. According to the petitioners, Media West, a body corporate, does not own a news paper and therefore could not have been admitted as a member. Shri Dave submitted that in terms of Article 4 , the decision of the Board as to whether a person is eligible to become or remain as a member of the company shall be final and binding and since the Board had admitted Media West as a member, its decision is final and binding. Neither in the minutes of the meeting of the Committee nor in that of the Board on 2.9.2006, I could see that the Board had examined whether Media West fulfilled the requirement as per Article 4. While the Committee had noted that Media West was the promoter and publisher of DNA, in the Board minutes there is no reference at all about Media West owning a newspaper. Therefore, its decision to admit Media West cannot be binding as the Board had not specifically taken note of the provisions of Article 4 and decided that Media West was eligible to become a member. Media West, on the other hand, has contended that the term "owner" as used in Article 4 should be construed broadly and since Media West holds 47% shares in Diligent Media Corporation Limited which owns DNA Newspaper, Media West should be construed to be an owner of a newspaper. When a qualification has been prescribed, such a qualification has to construed strictly especially in view of the mandatory nature of Article 4 and not liberally as suggested by Shri Mookherjee. He also pointed out that in terms of the Memorandum of Media West, it could own or invest in print media. Mere having a power to own a newspaper does not amount to owning a news paper. He cited the case of Hindustan Lever wherein the Supreme Court has observed that the company belongs to shareholders. That judgment related to levy of stamp duty in a case of an amalgamation and in that context the court observed: "The properties belong to the company and the company belong to the shareholders. Once the shareholders of the transferee company receive the consideration, it would be deemed as if the owner has received the consideration". An observation in the context of a particular situation cannot be applied in all circumstances. In respect of a body corporate, to satisfy the term "owner" as in Article 4, either the person claiming to be the owner should hold majority shares in the body corporate or should be in a position to control its affairs, which is normally by having a majority on the Board. Therefore, every shareholder cannot consider himself to be the owner of a company to satisfy the provisions of Article 4. From the list of subscribes to the Momorandum of Diligent Media which owns DNA, I find that in addition to Media West, its 6 other nominees were the only subscribers to the Memorandum and from the Articles of Diligent Media, I find that three of the subscribers were the only first directors. In other words, at the time of incorporation, the entire shareholding and the Board were under the control of Media West, clearly indicating that Media West was the owner of Diligent Media which owns DNA. However, presently Media West holds only 47% shares in Diligent Media and not the majority shares. To ascertain whether it is in a position to control the affairs of Diligent Media, I obtained the details of the composition of the Board of Diligent Meclia from which I find that out of 6 directors, Media West has only 3 nominees. Therefore, it is doubtful whether, Media West fulfills the eligibility criteria as in Article 4. It was further argued that at the time of incorporation of UNI, there was no TV and therefore, the Article has restricted the membership only to "owners of New papers". In view of the changed circumstances, even an owner of visual media should be considered to be eligible to become a member. I am unable to accept this contention. First there is nothing on record to show that Media West owns a visual media and the second is, even it does, since the Article restricts the eligibility only to owners of newspaper, until the Articles are amended, no one else can be admitted as a member. Shri Mookherjee pointed that even at present, there are members in UNI who are not owners of news papers and therefore Media West cannot be singled out to deny the right to become a member. I notice that at the time of incorporation, 4 of the subscribers were individuals- two of them shareholders of two family companies owning news papers- the Hindu and the Telegraph and two were merchants. At present, as per the list of members of UNI, there are 6 individuals of which 4 are members of the families owning news papers. 4 of these members hold only 1 share each. Therefore, it would have been very relevant for the Board to decide whether majority shares could have been issued to a single entity even without examining whether it is entitled to be admitted as a member.
35. The second argument by Media West is that both Section 81(1)(d) and Article 47 vest with the Board, uncontrolled discretion to allot the unsubscribed shares in a manner which is most beneficial to UNI. The relevant portion of Article 47 which is pari materia with Section 81(1)(d) is "and after the expiration of such time as specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such a notice is given, that he declines to accept the shares, offered, the Board may dispose off the same in such manner as they think most beneficial to the company". Shri Dave contended that since in Article 47, there is no reference to Article 4, the Board has the full power to allot the unsubscribed shares to any one and not necessarily only to an owner of a news paper. I am unable to agree with this proposition. Article 4 starts with a non obstante clause " Not withstanding anything contained in these Articles." It would mean that Article 4 would prevail over Article 47 in the sense, even with unfettered rights, the unsubscribed shares could be allotted only to an owner of a news paper. Further Article 8 which deals with "Allotment of Shares", while stating that the shares shall be under the control of the Board, has also stipulated that the allotment would be subject to Article 4. Therefore, in exercise of powers under Article 47, the Board cannot allot shares to a person who does not own a newspaper. Even otherwise, normally, the mode and manner in which the Board would exercise its power of disposing of the unsubscribed right shares would be indicated in the offer document itself. In the offer document dated 3.1.2003 it is stated "The members who take up rights herein in full are also given for an opportunity for applying at the issue price that is at the rate of Rs 100 per share for additional new shares so that any shares not taken up as rights may be allotted to the applicant for additional shares on such basis as the Board may in its absolute uncontrolled discretion as it deem fit. This privilege is given only to the members who accept in full the new shares now offered to them by way of rights and the company will not consider the application for additional shares from the members who renounce their rights either in whole or in part. From this offer document, it is apparent that the Board itself had restricted/curtailed its uncontrolled discretion to allot the unsubscribed right shares only to those who had taken the right shares in full and had applied for additional shares. In the offer document, there is no reference to the power to allot the unsubscribed shares in any other manner. Under these circumstances, even granting that in terms of Article 47 the shares could be allotted to any one as contended by the company, the Board should have first clothed itself with full powers before the allotment in a duly convened meeting with proper agenda. Therefore if Media West is not an owner of a news paper, it could not have been admitted as a member by allotment of shares.
36. Creation of a single majority: A reading of the Articles would indicate that there is no restriction in the number of shares that a shareholder can hold unlike PTI where the maximum number of shares that a shareholder can hold is restricted to 1000 shares. While the Articles regulate the manner in which the affairs of the company are to be conducted, yet, many a times, the practice followed by a company for a long time would become relevant. For instance, recently this Board dealt with a case wherein, in respect of a public company, issue/allotment of shares without following the provisions of Section 81 was challenged. This Board found that over a period of 20 years, the company had issued shares on 6 earlier occasions without following the provisions of Section 81 and these allotment had not been challenged by any one. In view of the long standing practice of the company, this Board held that the impugned allotment, even though it was against the provisions of the Act, could not be considered to be illegal or an act of oppression.Kaikhosrou K. Framji Consulting Engineering Services (India) Limited and Ors. CP No. 97/1997 order dated 14.3.2007 Shri Dave cited the judgment of Delhi High Court in Delhi & District Cricket Association wherein also the court has observed that a practice which has been in vogue for a long time and which has been accepted by every one, the practice itself becomes an indication that the rules and Articles of Association which are framed by way of internal management were understood in that sense. It is an admitted fact that in IJNI, notwithstanding that there is no restriction on the number of shares mat a member can hold, there has never been a single majority in the nearly 40 years of UNI's existence and therefore creation of an absolute majority now is definitely a deviation from the long standing practice. Shri Mookerjee, pointed out that in the right offer made in 2003, there was a provision that any shareholder could apply for additional shares and if anyone had applied for all the unsubscribe shares, he/it would have gained majority shares. This would indicate, according to him, that the company had not envisaged that there could not be a single majority shareholder. It is to be noted that in the offer letter, the Board had kept full discretion regarding allotment of additional shares and therefore, whether it would have allotted shares resulting in creation of a single majority is not known. We can only go by what is in reality and cannot rely on some thing which could have happened but has not actually happened. In a company, where there is no single majority', the affairs of the company would be carried on more democratically, which position has now been affected by creation of a single majority by the allotment of impugned shares. Therefore, the shareholders can legitimately voice a grievance of oppression.
37. Allotment of shares after 4 years: The next allegation is that the Board could not have allotted the unsubscribed shares after a gap of 4 years without the consent of the shareholders and that if the shareholders had been approached, in view of the changed circumstances, some of them, including the petitioners would have accepted the shares. However, the counter argument is that two of the petitioners did not even subscribe to the right shares and other two had not applied for additional shares even when the shares were offered at par, and therefore the question of their taking up the shares at premium does not arise. It is further argued that neither in the Article nor in the Act, there is any stipulation regarding the time limit within which the Board should exercise its discretion in allotting the unsubscribed shares. It was also pointed out that in 2006, that is after three years, 100 unsubscribed shares were allotted without any protest. Relying on the judgment of Supreme Court in Geakwad case wherein it has been held that in case of preemptive rights, there is no need to make repeat offers, Shri Dave submitted that in case of right offers also, there is no need to make repeat offers in respect of the unsubscribed shares. When no upper time limit is fixed either by the Act or the Article stipulating the time within which the power to allot unsubscribed shares should be exercised, I am of the view that the power should be exercised within a reasonable time period. Any way this issue is academic as, in an earlier paragraph I have held that the Board lacked powers to allot the unsubscribed shares in the manner in which it had done.
38. Lack of Transparency in the procedure of allotment of shares : Now relating to the procedure adopted by the company in allotting shares to Media West. Shri Sarkar contended that the board cannot take decisions on matters which are not in the agenda. He pointed out that the agenda for the board meeting on 21.8.2006 did not contain any item relating to discussion on the financial position of the company nor on the constitution of the committee of directors. He further pointed out that the agenda for the board meeting on 2.9.2006 also did not contain any agenda relating to consideration of the committee's report and allotment of shares to Media West. He relied on the decision of this Board in Alpha Omega case wherein this Board has held that allotment of shares in a board meeting without being included in the agenda was invalid. He also cited the judgment of Kerala High Court in City Hospital Case in this regard. On the contrary, Shri Mookherjee, relying on Lord Krishna Sugar Mills and M/S hauls Private Limited submitted that the board can transact businesses not included in the agenda "under other businesses". It is true that there is no provision in the Act specifying that board can transact only those businesses which are in the agenda. Article 99 of the Articles dealing with meeting of board of directors also does not specify even about any agenda for board meetings. However, I note that the company has always followed the practice of enclosing an agenda with all notices for board meetings. A perusal of the agenda items in some of the notices reveal that even insignificant items like directors' attendance, staff position etc have been included in the agenda. It is to be noted that the company is a Section 25 company in which no shareholder has any personal stake and therefore utmost transparency in transacting businesses has to be ensured. In other words in a Section 25 company, transparency is of at most importance. Allotment of majority shares to a single entity and appointment of a large number of its nominees on the Board are definitely very important items on which decisions could not have been taken without being in the agenda. The purpose of including an item in the agenda is to make directors aware of the businesses to be transacted in the meeting so that they could come prepared to take informed decisions relating to the issues placed. Further, it would also enable the directors, who are unable to attend the Board meeting to convey their views in writing on the issues in the agenda for consideration of those attending the Board meeting. In so far as the contention of Shri Mookherjee that even businesses which are not indicated in the agenda could be transacted "under other businesses" is concerned, the normal practice is that businesses which are urgent and which were not anticipated at the time of sending the notice for the board meeting are transacted "under other businesses". In the present case, the offer of Media West was dated 9.8.2006 and in his letter to Media West on 25.8.2006, the 2nd respondent had indicated that Media West's offer was discussed in the board meeting on 21.8.2006 and that a committee would like to discuss the offer on 2.9.2006. In fact, the minutes of the meeting doest not reflect such a discussion. The notice for the board meeting on 21.8.2006 was issued on 14.8.2006 on which date the offer of Media West was with the company. Therefore the agenda with this notice should have contained the business relating to constitution of a committee and consideration of the offers received. Similarly, the notice for the board meeting on 2.9.2006 was issued on 26.8.2006 and the company knew that the committee was to meet on 2.9.2006 in view of the letter of the 2nd respondent on 25.8.2006. Therefore, the impugned businesses could not have been transacted "under other businesses" as the company had prior knowledge of the matters at the time of issue of the notices.
39. Even though in an earlier paragraph, I have observed that the need for funds has been established, it is also an admitted fact that the company/the board of directors had not, at any time, quantified amount needed. Funds may be needed towards working capital, towards long term funds for up-gradation, modernization, diversification etc. Therefore, as a rule, it always the board of directors which decides the quantum of funds needed under various heads and decide on the modalities of raising the funds. In the present case, even though, the petitioners have questioned the correctness of the minutes of the board meeting dated 21.8.2006 regarding the mandate given to the committee, assuming that the committee had been authorized to find the measures to infuse funds either by way of equity or debt, it is apparently clear from the minutes of the meeting of the committee that it had not quantified the funds needed and it had also not determined what quantum should be through equity and what quantum should be by way of debt. The committee had three offers, each indicating the amount that they would invest in the shares of the company- two of them in equity and debt and one of them in equity. The petitioners have alleged that there is no information as to who and in what manner the offers were asked for and were given and under what authority the offers were sought. They were right in raising these issues as the relevant offer documents were not placed in the Board meeting on 2.9.2006 nor were enclosed with the reply of the company. Only, during the hearing, the offer letters were produced/disclosed. The offer of Media West dated 9.8.2006 reads "This has reference to the discussion we have had with your Chairman, Mr. M.K. Santhalia in connection with reviving the UNI. We would like to state that we are one of the promoters and publishers of DNA Newspaper in Mumbai. We have interest in reviving the company's premier news gallery agency UNI with the help of existing shareholders. As per discussion, we are willing to subscribe the unsubscribed part of authorized capital of the company which is approximately of 55 to 60%". The letter further states that Media West would carry out a due diligence and valuation of shares and would pay an additional 5% as control premium. The offer letter of Sanjay Prakash Limited dated 31.8.2006 reads " We understand that UNI is exploring an investor to invest the sizeable amount in the company in the shape of equity/loans. We as Dainik Sanjay Prakash are keen to invest in your company UNI. Please let us know the details with regard to the price of equity share of the company. We would appreciate if you kindly let us know the time for meeting you in person to discuss the issue in length and get some more detailed information ". The offer letter of Gujarat Samachar dated 22.8.2006 reads "We have come to know through confirmed reliable sources that UNI require funds for its revival. We are interested in reviving the News Agency with collaboration with the existing shareholders and willing to subscribe in the equity participation by subscribing the un-issued and unsubscribed portion of the authorised capital of the company for the valuation indicated by you. Further we understand that the total funds required for reviving the Agency will of the tune of Rs. 25 crores approximately which we are willing to way of debt and equity participation". It had also given a revival plan under six heads.
40. From contents of these offers, it is quite apparent that the committee which was appointed to explore the avenues to infuse funds did not have any role in inviting offers. While the Chairman of the company appears to have had discussions with Media West even prior to formation of the committee, the other two had made offers on their own. Further, while the understanding of Gujarat Samachar was that the company was in need of Rs. 25 crores, the other two desired valuation of shares. Except Media West, the other two had not mentioned anything about the control of the company. If the intention of the board was to get the maximum consideration for the shares, the prudent business decision would have been to fix a floor price and invite offers by wide publicity. Further, by a letter dated 25.8.2006, the 2nd respondent wrote to Media West stating "Your letter dated August 9, 2006 offering to subscribe to the shares of UNI and for management control was considered in the board of directors meeting on August 21, 2006. A committee of directors would like to discuss the matter with your representatives in details at New Delhi on September 2, 2006 or any other mutually convenient date before our taking a final decision in the matter". Likewise, on the same date, the 2nd respondent also invited Gujarat Samachar for a discussion with the committee on 2nd September, 2006. No letter inviting M/S Sanjay Prakash has been produced.
41. The Committee of Directors held discussions with all the three on 2.9.2006. As revealed from the minutes of the meeting, it met at 10.30AM. During the discussions, Gujarat Samachar indicated that they would increase the amount to Rs. 27-28 crores and be flexible on the quantum of equity and debt. On the request of the committee to Media West that instead of valuation, Media West should offer a fixed price, Media West submitted a written offer dated 2.9.2006, that is on the same day, offering to pay Rs. 32.04 crores for 14811 shares constituting 59.24% of the authorized capital and it enclosed a cheque for Rs 5 Crores. Sanjay Prakash expressed that it might consider going up to Rs. 30 crores but did not commit. On the basis of five criteria that the committee had decided to apply on the offers, the committee recommended acceptance of the offer of Media West at Rs. 32.04 crores. It is to be noted that originally in its offer dated 9.8.2006, Media West desired to have the valuation done and was prepared to pay 5% extra as Control premium However, when the committee sought for a fixed price, offer, Media West not only immediately agreed by a letter on the same day but also enclosed a cheque for Rs. 5 crores. The written offer has also been mentioned in the committee's report. Whether the representatives of Media West had the authority, without the approval of the board of Media West to make substantial changes in its original offer, is not clear.
42. The report of the committee was placed before the board on the same day i.e. 2.9.2006 at 2.30PM. Out of 9 directors, six were present of which four were the committee members. The board accepted the committee recommendation and allotted 10189 unsubscribed shares leaving the balance 4603 shares of the authorized capital to be offered as right shares to all the shareholders. In other words, four of the members who sat in the committee making the recommendation, approved their own recommendation by sitting in the Board. (No doubt there were other two directors, but the 4 constituted the majority). When the allotment of the impugned shares would result in creation of a new single majority, that too in a Section 25 company, which never had a single majority so long, there should have been absolute transparency in the sense, the committee report should have been circulated to all the members of the board and should have been discussed in a duly convened board meeting with a proper agenda.
43. By a letter dated 5.9.2006, the 2nd respondent advised Media West about the decision of the Board and sought for the payment of the balance amount latest by 23.9.2006. Media West remitted the balance on 23.9.3006. In the meanwhile, by a letter dated 4.9.2006, M/s Sandhya Prakash had offered to pay Rs 40 crores and it had also enclosed a cheque for Rs 4. Crores. This letter was received by the 2nd respondent on 7.9.2006. By a letter dated 11.9.2006, the 2nd respondent wrote to M/s Sandhya Prakash that decision in the matter had already been taken and that the decision was not purely on the quantum of financial offer had the present offer had been-received after the final decision The revised offer of M/s Sandhya Prakash was not placed before the committee but the 2nd respondent himself had rejected the same. Even assuming that Media West was the best offer in terms of the criteria decided by the Board, when another offer for a higher amount was available, if the matter had been placed before the committee, it could have advised Media West to match the offer of Sandhya Prakash especially when the entire exercise was with a view to raise funds to revive the company. This observation I am making only because, the entire exercise of considering the offers had been done in an informal manner, and that during the hearing Shri Mookerjee also submitted that Media West was willing to increase its offer. Further, I also note that the correspondence relating to the revised offer of Sandhya Prakash was not placed before the Board on 26.9.2006. In other words, both the committee and the Board had been kept in dark about the revised offer of Sandhya Praksh. Only in the Board meeting on 9.11.2006, after Sandhya Prakash moved the High Court, the 2nd respondent informed the Board of the proceeding initiated by Sandhya Praksh. The share scripts were delivered to Media West on 25.9.2006, by which time by a letter dated 19.9.2006, the 16th respondent had raised objections on the allotment of shares to Media West.
44. The speed with which Media West revised its proposal enclosing a cheque for Rs 5 cores, the speed with which the board also approved the allotment of shares to Media West, all within a few hours on the same day of the meeting of the committee, that inspite of the letter of the 1st petitioner dated 19.9.2006, share scripts were delivered to Media West on 25.92006, do support the stand of the petitioners that the entire exercise of the constitution of the committee, its discussions with 3 parties, of which 2 had come on their own without any invitation to quote, laying down the criteria for evaluation at the time of the committee meeting and finally recommending Media West and the Board accepting the recommendation with in a few hours etc, was a pre designed one to facilitate handing over of the majority shares to Media West. Thus, the petitioners have fully established that there was no transparency in the entire episode.
45. Appointment of 4 nominees of Media West as additional directors: The petitioners have alleged that immediately after conclusion of the AGM on 26.9.2006, the board met only with a view to appoint the additional directors. From the details given by the company, I find that it has been the long standing practice of the company to hold a board meeting immediately after the AGM and therefore I do not find anything wrong in the board meeting held on 26.9.2006 immediately after the AGM. The petitioners have alleged that so far no shareholder, irrespective of the quantum of his/its shareholding, had more than one nominee and that if Media West were to have the management control, UNI's independence would be compromised and the neutrality in the collection of news would be jeopardized. In so far as having more than one nominee is concerned, there is no stipulation in the Articles that a member can not have more than one nominee. However, I find that, historically, irrespective of the percentage shareholding, no member has had more than one nominee on the Board. Further, as I see from the Annual Reports from 2001 onwards, UNI had only 9 directors including the Chairman. Normally, for appointment of additional directors, there should have been some justification, which is not found in the minutes of the Board meeting on 28.9.2006 Further, it is to be noted that the 12th and 16 respondents had requested for deferment of the Board meeting on 26.9.2006 till the issue relating to the allotment of shares to Media West was sorted out, but the request was not acceded to. This meeting was attended by 5 directors (besides two of Media West). Of the 5 directors, four were the members of the committee which recommended the allotment of shares to Media West with management control. As per Article 90(a) a director has to be a member or a nominee of a corporate entity which is a member. When two directors have questioned the allotment of shares to Media West by which it became a member, its nominees should not have been appointed on the Board without sorting out the said issue. In other words, the entire matter should have been included in the agenda to enable the directors to take an informed decision. Further, deviation from the long practice of one member-one director- and to appoint 4 nominees of Media West, that too within a day of receiving its request and without a detailed discussions in the Board without inclusion in the agenda, that too when a request had been received from 2 directors for deferment, is not in order. Petitioners have also expressed their apprehensions that by handing over the management to a single member, the Board had compromised the independence of UNI, in the sense, the collection and dissemination of unbiased news would be affected. I do not wish to dwell on this issue as one cannot adjudicate on assumptions and presumptions.
46. From the various findings I have given, it is evident that the board had acted in haste without taking into account all aspects, that too, not in a transparent manner- both in the allotment of shares as well as on the acts have, considering the fact of the long existing practice in the company that there was never a single majority shareholder and that at no time any member had more than one nominee on the board, definitely brought about a change in the character of the company, which could not have been brought about without the consent of the general body.
47. The petitioners have alleged malafide on the part of the directors who were on the committee and who were also parties to the allotment of shares as well as appointment of additional directors. Unfortunately none of these directors has filed any counter to the petition nor were represented during the hearing. It was only Shri Dave, contending that internal management is not a justiciable issue unless malafide is established, contended that at no streach of imagination, any malafide on the part of either the committee or the Board could be claimed. It is an admitted fact that none of the directors nor the corporate entities which they represent, benefited from the allotment. In view of this, it appears to me that since Essel Group had evinced interest in the affairs of the company for quite some time, the committee members and other directors who had taken the impugned decisions must have felt that Essel Group, with its huge resources and media interests, would be in a better position to revive UNI. If that be the case, the right way/manner would have been to take all the directors, if need be, even the shareholders, into confidence, instead of the manner in which it was done. Therefore, I would only attribute lack of transparency on their part and not malafide.
48. In view of my findings that the Board had not specifically considered the eligibility of Media West to become a member in terms of Article 4, that relying on Article 47, the Board could, not have allotted the impugned shares to Media West, that the impugned acts have changed the character of the company, and that the entire exercise suffers from lack of transparency, I declare that the allotment of the impugned shares to Media West as null and void: I also declare, that in the absence of transparency in calling for offers etc, the entire exercise of the company in constituting the committee, its deliberation, recommendation etc as null and void. Consequently, Media West ceases to be a member and therefore, it has become ineligible to have its nominees on the Board. Accordingly, its nominees shall cease to be additional directors with immediate effect. The company shall forthwith rectify its register of Members by deleting the name of Media West and reduce its share capital and shall also refund the consideration paid by Media West. I notice that a part of the consideration of about Rs. 5 crores paid by Media West has been utilized by the company and the balance of about Rs 27 crores is kept in a fixed deposit. While the fixed deposit along with the accrued interest shall be paid to Media West immediately, the amount already spent by the company should be paid at the earliest. It shall be the responsibility of the 1st petitioner which has actively prosecuted this petition to assist the Board of the company to raise funds to make good the said amount. I make it abundantly clear that I have not given any conclusive finding on the eligibility of Media West to become a member of UNI, as in terms of Article 4, it is for the Board of directors of UNI to decide the eligibility.
49. The admitted position is that UNI is in financial distress and but for my adverse findings summarized in the earlier paragraph, I would not have declared the allotment as null and void, as, while considering a petition under Section 397, this Board has to give utmost importance to the interests of the company. Now that the allotment has been declared as null and void, consequent to which the company would be deprived of funds raised by the impugned allotment, it is now the responsibility of the Board, more particularly that of the petitioners, who have prosecuted this petition and have contended that they would have funded the company if had been sought for, to find ways and means to mobilize funds either by way of subscribing to the shares, if offered or by way of long term loans, or in any other manner, but transparently and in accordance with the Articles to ensure that the company does not suffer for want of funds. Accordingly, I so direct the Board and the petitioners.
The petition is disposed of in the above terms, with no order as to costs.