w w w . L a w y e r S e r v i c e s . i n



N. Murali (Huf) & Others v/s Kasturi & Sons Ltd. & Others

    C.P. No. 25 of 2010

    Decided On, 22 October 2010

    At, Company Law Board Southern Region Bench Chennai

    By, THE HONOURABLE MRS. LIZAMMA AUGUSTINE
    By, MEMBER

    For the Appearing Parties: Sudipto Sarkar, Krishna Srinivasan, P. Dwarakesh, A.R. Ramanathan, S.N. Mookherjee, C. Aryama Sundaram, K. Manoj Menon, S. Arun Kumar, Swarnam J. Rajagopalan, Raghunathan, D.R. Raghunath, B. Giridhara Rao, T. Poornam, J.R. Jayant, Advocates.



Judgment Text

Lizamma Augustine, Member.

1. Kasturi and Sons Ltd., founded in 1878 and later run by Kasturi Srinivasan and Kasturi Gopalan as a partnership firm, was incorporated on February 21, 1940. The company was managed as a "quasi-partnership" and had a broad understanding of equal representation and shareholding among the four descendant families of the, Kasturi brothers - G. Narasimhan and G. Kasturi (sons of K. Gopalan) and S. Parthasarathy and S. Rangarajan (sons of K. Srinivasan). Each family holds 25 per cent. of the paid-up capital of the company through their members and investment companies, as on April 8, 2010, the date the petition was filed. In 1991, the board was expanded from 9 to 12, to accommodate three members from each of the four families. Since the complete implementation of the agreement in 2000, the board comprises of 12 members. The board has five editorial directors, including respondent No. 2 N. Ram, who became the editor-in-chief in June 2003.

2. The petition is filed under sections 397, 398, 402, 403, 404, 406 and Schedule XI read with section 9 of the Companies Act, 1956 ("the Act"). The petitioners belong to the branch of inheritors of Shri G. Narasimhan, who was one of the four cousin brothers. The petitioners allege oppression and mismanagement by respondents Nos. 2 to 10. It alleges failure to implement an editorial framework of retirement and succession, by which respondent No. 2 should have retired as editor-in-chief of all publications when he turned 65 on May 4, 2010, giving way to his brother and petitioner No. 4 N. Ravi, as agreed to by the editorial members of the board on September 25, 2009. At a board meeting on February 18, 2010, when petitioners Nos. 2 and 4 circulated a document on corporate governance and retirement age of family members, respondent No. 2 said he did not agree to the retirement plan.

3. The petition says the appointment of respondent No. 12, the daughter of respondent No. 2, as the European correspondent of Business Line and the appointment of respondent No. 13, son of respondent No. 9, as the Washington correspondent of The Hindu violated various provisions of the Act. The appointments were objected to by petitioners Nos. 6, 7 and 9, in a letter to the board on September 19, 2009. The petition says the office of the European correspondent for Business Line was a redundant position and respondent No. 13 was not qualified for the post of the Washington correspondent. It also says petitioners Nos. 2 and 4 agreed to the appointments at a board meeting in view of the commitment made by respondent No. 2 that he would step down as editor-in-chief in May, 2010. They also considered family harmony and the need to give way for the younger generation. Respondents Nos. 12 and 13 assumed office with remuneration exceeding Rs. 50,000 a month, without waiting for the mandatory approval from the Central Government, and they were paid 5,000 pounds and $10,000 as travel allowance respectively in the absence of the managing director N. Murali, petitioner No. 2.

4. The petition says the board appointed respondent No. 3 as a managing director ("MD") on March 20, 2010, designating petitioner No. 2 as "senior managing director" and limiting his roles to supervisory powers of the circulation department. No agenda was circulated with regard to the stripping of powers and shareholders' approval was not sought. The advertisement department was allotted to respondent No. 6, who had mismanaged a subsidiary company and caused a loss of Rs. 59.76 crore. The petitioners say no conclusion could be reached as petitioners Nos. 2 and 4 and respondent No. 11 objected to the stripping of powers of petitioner No. 2 and no resolution was passed in the meeting. Respondent No. 2, on March 22, 2010, handed over a draft resolution to petitioners Nos. 2 and 4, allotting personnel, human resources and industrial relations departments as well as circulation to petitioner No. 2. On March 25, 2010, respondent No. 2 sent an e-mail to various departments, detailing the board's decision on non-editorial board members' functions. On receipt of the e-mail, petitioner No. 2 wrote to all the departments requesting them to ignore the editor-in-chief's e-mail. The change of management was published in The Hindu the next day. The minutes of the March 20, 2010 meeting was sent to petitioner No. 2 on March 31, 2010 by the company secretary. It was only through the minutes, which only mentioned the allocation of circulation to petitioner No. 2, that the petitioners came to know that none of their objections have been considered and all the resolutions passed. Petitioner No. 2 wrote to the company secretary to inform him that the minutes did not reflect the actual deliberations and sent him his version of the minutes. A resolution dated March 31, 2010 authorised respondent No. 3 as managing director to convene the board meetings. The petition says the respondents are opting for circulars to circumvent the board meetings. The petitioners apprehend that respondents Nos. 2 to 10 may alienate certain fixed assets to clear the debts of the subsidiary. They say the respondents are using the publication for self-promotion.

5. The petitioners seek :

(a) to implement a permanent editorial succession plan of retirement for the editorial board members on the lines of the editorial framework on retirement and succession, providing for retirement at the age of 65, as agreed upon by editorial members of the board on September 2009 ;

(b) to implement a permanent corporate governance policy/frame work ;

(c) to declare the resolution passed on March 20, 2010, insofar as appointment of respondent No. 3 as managing director of the company is concerned as improper, null and void ;

(d) to declare the resolution passed on March 20, 2010, insofar as reorganisation of non-editorial functions of the directors of the company is concerned, as improper, null and void ;

(e) to declare the appointments of respondent No. 12 as the European correspondent of Business Line and the appointment of respondent No. 13 as the Washington correspondent of The Hindu as null and void ;

(f) to appoint a permanent independent chairman in place of the second respondent to conduct future board meetings and general body meetings.

6. Extracts from the counter affidavit filed by respondents Nos. 1 and 3 : The respondents say the petition filed by Shri N. Murali and others, whose main aim is to impose a retirement age for the editor-in-chief, is not maintainable. The retirement age is neither wanted by three-fourths of the directors or shareholders nor provided for in the articles of association of the company. Article 205, which prescribed the age of retirement in the company, was deleted by a resolution at a general meeting on December 15, 1990. The board meeting on June 27, 2003 unanimously resolved to appoint respondent No. 2 as editor-in-chief. Respondent No. 2 is qualified to be the editor-in-chief, says paragraph 11 of the petition. The circulation and advertisement revenue of the paper rose in the years when he was at the helm.

7. The petition does not say that the board's decision affecting the powers of petitioner No. 2 is not in the interest of the company. It says that the decision, supported by three-fourths of directors, was to broad-base the management of the company and to involve all the whole-time directors. The petition has not complained of any violations of shareholders' rights or of any changes in shareholding patterns or management.

8. The petition is based on the assumption that the company is a quasi-partnership. A Division Bench of the Madras High Court had earlier held that the company was not in the nature of a quasi-partnership. Even if the doctrine of quasi-partnership is applied, it would only apply vis-a-vis family group to group. The petitioners' grievance is not against any of the other groups, but members of their own group.

9. Petitioners Nos. 2 and 4 themselves had approved as directors the appointment of respondents Nos. 12 and 13. The petitioners had suppressed the fact that petitioner No. 2 had applied for approval to the Central Government. The appointments have been made in accordance with section 314 of the Act. Questioning the appointments is wholly mala fide.

10. The allegation of mismanagement of a subsidiary company by the 6th respondent is false since all decisions were approved by the board and most of them signed by petitioner No. 2 as managing director of the company. The petition is part of the second petitioner's desire to gain absolute control of the company, with the help of petitioner No. 4. The reason for the petitioners' allegation appears to be the ambition of petitioner No. 4 to be the editor-in-chief and respondent No. 11 to be the editor.

Counter of respondent No. 2

11. Respondent No. 2 adopts the counter filed by respondent No. 1-company. He was appointed as editor-in-chief as per the board resolution dated June 27, 2003 "to improve the editorial efficiency and performance" of the company's publications, "including the restructuring of the editorial framework and functions in an increasingly competitive milieu". As per the board meeting held on August 28, 2008 it was resolved that the editorial directors would discharge their functions and "report to Mr. N. Ram, editor-in-chief". The second petitioner had fully concurred with these decisions of the board. The second petitioner's abdication of responsibility and directive to the company secretary, to act contrary to the decision of the shareholders and the board, impelled the board to act. It is admitted that the five directors in the editorial department had an informal talk on September 25, 2009 in the office room of the second respondent where they discussed questions of editorial framework and succession. But it is denied that the practice of the company is to endorse such decisions in the board meetings. No decision was taken in the informal gathering of editorial directors on September 25, 2009 nor did respondent No. 2 agree, at any stage, that he would retire as editor-in-chief at the age of 65. It was the fourth petitioner who outlined a scheme of retirement at the age of 65. It was agreed in the meeting that such matters could be discussed and decided only at the board meetings. The appointments of respondents Nos. 12 and 13 were unanimously approved by the board and shareholders. The qualification of respondent No. 12 is detailed in paragraphs 7 and 10 of the counter. In the matter of appointment of respondents Nos. 12 and 13 the second petitioner refused to issue a reply to the clarifications sought for the approval of their appointments. Hence, the fourth respondent was authorised by the board to issue the reply. The editorial decisions of the editor-in-chief and the editorial team of a newspaper are decided in the interest of the newspaper.

Counter of respondent No. 4

12. The fourth respondent adopts the counter of respondent No. 1-company. He is the joint editor of Business Line. He interviewed Vidya Ram (respondent No. 12), and discussed the issue with the members of the board including the second petitioner and recommended her appointment as European correspondent, Business Line, and the decision was unanimously approved by the board. He denied any agreement among the editorial directors on editorial succession. In the informal meeting of September 25, 2009 the fourth petitioner outlined a scheme on this issue. This respondent did not agree to the proposed scheme but pointed out that the board could decide such issues. This respondent and other shareholders have lost confidence in the second and fourth petitioners.

Counter of respondent No. 6

13. Respondent No. 6 adopted the counter affidavit filed by the company. He is the whole-time director from June 21, 1991 and handling the advertisement and circulation department. Originally he was handling the advertisement department and circulation under the supervision of the second petitioner. It is stated that the second petitioner was reluctant to forward the files to him. He denied the allegation that he has mismanaged the subsidiary company ("SPIL") and caused loss to the company. The second petitioner is instigating the workers against other directors.

Counter of respondent No. 9

14. Respondent No. 9 has been the whole-time director and joint editor of The Hindu from 1991. She filed the counter affidavit also on behalf of her son - respondent No. 13. She adopts the counter filed by respondent No. 1. The qualifications of respondent No. 13 are detailed in the counter. In the informal meeting of the editorial directors held on September 25, 2009 no decision was taken with regard to the retirement of respondent No. 2 or succession issues. It was decided that the issues could be decided only by the board. Respondent No. 13 has been appointed unanimously by the board and the alleged charges of nepotism are denied. The second petitioner is not giving due respect to the lady directors and he described them as "house wives". The company petition is an attempt by the second and fourth petitioners to subvert the decisions of the board. Respondents Nos. 8 and 11 remained ex parte.

Counter of respondent No. 12

15. The twelfth respondent adopts the counter filed by respondents Nos. 1, 2 and 3. It is stated that her qualifications as detailed in paragraphs 3 and 4 enabled her to be appointed as the European correspondent of Business Line. Her qualifications and professional experience are in no way inferior to those of others appointed to comparable editorial positions within the company. The board unanimously approved her appointment. She is not an illegal beneficiary of the actions of respondents Nos. 1 to 10.

16. The petitioners filed a rejoinder with the following averments : Regarding the principles of quasi-partnership the earlier decision in the G. Kasturi v. N. Murali (1992) 74 Comp Cas 661 (Mad) is not applicable since significant changes have taken place after the case. The shareholders and directors have moved away from their decision and unanimously affirmed the quasi-partnership later, by expanding the board of directors by including three directors from each of the four family groups, indicating a tacit agreement of equal representation in the management. The entire shareholding is held by four families and the company is run, managed and controlled by the members of the four families for the past 100 years, as represented by the company before the Central Government in connection with the appointment of respondents Nos. 12 and 13. All the members of the board are made whole-time directors in 2007 to maintain equality and fairness. The company is taking care of the welfare of the members of the four families, like pension to the wives of the former directors, funding for the education of the children abroad, foreign travel for the directors at the expense of the company, etc. The decision in G. Kasturi v. N. Murali (1992) 74 Comp Cas 661 (Mad) was passed on an interlocutory application. That apart, the case was finally compromised between the parties, without examining the issues in depth. The original article which fixed the retirement age of 65 was deleted following the amendment of the provisions of the Act which liberalised the retirement age limit of the directors. The question of directors retiring from active running of the company was under discussion since mid-2007. It was in this context that the second petitioner proposed the idea in his letter of September 25, 2009. The second respondent agreed with this suggestion at the meeting of the editorial directors on September 25, 2009 that the retirement should be on the basis of the norms rather than be left to individuals to decide and that he himself would retire on May 4, 2010 when he turned 65. This declaration was taken in good faith by all the editorial directors present at the meeting and by the other directors on being told about it. The second respondent at the instigation of some of the other respondents went back on his commitment at the meeting of the board on February 18, 2010. The above minutes are a proof that the discussions on the issue are a sequel to the prior discussions and commitment made in September 2009. The deep sense of grievance of the fourth petitioner, ninth and eleventh respondents who were ousted from their duties when the second respondent took over as editor-in-chief on June 27, 2003 was remaining unaddressed even as the next generation families were being inducted into senior positions. The commitment on retirement was part of the ongoing succession planning in the organisation when as the younger generation members were being inducted into the affairs of the company, the oldest members had to make way for those in between.

17. The letter dated April 30, 2010 written by respondent No. 11 offers clinching proof of the above facts. After having got the appointments of their children through, Respondents Nos. 2 and 9, in collusion with Respondents Nos. 3 to 8 are seeking to thwart the whole arrangement on editorial side by permitting respondent No. 2 to continue without retirement. There is a breach of good faith and fair dealing.

18. The respondents' own version of the minutes of the meeting on March 20, 2010 speaks about the exemplary nature of the duties performed by the second petitioner. He has an unblemished and impressive record in the company. Because he insisted that the company should follow all the legal formalities regarding the appointments of respondents Nos. 12 and 13, and insisted to bring in the norms of corporate governance, he was stripped of his powers. No grievances were even made out to him prior to his "virtual removal". Even in the case of major decisions being taken through circular resolutions, they represented the formalisation of decisions already taken during discussions among the directors. However, that customary practice did not precede in the case of the meeting on March 20, 2010. The second petitioner was projected in the board meeting as a person who does not respect women. It is an indisputable fact that the implementation of the editorial succession plan suggested by him will enable Ms. Malini Parthasarathy (respondent No. 11) to become the first ever women editor of The Hindu. It is to be noted that no complaint was previously made against him, no agenda was circulated with regard to the divesting of his powers, no right of hearing was offered to him and eventually the disputed resolution was sprung upon him from behind. The board meeting was bound to take decisions on the pending and live issues of the editorial succession/retirement plan, but the second respondent in utter breach of his earlier commitment passed an unnecessary resolution removing the powers of the second petitioner. The said resolution is harsh and burdensome on the second petitioner. He has justifiably proved his full expertise and professional competence by his hard work, integrity, family commitment and regard for all the family members. Hence, he is legitimately entitled to expect that he will be permitted to carry on his duties in the best interest of the company. The fourth petitioner also contributed immensely to the company and the benefit of the entire family. He was appointed as the editor of The Hindu in January 19, 1991. As a result of his effort, there was an improvement in the circulation of The Hindu from 1990-2003. The appointments of respondents Nos. 12 and 13 are directly linked with the other oppressive action in divesting the second petitioner of all his responsibilities in a mala fide manner.

19. Allocation of advertisement department to the sixth respondent who has mismanaged a wholly owned subsidiary is a clear case of nepotism. When the second respondent was appointed as the editor-in-chief in 2003, four directors (petitioner No. 4, respondents No. 9, 10 and 11) expressed their protest and walked out of the meeting. Respondent No. 2 is colluding with non-editorial directors in breaking his commitment to retire at the age of 65.

20. Issues :

1. Whether the treatment meted out to the second petitioner by the respondents has been unfair and oppressive ?

2. Whether respondents Nos. 2 to 10 are conducting the affairs of the company in a manner oppressive to the petitioners and prejudicial to the interest of the company and public interest ?

3. Whether there was editorial framework for retirement and succession for the editorial board members ?

4. Whether the petitioners are entitled to any equitable reliefs ?

5. To what reliefs and costs ?

21. Cases relied on by petitioners :

1. Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 All ER 492 (HL).

2. Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. (1996) 23 CLA 289 (CLB) ; (1997) 1 Comp. LJ 268 (CLB)

3. Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (1981) 51 Comp. Cas. 743; AIR 1981 SC 743.

4. Pradip Kumar Sarkar v. Luxmi Tea Co. Ltd. (1990) 67 Comp. Cas. 491 (Cal).

5. Kerala State Electricity Board v. Hindustan Construction Co. Ltd. [2006] 12 SCC 500.

6. Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (2005) 123 Comp. Cas. 566 (SC).

7. A.H. Ahmed Jaffer v. ACE Rubber and Allied Products P. Ltd. (2004) 121 Comp. Cas. 743 (CLB).

8. Gurmit Singh v. Polymer Papers Ltd. (2005) 123 Comp. Cas. 486 (CLB).

9. Priyanka Overseas P. Ltd. v. Pasupati Fabrics Ltd. (2007) 139 Comp. Cas. 451 (CLB).

10. M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja (2008) 143 Comp. Cas. 97; [2008] 6 SCC 750.

11. O'Neill v. Phillips (1999) 97 Comp. Cas. 807 (HL) ; (1999) 2 All ER 961.

12. Bihar School Examination Board v. Suresh Prasad Sinha [2009] 8 SCC 483.

13. Kamal Kumar Dutta v. Ruby General Hospital Ltd. (2006) 134 Comp. Cas. 678 ; [2006] 7 SCC 613.

14. Dr. S. Mangalam Srinivasan v. Mani Forgings P. Ltd. (2006) 129 Comp. Cas. 544 (CLB).

15. Shoe Specialities P. Ltd. v. Standard Distilleries and Breweries P. Ltd. (1997) 90 Comp. Cas. 1 (Mad).

16. Debi Jhora Tea Co. Ltd. v. Barendra Krishna Bhowmick (1980) 50 Comp. Cas. 771 (Orissa).

17. Hemant D. Vakil v. RDI Print and Publishing P. Ltd. (1995) 84 Comp. Cas. 838 (CLB).

22. Cases relied on by respondents :

1. K.S. Mothilal v. K. S. Kasimaris Ceramique P. Ltd. (2003) 113 Comp. Cas. 562 (Mad).

2. Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co. (2004) 120 Comp. Cas. 560 (Bom).

3. Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 35 Comp. Cas. 351; AIR 1965 SC 1535 ; (1965) 2 SCR 720.

4. Hanuman Prasad Bagri v. Bagress Cereals P. Ltd. (2001) 105 Comp. Cas. 493 (SC)

5. R. Balakrishnan v. Vijay Dairy and Farm Products P. Ltd. (2005) 125 Comp. Cas. 661 (CLB)

6. Raghunath Swarup Mathur v. Har Swarup Mathur (1970) 40 Comp. Cas. 282 (All).

7. P.S. Offshore Inter Land Services P. Ltd. v. Bombay Offshore Sup pliers and Services Ltd. (1992) 75 Comp. Cas. 583 (Bom).

8. R. Ramanathan Chettiar v. A. and F. Harvey Ltd (1967) 37 Comp. Cas. 212 (CT).

9. National Buildings Construction Corporation v. S. Raghunathan (1998) 7 SCC 66.

10. Westfort Hi-Tech Hospital Ltd. v. V.S. Krishnan (2007) 137 Comp. Cas. 151 ; [2007] 2 Comp LJ 143 (Ker).

11. Government of West Bengal v. Chatterjee Petrochem (Mauritius) Co. (2008) 143 Comp. Cas. 837 (Cal).

12. Union of India v. Hindustan Development Corporation (1993) 3 SCC 499.

13. Ashok Kumar Oswal v. Vardhman Polytex Ltd..

14. G. Kasturi v. N. Murali (1992) 74 Comp. Cas. 661 (Mad).

15. Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. (1974) 44 Comp. Cas. 390 (Delhi).

16. Dr. Mrs. Banoo J. Coyajee v. Shanta Genevieve Pommeret Parulekar (1995) 84 Comp. Cas. 534 (Bom).

17. Kashinath Tapuriah v. Incab Industries Ltd. (1998) 93 Comp. Cas. 725 (Cal).

18. Sunil Dev v. Delhi and District Cricket Association (1994) 80 Comp. Cas. 174 (Delhi).

19. Priyanka Overseas P. Ltd. v. Pasupati Fabrics Ltd. (2007) 139 Comp. Cas. 451 (CLB).

Issues 1 to 5

23. Learned counsel for the petitioners invited my attention to certain factual aspects in support of the claim of quasi-partnership and legitimate expectation. Article 3(a) of the memorandum of association of the company mentions that one of the objects was to take-over the partnership of newspaper business carried on by K. Srinivasan and K. Gopalan under the name The Hindu. The entire share capital of the company is held by four families, being the descendants of the founder, the late Kasturi Ranga lyengar. While giving a clarification on the selection and appointment of relatives of directors (respondents Nos. 12 and 13) as foreign correspondents before the Ministry of Corporate Affairs, the company was projected as a closely held family company, managed and controlled by the members of the four families of the founder. This response was filed as per the minutes dated March 6, 2009 and signed by all the respondents. My attention was drawn to the minutes of the meeting of the board of directors held on February 18, 2010 in which the second respondent had pointed out that since 1905, respondent No. 1 had been a family owned, family managed company even after it became a public limited company. It is pointed out that, after the judgment of the Madras High Court's finding that respondent No. 1 as a company to which the principles of quasi-partnership are not applied, articles of association were amended providing equal representation to every branch of the four families. Alternatively it is pointed out that the above judgment is not applicable since that case was finally compromised before the Hon'ble Supreme Court of India. Relying on the decision in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (2005) 123 Comp Cas 566 (SC) it has been argued that the principles of quasi-partnership can be invoked to an incorporated company considering the real character of the company for the purpose of judging the dealings between the parties and the transactions which are impugned. The decision in A.H. Ahmed Jaffer v. ACE Rubber and Allied Products P. Ltd. (2004) 121 Comp Cas 743 (CLB) is cited to contend that the company is a family company to which the principles of partnership are attracted, because the management which was in the hands of the father of the petitioner and second respondent is now with the petitioner and the second respondent. In the cited decision, the father of the petitioner and the father of the second respondent therein were the subscribers to the memorandum of association and the first directors of the company, and the petitioner's father was the managing director of the company till his death and the second respondent's father was the chairman till his death. The petitioners also relied on the decision in Gurmit Singh v. Polymer Papers Ltd. (2005) 123 Comp Cas 486 (CLB) and argued that the principles of quasi-partnership is applicable notwithstanding the fact that the company is a listed company and if the same is managed in the same manner as that of a closely held family. The above decision held that once the facts and circumstances of a case indicate that on piercing the corporate veil, the real structure is found to be not that of a company, equitable considerations applicable to a partnership could be applied to that company. In the above case the petitioners invoked the principles of quasi-partnership on the basis of the memorandum of understanding and it was held that the company was being managed as a closely held family establishment. It was also held that since the sons of the original promoters got gainful employment in the company, it was managed in the guise of a closely held company and, hence, the principles of partnership and legitimate expectation could be applied in that case. The decision further held that even though the petitioner could not complain against his removal as managing director, it was observed that the disputed board meeting for his removal was convened with a day's notice, and without any agenda proposing his removal. Learned counsel for the petitioners argued that the removal of the second petitioner who was in the board for 30 years was unfair and oppressive. The second petitioner is the managing director with effect from April 10, 2006. It is pointed out that the treatment meted out to the second petitioner, by curtailing all his powers without giving any explanation or prior notice, is illegal.

Contentions of respondents Nos. 1 and 3

24. According to learned counsel for respondents Nos. 1 and 3, the company was converted to a public limited company to enable outsiders to be associated with it and, hence, the principles of partnership cannot be made applicable to the company. Merely because the members of extended family are shareholders, it cannot be held that the company is in the nature of partnership. This principle has been recognised by the Supreme Court in Kilpest P. Ltd. v. Shekhar Mehra (1996) 87 Comp Cas 615; (1996) 10 SCC 696. The decision in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (2005) 123 Comp Cas 566 (SC) does not dilute the propositions enunciated in Kilpest P. Ltd. v. Shekhar Mehra (1996) 87 Comp Cas 615 (SC). The reliance placed on Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 All ER 492 (HL) is misplaced [vide the decision in Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla (1976) 46 Comp Cas 91; (1976) 3 SCC 259. Further, petitioners Nos. 2 and 4 have not been ousted and their status as members/directors is retained. The partnership principle is applicable only in case of a deadlock. The earlier decision of the Madras High Court in G. Kasturi v. N. Murali (1992) 74 Comp Cas 661 is binding on the parties and it is not just an interim decision. There is no memorandum of understanding with regard to the shareholding or management rights and the complaint is against the removal of the second petitioner as managing director. The second petitioner was originally appointed as the managing director by a circular resolution, and there is no agreement that he will remain as the managing director for life. According to the respondents, the second petitioner was appointed as the managing director only for 5 years and any subsequent appointment has to be made at the general meeting. No person can claim legitimate expectation beyond the period of such appointment. Even if there was a legitimate expectation it cannot go beyond the period of appointment and contrary to the articles. There is no equality in shareholding between the warring groups of shareholders. The petitioners hold barely 15.38 per cent. stakes in the company. The petitioners are seeking to strip of the powers of the majority of directors who represent majority shareholders. The powers of the board of directors cannot be curtailed, as the directors are acting in a fiduciary obligation to the company. As per the articles of association the managing director subjects to the superintendents of the board. The curtailment of the second petitioner's powers is not shown to be prejudicial to the interest of the company. There cannot be any legitimate expectation on the editorial side because, in the past, even non-family members have been editors of the company. While the proposal on the Code of Corporate Governance is under consideration, there cannot be any legitimate expectation or any retirement based on any succession plan. The board is yet to take a decision in this matter. The second respondent came in as the editor-in-chief for the interest of the company and the newspaper. The appointment of respondent No. 3 as the managing director was approved by the majority of the directors on the board. The article 257 provides for more than one managing director. The allocation of work among directors is the board's prerogative and is completely an internal management of the company. The appointments of respondents Nos. 12 and 13 were unanimously approved at the board and general meetings. By trying to block the approval of their appointment by the Central Government the second petitioner acted against the interest of the company. If the second respondent's retirement was the quid pro quo for appointment of respondents Nos. 12 and 13, then both the reliefs cannot be sought. The appointment of respondents Nos. 12 and 13 were prior to the informal meeting of some directors on September 25, 2010, when respondent No. 2 has allegedly agreed to retire. The reliefs claimed in the company petition clearly demonstrate a scheme to usurp the total control of the company both in the managerial and editorial side and same has been effectively prevented by the respondents in a democratic manner and, hence, there cannot be an act of oppression. The conduct of the petitioners justify their compulsory expulsion from the company.

25. The other contesting respondents raised the following contentions : There is no pleading in the petition to show that it is just and equitable to order winding up of the company and, hence, the petition is not maintainable. It is not shown that the company's affairs are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member, it is submitted that while exercising the powers under sections 397 and 398 the court has to prevent the misuse of the provisions by a party, otherwise it will amount to a source of greater oppression on the majority, than the one sought to be removed. The concept of legitimate expectation being in essence a question of fact (giving rise to substantial rights), would require the same to be specifically pleaded in the petition. No specific ground is raised based on the legitimate expectation, except the averment that there existed a tacit understanding that the second petitioner was to occupy the post of the managing director and lead the respondent-company. The claim of "tacit understanding" and the concept of legitimate expectation cannot coexist. Even if the company is taken to be a quasi-partnership, the concept of legitimate expectation mandates a clear promise for an unambiguous representation to be proved by the petitioners by adducing cogent evidence. A mere wish or anticipation would not give rise to legal consequences. The second petitioner failed to substantiate as to what was the alleged promise made to him and what did he expect to be his right in the company. He is equating the reallocation of work in the company as his virtual removal as the managing director. It would be open to the board to transact any business in the meeting, albeit not mentioned, as an item in the agenda. In the past, the second petitioner was appointed as the managing director by a circular resolution. The decision in Priyanka Overseas P. Ltd. v. Pasupati Fabrics Ltd. (2007) 139 Comp Cas 451 (CLB) is not applicable to the facts of the case because there is no removal of petitioner No. 2, but only a reallocation of his duties. Even if it amounts to withdrawal of powers/removal there is justification because the second petitioner was subverting the decisions of the board and general body and also in view of the lack of confidence expressed by the other directors/shareholders. There is no legitimate expectation on the editorial side inasmuch as several non-family members were appointed as the editor-in-chief. Because the appointment of respondents Nos. 12 and 13 were approved in the board meetings and shareholders' meeting and forms of approval were signed by the second petitioner, he cannot challenge the decisions to which he has been a party. The Central Government has accorded its approval to the said appointments. The so-called legitimate expectation would extend to all family members including respondents Nos. 12 and 13. The alleged understanding arrived at between the editorial members on September 25, 2009 would be of no relevance since it is for the shareholders of the company to decide the age of retirement of the directors, by making necessary provision in the articles of the company.

26. In fact, to decide on the age of retirement is a vital aspect going to the basis of the management of the company and, it would not be a matter to be decided merely because 2 out of 12 directors, who hold 17 per cent. of the shares of the company, desire the same. Similarly, howsoever wide the powers of the Company Law Board may be under section 402 of the Act, a power of altering the basic structure of the management of the company would not be exercised by the Company Law Board unless it rendered a finding that the existing system was so flawed as to vitally affect the very functioning of the company, making it just and equitable to wind up the company for such reasons, and, therefore, exercising powers to virtually restructure the managing structure of the company.

27. I have gone through the pleadings, documents, case laws and the written submissions filed by both sides.

28. Taking into account the venerable tradition and rich heritage of The Hindu, I tried to sort out the differences within the family by inviting N. Murali (petitioner No. 2), N. Ravi (petitioner No. 4), N. Ram (respondent No. 2) R. Ramesh (respondent No. 6) and Malini Parthasarathy (respondent No. 11) for a personal and informal discussion after the closure of hearing. Various proposals were put forward but a solution remained elusive. Hurt by the arbitrary curtailment of powers, the second petitioner wanted restoration of his earlier status so that he can retire in a dignified manner in August 2011. Though the second respondent promised to try for a consensus, he could not submit any worthwhile and commonly acceptable suggestion. Respondent No. 11 expressed her anguish at the constant upheavals in the board which are causing tremendous instability to the editorial structure.

29. In order to narrow down the difference as one between petitioner No. 2 and respondent No. 2, I am examining at the outset the dispute relating to the appointment of respondent No. 12 as the European correspondent and respondent No. 13 as the Washington correspondent. I am not evaluating their competence to hold those posts except to note that the decisions of their appointments were taken unanimously by the board of directors. The mandatory approval required under section 314(1B) of the Act has since been obtained from the Central Government. Even if there is any irregularity in this regard, it is only a compoundable offence. At the same time the respondents are aggrieved by the conduct of petitioner No. 2, approaching the Central Government for refusal of approval. It is obviously unfair for petitioner No. 2 to do so after being a party to the decision of the board. Such conduct can be found to be an action contrary to the interests of the company. The petitioners explained that his agreement was part of a wide understanding as per which respondent No. 2 would retire at the age of 65. However, the second respondent withdrew himself from that commitment and according to the second petitioner that prompted him to retaliate. Prima facie, the conduct of petitioner No. 2 seems to be undesirable, justifying the deprivation of any equitable relief but taking into account the totality of the circumstances, I am leaving it as it is. Now the disputed appointments have become a fait accompli and the petitioners do not seem to be seriously pressing their plea against respondents Nos. 12 and 13. In these circumstances, I reject prayer (e) as infructuous.

30. The main contention in these proceedings can be safely narrowed down as a tussle between the second petitioner (Shri N. Murali) and the second respondent (Shri N. Ram). In the family tree these two belongs to the same branch as the inheritors of Shri G. Narasimhan, who was one of the four cousin brothers. Shri Ram is the editor-in-chief of The Hindu since June 2003. The petitioners point out that there was an editorial framework, of retirement and succession which, if implemented would have resulted in the retirement of Shri Ram as editor-in-chief when he turned 65 on May 4, 2010. The framework at best can be termed only as an informal understanding among the members of the family. Shri Ram vehemently denies the existence of any such enforceable agreement. However, he is admitting that there was an informal suggestion to this effect in September 2009. There is no retirement age for the editor-in-chief either in law or in the articles of association of the company. The petitioners were expecting the replacement of Shri Ram as editor-in-chief by his brother (Shri N. Ravi) who is the fourth petitioner. It may be a legitimate expectation but the members of the company cannot entertain any expectation which will go beyond the legal rights conferred on them by the constitution of the company. The editor is the "living articulate voice" of the newspaper and The Hindu is a newspaper which can claim a grand succession of eminent editors during its 132 years of glorious existence. Continuing litigation and constant upheavals will cause great and irreparable harm to that reputation. There is some force in the contention of the petitioners that as the younger generation members are coming in, the oldest members had to make way for those in between. Evidently, and admittedly the note on the Code of Corporate Governance Guidelines of the company sent by the second petitioner was placed at the board meeting of February 18, 2010 and is under consideration by the board of directors. It is on record that, in the board meeting dated August 21, 2009, Ms. Malini Parthasarathy (respondent No. 11) has expressed her concern regarding the delay in the matter of evolving a framework and guidelines for succession indicating how roles of different persons in the editorial were going to evolve. She also emphasised that the factors like one's particular experience, orientation, qualification and actual practical contribution in the area should figure in succession guidelines. Evidently, this note was also taken on record. The clause in the articles regarding the retirement at the age of 65 was deleted in 1991 not based on any discussion in the board of directors, but based on the amended provisions of the Act as per which there is no age qualification now for a person to retire as a director. So the issue on succession was never decided by the board or shareholders. Viewed in this background, the proposal by the petitioners and respondent No. 11 to frame a Corporate Governance Policy cannot be described as an attempt to gain control of the company or to remove Shri Ram as the editor-in-chief. Since the board of directors reallocated the non-editorial side in order to broad-base the management of the company and to involve all the whole-time directors, it is desirable that such a decision is taken at the editorial side also.

31. Being an incorporated entity, the company is at liberty to effect any change in its structure, not amounting to oppression and mismanagement. In the instant case, the board does not find any enforceable decision or understanding for removing the second respondent Shri Ram from his present position. It is for the directors to think about the desirability of having a permanent succession plan as well as the editorial framework. No judicial intervention can be based on the alleged, informal talk in the family. It is for the directors and shareholders of the company to decide the modalities of such succession without compromising professional considerations. For the reasons discussed above, I decline to pass any orders on final reliefs (a) and (b) in the company petition regarding the implementation of a permanent editorial succession plan of retirement and Corporate Governance Policy. As repeatedly undertaken by the respondents, the board of directors and the shareholders are directed to consider these issues in the board of directors as well as meeting of the shareholders and to take a decision without much delay.

32. On the basis of the judgment of the Madras High Court in G. Kasturi v. N. Murali (1992) 74 Comp Cas 661, Kasturi and Sons Ltd. is a public limited company which cannot claim the position of a quasi-partnership. As such the petitioners cannot entertain any legitimate expectation and their claims shall be based on the decisions taken by the board of directors. As the concept of legitimate expectation was not seriously taken as a specific ground in the pleadings, I am not bound to enter into any finding in that regard. What is specifically pleaded is the existence of a tacit understanding on the basis of which petitioner No. 2 is holding the post of managing director since 2006. His appointment is for a period of five years from April 10, 2006. As a result of the infight, his powers were curtailed and he was elevated to the glorified position of senior managing director at the meeting of the board held on March 20, 2010. Prior to this meeting, N. Murali, as a managing director, was in charge of accounts and EDP (independent), general administration, advert

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isement, circulation and production (joint). As per the reallocation of his duties on March 20, 2010, his responsibilities were reduced to circulation (independent), accounts, human relations and industrial relations (joint). It is pertinent to note that N. Murali is in the service of the company as an employee for four decades, i.e., from 1971. Out of this for three decades, he was a director. In 2006 he was unanimously elected as the managing director. As per the understanding arrived at the meeting of the directors on February 18, 2010, N. Murali will retire from the day to day affairs of the company in August 2011 when he reaches the age of 65. Moreover, his term of appointment is to expire only on April 10, 2011. This being the admitted position, the decision to trim his powers taken on March 20, 2010 seems to be surprising. Charges were raised against him by his own brother and cousins without any notice or putting the same on the agenda. The nature of the urgency in taking this type of action against the managing director is not properly explained to me. Though he was elevated as the senior managing director, it was done only for the purpose of creating a space for respondent No. 3 to become the managing director. Following the stripping of powers, only one out of the original seven functions, now remains with petitioner No. 2. There is justification for him to argue that it was a vindictive and punitive action, perhaps in retaliation to his objection to the foreign appointments of respondents Nos. 12 and 13. Without giving him an opportunity to explain, several serious allegations were raised against petitioner No. 2. The stripping of powers and non-routine reallocation of functions without notice and specific agenda is lacking in probity and good faith. It is unfair on the part of the respondent directors to humiliate petitioner No. 2 in such a way. I think the arbitrary and well-planned decision taken against petitioner No. 2 on March 20, 2010 requires reconsideration. Lack of notice of the allegations without the agenda is enough to establish oppression. Since petitioner No. 2 is willing to retire in August 2011, it is only reasonable to facilitate him to terminate his 40 years old association with the company in an honourable manner. Even though directorial complaints cannot be taken as a ground for oppression in a public limited company, I am inclined to interfere in the instant case, taking into account the special circumstances. I hereby set aside the decision taken by the board of directors on March 20, 2010 to the extent that it reallocates the functions of the senior managing director and direct that the position prior to March 20, 2010 shall be restored as far as allocation of departments concerning petitioner No. 2 is concerned. This will not affect the continuation of respondent No. 3 K. Balaji as the managing director and his functions can be appropriately determined by the board without affecting the position and status of petitioner No. 2 as the senior managing director. The month of August in the year 2011 is not far away and I hope it will augur well for the beleaguered company. 33. Some allegations are raised regarding the waiver of interest in respect of a loan availed by a member of the family and the mismanagement of a subsidiary company by respondent No. 6. In view of the reliefs granted in the company petition I do not think it necessary to go into those allegations. In the light of the discussions made above, the company petition is disposed of as follows : (i) The reliefs (a) and (b) to implement permanent editorial succession plan of retirement for the editorial board members and permanent Corporate Governance Policy on the basis of the informal discussion among the editorial directors are declined. The board of directors and the share holders are hereby directed to consider these issues in the meeting of the board of directors as well as the shareholders and take a decision in this matter as observed in paragraphs 16 and 17 supra without much delay. (ii) Regarding reliefs (c) and (d) I hereby set aside the decision taken by the board of directors on March 20, 2010 to the extent it reallocates the functions of the senior managing director (petitioner No. 2) and direct that the position prior to March 20, 2010 shall be restored as far as allocation of departments concerning petitioner No. 2. This will not affect the continuation of respondent No. 3 K. Balaji as the managing director and his functions can be appropriately determined by the board without affecting the position and status of petitioner No. 2 as senior managing director. (iii) For the reasons stated at paragraph 10 of this order above, relief (e) regarding the appointments of respondent No. 12 as European correspondent of Business Line and respondent No. 13 as Washington correspondent of The Hindu is declined. (iv) Relief (f) is declined. (v) No order as to costs. All interlocutory applications are dismissed and all interim orders are vacated.
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