http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 38  

CASE NO.: Appeal (civil)  3253-58 of 1991

PETITIONER: M.S. Madhusoodhanan & Anr.               

RESPONDENT: Vs. Kerala Kaumudi Pvt. Ltd. & Ors.          

DATE OF JUDGMENT: 01/08/2003

BENCH: Ruma Pal & B.N. Srikrishna.

JUDGMENT:

J U D G M E N T

With CA Nos. 3260, 3259, 3261 of 1991

RUMA PAL, J.

       An internecine dispute between the members of a family  relating to the controlling interests in companies has given rise to the  nine appeals which are being disposed of by this judgment. Given the  number and nature of the proceedings, to avoid any confusion,  the  parties are referred to by their names and not in the capacity in which  they have sued or been sued except when describing the collective  stand of all the respondents in these appeals, when they are referred  to simply as ’the respondents’.            The main protagonists in all the litigations are  Madhusoodhanan, Srinivasan, Ravi and Mani who are brothers, with  Madhusoodhanan on one side and Srinivasan, Ravi and Mani on the  other. The parents of the four were  one K. Sukumaran and Madhavi  both of whom are deceased. K. Sukumaran died before the litigations  between the parties erupted and Madhavi died during the pendency  of the litigation.  While she was alive she supported Srinivasan, Ravi  and Mani.  The four brothers are married and have children. It is  unnecessary at this stage to clutter the narration of facts with the  names of the wives and children, who will be referred to by name  when the particular litigation in which they are involved is considered.   The dispute began with a struggle over the controlling interest in a  company by the name of Kerala Kaumudi Pvt. Ltd. (hereinafter  referred to as Kerala Kaumudi)            Kerala Kaumudi is a private company incorporated under the  Indian Companies Act, 1913 which was promoted in  1955  by the  parents of the four brothers. Besides Kerala Kaumudi other "family"  concerns were incorporated including Kaumudi Investments Pvt. Ltd.,  Kerala Exports (P) Ltd., Kaumudi News Pvt. Ltd., Laisa Publications  Pvt. Ltd., Shiv Printers & Publishers, Ravi Printers & Publishers Pvt.  Ltd., Kaumudi Films Outdoor Unit, Electronic & Equipment  Corporation and Ravi Transports.  However, the core of the  controversy is the control of Kerala Kaumudi.             The  business of Kerala Kaumudi (which was the flagship  company ) is to own and publish newspapers, journals and other  literary works and undertakings. Its authorised share capital is 20  lakhs divided into 2000 shares of Rs.1000/- each. The total number of  issued and paid up equity shares in Kerala Kaumudi was 1575.    During the life time of K. Sukumaran each of the brothers along with  their parents had shares in Kerala Kaumudi and the shareholding  was as follows:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 38  

Sr. No. 1.               Mani                           222 shares 2.               Valsa Mani             84 shares                 (Mani’s daughter)

3.              Sukumaran Mani          84 shares                 (Mani’s son)

4.              Madhusoodhanan  390 shares 5.              Srinivasan                      390 shares 6.              Ravi                            390 shares 7.              Madhavi                 3 shares 8.              Sukumaran                       9 shares 9.      Kaumudi Investments  3 shares Private Ltd.              _____                                     Total    1575  shares            Sukumaran died on 18th September 1981.  He was the  Managing Director of Kerala Kaumudi from 1955 to 1973 and its  Chairman from 1973 till his death.  He was succeeded        as  Chairman  by  his  widow  Madhavi.  Madhusoodhanan was   appointed as Managing Director of Kerala Kaumudi in 1973  immediately after  Sukumaran died.  On 25th January 1985,  Madhusoodhanan was appointed as Managing Director and Editor of  Kerala Kaumudi for life.  He was also empowered to exercise the  powers given to the Director under Article 79 of the Articles of  Association. At the same  time Srinivasan was appointed as   General Manager of Kerala Kaumudi for life and Ravi was appointed  as Director and Executive for life. To give effect to these  appointments, Article 69A and  Article 74 of the Articles of  Association of Kerala Kaumudi  were amended.        The disputes between the parties started soon after the death of  Sukumaran in September 1981.  When these reached   a head, on  29th November, 1984 a resolution was taken at a meeting (Ex. P-190)  of the company which was signed by the four brothers and Madhavi  by which the controlling interests in the different family companies  were agreed to be given to the four brothers on the basis of their  active interest in a particular concern.  Kerala Kaumudi’s control was  to be with Madhusoodhanan.  In implementation, Transfer of shares  in these companies were effected between the brothers and their  respective families.  The disputes however did not abate. On   24th  October,1985 an agreement was entered into between the parties in  an attempt to resolve their differences.  This agreement has been  exhibited in the proceedings as Ext. P1. On 23rd December 1985, a  second agreement (Ext. P-2) was entered into  by which it was, inter  alia, agreed that all the various family controlled companies and firms  would be divided among the four brothers.         On 16th January 1986 a third agreement was entered into, which  has been marked as Ext. P.3.  The parties to the third agreement  were Madhavi, Mani, Madhusoodhanan, Srinivasan and Ravi.  Briefly  speaking,  Ext.P3  is about the division of effective control of the  "family" concerns amongst the four brothers. It relates to the transfer  of Mani’s shares in Kerala Kaumudi  to Madhusoodhanan. In addition,  the parties’ agreement that Madhusoodhanan would have the major  share holding in Kaumudi Investments Pvt. Ltd., Kerala Exports (P)  Ltd. and Kaumudhi  News Pvt. Ltd., Mani the majority share holding  of 52 per cent in Laisa Publications Pvt. Ltd. (which has subsequently  changed its name to Kala Kaumudi Pvt. Ltd.), Srinivasan 52 per cent  in Shiv Printers and Publishers, and Ravi, the majority holding in Ravi  Printers and Publishers (P) Ltd., Kaumudi Films Outdoor Unit,  Electronic and Equipment Corporation and Ravi Transports, is also  recorded.             According to Madhusoodhanan, Mani and his children had  already transferred their entire holding of 390 shares in Kerala  Kaumudi to Madhusoodhanan in May 1985, prior to the third  agreement.  As a result ,Mani and his children had no shares in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 38  

Kerala Kaumudi, Madhusoodhanan had 612 shares, and  Sreenivasan and Ravi had 222 shares each. Nine shares continued  to stand in the name of the late K. Sukumaran and three shares in the  name of Madhavi.  In addition, the two children of Madhusoodhanan  had 84 shares each,  Sreenivasan’s daughter, Anju had 168 shares,  Ravi’s son, Deepu, had 168 shares and KIPL continued to hold 3  shares.     On 23rd July 1986, a Board meeting of Kerala Kaumudi was  held at which Madhavi assumed the powers of the Managing Director  in purported ouster of Madhusoodhanan.  The meeting is disputed by  Madhusoodhanan.  He says that no such meeting was in fact held  and that the minutes were subsequently drawn up.  A second Board  meeting, which is also disputed by Madhusoodhanan, was held on 1st  August 1986 in which a decision was taken to increase the paid-up  share capital of Kerala Kaumudi by issuing 425 additional shares of  Rs.1000/- each.  At a Board meeting held  on 8th August 1986 these  additional shares were issued to Ravi and Sreenivasan and one  share was transferred by Ravi to Mani.  This meeting as well as the  allotment of the additional shares is not accepted by  Madhusoodhanan.  On 16th August, 1986 at an Extraordinary General  Meeting Madhusoodhanan was removed as Managing Director of  Kerala Kaumudi and Article 74 of the Articles of the company deleted.           In this background, several proceedings were filed by the  parties against each other some of which may be taken up for  consideration together.  The first lot consists of six matters relating  directly to Kerala Kaumudi and the share holding in Kerala Kaumudi.   The six are: (i)     C.P. No. 14 of 1986  filed by Madhusoodhanan for  rectification of the company’s share register under  section 155 of the  Companies Act, 1956 by  cancellation of the allotment of 425 shares to Ravi  and Sreenivasan and for removal of the name of  Mani from the company’s share register. (ii)    Company petition, C.P. No. 31 of 1988 filed by KIPL   for similar reliefs. (iii)   A suit filed by Madhusoodhanan in the Munsif’s  Court, Trivandrum  being O.S. No. 1329 of 1986  (subsequently re-numbered as C.S. No. 3/89, when  withdrawn to the High Court) for a decree  declaring  that he continued to be the Managing Director of  Kerala Kaumudi and for a declaration that the Board  meetings held on 23.7.86, 1.8.86 and the meetings  subsequent thereto were illegal and ultra vires the  Articles of Association of the company.  (iv)    A suit being O.S. No. 482/88 (subsequently re- numbered as C.S. No. 5/89, when withdrawn to the  High Court) filed by KIPL against Kerala Kaumudi  for similar reliefs.   (v)     A suit filed by Madhusoodhanan for specific  performance of the third agreement, Ex.P.3.(O.S.  No. 483/88, subsequently re-numbered as C.S. 6/89  when withdrawn to the High Court.) (vi)      C.P. No.26 of 1987 filed in 1987 by Mani and his  children for a declaration that the transfer of 390  shares by them to Madhusoodhanan pursuant to  the Board’s decision dated 21.5.85 was illegal and  void and for rectification of the share register by  recording them as the owners of 222, 84 and 84  shares respectively.          These six matters are now numbered as CA Nos.  3253-3258 of  1991 before us.         The second set of litigation being Company Petition No. 15 of  1986 was filed in  1986 by Mani’s wife Kastoori Bai, daughter Valsa,  Ravi’s wife Shylaja, and  Sreenivasan’s wife Laisa as well as Madhavi  for rectification of the share register of KIPL. This is now numbered

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 38  

as CA 3260 of 1991.           The third set consists of CP No.11 of 1987 ( now CA 3261 of  1991) filed by Vaishak, the minor son of Madhusoodhanan, for  rectification of the share register of Kerala Kaumudi.           The fourth set of proceedings originally consisted of two suits   filed before the Munsif’s Court, Trivandrum relating to the office  premises of Kerala Exports and KIPL.  The suit filed by Kerala  Exports,(numbered on transfer as CS No. 2 of 1989) was for a  mandatory injunction to restrain Kerala Kaumudi, Sreenivasan, Ravi  and Madhavi from disturbing its functioning in Kaumudi Buildings.    O.S. No. 1569 of 1988 (subsequently numbered as CS 4 of 1989)  was  a similar suit filed by KIPL  before the Munsif’s Court for  restraining the defendants from preventing the peaceful functioning of  KIPL’s administrative office in Kaumudi Buildings.     All the original suits were transferred to the High Court under  the provisions of Section 446 of the Companies Act and were heard  along with the several company petitions noted earlier.  About 296  documents were tendered in evidence by the parties.    Seven  witnesses were examined.  The four witnesses who deposed in  support  of Madhusoodhanan were P.K. Kurien, Advocate (PW 1),  Mohan Raj, former Personal Assistant to Madhusoodhanan (PW 2)  Vasudevan, former Company Secretary (PW 3) and   Madhusoodhanan himself (PW 4).  As far as the opponents were  concerned,  Mani (RW 1), Srinivasan (RW 2) and Laisa Srinivasan  (RW 3) gave evidence in support of their stand.         The Single Judge decided CP No. 14 of 1986 in  Madhusoodhanan’s favour.  The application for rectification was  allowed and the allotments of shares made in the meeting held on  8.8.86 were set aside and rectification of the share register of Kerala  Kaumudi by deleting the further allotment of 425 shares each to  Sreenivasan and Ravi was directed.  The prayer for cancellation of  the transfer of one share in favour of Mani was, however, disallowed.   However, the petition filed by KIPL (CP No. 31 of 1986) which had  virtually asked for the same reliefs as in CP No. 14 of 1986 was  dismissed by the learned Single Judge on the ground of delay.   Madhusoodhanan’s suit (C.S. No. 3 of 1989) and KIPL’s suit (CS  No.5 of 1989),  were decreed by holding inter alia that the meetings  held on 23.7.86, 1.8.86, and 17.8.86 in so far as they affected  Madhusoodhanan and by which Madhusoodhanan had been  removed as Managing Director and Article 74 of the Articles of  Association of the company was deleted, were illegal and invalid.  Madhusoodhanan  was declared to be the Managing Director of the  Company. The suit filed by Madhusoodhanan for specific  performance of Ext. P3 (CS No. 6 of 1989) was also decreed.  Mani  and his children’s application for setting aside the transfer of 390  shares (CP No.26/87) was dismissed. An arbitrator was appointed for  determining what amount was payable by Madhusoodhanan to Mani   for the shares transferred by Mani to Madhusoodhanan.          The second set of proceedings initiated by Mani’s  wife and  others viz. CP No. 15 of 1986, for rectification of the share register of  KIPL and the third set filed by Madhusoodhanan’s minor son, Vaishak  for rectification of the share register of Kala Kaumudi (CP No. 11 of  1987) were dismissed.         The two suits filed by Kerala Exports and KIPL (CS 2 of 1989  and CS 4 of 1989 respectively) relating to  their continued possession  in Kaumudi Buildings were decreed.          The aggrieved parties preferred appeals in each of the matters.   By a common judgment, the Division  Bench reversed the findings of  the learned Single Judge in all of the appeals except in the appeal  from CS 2 of 1989.  Nine Special Leave Petitions were filed in this  Court in the separate proceedings on which leave  was granted on  27th August 1991.          We propose to deal with issues which can be said to be  common to the different sets of  litigations before giving our  conclusions on each appeal separately.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 38  

       The underlying question in the first set of litigations viz. who has  the controlling interest in Kerala Kaumudi has given rise in turn to the  following topics: A)      the transfer of shares by Mani and his children to  Madhusoodhanan. B)      The removal of Madhusoodhanan as Managing  Director ; C)      The issue of additional shares to Ravi and  Srinivasan, and D)      Specific performance of the agreement (Karar)  dated 16.1.1986.  Transfer of shares by Mani and his children to  Madhusoodhanan In C. P. 26/87, Mani and his group prayed for rectification of the  share register of Kerala Kaumudi by deleting the name of  Madhusoodhanan as a shareholder in respect of the shares which  Mani and his group had transferred to him in 1985.  The prayers  proceed on the basis that there was in fact a transfer of shares in  1985 which was, after two years, sought to be set aside.  The  grounds on which this was asked for were : A.      The consideration for the transfer had not been  agreed upon and no consideration had in fact been  paid. B.      No proper documents had been executed                             effecting the transfer. C.      Neither Valsa nor Sukumaran Mani, a minor had any knowledge of the transfer and the     transfer of their shares was invalid. D.      Section 108 of the Companies Act, 1956 had      not been complied with in respect of any of       the transfers.         The learned Single Judge rejected all four contentions, and in  our view, rightly.  The Division Bench held in favour of Mani and his  group on grounds which are legally and factually unsustainable for  the reasons stated in the following paragraphs.                           The documentary evidence relating to the transfer, shows  without a shred of doubt that there was a valid transfer of shares.  To  begin with  the minutes of the meeting held on 19th  March 1985 [Ex.  R-62(a)] which were signed by Mani,  records:  "Shares of Sri M.S. Mani. All the shares in Kerala  Kaumudi owned by Sri M. S. Mani and family would  be pledged by him to Sri M. S. Madhusoodhanan  who shall extend financial facilities to Sri M. S.  Mani.  The loan will be paid with 22 percent interest  by Sri Mani when Sri M. S. Madhusoodhanan shall  release the shares of Sri M. S. Mani.  The modus  operandi of the transaction shall be decided in  consultation with barrister P.K. Kurien of Menon and  Pai".

The intention of Mani and his group to transfer their  shareholding to Madhusoodhanan is evident from this. Although the  mode of transfer was subsequently changed, this intention was  affirmed at the Board meeting of Kerala Kaumudi held on 23rd April  85.  The fifth and sixth resolutions as appearing in the minutes of the  meeting (Ex.P.-62(b)) which were also signed by Mani  read as  under: "Sri M. S. Mani Letter of resignation from the direct directorship of  Kerala Kaumudi (Pvt) Ltd effective from 23.  4.  85  afternoon submitted by Sri M. S. Mani was  approved by the Board.

(6) Shares owned by Sri M. S. Mani and family in  Kerala Kaumudi (P) Ltd.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 38  

"Shares owned by Sri M. S. Mani and family in  Kerala Kaumudi (p) Ltd will be transferred to Sri M.  S. Madhusoodhanan forthwith on a consideration to  be mutually agreed between the transferor and the  transferee.  The liabilities of Sri M. S. Mani to the  income tax department etc up to 31st March,1985  should be settled by Kerala Kaumudi (P) Ltd. before  finally deciding a consideration for the share  transfer.  The Kerala Kaumudi (P) Ltd undertakes to  discharge the liabilities arising on account of  personal guarantees given by Sri M. S. Mani for the  company". ( Emphasis supplied ).

The sixth resolution clearly envisages three distinct stages:  an  immediate and unconditional transfer of shares,  then, the  settlement  of the Mani’s income tax liabilities by Kerala Kaumudi and, after both  these stages, the determination of the consideration for the transfer to  be mutually agreed on. The Division Bench, therefore,  erred in holding that the  agreement for transfer of shares was conditional on the determination  of the price of the shares and in concluding that as there had been no  such determination, no transfer could have taken place.  The express  intention was to effect an immediate transfer of the shares and to  agree upon the consideration later.  Section 9 of the Sale of Goods  Act, 1930  permits this.   Section 4 read with Section 2(10) of the Sale of Goods Act,  1930 require that the contract of sale must  provide for the payment  of money as a consideration for the transfer of goods, or to put it  differently, that a price must be paid.  But Section 9 of the 1930 Act  allows the parties not to fix the price at the time of the transfer and to  leave the determination of the amount of consideration to a later date.   An agreement which provides for the future fixation of price either by  the parties themselves or by a third party is capable of being made  certain and is not invalid as provided under Section 29 of the Contract  Act, 1872 [See: Illustration (e)]   In view of such categoric and clear  statutory provisions, the submission of learned counsel representing  Mani that such a contract is void for uncertainty because the price  was not fixed, is unacceptable.  The passage from Benjamin’s Sale of  Goods (1974 Edn.) relied on which says  "If the price is left to be agreed upon  subsequently between the parties, there  will ordinarily be no binding contract, on  the grounds of uncertainty, unless and  until they later reach agreement on a  price.  Moreover, an agreement to leave  the price open to further negotiation will  normally exclude any inference that the  price should be a reasonable price in  accordance with the provisions of  section 8(2)."

may be an exposition of the law as it is in England and  cannot be  seen as an authority on the interpretation of section 9(1) of the Sale  of Goods Act.  Besides, the same passage cited goes on to say: "But in accordance with the principle  that the Courts will endeavor to uphold  bargains which the parties believe  themselves to have concluded,  especially in the case of executed or  partially executed contracts, it may  sometimes be possible either to infer an  intention that at any rate a reasonable  price should be paid if no price is later

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 38  

settled, or to have regard to other  circumstances, such as the course of  dealing between the parties."

       In this case, there can be no doubt that the first stage of the  agreement for the immediate transfer of shares was executed and the  Division Bench erred when it held to the contrary.          The questions as to what would be the reasonable price for the  shares, the mode of its determination and whether any consideration  has already been paid by Madhusoodhanan to Mani are considered  subsequently. The minutes of the Board meeting held on 21st May 1985  [Exhibit P-62 ( C ) ] of Kerala Kaumudi record that the following share  transfer deeds were placed before the Board, namely, the deeds  relating to the transfer of 222 shares by M. S. Mani to  Madhusoodhanan, 84 shares by Valsa Mani to Madhusoodhanan, 84  shares by Sukumaran Mani to M. S. Mani and 84 shares by Mani to  Madhusoodhanan.  The Board resolution goes on to record. "After discussion the share transfers were approved  by the Board and the Managing Director and any  other Director was authorised to sign the relative  new share certificates to be issued in favour of Sri  M. S. Madhusoodhanan and to  affix the common  seal of the company in the share certificates in the  presence of the Company Secretary"

       The minutes of the Board meeting held on 21st May 1985 were  read and approved on 4th June 1985.  Both meetings were attended  by Madhavi, Madhusoodhanan, Srinivasan and Ravi and the minutes  signed by Madhavi as Chairman. The transfer of the shareholding of  Mani and his children was also admittedly entered in the Company’s  Share Certificate Ledger (Ex. P-90). It is evident from this that the share transfer forms which were  placed before the Board had been executed and were otherwise duly  completed, or else the question of the approval of such transfer would  not arise. Apart from these minutes, are the minutes of the meeting held  on 26th August 1986, when Madhusoodhanan, was already effectively  removed from the control of Kerala Kaumudi . Item No 4 of the  minutes relates to the transfer of  a share by Ravi to Mani.   Countering Madhusoodhanan’s objection to such transfer, the  minutes tellingly record: "Smt. C.N. Madhavi pointed out that the sale  consideration of the shares held by Sri. M. S.  Mani which was around 24 percent of the total  shares of the company at the time of transfer  had not been paid by Sri. M. S.  Madhusoodhanan.  She pointed out Sri M. S.  Mani was the senior most Director of the  company and he is the eldest son of late Sri.   Sukumaran, the founder of the company. She  also pointed out that Sri M. S. Mani is eligible  for 1/5 of the shares held in the name of his  father.  She further pointed out that it is  prestigious for the company that Sri M. S.  Mani, the former senior Director and glorious  editor of the newspaper to be a shareholder of  the company".             In the Annual Return of Kerala Kaumudi dated 27th June 1985  filed under section 159 of the Companies Act 1956 with the Registrar  of Companies, in the list of past and present members and debenture  holders, the names of all parties have been given Including the  names of Mani, and his children. However against their names It has  been mentioned that they had effected transfer of their shareholding

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 38  

to Madhusoodhanan.  Particulars of the transfer made by each as  well as the date of registration of the transfers have been given as  21st May 1985.  (Ex.  P-128).   On 1st March 1986 in keeping with the statutory requirement  relating to the ownership of newspapers, a statement was published  in Form IV.  In the list of shareholders the names of  Madhusoodhanan, Ravi, Visakh Madhusoodhanan, Deepu Ravi, M.S.  Srinivasan, Julie Madhusoodhanan & Anju Srinivasan are mentioned.   There is no mention of Mani or either of his children as shareholders  (Ex.P -- 86). There was no protest by Mani or any of the other  shareholders which would have naturally been made if the  statements were incorrect. Even after the ouster of Madhusoodhanan from the Board of  Kerala Kaumudi, in the Annual Return dated 26 September 1986 (Ex.  P.128 (a) ), in the list of shareholders filed with the Registrar of  Companies as part of the Annual Return of Kerala Kaumudi, Mani is  shown as holding only one share and Madhusoodhanan as holding  612 shares in the company.  This return has been  filed under the  signatures of Srinivasan and Ravi as Managing Director and Director  of Kerala Kaumudi respectively together with a certificate by Ravi and  Srinivasan under section 161(2) of the Companies Act, 1956. They  certified that the return states the facts as they stood on the day of  the annual general meeting correctly and completely and that since  the date of the last annual return the transfer of all the shares and  debentures  and the issue of all further certificates of shares and  debentures  had been appropriately recorded in the books maintained  for the purpose. This was again done in the Annual Return of Kerala Kaumudi  filed under the signature of Ravi and Srinivasan dated 28th  July 1987  (Ex.P.131(a)).  Madhusoodhanan is shown as holding 612 shares  and Mani is shown as holding only one share. Under section 164 of  the Companies Act, 1956, the annual returns, the certificates and  statements therein, "shall be prima facie evidence of any matters  directed or authorised to be inserted therein" under the Act.       The explanation given by Mani that he did not respond to  the statutory declarations although they did not show his name or the  names of his children as shareholders of Kerala Kaumudi because  there was an agreement to transfer the shares and because of the  close relationship between parties, is specious.  According to Mani’s  evidence, he had not agreed to transfer his shares at all because the  consideration had not been fixed.  Furthermore, the relationship  between the parties was anything but cordial. It was only after  Madhusoodhanan had initiated proceedings in 1986, that Mani, more  than two years after the transfer for shares filed the application for  rectification of the share register.           Even if there were any doubt on the issue, the fact which  settles the matter conclusively are the admissions in the  counter  affidavit filed by Madhavi in CP No 14 of 1986 on behalf of herself  and on behalf of Ravi, Srinivasan and Mani (wherein Mani is referred  to as the "fifth counter petitioner" and Madhusoodhanan as "the  petitioner" ) She has affirmed:  (a)  "In fact the fifth counter petitioner  left the  company in the year 1985 and has transferred  all the 390 shares belonging to him and his  children (major daughter and minor son) to the  petitioner, receiving only a miniscule part of a  consideration and accepting the promise of  the petitioner to pay him the balance without  even insisting on formal documents to  evidence the promise of the petitioner ".

(b)     "Once Article 74 was amended to the  petitioner’s liking, his attitude started changing  slowly.  Even then we did not take it seriously.  That is why the fifth counter petitioner

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 38  

transferred his shares to the petitioner, giving  him literally a strangle hold on the company".

(c)     " He (Mani) and his minor son had held 306  shares in the company which he had  transferred to the petitioner in 1985".

d)      "The petitioner holds 612 equity shares of                              Rs.1000/- each of the company".                    Mani has also said in an affidavit affirmed on 28th November,  1986 in Application 305/86 ( arising out of CP No.14/86).        "After the meeting was over the petitioner  and respondents 2 to 5 that is, the mother and  sons had informal talk in the same room.   During the course of this, the second  respondent asked the petitioner why he has  not paid the balance consideration for shares  transferred by me to him in 1985.  The  petitioner said that he would pay the same as  and when he had money.  The second  respondent thereupon suggested that the  petitioner may in that event transfer the  shares back to me".

            The one share which is shown in Mani’s name in the Annual  Return for 1986 and 1987 was sold by Ravi to Mani at a meeting held  on 26 August 1986.  As has been recorded in the minutes ( Ex P- 62(N)) and affirmed in the same affidavit of Madhavi in C.P. No.  14/86 on behalf of Ravi, Srinivasan, Mani and herself: "The meeting of the Board of Directors held on 26th  August,1986 expressly considered the question  whether the fifth respondent ( Mani ) is to be  selected as one whom it is desirable in the interest of  the company to admit  to its membership.  The  Board resolved that the fifth respondent (Mani) is not  only a desirable person, but his admission to the  membership of the company will enhance its  prestige and strengthen its administration.  The  Board felt that in the circumstances it was essential  that the fifth respondent (Mani) was to be inducted  as a member of the company".

That he was "admitted" to membership and "inducted" as a  member of the company by the transfer of one share on 26th August  1986 has been acknowledged by Mani himself in his affidavit affirmed  in the same proceedings on 28 November 1986.         This admission to membership was in terms of Article 24(a) of  the Articles of Association of Kerala Kaumudi, which directs that no  share shall be transferred to a person who is not  a member so long  as any member or any person selected by the Directors as one whom  it is desirable in the interest of the company to admit to membership,  is willing to purchase the same at fair value. In other words a non- member of the company can be sold a share of the company even  when a member wishes to purchase it, provided the Directors select  him as "a person whom it is desirable in the interest of the company  to admit to membership" and provided that such person is willing  to  purchase the share.         If the transfer by Mani and his children of their entire  shareholding in Kerala Kaumudi to Madhusoodhanan had not been  effected, there was no question of "admitting" Mani to the  membership of the company. The minutes of the meeting held on 26  August 1986 which have been admitted by Srinivasan and the  affidavits of Madhavi and Mani thus prove that Mani and his family

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 38  

held no shares in the company until the single share was transferred  by Ravi to Mani under Article 24(a)  on 26th August 1986. We have been unable to understand the logic of the Division  Bench by which it sidestepped this inevitable conclusion, when it said  "It is open to a  party to take an extra precaution to ward off possible  disconcerting experiences while planning for the future ".   Ignoring -

or at least not giving sufficient weight -- to the wealth of evidence in  favour of the submissions of Madhusoodhanan, the learned judges of  the Appellate Court sought to base their assessment of the evidence  on the absence of documents, such as income tax returns of  Madhusoodhanan, which according to them would have shown the  acquisition of the additional shares by Madhusoodhanan from Mani,  an exercise which was entirely uncalled for in the face of the positive  evidence already on record and the repeated admissions of Mani and  his group  before the Court.         Furthermore, under Section 194 of the Companies Act, 1956,  minutes of meetings kept in accordance with the provisions of  Section 193 shall be evidence of the proceedings recorded therein  and, unless the contrary is proved, it shall be presumed under  Section 195 that the meeting of the Board  of  Directors was duly  called and held and all proceedings thereat to have duly taken place.  The onus was on Mani to disprove that the transfers had not taken  place as recorded in the minutes of the Board meeting held on 21  May,1985, an onus that he has singularly failed to discharge.  Learned counsel for Mani submitted that the statutory presumption  was not available as Madhusoodhanan had admitted that no formal  meetings were held and that the minutes were prepared after  informal discussions by the Company Secretary and shown to  Srinivasan who signed the same after it was approved by  Madhusoodhanan.  The submission is unacceptable for three  reasons.  First: The Articles of Association of the Company (Art.81)  allow Directors to regulate their meetings as they think fit.  Also Art.  89 says that a resolution in writing circulated to all the Directors and  assented to by a majority of them shall be as valid as a resolution  passed at a meeting of the Board of Directors.  Second, Section  193(1)  of Companies Act 1956 provides:  193(1) Minutes of proceedings of  general meetings and of Board and  other meetings. -  Every company shall  cause minutes of all proceedings of  every general meeting and of all  proceedings of every meeting of its  board of directors or of every committee  of the Board, to be kept by making  within thirty days of the conclusion of  every such meeting concerned, entries  thereof in books kept for that purpose  with their pages consecutively  numbered".

                Therefore, the minutes may be prepared subsequently, but they  must be duly entered in the Minute Book and initialed and it is  nobody’s case that this was not done.  Finally, Madhusoodhanan has  also said that formal meetings were held and that important decisions  were circulated to all members.  In any event, our conclusion that the  transfer of shares by Mani and his children to Madhusoodhanan  would stand without the support of the statutory presumption under  Section 195 of the 1956 Act. Exhibit  P-3, the third agreement which was referred to at the  outset has a  clause which relates to the sale of Mani’s shares in  Kerala Kaumudi to Madhusoodhanan which both sides have  referred  to and relied upon but there has been no consensus as to the correct  interpretation of the clause.  This controversy is addressed in detail in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 38  

connection with Madhusoodhanan’s suit for specific performance of  the agreement.           Had this clause been the only basis on which this Court were  called upon  to decide whether there had been a transfer or sale of  the shares of Mani’s group to Madhusoodhanan, no doubt it would  have been difficult to determine what had in fact happened.   However, the clause is only one of a series of documents, the  authenticity of which cannot be disputed, which clearly show that the  transfer had taken place although the exact consideration may not  have been agreed upon or paid.  Mani did not attend the Board meeting held on 21st May 1985 or  any other till he was admitted to membership of Kerala Kaumudi on  26th August 1986.  Apart from this telling circumstance supporting  Madhusoodhanan’s case, Srinivasan had attended and signed the  minutes of the meeting on 21st May, 1985.  His  claim that no such  meetings were in fact held and that whenever he signed the minutes  of the meetings held during the managing directorship of  Madhusoodhanan, he did so at the instance of the latter without being  aware of the contents of the minutes is hardly likely.  The brothers  were already at daggers drawn and it is unbelievable that he would  place such unquestioning faith in Madhusoodhanan. Additionally, the  entries in the Attendance Register of Kerala Kaumudi (Ex. P-81) also  belies this assertion. Besides, the falsity of this explanation is  apparent from the minutes of the meeting held and the statutory  records submitted by Srinivasan after Madusoodhanan was  removed  as Managing Director of Kerala Kaumudi which continued to state  that Mani and his children had transferred their shares in the  company to Madhusoodhanan. The fact that all the parties, including Ravi, Srinivasan and Mani   himself, hardened businessmen all, not only proceeded on the basis  that there was effective transfer of Mani and his childrens’  shareholding to Madhusoodhanan but also certified the same to the  Registrar of Companies, and additionally affirmed that such transfer  had taken place on oath in their affidavits can only lead to the  conclusion that the transfer had been legally effected on the basis of  duly executed share transfer forms in compliance with the provisions  of the Companies Act, 1956. Nevertheless, the respondents argue, there were in fact no  share transfer forms which were placed before the Board and the  only transfer forms executed by Mani and his children were invalid  because of non-compliance with Section 108 of the Companies Act,  1956.  In his examination in chief, in response to the question whether  he and his children had transferred their shareholding to  Madhusoodhanan, Mani said:   "When I decided to relinquish my  directorship, the Secretary brought the  required letter, which I signed.  Later the  forms for transferring our shares to the  petitioner (Madhusoodhanan) were  brought.  But I found that the  consideration column in those forms  were not filled.  Petitioner told me that  the consideration can be fixed later and  the transfer may be effected  immediately.  But I said that I will sign it  only after fixing the consideration.  Even  so, in order to assure him that I will  transfer the shares, I signed the forms  and handed it over to my wife for keeping  them in safe custody.  I knew that if the  matters were not finalised within 60 days  the forms cannot be made use of  thereafter.  So I requested the petitioner  several times to fix up the consideration.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 38  

But he did not do so.  I did not hand over  the forms to the petitioner".

The admitted case therefore is that Mani and his children had  agreed to transfer their shareholding to Madhusoodhanan, but  according to them, such transfer never took place.  Mani produced the share transfer deeds, presumably from the  custody of his wife as Exhibits R 9-12.  Exhibit R 9  is signed on 11.5  1985.  It is an unstamped document and purports to record the  transfer of 222 shares by Mani to Madhusoodhanan.  Similarly R. 10  is a share transfer form signed by Valsa on 11.5.85 transferring 84  shares to Madhusoodhanan.  The document bears stamps of the  value of 720 rupees on the reverse. R.11 is a share transfer form  signed by Mani’s wife as a transferee recording the transfer of 84  shares by Sukumaran  Mani to MS Mani.  It is dated 11th May 1985.   It also bears stamps of the value of Rs 720.   R.12 is a share transfer  form signed on 11th May 1985 by Mani transferring 84 shares to  Madhusoodhanan.  The document is signed on 11th May 1985.  All  the share transfer forms bear the stamp of what appears to be of the  office of  the Registrar of Companies dated 20.4.85.  All four exhibits  show that they have been entered in the Register of Transfers of  Kerala Kaumudi on 23rd May 1985  and bear  the serial numbers 30,  33, 31 and 32 respectively.         There is a controversy as to whether these share forms were  the share forms which were placed before, and approved by the  Board of Directors of Kerala Kaumudi at the meeting held on 21st  May 1986.  Madhusoodhanan claims that these are not the share  transfer forms.  Mani and his group contend to the contrary.  The  issue would be of importance if one were to allow the respondents to  resile from their admissions.  We are not minded to do so.   Nevertheless, since the reasoning of the Division Bench rests to a  large extent on the question whether the transfer was in accordance  with S.108 of the Companies Act, it would be appropriate to  pronounce on this.             

Section 108 of the Companies Act, 1956 insofar as it is relevant  provides: "A company shall not register a transfer of  shares in, or debentures of the company,  unless a proper instrument of transfer duly  stamped and executed by or on behalf of the  transferor and by or on behalf of the  transferee and specifying the name, address  and occupation, if any, of the transfer has  been delivered to the company along with the  certificate relating to the shares or  debentures, or if no such certificate is in  existence, along with the letter of allotment of  the shares or debentures"

According to Mani, the share transfer forms were not duly  stamped and could not be given effect to under Section 108 of the  1956 Act. If Exhibits R9 to R12 are indeed the share transfer forms,  he would be correct.  In our view they are, in all likelihood, not the  transfer forms which were placed before the Board of Directors on  21st May 1985.      It is on record, that Madhusoodhanan had made an application  for production of the original share transfer forms from the custody of  the company.  It must be remembered that from March 1986,  Madhusoodhanan no longer had any control over the affairs of Kerala  Kaumudi.  The papers, books and other records of the company were  in the custody and control of those who controlled Kerala Kaumudi  namely Srinivasan and Ravi.  It is not improbable that the share  transfer certificates which had been placed before the Board meeting

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 38  

were deliberately not produced.   The Division Bench held that exhibits R.9 to R.12 were the  "real" share transfer forms because they were dated  23.5.1985 and  the evidence of Madhusoodhanan was that he had signed only one  set of transfer forms in 1985.  The Division Bench also relied upon  what appears to be an unsigned stamp of the office of the  Registrar  of Companies dated 20th April 1985 although no one has pledged his  or her oath to it.  Having come to the conclusion that the share  transfer forms produced by Mani, exhibits R.9 to R.12, were the "real"  transfer forms, the Division Bench set about demolishing those  documents as being invalid and not legally effective.   In our opinion, given the documentary evidence of completed  transfers, it is more than probable  that the "real" share transfer forms  were never produced by Mani and his group and that exhibits R. 9 to  R. 12 were prepared in 1984 as claimed by Madhusoodhanan.  Mani  has himself stated: "At that time it was proposed to start Calicut  edition of the paper.  But the high technology  machinery required for what further increased  the debts of Kerala Kaumudi.  This caused  considerable financial strain.  I put in some  suggestions for rectifying these matters.  But  mother and brothers were not able to  appreciate my views.  Therefore, I even told  them that I was prepared to relinquish all my  shares, 1/3rd each to my brothers.  In that  connection some papers were also prepared."   The Calicut edition of Kerala Kaumudi was started in  September 1984. It is possible "these papers" were Exhibits   R-9  -  R-12.  This inference is in keeping with the repeated admissions of  the respondents on oath and their conduct on the basis that the  transfer had legally taken place.  An additional fact is Exhibit R18   which is a voucher for a cash payment of Rs.2370/- issued to Kerala  Kaumudi towards the "cost of share transfer stamps purchased".   It is  dated 16th May 1985 and signed by Madhusoodhanan, Srinivasan,  Madhusoodhanan’s wife and Ravi’s wife as well as the cashier , the  clerk, the accountant, the manager and the Secretary of Kerala  Kaumudi. The corresponding entries in the expense account of  Kerala Kaumudi which form part of this exhibit, show that the  accounts of Mani and Madhusoodhanan have been debited with the  amounts of Rs.420/- and Rs.1950/- respectively.  It is improbable that  stamps having been purchased for the share transfers which was  recorded as effected four days later, they would not have been  utilised.    In this state of the evidence it cannot reasonably be held  that Mani and his group have been able to establish that the transfer  of the 390 shares by them to Madhusoodhanan was effected in  violation of Section 108 or any other provision of the Companies Act,  1956.          The Annual Returns signed by  Srinivasan and  Ravi (Ex. P 28,  P 130 and P-131 (a)), statutory declarations (Exhibits P.86 to P.88)  for the years ending on 1st March 1986, 1st March 1987 and             1st March 1988 also signed by Srinivasan and Ravi, the affidavit of  Madhavi dated 25th November 1986, the affidavit of Mani dated       28th November 1986 and other documents in all of which repeated  admissions were made by Madhusoodhanan’s antagonists that Mani  and his children had transferred their shareholding to  Madhusoodhanan were brushed aside by the Division Bench on the  very weak explanation given by Mani as to why these repeated  admissions had been made even after the filing of the litigation  between the parties.  The Division Bench erred in  ignoring the  affidavits of Madhavi and Mani by saying that it "would not be  sufficient or strong enough to operate as a transfer of shares".   Nobody can reasonably contend that a transfer of shares can be  effected by mere assertion in an affidavit.  What the Division Bench

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 38  

ought to have held was that all this evidence indicated that there were  in existence duly executed share transfer forms prepared in  conformity with the provisions of Section 108 of the Companies Act,  1956 which everyone had accepted and acted upon and which were  deliberately not produced. On the question of the invalidity of the transfers of Valsa and   Sukumaran Mani to Madhusoodhanan, Valsa Mani was admittedly a  major on 21st May 1985.  And yet  the Division Bench held that Mani  continued to stand in a fiduciary relationship  with her and therefore   "the transfer which purports to have been effected by Valsa Mani on  her own will clearly indicate the stamp of illegality and invalidity". The  reasoning is incomprehensible and unacceptable. Valsa was an adult  and legally competent to enter into a contract of sale of her sharers to  Madhusoodhanan which she duly did.           As far as the shares of Sukumaran Mani are concened,in our  opinion, the learned Single Judge was right when he said that Mani’s  group could not question the transfer of the shares of Sukumaran  Mani on account of his minority, as Sukumar Mani had not effected  any transfer directly in favour of Madhusoodhanan.  As Sukumaran  Mani was at the relevant point of time a minor, his shares were  transferred  by his mother as guardian to his father, Mani, who had in  turn transferred the shares to Madhusoodhanan.   The Appellate  Court was wrong when it held that the transfer of the shares of   Sukumaran Mani was "an absolute nullity in the eye of law" on the  ground that the initial transfer by Sukumaran Mani was invalid  because it was sought to be effected by Sukumaran Mani’s mother  who was not his legal guardian and who  "figured as a guardian only  as a ruse for getting over the statutory provision". The transfer of  Sukumaran Mani’s share through his mother to Mani has not been  challenged. Therefore the issue of Sukumaran Mani’s minority and  his mother’s competence to act as his legal guardian, were not issues  which could be relevantly raised before, or decided by the appellate  court.          Coming now to the question of consideration, the Division  Bench on an interpretation of Sec. 108 held that "the fixation of the  price was a condition precedent, even in relation to an important and  mandatory procedural formality like the payment of stamp duty  to  make the transfer lawful and proper".  We have already held that the relevant share transfer forms  must be taken to have been duly executed. Although Mani and  Madhusoodhanan had agreed to determine the actual consideration  later, clearly some consideration was agreed to be shown on the  share transfer forms.  As noted, Exhibit R.18 produced by Mani’s  group is a voucher for the cost of share transfer stamps.  The stamps  must have been purchased on the basis of the consideration which  was shown on the share transfer forms at the prescribed percentage  under the Stamp Act.   But it is also clear from the evidence on record that this was not  the "actual" price which was to be determined consensually by Mani  and Madhusoodhanan. On 19th January 1985, Mani wrote a letter to  Madhusoodhanan which has been exhibited as P-134.  The letter  states:         "This is in continuation of discussion I had  with you, regarding the sale of Flow line machine,  Sheet-fed offset and the Cutting machine to me.   My offer is Rs 3 lakhs for all the three machines.   This amount may be deducted from the sale  value of shares you owe to me.  Kindly let me  know your decision so that I can arrange to lift the  machines".

       Then we have the paragraphs from the affidavits of Madhavi and  Mani quoted earlier which talk of the "balance consideration".          Finally is the lawyer’s notice dated 20.3.87 (Ex.P-83) sent on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 38  

behalf of the Mani to Madhusoodhanan threatening legal action  unless Madhusoodhanan paid "the balance sale consideration of  Rs.50 lakhs". "Since Mani had positively asserted that he must get a  price between 50 and 75 lakhs, and that price negotiated was "in  between the said figures".          Madhusoodhanan’s claim in this regard is inconsistent. At one  stage he claimed that the consideration for the transfer was recorded  in the transfer form. At another stage he said:      "As far as transferring the shares is  concerned, it is already transferred at  the face value by fixing the proper  stamps and the process have been  completed. The excess amount I will  pay on the shares will depend upon  finally when he transfers the 3 shares to  me; but I will not enter into a written  agreement, I will continue to pay as and  when the 5th respondent required  money".

   "The only agreement was that  whatever be and price paid for the  shares, that should not be known to  anybody else including our wives".  

         Madhusoodhanan has claimed that he in fact paid  Rs.10 lakhs  to Mani.  In his letter dated 28.7.86 written to Srinivasan.  Madhusoodhanan had asserted (Exhibit P 11) that he had paid Rs 5  lakhs to M. S. Mani as part payment for his shares which had been  purchased by Madhusoodhanan and that this brought the total  payment made on this account to Rs 10 lakhs.  Mani contended that  there was a total failure of consideration, a contention which was  accepted by the Appellate Court.  The truth appears to lie somewhere  in between.             There is no dispute that the machines were in fact lifted by  Mani, pursuant to Ex. P.134. Exhibit R-14 evidences payment by  Kerala Kaumudi of Rs 3 lakhs to Madhusoodhanan for, ostensibly  purchasing property at Cochin for Kerala Kaumudi.  The Division  Bench holds that "It is this money that is utilised for payment to Mani  as part consideration of the shares to be transferred by Mani and his  group."  However the Division Bench discounts this payment because  "The very transaction itself may be open to serious challenge.  The  money of the company cannot be appropriated for a personal  purpose of a person having a fiduciary  capacity vis-a-vis the  company". As a statement of law this is a doubtful proposition. Be  that as it may, it is apparent that Mani received some consideration  for the transfers although the consideration may have moved from  Kerala Kaumudi to Mani.  To sum up - the transfers by Mani and his  children were effected validly to Madhusoodhanan.  Their prayer for  rectification of the share register is therefore rejected and the  decision of Division Bench in the appeal ( MFA 347/90) arising from  CP 26/87 is accordingly set aside.  The removal of Madhusoodhanan as Managing Director

       That Madhusoodhanan had been continuing for some time as  Managing Director of Kerala Kaumudi is evident from  the minutes of  the Board meeting held on 5th July 1983 (Ex.P.-62(g)).  The minutes  of the Board meeting dated 25th January 1985 (Ex.p.62(H) records  the presence of Madhavi, Mani, Madhusoodhanan, Srinivasan and  Ravi  and the unanimous resolution to appoint Madhusoodhanan as  Managing Director and Editor of the company for life.  It also records  that Madhusoodhanan had been working as the Managing Director of  Kerala Kaumudi for 11 years as on that date, in other words since  1973.  The decision to so appoint Madhusoodhanan was secured by

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 38  

proposing an amendment to the Articles of Association of the  Company in the following manner: "Mr. M.S. Madhusoodhanan, presently the  Managing Director and Editor be and is  hereby appointed the Managing Director  and  Editor of the Company for life or until he  voluntarily retires on the existing  remuneration, which remuneration may be  revised by the Board from time to time with  the consent of Mr. M.S. Madhusoodhanan.   He shall also in exercise of his duties as  Managing Director exercise the powers given  to the directors under Article 79".    It is not a dispute that an Extraordinary General Meeting was  held which approved this resolution and that the Articles of the  company were duly amended by the introduction of Article 74. The last meeting of Kerala Kaumudi attended by  Madhusoodhanan was of 5 February 1986.  It does not appear from  the minutes of the meeting (Exhibit P2 (J)) that anything of import  relevant to the issues to be  decided in these appeals took place on  that day.  Then comes the first meeting, which, according to  Madhusoodhanan ,was illegal .  This was  held  on 23rd July 1986.   The minutes of the meeting (Exhibit P 62 (K)) show  that Madhavi,  Madhusoodhanan, Srinivasan and Ravi were present.  Several  resolutions were taken by the Board on that day which were opposed  by Madhusoodhanan.  Of the several, the relevant are quoted: "Resolved that Smt.C.N. Madhavi, Chairman shall  assume the executive powers of the Managing Director of  the company with immediate effect for efficient running of  the organisation". "Resolved that an extraordinary general body meeting  be  convened  at a date suitable for the Chairman to discuss  and take decisions on matters arising out of the above  decisions and that the Chairman be and is hereby  authorised to issue notices to all concerned". The fact whether any notices were at all issued to  Madhusoodhanan or to the other shareholders in his group including  his children or to K. I. P. L. is seriously disputed by them.  According  to Mani and his group however, notices were duly issued of the  meeting which was due to be held on 1st August 1986. The minutes of the meeting held on 1st  August 1986 (P-62 (L.))  records that Madhavi, Srinivasan and Ravi attended the meeting.   Out of the various resolutions which were taken regarding the  administration of Kerala Kaumudi, what is important is the resolution  taken by the Board members unanimously to the following effect:

"Resolved that the issued share capital of the  company be and is hereby increased to Rs 20  lakhs by issuing additional shares worth Rs  4.25 lakhs (for 25 shares of Rs 1000 each) at  par.  The Chairman was authorised to issue  notices to the existing shareholders to apply  for shares within seven days".

Madhusoodhanan and K. I. P. L. say that since they did not get  any notice of the meeting and were not otherwise informed of what  had taken place, they did not apply for allotment of any part of the  additional shares which had been decided to be issued.  As a result  in the next meeting which  was alleged to have been held on 8th   August 1986,(Ex. P-62 M) between  9 a.m. and 10 a.m. at Madhavi’s  residence and  attended only by Madhavi, Srinivasan and Ravi, 425  shares were allotted to Srinivasan and Ravi on applications          dated 4th August 1986 received from them -- 212 shares being

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 38  

allotted to Srinivasan and 213 shares to Ravi.  The next meeting which is the subject matter of challenge by  Madhusoodhanan is the meeting held on 26th August 1986. It was  attended by Madhusoodhanan, albeit, according to the minutes           [ Ex P - 62 (N) ], under protest. It was at this meeting that Mani was  admitted as a shareholder of Kerala Kaumudi by Ravi’s sale of one  share to him despite Madhusoodhanan’s objection.  However, the unkindest cut was yet to come.  Madhavi, as  Chairman, proposed "that an extraordinary general meeting of the  company be convened to remove Sri M. S. Madhusoodhanan from  the directorship of the company for his actions against the interest of  the company and his misconduct".  Madhusoodhanan objected and  said that this could not be done without amending the Articles of  Association.  The minutes go on to record that Madhavi pointed out  that Article 74 of the Articles of Association had already been deleted  at an extraordinary general meeting of the company held for that  purpose and also that the legal opinion was that the Board of the  prescribed number of members could convene  a general body  meeting for removal of a Director in exercise of the powers under  section 284 of Companies Act, even if a person be appointed a  Director for life.  A resolution was then taken to convene an  extraordinary general meeting on 25th September 1986 to pass the  following  resolution: "Resolved that Sri M. S. Madhusoodhanan be and is  hereby removed from being a Director of the company  with immediate effect in accordance with section 284 of  Companies Act 1956 and all other provisions in this  behalf of the Companies Act, 1956 and Articles of  Association of the company".

The Extra Ordinary General Meeting of Kerala Kaumudi was  held on 25th September 1986 at its registered office.  The resolution  to forthwith remove Madhusoodhanan as Director under section 284  of the Companies Act 1956 was passed taking into consideration the  additional shareholding of Ravi and Srinivasan.  Madhusoodhanan  and  his group did not vote. On 27th September 1986 the Board of Directors of the Kerala  Kaumudi held a meeting attended by Madhavi, Srinivasan and Ravi,  at which Srinivasan was appointed as Managing Director of the  company, Mani was appointed as additional Director,   Madhusoodhanan was removed from the post of editor and Mani was  appointed in his place and stead. Madhusoodhanan’s final ouster  from the control of Kerala Kaumudi was thus completed. According to Madhusoodhanan, resolutions quoted above  removing him as Managing Director of Kerala Kaumudi were illegal  because in terms of Article 74 of the Articles of Association of Kerala  Kaumudi,  Madhusoodhanan was appointed the Managing Director  and editor of the  company for life.  It is contended that in accordance  with the Memorandum and Articles, 75 percent of the votes was  required to amend the Articles.  Mani’s group (including Madhavi)  held only 50% of the shares of Kerala Kaumudi.  The remaining 50%  shares were held by Madhusoodhanan and his family and KIPL.  The  second submission of Madhusoodhanan and KIPL is that they were  not given any notice of the  Board meeting which was purportedly  held on 1st August 1986 at which the decision was taken to offer  further shares for allotment and that they were not given any  opportunity to apply for the additional shares.   It is also the  submission of Madhusoodhanan and KIPL that in fact no meeting  was held on 8th August, 1986, at which the further shares were  allotted to Ravi and Srinivasan.  Madhusoodhanan and KIPL’s applications Nos. CP 14/86 and  CP 31/88 were therefore filed for rectification of the share register of  Kerala Kaumudi as noted earlier and suit  CS No. 3/89 was filed by  Madhusoodhanan for a declaration that he is the Managing Director  of Kerala Kaumudi, KIPL’s CS No. 5/89 was filed for cancellation of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 38  

the impugned annual general meetings and extraordinary general  meetings of Kerala Kaumudi. A.   Alteration of Article 74 of the Articles of Association  of          Kerala Kaumudi

       Sub-section (1) of section 31 of the Companies Act, 1956,  provides that the company may alter its articles only by special  resolution subject to the provisions of the Act and the conditions  contained in its memorandum.  Our attention has not been drawn to  any condition in the memorandum of Kerala Kaumudi which  prescribes something different from the provisions of the Act for  effecting an alteration of the articles. Article 49 of the Articles of  Association of Kerala Kaumudi provides: "Subject to the provisions of Sub-section (2) of  Section 81 of the Indian Companies Act, 1913,  relating to special resolutions, fourteen days’  notice at the least (exclusive of the day on  which the notice is served, or deemed to be  served but inclusive of the day for which notice  is given) specifying the place, the day and the  hour of meeting and, in case of special  business, the general nature of that business,  shall be given in manner hereinafter  mentioned, or in such other manner, if any, as  may be prescribed by the Company in General  Meeting to such persons as are, under the  Indian Companies Act, 1913 or the  Regulations of the Company, entitled to  receive such notices from the Company, but  the accidental omission to give notice to or the  non-receipt of notice by any member shall not  invalidate the proceedings at any General  Meeting."

       The corresponding section in the 1956 Act to Section 81 of the  Indian Companies Act, 1913, is section 189.  The relevant extract of  section 81 of the 1913 Act reads: "81. Extraordinary and special resolutions.  

(1)     A resolution shall be an extraordinary  resolution when it has been passed by a  majority of not less than three-fourths of  such members entitled to vote as are  present in person or by proxy (where  proxies are allowed) at a general  meeting of which notice specifying the  intention to propose the resolution as an  extraordinary resolution has been duly  given.

(2)     A resolution shall be a special resolution  when it has been passed by such a  majority as is required for the passing of  an extraordinary resolution and at a  general meeting of which not less than  twenty-one days’ notice specifying the  intention to propose the resolution as a  special resolution has been duly given:

Provided that, if all the members entitled  to attend and vote at any such meeting  so agree, a resolution may be proposed  and passed as a special resolution at a  meeting of which less than twenty-one  days’ notice has been given.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 38  

....................................................

(7)     For the purpose of this section  notice of a meeting shall be  deemed to be duly given and the  meeting to be duly held when the  notice is given and the meeting  held in manner provided by the  articles, or under this Act".

Therefore three conditions had to be fulfilled before any  alteration of the Articles could take place.

(i)     Notice specifying the intention to  propose the resolution as an  extraordinary resolution must be given.

 (ii)    The resolution must be passed by 75%  of the members present and ;

(iii)   Not less than 21 days notice of the  meeting must be duly given.

The requirements are cumulative and mandatory.                  Coming now to the facts of this case, it is apparent that  none of the three preconditions for effecting an alteration in the  Articles of Kerala Kaumudi by deleting Article 74 were fulfilled.  It may  be recalled that at the Board meeting held on 23rd July 1986  (Ex.P.62(K))in connection with Madhusoodhanan’s functioning as a  Managing  Director, only a limited resolution was taken, namely, that  Madhavi "shall assume the executive powers of the Managing  Director with immediate effect for effective running of the  Organisation".  The  resolution  that an extraordinary general body  meeting be convened at a date suitable for the Chairman "to discuss  and take decisions on matters arising out of the above decisions" was  therefore confined to this limited resolution.  Exhibit R -5 is the notice  dated 25th July 1986 purporting to call an extraordinary general  meeting of the shareholders of Kerala Kaumudi on 16th August 1986  at 11 AM to inter alia consider and if thought fit to pass as a special  resolution the following: "Resolved that the consent of the Company be  and is hereby accorded in order to satisfy the  requirements of section 192 (c) and other  applicable provisions, if any, of the Companies  Act 1956, to ratify the following resolutions  adopted by the Board of Directors of the  Company at its meeting dated 23.  7.  1986.

1.  "Resolved that Smt.  C.N. Madhavi,  Chairman, shall assume the executive powers  of the Managing Director of the Company with  immediate effect for efficient running of the  Organisation".

           There is no mention whatsoever in the notice of any intention  or proposal to amend the articles of the company.  The Explanatory  statement annexed with the notice states (in so far as it is relevant) "  Special resolutions have been brought before the General Body,  since it is felt that the effect of the said resolutions taken by the Board  and being implemented may have the effect of curbing the powers of  the Managing Director vested with him by the General body".   What has been deliberately and completely glossed over is that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 38  

Madhusoodhanan’s power was not sought to be merely curbed, but  completely denuded.  At the Extraordinary General meeting held on  16th August 1986 (Ex.P 57 (a)),  when the special resolution was  taken up for consideration, Madhavi said that she would like to submit  a report "in continuation of the Explanatory statement mentioned in  the notice" and then proposed that "another special resolution also be  passed  deleting Article 74 of the Articles of Association of the  company".                This acknowledges that there was no earlier extraordinary  general meeting deleting Art.74 as Madhavi had claimed in the  meeting dated 23.7.1986. Furthermore it shows that the special  resolution which was proposed in the notice was not the resolution  which was ultimately passed. In the garb of ratifying the resolution  taken by the Board of Directors on 23.7.1986 , what was in fact  "ratified" was not only the proposal to remove Madhusoodnan as  Director but also the immediate deletion of Article 74 of the Articles of  Association of the Company. The expression of  intention in the  notice under section 81(1) (corresponding to Section 189 (2)(a) of the  1956 Act) should be sufficiently specific so as  to effectively inform  each member of the company of the actual resolution sought to be  passed in the general meeting.  The notice must be frank, open, clear  and satisfactory. If it is not, the notice is bad and the special  resolution vitiated and cannot be acted upon. "If any attempt is made  by the directors to get the sanction of the shareholders, it must be  made on a fair and reasonably full statement of the facts upon which  the directors are asking the shareholders to vote...and special  resolutions obtained by means of a notice which did not substantially  put the shareholders in the position to know what they were voting  about cannot be supported" (see Baillie v.  Oriental Telephone and  Electric Co Ltd:[1915] 1 Ch. D 503,514-515;[1914-15] All E.R.Rep.  1420,1425,1426).               Since the further resolution to delete Art. 74 formed no part  of the notice of the Extraordinary General Meeting, which in all  fairness it should have, we have no doubt in our minds  that the  special resolution on the basis of such defective notice is  insupportable in law and cannot be given effect to.  This finding  is  sufficient to hold that the deletion of article 74 of the Articles of the  company was invalid and that therefore Madhusoodhanan continued  to be the managing director of Kerala Kaumudi as claimed by him in  CS 3/89. However we may also indicate briefly here  our additional  reasons for reaching this conclusion.  The notice (Ex.R-35) was  required to have been served on all the members of the company  either by post or personally in terms of Article 108 or section 53 of the  Act. The second imperative for a special resolution to be validly  passed is that notice of the general meeting must be ’duly’ given. The  mode of service of notice on members has been provided for under  Article 108 which is similar to Section 53 of the 1956 Act in all  material respects.  The two modes envisaged are personal service  and service by post.  There is no other mode envisaged. We are not  satisfied that the service of the notice was effected either on  Madhusoodhanan or any other share holder in his group, including  KIPL by either of the modes specified.  The submission of the respondents that under Article 49 of the  Articles of Association of the Company even if no notice were given  of the Extraordinary General Meeting, this would not vitiate the  proceedings is misconceived.  This was no ordinary general meeting,  but a meeting where a special resolution was to be passed.  This had  to be done under section 81 of the 1913 Act, to which Article 49 is  expressly subject, and the requirement for giving due notice under  section 81 is mandatory.  Furthermore, Article 49 speaks of an "  accidental omission " to give notice not officiating the proceedings.  In  other words the omission must be bona fide, and not an omission  which was wilful as it was in this case. Furthermore, The third condition to be fulfilled before the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 38  

Articles can be amended under section 81(1) of the 1913 Act,           (S. 189 (2) (c) of the 1956 Act ) is that at least 75 percent of the  members entitled to vote and voting must support the resolution. This  mandatory need to have the special resolution passed by a statutory  majority of 75% was also sought to be circumvented by the  respondents by the purported issue of additional shares to Ravi and  Srinivasan. Both these aspects are dealt with in connection with the  issue of additional shares. B)  Issue of  additional  shares.         In order to push through the so-called special resolution  deleting Article 74 with the requisite majority of 75 percent, it was  necessary from the respondents’ point of view to ensure that  Madhusoodhanan’s shareholding which was more than 50% of the  paid-up share capital of the company was reduced to 25 percent.   This was sought to be achieved by the respondents in two stages.   First, by taking a  decision to increase the paid up share capital of the  Company by issuing an additional 425 shares.  Second, by not giving  Madhusoodhanan or any of his group to any chance participate in the  fresh allotment of shares and ensuring that the shares were allotted  to Ravi and Srinivasan.  The evidence on record amply bears this out.  As we have seen, Madhavi assumed charge as Managing  Director of the company on 23.7.86 with the object of ousting  Madhusoodhanan from his control over the affairs of Kerala Kaumudi.   This needed to be ratified by the general body of shareholders. The  minimum period of notice for a general body meeting under Article 49  read with Section 81 of the Act is "not less than 21 days", that is there  should be a clear interval of 21 days and in computing the period the  date of the meeting and the date of service of the notice is to be  excluded.  (See  Nagappa Chettiar V. The Madras Race Club AIR  1951 Mad 831, 838; In re Hector Whaling Lt. [1936] 1 Ch.208).  So  the notice dated 25. 7. 86 (Ex.  R.-35)  was issued for holding the  extraordinary general  meeting   on 16th August 1986 with the  requisite statutory majority of 75 percent .    A decision was taken by the respondents at the meeting of the  Board on 1st August 1986 (Ex..P-62(l)), to increase the share capital  of the company to Rs. 20 lakhs by issuing additional  shares  worth  Rs 4.25 lakhs.  At the same meeting , the Chairman (Madhavi) was  authorised by the two other directors present namely Ravi and  Srinivasan "to issue notices to the existing shareholders to apply for  shares within seven days".  What is noteworthy is that the last day for  making an application for allotment of any of these additional shares  was fixed at seven days from the date of the Board meeting so that  Madhusoodhanan’s shareholding could be reduced to 25% before the  Extraordinary General Meeting to be held on 16th August 1986. According to Madhusoodhanan and his group they  neither  knew of the meeting dated 1st August 1986 nor did they receive any   notice with regard to the allotment of additional shares nor of the  meetings said to have been held on 8.8.86 and 16.8.86, in which the  allotment of additional shares  to Ravi and Srinivasan were made and  later confirmed. The Learned Single Judge held  that no notice either of the  Board meeting held on 1st August 1986 or for the issue of additional  shares had been served on Madhusoodhanan.  He also  referred to  Articles 40, 41 and 18 of the Company to hold that the notice period  of seven days to apply for allotment of additional shares was far too  short.  He upheld the contention of Madhusoodhanan that no  meetings were in fact held on 8.8.86 or 16.8.86 and that there was as  such no valid allotment of the additional shares to Ravi and  Srinivasan.Madhusoodhanan’s claim for  rectification of the share  register of Kerala Kaumudi was accepted and a fresh allotment of the  additional shares was directed to be held. The Division Bench  disagreed on all counts with the learned Single Judge, in our view,  erroneously. Let us consider in the first place whether the notice of  the meeting dated 1st  August 1986 was served on Madhusoodhanan.   The evidence produced by the respondents in this regard is as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 38  

follows: (i) an entry dated 25th July 1986 in the local delivery book  of Kerala Kaumudi (Ex.  R. 8 (a)) which shows against the  name and address of Madhusoodhanan that "one letter  regarding Board and General Body Meetings" was  acknowledged as having been received on behalf of  Madhusoodhanan by one Mohanraj , the then personal  assistant of Madhusoodhanan (P.W.2) who has written that he  "handed same over to Mrs Madhusoodhanan through Mr  Raghunathan, peon".  There is no remark under the column "By  whom delivered".  (ii) an entry in the outward register of Kerala Kaumudi  (Ex.p 93 (p)) which shows that "one letter Board meeting on      1.8.86.Gl.  Body meeting on 16.8.86" was dispatched on       25.7.86 to Madhusoodhanan with copies to Srinivasan, Ravi  and Mani. (iii) an affidavit of Mohan Raj affirmed on 25th August  1986 in 0.  S. 1329 of 1986 (Ex. R-7) in which he has affirmed  "sealed envelopes from the Chairman, Kerala Kaumudi (P) Ltd  was served on me on 25.7. 86 and 1.8.86 and I have signed the  local delivery book as a token of its acknowledgement and I  have  duly forwarded the letters to Sri M.S. Madhusoodhanan". Not one of these pieces of evidence at all establish that the  notice dated 25th July 1986 of the Board meeting to be held on          1st  August 1986 was served on Madhusoodhanan.  As far as item (i)  is concerned, it certainly does not amount to personal service on  Madhusoodhanan as required under the Articles or section 53 of the  Companies Act, 1956. Apart from this fatal legal flaw, the exhibit  merely records that an unknown or at least an unnamed person  handed over a sealed envelope to Mohan Raj who then handed it  over to a peon, Raghunathan, who was to  hand  it over to Mrs  Madhusoodhanan.  No one has come forward to say that the sealed  envelope contained the notice dated 25th July 1986. Assuming it did,  there is nothing to show that the envelope ultimately reached  Madhusoodhanan.  The affidavit affirmed by Mohan Raj on             25th  August 1986 (Ex R 7) contradicts the entry in the local delivery  book.  Apart from anything else, Mohan Raj has himself admitted that  he had not forwarded the notice to Madhusoodhanan in several  documents namely in Exhibits P.36, P.46, P.53 and in an affidavit  exhibited as P.49, besides also giving oral  evidence  to this effect.   We find no reason to disbelieve Mohan Raj’s oral testimony as to the  circumstances under which he had affirmed the affidavit relied on by  the respondents. As far as the outward register is concerned, it has not been  proved as to who dispatched the notice nor does the register show  how the dispatch was effected. It is unclear on what material the  Division Bench  proceeded on the basis that it was sent by post   under certificate of posting. In any event, if this were indeed so,  where is the certificate? Its absence is significant . Also significant is the absence of the actual notice alleged to be  dated 25th July  1986 of the Board meeting held on 1st August 1986  .Why was it not produced by the respondents?  What did the notice  say?  Did it indicate the intention to issue additional shares for the  purposes of increasing the share capital company as it should have?   We do not know.  But we can only observe that the absence of the  notice raises a presumption against the respondents. And in so far as  the outward dispatch register is concerned, the mode of dispatch has  not been mentioned nor is there anything to show that the notice was  in fact dispatched. In the circumstances, we have no doubt that  Madhusoodhanan was not given any notice of the Board meeting  said to have been held on 1st  August 1986.                The respondents have relied on Madhusoodhanan’s letter  dated 8th  August 1986 to Srinivasan (Ex. P.35) in which he  complained that he had not been receiving his personal mail or letters  addressed to him as Managing Director since 4th  August 1986 and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 38  

that the usual method of handing over such mail to his personal  assistant was not been followed, to contend that the notice dated    25th July 1986 had been duly served on Madhusoodhanan and  received by him. The letter is a complaint regarding the complete blocking of all  mail both personal and official by the respondents since                     4th  August 1986.  It cannot be construed as an admission that all mail   prior to that date had been duly received.  In fact, on the same date  that exhibit P.35 had been written by Madhusoodhanan to Srinivasan,  he also wrote to Madhavi (Ex.P.24) that on 3rd  August 1986 he came  to know "while holding discussions with the Deputy Manager of  Canara Bank, Trivandrum, that you purported to hold a Board  meeting on 1.8.86.  I have had no notice of this meeting and  consequently this was illegal.  Any decision taken there is invalid and  not binding on the company or me.  You purported to pass a  resolution regarding the operating of the bank accounts.  My power to  operate bank accounts of the company on my own as managing  director is not depended (sic) on any resolution of the board.  The  board cannot take away those powers or make it necessary that  someone else who sign (sic) with me". The letter was admittedly  received but not replied to.  Apart from the categorical assertion of  lack of notice of the meeting held on 1.8.86, it is clear from the  contents of the letter that Madhusoodhanan had no knowledge of  what actually transpired there.   Since Madhusoodhanan did not know of the meeting held on    1st August 1986, he was not aware, as the respondents were, either  that additional shares were being issued or that the application for  additional shares had to be made within seven days of the meeting. Exhibit R. 26 Is a Notice Dated 1.8.86 issued under the  signature of Madhavi.  It refers to financial difficulties faced by the  company which made it necessary for the Board by its Resolution  dated 1.8.86 to issue 425 equity shares of Rs.1000/- each for  subscription to the existing shareholders.  The notice which  appears  to be addressed to Madhusoodhanan, his two children, Srinivasan  and his daughter, Ravi and his daughter and finally to KIPL finally  states: "You are eligible to apply for additional shares within seven  days". Article 40 of the Articles of the company requires all new shares  to be offered to all existing shareholders "in proportion, as nearly as  the circumstances admit to the amount of the existing shares to which  they are entitled".  The offer is required to be made by notice  "specifying the number of shares offered, and limiting the time within  which the offer, if not accepted, will be deemed to be declined..." The notice, exhibit R-26, is not in this form at all. However, the respondents have sought to rely upon the  following evidence in support of their contention that  Madhusoodhanan was given an opportunity to apply for the additional  shares by service of a notice dated 1.8.86.  : (a) an entry in the local delivery book of Kerala Kaumudi  (Ex.  R-8 (b)) which ostensibly records that on 1st August 1986,  Madhusoodhanan, Managing Director, Kerala Kaumudi,  Trivandrum was "Authorised to issue notices to the existing  shareholders & one letter for Board meeting".  There is an  unidentified signatory who has acknowledged receipt of this  document on 1-8-86.According to Srinivasan’s oral testimony,  the signature is that of Mohan Raj (b) Exhibit P.  93 (a) is an entry in the outward register of  Kerala Kaumudi indicating the dispatch of the notice   (c) A Certificate of Posting dated 1.8.86 (Ex.R.25)  which  purports to relate to service of the notice on Madhusoodhanan,  his children and KIPL Both the learned Single Judge and the Division Bench accepted  that the signature of the person  acknowledging receipt of the notice  was Mohan Raj . Where they have differed is whether this amounted  to service upon Madhusoodhanan, his children or on KIPL either in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 38  

fact or in law.  The learned single judge held it did not.  The Division  Bench disagreed.  Considering the facts, we have no hesitation in  holding the learned Single Judge was right. We have already held that service on Mohan Raj did not  amount to personal service within the meaning of Article 108 of the  Articles of Association of the Company or Section 53 of the  Companies Act, 1956.  Even on the factual score, for the reasons set  out by us earlier in connection with service of the notice dated         25-7-86, we are not satisfied that Madhusoodhanan was in fact  served with a notice through Mohan Raj. Besides, the relevant entry  does not refer to the notice.  As far as the certificate of posting is concerned, it is not  explained why it does not record the dispatch of notices to any other  shareholder.  When the relationship between the parties was already  so  embittered, proof  of service of notice by certificate of posting  must be viewed with suspicion.  Judicial notice has been taken that  certificates of posting are notoriously "easily" available.  What was  seen as a possible but  rare occurrence in 1981 (Ummu Saleema v.  B.B.Gujral (1981) 3 SCC 317) is now seen as common .  Thus in Shiv  Kumar v. State of Haryana 1994(4) SCC 445,447), this Court said: "We have not felt safe to decide the  controversy at hand on the basis of the  certificates produced before us, as it is not  difficult to get such postal seals at any point of  time".

Despite this ground reality and on a misinterpretation of the  provisions of section 53,the Appellate Court  came to the indefensible  conclusion that "evidence regarding dispatch of a communication  under certificate of posting attracts the irrebuttable statutory  presumption under section 53 (2) (b) that the notice had been duly  served", that " it is not open now to project a plea of absence of  service of notice and a substantiation thereof by evidence" and that  even if it were proved that the notice did not reach the addressee, the  evidence could not be " formally accepted and formally acted upon by  the court" such contrary evidence " being necked(sic) out at the  threshold". This Court in Ummu Saleema’s case (supra) said that a  certificate of posting might lead to a presumption if the  letter was  addressed and was posted, that it,  and in due course, reached the  addressee.  "But, that is only a permissible and not an inevitable  presumption.  Neither section 16 nor section 114 of the Evidence Act,  compels the Court to draw a presumption.  The presumption may or  may not be drawn.  On the facts and circumstances of case, the  Court may refuse to draw the presumption.  On the other hand the  presumption may be drawn initially but on a consideration of the  evidence the Court may hold a presumption rebutted and may arrive  at the conclusion that no letter was received by the addressee or that  no letter was ever dispatched as claimed". This general rule regarding certificates of posting has not been  changed  under section 53 of the Companies Act., although it does  provide that if a document is sent by post in the manner specified,  "service thereof shall be deemed to be effected".  The word "deemed"  literally means "thought of" or, in legal parlance "presumed".   There is a distinction between "presumption" and "proof".  A  presumption has been defined as "an inference, affirmative or  disaffirmative of the truth or falsehood of a doubtful fact or proposition  drawn by a process of probable reasoning from something proved or  taken for granted" (Izhar Ahmad V. Union of India :AIR (1962) SC  1052, 1060).  They are rules of evidence which attempt to assist the  judicial mind in the matter of weighing the probative or persuasive  force of certain facts proved in relation to other facts presumed or  inferred (ibid.).  Sometimes a discretion is left with the Court either to  raise a presumption or not as in Section 114 of the Evidence  Act.   On other occasions, no such discretion is given to the Court so that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 38  

when a certain set of facts are proved, the Court is bound to raise the  prescribed presumption.  But that is all. The presumption may be  rebutted.  While construing  section 28-B. of the U.P. Sales Tax Act  which inter alia provides that if a transit- pass is not produced at the  check post on entry and at the point of exit, "it shall be presumed that  the goods carried thereby have been sold within the State",  the  contention that the phrase "it shall be presumed that " meant that "it  shall be conclusively held" was negatived.  After referring to section 4  of the Evidence Act it was held by this Court in M/s. Sodhi Transport  Co. v. State of U.P. :AIR (1986 ) SC 1099, 1105: ): "The words "shall presume" require the Court  to draw a presumption accordingly, unless the  fact is disproved.  They contain a rule of  rebuttable presumption.  These words i.e.    "shall presume" are being used in the Indian  judicial lore for over a century to convey that  they lay down a rebuttable presumption in  respect of matters with reference to which they  are used and we should expect that the U.P.  legislature also has used them in the same  sense in which Indian Courts have understood  them over a long period and not as laying  down a rule of conclusive proof.  In fact these  presumptions are not peculiar to the Evidence  Act.  They are generally used wherever facts  are to be ascertained by the judicial process"  

It was accordingly held  that the words "shall presume"  contained in section 28B of the U.P Sales Tax Act only require  the  authorities concerned to raise a rebuttable presumption that the  goods must have been sold in the State if the transit pass is not  handed over at the check post at point of exit and that it was open to  the transporter to still prove that the goods had been disposed of in a  different way.  (See also Syed Akbar V. State of Karnataka: AIR  (1979) SC 1848;      State of Madras v. Vaidyanatha: AIR (1958)  SC 61)   Raising of a presumption, therefore,  does not by itself amount  to proof. The result of a mandatory requirement for raising a  presumption cast on Court, as there is under section 53 (2) of the  Companies  Act, is that the burden of proof is placed on the person  against whom the presumption operates for disproving it.  It is only if   such person is unable to discharge the burden, that the court will act  on the presumed fact. (See Dahyabhai V. State of Gujarat: AIR  (1964) SC 1563).  A  presumption however is of course  not always   rebuttable.   But  the mere use of the word "shall" before the word  "presume" or other like word does not mean that the presumption is  irrebuttable or conclusive. An irrebuttable presumption is couched in  different language, normally indicating that proof of one set of facts  shall be "conclusive proof" of a second set.  An example of this is  Rule 3 of the Rules framed in 1956 under section 18 of the  Citizenship Act, 1955 which was the subject matter of challenge in  Izhar Ahmad’s case (supra).  Section 53(2) contains no such  language.   Consequently, the words "shall presume" in section 53  subsection  (2) means a rebuttable presumption which the Court must  raise provided the basic facts namely the due posting of the  document is proved, the onus being on the addressee to show that  the document referred to in the certificate of posting was not received  by him. In the present case, the certificate of posting is suspect.   Assuming that such suspicion is unfounded, it does not in any event  amount to conclusive proof of service of the notice on  Madhusoodhanan or on any of the other addressees mentioned in  the certificate as held by the Division Bench.  Except for producing

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 38  

the dispatch register and the certificate of posting, no one on behalf  of the respondents came forward to vouch that they had personally  sent the notice through the post to Madhusoodhanan and his group.   Madhusoodhanan had written two letters contemporaneously dated  4.8.86 and 8. 8.86 (Ex.P-24 and Ex.P-35) to Srinivasan, the General  Manager of Kerala Kaumudi and to Madhavi complaining that he was  not receiving any mail at all.  These letters were admittedly received  but not replied to by the respondents.  It is also apparent from a  perusal of those letters that Madhusoodhanan had no knowledge  whatsoever of the notice for application for allotment of additional  shares. Had there been such notice it is improbable that  Madhusoodhanan who was fighting for retaining his control over  Kerala Kaumudi, would have risked losing such control by abstaining  from  applying for the additional shares. In the circumstances we hold that Madhusoodhanan and his  group were not served with the notice dated 1.8.86 .  It is therefore  unnecessary to decide whether the period prescribed in the notice to  apply for the shares was too short or contrary to the Articles of  Association of Kerala Kaumudi. Once we have held that Madhusoodhanan and his group, all of  whom held shares in Kerala Kaumudi, were not given notice to apply  for allotment of the additional shares, it must be held that the  subsequent allotment of the shares to Ravi and Srinivasan at the  meeting held on 8.8.86 and the  affirmation of such allotment at the  meeting allegedly held on 16.8.86 were vitiated thereby and invalid. Although there appears to be substance in the submission of  Madhusoodhanan, as accepted by the learned Single Judge , that no  meetings were in fact held on 8.8.86 or on 16.8.86, in view of our  finding relating to the non-service of the notice dated 1.8.86,  we  refrain from  deciding the issue. We, therefore, set aside the decision of the Division Bench in  MFA 330/90, AS No. 164/90 and AS No. 165/90 and affirm the  judgment and order of the learned Single Judge in CP 14/86 and the  decree in CS No. 3/89 and CS No. 5/89 including the directions in  connection with the allotment of the additional 425 shares. KIPL’s application CP 31/88 was dismissed by the Single Judge  and the appeal therefrom (MFA 559/90) also rejected.  Since the  subject matter of KIPL’s application is covered by Madhusoodhanan’s  application CP 14/86 and was for identical reliefs, we merely dispose  of the appeal in terms of this judgment without any further  observation.  Specific Performance of the Karar 16th January, 1986             The last proceeding relating to Kerala Kaumaudi was CS 6/89  which was a suit filed by Madhusoodhanan for specific performance  of the Karar dated 16th January 1986.         We have already held that by May, 1985, Mani and his group  had transferred their shareholding in Kerala Kaumudi to  Madhusoodhanan, and that as a result of such transfer  Madhusoodhanan and his group held more than 50% of the shares in  the company. On 15th July 1985, Madhavi is alleged to have executed  two agreements and a will transferring the 9 shares of the late  Sukumaran and her own 3 shares to Ravi and Srinivasan [Ex.R.-59,  Ex.R.-59(a) and Ex.R. 60]         It is in this background that the agreement dated 16th January  1986 must be read. The original of which is in Malayalam and which  has been described by the parties as the Karar, has 11 clauses.  It is  admittedly written by Mani and is signed by Madhavi, Mani,  Madhusoodhanan, Srinivasan and Ravi. It seeks to record the  partition of assets by mutual consent.  Clause 1 of the Karar provides  that Madhavi would be the chairman of Kerala Kaumudi during her  lifetime.  Clause 2 provides that there will be no change in the  existing share structure during the lifetime of Madhavi and that after  the death of Madhavi, the shares of Kerala Kaumudi should be so  given that Madhusoodhanan gets 50% of the total shares of the  company including the shares owned by Mani, and Srinivasan and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 38  

Ravi get 25% each.  It was also agreed that the shares of the late  Sukumaran and Madhavi should be divided according to this  percentage.  The shares of KIPL in Kerala Kaumudi were also to be  given to Madhusoodhanan, Ravi and Srinivasan in the same ratio.   Then comes clause 3. While there is no controversy on the  translation of clauses 1, 2, 4, 5, 6, 7, 8, 9, 10 or 11, the translation of  clause 3 is seriously in dispute. We give the three different versions  as put forward by Madhusoodhanan, the respondents and finally the  official translator of this Court.

A) "Mr M. S. Mani is selling some of his shares in  Kerala Kaumudi to Mr M. S. Madhusoodhanan and  the price of that share will be informed to the other  parties in time".

B) "the value of the shares of Kerala Kaumudi which  is to be sold by M. S. Mani to M. S.  Madhusoodhanan will be informed to others at the  appropriate time".

C) "the price paid by M. S. Madhusoodhanan on the  sale of Kerala Kaumudi shares by M. S. Mani will be  intimated  to other parties as and when (it is done)".                Having regard to our finding on the question of transfer of  Mani’s 390 shares to Madhusoodhanan in May, 1985, perhaps the  appropriate translation is the one put forward by the official translator  which is  set out above as (C).  This  difference of opinion, however,  is  really of no moment, because the subject matter of  Madhusoodhanan’s  claim for specific performance is limited to that  part of the Karar which provides for the division of shares of the late  Sukumaran and Madhavi in the percentage of 50: 25: 25 between  Madhusoodhanan, Ravi and Srinivasan, on Madhavi’s death.  Before  considering the merits of this claim,  we may briefly refer to the  remaining clauses of the Karar.  Clauses 4 to 10 relate to the division  of assets and shareholding in various family concerns so that each of  the brothers had 52 percent shareholding in different concerns as  specified below: Mani                          Laisa Publications Private Ltd Madhusoodhanan    Kaumudi Investment Private Ltd ;                                   Kaumudi Exports Private Ltd;                                   Kaumudi News Service Private Ltd  

Ravi       Ravi Printers and Publishers Private Ltd;                                     Kaumudi Films Outdoor Unit ; Electronics                                    and Equipment Corporation; Ravi Transport

Srinivasan                Srinivasan Printers and Publishers Private                    Ltd.

       All other establishments were required to be closed down and  Madhusoodhanan was appointed for that purpose. Clause 9 provides  that if any shareholder in any of the concerns wishes to sell his  shares, they must be offered to the "52%  shareholders" at a price to  be fixed by the others.  If the 52% shareholders refuse to        purchase the share, the others would have to do so at the value fixed  by the concerned company’s auditors according to the Company’s  balance-sheet for the previous year.  Clause 10 provides that the  agreement would bind the four brothers and their heirs in the event of  the death of any one of them before the agreement was completely  implemented.  The last clause in the Karar is clause 11. It provides  that all pending litigation regarding the  subject matter of the Karar,   should be withdrawn and that all disputes should be mutually settled,  and if this is not possible the matter should be referred to an

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 38  

acceptable third party whose decision would be binding.           On 2nd December 1987 Madhavi died and on                          10th October 1988, Madhusoodhanan filed C. S. 6/89 for transfer of  50% of the late Sukumaran and Madhavi’s shares to him and the  transfer of 50% of KIPL’s shareholding in Kerala Kaumudi to Ravi and  Srinivasan in terms of the Karar.  The defendants in the suit were  Mani, Srinivasan, Ravi, Kerala Kaumudi and KIPL.  They first  filed a  four page written statement in which they contended that the suit was  not maintainable, that the suit was bad for mis-joinder and non- joinder of parties, that the suit had been improperly valued and   proper court fees not paid, that the suit was barred by limitation, that  the Karar was barred by the  provisions  of the Specific Relief Act,  1963 and that the court did not have  the jurisdiction to entertain the  suit.         The learned Single Judge decided each of the issues raised in  favour of Madhusoodhanan and decreed the suit.  The Division  Bench allowed the appeal (A.S. 211/9).  The reasons which  persuaded the Division Bench to allow the appeal were first: no steps  had been taken by Madhusoodhanan for determination of the price of  390 shares or the ’inherited shares’ or for making the same known to  the other parties or for carrying out the other provisions in the Karar --  in particular closing down of Blue Travels, Kaumudi Hotels and Blue  Transports. Second, there was no averment in the plaint regarding  consideration and no relief sought for in relation to the fixation or  payment of consideration.  Third, in contravention of Section 16 of the  Specific Relief Act there was no averment in the plaint about the  preparedness of Madhusoodhanan to pay the consideration;  fourth,  since there had been no transfer of the 390 shares, it was not  possible to enforce the Karar in respect of the bulk of shares  regarding which specific performance had been claimed.  Fifth,  Madhusoodhanan could not claim specific performance of only that  part of the agreement which was in his favour without performing the  obligations which were cast on him by the other clauses.  These  clauses were inseparable and part performance of the agreement  was not possible.  Sixth, there was an undue delay in filing the suit.   Seventh, compared to the assets owned by Kerala Kaumudi and  KIPL, both of which were to go to Madhusoodhanan in terms of the  Karar, the worth of Kala Kaumudi (allotted to Mani) and Ravi Printers  (allotted to Ravi) was insignificant, the last fact justifying the court’s  refusal to grant specific performance of the Karar under section 20 of  the Specific Relief Act.  The appeal was, therefore, allowed and the  suit dismissed.         We have already said that except for clauses 1, 2,3 and 11, all  the other clauses of the Karar related to the division of the several  concerns among the four brothers.  In deciding whether the  agreement should be implemented, the Appellate Court overlooked  the basic fact that each of brothers had been given the majority  shareholding of 52 percent in the companies specified against their  names in the Karar. Since the other three brothers had taken the full  benefit of the Karar, they were bound to comply with all its terms.  It  was not open to them to accept that portion of the Karar which was in  their favour and jettison the rest. And the Karar which is in the nature  of a family settlement seeking to settle disputes between   brothers,    having been already acted upon at least to the extent that the four  brothers were each given the majority shareholding in the different  companies as mentioned in the Karar, should not be lightly interfered  with.  (See: K.K. Modi versus K.N. Modi and others: (1998) 3 SCC  573).         The Division Bench has not adverted to this all.  It is also on   record that Madhusoodhanan had transferred the bulk of his  shareholding in the companies which were to be under the majority  control of the other three brothers. The learned Single Judge had  held that Madhusoodhanan had given evidence that he had taken  steps  for closing down the companies not mentioned in the Karar.   This finding has not been questioned. All the clauses except for the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 38  

transfer of the ’inherited shares’ to Madhusoodhanan had been acted  on.  Madhusoodhanan was entitled to insist on the performance of  this clause as well.              The respondents cited Article 29 of the Articles of the  company in support of their argument that exhibits R.  59 and 60  overrode the Karar insofar as it required that 50% of the shares of the  late K. Sukumaran and Madhavi had to be transferred to  Madhusoodhanan on Madhavi’s death.  Article 29 says that the  executors or administrators of the deceased sole holder of a share  shall be the only persons  recognised by the company as having any  title to the share.   It was the contention of the respondents that  insofar as the Karar provided for the transfer of the shares of the late  Sukumaran and Madhavi  to Madhusoodhanan ,  it was contrary to  Article 29 of the Articles of Association of the company and could not  be enforced. This submission is made on the basis of the decision of  this Court in V.B. Rangaraj versus B. Gopalakrishnan: (AIR 1992 SC  453).             That decision must be understood and read after enunciating  certain basic principles relating to the transfer of shares and in the  background of earlier decisions on the subject.  It is settled law that  shares are movable properties and are transferable.  As far as private  companies like Kerala Kaumudi are concerned, the Articles of  association restrict the shareholder’s right to transfer shares and  prohibit any invitations to the public to subscribe for any shares in, or  debentures of, the company.  This is how a "private company" is  now  defined in section 3 (1) (iii) of the Companies Act, 1956 and how it  was defined in section 2 (1 3) of the 1913 Act. Subject to this restriction, a holder of shares in a private  company may agree to sell his shares to a person of his choice.   Such agreements are specifically enforceable under section 10 of the  Specific Relief Act, 1963, which corresponds to section 12 of the  Specific Relief Act, 1877.  The section provides that specific  performance of such contracts may be enforced when there exists no  standard for ascertaining the actual damage caused by the non- performance of the act agreed to be done; or when the act agreed to  be done is such that compensation in money for its nonperformance  would not afford adequate relief.  In the case of a contract to transfer  movable property, normally specific performance is not granted  except in circumstances specified in the Explanation to section 10.   One of the exceptions is where the property is "of special value or  interest to the plaintiff, or consists of goods which are not easily  obtainable in the market".  It has been held by a long line of authority  that shares in a private limited company would come within the  phrase "not easily obtainable in the market" (See: Jainarain Ram  Lundia v. Surajmull Sagarmull & Ors. : A.I.R (36) (1949) F.C. 211,  218;).  The Privy Council in The Bank of India Ltd versus J.A.H.  Chinoy: (A.I.R. 1950 P.C. 90) said: "it is also the opinion of the Board  that, having regard to the nature of the company and the limited  market for its shares, damages would not be an adequate remedy"  specific performance of a contract for transfers of shares in a private  limited company could be granted. In 1965, this Court while dealing with proceedings rising out of  sections 397, 398, 402 and 403 of the Companies Act, 1956 in the  case of   S.P. Jain versus Kalinga Tubes: A. I. R. 1965 SC 1535, had  occasion to consider the effect of an agreement relating to the issue  of new shares in a company between two shareholders and an  outsider.  It may be noted at the outset that there is a distinction  between the issue of new shares by a company and the transfer of  shares already issued by a shareholder.  In the first case, it is the  company which issues and allots the new shares.  In the second, the  transaction is a private arrangement and the company comes into the  picture only for the purposes of recognition of the transferee as the  new shareholder.  Therefore, while it is imperative that the company  should be a party to any agreement relating to the allotment of new  shares, before such an agreement can be enforced, it is not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 38  

necessary for the company to be a party in any agreement relating to  the transfers of issued shares for such agreement to be specifically  enforced between the parties to the transfer. In S.P. Jain’s case, the company was a private limited company  to begin with.  An agreement was entered into between two  shareholders and S.P. Jain, who was not a member, which internally  provided that S.P. Jain would be allotted shares after the share  capital of the company was increased equal to those held by the said  two shareholders.  The company was not a party to it nor were the  other shareholders.  In terms of the agreement there was an increase  in the share capital and shares were allotted to S.P. Jain.  Some  years later, after the company had been converted into a public  company, a decision was taken by the  company to issue fresh  shares.  The shares were not allotted to S.P. Jain.  Alleging  oppression by the majority shareholders, S.P. Jain filed proceedings  in which it was contended that the subsequent  allotment of the new  shares was in violation of the agreement between S.P. Jain and the  two shareholders.  In this context, this Court rejected S.P. Jain’s plea  on the grounds that S.P. Jain was not a member of the company  when the agreement was entered into; the company was not a party  to the agreement and was not bound by its terms; there was no  provision in the agreement as to what would happen if and when the  share capital was actually increased beyond the increase at the time  of the agreement.  Therefore it was held that as far as the company  was concerned, it was free to dispose of shares as its directors or  shareholders in a general meeting considered proper without regard  to the agreement.   The decision does not in any way hold that the transfer of  shares agreed to between shareholders inter se does not bind them  or cannot be enforced like any other agreement. In  Rangaraj’s case, relied upon by the respondents, an  agreement was entered into between the members of the family who  were the only share holders of a  private company.  The agreement  was  that for all times to come each of the branches of the family  would always continue to hold equal number of shares and that  if  any member in either of the branches wished to sell his share/shares,  he would give the first option of purchase to the members of that  branch and only if the offer so made was not accepted, the shares  would be sold to others.  This was a blanket restriction on all the  shareholders, present and future.  Contrary to the agreement, one of  the shareholders of one branch sold his shares to members of the  second branch.  Such sale was challenged in a suit as being void and  not binding on the other shareholders.  This Court rejected the  challenge holding that the agreement imposed a restriction on  shareholders’ rights to transfer shares which was contrary to the  articles of association of the company.  It was therefore held that  such a restriction was not binding on  the company or its  shareholders.  The decision is entirely distinguishable on facts.   There is no such  restriction on the transferability of shares in the  Karar.  It was an agreement between particular shareholders relating  to the transfer of specified shares, namely those inherited from the  late Sukumaran and Madhavi, inter se.  It was unnecessary for the  company or the other shareholders to be a party to the agreement.    As provided in clause 10 of the Karar, Exhibits R-59 and R-60 did not  obviate compliance with the Karar. Both Ex. R-59 and R-60 were  executed on 15.7.85 several months prior to the Karar. The parties  who had consciously entered into the agreement regarding the  transfer of their parents shares are therefore obliged to act in terms of  the Karar. The defence of Ravi and Srinivasan based on  Ex.R-59  and R-60 should not, in the circumstances, have been accepted by  the Division Bench.  Having regard to the nature of the shareholding,  on the basis of the law as enunciated by the Federal Court and Privy  Council in the decisions noted above, it must be held that the Karar  was specifically performable.          As far as the question of consideration is concerned, we have

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 38  

already held that parties can agree to subsequently determine the  price at which the shares were sold and section 9 of the Sale of  Goods Act, 1930 expressly provides that such contracts are perfectly  legal.   Besides, the Karar in terms does not call upon parties to  determine the consideration.  All it says is that once the consideration  was determined by Madhusoodhanan and Mani, it would be made  known to the others.  Since there was no such determination, there  was no question of informing anyone.  The finding that there was no  determination of the consideration in respect of the inherited shares  as a ground for holding that the Karar was not specifically  performable is similarly incorrect as the determination of the price  formed no  part of the Karar.           Coming to the reasoning of the Division Bench with regard to  non-compliance with section 16 of the Specific Relief Act, 1963. The  section provides : "S.16. Personal bars to relief.- Specific  performance of a contract cannot be enforced  in favour of a person -

x x x x x x x x x x x x x x x x x x x x x x x x x x   

(c)     who fails to aver and prove that he has  performed or has always been ready and  willing to perform the essential terms of the  contract which are to be performed by him,  other than terms of the performance of which  has been prevented or waived by the  defendant.

Explanation.- For the purpose of clause (c),-

(i)     where a contract involves the  payment of money, it is not essential for  the plaintiff to actually tender to the  defendant or to deposit in court any  money except when so directed by the  Court;

(ii)    the plaintiff must aver performance  of, or readiness and willingness to  perform, the contract according to its true  construction."

       We called for the plaint filed by Madhusoodhanan in order to  verify whether the Division Bench was correct in coming to the  conclusion that section 16 of the Specific Relief Act had not been  complied with.  We found that paragraph 14 of the plaint reads :

"the plaintiff was always ready and willing to  perform his part of the agreement and is even  now ready to perform his part of contract.  The  transfer of shares in respect of other  companies have already taken place in  accordance with the Karar dated 16 -1-86".   

       In view of this clear averment, the finding of the Division  Bench regarding the contravention of section 16 of the Specific  Relief Act, was perverse.          On the question of delay the cause of action arose when  Madhavi died in December,1987.  It cannot reasonably be said that  filing of the suit ten months later was unreasonably delayed since  some time must be given to see whether the parties did what they  were required to do under the Karar after Madhavi ’s death.              Finally, the exercise of discretion by the Division Bench

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 32 of 38  

purportedly under section 20 of the Specific Relief Act was contrary to  the terms of the section itself. Guidelines for the exercise of the  Court’s discretion to decree specific performance of an agreement  have been statutorily laid down in sub-section (2). The Division Bench  appears to have relied on clause (a) of section 20(2) to deny specific  performance of the Karar by holding that Madhusoodhanan had  obtained an unfair advantage over others under the Karar because  he had been allotted the more ’substantial’ companies. This logic flies  in the face of clause (a) of sub-section (2) to section 20 and the  explanation thereto - which say : "S.20. Discretion as to decreeing specific  performance.- x x  

(2)     The following are cases in which the court  may properly exercise discretion not to decree  specific performance -

(a)     where the terms of the contract or the  conduct of the parties at the time of entering  into the contract or the other circumstances  under which the contract was entered into are  such that the contract, though not voidable,  gives the plaintiff an unfair advantage over the  defendant;

       x x x x x x x x x x x x x x x x x x x x x x x x x x x   

Explanation 1.-  Mere inadequacy of consideration,  or the mere fact that the contract is onerous to the  defendant or improvident in its nature, shall not be  deemed to constitute an unfair advantage within  the meaning of clause (a) or hardship within the  meaning of clause (b)."

       This section is an instance of such legislative clarity that it  needs no paraphrasing to highlight its intent. The Division  Bench was clearly wrong in its  foray into the question of the  value of the assets allotted under the Karar. It has, despite  Explanation 1 to Section 20(2) refused specific performance of  the Karar on one of the excluded grounds viz., inadequacy of  consideration. The parties are at loggerheads and it is unlikely that they will  mutually agree to a price to be paid for the 390 transferred shares or  the ’inherited shares’ as envisaged at the meeting held on 23rd April,  1985 (Ex. P.62(b)) or to a mutually acceptable third party in terms of  clause 11 of the Karar dated 16th January, 1986 (Ex.P-3).  The  solution to this impasse is available under sub Section 9(2) of the  Sale of Goods Act, 1930 read with Art. 25 of the Articles of  Association of Kerala Kaumudi.  Under the first if the price is not fixed  in the manner agreed to in the contract of sale, the buyer shall pay  the seller a reasonable price and what would be a reasonable price  would be dependent on the circumstances of the case.  Article 24 of  the Articles of Association of the company speaks of the ’fixed price’  and the ’fair price’.  Both of these relate to the ostensible price shown  on the transfer deeds.  Nevertheless for the purposes of this case,  Article 25 which lays down guidelines for the resolution of disputes  between the transferor and transferee, may be relied on.  It says: Article 25: "The fair value of a share  shall be fixed by the Company by a resolution  passed by a majority of not less than three  fourths of the holders of such shares declaring  the fair value.  Such resolution shall remain in  force for two years from the date of its passing  or until annulled whichever is earlier.  If at the  time a transfer notice is given no resolution

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 33 of 38  

fixing the fair value is in force: then any  difference in regard thereto shall be referred  to two arbitrators, one to be appointed by  each party and the provisions of the Indian  Arbitration Act, 1940, shall apply".

Although the learned Single Judge  in disposing of CP 26/87  gave directions for the appointment of Arbitrators, to determine the  value of the shares, in our view it would be more appropriate to do  so in decreeing the suit for specific performance of the Karar.  It is  also not clear from the material on record, in which of the brothers’  name 9 shares of the late Sukumaran and the 3 shares of Madhavi  now stand.  Who ever is recorded as the owner of the shares shall  further transfer six of those shares to Madhusoodhanan.         For all these reasons, we have no hesitation in setting aside the  decision of the Appellate Court and restoring the decree as passed  by the Trial Court as modified below. "Madhusoodhanan will appoint one Arbitrator and Mani and his  children, Sukumaran and Ravi will appoint one Arbitrator within one  month to decide the following matters. Failing this any one of them  may move this Court to appoint an Arbitrator to decide:  (a)     What was the fair value of one share                                                  of  Kerala   Kaumudi  (P)   Ltd.    on                                            21.5.1985?

(b)     What amount was paid or adjusted  by or on behalf of M.S.  Madhusoodhanan to M.S. Mani  towards the value of shares ? What  is the balance amount due from  Madhusoodhanan to Mani and his  children in respect of the transfer of  the 390 shares transferred to M.S.  Madhusoodhanan.

(c)     What would be the value of one  share on the date  of Madhavi’s  death ?  

     It will be open to the parties entitled to the consideration as  determined by the Arbitrators to recover the sums due to them from  Madhusoodhanan".         Rectification of the Share register of KIPL           The application  for the rectification of the share register of  KIPL under Section 155 of the Companies Act was filed by Mani’s  wife and daughter -- Kastoori and Valsa respectively, Srinivasan’s  wife -- Laisa, and Ravi’s wife --Shylaja.  Of the 1000 shares issued of  KIPL, Madhavi had 10, Kastoori had 240, Valsa had 10,  Madhusoodhanan’s wife, Geetha, had 250,Laisa had 250 and Shylaja  and 240 shares in 1985.  On 4th  March 1985, Laisa who, along with  Geetha,  was a director of the company till then, resigned.  She has  admitted her resignation in her evidence when she said "I became  the director of the company in 1972.  I became a shareholder of the  company in 1972.  I’m not a director of the company now.  In March,  1985 I ceased  to be a director.  I resigned my directorship in March,  1985". According to Madhusoodhanan, at the Board meeting held on  4th  March 1985, which was attended by Geetha and Laisa, Laisa’s  resignation was accepted and he was appointed as additional  director.  At the same meeting, the Board  approved the transfer of  shares by Laisa, Shylaja, Madhavi and Kasturi to Madhusoodhanan,  Ravi ’s minor sons-Deepu and Darsan, Valsa (Mani’s daughter) and  Srinivasan so that the shareholding in KIPL became as follows : Geetha                          250 shares Madhusoodhanan  270 shares

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 34 of 38  

Srinivasan                      160 shares Valsa                           160 shares Deepu Ravi               80 shares Darsan Ravi              80 shares         According to the four applicants for rectification, they had  effected no such transfer.  Of the four, only Laisa came forward to  give evidence in support of the case for rectification of the share  register of KIPL [Ex. P-123 (F)] by restoring the position with regard  to the shareholding as it existed prior to March 1985.  In her  deposition Laisa admitted that she had signed the attendance register  of KIPL (Ex.P.-123) which showed that she had attended the Board  Meeting on 4th March 1985.  She also admitted that she had signed  the minute books of the company including the minutes of the  meeting held on 4th March 1985 as well as blank share transfer  forms .  However she has come forward with this explanation : "I have given blank share transfer forms and  other papers signed when Sri  Madhusoodhanan brought them to me.  I  signed those blank transfer forms and papers  because Mr Madhusoodhanan was looking  after the affairs of all sister concerns and my  husband told me to sign whatever papers be  brought by Mr Madhusoodhanan".

          The learned Single Judge dismissed the application for  rectification.  He held that the 4 brothers had admitted their  signatures in Exhibit P-190 which is a record of decisions taken at a  meeting held on 29.11.1984 when one of the decisions  taken was to  entrust separate concerns to each of the brothers, depending upon  who was taking an active interest in the company.  The decision was  implemented by the share transfers in the sister concerns of Kerala  Kaumudi and it was not disputed that in respect of Laisa Publications,  Srini Printers, Ravi Printers etc, the respective brothers who were in  control of those concerns were given 52 percent shares.  As far as  KIPL was concerned  it was decided : "3 (b).  In Kaumudi Investments  and Kaumudi  Exports 52 percent of shares will be held by Sri. M.  S. Madhusoodhanan and family and 16 percent  each of shares will be held by Sri.M.S. Mani and  family,Sri M.  S.  Srinivasan and family and Sri M.   S.   Ravi and family".

          This was effected as far as KIPL was concerned on 4th  March,1985.  It was held that the evidence showed clearly that all the  necessary steps had been taken to effect the share transfers and that   it was immaterial that the petitioners were not parties to exhibit P-190  because the share transfer deeds had been signed and the  signatories were bound by that, particularly when they had not  established that they had signed the share transfer documents under  any misrepresentation, fraud or undue influence or mistake.         The Division Bench reversed the decision of the learned single  judge in M. F. A. No 312 of 1990.  It was held that since exhibit P-3,  or the Karar,  had not been accepted as a valid document, "the  projected basis of the transfer disappears" and "the further recording  in the minutes of the company would not be sufficient to give legal  efficacy to the transfer of shares".         Since we have held that the Karar was a valid agreement, this  reason of the Division Bench will not stand.  Besides, as observed by  the learned single judge, all the necessary documents had been duly  executed to effect the transfers of the shareholding as approved in  the meeting held in March 1985. In the annual return of KIPL in  respect of the year ending on 30 September 1985, this share holding  is reflected.  (Ex.P-212). Further this is in keeping not only with the  Karar but also with Ex.P.190 according to both of which  Madhusoodhanan and his group were to have 52 percent

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 35 of 38  

shareholding in KIPL and the remaining three brothers - 16 percent  each.         The explanation given by Laisa that she used to sign whatever  papers had been sent by Madhusoodhanan is unbelievable.  The  Division Bench by relying upon a narrative in a biography of Norman  Birkett (The Life of Lord Birkett of Ulverston by H. Montgomery Hyde)  chose to accept it.  According to Laisa herself, she had been a  director of the company, operated the banking accounts and  otherwise done whatever was necessary in the discharge of her  duties as a director since 1972.  As we have noted earlier, differences  between the 4 brothers had been simmering for a long time which  manifested itself in 1984. This was also noted by the Division Bench  when it said, "in the year 1984, differences became somewhat  apparent".  In the circumstances, Laisa’s facile explanation, that she  signed every document in 1985 because of her faith and trust in  Madhusoodhanan is clearly false.         The next reason given by the Division Bench for allowing the  application for rectification was that the original share transfer deeds  had not been produced.  Madhusoodhanan had filed an application  for production of the original share transfer deeds.  He said that he  could not produce the share transfer deeds because they were in the  administrative office of KIPL and that he had been prevented from  entering that office. That the administrative office of KIPL is within the  Kerala Kaumudi premises in a separate room was also the finding of  the Division Bench. Madhusoodhanan and his group’s grievance  that  they were being denied access to KIPL’s office since April, 1986 was  not rejected by the Division Bench as not genuine. But the Division  Bench observed "A mere alibi of inability to enter the office, cannot be  accepted as a sufficiently strong reason for their grievous omission".  This conclusion is as startling as it is unreasonable.  For the reasons  given earlier in connection with transfer of shares in Kerala Kaumudi,  we are of the view that here also, the minutes and the other records  of the company, which prima facie raise a presumption of their  veracity, have not been sufficiently disproved by the evidence  tendered on behalf of the petitioners in the application for rectification.            Apart from the provisions of the Companies Act, Article 41 of  the Articles of Association of KIPL (Ex. P-180) also provides : "Where minutes of the proceedings of any  general meeting of the company or of any  meeting of the Board of Directors has been  made and signed in accordance with  provisions contained in the preceding article 10  unless the contrary is proved, the meeting  shall be deemed to have been duly called and  held and all proceedings thereat to have duly  taken place, and in particular, all appointment  of directors made at the meeting shall be  deemed to be valid".

       The only evidence or "proof" to the contrary in this case is  Laisa’s unacceptable oral evidence.  Therefore the minutes of the  meeting held on 4th March, 1985 must be taken to have correctly  recorded the transfer of shares resulting in the present shareholding,  the appointment of Madhusoodhanan as additional director and the  resignation of Laisa as a director of KIPL.         The next reason given by the Division Bench for permitting  rectification of the share register of KIPL was that no price had been  fixed for the shares and that there were not even negotiations with  parties regarding such fixation of price. This is, for reasons already  stated, an incorrect statement of the law.  Moreover in this case there  is the additional factor which has persuaded  us to hold that the  Division Bench was wrong, namely Article 16 of the Articles of  Association of KIPL which says : "the Board of Directors shall fix price at which  the shares for the time being forming part of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 36 of 38  

the capital of the company may be purchased  in pursuance of transfer notice and the price  thus fixed shall be known as the ’fair value’.   Until the ’fair value’ has been fixed as herein  provided, a sum equal to the capital paid up on  any share shall be deemed to be the fair value  of such share."   

       The Division Bench’s final conclusion that there had been a  non-compliance with section 108 of Companies Act because there  was no indication about any purchase of stamps or about the share  transfer deeds having been duly stamped, is an exercise in  speculation. The Articles of Association of KIPL themselves require  compliance with section 108 before any transfer can be effected.   When the minutes recorded that share transfer deeds had been  placed before the Board, when the transfers were approved by the  Board in the presence of the only witness for the petitioners, and  when none of the documents which were duly maintained by the  company  recording the transfers of the shares had been disproved,  we cannot uphold a finding that the share transfer deeds must have  been improperly stamped or executed in violation of the provisions of  Section 108 of Companies Act.          No further reason has been given by the Division Bench for  upholding the prayer for rectification of the share register of KIPL.   We have, therefore,  no compunction in setting aside the decision of  the Division Bench and restoring that of the learned Single Judge  dismissing the application.          Rectification of the Share Register of Kala Kaumudi  

        The next matter is  the application for rectification of the Share  Register of Kala Kaumudi filed by the minor son of Madhusoodhanan,  Visakh ( CP 11/87; MFA No. 285/90; CA 3261/91). This appeal need  not detain us as both the courts below have concurrently held that the  application had no merit.        In keeping with the Karar, Mani and his family have the  controlling interest in the company.  In June 1985, of the 500 issued  shares, Mani and his family held 260, Madhusoodhanan and his  children held 80 shares, Srinivasan and his children held 80 shares  and Ravi and his children held 80 shares after effecting share  transfers by the brothers and their respective groups inter se.  A  decision was taken by the Board of Directors to increase the paid-up  capital of company from Rs 5 lakhs to Rs 10 lakhs by the issue of 500  equity shares of Rs 1000 each.  Notice of this was given to the  applicant who received it but did not apply to be allotted any of the  additional shares.  Mani and his wife, Kasturi, offered to purchase  279 shares each.  The offer was accepted and additional shares  issued in the name of Mani and his wife.  According to Visakh, he had  not been given notice of the offer of the additional shares.  The trial  court considered the various exhibits tendered in evidence by Mani  and his group, including the local delivery book (Ex.  R.-48), which  was signed by Madhusoodhanan, the father and guardian of Visakh,  to negative the submission of Visakh.  We see no reason to interfere  with this finding of fact.  It is true that the Division Bench proceeded  on an erroneous basis when it held that the learned Single Judge had  dismissed the application on the ground of delay.  Since we have  upheld the factual finding of the court of the first instance, this  misreading of the Trial Court’s judgment by the Division Bench is of  no consequence.             We accordingly dismiss the appeal being C.A. 3261/91        without any order as to costs. Civil Suit No. 4 of 1989    This brings us to the remaining appeal which arises from a  decree passed in a suit filed by KIPL.  The suit was originally  numbered as OS 1569/88 when it was filed in the Munsiff’s  court in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 37 of 38  

Trivandrum.  After it was withdrawn on 16 February 1989 by the order  of the High Court, it was renumbered as C. S. 4/89.  In the suit,  KIPL  had prayed for a decree  of permanent injunction restraining Kerala  Kaumudi or any of its Directors or staff or anyone claiming through or  under them or any of their agents from disturbing or preventing the  peaceful functioning of KIPLs administrative office or in any way  obstructing the peaceful possession and enjoyment of the said  premises by the defendants until KIPL was evicted under due  process of law.            That the administrative office of KIPL was in Kaumudi  Buildings, Pettah, Trivandrum cannot be in dispute in view of the  categorical finding of the Division Bench to this effect, as noted  earlier.  According to KIPL, the entire administration of KIPL was  carried on from this office.  It has been further averred in its plaint,  that Geetha, Madhusoodhanan’s wife, had been denied access to the  administrative office when she went there along with a staff in August  1986.  She was informed by the reception office that the keys to the  room were with Srinivasan who refused to hand over the keys to  Geetha.             Srinivasan filed a written statement on behalf of Kerala  Kaumudi in which it was denied that KIPL had its administrative office  in Kaumudi Buildings.  According to Srinivasan, Geetha used to sit in  Madhusoodhanan’s office when he was the Managing Director of  Kerala Kaumudi.           On behalf of the plaintiffs, entries in the telephone directory  (Ex.p-181), notices and letters issued by the income tax office  addressed to KIPL at Kaumudi Buildings (Ex-p 182, 184 and 185) as  well as a letter from the Commissioner of Income Tax (Ex.P. 183)  similarly so addressed were proved by Madhusoodhanan.  Srinivasan  has been unable to explain why the letters and notices to KIPL by the  concerned authorities should be addressed to Kaumudi Buildings  unless KIPL was functioning from that place.  Additionally, Srinivasan  also said, in his evidence, "All the sister  concerns of Kerala Kaumudi  had postbox No 99 and post office was instructed to put the  correspondence addressed to the sister concerns in that postbox       No".  The postbox number in question was Kerala Kaumudi’s.  He  also said, "At the time when application for telephone was given,  applications were given in the name of all sister concerns as well as  Kerala Kaumudi, in order to get telephone easily.  These telephones  were allotted.  All the telephones are installed in Kerala Kaumudi  Buildings "and that for all the sister concerns the telex No is the  same.  In view of all this evidence, including the admission by  Srinivasan, amply justifies the conclusion reached by the Trial Court  while decreeing the suit that KIPL had an office in Kaumudi Buildings  to which members of its management and staff have the right of  access.           A similar suit had been filed by Kaumudi Exports which was  decreed by the learned Single Judge on substantially the same  evidence.  (C. S. No 2 of 1989).  The appeal from the decree was  dismissed by the Division Bench (A S. No 205 of 1990).  No further  appeal has been preferred by the respondents.             Logically, the Division Bench should have also rejected the  appeal preferred from the decree in CS No 4/49.  However the  Division Bench rejected the appeal on the sole ground that although  KIPL had been denied access in 1986, the suit had been filed only in  1988.  According to the Division Bench "The inaction for a period of  two years can be taken to have resulted in the extinction of the  present possession.  If the plaintiff does not have present possession,  injunction could not be an available relief".  This strange piece of  reasoning appears to proceed on the basis that the period of  limitation for extinction of a possessory right is two years which it is  not.  Besides the claim of KIPL was that it was being denied access.   The denial was a continuous one.  It was therefore open to KIPL to  file a suit while such denial continued by seeking to injunct the  obstructers from continuing with the obstruction.  Srinivasan’s

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 38 of 38  

evidence and the documents referred to hereinabove prove beyond a  shadow of doubt, that the administrative office of KIPL was in  Kaumudi Buildings.  That is also what the Division Bench has held.   Having come to this conclusion, the division bench erred grievously in  denying KIPL the relief it claimed only on the ground of delay, as if  what was being dealt with by the Division Bench were an interlocutory  application for interim relief.             This appeal, C. A. 3259/91 , is therefore allowed.               To sum up: Civil Appeals  3253-58 of 1991 from M. F. A  330/90 are allowed, and the decision of the Trial Court affirmed with  the directions earlier specified. Civil Appeals 3260 and 3261 of  1991are dismissed. Civil Appeal No. 3259 of 1991 is also allowed .   The decision of the Division Bench is set-aside and the decree of the  Trial Court is restored.           Before concluding our judgment in all these appeals, we would  like to record our displeasure in the manner in which the paper books  have been prepared.  Documents which are vital for decision on the  several issues raised, continue to remain in Malayalam without being  translated , several exhibits as well as the pleadings, such as plaints,  written statements etc are not on record.  Therefore, although our  decisions in these nine appeals, except for two, are in favour of  Madhusoodhanan and his group, we make no order with regard to  the costs to which the appellants would otherwise have been entitled.

 Ascertainment of price - (1) The price in a contract of sale may be fixed by the contract  or may be left to  be fixed in manner  thereby agreed or may be determined by the course of dealing between the  parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer  shall pay the  seller a reasonable price.  What is a reasonable price is a  question of fact dependent on t he circumstances  of each particular case.    3

87