# M.S. MADHUSOODHANAN AND ANR v. KERALA KAUMUDI PVT. LTD. AND ORS

- **Citation:** [2003] Supp. 2 S.C.R. 107
- **Court:** Supreme Court of India
- **Decided:** 2003-08-01
- **Case number:** Civil Appeal No. 3253-58 of 1991
- **Bench:** Ruma Pal, B.N. Srikrishna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-madhusoodhanan-and-anr-v-kerala-kaumudi-pvt-ltd-and-ors-19251
- **Pages:** 70

## Headnote

Sale of Goods Act, 1930-Section 9-Contract Act, 1872-Section 29Transfer of shares of a company-Determination of consideration amount at
A
B
a later date-Validity of-Held: Such agreement is valid-It is not void for C
uncertainty-Section 9 permits such transfer.
Companies Act, 1956:
Sections 108 and 195-Transfer of shares between two brothers-Validity
of-Held: Documentary evidence showing valid transfer-Intention to transfer D
evident from immediate and unconditional transfer and the transfer deeds
placed before the Board and duly approved-Annual returns filed also
mentioning transfer-Transfer of share admitted in the affidavit by transferorTransferor failing to discharge onus as to correctness of the minutes of the
Board Meeting-Evidence indicating transfer in accordance with section 108Transferor receiving some consideration-Hence, transfer of shares valid- E
Prayer of transferor for rectification of share register of the company deleting
the name of transferee as shareholder rejected-Sale of Goods Act, 1930Section 9.
Sections 189 and 53.,--Articles of Association-Alteration-Necessary F
requirement-Held: Notice of 21 days, specifying intention to propose resolution
and resolution to be passed by 7 5 per ·cent of the members present in the
meeting-:-In the instant case, Article 74 of the company amended and major
share holder appointed the Managing Director for life-Subsequently, mother
assumed power-In the next meeting resolution to increase the share capital
by issue of notice to share holders-Thereafter in the next meeting shares G
allotted to two brothers and one of them sold one share to the brother who
had earlier transferred all his shares to the major share holder pursuant to
the family settlement and admitted as member in the company-Major share
holder removed from the post in an extraordinary general meeting, prior to
which Article 74 deleted-Major share holder opposing all this-On appeal,
107
108
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A Held: Requirements. of section 189 not complied with while deleting Article
7 4-Resolution to delete Article 7 4 formed no part of the notice of Extraordinary
General Meeting-Hence, notice defective, as such removal of the major share
holder not correct and allotment of shares vitiated-Companies Act, 1913,
section 81.
· B
Section 53-Documents-Service by post-Value oF--Held: General rule
regarding certificate of posting is that service is presumed to be effeetedRaising of presumption does not by itself amounts to proof-Burden lies on
the person against whom the presumption operates for disproving it-Further,
the presumption may be rebuttable-Rebuttable presumption is raised if the
C basic facts regarding due posting of the document is proved-Use of words
'shall presume' does not make it irrebuttable or conclusive-Words and
Phrases.
Sections 155 and I 08-Share transfer in the company in implementation
of the Board's decision-Application for rectification of share registerD Sustainability of-Held: All necessary documents executed for transfer of
shares-Deeds signed by the persons concerned not under any
misrepresentation, fraud, undue influence or mistake-Minutes and other
records of the Company prima facie raising presumption of the veracity, and
;
not disproved by applicants-Also ·non-compliance of section I 08 of no
E consequence-Hence, the application for rectification liable to be rejected
Specific Relief Act, 1963:
Sections JO, 16(c) and 20(2)(a) Explanation I-Agreement (Karar)
providing division of shares of parents in a private company among brothers
p
in the ratio of 50: 25: 25-Claim of major share holder for enforcement of
Karar-Held: Other share holders had taken full benefit of Karar, thus were
bound to comply with its terms and Karar being in the nature of family
settlement not to be lightly interfered by the Court-Shares coming within
expression 'not easily available in market-Non-determination of consideration
in respect of inherited shares of no consequence-Major sh

## Text

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M.S. MADHUSOODHANAN AND ANR.
v.
KERALA KAUMUDI PVT. LTD. AND ORS.
AUGUST 1, 2003.
[RUMA PAL AND B.N. SRIKRISHNA, JJ.]
Sale of Goods Act, 1930-Section 9-Contract Act, 1872-Section 29Transfer of shares of a company-Determination of consideration amount at
A
B
a later date-Validity of-Held: Such agreement is valid-It is not void for C
uncertainty-Section 9 permits such transfer.
Companies Act, 1956:
Sections 108 and 195-Transfer of shares between two brothers-Validity
of-Held: Documentary evidence showing valid transfer-Intention to transfer D
evident from immediate and unconditional transfer and the transfer deeds
placed before the Board and duly approved-Annual returns filed also
mentioning transfer-Transfer of share admitted in the affidavit by transferorTransferor failing to discharge onus as to correctness of the minutes of the
Board Meeting-Evidence indicating transfer in accordance with section 108Transferor receiving some consideration-Hence, transfer of shares valid- E
Prayer of transferor for rectification of share register of the company deleting
the name of transferee as shareholder rejected-Sale of Goods Act, 1930Section 9.
Sections 189 and 53.,--Articles of Association-Alteration-Necessary F
requirement-Held: Notice of 21 days, specifying intention to propose resolution
and resolution to be passed by 7 5 per ·cent of the members present in the
meeting-:-In the instant case, Article 74 of the company amended and major
share holder appointed the Managing Director for life-Subsequently, mother
assumed power-In the next meeting resolution to increase the share capital
by issue of notice to share holders-Thereafter in the next meeting shares G
allotted to two brothers and one of them sold one share to the brother who
had earlier transferred all his shares to the major share holder pursuant to
the family settlement and admitted as member in the company-Major share
holder removed from the post in an extraordinary general meeting, prior to
which Article 74 deleted-Major share holder opposing all this-On appeal,
107
108
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A Held: Requirements. of section 189 not complied with while deleting Article
7 4-Resolution to delete Article 7 4 formed no part of the notice of Extraordinary
General Meeting-Hence, notice defective, as such removal of the major share
holder not correct and allotment of shares vitiated-Companies Act, 1913,
section 81.
· B
Section 53-Documents-Service by post-Value oF--Held: General rule
regarding certificate of posting is that service is presumed to be effeetedRaising of presumption does not by itself amounts to proof-Burden lies on
the person against whom the presumption operates for disproving it-Further,
the presumption may be rebuttable-Rebuttable presumption is raised if the
C basic facts regarding due posting of the document is proved-Use of words
'shall presume' does not make it irrebuttable or conclusive-Words and
Phrases.
Sections 155 and I 08-Share transfer in the company in implementation
of the Board's decision-Application for rectification of share registerD Sustainability of-Held: All necessary documents executed for transfer of
shares-Deeds signed by the persons concerned not under any
misrepresentation, fraud, undue influence or mistake-Minutes and other
records of the Company prima facie raising presumption of the veracity, and
;
not disproved by applicants-Also ·non-compliance of section I 08 of no
E consequence-Hence, the application for rectification liable to be rejected
Specific Relief Act, 1963:
Sections JO, 16(c) and 20(2)(a) Explanation I-Agreement (Karar)
providing division of shares of parents in a private company among brothers
p
in the ratio of 50: 25: 25-Claim of major share holder for enforcement of
Karar-Held: Other share holders had taken full benefit of Karar, thus were
bound to comply with its terms and Karar being in the nature of family
settlement not to be lightly interfered by the Court-Shares coming within
expression 'not easily available in market-Non-determination of consideration
in respect of inherited shares of no consequence-Major share holder always
G ready and willing to perform his part of agreement thus no contravention of
Section 16-Filing of suit ten months later not unreasonable delay-Mere
inadequacy of consideration no ground to hold that contract gives undue
advantage-Hence, major share holder entitled to specific performance of
Karar-Limitation Act, 1963-Article 54-Hindu Law-Family settlement.
H
Section 38-Suit for permanent irljunction against obstruction to the
M.S. MADHUSOODHANAN v. KERALA KAUMUDI PVT. L TO.
} 09
peaceful possession of the office premises against the defendant-Delay in A
· filing suit-Trial Court decreeing the suit holding that the plaintiffi have the
right of access-Dismissal by the High Court on the ground that the inaction
for two years resulted in the extinction of the possession-On appeal held:
Since the denial of access was continuing one and it is also established that
plaintiffi' office was in defendant's building, High Court erred in denying B'
relief on the ground of delay as if it was an interlocutory application for
interim relief-Hence, the order of High Court set aside and the decree of
trial court restored-Limitation Act, I 963.
A family consisted of the father KS, the mother MD and their four
sons namely, the appellant, S, R and M who are married and have C
children. The parents promoted a private company (first respondent
company) incorporated in 1955 under the Companies Act, 1913. The other
"family" concerns were also incorporated. In the first respondent company
total number of issued and paid up equity shares was 1575. During the
life time of the father each of the sons with their family had 390 shares,
while the father had 9 shares, the mother had 3 shares and a group D
company-KIPL had 3 shares in the Company. From 1955 to 1973 the
father was the Managing Director of the first respondent company and
thereafter the appellant was appointed the Managing Director and the
father as the Chairman till his death. On his death his widow succeeded
as the Chairman and the appellant was appointed the Managing Director E ·
of the Company. Subsequently disputes between the parties arose. In 1984,
the brothers and their mother took a resolution by which the controlling
interests in the different family companies were agreed to be given to each
of the four brothers on the basis of their active interest in the particular
concern and in implementation the transfer of shares in these companies
were effected. The first respondent company was to be in control of the F
appellant. He was appointed as the Managing Director of the company
for life and was also empowered to exercise the powers given to the
Director. S was appointed as the General Manager for life and R was
appointed as the Director and Executive for life. To give effect to these
appointments Article 69A and Art. 74 were amended. However, disputes G
did not abate. The parties entered into several agreements to resolve their
differences. The mother and her sons entered into an agreement (Karar)
on 16.1.1986 with regard to the division of effective control of the "family"
concerns amongst the four brothers; transfer of M's shares in the company
to the appellant; and the division of shares of the parents in the percentage
of 50:25:25 between the appellant, R and: S, on their mothers' death. H
110
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A However prior to the agreement, M and his children had already
transferred their entire holding in the company to the appellant. It is
alleged that prior t~ the Karar the mother had executed two agreements ·
1
and a will transferring the 9 shares of her late husband and 3 shares of
her own to Rand S. On 23.7.1986, a Board meeting of the first respondent
company was held at which the mother assumed the powers of the
B Managing Director in purported ouster of the appellant. A second Board
meeting was held on 1.8.1986 in which the decision was taken to increase
the paid-up share capital of the first respondent company by issuing 425
additional shares ofRs.1000/- each. At the Board meeting held on 8.8.1986
R and S were issue~ additional shares and R transferred one share to M.
C The appellant disputed these meetings and the allotment of the additional
shares. Thereafter, on 16.8.1986 in an Extraordinary General Meeting the
appellant was removed as Managing Director of the company and Articie
74 of the company was deleted.
The aggrieved parties filed several proceedings - company petition
D by M and his children for rectification of the share register of the first
respondent company by deleting the name of the appellant in respect of
the shares which Mand his group transferred to him; suit by the appellant
for a decree declaring that he continued to be the Managing Director of
the company and that the Board meetings held on 23.7.1986, 1.8.1986 and
E the meetings subsequent thereto were illegal and ultra vires the Articles
of Association of the company; company petitions by the appellant and
KIPL for rectification of the company's share register by cancellation of
the allotment of shares to Rand S and for removal of the name of M from
the company's share register; suit by the appellant for specific
performance of the third agreement (Karar) providing for the division of
F shares of the late father and the mother in the percentage of 50:25::25
between M, R and S, on their mothers' death; company petition by M's
wife and others for rectification of the share register of KIPL; company
petition by the minor son of the appellant for rectification of the share
register of the KK company; and suits for a permanent injunction by KE
and KIPL Company to restrain the first respondent company, its directors
G and staff from disturbing its functioning in the first respondent company's
buildings.
All the original suits were transferred to the High Court and were
heard along with the several company petitions. The Single Judge of High
H Court dismissed M and his children's application for setting aside the
..
.,
'I
M.S. MADHUSOODHANAN '" KERALA KAUMUDI PVT. LTD.
111
transfer of shares rejecting the grounds of non-consideration, improper A
documentation, transfer by minor children and non-compliance of section
108 and appointed an arbitrator for determining the amount payable by
the appellant to M for the transfer of shares. It decreed the suits filed by
the appellant and KIPL, holding that the meetings held in so far as they
affected the appellant, by which he had been removed as Managing
Director and Article 74 was deleted, were illegal and invalid and declared B
the appellant to be the Managing Director of the Company. The
application for rectification of the share register of the company was
allowed by cancelling the allotments of 425 shares each to S and R and
directed fresh allotment of additional shares, but rejected the cancellation
of the transfer of one share in favour of M holding that no notice either C
of the Board Meeting held on 1.8.1986 or for the issue of additional shares
had been served on the appellant; and that no meetings were in fact held
on 8.8.1986 or 16.8.1986. The petition filed by KIPL for the same reliefs
was dismissed on the ground of delay. The suit filed by the appellant for
specific performance of the Karar was decreed deciding in favour of the
appellant and also the suits filed by KE and KIPL relating to their D
continued possession in first respondent company's buildings were decreed.
However, the petition filed by M's wife and others for rectification of the
share register of KIPL, and also the petition filed by the minor son of the
appellant for rectification of the share register of KK company were
dismissed. The Division Bench of the High Court set aside the findings of E
the Single Judge in all the appeals except in the appeal filed in the suit by
KE company relating to their continued possession in first respondent
company's buildings. Hence the present appeals.
Disposing of the appeals, the Court
HELD : Transfer of shares by Mand his children to the appellant:
1.1. The documentary evidence relating to the transfer shows that
there was a valid transfer of shares by M and his children in favour of
the appellant. The intention to transfer shares is evident from the minutes
F
of the meeting held on 19.3.1985, which was affirmed at the Board meeting G
of the company held on 23.4.1985 resolution of which envisages three
distinct stages: an immediate and unconditional transfer of shares, then,
the settlement of M's income tax liabilities by the first respondent company
and, after both these stages, the determination of the consideration for
the transfer to be mutually agreed on. The express intention was to effect
an immediate transfer of the shares and to agree upon the consideration H
112
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A later. Section 9 of the Sale of Goods Act, 1930 permits this. Such an
agreement is not invalid under Section 29 of the Contract Act~ 1872. The
Division Bench 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
B have taken place. [128-E, G; 129-D, E]
Benjamin's Sale of Goods 1974 Edn., referred to.
1.2. It is evident from the minutes of the Board meeting held on
21.5.1985 that the share transfer deeds relating to the transfer of shares
by M to the appellant were placed before the Board. The minutes of the
C Board meeting were read and approved on 4.6.1985. Both meetings were
attended by the mother, the appellant and brother Sand Rand the minutes
signed by the mother as Chairman. The transfer of the shareholding of
M and his children was also admittedly entered in the Company's Share
Certificate Ledger. Furthermore, unless the share transfer forms placed
D before the Board had been executed and were otherwise duly completed,
the question of approval of such transfer would not arise. [131-C, B]
1.3. In the Annual Return of the company dated 27.6.1985, it was
mentioned against the names of M and his children that they had effected
transfer of their shareholding to the appellant and the particulars of the
E transfer made with the date of registration given as 21.5.1985. Also in the
statement published in Form IV in keeping with the statutory requirement
relating to the ownership of newspapers there is no mention of the name
of M or his children as shareholders. After the ouster of the appellant from
the Board of the company, in the Annual Return filed, M is shown as
F holding only one share and the appellant 612 shares in the company. This
was again done in the next year's Annual Return filed. This one share was
sold by R to Mat a meeting held on 26.8.1986 which records that he was
"admitted" to membership and "inducted" as a member of the company
by the transfer of one share. Also the minutes of the meeting have been
admitted by the brother S and affidavits of the mother and M prove that
G Mand his family held no shares in the company until the single share was
transferred by R to M. If the transfer by M and his children of their entire
shareholding in the company to the appellant bad not been effected, there
was no question of "admitting" M to the membership of the company.
[131-G-H; 132-B, E; 134-C, F]
H
1.4. Under section 164 of the Companies Act, 1956, the annual
.,
(_
..
M.S. MADHUSOODHANAN 1·. KERALA KAUMUDI P\'.T LTD.
113
returns, the certificates and statements therein, "shall be prima facie ,A
evidence of any matters directed or authorised to be inserted therein"
under the Act and under section 194, minutes of meetings kept in
accordance with the provisions of Section l 93 shall be evidence of the
proceedings recorded therein and, unless the contrary is proved, it shall
be presumed under Section l 95 that the meeting of the Board of Directors
was duly called and held and all proceedings thereat have duly taken place. B
The onus was on M to disprove that the transfers had not taken place as
recorded in the minutes of the Board meeting which he has singularly
failed to discharge. The submission that the statutory presumption was
not available to the appellant as he had admitted that no formal meetings
were held and that the minutes were prepared after informal discussions C
cannot be accepted in view of the Articles of Association of the Company
and Section 193(1) of Companies Act 1956. In any event, the transfer of
shares by M and his children to the appellant would stand without the
support of the statutory presumption under Section 195 of the 1956 Act.
(132-F; 135-B-El D
1.5. A clause in the third agreement relates to the sale of M's shares
in the company to the appellant which both sides have referred to and
relied upon. This 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 E
been agreed upon or paid. (136-B, CJ
1.6. All the parties not only proceeded on the basis that there was
effective transfer of the shareholding of Mand his children to the appellant
but also certified the same to the Registrar of Companies, and additionally
affirmed that such transfer had taken place on oath in their affidavits, p
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. Given the documentary evidence
of completed transfers, it is more than probable that the "real" share
transfer forms were never produced by Mand his group and that the share
transfer deeds produced by M from the custody of his wife were prepared G
in 1984 as claimed by the appellant. In this state of the evidence, it cannot
reasonably be held that M and his group have been able to establish that
the transfer of the shares by them to the appellant was effected in violation
of Section 108 or any other provision of the Companies Act, 1956. All this
evidence indicated that there were in existence duly executed share transfer H
114
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A forms prepared in conformity with the provisions of Section 108 which
everyone had accepted and acted upon and which were deliberately n.ot
produced. [136-G, H; 139-C, G; 140-D)
1.7. It is apparent that M received some consideration for the
transfers although the consideration may have moved from the Company
B to M. The transfers by M and his children were effected validly to the
appellant. Therefore, the prayer for rectification of the share register is
rejected and the decision of Division Bench is set aside. [142-G]
Removal of the appellant as Managing Director:
C
2.1. Under section 189 of the Companies Act, 1956 three conditions
to be fulfilled before any alteration of the Articles of Association could
take place are that notice specifying the intention to propose the resolution
as an extraordinary resolution must be given; that the resolution must be
passed by 75% of the members present; and that not less than 21 days
notice of the meeting must be duly given. The expression of intention in
D the notice under section 189(2)(a) 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. Furthermore, for a special
E resolution to be validly passed the notice of the general meeting was
required to have been duly served on all the members of the Company
either by post or personally in terms of Article 108 or section 53 of the
1956 Act. [147-E-G; 149-B, FJ
2.2. In the instant case, none of the three preconditions for effecting
F an alteration in the Articles of the first respondent company by deleting
Article 74 were fulfilled. The notice dated 25.7.1986 purported to call an
extraordinary general meeting of the shareholders on 16.8.1986 to consider
and if thought fit to pass as a special resolution to ratify the resolutions
adopted by the Board of Directors at its Meeting dated 23.7.1986 that the
Chairman shall assume the executive powers of the Managing Director
G 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. 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, the
special resolution on the basis of such defective notice is insupportable in
H law and cannot be given effect. Further the service of the notice was not
J
M.S. MADHUSOODHANAN v. KERALA KAUMUDI PVT.LTD.
115
effected either on the appellant or any other share holder in his group, A
including KIPL by either of the modes specified. This was no ordinary
general meeting, but a meeting where a special resolution was to be passed
which had to be done under section 81 of the 1913 Act, to which Article
49 is expressly the subject, and the requirement for giving due notice under
section 81 is mandatory. Furthermore, Article 49 speaks of an accidental B
omission 10 give notice. In other words the omission must be bona fide,
and not an omission which was wilful as in the instant case. Also the
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 R and S. Therefore, the
deletion of Article 74 was invalid and that the appellant continued to be C
the Managing Director of the first respondent company. The decree passed
by the Single Judge is upheld and the order of the Division Bench is set
aside. [147-G; 148-B, D; 149-D-H; 150-A-C)
Nagappa Chettiar v. The Madras Race Club, AIR (1951) Mad 831,
~~~
p
Baillie v. Oriental Telephone and Electric Co Ltd., (1915] 1 Ch. D 503;
[1914-15] All E.R.Rep. 1420; In re Hector Whaling Lt., [1936) 1 Ch. 208,
referred to.
Issue of additional shares:
3.1. The general rule regarding certificate of posting under section
53 of the Companies Act provides that if a document is sent by post in
E
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 "proor'. F
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 G
the burden, that the court will act on the presumed fact. A presumption
h'owever is of course not always rebuttable. But the mere use of the word
"shall 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 proor' of a second set. Consequently, the words "shall H
I I 6
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A 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. (156-B-C; 157-C-Fl
B
Syed Akbar v. State of Karnataka, AIR (1979) SC 1848; State of
c
Madras v. Vaidyanatha and AIR (1958) SC 61 and Dahyabhai V. State of
Gujarat, AIR (1964) SC 1563, relied on.
lzhar Ahmad V. Union of India AIR (1962) SC 1052 and Mis. Sodhi
Transport Co. v. State of U.P AIR (1986) SC 1099, referred to.
3.2. In the instant case, the evidence does not establish that the notice
dated 25.7.1986 of the Board Meeting to be held on 1.8.1986 was served
on the appellant. From the out ward register, it has not been proved who
dispatched the notice nor the register show how the dispatch was effected
nor there is anything to show that the notice was in fact dispatched. The
D handing over the notice to the appellant's assistant did not amount to
personal service on the appellant as required under the Article 108 or
section 53 of the Companies Act, 195_6. The absence of the notice raised a
presumption against the respondents. Further, apart from the categorical
assertion by the appellant of lack of notice of the meeting held on 1.8.1986
E it is clear from the contents of the appellant's letter to S, the General
Manager and the mother that he was not receiving any mails and had no
knowledge of the notice for application for allotment of additional shares.
Further, the certificate of posting is suspect. Assuming that such suspicion
is unfounded, it did not in any event amount to conclusive proof of service
of the notice on the appellant or on any of the other addressees mentioned
F in the certificate. In these circumstances, it is held that the appellant and
his group were not served with the notice dated 1.8.1986. Once it is held
that the appellant and his group, all of whom held shares in the company
were not given notice to apply for allotment of the additional shares the
subsequent allotment of the shares to R and S at the meeting held on
G 8.8.1986 and the affirmation of such allotment at the meeting allegedly
held on 16.8.1986 were vitiated thereby and invalid. The Division Bench
of the High Court erred in disagreeing on all counts with the Single Judge.
Therefore, the decision of the Division Bench is set aside and the judgment
and order of the Single Judge of the High Court including the directions
in connection with the allotment of the additional 425 shares is upheld.
H
[151-D)
'-,.
'
M.S. MADHUSOODHANAN v. KERA LA KAUMUDI PVT.LTD.
117
Ummu Saleema v. B.B.Gujral, [1981) 3 SCC 317 and Shiv Kumar v. A
State of Haryana, [ 1994) 4 sec 445, referred to.
Specific Performance of Karar:
4.1. Each of the brothers had been given the majority shareholding
of 52 percent in the companies specified against their names in the Karar. B
All the clauses except for the transfer of the 'inherited shares' to the
appellant had been acted upon. 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 J"ettison 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 should
not be lightly interfered with. The Division Bench of the High Court has
not adverted to this at all. (162-B-D)
K.K. Modi v. K.N. Modi and Ors., (1998) 3 SCC 573, relied on.
4.2. It is settled law that the shares are movable properties and are
transferable. As far as the private companies like the respondent company
are concerned, the Articles of Association restrict the shareholder's right
c
D
to transfer shares and prohibit any invitations to the public to subscribe E
for any shares in, or debentures of, the company. 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. 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 nonF
performance of the act agreed to be done; or when the act agreed to be
done is such that compensation in money for its non-performance would
not afford adequate relief. In the case of a contract to transfer movable
property, normally specific performance is not granted excepi in
circumstances specified in the Explanation to section 10. One of the G
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". The shares in a private limited company would come within the
phrase "not easily obtainable in the market". (163-B-E)
4.3. There was no restriction on the transferability of shares in the H
118
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A Karar. It was an agreement between particular shareholders relating to
the transfer of specified shares, namely those inherited from the late father
and mother, inter se. It was unnecessary for the Company or the other
shareholders to be a party to the agreement. As provided in one of the
clauses of the Karar, agreements and will executed by the mother
transferring 9 shares of her late husband and 3 shares of her own to R
B and S did not obviate compliance with the Karar. The agreement and will
were executed 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. Having
regard to the nature of share holding, the Karar is specifically
C performable. (165-C-E)
Shanti Prasad Jain v Kalinga Tubes, AIR (1965) SC 1535 and V.B.
Rangaraj v. B. Goplalkrishnan AIR 1992 SC 453, distinguished.
Jainarain Ram Lundia v. Surajmull Sagarmull and Ors., A.I.R (36)
D (1949) F.C. 211 and The Bank of India Ltd. v. J.A.H Chinoy A.LR. (1950)
P.C. 90, relied on.
4.4. 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 incorrect as the determination of the
E price formed no part of the Karar. (165-G)
4.5. The appellant 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. The finding of the Division Bench
F regarding non-compliance of section 16 of the Specific Relief Act was not
correct. (165-G-H)
4.6. The cause of action arose when the mother died, and filing of
the suit ten months later was not unreasonable delay since some time must
G be given to see whether the parties did what they were required to do
under the Karar after their mother's death. [166-G)
4.7. The Division Bench erred in going into the question of the value
of the assets aliotted under the Karar and refusing specific performance
of the Karar on one of the excluded grounds-inadequacy of consideration.
H Explanation 1 to section 20(2) stated that mere inadequacy of consideration
M.S. MADHUSOODHANAN '" KERALA KAUMUDJ PVT.LTD.
119
would not constitute an unfair advantage. (167-Fl
A
4.8. The owners of the shares are directed to transfer those shares ,
to the appellant. The parties are directed to appoint one arbitrator each
to decide the fair value of the shares transferred and would be entitled to
the consideration as determined by the Arbitrators. The decision of the
Division Bench is set aside and the decree passed by the trial Court is B
restored with modification. [168-E-F)
Rectification of the share register of KJPL:
5.1. With regard to the application for the rectification of the share
register of KIPL, the evidence clearly showed that all the necessary steps 'C
had been taken to effect the share transfers and it was immaterial that
the applicants were not parties to the meeting where it was decided to
entrust separate concerns to each of the brothers on the basis of their
active interest in the company because the share transfer deeds had been
signed and it is not established that they had signed the share transfer
documents under any misrepresentation, fraud or undue influence or D
mistake. The signatories were bound by that. Furthermore, 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. The only evidence or "proor' to the contrary is L-director E
of KIPL's unacceptable oral evidence. Therefore the minutes of the
meeting must be taken to have correctly recorded the transfer of shares
resulting in the present shareholding, the appointment of the appellant as
additional director and the resignation of L as a director of KIPL.
[170-G-H; 172-A, B, D, E)
5.2. The Karar was a valid agreement and the reasoning of the
Division Bench that that since .the Karar had not been accepted as a valid
document, the projected basis of the transfer disappears and the recording
in the minutes of the company would not give legal efficacy to the transfer
F
of shares cannot be accepted. All the necessary documents had been duly
executed to effect the transfers of the shareholding as approved in the G
meeting held in March 1985. In the annual return of KIPL in respect of
the year ending 30th September 1985, the share holding is reflected and
this is in keeping not only with the Karar but also with the meeting.
[171-B-C)
5.3. The appellant could not produce the share transfer deeds H
120
SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.
A because they were in the administrative office of KIPL and he had been
prevented from entering that office. The Division Bench observed that a
mere alibi of inability to enter the office, cannot be accepted as a
sufficiently strong reason for their grievous omission and allowed the
application for rectification. This conclusion is unreasonable.
B
[171-G, H; 172-AJ
5.4. The Division Bench allowed the application for the rectification
of the share register of KIPL as no price had been fixed for the shares
and there were not even negotiations with the parties regarding such
fixation of price. This is an incorrect statement of the law. (172-E-F)
C
5.5. The Articles of Association of KIPL require compliance with
section 108 of the Companies Act, before any transfer can be effected.
When the minutes recorded that share transfer deeds had been placed
before the Board, the transfers were approved by the Board in the
presence of the only witness for the petitioners, and none of the documents
D which were duly maintained by the company recording the transfers of
the shares had beeri disproved, 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 cannot be sustained. Therefore, the order
of the Division Bench upholding the prayer for rectification of the share
regist~_r of KIPL is set aside and that of the Single Judge is restored.
E
[173-A-CJ
Rectification of the share register of KK company~·
6. The notice to increase the paid-up capital of the company from
Rs. 5 lakhs to Rs. 10 lakhs by the issue of equity shares was given to the
minor son of the appellant who received it but did not apply to be allotted
F any of the additional shares. However, according to the son, he had not
been given notice of the offer of the additional shares. The trial court
considered the various exhibits tendered in evidence by M and his group,
including the local delivery book signed by the appellant to negative the
submission of his minor son. There is no reason to interfere with this
G finding of fact. The Division Bench proceeded on an erroneous basis in
holding that the Single Judge had dismissed the application on the ground
of delay. Since the factual finding of the court of the first instance is upheld,
misreading of the trial court's judgment by the Division Bench is of no
consequence. (173-F-H; 174-A)
H
Permanent irifunction against obstruction to peaceful enjoyment of office
-\
M.S. MADHUSOODHANAN v. KERALA KAUMUDI PVT. LTD. [RUMA PAL, J.] 121
premises by KIPL:
A
7. In the appeal preferred from the decree in a suit filed by KIPL
the Division Bench held that the inaction for a period of two years resulted
in the extinction of the present possession 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 which was B
a continuous one. Therefore, it was open to KIPL to tile a suit while such
denial continued by seeking to injunct the obstructers from continuing with
the obstruction. Further, the evidence and the admission of S and the
documents referred prove that the administrative office of KIPL was in
the buildings of the first respondent company. In view of this, the trial C
court was justified in its conclusion that KIPL had an office in the buildings
to which members of its management and staff have the right of access.
Having come to this conclusion, the Division Bench erred in denying KIPL
the relief only on the ground of delay, as if it were dealing with an
interlocutory application for interim relief. Hence, the decision of the
Division Bench is set aside and the decree of the trial court is restored.
D
(175-E-H; 176-A-B)
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3253-58 of
1991.
From the Judgment and Order dated 18.10.1990 of the Kerala High
Court in M.F.A. Nos. 330, 347, 559/90 and A.S. Nos. 164, 165 and 211 of E
1990.
WITH
C.A. Nos. 3260, 3259, 3261 of 1991.
A.T.M. Rangaramanujan, Gopal Jain, Prateek Jalan, Ms. Nandini Gore, F
Ashish Jha, Jasmine D., R.N. Karanjawala and Ms. Manik Karanjawala for
the Appellants.
L. Nageshwar Rao, T.L. V. Iyer, P.P. Rao, Fazlin Anam, E.M.S. Anam
and P.A. Ahmed for the Respondent.
The Judgment of the Court was delivered by
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
G
and nature of the proceedings, to avoid any confusion, the parties are referred H
122
SUPREME COURT REPORTS [2003) SUPP. 2 S.C.R.
A 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
B siqe 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.
C 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)
D
E
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.