Case: Madhusoodhanan &amp; Another Vs. Kerala Kaumudi Pvt. Ltd. &amp; Others

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. 65. 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 hasd 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 Apepllate 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. 66. Coming now 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". 67. 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. 68. 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". 69. Then we have the paragraphs from the affidavits of Madhavi and Mani quoted earlier which talk of the "balance consideration". 70. Finally is the lawyer’s notice dated 20.3.87 (Ex. P-83) sent on 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". 71. Madhusoodhanan’s claim in this regard is inconsistent. At one stage the 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". 72. 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 P11) 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. 73. There is no dispute that the machines were in fact lifted by Mani, pursuant to Ex. P.1324. 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 "They very transactions 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]27. 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. [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 the circumstances of each particular cases.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.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 Madhu or at least not giving sufficient weight - to the wealth of evidence in favour of the submissions of Madhusoodhan, 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 Madhusoodhan, 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 theany 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.As far as the shares of Sukumaran Mani are concened in our opinion, the learned Single Judge was right when he said thatgroup could not question the transfer of the shares of Sukumaran Mani on account of his minority, as Sukumar Mani hasd 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 Apepllate 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 Sukumaranmother 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 Sukumaranshare through his mother to Mani has not been challenged. Therefore the issue of Sukumaranminority and hiscompetence to act as his legal guardian, were not issues which could be relevantly raised before, or decided by the appellate court.There is no dispute that the machines were in fact lifted by Mani, pursuant to Ex. P.1324. 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 "They very transactions 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.93. 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.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 Article of Association of Kerala Kaumudi.124. Once we have held that Madhusoodhanan and his group all of whom heldshares in KeralaKaumudi, 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 16.6.86 were vitiated thereby and invalid.As far as the question of consideration is concerned, we have already held that parties can agree to subsequently determine the price at which the 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.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.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.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,facile explanation, that she signed every document in 1985 because of her faith and trust in Madhusoodhanan is clearly false.162. 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 isgrievance that they were being denied access tooffice 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 starting as it is unreasonable. For the reasons given earlier in connection with transfer ofshares in KeralaKaumudi, 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.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 whichBoard of Directors shall fix price at which the shares for the time being forming part of the capital of the company may be purchased in pursuance of transfer notice and the price thus fixed shall be known as the ‘fairUntil the ‘fairhas 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".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 Companiessee no reason to interfere with this finding of fact. It is true that the Division Bench proceeded on an erroneous basis then 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 Trialjudgment by the Division Bench is of no consequence.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 1966. 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 nature 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 s 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.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 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 with by the Division Bench were an interlocutory application for interim relief.