kasturi & sons clb interm order 20 may 2011

8/6/2019 Kasturi & Sons Clb Interm Order 20 May 2011

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COMPANY LAW BOARDCHENNAIBENCH

ATrENDANCE CUM ORDER SHEET OF THE HEARING OF CHENNAI BENCH, COMPANY LAWBOARD, HELD ON 18/05/2011 AT 10.30 AM

PRESENT SMT. LlZAMMA. AUGUSTINEMEMBER

APPLICATION NUMBERPETITION NUMBER : CP /3 9 /2 0 11NAME OF THE PETITIONER(S) : N. Ravi & 10 othersNAME OF THE RESPONDENT(S)UNDER SECTION

: M Is Kasturi & Sons Limited & 10 others: 3 97 /3 98

S.No. NAME (IN CAPITAL) DESIGNATION SIGNATUREREPRESENT ATION BY WHOM

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Decided on: 20.05.2011 at 10.30AMORDER

1. Kasturi & Sons Ltd (R1) was incorporated In 1940 in the State of TamilNadu as a private limited company. As on the date of filing this petition, thecompany has an authorized share capital of Rs. 5 crore. Petitioners - Mr. N. Ravi,Ms. Malini Parthasarathy, Mr. N. Murali, N. Murali (HUF), N. Ravi (HUF), Mrs.Tara Murali, Mr. M. Krishna, Ms. Kanta Murali, Mrs. Sudha Ravi, Ms. AparnaRavi and Serendipity Investments (P) Ltd (1 to 11) together hold 21.28% of thepaid-up capital. Second respondent, Mr. N. Ram, who is the editor-in-chief of TheHindu, is holding 1.66% shares. R3 to RIO are the directors/shareholders of thecompany.Reliefs sought:To set aside the Board resolution of 18.04.2011 as it is oppressive.To declare the notice dated 21.04.2011 to convene EGM on 20.05.2011 asoppressive and set aside the same.To appoint an independent Chairman in the place of R2 to conduct future Boardmeetings.Pending disposal of the CP, the petitioners are seeking (a) to stay the resolutionspassed on 18.04.2011 at the meeting of Board of Directors removing the powersand designations of the first and second petitioners and the purported appointmentof eleventh respondent, (b) to restrain the respondents from proceeding with theEGM on 20.05.2011 pursuant to the notice dated 21.04.2011 in connection withspecial business item no.'}' in so far as first and second petitioners are concernedand in connection with the appointment of eleventh respondent, (c) to restrain therespondents from passing any Board or shareholders resolutions with respect toany editorial removal, succession, retirement, professionalisation plan or corporategovernance policies without the unanimous consent of all shareholders etc.

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Ms Nirmala Lakshman (R9) and Dr Nalini Krishnan (RlO) are also seeking thevery same interim reliefs. They strongly oppose the proposal to replace ownereditor with a professional editor.2. The petitioners are once again invoking the equitable jurisdiction of thisBoard since the respondents are allegedly engaged in acts of oppression having along and lasting effect on the affairs of Rl company by misinterpreting the order ofthis Board in CP 25/2010. Respondents are accused of manipulating the affairs ofthe company in a way so as to ensure that no qualified family shareholder will eversucceed the second respondent as Editor-in-Chief or editor of 'The Hindu'. WhenR2 attempted to target the third petitioner, this Bench intervened to restore hispower and position. Now, R2 is targeting the first petitioner by converting acorporate democracy into a 'tin pot democracy' with an intention to continueeternally as the Editor-in-Chief.3. The first and second petitioners had a distinguished journalistic career in'The Hindu' when he joined as a reporter. (details of their professional experienceare given in paras 21 - 26). Rl company being owned and managed by the family,the much needed editorial independence could be achieved only by preventing thebusiness side having an over-bearing effect on journalists. The recent eliminationand termination of director-editors belonging to the family was facilitated bydirectors who constituted a majority (seven against five.) Even though petitioners7,8& 10 - Ms Vidya Ram (daughter ofR2) and MrNarayan Laxman (son ofR9)-by letter dated 16.09.2009 expressed their concern on various issues such assuccession, retirement, entry and exit norms etc., and sought for a shareholders'meeting, it was never convened.4. After the order of this Bench on 22.10.2010, the Board met on 21.01.2011which discussed about the consultation exercise to be carried out by McKenzy(Project Kamadhenu). Although petitioners 1 to 3 raised issues on the basis of the

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order of this Bench, no discussion was entertained by R2 to R8. Mckenzysubmitted its recommendations to the Board on 02.02.2011. On that basis, R3, inhis presentation at the Board meeting on 16.03.2011, submitted the followingproposals:

(I)The 3rd respondent, on the alleged basis that the CLB directions dated22.12.2010 required so, recommended that editorial 'reorganisation' beimplemented immediately. Business reorganisation was proposed to becarried out only after August 20II.(2) Misquoting the letter dated 16.08.2009 of the ih , 8th and lothpetitioners and Mr Narayan Lakshman and Ms Vidya Ram, the 3rdrespondent alleged that separation of ownership from management byway of wholesale removal of family shareholders from editorialpositions is what "Gen 2" wants and this was allegedly recommended inthe Mckinsey Report [and allegedly agreed to by the board of directors].(3)Family directors [Corporate Board] to surrender operational functionsof the Board to "Executive Board" [consisting only of 'non-family, non-shareholder professionals]. All editorial directors to surrendertitles. The corporate board, comprising a majority of non-editorialdirectors, would oversee editorial policy, thereby subjecting editorialoperations to commercial pressure and the personal agenda of business .side directors.(4) Entire Executive Board consisting of top editors of the publicationsof the company and senior business executives to report to the entireCorporate Board. Thus editors to report to 12 masters includingbusiness directors.(5) Remuneration of all family directors to be made the same.(6)No 'succession' guidelines proposed.

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(7) Editorial sacking to be implemented immediately, businessreorganisation only after August 20 II, if felt necessary by the Board.(8) No retirement age proposed.(9) No explanation on why qualified family members should not take upoperational roles in spite of the Companies Act and the Articles of theCompany permitting such employment.(10) Also, editorial directors to be sacked immediately but silent on therecent appointments of certain family members as correspondents. Theproposals are obviously targetting only the family directors on theeditorial side.(11) No family shareholder to be allowed to participate in themanagement of editorial functions.(12) No time frame proposed but editorial removal to be implemented'immediately' .

. 5. The earlier CP filed by Mr Murali and Mr Ravi etc were disposed of on22.10.2010 with the following observations:16. The main contention in these proceedings can be safely narrowed down as atussle between the second petitioner (Shri N. Murali) and the second respondent(Shri N. Ram). In the family tree these two belong to the same branch as theinheritors of Shri G. Narasimhan, who was one of the four cousin brothers. ShriRam is the Editor-in-Chief of 'The Hindu' since June 2003. The petitioners pointout that there was an editorial frame work of retirement and succession which, ifimplemented, would have resulted in the retirement of Shri Ram as Editor-in-Chiefwhen he turned 65 on 04.05.2010. The frame work at best can be termed only asan informal understanding among the members of the family. Shri Ramvehemently denies the existence of any such enforceable agreement. However, he

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is admitting that there was an informal suggestion to this effect in September2009. There is no retirement age for the Editor-in-Chief either in law or in theArticles of Association of the company. The petitioners were expecting thereplacement of Shri Ram as Editor-in-Chief by his brother (Shri N. Ravi) who isthe fourth petitioner. It may be a legitimate expectation but the members of thecompany cannot entertain any expectation which will go beyond the legal rightsconferred on them by the constitution of the company. The editor is the 'livingarticulate voice' of the newspaper and The Hindu' is a newspaper which can claima grand succession of eminent editors during its 132 years of gloriousexistence. Continuing litigation and constant upheavals will cause great andirreparable harm to that reputation. There is some force in the contention of thepetitioners that as the younger generation members are coming in, the oldestmembers had to make way for those in between. Evidently and admittedly the Noteon the Code of Corporate Governance Guidelines of the company sent by thesecond petitioner was placed at the Board meeting of 18.02.2010 and is under

. consideration by the Board of Directors. It is on record that, in the Board meetingdated 21.08.2009, Ms Malini Parthasarathy (RII) had expressed her concernregarding the delay in the matter of evolving a frame work and guidelines forsuccession indicating how roles of different persons in the editorial were going toevolve. She also emphasised that the factors like one's particular experience,orientation, qualification and actual practical contribution in the area should figurein the succession guidelines. Evidently, this note was also taken on record. Theclause in the articles regarding retirement at the age of 65 was deleted in 1991 notbased on any discussion in the Board of directors, but based on the amendedprovisions of the Companies Act as per which there is no age qualification now fora person to retire as a director. So the issue on succession was never decided bythe Board or shareholders. Viewed in this background, the proposal by the

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petitioners and RII to frame a Corporate Governance Policy cannot be describedas an attempt to gain control of the company or to remove Shri Ram as Editor-in-Chief. Since the Board of Directors reallocated the non editorial side in order tobroad-base the management of the company and to involve all wholetime directors,it is desirable that such a decision is taken at the editorial side also.17. Being an incorporated entity, the company is at liberty to effect any changein its structure, not amounting to oppression and mismanagement. In the instantcase, the Board does not find any enforceable decision or understanding forremoving the second respondent (N. Ram) from his present position. It is for thedirectors to think about the desirability of having a permanent succession plan aswelJ as editorial frame work. No judicial intervention can be based on alleged,informal talk in the family. It is for the directors and shareholders of the companyto decide the modalities of such succession without compromising professionalconsiderations. For the reasons discussed above, I decline to pass any order onfinal relief (a) & (b) in the CP regarding the implementation of a permanenteditorial succession plan or retirement and Corporate Governance Policy. Asrepeatedly undertaken by the respondents, the Board of Directors and theshareholders are directed to consider these issues in the Board of Directors as wellas meeting of shareholders and to take a decision without much delay.18. On the basis of the judgment of the Madras High Court in G.Kasturi Vs N

MuraU. [1992[ 74 Comp Case 661, Kasturi and Sons Limited is a public limitedcompany which cannot claim the position of a quasi-partnership. As such thepetitioners cannot entertain any legitimate expectation and their claims shall bebased on the decisions taken by the board of directors. As the concept of legitimateexpectation was not seriously taken as a specific ground in the pleadings, I am notbound to enter into any finding in that regard. What is specifically pleaded is theexistence ofa tacit understanding on the basis of which the 2nd petitioner is holding

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the post of Managing Director since 2006. His appointment is for a period of fiveyears from 10.04.2006. As a result of the infight, his powers were curtailed and hewas elevated to the glorified position of Senior Managing Director at the meetingof the board held on 20.03.2010. Prior to this meeting, N. Murali, as ManagingDirector, was in charge of accounts and EDP (independent), generaladministration, advertisement, circulation and production (joint). As per thereallocation of duties on 20.03.2010, his responsibilities were reduced tocirculation (independent), accounts, human relations and industrial relations (joint).It is pertinent to note that N. Murali is in the service of the company as anemployee for four decades, i.e. from 1971. For three decades, he was a director. In2006 he was unanimously elected as Managing Director. As per the understandingarrived at the meeting of the directors on 18.02.2010, N. Murali will retire from theday to day affairs of the company in August 2011 when he reaches the age of 65.Moreover, his term of appointment is to expire only on 10.04.2011. This being theadmitted position, the decision to trim his powers taken on 20.03.2010 seems to besurprising. Charges were raised against him by his own brother and cousinswithout any notice or putting the same on the agenda. The nature of the urgency intaking this type of action against the Managing Director is not properly explainedto me. Though he was elevated as Senior Managing Director, it was done only forthe purpose of creating a space for the 3rd respondent to become ManagingDirector. Following the stripping of powers, only one out of the original sevenfunctions, now remains with the 2nd petitioner. There is justification for him toargue that it was a vindictive and punitive action, perhaps in retaliation to hisobjection to the foreign appointments of the 1 2 t h and 13th respondents. Withoutgiving him an opportunity to explain, several serious allegations were raisedagainst him. The stripping of powers and non-routine reallocation of functionswithout notice and specific agenda is lacking in probity and good faith. It is unfairy , 7


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on the part of the respondent directors to humiliate the 2nd petitioner in such a way.I think the arbitrary and well-planned decision taken against the 2nd petitioner on20.03.20 I0 requires reconsideration. Lack of notice of the allegations withoutagenda is enough to establish oppression. Since the 2nd petitioner is willing to retirein August 2011, it is only reasonable to facilitate him to terminate his 40-year-oldassociation with the company in an honourable manner. Even though directorialcomplaints cannot be taken as a ground for oppression in a public limitedcompany, I am inclined to interfere in the instant case, taking into account thespecial circumstances. I hereby set aside the decision taken by the board ofdirectors on 20.03.2010 to the extent it reallocates the functions of the SeniorManaging Director and direct that the position prior to 20.03.2010 shall be restoredas far as allocation of departments concerning the 2nd petitioner is concerned. Thiswill not affect the continuation of R3 K. Balaji as Managing Director and hisfunctions can be appropriately determined by the board without affecting theposition and status of the 2nd petitioner as Senior Managing Director. The monthof August in the year 2011 is not far away and I hope it will augur well for thebeleaguered company.19. Some allegations are raised regarding the waiver of interest in respect of aloan availed by a member of the family and the mismanagement of a subsidiarycompany by R6. In view of the reliefs granted in the CP, I do not think itnecessary to go into those allegations. In light of the discussions made above, theCP is disposed of as follows:

(i) the reliefs (a) & (b) to implement permanent editorial successionplan of retirement for the editorial board members and permanentcorporate governance policy on the basis of the informal discussionamong the editorial directors are declined. The board of directors andthe shareholders are hereby directed to consider these issues in the

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meeting of the board of directors as well as shareholders and take adecision in this matter as observed in paragraphs 16 and 17 suprawithout much delay;(ii) Regarding reliefs (c) & (d), I hereby set aside the decision takenby the board of directors on 20.03.2010 to the extent it reallocates thefunctions of the Senior Managing Director (P2) and direct that theposition prior to 20.03.2010 shall be restored as far as allocation ofdepartments concerning the 2nd petitioner. This will not affect thecontinuation of R3 K. Balaji as Managing Director and his functions canbe appropriately determined by the board without affecting the positionand status of the 2nd petitioner as Senior Managing Director.(iii) For the reasons stated in para 10 of this order above, relief (e)regarding the appointments of 12th respondent as Europeancorrespondent of 'Business Line' and 13th respondent as Washingtoncorrespondent of 'The Hindu' is declined."

6. The petitioners allege that the above proposals have been made as part of thehidden agenda to sack family editors and thereby eliminate the family'sparticipation in management of editorial functions which proposal remainsunprecedented in the entire history of the company, under the guise of successionand by misreading the directions issued by this Board in the order dated22.10.2010. The petitioners 1 to 3 and R9 & RIO opposed the proposals since it isagainst the tradition and practice followed by the company ever since its inceptionand hence such a change would require the consensus of all the shareholders whichshould be implemented through amendment of the articles rather than by majorityvote. The petitioners I to 3 constitute three of the five editorial directors on theBoard.

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As a follow up of the Board meeting on 16.03.2011, a Board meeting was held on18.04.2011. The important items in the agenda were"12. To adopt the Code of Editorial Values for Kasturi & Sons Ltd., which asdiscussed and agreed upon in Project Kamadhenu.13. To consider the follow up on the discussion at the last Kasturi & Sons LimitedBoard meeting of 16th March, 2011 about editorial succession in pursuance of therelevant directions in the Company Law Board Order of December 22,2010 in CP250f2010.14. To consider convening a meeting of the shareholders of Kasturi & SonsLimited to consider and decide on editorial succession in pursuance of the relevantdirections in the Company Law Board order of December 22, 2010 in CP 25 of2010.Special Business:1. To consider and if thought fit, to pass with or without modification the followingresolution as an ORDINARY RESOLUTION.Resolution that Siddarth Varadarajan, Associate Editor and national bureau chief,The Hindu, be appointed Editor of The Hindu, reporting to N. Ram, Editor-in-Chief, The Hindu, in such time as the Board of Directors of the company maydecide.Resolved that Mr N. Ram will step down ad Editor-in-Chief of The Hindu in suchtime as the Board of Directors of the company may decide.Resolved that Mr N. Ravi will step down as Editor of The Hindu in such time asthe Board of Directors of the company may decide.Resolved that Ms Nirmala Lakshman will step down as Joint Editor of The Hinduin such time as the Board of Directors of the company may decide.Resolved that Ms Malini Parthasarathy will steop down as Executive Editor of TheHindu in such time as the Board of Directors of the company may decide.

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Resolved further that Mr Siddharth Varadarajan will be The Hindu's Editorresponsible for selection of news under the PRB Act when N. Ram steps down asEditor-in-Chief of The Hindu and N.. Ravi steps down as Editor of TheHindu. There shall be a committee of the Board of Directors known as theEditorial Board consisting initially of N. Ram, N. Ravi, Ninnala Lakshman, K.Venugopal and Malini Parthasarathy; the Editorial Board will be available foradvising the Editor responsible for selection of news under the PRB Act but willnot have any role in the day-to-day editorial functioning of the newspaper.Mr Murali (P3) objected to the proposal by stating that the proposals are againstthe basic structure of the company itself and the practice followed for the past 132years. Mr N. Ravi (PI) and Ms Malini Parthasarathy (P2) objected to the proposalalleging that it was not succession but wholesale removal of family shareholderdirectors from editorial positions and that the removal of editor, joint editor andexecutive editor under the guise of succession is arbitrary and unfair and that theproposal would run contrary to the CLB order which directed to consider apermanent editorial succession plan and permanent corporate governance policyand that the informal understanding on editorial succession on the oldest givingway to those in between as referred to in paragraph 16 of the order envisaged aneditorial succession from within the group of family shareholder directors andhence the plan is oppressive.The Board meeting held on 18.04.2011 approved all the resolutions referred to inthe notice extracted above and also resolved"further that in accordance with the directions of the Chennai Bench of theCompany Law Board order dated December 22,2010 inCP 25 of2010, which hasbeen taken, on record by the Board of Directors of Kasturi & Sons Ltd, theseresolutions on editorial succession be placed for the approval of shareholders of

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Kasturi and Sons Ltd in an extraordinary general meeting convened for the purposeat an early date."The resolutions except relating to Mr K.Venugopal were passed by a majority ofseven against five. The Boards action in passing the resolutions and the noticecalling for an EGM is challenged in this CP. The petition says that the action isviolative of CLB order and patently oppressive and that change of basic structureof the company in the proposed disqualification of family shareholders from day-to-day management requires unanimous agreement among shareholders and anamendment of the Articles of Association, that this new rule is a change from theestablished practice to groom the family members/shareholders in differentdepartments of the company, that the present action is contrary to the decisiontaken by the Board majority in March 2010, that the proposed rule to disqualifyshareholders is contrary to the scheme of the Companies Act and the Articles ofAssociation which specifically allow directors to hold offices of profit in thecompany, that highly qualified professional journalist who have been working inthe company for decades and their removal is not in the interest of the companythat no notice was given of any resolutions etc.7. Kasturi & Sons Ltd, founded in 1878 as a partnership finn and later in 1940incorporated as a company, is a family owned, family funded and family managedentity ever since its inception and the qualified family members were holdingimportant operational roles both on editorial side and management side. Thepresent proposal amounts to wholesale removal of all the family directors, whichwas not the spirit of the order passed by me on 22.10.2010.The proposal will resultin the ouster of Ravi, Malini Parthasarathy, and R9, mearly because they are fromThe Hindu: family. Though Mr Ram will also step down, as per the proposal, it issubject to the decision of the Board. It is a fact that Mr Ram is having majority inthe Board. That apart, as per the impugned resolution 'Mr.Siddarth is to report to

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Mr Ram, the editor-in chief. There is a further allegation that the proposal toappoint Mr Siddharth Varadarajan as a non-family editor was not based on anyconsultation among other family members or based on any meritassessment. Currently, the Board comprises of family members. The justificationof the respondents to bring in a non family member as editor of The Hindu is inconsonance with the Code of Editorial Values approved and adopted in the Boardmeeting on 18.04.2011, and in keeping the principles of separating ownership fromday-to-day functioning and management on both the business side and the editorialside, as done by most companies and newspapers and also to bring professionalismin to the company. Mr Ram expressed his opinion that "we are spoilt for choice"professionally.8. The far reaching consequence of the proposals is that a shareholder of thecompany will be perpetually debarred from holding the post of editor of TheHindu, which in my view is contrary to the tradition and practice followed by thecompany since its inception. Besides, it is doubtful whether the proposed advisoryboard which consists of members of the rival groups would be able to effectivelyguide the non family editor in discharging his duties. I am of the prima facie viewthat except" the wholesale removal of the family editors", the present proposals donot take in any other aspect. The board had not addressed the aspects. (retiremententry and exit norms etc), referred to in my earlier order. It also appears that theBoard has given a go by to the idea of framing guidelines for succession or ratherthey have limited the directions of the CLB only to the extent of removing theentire family editors. However, I am not staying the holding of the EOM. Theissue is the role of the family in the company and in my view it has to be decidedby the shareholders. The learned senior counsel appearing for the company andother respondents submitted that the resolutions regarding the removal of familyeditors even if approved in the EOOM will not be implemented immediately. At

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this juncture, the petitioners have produced before me a copy of the agenda for theBoard meeting scheduled to be held on 20.05.2011 and one item is to consider thedecisions of the shareholders taken at the extraordinary meeting to be held on May20, 2011 and pass necessary resolutions. For the reasons discussed above, Idecline to restrain the respondents from proceeding with EGM on 20.05.2011. ButI am inclined to restrain the respondents from implementing the resolutionsproposed as special business in the EGM on item '1' in the notice, until furtherorders. The company is also directed to record the dissent if any expressed by thepetitioners and other shareholders. It is observed that the holding of the EGM andthe decisions taken therein shall be subject to the result of the CPo In the light ofmy above order CA No.1 09/2011 stands closed. Respondents to file counterwithin four weeks. CP adjourned to 23.08.2011 at 10.30 AM.

C e r t i f i e d t o b e T r u e C o p y

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kasturi & sons clb interm order 20 may 2011

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