🛡️ From Boardrooms to Courtrooms: How Corporate Safeguards Failed in the Sun TV Family Feud

📌 Introduction

When a family-run private limited company grows into a public conglomerate, the journey isn't just financial—it's legal, ethical, and procedural. The recent legal notice served by DMK MP Dayanidhi Maran to his brother and Sun TV Chairman Kalanithi Maran alleging fraudulent takeover and misrepresentation has exposed how corporate governance, when diluted at the foundational stage, can erupt decades later.

As a corporate and property lawyer, I believe this episode offers a strong case study on how governance, disclosures, and director responsibilities must evolve when a company moves from private to public—and how timely vigilance could prevent such disputes from arising.

🧱 Fundamentals: How a Private Limited Company Works

📌 Share Allotment in a Private Company

In a private limited company, the Board of Directors holds significant power, especially when shareholding is concentrated. They can:

• Allot shares via board resolution
• Conduct rights issues or preferential allotments
• Transfer shares between existing shareholders

However, such actions must comply with:

• Section 42 & 62 of the Companies Act, 2013 (previously under the 1956 Act)
• Fair valuation norms (preferably certified by a registered valuer)
• Proper execution of board minutes and ROC filings (Form PAS-3, SH-7)

Yet, in the absence of dissent, and if the board is dominated by one or two individuals, the scope for misuse is very real.

🚀 Transition to a Public Limited Company

When a company decides to go public:

1. It must convert to a public limited company via alteration of its Articles.
2. The Draft Red Herring Prospectus (DRHP) must be filed with SEBI.
3. It must disclose:

The company is now answerable not just to its family members or shareholders—but to regulators, investors, and the public.

⚠️ What Happened in the Sun TV Case?

📰 Allegations by Dayanidhi Maran (as per June 2025 legal notice):

• In 2003, Kalanithi Maran allegedly allotted 1.2 million shares to himself at just ₹10/share, even though the fair value was over ₹2,500/share.
• These allotments were allegedly done without board or shareholder concurrence and without valid documentation.
• After their father Murasoli Maran’s death, shares were transferred from his estate to their mother and then to Kalanithi—allegedly without heir certification.
• In the 2006 IPO, the Red Herring Prospectus allegedly omitted these transactions or misrepresented them.
• He also claimed a fictitious dividend payout to their mother of ₹10.64 crore was shown in records but never paid.
• Dayanidhi now wants restoration of original shareholding and regulatory action under PMLA, SEBI Act, Companies Act, and more.

🧭 Sun TV’s Response:

Sun TV stated this was a private family matter that occurred before the IPO and has no bearing on current business operations. They assert that all transactions were legally vetted and in compliance with the law.

🧠 Why Did This Emerge After 22 Years?

Some probable reasons:

• Power dynamics: Family dominance in boardrooms often leads to silence due to internal pressure.
• Access to information: Detailed financial records may have become accessible only recently.
• Trigger events: Restructuring, disputes over dividends, or legacy planning often trigger legal scrutiny.
• Limitation period under law: For fraud, the limitation period extends from the date of discovery, not from the date of act.

🛡️ Preventive Measures for Directors & Corporate Lawyers

✅ For Directors:

• Maintain proper board records and shareholder registers
• Ensure independent director presence post-conversion to public company
• Get share valuations certified
• Disclose related-party transactions transparently

✅ For Corporate Lawyers:

• Scrutinize historical share transfers before a company moves to IPO
• Verify succession documents in family-held companies
• Conduct due diligence on DRHP content vs ROC records
• Advise on board governance mechanisms early on

📘 Principles That Must Be Adhered To

🏛 Under SEBI Norms:

• ICDR Regulations: Require full, fair, and honest disclosures in the DRHP.
• LODR Regulations: Ensure listed entities maintain good governance post-listing.
• Prohibition of Fraudulent Acts: Under SEBI Act, 1992, misstatements can attract penalties and even criminal prosecution.

🏢 Under MCA (Companies Act, 2013):

• Section 62: Procedure for rights issue or preferential allotment.
• Section 447: Punishment for fraud.
• Section 166: Directors' fiduciary duties.
• Section 210: ROC can initiate an investigation based on a complaint.

💼 For a Corporate Entity:

• Maintain transparency in share transactions
• Follow fair valuation and documentation
• Ensure all stakeholders, including legal heirs, are consulted in transfer cases
• Don’t bypass regulatory filing obligations (like MGT-7, PAS-3)

🧾 Conclusion

The Sun TV dispute is a cautionary tale of what happens when power is concentrated, processes are bypassed, and documents are misrepresented. For founders, directors, and corporate advisors, this is a wake-up call to reinforce governance long before SEBI or the courts step in.

The boardroom is not a family living room. The law does not exempt you for being a brother or a son. It demands transparency, accountability, and timely action.

✍️ Sathish Hari Advocate | Property & Corporate | Contracts | Real Estate Due Diligence | Civil & Commercial Practice | Madras High Court