Interference with Board Management disallowed by interim relief unless decisions are prima facie ultra vires; status quo preserved.

Interlocutory relief restoring a disputed director's managerial powers was refused because prima facie material supported board resolutions and the companies are board-managed; the court applied the principle that internal management should not be disturbed pending trial unless challenged decisions are prima facie ultra vires the Companies Act or the articles, and therefore continued interim directions requiring compliance with the September 1992 board resolutions and preservation of the status quo pending disposal of the suit.

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Issues: (i) Whether the plaintiff is entitled to restoration of the powers and functions as joint managing director of the third defendant company pending disposal of the suit; (ii) Whether earlier interim directions maintaining status quo and limiting the plaintiff's powers should be vacated or continued.

Issue (i): Whether the plaintiff is entitled to restoration of the powers and functions as joint managing director pending trial.

Analysis: The question turns on the validity and effect of board resolutions dated June 24, 1992, September 5, 1992, and the circular resolution dated September 13, 1992, and whether those resolutions purportedly taking away the plaintiff's substantial managerial powers are liable to be set aside at interlocutory stage. Consideration is limited to prima facie evidence and balance of convenience. Relevant statutory context includes delegation of powers under Section 291 and definition of managing director under Section 2(26) of the Companies Act, 1956. Evidence of majority shareholding, board-managed company structure, repeated board meetings, participation in meetings and signed annual returns were relied on to show board decisions and corporate democratic processes. It is further noted that interference with day-to-day management of a board-managed company is not appropriate unless decisions are prima facie ultra vires the Act or the articles.

Conclusion: The plaintiff is not entitled to restoration of the alleged managerial powers pending trial; Application No. 5998 of 1992 is dismissed.

Issue (ii): Whether the earlier interim directions maintaining status quo as on October 1, 1992, and limiting the plaintiff's powers should be vacated or continued.

Analysis: The earlier interim orders and subsequent direction to abide by board resolutions were examined in light of the board-managed character of the companies and the prima facie material supporting the resolutions. The interim orders were treated as subject to the merits assessment; balance of convenience and corporate democratic principles were applied to determine preservation of the status quo in accordance with board resolutions.

Conclusion: The earlier interim directions are not vacated; the plaintiff will exercise powers and functions in accordance with the resolutions dated September 5, 1992, and no further directions are necessary in respect of Applications Nos. 841 and 5129 of 1992.

Final Conclusion: On the interlocutory applications, the material on record does not establish a prima facie case for interfering with the board-managed companies' decisions; thus interim relief restoring the plaintiff's alleged managerial powers is denied and existing directions to abide by the board resolutions are continued.

Ratio Decidendi: Interference with the internal management of a board-managed company by interlocutory relief is improper unless the challenged board decisions are prima facie ultra vires the Companies Act or the company's memorandum and articles; otherwise corporate democratic decisions made by the board should be preserved pending trial.

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