Corporate governance rights in articles prevail over shareholder agreements; invalid director appointments and defective board meetings cannot stand.

Contractual rights affecting a company's internal management are enforceable against the company only when reflected in the articles of association; a shareholders' agreement alone could not restrain resignations from the board or override the articles. Where the articles required a specified shareholder's affirmative assent for board changes, appointments made without that assent were contrary to the articles and invalid. Section 290 of the Companies Act, 1956 protected acts of a de facto director only until the company was notified of the appointment's invalidity. A board meeting held without the required nominee directors, proper notice, or quorum could not validly approve annual accounts when the articles made those requirements mandatory. Interim relief under section 9 of the Arbitration and Conciliation Act, 1996 was available to preserve contractual and article-based rights pending arbitration.

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Issues: (i) Whether a contractual restriction in a shareholders' agreement could prevent resignations from the board or bind the company in the absence of incorporation into the articles of association; (ii) whether the induction of new directors was valid when the articles required the petitioners' affirmative assent for adding members to the board and whether section 290 protected acts done after the invalidity of appointment was shown to the company; (iii) whether the board meeting held to approve the annual accounts was valid in the absence of the petitioners' nominee directors, sufficient quorum, and proper notice; and (iv) whether interim relief under section 9 of the Arbitration and Conciliation Act, 1996 could be granted to protect the petitioners' contractual and article-based rights pending arbitration.

Issue (i): Whether a contractual restriction in a shareholders' agreement could prevent resignations from the board or bind the company in the absence of incorporation into the articles of association.

Analysis: The agreement recorded an assurance regarding continuance of one nominee on the board, but that restriction was not translated into the articles. A provision affecting the management of the company cannot be enforced merely because the company is party to the agreement unless it is embodied in the articles. The restriction therefore could not override the company law principle that the articles govern internal management, and no injunction could be issued compelling continued directorship on that basis.

Conclusion: The prayer to restrain acceptance of the resignations was rejected and the issue was decided against the petitioner.

Issue (ii): Whether the induction of new directors was valid when the articles required the petitioners' affirmative assent for adding members to the board and whether section 290 protected acts done after the invalidity of appointment was shown to the company.

Analysis: The articles expressly required the petitioners' affirmative vote for any proposal to include or remove members on the board. The appointments were made without that assent and were therefore contrary to the articles. The later recording of minutes did not amount to waiver. Although section 290 of the Companies Act, 1956 validates acts of a person acting as director despite defects in appointment, that protection ends once the invalidity is shown to the company. The petitioner had clearly notified the company of the objection, so the statutory protection could not continue after that point.

Conclusion: The appointments of the two directors were held invalid and interim relief was granted in favour of the petitioner.

Issue (iii): Whether the board meeting held to approve the annual accounts was valid in the absence of the petitioners' nominee directors, sufficient quorum, and proper notice.

Analysis: The articles required the petitioners' affirmative assent for adoption of accounts, made the nominee director part of the quorum, and on the facts the meeting proceeded without the petitioners' nominees. The earlier adjournment had been made with an express direction that the petitioners be informed, so the circumstances called for actual communication of the adjourned meeting. In addition, if the fifth and sixth respondents were excluded, the remaining directors did not constitute the quorum. The board resolution approving the accounts was therefore inconsistent with the articles and invalid. The repugnancy challenge based on the Companies Act, 1956 failed because the contractual arrangement had been validly incorporated into the articles and was binding on the company and its members.

Conclusion: The adoption of accounts at the meeting was held unlawful and the issue was decided in favour of the petitioner.

Issue (iv): Whether interim relief under section 9 of the Arbitration and Conciliation Act, 1996 could be granted to protect the petitioners' contractual and article-based rights pending arbitration.

Analysis: The dispute had already been referred to arbitration, and section 9 permits interim measures before, during, and after arbitral proceedings until enforcement of the award. Relief was therefore available to preserve the petitioners' rights under the agreement and the amended articles pending arbitral adjudication.

Conclusion: The court upheld the maintainability of interim relief under section 9 and granted protection in aid of arbitration.

Final Conclusion: The petition succeeded only to the extent of protecting the petitioners' rights under the amended articles and shareholders' agreement, while the challenge to the resignations from the board was rejected.

Ratio Decidendi: Rights affecting corporate management are enforceable against the company only when reflected in the articles of association, and a board action contrary to the articles is invalid; statutory validation of acts by a de facto director does not apply once the invalidity of the appointment has been communicated to the company.

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