2012 (12) TMI 1149 - HC - Companies Law

Court Upholds CLB Order on EOGM Resolution, Dismisses Appeal

Jer Rutton Kavasmaneck Versus Gharda Chemicals Limited

The appeal was dismissed, and the court upheld the Company Law Board's (CLB) order allowing the implementation of the resolution passed at the ... - Issues Involved:1. Power of the Company Law Board (CLB) to review its earlier orders.2. Validity of the CLB's decision to entertain a review application.3. Authority of the CLB to vacate its own orders.4. Requirement of pronouncement of orders by the CLB.5. Implementation of resolutions passed at an Extraordinary General Meeting (EOGM).6. Allegations of oppression and mismanagement.7. Validity of the abrogation of the right of preemption.8. Abuse of majority rights in amending the Articles of Association.9. Challenge to the conduct of the EOGM.10. Impact of pending Supreme Court proceedings on the CLB's decisions.Summary:Issue A: Power of the CLB to Review Its Earlier OrdersThe court held that the CLB does not have the power to review its earlier order unless the order was obtained by fraud or fabricated documents. The CLB's modification or vacation of interim orders does not amount to a review. The inherent powers of the CLB to modify or vacate interim orders were upheld, distinguishing them from the power of review.Issue B: Validity of the CLB's Decision to Entertain a Review ApplicationThe court found that the CLB was justified in entertaining an application for modification/vacation of its ad interim order dated 21st May 2012, as the order was not a final order but an interim one. The application was not a review but a modification based on subsequent events.Issue C: Authority of the CLB to Vacate Its Own OrdersThe court held that the CLB could vacate its interim order dated 21st May 2012 based on subsequent events, such as the passing of a resolution at the EOGM. This did not amount to a review of its earlier order but was a modification in light of new circumstances.Issue D: Requirement of Pronouncement of Orders by the CLBThe court concluded that there is no mandatory requirement for the CLB to pronounce its orders in open court. The essence of pronouncement and communication is to make the parties aware of the order. The order becomes effective once communicated to the parties, and the absence of formal pronouncement does not render it invalid.Issue E: Implementation of Resolutions Passed at an EOGMThe court found that the CLB was justified in allowing the implementation of the resolution passed at the EOGM held on 22nd May 2012, which deleted Article 57 of the Articles of Association. The resolution was passed in compliance with the law, and the subsequent challenge to the conduct of the EOGM did not prevent its implementation.Issue F: Allegations of Oppression and MismanagementThe court held that the appellants failed to prove that the conduct of the majority shareholders amounted to oppression or mismanagement. The decision to delete Article 57 was a valid exercise of corporate democracy and did not constitute an act of oppression.Issue G: Validity of the Abrogation of the Right of PreemptionThe court concluded that the abrogation of the right of preemption (Article 57) was valid as the 1st respondent company had become a public limited company, and such a right was inconsistent with the provisions of the Companies Act, 1956. The resolution to delete Article 57 was in conformity with Section 9 of the Act, which overrides any contrary provisions in the Articles of Association.Issue H: Abuse of Majority Rights in Amending the Articles of AssociationThe court found no abuse of majority rights in amending the Articles of Association. The deletion of Article 57 was not oppressive to minority shareholders but was a necessary step to comply with the law.Issue I: Challenge to the Conduct of the EOGMThe court held that the appellants failed to prove any illegality or mala fide conduct by the Chairman in conducting the EOGM. The Chairman's decision to allow Mr. Rajiv Bakshi to vote on behalf of Godrej Industries Limited was based on valid powers of attorney and was in compliance with the Articles of Association and the Companies Act.Issue J: Impact of Pending Supreme Court ProceedingsThe court held that the pending Special Leave Petition (SLP) before the Supreme Court did not affect the validity of the CLB's order or the resolution passed at the EOGM. The judgment of the Bombay High Court dated 14th June 2011, which was not stayed by the Supreme Court, was binding on the parties and the CLB.Conclusion:The appeal was dismissed, and the court upheld the CLB's order allowing the implementation of the resolution passed at the EOGM, which deleted Article 57 of the Articles of Association. The court found no merit in the appellants' claims of oppression, mismanagement, or procedural illegality in the conduct of the EOGM.