2023 (10) TMI 1221 - HC - Companies Law

Corporate democracy prevails as extraordinary general meeting cannot be restrained except for procedural violations in shareholder disputes

Bombay HC disposed of application regarding share transfer disputes and corporate governance issues. Court held that EOGM cannot be restrained as it ... Re transfer of shares on account of non fulfillment of MoU by Arcadia - whether the Arcadia can be restrained from taking any decision which will hamper the interest of Hexogon while protecting their right to two mortgaged flats? Grievance is when the full amount is not advanced, the transfer of shares of defendant nos. 5 and 6 are ineffective. HELD THAT:- The law is well settled in case of Life Insurance Corporation of India [1985 (12) TMI 289 - SUPREME COURT] and it is reiterated by the Division bench of this Court in case of Invesco Developing Markets Fund and Ors. [2022 (3) TMI 1175 - BOMBAY HIGH COURT]. Court cannot restrain holding of any Extra Ordinary General meeting. There are only certain exceptions, where Court can interfere and it can be only when procedural and numerical requirements are not fulfilled. The Division bench of this Court has also cautioned what will be situation if the Court will start interfering in holding of the meeting of the Company. Ultimately, it is part of the Corporate democracy. No ground is made out for stalling of EOGM. The Court cannot stall holding of any meeting of the company. This is the prerogative of the shareholders. About offering corporate guarantee by Hexagon - when the proceeding will be go on with DRT, there will be conflict of the interest in between the Defendant No. 4 being managed only by Arcadia on one hand and Arcadia as borrower of the Kotak Mahindra Bank Limited on the other hand - HELD THAT:- No doubt, it is true that Plaintiff or Hexagon does not say that they have paid dues of the Arcadia. It is an independent issue. It is also true that the Arcadia being lender has got right as per the Memorandum of Understanding to sell those flats by giving a notice. No doubt notices are also given. That right is an independent right. However, when the question of the proceeding before the DRT arises, certainly the interest of the Hexagon needs to be protected to certain extent. The issue raised about notice by India bulls to the Hexagon cannot be considered in this application. So also the argument of by plaintiff’s counsel about newspaper articles about the antecedents of directors of Arcadia is not impressing. This Court is aware that the issue of those flats is not subject matter of the inquiry before this Court. However, when it is question of taking decision by Arcadia being in management of the Hexagon, on limited extent, this Court can certainly interfere. It may also happen that the Arcadia being in control of the Hexagon may pass a resolution about their possible stand before DRT or may even submit to the Orders of DRT - the interest of the Plaintiff and shareholder of the Hexagon needs to be protected. As a shareholder of defendant No. 4, Defendant No. 1 is restrained from taking any decision which may amount to giving consent/NOC for handing over possession of two flats before DRT in proceedings involving Kotak Mahindra Bank Limited. - application disposed off. Issues Involved:1. Re-transfer of shares.2. Corporate guarantee and possession of flats.3. Conduct of Extra Ordinary General Meeting (EOGM).4. Jurisdiction of the court and applicability of arbitration clauses.Summary:Re-transfer of Shares:The Plaintiff, a shareholder of Hexagon, sought a declaration that Arcadia is not entitled to hold shares in Hexagon and demanded the re-transfer of shares held by Defendant Nos. 5 and 6 to them. The Plaintiff argued that Arcadia did not fulfill its promise as per the Memorandum of Understanding (MoU) by advancing the full loan amount, thus invalidating the share transfer. Arcadia, however, contended that the shares were already transferred and could only be re-transferred once Hexagon repaid the dues, which remained outstanding.Corporate Guarantee and Possession of Flats:The Plaintiff and Defendant Nos. 5, 6, and 7 were residing in flats mortgaged by Hexagon as a corporate guarantee for a loan taken by Arcadia from Kotak Mahindra Bank Limited. The Plaintiff feared losing possession of these flats if Arcadia took control of Hexagon. Arcadia argued that the flats were mortgaged to Kotak Mahindra Bank, not them, and any issue regarding the flats was outside the jurisdiction of this Court and should be dealt with by the Debt Recovery Tribunal (DRT).Conduct of Extra Ordinary General Meeting (EOGM):Arcadia called for an EOGM to replace directors/nominees on Hexagon's board, which the Plaintiff sought to restrain. The Court noted that it could not interfere with the holding of an EOGM unless procedural and numerical requirements were not met, emphasizing corporate democracy. However, the Court recognized a potential conflict of interest if Arcadia controlled Hexagon, as it could affect the proceedings before the DRT regarding the mortgaged flats.Jurisdiction of the Court and Applicability of Arbitration Clauses:Arcadia argued that the matter should be referred to arbitration as per the MoU and that the National Company Law Tribunal (NCLT) had jurisdiction over the issues raised. The Court disagreed, stating that Arcadia should have moved under the Arbitration and Conciliation Act, and since the issue was about the re-transfer of shares due to non-fulfillment of the MoU, it fell within the jurisdiction of the civil court.Court's Considerations and Order:The Court acknowledged the Plaintiff's concerns about losing possession of the flats and the potential conflict of interest if Arcadia controlled Hexagon. It granted limited interim reliefs, restraining Arcadia from taking any decision that might lead to handing over possession of the flats to Kotak Mahindra Bank Limited before the DRT. However, the Court refused other interim reliefs sought by the Plaintiff and declared the first Interim Application as infructuous due to the passage of time. The Court emphasized that its order would not prejudice Arcadia's rights to act under the MoU for the sale of the flats following the proper procedure.