TaxTMI 
TaxTMI 
TaxTMI 
2004 (3) TMI 428
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....nd equitable that the company be wound up or any provision be made with regard to the conduct of the affairs of the company in future, that the respondent Nos. 4 and 5 be restrained from acting and representing as directors of the company; that respondent Nos. 6, 7, 8 and 9 be restrained from acting, representing or holding themselves to be the directors of the company; the respondent Nos. 4 and 5 be re-strained from interfering and/or intermeddling with the management and affairs of the company in any manner whatsoever; that the respondent Nos. 6, 7, 8 and 9 be restrained from interfering and/or intermeddling with the management and affairs of the company in any manner whatsoever; that the respondent Nos. 1 to 5 be restrained from altering the composition of the Board of Directors of the company without leave of the Company Law Board; that the respondent Nos. 2, 4 and 5 be restrained from representing in the name or on behalf of the company; that the declaration be made that that the action/s taken by respondent Nos. 2, 4 and 5 acting as directors of the company/managing director are null and void and not binding upon the shareholders of the company and on the company and that an ....
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....ase I equity, three directors were appointed by the petitioner who held 30% Phase I equity and one each from CIPM and EEC who held 10% Phase I equity each. The Industrial Development Bank of India (IDBI) being one of the lenders had appointed one nominee director. In or about September, 2001, another lender - Industrial Credit and Investment Corporation of India (ICICI) appointed its nominee as the second nominee director and from September, 2001, the company had 12 directors. In or about November/December, 2001, Enron filed for bankruptcy under the laws of the United State of America. The company was excluded from the bankruptcy proceedings. In December, 2001, the company committed default in making phase I rupee loan instalment to various financial institutions. The equity holding of the petitioner was reduced to 14.15% to 30% in or about January, 2002 after the company issued Phase II equity to EMC, CIPM and EEC. Accordingly, the petitioner withdrew two of its shareholder directors from the board of the company. Thus, from February, 2002, the petitioner had only one shareholder director viz., Mr. Ravi Bhushan Budhiraja. On 1st March, 2002 Mr. Mohan Gurunath who was a nominee of ....
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.... the petitioner, is to acquire exclusive control of the company and perpetrate and perpetuate their illegal and wrongful control of the same for some ulterior motive. The illegal appointments and the manner of conducting the affairs of the company is harsh, burdensome and wrongful. There is total lack of confidence arising from the oppressive manner of working. There is total lack of probity and fair dealing affecting the rights of the shareholders. The affairs of the company are being conducted in illegal, invalid and wrongful manner and in complete violation of the provisions of Articles of Association, the Companies Act and Principles of Natural Justice. The facts would justify the making up of a winding up order on the ground that it was just and equitable that the company should be wound up but such winding up order shall unfairly prejudice the shareholders who have invested substantial funds in the company. 5. In respect of the annual general meeting of the company held on 9th September, 2002, the petitioner has alleged that though its authorised representative attended the AGM and raised a number of objections inter alia validity of the authorisation of the representatives ....
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....d. The said respondents denied that their action lacked in probity and/or has been or was/is unfair and/or has caused any prejudice to the petitioner in exercise of its rights as a member of the company or otherwise. They denied any harsh or unfair treatment and/or any oppressive conduct affecting the rights of the petitioner. The said respondents submitted that on March 29, 2002, six directors nominated by EMC resigned and in the month of April, 2002, the two nominee directors of lenders resigned leaving only three directors viz., Mr. Donald C. Stummer - Director nominated by EEC. Mr. Richard Allison - Director nominated by CIPM and Mr. Ravi Budhiraja - Director nominated by the petitioner. In the meanwhile, due to serious disputes having arisen between the company on the one hand and the Government of Maharashtra and the MSEB on the other as also between the company and the financial institutions (IDBI & ICICI), multifarious litigations were initiated against the company by and/or on behalf of the and at the behest of the Government of Maharashtra, MSEB and by other third parties and the company was also forced to initiate and file certain legal proceedings with a view to protect....
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....onsidered and passed certain resolutions for protecting the interest of the company. The petitioner was sent the minutes of the board meeting dated 4th June, 2002 alongwith the letter dated 30th July, 2002. 7. In respect of the AGM held on September 9, 2002, it is the reply of the said respondents that the said AGM was held under the Chairmanship of Mr. C.R. Mehta, retired member of the Company Law Board but untenable and frivolous objections were raised by the petitioner's representative. The petitioner did not choose to appoint its director on untenable plea that it would either appoint two directors or none at all. The representative of EEC and CIPM in the said meeting made it clear that they would support and approve the appointment of any one director on behalf of the petitioner as per the mandate of the Articles of Association of the company but they did not agree to the appointment of the second director as it was not in accord with the Articles of Association. The said respondents set up the plea that the AGM held on 9th September, 2002 did not suffer from any infirmity and all actions by the respondents are wholly transparent and need no investigation of any kind whatsoev....
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.... be permitted to challenge the legality/validity of his appointment and in any case, the appointment of Mr. Peter Freeman as an additional director came to an end on 9-9-2002 when the AGM was held; (e) that all the decisions taken in the meeting of 4th June, 2002 were in the interests of the company but in view of the regulation 75 of Table A, after the quorum was established in the meeting on 4th June, 2002, the other items in the meeting could not have been considered and therefore, all decisions taken in the board meeting of 4th June, 2002 other than the constitution of the board being against the mandatory provisions and regulation 75 of Table A are null and void; (f) that as far as AGM held on 9-9-2002 is concerned, it cannot be held that in terms of article 10.3, the second nominee of the petitioner could not have been voted against; (g) that the petitioner did not have right to demand election of the second nominee in respect of its fractional holding of 4.15 shares, however on equitable grounds, the petitioner's second nominee on the board ought to have been approved and (h) that in so far as nomination of respondent Nos. 6 to 9 of the EMC as directors is concerned, the EMC....
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....respondent No. 1 and respondent Nos. 2, 4 and 5 about the maintainability of appeal. That order has been carried by the respondent Nos. 1, 2, 4 and 5 to the Supreme Court and the appeal is pending. We had little hesitation in the beginning in hearing the appeals on merits in this fact situation but the learned senior counsel appearing for the respondent Nos. 1, 2, 4 and 5 submitted that pendency of the said appeal before the Supreme Court need not deter us from hearing the appeal on merits and that the said respondents shall not press for interim application before the Supreme Court and rather he invited our attention to the order dated 12th December, 2003 passed in petition for special leave to appeal No. 22654/22657 of 2003 wherein the Supreme Court while dismissing the said SLP, requested this court to dispose of these appeals as soon as it was conveniently possible. It is then that we heard the appeal on merits. 13. We heard Mr. T.R. Andhyarujina, the learned senior counsel for the appellant, Mr. P. Chidambaram and Mr. Manmohan, the learned senior counsel for respondent Nos. 2 to 5 and Mr. Janak Dwarkadas, the learned senior counsel for respondent No. 1 extensively. 14. From ....
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.... apply to the [Company Law Board] for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the [Company Law Board] is of opinion- (a )that the company's affairs [are being conducted in a manner prejudicial to public, interest or] in a manner oppressive to any member or members; and (b)that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the [Company Law Board] may, with a view to bringing to an end the matters complained of, make such order as it thinks fit." 17. The Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. AIR 1965 SC 1535, considered the scope of the applicability of section 397 in the context of oppression by majority shareholder/s. The Supreme Court held thus- "It gives a right to members of a company who comply; with the conditions of section 399 to apply to the Court for relief under section 402 of the Act or such other relief as may be suitable in the circumstances of the case....
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....y shareholders, by an abuse of their predominant voting power, are treating the company and its affairs as if they were their own property to the prejudice of the minority shareholders - and in which just and equitable grounds would exist for the making of a winding-up order but in which the alternative remedy provided by section 210 by way of an appropriate order might well be open to the minority shareholders with a view to bringing to an end the oppressive conduct of the majority. (5)The power conferred on the Court to grant a remedy in an appropriate case appears to envisage a reasonably wide discretion vested in the Court in relation to the order sought by a complainer as the appropriate equitable alternative to a winding-up order. (16) and 17)******' 18. In Harmer's case (1958) 3 All ER 689, it was held that 'the word oppressive meant burdensome, harsh and wrongful'. It was also held that 'the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression'. It was also held that 'the result ....
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.... this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing upto the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to section 397." (p. 1542) 18. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298 the Supreme Court extensively considered the law and the concept of oppression with reference to section 397 of the Companies Act, 1956 and section 210 of the English Companies Act, 1948. The ....
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....d further and closer consideration in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 (HL) wherein Lord Wilberforce considered the scope, nature and extent of the 'just and equitable' principle as a ground for winding up a company. The business of the respondent company was a very profitable one and profits used to be distributed among the directors in the shape of fees, no dividends being declared. On being removed as a director by the votes of two other directors, the appellant petitioned for an order under section 210. Allowing an appeal from the judgment of the Court of Appeal, it was held by the House of Lords that the words 'just and equitable' which occur in section 222(f) of the English Act, corresponding to our section 433(f), were not to be construed ejusdem generis with clauses (a) to (e ) of section 222 corresponding to our clauses (a) to (e) of section 433. Lord Wilberforce observed that the words just and equitable are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own and that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with righ....
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.... S.M. Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co. [1964] 34 Comp. Cas. 777 at pp. 830-831 : AIR 1965 Guj 96 at p. 103 that 'a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the company'. On this question, Lord President Cooper observed in Elder v. Elder [1952] SC 49 : 'The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the just and equitable jurisdiction and conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the just and equitable jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of dome....
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....ajority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts . . . with reference to section 397.' (page 737 of SCR) : (p. 1545 of AIR). At pages 734-735 (of SCR) : (at p. 1542 of AIR) of the judgment in Kalinga Tubes, Wanchoo J. has reproduced from the judgment in Meyer the five points which were stressed in Elder (1952) SC 49. The fifty poin....
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.... shareholders may take appropriate action in a court of law by challenging the validity of such an action, but a petition under sections 397 and 398 of the Act is not an appropriate remedy. 20. The Division Bench of Kerala High Court in Palghat Exports P. Ltd. v. T.V. Chandran [1994] 79 Comp. Cas. 213 (Ker.) had an occasion to consider the scope of provision of oppression contained in section 397 and culled out the legal position thus : (i)that even a company which was not doing business could form the subject-matter of action under sections 397 and 398 of the Act. (ii)that a plain reading of section 397 that the object of the section is to terminate or prevent an existing, present state of prejudicial, oppressive, harsh, unfair conduct and past conduct or closed affairs are not encompassed in the section. If the affairs which are complained of are not being conducted in present as at the time of filing the petition, they are matters of the past. They have no present existence and so there can be no complaints to bring to an end by an order of the court. Naturally, in such state of affairs, there are no affairs, present or future, to be prevented. (iii)that merely on the conduc....
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.... of the company just and equitable, but also to lead to the conclusion that the affairs of the company are being conducted in a manner which can properly be described as "oppressive" of the petitioner, and, it may be, other members. Despite the somewhat restricted working of section 210, the requirements of the section should be interpreted in a liberal spirit in order to carry out the intention of Parliament, which designed this remedy in order to suppress an acknowledged mischief . . . . "Oppressive" conduct, for the purposes of section 210, means that the company has exercised its authority "in a manner burdensome, harsh and wrongful". It must go beyond what is required to make out a case for a winding-up order and must indicate some lack of probity or fair dealing towards one or more members of the company. "Oppression under section 210," said Lord Keith in "Scottish Co-operative Wholesale Society Ltd. v. Meyer, "might take various forms. The section introduces a wide power to the court to deal with a situation in an equitable manner". In this case the majority shareholders of a private company who likewise controlled the board of directors of that company lost interest in th....
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....he author, in this connection, relied upon H.R. Harmer Ltd. [1958] 3 All. E.R. 689. 23. In H.R. Harmer, the Court of Appeal, with reference to section 210 of the English Companies Act, 1948 held that the word "oppressive" meant, "burdensome, harsh and wrongful" and that viewing the events proved as a consecutive whole, the affairs of the company if conducted in a manner oppressive to the members, the case for relief under section 210 could be made out. 24. The legal position is fairly established that in order that the court may make an order under section 397, the court must be satisfied, Firstly, the company's affairs are being conducted in the manner oppressive to any members as the members, secondly, the facts would justify the making of a winding-up order, on the ground that it was just and equitable that the company should be wound-up and, thirdly, that winding-up order would unfairly prejudice the applicants. For a relief under section 397, "a conduct which lacks in probity, conduct which is unfair and which causes prejudice to the petitioner in the exercise of his legal and proprietary rights as a shareholder" must be shown to exist. The relevant interests are the interes....
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....n element of lack of probity or fair dealing" to the petitioner. He contended that GE & Bechtel extensively sought to exclude the presence of the petitioner's directors on the board of the defunct company which would prejudice or dilute their control of the company. Mr. Andhyarujina stressed that the most essential feature which reveals is the repeated inclusion of Mr. Peter Freeman who is neither a shareholder director nor the nominee of the financial institution but an outsider and a stranger. If the decision of the nominee directors of GE & Bechtel in the meeting of 4th June, 2002 was only to constitute valid quorum and obtain the working board, then they should have asked the petitioner to nominate a director just as they asked EMC to nominate the director of the meeting. Why the said request was not made to the petitioner but only to EMC when the directors of both viz., EMC and petitioner had uniformally resigned from the board. The learned Senior Counsel contended that the contents of the resolution passed in the meeting of 4th June, 2002, particularly, the resolution of the board constituted of two directors of GE & Bechtel and Mr. Freeman admitting liability to the claims m....
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....rge that the cumulative effect of these actions clearly show that GE & Bechtel desired to dominate the board with their own nominees for their own self serving purposes and to appropriate the corporate shell of the defunct company. In their desire to pack the board, the conduct of GE & Bechtel at the board meeting of 4th June, 2002 and at the AGM of 9th September, 2002 were repeated with illegalities, irregularities and violations of the provisions of the Companies Act and the Articles of Association of the company. The learned senior, counsel vehemently contended that such repeated illegalities perpetrated by GE & Bechtel itself constitute oppression within the meaning of section 397. 27. We must hark back to the bare facts to find out whether the respondents 2 and 4 determined to seize the control of the company and attempted to obtain a grossly unfair advantage. The company was originally promoted by the shareholders viz., EMC (80% of equity), CIPM (10% of the equity) and EEC (10% equity). Somewhere in the month of October, 1998, the petitioner acquired 30% of the Phase I equity of the company from EMC who was then holding 80% of equity. Thus, the petitioner became fourth share....
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....d no revenue? Was it because serious disputes had arisen between the MSEB/Government of Maharashtra on the one hand and the company on the other hand? Was it because there was thereat of prosecution due to breach of Pollution Control Laws? Was it fall out of Enron's bankruptcy? Was it intended to render the Board of the company non-functional for want of quorum? Or simply the petitioner lost interest in the management of the company. Whatever be the reason, it is not the case of the petitioner that if they had any notice of meeting of 4th June, 2002, they would have nominated its director on the board. Though before the Company Law Board at the time of hearing on 2nd August, 2002, respondent Nos. 2 and 4 offered to substitute Mr. Peter Freeman by the nominee of the petitioner but strangely that offer too was not accepted by the petitioner. Mr. Peter Freeman's nomination as a director on 4th June, 2002 was out of necessity to complete the quorum and have a functional board. The aspect whether Mr. Peter Freeman could have at all been nominated legally to the board of the company shall be considered by us little later but this aspect we are dealing here as a part of allegedly series o....
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....w York relating to payments claimed in connection with work on the Dabhol Power Project." "Now therefore, be it further resolved, that Lehman & Eilen be directed (by the Manager for Special Affairs or otherwise) to file an answer substantially similar in nature to that presented to the Board of Directors in which liability for amount previously certified for payment (as set forth in Count I of the amended complaint in the suit) is admitted, liability for amount previously certified for payment (as set fourth in Count I of the amended complaint in the suit) is admitted, liability for interest thereon is recalculated as appropriate, and liability for other amounts is contested until further investigation and analysis of the entitlement hereto (including any applicable defence) can be conducted." 29. The Company Law Board in this regard observed thus- "The decisions related to appointment of Mr. Freeman as manager, special affairs, and through him to retain counsel for prosecuting pending and future cases in India against the company, prosecuting the pending arbitration proceedings against GOM and GOI, for contesting an action in USA filed by certain contractors against the company....
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....tration proceedings was also a decision which was in the interest of the respondent No. 1. If the respondent No. 1 succeeds in the arbitration, it would receive money by way of compensation and/or damages. May be that compensation would be required to be paid by MSEB - holding company of the appellant, or the Government of Maharashtra or the Union of India. The interest of the appellant as a member of the respondent No. 1 and the interest of the appellant as a subsidiary of MSEB are clearly conflicting. The recovery of money through the arbitration proceedings is for the benefit of the respondent No. 1 and all its creditors and members including the appellant in the capacity as a member. The fact that the compensation may come from the coffers of the Government of Maharashtra or MSEB is against the interest of the appellant. The money would come to the respondent No. 1 and for the benefit of the respondent No.1. It would also benefit the members of the respondent No. 1 in as much as their liability - unlimited as it is - would be reduced. The fact that the holding company, of one of the members, would be a loser in a different capacity and some other members would be beneficiaries ....
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....was decided to be contested in full. 33. It was vehemently contended by Mr. T.R. Andhyarujina, the learned senior counsel that passing of the resolution at serial No. 5 by respondent Nos. 2 to 4 with the help of respondent No. 5 would show that they took advantage of the absence of the petitioner to push through their private agenda of settling their own claims. The learned senior counsel submitted that the resolution would show that there was an answer presented to the board of directors in which liability for an amount previously certified for payment as set forth in count I was existing and had been admitted. The respondents were called upon by a notice by the appellant's advocates on 25th June, 2003 to furnish the copies of suit for the answer but the respondents advocates by their letter dated 28th June, 2003 refused to give inspection of the answer stating that as the document was not referred to in the pleadings and was also not relevant, the document could not be supplied. The learned senior counsel also submitted that explanation by the said respondents is also not consistent and rather conflicting. At the hearing before the Company Judge, the respondents made the stateme....
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....hat action) but one thing is clear that such construction is not absurd or impossible. 37. The nomination of respondents 6 to 9 by EMC vide letter dated 8th October, 2002 was legal or not, shall have to be seen in the light of Article 10.4 but by such nomination, they did not stand appointed to the Board of the company an such action of EMC, we are afraid, cannot be construed, and act of oppression by GE & Bechtel. The shareholder has unquestioned right to elect directors in accord with the Companies Act an Articles of Association of the company and the nomination of respondents 6 to 9 by the EMC which admittedly has 65.85% equity share holding in the company has to be seen as an exercise of that right in corporate democracy. If the petitioner decided to nominate its two directors for election in the AGM held on 9-9-2002 when its sole nominee director resigned on 2-5-2002, what is wrong in the action of EMC to nominate its four directors vide letter dated 8-10-2002 though its directors had earlier resigned in the month of April, 2002. Of course, the appointment or election of these proposed four directors has to be as per law. 38. The learned senior counsel for the petitioner veh....
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....association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The super-imposition of equitable considerations requires something more, which typically may include one, or probable, more, of the following elements : (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be sleeping members), of the shareholders shall participate in the conduct of the business; (iii) restriction on the transfer of the members interest in the company so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere." 40. It was submitted, by relying upon the aforesaid principles that all the three considerations apply to the company and its shareholders and the Court needs to consider whether or not the principle of just and equitable is fulfilled in the present case, keeping in mind the observations of Lord Wilberforce in E....
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....he courts and now by the company law board, have been set out in section 402. Section 402 reads thus- ****** The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under section 402, very rarely would it be necessary to wind up any company in a petition filed under sections 397 and 398." (pp. 620 - 622) 44. It is true that the principles enunciated in Ebrahimi's case (supra) as noticed above have been held by the Supreme Court to be sound principles but it has been stated in unambiguous terms that the limited company should be treated as quasi-partnership should not be easily accepted. If the apparent structure of the company is not the real structure and on lifting the veil, it is found that in reality it is the partnership, the principles of dissolution of partnership may apply but that is not the case here. The company was incorporated by EMC, EEC and CIPM. Th....
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....t, "the continuing directors may act notwithstanding any vacancy in the board" is the unrestricted power. The second part places the restriction on the powers of the continuing directors to act where number of continuing directors falls below the quorum. That restriction is for a duration of time. The construction of Regulation 75 put by Mr. Andhyarujina, if accepted, obviously shall result in rendering the words "so long as" as surplusage and redundant which we are afraid, cannot be accepted. The words used in Regulation 75 has to be given full meaning and by giving full meaning to the words used in Regulation 75, it is clear that continuing directors until their number is below the quorum shall only act to bring the member to that fixed for the quorum and once that impediment is gone, the continuing directors may act without any restriction. It, therefore, cannot be said that the board meeting held on 4th June, 2002 was in violation of Regulation 75 of Table A. Re : (ii)(b ) 49. Mr. T.R. Andhyarujina, the learned senior counsel strenuously urged that the meeting held on 4th June, 2002 at San Francisco was in violation of the mandatory provisions, both of section 286 of the Comp....
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.... Vol. 9, p. 46, it has been stated that it is essential that notice of the meeting and of the business to be transacted should be given to all persons entitled to participated and that if a member whom it is reasonably possible to summon is not summoned, the meeting will not be duly conveyed, even though the omission is accidental or due to the fact that the member has informed the officer whose duty it is to serve notice that he need not serve notice on him. In Volume 6 of the same book at p. 315 Article 626, it is stated that a meeting of the directors is not duly convened unless due notice has been given to all the directors, and the business put through at a meeting not duly convened is invalid. 12. To put it in other words, as the meeting of the Board of Directors held on December 16, 1953, was invalid, so the resolution to terminate the services of the plaintiff was inoperative. 13. Then, the question for consideration is, what is the effect of the confirmation of the minutes of the meeting of the Board of Directors held on December 16, 1953 and the action of the Chairman in terminating the services of the appellant by his telegram and letter dated December 17, 1953, in pur....
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.... the notice to be given to the director/s only. The petitioner as a shareholder could not claim as a matter of right the notice of the meeting of the Board of Directors. As a shareholder, the petitioner cannot have any grievance that no notice was given to all the directors for the meeting convened on 4th June, 2002. The fact of the matter is that at that time there were two directors and both the directors attended the meeting without any objection of written notice. Besides that, there is no specific pleading that either of the two directors was not given notice. On the basis of the ground 'L' of Appeal No. 6, it can hardly be held that the respondent Nos. 2 to 5 admitted that no notice of the board meeting of 2002 was given. Moreover, the meeting of 4th June, 2002 took place outside India and section 286 requires the notice to be given to those directors who are for the time being in India. 55. A perusal of Article 10.7 would show that notice may be waived by the shareholder directors. The expression "unless waived by the shareholders directors, not less than five business day's notice shall be given to each of the directors of the date, time and place of all meetings of the bo....
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....e AGM of 9th September, 2002 stated that he had been appointed as additional director under section 260 of the Companies Act by the board. He would submit that though section 260 of the Companies Act, 1956 authorises the appointment of the additional director but that is not authorised by articles; the Articles of Association do not have a provision for additional director as such. The same is equally of Regulation 72 of Table A. Regulation 72 in any case is also not applicable. 60. Before 4th June, 2002, all directors except two directors had resigned from the board. In the meeting of 4th June, 2002, the continuing two directors appointed Mr. Peter Freeman as a director to make up the quorum. Once the quorum was established, the continuing directors passed certain resolutions. 61. Section 260 of the Companies Act reads thus- "260. Additional directors.-Nothing in sections 255, 258 or 259 shall affect any power conferred on the Board of directors by the articles to appoint additional directors : Provided that such additional directors shall hold office only up to the date of the next annual general meeting of the company : Provided further that the number of the directors and ....
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....tracted for an election of the director in the Annual General Meeting and is not invokable for appointment of the director by the Board. To that extent Mr. Andhyarujina is right. However, the appointment of Mr. Peter Freeman as director in the board meeting of 4th June, 2002 is valid being permissible and in accord with Regulation 72 of Table A read with section 260. The appointment of Mr. Peter Freeman in the meeting of board on 4th June, 2002, thus, was not invalid for the reasons we have already indicated above. Re : ( iii)(a) 67. The submission of the senior counsel Mr. Andhyarujina is that there was an illegal exclusion of two directors of the petitioner in the AGM held on 9th September, 2002, though under Article 10.2 the petitioner was entitled to have their two directors elected. The insistence of GE & Bechtel that the petitioner could only nominate one director for election at the AGM on 9th September, 2002 showed their desire to exclude the nomination of two directors by the petitioner. 68. Article 10.2 of the Articles of Association reads thus : "10.2 Each member shall be entitled to nominate one candidate for election to the Board in respect of each 10 per cent of t....
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....s of each member which are unutilised are intended to be utilised for nominating a candidate under sentence 'C'. Such utilisation must be by some mechanics to nominate a candidate. Mr. Andhyarujina would submit that if any shareholder does not enter into fray with his fraction for the specific purpose of nominating a candidate, his fraction cannot be considered to defeat the fraction of a shareholder who utilizes his unutilized voting power for nominating a candidate. The learned senior counsel argued that Article 10.2 must be construed keeping in mind that the sole purpose of that article is to provide the mechanism by which each of the shareholders nominates its candidate/candidates for the formation of the board. The purpose of the article is not to provide permanent veto or blocking power to a shareholder who might have a large fractional shareholding. On the basis of the authorities Holmes v. Kays 1958 II AER 129-138 and Rayfighles v. Hands 3 WLR 851-853 relied upon by the respondents, Mr. Andhyarujina agreed that Articles of Association being the business document must always be construed to give business efficacy and an unreasonable and absurd interpretation should be avoide....
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..... Article 10.2 deals with nomination of candidates for the post of directors. Sentence 'A' entitles the nomination of one candidate by the shareholder for every 10% voting power. It confers sort of a vested right. The sentence 'B' that provides for consensual pooling enables two or more shareholders to nominate one candidate for every aggregate of 10% shareholding of their aggregate voting power. Sentence 'C' deals with fractional voting power. What is provided by Sentence 'C' is that the member whose fractional voting power has not been taken into account, if possesses majority of fractional voting power, may nominate the candidate under Sentence 'C'. The use of the words, "shall by majority votes of the voting power not so taken into account nominate the candidate/s" gives the clue that the shareholder having the majority of fractional voting power is entitled to nominate the candidate or candidates. Prenomination contest or not, the other shareholder having fractional voting power entering the fray for nomination in that category or not, the language employed in Sentence 'C', leaves no manner of doubt that the nomination of the candidate/s from amongst the members of fractional ....
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....embers having a majority of the shares." Second Part - "The members agree to procure the election of individuals is directors to the extent required under the financial agreement." 76. Out of the total number of thirteen directors, the ten directors are required to be nominees of shareholders under Article 10.2. Any person can be elected to fill the remaining three vacancies. As per the second part, obviously, if there is financing agreement or more than one financing agreement, the election of individuals as directors to the extent required under the financial agreement/s shall have to be procured. However, if there is no financing agreement or that there is less than three financial agreements, the vacancy 11, 12 or 13, as the case may be, can be filled by the shareholders. This seems to us to be reasonable construction of Article 10.13. On 9th September, 2002, admittedly, only two lenders had financing agreements under which they were entitled to have a representative each. So 11 and 12 vacancies go to financial institutions. The shareholders were entitled to elect Mr. Peter Freeman to fill the 13th vacancy in the AGM. Merely because no reference was made of Article 10.13 in h....
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....er that nominated such shareholder director." Sentence II - "The members agree to procure that any election pursuant to Article 10.3 and any such removal and/or election shall take place at a general meeting of the company to be held as soon as reasonably practicable after receipt from the applicable member of a written notice served on each of the other members or specifying the removal and/or election of the substitute shareholder Director and pending such general meeting shall procure that the Board shall appoint such candidate." Sentence III - "If any shareholder director ceases to hold office, the members shall procure the election of substitute nominated by the member who appointed such shareholder director." 80. Sentence 'I' deals with the situation of removal and substitution by election of the shareholder directors, nominated under Article 10.2 or elected under Article 10.3. Sentence 'II' inter alia provides that the board shall appoint such candidate pending such general meeting until the election pursuant to Article 10.3. Sentence 'III' makes a provision that if any shareholder director ceases to hold the office, the member shall procure the election of substitute nom....