TaxTMI 
TaxTMI 
2009 (11) TMI 511
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....nd Virudhunagar. 2. In the year 1994, seven different companies constituting a group, known as ESSAR group of companies, purchased 1,91,455 shares from about 229 individual shareholders. The shares purchased by this group worked out to about 67 per cent of the total paid-up capital of the bank. When the transferees filed applications for effecting the transfers in the register of members, the board of directors rejected them, by a resolution dated 6-2-1995. 3. Aggrieved by the resolution of the Board, the transferee-companies filed company petitions in Company Petition Nos. 7 to 13 of 1995 on the file of the Southern Region Bench of the Company Law Board. The bank also filed petitions in Company Petition Nos. 30 and 31 of 1995, under section 250 of the Companies Act, 1956, for an investigation into the ownership of the shares sought to be transferred. Another petition was filed by some of the directors in Company Petition No. 39 of 1995 under section 409 of the Act. 4. All these petitions were disposed of by the Company Law Board by various orders, the effect of which was that the refusal to effect the transfers was held to be illegal. Consequently, a direction was issued ....
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....I for the transfer of the balance of shares and to convene all the annual general meetings for the years 1996-97 to 2002-03. 9. However, a new problem cropped up with the board of directors suspending the chairman of the bank. On being informed of the same, the Company Law Board passed orders on 19-12-2003 reinstating the chairman and suspending all the other directors. The Company Law Board also directed that the bank would function under the supervision of a committee comprising of 2 nominees of the RBI and 2 nominees of the Central Government. The decision of the Company Law Board was to a great extent upheld by this Court in an appeal in CMA No. 3379 of 2003 [see P. Natarajan v. Central Government [2004] 51 SCL 76 (Mad.)]. 10. Subsequently, seven annual general meetings were held en bloc on 12-3-2004 under the chairmanship of a retired Judge of this Court, Mr. Justice S. Ramalingam. The right of the power of attorney agents to appoint proxies was questioned in that meeting, but the chairman allowed the proxies. 11. Thereafter, the 82nd annual general meeting was convened to be held on 24-12-2004. After the notice for the annual general meeting was circulated, an outfit....
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....iff in CS No. 981 of 2004 seeking interim orders of injunction. On 26-7-2006, S.R. Singaravelu, J. (as he then was), passed an order in those applications, permitting the 83rd annual general meeting to go on, in respect of agenda items 1, 2 and 6, but directing the postponement of agenda items 3 to 5, which related to election of directors. 15. In the meantime, two directors by name M.G.M. Maran and B. Ramachandra Adityan (who are defendants 20 and 19, respectively, in CS No. 481 of 2008), entered into agreements with the Sterling group. By that agreement dated 10-3-2006, these two directors were authorised to identify buyers, to whom shares could be sold in consonance with the guidelines issued by the Reserve Bank of India and other applicable laws. In accordance with the said agreement, these two directors (of whom one is the applicant herein) identified resident Indian investors, who agreed to buy small percentage of shares, aggregating to 10 per cent. They also identified 9 non-resident Indians and foreign institutional buyers, each of whom agreed to buy less than 5 per cent shares, aggregating to 23.6 per cent of the shares. 16. After identification of the buyers, these ....
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....e applicant herein, who was the second defendant in that suit, and, hence, the plaintiffs made an endorsement abandoning their claim as against defendants 12 to 19. Consequently, CS No. 491of 2007 was dismissed as against defendants 12 to 19 therein. 20. At this stage, taking a sudden u-turn, the board of directors of TMB passed a resolution on 17-3-2008 restricting the voting rights of the foreign investors to 10 per cent, in terms of section 12(2) of the Banking Regulation Act. The resolution was forwarded to the Reserve Bank of India on 20-3-2008. This resolution ran contrary to the earlier resolution dated 13-5-2007. 21. In the meantime, the bank took out an application in A. No. 23 of 2007 seeking suitable directions for holding the 84th annual general meeting. In that application, an order was passed by me on 27-3-2008 appointing Justice R. Balasubramanian (Retired) as the chairman for holding the 83rd, 84th and 85th annual general meetings and also extending the time for holding the meetings up to 6-6-2008. Immediately after the said order, the TMB also communicated to the foreign investors by a letter dated 23-4-2008 that their voting rights will be restricted to 10 p....
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.... some of the disputes were between the shareholders and proxies and the others were between the proxies appointed by the same set of shareholders, in favour of different persons. The chairman, therefore, evolved a set of formula, with the assistance of two experts appointed by him, and submitted sealed covers containing the results of the election. 25. After the Court re-opened after summer recess on 6-6-2008, the applications in OA Nos. 534 to 536 of 2008 in CS No. 481 of 2008 were listed and the learned counsel appearing for the TMB submitted the sealed covers containing the report of the chairman of the meeting. The sealed covers were then opened by me in the open Court, in the presence of all the learned counsel, on the same day, viz., 9-6-2008. The report of the chairman contained three different sets of results that were possible of production. The projection of the results under three different possibilities were,- (i)The possible outcome if the holders of all the disputed shares or their proxies, were permitted to vote fully; (ii)The possible outcome if the voting rights of the holders of the disputed shares were restricted to 10 per cent; (iii)The possible outc....
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....nd the two nominee directors of the Reserve Bank of India alone should continue on the Board till the sub-application in the contempt application filed by the plaintiff in CS No. 481/2008 was disposed of. 27. As against the order passed on 23-6-2008, dismissing their injunction applications, the plaintiffs filed appeals in OSA Nos. 274 to 277 of 2008. These appeals were dismissed by the Division Bench with costs of Rs. 25,000, by an order dated 4-9-2008. The special leave petitions, arising out of the judgment of the Division Bench, were also dismissed by the Supreme Court in SLP (C) Nos. 26996-26999 of 2008 by order dated 21-11-2008. 28. As against the initiation of contempt proceedings by the plaintiffs against the managing director of the bank, two third parties, who had secured sufficient votes in the elections held on 5-6-2008 to be declared elected, filed contempt appeals. Since the very maintainability of these appeals were questioned, a Division Bench of this Court considered the issue in detail and passed an order dated 29-7-2008, holding the appeals to be maintainable. The plaintiffs filed special leave petitions against these orders of the Division Bench, but the S....
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....n respect of 2,386 shares, (iv)One C.S. Rajendran in respect of 3,220 shares, and (v)P.S. Sathyaseelan and C.S. Rajendran jointly in respect of 17,780 shares. 31.1 In other words, the applicant herein wants the declaration of the results, after excluding the votes in respect of above 1,07,581 shares. 32. The contentions of Mr. C. Harikrishnan, learned senior counsel appearing for the applicant/19th defendant, are as follows :- (a)The defendants 10 to 18, who, together purchased 70,906 shares, were found to have 'acted in concert' and actually constituted a 'group'. Therefore, the board of directors of the bank resolved on 26-5-2008, to keep in abeyance all the rights attached to these equity shares. The board of directors had necessary powers to pass such a resolution, in view of section 291 of the Companies Act, 1956. Though section 9 of the Companies Act confers overriding effect for the provisions of the Act, both upon the memorandum and articles of the company and upon any resolution passed and though section 87(1) of the Act confers a right to vote upon every member of a company, in proportion to his share of the paid-up capital of the company, the learned senio....
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....al in Singapore for three months prior to the meeting held on 5-6-2008. Mr. M.G.M. Maran was also not in the country. Therefore, the proxies allegedly executed by them in respect of their 13,289 shares ought to have been rejected. It is also the contention of the applicant that the 20th defendant had received a sum of Rs. 31 crores for the transfer of the shares in favour of the 10th defendant at a time when he was the chairman of the bank. Therefore, the votes polled by them in the election were liable to be rejected. (c)The votes polled by P.S. Sathyaseelan and C.S. Rajendran, both on their own behalf and as proxies for others, were also liable for rejection, since they entered into a compromise with some of the transferees and attempted to withdraw the suits instituted by them in a representative capacity, in CS Nos. 491 of 2007 and 1099 of 2007. Therefore, according to the applicant, these persons had also become part of the 'group' of transferees and, hence, their votes were also liable to be rejected. (d)In the meeting held on 5-6-2008, the chairman appointed by this Court rejected the proxies representing 24,717 shares, from out of the proxies lodged by the applicant i....
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....assed by S.R. Singaravelu, J., on 26-7-2006. Therefore, the postponed items, viz., the items relating to election of directors, was taken up in the 83rd AGM convened on 5-6-2008 under orders of this Court along with the agenda for the 84th and 85th AGMs. Article 97 of the articles of association, which is in tune with section 255 of the Companies Act, 1956, makes one-third of the directors liable for retirement by rotation. Since the 82nd, 83rd, 84th and 85th meetings related to the years 2003-04, 2004-05, 2005-06 and 2006-07, respectively, any person elected in the 83rd AGM cannot hold office beyond the 86th AGM. Since 86th AGM relates to the year 2007-08, the AGM should have been convened either before 30-9-2008 or at least before 31-12-2008 with the permission of the Registrar. A director, who is liable to retire, cannot continue in office, merely because of non-convening of the AGMs. (b)4 directors by name R. Kannan Adityan, B. Ramachandra Adityan (applicant herein), Selva Ganesh and M.G.M. Maran, who were liable to retire by rotation in the 84th AGM, ceased to be directors on 5-5-2007 as the 84th AGM was not held on time. They were co-opted as additional directors on 5-5-20....
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....delines on acknowledgement of transfer/allotment of shares in private sector banks issued on 3-2-2004 had to be applied. Even while holding so, the Executive Director of RBI had indicated in paragraph-20C of his order dated 12-10-2009 that the request made to him, not to take into account the voting on 95,898 shares, in the elections held on 83rd, 84th and 85th AGMs, cannot be accepted, since the matter is sub judice before this Court. In such circumstances, the Executive Director issued a direction in paragraph 21 of his order to the Tamil Nadu Mercantile Bank to approach RBI along with full details in the format enclosed, for the acknowledgement of transfer of shares in favour of the aforesaid transferees. 37. Apart from bringing to my notice, the order passed by the Reserve Bank of India, Mr. A.L. Somayyaji, learned senior counsel for the bank, submitted the following, for my consideration :- (i)The bank is now being managed only by two nominee directors of the Reserve Bank of India and the managing director, who were authorised by this Court only to carry on the day-to-day administration. Since a full-fledged board of directors is not in place, policy decisions could not ....
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....008, since he was not a contestant. The applicant herein had already completed tenure of 8 years and, hence, he could not even be a contestant and, hence, he cannot challenge the election, when the contestants have not chosen to challenge the election. The learned senior counsel further submitted that the entire controversy in the suit relates only to 95,418 shares and that even if the votes in respect of these shares are totally excluded, his client gets elected. Therefore, the learned senior counsel pleaded that the results should be declared. 39. Mr. R. Murari, learned counsel appearing for the 31st defendant, took exceptions to the very maintainability of the application, on the ground that the prayer in this application travelled beyond the scope of the suit. At any rate, a harmonious construction of sections 87 and 616(b ) of the Companies Act, 1956, with section 12(2) of the Banking Regulation Act, would show that there was no bar on transfer of shares. The learned counsel also requested me to look at the metamorphosis in the stand taken by the applicant herein as a member of the Board, from 13-5-2007 to 26-5-2008. In the meeting of the board of directors held on 13-5-200....
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....d agreed to buy the shares. Though, according to the learned senior counsel, each of these defendants 11 to 14 had nothing to do with each other, they just formulated a method by which the arrangement for the purchase of shares could be gone through. This cannot be taken to amount to 'acting in concert'. The very same applicant and the 20th defendant did not think that these defendants constituted a group, when they spotted these defendants, negotiated with them, made them agree to buy the shares and also wrote letters to RBI and went to the extent of passing Board resolutions. Therefore, the sudden volte face on the part of the applicant, according to the learned senior counsel, should not be allowed, especially in view of the fact that the applicant himself has not made any specific averment as against these defendants at any point of time. Moreover, it is the contention of the learned senior counsel that if more than two persons should be taken to be acting in concert, merely because of the number of proxies delivered by them, the applicant would also get disqualified, since he himself lodged proxies in respect of 80,369 shares. The learned senior counsel also relied upon certai....
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..... It is also his contention that many of the contesting respondents had not filed written statements in the suit and, hence, they should be construed as ex parte and cannot be allowed to advance arguments in the application. 44. Mr. C. Mohan, learned counsel appearing for the Reserve Bank of India, after taking me through the contents of the written statement filed by the Reserve Bank of India and also the various guidelines issued by the RBI from time to time, in exercise of the power conferred by section 35A of the Banking Regulation Act, 1949, submitted that, by the order dated 12-10-2009, the Executive Director has directed the Tamilnad Mercantile Bank to submit proposals in the enclosed format for considering the question of grant of acknowledgement. This, according to the learned counsel, being a statutory requirement, should necessarily be complied with. Even while pointing out this stand of the RBI, the learned counsel submitted that from 9-6-2008, the Tamilnad Mercantile Bank is carrying on its activities only with a managing director and two nominee directors of the RBI and that it is always the endeavour of RBI to ensure that a full complement of board of directors ta....
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....he first was the resolution passed by the board of directors on 17-3-2008, restricting the voting rights of the transferees to 10 per cent of the total share capital. The second was the resolution of the board of directors dated 26-5-2008, by which all the rights including the voting rights of foreign investors relating to 70,906 shares were decided to be kept in abeyance. The third was the fax message sent by the Reserve Bank of India on 30-5-2008 to the effect that the Reserve Bank had earlier given its approval for the transfer of 53,611 shares, after examining the proposal from various regulatory angles, on the basis of the information furnished at that point of time and that since the issue became subjudice, the RBI was unable to comment upon the second resolution of the Board dated 26-5-2008. (e)After the discussions, the chairman was requested by some to decide on the validity of the resolutions of the board of directors dated 17-3-2008 and 26-5-2008. However, the chairman took a decision to leave it to the Court to decide this issue. He also decided to allow every eligible shareholder to exercise his voting right in proportion to the number of shares held by him. Consequ....
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....OA Nos. 597 to 599 of 2006 in CS No. 981 of 2004. However, after consulting the bank's counsel and after going through the records and orders of all the proceedings, the chairman decided to proceed with the agenda indicated in the notices of the meetings. (i)Two representations were made to the chairman. One was by the plaintiff in CS No. 981 of 2004, to count the votes in respect of the transferred shares, viz., 95,418 shares separately and to put them in a separate cover. The other representation was by one Mr. Soundarapandian, alleging that the proxies lodged by M.G. Muthu and his son, M.G.M. Maran, were forged ones. (j)Before the commencement of the meeting on 5-6-2008, the bank furnished the list of valid and invalid proxies, arrived at after a strict scrutiny. The list is as follows :- No. of proxies No. of shares Valid proxies 11,065 2,01,468 Invalid proxies 4,389 24,717 Total 15,454 2,26,185 (k)After disposing of all other items in the agenda for all the three AGMs, the chairman took up the agenda relating to election of directors. He found that there were three directors who were retiring by rotation, out of whom two did ....
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.... Names No. of Votes Rank P. Mahindravel 1,14,517 1 B. Prabhakaran 1,13,640 2 T. Raja Kumar 1,13,419 3 Shankar Jaganathan 1,13,246 4 Thirukumar Vethanayagam 1,13,159 5 S. Ganapathy 1,13,007 6 P. Yesunathan 1,09,514 7 Results - Ignoring 70,906 shares Names No. of Votes Rank P. Mahindravel 86,072 1 B. Prabhakaran 85,195 2 T. Raja Kumar 84,974 3 Shankar Jaganathan 84,801 4 Thirukumar Vethanayagam 84,714 5 S. Ganapathy 84,562 6 P. Yesunathan 81,.069 7 47. Thus, it is seen from the results compiled by the chairman and the consultants that insofar as the 83rd AGM is concerned, there was no variation in the results between the situation in which all votes are considered and the situation in which the voting rights in respect of the disputed shares are restricted to 10 per cent. However, the results vary, in respect of two out of three directors, if all the voting rights relating to the disputed shares are frozen. But insofar as the 85th AGM is concerned, there is no variation in the results at all, under all the three possibl....
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....he memorandum, articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be." 49.2 Section 87 of the Companies Act, 1956, reads as follows : "87. Voting rights.-(1) Subject to the provisions of section 89 and subsection (2) of section 92- (a)every member of a company limited by shares and holding any equity share capital therein shall have a right to vote, in respect of such capital, on every resolution placed before the company; and (b)his voting right on a poll shall be in proportion to his share of the paid-up equity capital of the company." 49.3 Section 182 of the Companies Act, 1956, reads as follows :- "182. Restrictions on exercise of voting right in other cases to be void.-A public company, or a private company which is a subsidiary of a public company, shall not prohibit any member from exercising his voting right on the ground that he has not held his share or other interest in the company for any specified period preceding the date on which the vote is taken, or on any other ground not being a ground set out in section 181." 49.4 Section 616 of the Compa....
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....ns having special knowledge in one or more of the matters listed in clause (a ) of sub-section (2) of section 10A. This provision contains a non obstante clause to the effect that it will have force, notwithstanding anything to the contrary contained in any other law for the time being in force. (ii)Similarly, section 10B contains a non obstante clause, making it necessary for a banking company to have one of its directors as the chairman, notwithstanding anything contained in any other law for the time being in force. (iii)Section 11, while prescribing the requirement as to minimum paid-up capital and reserves, contains a non obstante clause which excludes the applicability of section 149 of the Companies Act. (iv)Section 12(3) containing a non obstante clause bars a suit or other proceedings against any person registered as the holder of a share in a banking company on the ground that title to the share vests in another person, notwithstanding anything contained in any law. (v)Section 13 restricting the payment of commission, brokerage, discount, etc., on sale of shares, applies to a banking company notwithstanding anything to the contrary contained in sections 76 and....
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.... 39A makes all the provisions of the Companies Act, relating to a Liquidator, applicable to a Liquidator appointed under the Act, insofar as those provisions are not inconsistent with the Banking Regulation Act, 1949. (xvii)Section 40 restricts the power of the High Court to stay the proceedings for winding up of a banking company, notwithstanding anything to the contrary contained in section 466 of the Companies Act. (xviii)Section 41, which provides for a preliminary report by the Official Liquidator, makes it applicable notwithstanding anything to the contrary contained in section 455 of the Companies Act, 1956. (xix)Section 42 enables the High Court to dispense with any meetings of creditors or contributories, in any proceedings for the winding up of a banking company, notwithstanding anything to the contrary contained in section 460 of the Companies Act. (xx)Section 43 raises a rebuttable presumption in favour of a depositor of a banking company, notwithstanding anything to the contrary contained in section 474 of the Companies Act. (xxi)Section 44(1) restricts the right to voluntary winding up, of a banking company, notwithstanding anything to the contrary cont....
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....ing contained in section 21 of the Companies Act. (xxxi)Section 49C makes an application for alteration of the memorandum of a banking company, not maintainable, unless the Reserve Bank issues no objection, notwithstanding anything contained in the Companies Act, 1956. 52. Thus, it is clear that the scheme of the Banking Regulation Act, 1949, is- (i)To make it co-extensive with that of the provisions of the Companies Act, 1956, in certain areas, (ii)To make some of the provisions of the Companies Act, inapplicable in certain situations, and (iii)To make its own provisions have overriding effect upon all other laws. 53. Keeping this scheme of the Banking Regulation Act, 1949, in mind, let us now see what section 12(2) of the Banking Regulation Act, 1949, around which the case of the applicant spins, says. Section 12(2) of [the] Banking Regulation Act, 1949, reads as follows :- "12(2) No person holding shares in a banking company shall, in respect of any shares held by him, exercise voting rights on poll in excess of ten per cent of the total voting rights of all the shareholders of the banking company." 54. It is interesting to note that while sub-section (3)....
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....ificance to a limited extent, not because of its own reach but because of something else, which we shall consider now. 56. Though one cannot fall back upon section 12(2) of the Banking Regulation Act, due to the reasons stated above to contend that it overrides the provisions of the Companies Act, 1956, one should certainly go by section 616(b) of the Companies Act. As pointed out elsewhere, section 616(b) of the Companies Act makes inapplicable, such of the provisions of the Companies Act which are inconsistent with the provisions of the Banking Regulation Act. Section 87(1)(a) of the Companies Act confers voting right upon every member of a company limited by shares and holding an equity share capital. There is no provision in the Banking Regulation Act which is inconsistent with section 87(1)( a) of the Companies Act. Even section 12(2) of the Banking Regulation Act is not inconsistent with section 87(1)(a) of the Companies Act. But section 87(1)(b) which confers voting right upon a member, in proportion to his share of the paid-up capital, is inconsistent with section 12(2) of the Banking Regulation Act, 1949, which restricts such voting right of any single member, only to 1....
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.... Bank further directed all the banks by the aforesaid Circular to await an acknowledgement from RBI before effecting such transfers. This Circular of the RBI, dated 13-1-1970, was obviously in tune with two amendments made to section 12(2), by Banking Companies (Amendment) Act, 1959 and by the Banking Laws (Miscellaneous Provisions) Act, 1963. 58. The above Circular was followed by several Circulars bearing (i) No. BC.129/C.249-91, dated 23-5-1991, (ii) No. BC. 44/16.13.100/94, dated 16-4-1994, (iii) No. BC. 349/16.13.100/99-2000, dated 21-9-1999, and (iv) No. BC. 64/16.13.100/2003-04, dated 3-2-2004. The cumulative effect of all these Circulars is as follows :- (a)By the Circular dated 16-4-1994, the RBI made it necessary for the banks to make a reference to them, even when individual allotment/ transfer of shares is for less than 1 per cent of the paid-up capital of the bank, if a dubious method was adopted to get over the ceiling and to camouflage the purpose of cornering of shares by individuals/groups. The boards of directors of the banks were also directed to await Reserve Bank's acknowledgement, for approving the registration of the transfers in their books. (b)By t....
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....2-2004, it was made clear that the voting rights, restrictions and other related provisions of 'the Banking Regulation Act will continue to be applicable as appropriate'. By paragraph 14, these guidelines were declared to be effective from the date of issue, viz., 3-2-2004. 61. Incidentally, it is also to be noted that the above Circulars, dated 13-1-1970, 16-4-1994, 21-9-1999 and 3-2-2004, were issued, respectively, in the names of (i) Deputy Chief Officer, (ii) Chief Officer, (iii) Chief General Manager, and (iv) Chief General Manager of Department of Banking Operations and Development. There is no express stipulation in any of these Circulars that they are issued by the Reserve Bank in exercise of the power conferred under section 35A of the Banking Regulation Act, 1949, either (i) in public interest, or (ii) in the interest of the banking policy, or (iii) to prevent the affairs of the banking company being conducted in a manner prejudicial to the interest of the depositors or the company, or (iv) to secure the proper management of the banking company. 62. The Reserve Bank of India Act, 1934, defines the word 'bank' under section 2(aii) to mean the Reserve Bank of India co....
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.... the Reserve Bank. Therefore, the power conferred by section 35A of the Banking Regulation Act may fall under the second limb of sub-sections (2) and (3) of section 7 of the Reserve Bank of India Act, 1934. In such circumstances, I do not know how far the Circulars, dated 13-1-1970, 16-4-1994, 21-9-1999 and 3-2-2004, issued by the Deputy Chief Officer, Chief Officer and Chief General Manager, without even a reference to section 35A of the Banking Regulation Act, 1949, could be construed as falling within the four corners of section 7(2) and (3) of the Reserve Bank of India Act, 1934. This is especially so, since there is no indication anywhere in the Circulars, either about the policy decisions taken by the Central Board or by the Governor/Deputy Governor or about the delegation of their powers in favour of the Chief Officer/Deputy Chief Officer/Chief General Manager. 63. By the above observations, I am neither suggesting that those Circulars do not have the force of law nor am I coming to a conclusion that they do not fall within the ambit of section 35A. I am not concerned in this case, either with the validity of those Circulars or with their applicability to the situation on....
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....ty of law. Alternatively, the very document by which a property is conveyed can also impose certain restrictions. This is why the restriction on the right of the member of a private company to transfer his shares is both recognised by law as well as by the very nature of the rights attached to such shares of a private company. On the contrary, in the case of the shares of a public company, the right not only to acquire and hold but also to dispose them of inheres in the shares themselves. 66. Therefore, if the right to acquire or to dispose of such shares, which forms an integral part of the property rights that a member has on those shares, is to be restricted, it should be done only by authority of law. Despite being conscious of this, the Parliament thought fit, not to curtail, through section 12(2) of the Banking Regulation Act, 1949, the property rights of a person, which include the right to dispose of the property, viz., the shares. On the other hand, section 12(2) sought to curtail only the voting rights attached to these shares, in view of the fact that they are conferred either by contract or by statute or by both. Since voting rights are either contractual or statutor....
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....the most, the applicant could only seek a restriction on the total voting rights of the transferees to 10 per cent of the total paid-up capital. The applicant cannot contend that the votes of all the transferees should be rejected in entirety. 70. As a matter of fact, the counsel on both sides advanced arguments on the basis of two letters of the Reserve Bank of India, one dated 30-3-2007, by which the Reserve Bank recorded no objection for the transfer of shares from FEMA angle and another dated 30-5-2008, by which the Reserve Bank took a stand that their no objection was after examining the proposal from various regulatory angles. While the contention of the transferees was that these letters amounted to an acknowledgement from the RBI, the contention of the applicant was that they did not. I have carefully avoided going into this question, in view of the latest development in the form of the letter dated 12-10-2009 issued by the Executive Director of the Reserve Bank of India. I have also not gone into the question of correctness of this letter dated 12-10-2009 of the RBI, as it is beyond the scope of the present application. I have only analysed the provisions of the Compani....
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....erally conferred such a right subject to such conditions and limitations as are prescribed thereunder. This right has now been recognised by statute both in England from 1947, now enacted as section 136 of the Act of 1948; and by section 79 of the Indian Companies Act, as amended in 1936. As the articles generally recognised a right to vote by proxy, it is a contractual right as the articles of association undoubtedly constituted a contract between the company on the one side and the members on the other. Independently of the contract, therefore, until the statute altered it there was no right of voting by proxy. The reason why the right to vote by proxy was not recognised seems to be that 'when persons agreed', as pointed out by Bowen, L.J., in Harben v. Phillips [1883] 23 Ch D 14, 'to act together in the conduct of a business, the way in which that business is to be carried on must depend on each case on the contract, express or implied, which exists between them as to the way of carrying it on'. The decision on every question relating to the business of an incorporated company should essentially be that of the shareholders, having regard to their interest in the company. Unless,....
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....ract the provisions of the Contract Act or the Sale of Goods Act, as the case may be, relevant to such a contract. When once the relationship enters the region of contract, the law of contract alone must determine its incidents. On the argument of the respondents, the relationship of agent and principal brought about by the execution of the proxies cannot be terminated even by death though they are forced to concede that such a termination follows and that even when the principal is present in person at the meeting, the right of the proxy to exercise his vote on behalf of the principal must yield to the right of the principal to exercise the vote personally. If so much is conceded, it is difficult to see why the principal should be denied his right to revoke a contract which brought about the relationship of principal and agent. The articles might make the proxy irrevocable or impose restrictions or circumscribe the limitations within which the power of revocation should be exercised. But all these are matters within the region of contract between the parties and, in the absence of anything to the contrary, there is no reason to exclude the right of revocation which is recognised u....
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....ince the right of the shareholder to vote in person is paramount to the right of the proxy, the shareholder will still be entitled to attend and vote at the meeting, despite the presence of the proxy holder, provided he votes before the proxy holder could vote. The exercise of a personal vote by the shareholder, after he had adopted the proxy system, does not revoke the proxy, but prevents the exercise of the vote by the proxy. 76. The decision of the Division Bench in S.RM.S.T. Narayanan Chettiar's case (supra), from which the above principles are elicited, arose before the advent of the Companies Act, 1956. As stated earlier, the provision relating to proxies was found in section 79 of the Indian Companies Act, 1913, as amended in 1936. But the Company Law Committee, while recommend- ing a new provision for proxies in the 1956 Act, observed that the provisions relating to proxies in the 1913 Act, constituted one of the least satisfactory features of the 1913 Act. Therefore, the decision in S.RM.S.T. Narayanan Chettiar's case (supra) has to be seen in the backdrop of section 176 of the Companies Act, 1956. 77. Section 176 of the Companies Act, 1956, reads as follows :- "1....
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....b-section by reason only of the issue to a member at his request in writing of a form of appointment naming the proxy, or of a list of persons willing to act as proxies, if the form or list is available on request in writing to every member entitled to vote at the meeting by proxy. (5) The instrument appointing a proxy shall- (a)be in writing; and (b)be signed by the appointed or his attorney duly authorised in writing or, if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it. (6) An instrument appointing a proxy, if in any of the forms set out in schedule IX, shall not be questioned on the ground that it fails to comply with any special requirements specified for such instrument by the articles. (7) Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company, provided not less than three days notice in writing of....
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....y the principal and the renunciation by the agent may be express or implied in the conduct of the principal or agent respectively. The illustration under section 207 of the Contract Act goes as follows :- "A empowers B to let A's house. Afterwards, A lets it himself. This is an implied revocation of B's authority." 80.1 The termination of the authority of an agent takes effect, by virtue of section 208 - (i) from the time the agent comes to know of it, insofar as the agent is concerned, and (ii) from the time third parties come to know of it, insofar as they are concerned. 81. Once the above principles underlying the law relating to creation and extinction of agency are kept in mind, it would be easy to appreciate that if a shareholder himself attends the meeting, despite appointing a proxy earlier, and seeks to exercise his right to vote (even before the proxy could cast his vote), three things would become obvious, viz., (i) that there is implied revocation; (ii) that the revocation becomes known to the agent; and (iii) that it also becomes known to third parties, viz., the company and the other shareholders. This is because of the fact that the shareholder, the proxy ho....
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....e blank, is not open to objection if, when deposited with the company, the blank has been duly filled up. It is not a deed and there is, therefore, no objection to the blank being filled up by the agent of the appointee, even though appointed by parol. The instrument in such circumstances is not complete until it is filled up, and when filled up the only question is whether it is duly stamped. Palmer's Company Precedents, Part 1, 16th Edn., page 560." 85. Therefore, the question as to which proxy was executed earlier and which was executed later in point of time, when one or both of the forms had been handed over by the shareholder unfilled up or when both bear the same date, would be a highly contentious issue. The same cannot be expected to be decided by the chairman of the meeting, given the time constraint. Therefore, if the chairman simply goes by the dates indicated in both the forms and allows the proxy holder holding the form that carries a later date, he cannot be found fault with. Similarly, if the chairman rejects both the forms on the ground that both carry the same date, the said decision cannot also be said to be arbitrary or illegal. Theoretically it can be argued....
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....dityan), (iii) the applicant's son (R. Kannan Adityan), and (iv) A. Selva Ganesh were co-opted only as additional directors under section 260 of the Companies Act, 1956, to hold office only up to the date of the next AGM, though known to those who finalised the statutory notice for the 85th AGM, was not incorporated in the notice. But, that by itself, in my considered view, would not make the elections of seven directors in the 85th AGM contrary to law. 89. None of the shareholders present at the 85th AGM appear to have objected to the election of seven directors in the 85th AGM. The applicant herein who demitted office after completion of the statutory prescription of eight years also did not raise any objection at the meeting. I do not know if the applicant was physically present at the meeting. But his proxies were admittedly present. It is seen from the report of the chairman that about 21 persons contested in the election, for the post of seven directors, in the 85th AGM. None of them have so far raised any objection. 90. In Choppington Collieries Ltd. v. Johnson [1944] 1 All ER 762, a similar question arose. The notice for the 17th ordinary general meeting con- tained t....
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....notice for the 85th AGM indicated the names of three others as retiring by rotation. Since both meetings were to be held on the same date, viz., 5-6-2008, the shareholders certainly had notice of at least these 6 vacancies. Moreover, since the company in question happened to be a banking company, the notices for the 83rd and 85th AGM contained a note in terms of the Circular of the Reserve Bank of India dated 25-6-2004, requiring all persons proposed to be appointed as directors to submit a declaration in the prescribed format to enable the bank to undertake due diligence. The declaration was required to be submitted at the time of submission of the notice under section 257 of the Companies Act. No allegation is made in the affidavit in support of this application that any of the contestants failed to fulfil this prescription. As seen from the report of the chairman, 21 persons fulfilled the requirements and contested for seven vacancies. Therefore, it appears that the shareholders rightly understood the agenda for the meeting, participated in the poll, exercised their voting rights and accepted the results without any murmur. In such circumstances, the third contention that the el....
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....tice was actually given in terms of section 257, is a question of fact. Since it is not pleaded by the applicant, there was no opportunity for the respondents to accept or deny the same. (ii)Moreover, the applicant has admitted in paragraph 11 of his affidavit in support of this application that he himself lodged proxies in respect of 80,369 shares. Though the applicant is under the impression that out of these proxies for 80,369 shares, 24,717 were rejected, the chairman of the meeting had rejected proxies only to the extent of 4,701. It means that the proxies in respect of approximately about 75,000 shares were allowed to vote in the poll on behalf of the applicant. The proxy holders being his agents did not raise any objection at the time of the poll, on the ground of non-issue of notice under section 257. Apart from the applicant, no other shareholder, out of those holding 2,37,514 shares, who participated in the poll, has so far raised any objection. Therefore, the third contention of the applicant is also rejected. Fourth contention (no purpose will be served in declaring the results) 94. It is the contention of the applicant that no purpose will be served in declari....
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...., the learned Judges of the Division Bench quoted the commentary of Buckley on Companies Act to the following effect :- "If in any calendar year, an annual meeting is not held under an article in this form, those directors who would have retired at the meeting had the same been held will vacate office on the last date of the year." 97. Therefore, the decision of the Division Bench, with reference to article 83 under the Indian Companies Act, 1913, may not be of relevance, especially in view of article 101 of the articles of association of the bank, as follows :- "101. If at any meeting at which an election of directors ought to take place, the places of the vacating directors are not filled up, the meeting shall stand adjourned till the same day in the next week at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place, and if at the adjourned meeting the places of the vacating directors are not filled up, the vacating directors or such of them as have not had their places filled up, shall, subject to the provisions of section 256(4)(b) of the Act be deemed to have been re-elected ....
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....wing cases : Anantalakshmi Animal v. Indian Trades & Investments Ltd. [1952] 22 Comp. Cas. 324 (Mad.): AIR 1953 Mad 467; B.N. Viswanathan v. Tiffin's Barytes Asbestos & Paints Ltd. [1953] 23 Comp. Cas. 29 (Mad.): AIR 1953 Mad 520; Hindustan Co-operative Insurance Ltd., In re [1961] 31 Comp. Cas. 193 (Cal.); Krishnaprasad Jwaladutt Pilani v. Colaba Land & Mill Co. Ltd. AIR 1960 Bom. 312: [1959] 29 Comp. Cas. 273 (Bom.); Ramakrishna Prasad v. State of Madras [1963] 1 Comp LJ 307 (Mad.): [1963] 33 Comp. Cas. 548 (Mad.) and Lalchand Mengraj v. Shreeram Mills Ltd. [1968] 1 Comp. LJ 11 (Bom.): [1968] 38 Comp. Cas. 606 (Bom.); V.P. Singh v. Chairman, Metropolitan Council of Delhi AIR 1969 Delhi 295; B.R. Kundra v. Motion Pictures Association [1975] 1 Comp LJ 1 (Delhi): [1976] 46 Comp Cas 339 (Delhi). The rule laid down Consolidated Nickel Mines Ltd., In re [1914] 1 Ch 883 has also been approved and quoted in all well-known Treatises on Company Law, viz., Buckley's Companies Acts 14th edition, page 1014; Gore-Browne on Companies 44th edition, 1986, paragraph 25-16 and Palmer's Company Precedents (17th edition, page 598)}." 99. But the above principle has been evolved to prevent director....
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....Maran has filed a counter-affidavit denying these allegations. He has also engaged a counsel to argue the application. Mr. Vijay Narayan, learned senior counsel, appeared for him and denied these allegations. Therefore, in the absence of any proof to substantiate these allegations, they are liable to be rejected. Moreover, we are concerned here with the question whether what the chairman of the meeting did was right or wrong. The applicant did not raise these issues before the chairman at the time of the meeting. The person who raised the issue did not produce any proof before the chairman. As a matter of fact, the applicant was hand in glove with M.G. Muthu and M.G.M. Maran at the time of transfer of shares. After they fell out, for reasons best known only to both of them, such allegations are made, possibly because of the impression that there was a booty (of Rs. 31 crores) which was not shared. Therefore, I reject the first ancillary contention. 102. Insofar as Sathiyaseelan and Rajendran are concerned, the compromise reached by them with some of the defendants cannot per se make them part of the 'group'. If it is so, the applicant himself is guilty of lodging more than 80,00....
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.... out of the prayer in the suit and also on the ground that the suit should be disposed of at the earliest. However, later on, at the time of conclusion of the arguments of all the respective counsel, the learned counsel filed written submissions contending that the transfer of shares is illegal in view of the fact that they were contingent upon the acknowledgement by the RBI. Inasmuch as the acknowledgement was not granted, the contract relating to transfer got frustrated by section 56 of the Contract Act. Therefore, the learned counsel requested that the results of the election need not be declared, but the hearing of the suit should proceed. 108. However, the above contentions of the learned counsel are thoroughly misconceived. The Reserve Bank has not so far rejected any application of the bank for acknowledgement. On the contrary, the Reserve Bank has only directed the Tamil Nad Mercantile Bank to file necessary forms. Therefore, the contract cannot be said to have been frustrated. 109. Though an early hearing of the suit is not only warranted but also already suggested by the Apex Court, it does not mean that the results of the election need not be declared. After a long....
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....to be rejected or whether all their votes are to be counted or whether their voting rights should be restricted to 10 per cent. The answer to this question does not pose a great difficulty insofar as the 85th AGM is concerned. The same set of seven persons has been elected under all three contingencies and especially in the very same order. They are (1) P. Mahindravel, (2) B. Prabhakaran, (3) T. Raja Kumar, (4) Shankar Jaganathan, (5) Thirukumar Vethanayagam, (6) S. Ganapathy and (7) P. Yesunathan. They have been elected irrespective of whether all the votes in relation to the disputed shares are accepted or rejected or restricted to 10 per cent. Therefore, there is no impediment in declaring these seven persons as having been elected in the 85th AGM. 111. Insofar as the 83rd AGM is concerned, three persons by name (1) S.C. Sekar, (2) V.V.D.N. Vikraman and (3) S.R. Arvind Kumar have been elected under two contingencies, viz., (i) when all the votes are considered, and (ii) when the voting rights are restricted to 10 per cent. But if all the votes relating to the disputed shares are ignored, (1) S.C. Sekar, (2) P.H. Arvindh Pandian and (3) A. Venugopalan would get elected. Theref....