TaxTMI 
TaxTMI 
2022 (3) TMI 1175
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....rihad Ralhan i/by Trilegal, for Respondent No.1. Mr. Zal Andhyarujina, Senior Advocate with Mr. Suhail Nathani, Ms. Mumtaz Bhalla, Mr. Manendra Singh, Mr. Chanakya Keswani, Mr. Neeraj Malik, Mr. Nausher Kohli, Ms. Maithili Parikh i/by Economic Laws Practice, for Respondent No.2. JUDGMENT : ( PER S.J. KATHAWALLA & MILIND N. JADHAV, JJ. ) INTRODUCTION : 1. This Appeal impugns the judgment dated 26th October, 2021 passed by the Ld. Single Judge ("Impugned Judgment"). This Appeal is adjudicated under two sections viz. Section A and Section B. Section A pertains to the arguments and our decision on jurisdiction and whether or not the learned Single Judge was correct in restraining the shareholders of Zee Entertainment Enterprises Limited from calling for and holding an Extra Ordinary General Meeting as requisitioned by them. Section B pertains to the arguments and our decision on the alleged illegalities in the resolutions proposed under the aforesaid requisition. As set out hereinafter, we have ruled in favour of the Appellants in both sections. FACTS 2. For adjudication of this Appeal, it would be necessary to set-out the following facts : 2.1 The Appellants colle....
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....panies Act, 2013 and of the Articles of Association of the Respondent No. I Company, relating to the calling, holding or conducting of the meeting, by exercise of its powers under Section 98 of the Companies Act, 2013; b. for interim and ad-interim reliefs in terms of (a) above;" 2.7 We have been informed that the NCLT Petition was mentioned on 29th September, 2021 and circulation was granted for 30th September, 2021. We have been further informed that on 30th September, 2021, the NCLT directed Zee to consider the Requisition and listed the NCLT Petition for hearing on 4th October, 2021. 2.8 On 30th September, 2021, Zee's Board concluded that the Requisition was invalid / illegal and accordingly, recorded its inability to convene the EGM. 2.9 On 1st October, 2021, Zee rejected the Requisition citing multiple legal infirmities contained in the Requisition. 2.10 Also on 1st October, 2021, Zee filed the captioned Suit before this Court praying for the following final reliefs : "a. That, as the Requisition Notice dated 11 September 2021 issued by Defendant Nos.1 and 2 is in contravention of the Companies Act, SEBI Listing Regulations, MIB Guidelines, AoA o....
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....ction 98 i.e. the NCLT Petition, it is only the NCLT that is empowered to decide whether or not to call, hold or conduct a meeting; 3.4 That this Court cannot interfere with the statutory right of a shareholder to call for an EGM. In support of this submission, great emphasis was laid by Mr. Dwarkadas on the leading decision of the Supreme Court in LIC vs. Escorts & Ors. (1986) 1 SCC 264 ("LIC vs. Escorts"). According to Mr. Dwarkadas, the Supreme Court's decision in LIC vs. Escorts applies squarely to the facts of the present case; 3.5 That the law as applicable in India does not recognize any right of the Board of Directors of a Company to refuse to call a meeting pursuant to a requisition made by shareholders where the requisition satisfies the numerical and procedural requirements set-out under Section 100 of the Act. 3.6 That strictly without prejudice to the aforesaid submissions, the Ld. Single Judge erred in finding that the requisitions proposed by the Appellants in the Requisition are illegal. 4. Appearing for Zee, we have heard Ld. Senior Advocate Mr. Aspi Chinoy. Mr. Chinoy's submissions can be summarized as under : 4.1 The jurisdiction of a Civil Court t....
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....isition is to do something which cannot be lawfully effectuated. 4.4 Dealing with Mr. Dwarkadas' emphasis on the Supreme Court's decision in LIC vs. Escorts, Mr. Chinoy submitted that this decision does not alter the settled legal position that a Civil Court can entertain a suit impugning diverse matters arising under the Act, including inter alia a requisition issued under Section 100 on the ground of the requisition and the proposed resolutions being contrary to law. According to Mr. Chinoy, in the LIC vs. Escorts judgement, the Supreme Court had no occasion to consider or decide whether a requisition for calling an EGM could be injuncted by a Court on the grounds of it being illegal, as no such case of the requisition notice being illegal was urged before the Supreme Court in that case. A perusal of the Supreme Court's judgement makes it clear, that the requisition for an EGM was not impugned in the Supreme Court on the ground of illegality, and that the Supreme Court has accordingly neither considered nor decided that a requisition / EGM cannot be injuncted by a Court, on the ground that it is contrary to law; 4.5 That the proposed resolutions contained in the Requisition....
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....ctions as the Tribunal thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act or articles of the company : Provided that such directions may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) Any meeting called, held and conducted in accordance with any order made under subsection (1) shall, for all purposes be deemed to be a meeting of the company duly called, held and conducted." 7. Section 98 empowers a member of a Company to approach the NCLT requesting it to pass an order calling for and holding an EGM. However, the power to be exercised by the NCLT is evidently discretionary. This, to us, is apparent from the words "the Tribunal may" used in Section 98. 8. Exercising their right as members of Zee, the Appellants filed a petition under Section 98(1) of the Act requesting the NCLT to call an EGM of Zee. In the NCLT Petition, it is the Appellants' case that it is impracticable for them to call for the EGM. Therefore, whether or not the EGM should be called pursu....
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..... On a plain and literal reading of Section 100(4), the words "valid requisition" appear to mean numerical and procedural compliance and nothing further. In support of this interpretation, we deem it appropriate to reproduce the following findings contained in Cricket Club of India vs. Madhav L. Apte [1975] 45 Comp Cas 574 (Bom) : "25. Under the Indian Companies Act, 1913, the provisions as regards calling of extraordinary general meetings on requisition were to be found contained in section 78 of the said Act. Under those provisions the directors of a company which has a share capital were enjoined on the requisition of the holders of not less than one tenth of the issued share capital of the company, upon which all calls had been paid, to call an extraordinary general meeting of the company. The scheme was substantially similar to the scheme of section 169 of the Companies Act, 1956. Sub-section (2) of section 78 provided for the contents of the requisition and the mode of its deposit; and sub-sections (3) to (5) provided for calling of a meeting by the requisitionists on failure by the directors to cause a meeting to be called for after deposit of a requisition. In sub-....
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....ance with the requirements of section 169, it was otherwise invalid. This conclusion receives support when one peruses sub-section (5) of section 169, where also the use of the word "valid" is perceived. The learned counsel for the plaintiffs emphasised the mischief that in his opinion would be caused by an otherwise invalid requisition being made which would put the company to considerable financial loss for what he called would be an exercise in futility. On the other hand, the question to be considered would be whether the board of directors of a company can be allowed to ignore a requisition which complies with all the requirements laid down in section 169 of the Companies Act, 1956, on the ground that the object of the requisition was illegal or otherwise invalid and, therefore, the requisition was not a valid requisition which ground may ultimately be found to be unsustainable. In my view, the word or the adjective "valid" in section 169 has no reference to the object of the requisition but rather to the requirements in that section itself. If these requirements indicated in the earlier part of the section are satisfied, then the requisition deposited with the company must be....
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.... 100(4) in fact provides shareholders with an additional right to proceed to call for and hold an EGM despite an unwilling Board. This intent and object of the legislature cannot be ignored whilst construing the relevant provisions of the Act. 17. In the Impugned Judgment, the Ld. Single Judge has, as Mr. Dwarkadas puts it, unsettled a settled judicial interpretation of the words "valid requisition". In doing so, he has read into Section 100(4) and expanded it in a manner alien to the aforesaid decisions and the plain written letter of the Section. We will proceed to determine whether the Ld. Single Judge could have expanded the words "valid requisition" appearing in Section 100(4) of the Act and granted an injunction restraining the calling and holding of the EGM on the basis that the resolution proposed under the Requisition are illegal. The Supreme Court's decision in LIC vs. Escorts & Ors. (supra) 18. Amongst the leading decisions on the rights of a shareholder of a Company is the judgment in LIC vs. Escorts & Ors. The decision was delivered on 19th December, 1985 by the Supreme Court in a Civil Appeal arising from the judgment and order dated 9th November, 1984 of thi....
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....ia was that the majority shareholders of the Company, who were financial institutions such as LIC, ICICI, IFC, IDBI and UTI, who between them held 52 per cent shares of the Company, and through them the Union of India was pressuring the Company to register the share transfer in favour of the Caparo Group. Appropriate injunctive reliefs were sought in that behalf in the Petition. Subsequent to the filing of the Writ Petition, LIC, who was also a part of the group of financial institutions holding 52 per cent shares of the Company issued a requisition to the Company to hold an extra ordinary general meeting for removing nine of its part-time Directors and for nominating nine others in their place. The Petitioner, Escorts, thereafter amended their Writ Petition by including prayers for declaring the requisition to be arbitrary, illegal, ultra vires etc. It was submitted by the Company that the action of LIC was mala fide and part of a concerted action by the Union of India, RBI and the Caparo Group to coerce the Company to register the transfer of shares and withdraw the Writ Petition. The Supreme Court, after noticing the sequence of events, held that the sequence showed the financia....
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....he same time, the resolution of the Life Insurance Corporation did not seek removal of the Executive Directors, obviously because they did not intend to disturb the management of the company. It is, therefore, difficult to accuse the Life Insurance Corporation of India of having acted mala fide in seeking to remove the nine non-Executive Directors and to replace them by representatives of the financial institutions. No aspersion was cast against the Directors proposed to be removed. It was the only way by which the policy which had been adopted by the Board in launching into a litigation could be reconsidered and reversed, if necessary. It was a wholly democratic process. A minority of shareholders in the saddle of power could not be allowed to pursue a policy of venturing into a litigation to which the majority of the shareholders were opposed. That is not how corporate democracy may function." 20. Thereafter, the Supreme Court dwelled into the ambit of corporate democracy and the rights of shareholders by further proceeding to observe : "95. A company is, in some respects, an institution like a State functioning under its "basic Constitution" consisting of the Compani....
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.... be the division of powers between the Federal and the State Legislature under a Federal Constitution." As already noticed, the only effective way the members in general meeting can exercise their control over the directorate in a democratic manner is to alter the articles so as to restrict the powers of the Directors for the future or to dismiss the directorate and appoint others in their place. The holders of the majority of the stock of a corporation have the power to appoint, by election, Directors of their choice and the power to regulate them by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a Director and appoint another. 96. In Shaw & Sons (Salford) v. Shaw [(1935) 2 KB 113] Greer, L.J. expressed : "The only way in which the general body of the shareholders can control the exercise of powers vested by the articles in the Directors is by altering the articles or, if opportunity arises under the articles, by refusing to re-elect the Directors on whose action they disapproved." 97. In Isle of Wight Railway v. Tahourdin [(1883) 25 Ch D 320] Cotton L.J. said : "Then t....
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....se of removal referred to in the clause being expressed to be 'reasonable' prevents the power referred to from being a power to remove at pleasure arbitrarily or capriciously, and made it requisite that the proceeding for exercising the power should be in its nature judicial, and that the reasonable cause should be such as a court of Justice, would consider good and sufficient. If this argument could be sustained, all the proceedings at such meetings would be subject to the review of the Courts of Justice, which would have to inquire whether the cause of removal which was charged was in their view reasonable, whether the charges were bona fide brought forward, whether they were substantiated by such evidence as the nature of the case required, and whether the conclusion was to come upon a due consideration of the charge and evidence. But the deed is silent as to these matters and the question is whether any such power of control in the Courts of Justice is to be interred from the words 'reasonable cause' contained in the 27th clause; whether the expression 'reasonable cause' contained in such a deed of a trading partnership can be held to be such a cause, as upon investigation in a....
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....g it illegal, protested against it, but abstained from attending, and, therefore, made no answer or defence to, and required no proof of, the charges made against them. The adoption of this course was unfortunate, but does not afford any grounds for the interference of this Court." 99. Again in Bentley Stevens v. Jones [(1974) 2 All ER 653] it was held that a shareholder had a statutory right to move a resolution to remove a Director and that the court was not entitled to grant an injunction restraining him from calling a meeting to consider such a resolution. A proper remedy of the Director was to apply for a winding-up order on the ground that it was "just and equitable" for the court to make such an order. The case of Ebrahimi v. Westbourne Galleries Ltd. [(1972) 2 All ER 492], was explained as a case where a winding-up of order was sought. In the case of Ebrahimi v. Westbourne Galleries Ltd. [Re Wondoflex Textiles Pty. Ltd., 1951 VLR 458], the absolute right of the general meeting to remove the Directors was recognised and it was pointed out that it would be open to the Director sought to be removed to ask the Company court for an order for winding-up on the ground tha....
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....the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting. The Life Insurance Corporation of India, as a shareholder of Escorts Ltd., has the same right as every shareholder to call an extraordinary general meeting of the company for the purpose of moving a resolution to remove some Directors and appoint others in their place. The Life Insurance Corporation of India cannot be restrained from doing so nor is it bound to disclose its reasons for moving the resolutions." 22. Lastly, whilst summarizing its conclusion, the Supreme Court held that "(9) The notice requisitioning a meeting of the company by the Life Insurance Corporation of India was not liable to be questioned on any of the grounds on which it was sought to be questioned in the writ petition." (emphasis supplied) 23. From the aforesaid, according to us, LIC vs. Escorts clea....
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..... 27. Faced with the decision in LIC vs. Escorts, the Ld. Single Judge in the Impugned Judgment observed as follows : "55. But the question with which I am concerned never arose in LIC v Escorts. It was under the 1956 Act, which did not separate listed companies as the 2013 Act does. In any case, as Mr Chinoy points out, the LIC v Escorts debate was about mala fides, not about the legality or legal effectiveness of resolutions proposed at an EGM." In our considered opinion, the aforesaid finding of the Ld. Single Judge is based on an incorrect assessment and analysis of the decision in LIC vs. Escorts. We are unable to appreciate where the Act, its provisions pertaining to listed Companies, and more particularly Sections 98 and 100 thereof would enable us deviate from the ratio laid down in LIC vs. Escorts. The Ld. Single Judge has not analysed the facts, submissions and findings rendered by the Supreme Court in LIC vs. Escorts while cursorily accepting Mr. Chinoy's submission that in LIC vs. Escorts, the debate was about mala fides and not about the legality or legal effectiveness of resolutions proposed at an EGM. This Court's decision in Cricket Club of Indi....
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....sociation be amended as follows by adding the following at the end of the words 'he retires': Provided however that a member shall not be eligible to stand for re-election to the office of the executive committee if he has been a member of the executive committee for a continuous period of six years. Provided further that a member who has been a member of the executive committee for a continuous period of six years may seek election after the expiry of a period of three years from the date of the six years' period as mentioned in this article. For the purpose of this article, a member of the executive committee who retires or otherwise ceases to be a member of the committee at any time after being such a member for a continuous period of five years shall be deemed to have been a member of the executive committee for a continuous period of six years." 4. After receipt of the requisition the same was considered by the executive committee of the Cricket Club at its meeting held on 9th August, 1973, and after some discussion the said committee resolved to obtain opinion thereon of counsel on the validity and legality of the resolution proposed to....
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....tion 78 provided for the contents of the requisition and the mode of its deposit; and sub-sections (3) to (5) provided for calling of a meeting by the requisitionists on failure by the directors to cause a meeting to be called for after deposit of a requisition. In sub-section (3) of section 78, however, the words used were "date of the requisition being so deposited". Under section 169(6) of the Companies Act, 1956, one finds a change in the terminology, the provision being that the requisitionists may themselves call a meeting (subject to other provisions, with which we are not concerned) if the board does not call a meeting "within twenty-one days from the date of deposit of a valid requisition" (underlining [ Here printed in italics.] supplied). Now, it was urged by learned counsel for the plaintiffs that the additional word "valid"; indicated clearly that the requisition which was made must be valid and lawful; in other words, that a requisition which was for consideration of something which would be illegal or invalid could not per se be considered to be a valid requisition, and if such requisition was deposited with the directors of a company the directors were not required ....
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....tive "valid" in section 169 has no reference to the object of the requisition but rather to the requirements in that section itself. If these requirements indicated in the earlier part of the section are satisfied, then the requisition deposited with the company must be regarded as a valid requisition on which the directors of a company must act. If the directors fail to act within the period specified by sub-section (6), then, in my opinion, the requisitionists would be entitled to proceed under the later provisions of that sub-section and the other sub-sections of section 169." 31. The aforesaid paragraph makes it very clear that what this Court has opined is that the word "valid" is restricted only to the satisfaction of the numerical and procedural requirements. Further, and more importantly, that the word or the adjective "valid" in Section 169 has no reference to the object of the requisition but rather to the requirements in that Section itself. Lastly and most importantly, that even if the requisition was illegal or invalid, the Board was still obliged to call for the meeting. 32. Following the aforesaid, this Court delivered its finding as under : 59. In thi....
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....as 161 (Del) , Power Grid Corporation of India Ltd. vs. Canara Bank [Co.A.(B) 8/2003] , Kothari Industrial Corporation Ltd. vs. Lazor Detergents Private Ltd. [1994] 81 CompCas 699 (Mad), The Indian Cable Co. Ltd. vs. Lodna Colliery Co. (1920) Ltd. AIR 1977 Cal 402 , Anantha R. Hegde vs. T S Gopalakrishna 1998 91 ComCas 312 (Kar). In Minoo Velgaumwala & Ors. vs. Maneck Kothawala AIR 1964 Kant 185, the High Court of Mysore clearly held that the Ld. Judge whose opinion is sought in such a case is required to follow the procedure prescribed under the CPC and more particularly, Order 18 thereof. Reliance can be placed on the following observations from the decision in Minoo Velgaumwala : "26. Order 36 Rule 1 clearly provides for statement of a special case both in regard to question of law. There would be no meaning in enabling a statement of a case on questions of fact if the contending party had to give an agreed statement of facts, and questions of fact were not open to investigation and decision, as the learned Judge appears to have understood Rule 4 of O. 36 to mean. It is no doubt, true that sub-rule (2) of R. 5 lends some colour to the view that judgment is to be pronoun....
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....aid great emphasis on the decision of a Ld. Single Judge of this Court in Centron Industrial Alliance vs. P K Vakil & Anr. (supra) and more particularly, the following extract therefrom : "21. One of the main reasons why injunctions are not normally granted to restrain the holding of a requisitioned meeting is that the shareholders ought to be allowed to regulate and set right the affairs of the company by calling general meetings. The court, has, therefore, been reluctant to interfere in the internal management of the company. Secondly, such injunctions were sought in the cases cited before me by the board of directors of the company. The courts have not normally permitted the board of directors of the company to sit in judgment over the requisition received by them to call a meeting of the shareholders. Normally, such a meeting would be required to be requisitioned by the shareholders in order to pass resolutions which are not supported by the board of directors or the management of the company. The board of directors would, therefore, be expected to thwart the calling of such requisitioned meeting. It is thus undesirable that the board of directors should be allowed to ....
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....at are irregular, undesirable or unpalatable to the Board and those that are illegal. The question is not of interpretation of the word 'valid' in Section 100 at all, but whether what is sought to be done is plainly an illegality." 41. We are unable to appreciate how the Ld. Single Judge could arrive at the aforesaid finding in view of the interpretation of the word "valid" in the decisions in Cricket Club of India vs. Madhav L. Apte (supra) and thereafter in LIC vs. Escorts. Foreign citations relied upon by Zee 42. As stated hereinabove, Mr. Chinoy has placed reliance on the decisions in Isle of Wight Railway Co vs Tahourdin (supra), Queensland Press Ltd vs Academy investments No 3 Pty Ltd. (supra) and Rose vs Mc Givern and Ors. (supra) to submit that Courts have affirmed the power and jurisdiction of Courts to restrain a requisition calling for a General Meeting if the object of the requisition is to do something which cannot be lawfully effectuated. 43. In Isle of Wight, Mr. Chinoy has placed reliance on the following : "LINDLEY, L.J.:- I am of the same opinion. It appears to me that this case is very much more important than at first sight appears.....
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.... 46. For all of the reasons aforesaid, we are not persuaded to accept the view laid down in Isle of Wight and would go by to the Supreme Court's decision in LIC vs. Escorts to reject the injunctive relief sought here. 47. Mr. Chinoy next placed reliance on the decision in Queensland Press Ltd vs. Academy investments No 3 Pty Ltd. (supra) and more particularly the following paragraphs therefrom : "I agree, with respect, with the opinion expressed by Needham J in Turner v Berner [1978] 1 NSWLR 66 ; 3 ACLR 272 that the decision in Isle of Wight Railway Co v Tahourdin, supra , establishes the proposition that if an object of the requisition cannot be lawfully effectuated at the meeting, then the directors are at least entitled to omit that object from the notice of meeting. It seems to me to follow that if the sole object of a requisition is to do something which cannot be lawfully effectuated at a meeting, the directors are entitled to refuse to convene the meeting. xxx But in my opinion if the only objects stated are such that the general meeting is invited to do something which at law it has no power to do, the directors are entitled to refuse to conven....
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....gle Judge has deviated from the Act and binding precedents of the Supreme Court and this Court despite arriving at the finding that "We do not have such a provision." 52. In the aforesaid backdrop, we reject the Ld. Single Judge's findings in paragraph no. 70 of the Impugned Judgment wherein he seeks to apply the principles contained in Section 303(5) of the UK Companies Act of 2006 to Indian company law. 53. For all of the reasons aforesaid, we are unable to accept the view cited before us from foreign jurisdictions. Whether or not an Injunction could be passed against a shareholder restraining the holding of an EGM 54. By the Impugned Judgment, the Ld. Single Judge has restrained a shareholder of a Company from calling or holding an EGM. In our opinion, such an injunction is in the teeth of the decision of the Supreme Court in LIC vs. Escorts. 55. In view of the law as analysed hereinabove, we are of the considered opinion that the Ld. Single Judge could not have deviated from the law laid down by the Supreme Court in LIC vs. Escorts and proceeded to restrain a shareholder by way of an injunction from calling or holding an EGM. 56. In so far as Mr. Chinoy's reli....
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.... no discontent with the legal ratios held out in the above case-laws as well as the text books pertaining to the rights of the shareholders of a company and the various modes to be adopted in appointing and removing the directors and conducting the elections and so on, since they were on different facts not at all germane to the present case, the ratio held therein may not render any help or assistance t the respective parties in this case. Therefore, under the circumstances, I feel that it is totally not necessary to traverse or import or refer to any of the citations individually one by one in this case." 60. We are unable to appreciate how the facts before the Ld. Single Judge in the case were "different facts" and "not at all germane" to the decisions in LIC vs. Escorts and Cricket Club of India vs. Madhav L. Apte (supra). The findings and reasoning of the Ld. Single Judge do not persuade us to deviate from the law as captured hereinabove. Consequences of interfering with Corporate Democracy 61. We cannot omit reference to the resultant consequences which may arise should we rule that a Civil Court can, in certain cases, grant an injunction restraining shareholders of ....
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....t we would undermine the very foundations of corporate democracy in India. 63. In the present case itself, the Appellants, being shareholders of Zee, have been unable to call for and hold an EGM despite the Requisition being addressed as early as on 11th September, 2021, i.e., over 6 months ago. For the past 6 months, the contesting parties have been arguing the alleged illegalities contained in the Requisition, whilst shareholders of Zee suffer an injunction. We cannot lay down a precedent resulting in such drastic consequences derailing the democratic functioning of Companies across India owing to the non-cooperative and obstructive conduct of the Board of Directors. Jurisdiction 64. The Appellants have strenuously argued that the present Suit attracts the bar under Section 430 of the Act. Mr. Chinoy argues otherwise. In these circumstances, Mr. Dwarkadas argues that Section 430 of the Act would kick-in and prohibit this Court from exercising jurisdiction. As opposed to Mr. Dwarkadas' submissions, Mr. Chinoy submits that Section 430 is not attracted to a proceeding regarding the legality / illegality of a requisition issued under Section 100, i.e., such as the Suit. Furt....
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....he Company, who would be entitled to vote at the meeting. Section 100 of the Act prescribed the procedure how EGM should be conducted by the Board and under Section 100 (4) of the Act, if the Board fails to convene EGM within 21 days from the date of receipt of valid requisition in regard to any matter, the requisitonists themselves can convene EGM within 3 months from the date of requisition. If there is any resolution passed in such EGM removing the Managing Director, Manager or any of the Directors of the Company which shall be prejudicial or oppression to any member or members or to public interest or in a manner prejudicial to the interest of the company, application can be made to the Tribunal under Section 241 of the Companies Act, 2013 and the Tribunal is empowered to consider the said application under Section 242(1)(a) and 242(2)(h) of the Companies Act, 2013. 12. Therefore, in this case, on considering the plaint averments, cause of action and the statute governing the dispute in entirety undoubtedly indicates that the subject matter for determination squarely falls within the domine of the NCLT and therefore, Civil Court jurisdiction is ousted expressly by Sect....
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.... the NCLT and if it does, how a Civil Court could interfere by passing an order of injunction, which would have the effect of preventing the NCLT from considering the Appellants' prayer. We find no credence on the reasoning based on the NCLT Rules or Schedule of Fees. We do not see how these Rules or Schedule of Fees can defeat the plain and simple language contained in Section 430 of the Act. Be that as it may, the Schedule of Fees in fact specifically provides for an application under Section 98, which, as we have already noted, has been filed by the Appellants. 70. For the reasons aforesaid, in our considered opinion, the injunction granted by the Impugned Judgment is squarely hit by Section 430 of the Act. Conclusion on Section A 71. Considering that the Impugned Judgment has in effect restrained a shareholder of a Company from calling for and holding an EGM, which injunction is in the teeth of the decision of the Supreme Court in LIC vs. Escorts, we allow the Appeal and set-aside the Impugned Judgment. Section B Alleged illegalities in the proposed Resolutions 72. Despite our aforesaid ruling in Section A to the effect that the law, as prevalent in India, doe....
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....prior permission from the MIB. That this is not a mere inadvertence is apparent from the aforesaid difference in the language of Resolution No. 1 and Resolutions 4 to 9. That, therefore, Resolution No. 1 will clearly violate the MIB Guidelines. Such a violation, under Clause 8.2 of the MIG Guidelines, attracts serious penalties. Under Clause 8.2.1, Zee's uplinking license can even be suspended for a period of 30 days for the first violation. 75. Upholding Zee's submissions in this respect, the Ld. Single Judge held as under : "33. But it does not end there, Mr Subramaniam says. Clause 5.10 of the MIB Guidelines requires a company under those guidelines to seek prior permission from MIB before effecting any change to the CEO or Board of Directors. The change cannot be effected in advance of permission. A default invites penalties, including the suspension of the license and a 30-day ban on broadcasting6 (90 days for a second violation).7 In the Requisition Notice, only the resolutions for the appointment of the six new independent directors are said to be 'subject to MIB approval'. The removal of Goenka is not. But even that requires prior MIB permission, as does any cha....
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.... in the present case itself demonstrates that MIB approval was not sought before effecting a change in the Board of Zee on account of the resignations tendered by its two directors, viz., Mr. Chokhani and Mr. Kurien on 13th September, 2021 post the Requisition issued by the Appellants. 79. For the reasons aforesaid, we reject Mr. Chinoy's submission and the findings of the Ld. Single Judge in the Impugned Judgment. 80. Mr. Andhyarujina, appearing for Respondent No.2 / Mr. Goenka, submitted that appointments of Directors cannot be made subject to any conditions. Under the Act, Directors stand appointed upon resolutions approving their appointment at the general meeting. Based on the provisions of the Act, he submits that the appointment is immediate in the general meeting. Mr. Andhyarujina referred to various provisions of the Act including Section 152(5) of the Act which reads : "(5) A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within thirty days of his appointment in such manner as may be prescribed:" 81. The aforesaid provision relied upo....
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....pointment of 6 persons as Independent Directors. To this, Mr. Chinoy objects by submitting that the provisions of the Act make detailed provisions which are mandatorily required to be followed for appointment of an Independent Director and these provisions make it clear that a member cannot propose himself or someone else for appointment as an Independent Director, merely by giving notice in writing of his candidature, or of his intent to propose another member as candidate for election as an Independent Director at the general meeting. In support of this submission, Mr. Chinoy places reliance on Section 149(6), 149(8), 150(2), the proviso to Section 152(5) and Schedule IV to the Act. According to him, these provisions make it clear that a person can be proposed for appointment as an Independent Director by a Company in a general meeting only if the Board has first opined that he is a person of integrity and possess relevant expertise and experience. 86. Upholding Zee's objection, in the Impugned Judgment, the Ld. Single Judge observes : "36. I am inclined to agree with Mr Subramaniam on all counts. I do not see how Goenka can be removed at all, leaving a managerial voi....
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....ate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed; (ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of- (A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or (B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm; (iii) holds together with his relatives two per cent. or more of the total voting power of the company; or (iv) is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company; or (f) who possesses such other qualifications as may....
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....uly appointed by the member in accordance with the provisions of this section. (2) Save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting." 93. In the present case, the proposed resolutions under the Requisition are to appoint ordinary Directors and not additional or alternate Directors. Therefore, from a reading of Sections 150(2) and 152(2), even in case of an Independent Director of a listed Company, the appointment will be made at the general meeting and not by the Board of Directors. 94. We the aforesaid backdrop, we next consider Section 178 of the Act and Regulation 19 of the SEBI LODR. Section 178 of the Act reads : "178. Nomination and Remuneration Committee and Stakeholders Relationship Committee.- (1) The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors : Provided that the chairperson of the company (whether executive or nonexecutive) may be ....
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.... which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both : Provided that non-consideration of resolution of any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section. Explanation.-The expression "senior management'' means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads." 95. Regulation 19 of the SEBI LODR reads : "19. (1) The board of directors shall constitute the nomination and remuneration committee as follows : (a) the committee shall comprise of atleast three directors ; (b) all directors of the committee shall be non-executive directors; and (c) at least two-thirds fifty percent of the directors shall be independent directors . (2) The Chairperson of the nomina....
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....mination and Remuneration Committee, if any, constituted under sub-section (1) of section 178 or a director recommended by the Board of Directors of the Company, in the case of a company not required to constitute Nomination and Remuneration Committee. (2) The company shall inform its members of the candidature of a person for the office of director under sub-section (1) in such manner as may be prescribed." 97. The power given to shareholders of a Company by Section 160 and more importantly, the proviso thereto, cannot go unnoticed. In the teeth of the aforesaid provision, we cannot appreciate how the Ld. Single Judge agreed "on all counts" with Zee's submission that "In the scheme of the Companies Act, shareholders do not get to choose individual independent directors.". Therefore, according to the Ld. Single Judge, the fate of all directorial appointments must rest in the hands of the NRC and the existing Board. In effect, as Mr. Dwarkadas correctly points out, the Ld. Single Judge has obliterated Section 160 of the Act. According to us, Section 160 does not make any distinction whatsoever between an Independent Director or otherwise. On a plain reading of Section 16....
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....he presence of executive Director(s). Presently, Mr. Punit Goenka is the only executive Director on the Board Zee. The Requisition seeks removal of Mr. Goenka and does not propose appointment of any executive Director by way of replacement. Accordingly, the Requisition will result in Zee not having any executive Director on its Board and this will result in Zee being in violation/ contravention of Regulation 17. Lastly, that Regulation 98 of the SEBI LODR provides for liability and penalty for companies in contravention of the SEBI LODR, including imposition of fines, suspension of trading, and freezing of promoter/ promoter group holding of designated securities. 102. Despite upholding the aforesaid alleged illegality, the Ld. Single Judge has not provided any reasoning whatsoever in the Impugned Judgment in support of Regulation 17 being applicable. 103. The Impugned Judgment records Zee's submission on Mr. Goenka's non-removal as under : "30. Section 203, in contrast, applies to every company of a prescribed class. Such a company must have a Managing Director or a Chief Executive Officer or manager or, in their absence, a whole- time director. Goenka is the Managi....
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.... (3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time : Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board: Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel : Provided also that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the Directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the Directors then in India. (4) If the office of any whole-time key managerial personnel....