TMI Blog2003 (9) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... are referred to by their respective numbers before the Company Law Board. The respondent No. 1 is a company incorporated and registered under the Companies Act, 1956. The respondent No. 2 is a director of respondent No. 1 company. The respondent No. 3 was also a director of respondent No. 1 till he resigned on 4th June, 2002 and was replaced by respondent No. 4. The respondent No. 5 purports to be the Managing Director/Manager Special affairs of the respondent No. 1. Respondent Nos. 6 to 9 are the directors purportingly appointed by Enron Mauritius Company and respondent Nos. 10 and 11 are the directors nominated by a IDBI and ICICI respectively. Basic Facts : 2. The Dabhol Power Company, the respondent No. 1 herein, was incorporated on 9th April, 1993 as a Private Company with unlimited liability under the provisions of the Companies Act, 1956 (for short the Act ). The respondent No. 1 was promoted by Enron Development Corporation, a company incorporated in the State of Delaware, USA, General Electric Company, a Company incorporated in the State of New York, USA and Bechtel Enterprises, Inc., a Company incorporated in the State of Delaware, U.S.A. The respondent No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms which were agreed between the promoters were included in the Memorandum and Articles of Association of the respondent No. 1. On December 20, 1994, i.e. soon after the incorporation, a shareholders agreement was executed between EMC, CIPM and EEMC and the respondent No. 1. It may be noted that the appellant was not a promoter and consequently was not a party to the shareholders agreement, nay, the appellant was not even incorporated when the shareholders agreement was signed. 6. Since the time the appellant became a shareholder, the respondent No. 1 had 11 Directors on it s Board, out of which 10 were the shareholder directors and one was nominated by Industrial Development Bank of India (for short IDBI ) who was one of the lenders. Out of the 10 shareholder directors. EMC which held 50% of Phase I equity had nominated 5, the appellant who held 30% of the phase I equity had nominated 3 and CIPM and EEMC who held 10% of phase I equity had nominated one director each. In or about September 2001, Industrial Credit and Investment Corporation of India (for short ICICI ), another lender, nominated one more director and thus on and from September 2001, the respondent No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 2002, Mr. Ravi Bhudhiraja was the sole nominee of the appellant on the Board of the respondent No. 1. Around that time, the respondent No. 1 was unable to pay it s lenders, creditors, suppliers and contractors. Disputes had also arisen between the respondent No. 1 and MSEB regarding the PPA, the computation and payment of the charges for the power purchased. The respondent No. 1 was in financial crisis and around January 2002, it terminated the services of most of it s employees and appointed 18 individuals as core team of consultants to take care of the corporate business and legal matters. In the mean while, IDBI filed a suit in the High Court of Judicature at Bombay and took out a motion for appointment of a Receiver. By an order dated 21st March, 2002, the High Court appointed the Court Receiver as the receiver of the various assets of the respondent No. 1. On or about 2nd April, 2002, the Court Receiver took charge of the various assets of the respondent No. 1. On 28th March, 2002, Mr. Mohan Gurunath resigned as the Managing Director and on 29th March, 2002, six other nominee directors appointed by EMC resigned as directors of the respondent No. 1. On or about 5th April, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the appellant. According to learned counsel for the appellant, the meeting on 4th June, 2002 was held surreptitiously without notice to the appellant and decisions taken therein were not conveyed to the appellant. On or about 18th June, 2002, the appellant came to know of the replacement of respondent No. 3 by respondent No. 4 as a director nominated by CIPM and the purported appointment of respondent No. 5 as a director of the respondent No. 1. After exchange of some correspondence the appellant filed a petition bearing Company Petition No. 45/02 under section 397 of the Act before the Company Law Board (for short CLB ) from the order in which the present appeal arises. In the Company Petition, the appellant inter alia alleged that the meeting of the Board of respondent No. 1 held on 4th June, 2002 and the appointment of respondent No. 4 as a director made thereat was illegal, oppressive and unfairly prejudicial to the rights of the appellant as a shareholder and against public interest. 12. Initially, the Company Petition No. 45 of 2002 was filed on 23rd July, 2002 challenging only the legality and validity of the Board meeting dated 4th June, 2002 and the decisions ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Division Bench. By an order dated 30th October, 2002, the Division Bench permitted the appellant to amend the petition before the CLB to include all the issues including the events subsequent to the filing of the petition and requested the CLB to endeavour to dispose of the petition within a period of eight weeks. The petition was heard by the CLB on 17th and 18th February, 2003. By an order dated 2nd April, 2003, the CLB disposed of the petition and that order is challenged in these appeals. Preliminary objection about the maintainability of the appeal 13. Mr. Dwarkadas, learned counsel for the respondent No. 1 submitted that whether the acts complained of by the appellant were oppressive or not was essentially a question of facts. Almost all the findings recorded by the CLB were findings of facts. All issues raised as questions of law in paragraph No. 4 of the appeal memo in Appeal No. 4 of 2003 were questions of facts and not questions of law. An appeal lies only on questions of law under section 10F of the Act which reads as under:- 10F. Appeals against the orders of the Company Law Board. -Any person aggrieved by any decision or order of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s oppressive of some group of shareholders. An act or action may be perfectly legal and yet be oppressive and conversely an irregular and even an illegal act may not be oppressive of any shareholders. For example, declaring of a dividend without there being adequate profits and out of the capital is illegal but may not be oppressive of any shareholders. There can be numerous illustrations of an acts which are contrary to law being done bona fide for the benefit of the company and it s members in general. 16. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298, the Supreme Court (in para No. 49) quoted a passage from the judgment of Bagwati, J. in Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton Jute Mills Co. Ltd. AIR 1965 Guj. 96, to the effect : A resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of law may be in the interests of the shareholders and the Company. The Supreme Court then held : Neither the judgment of Bhagwati, J. nor the observations in Elder are capable of the construction that every illegality is per se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the decision of the Supreme Court in Needle Industries (India) Ltd. s case ( supra ) in support of the proposition that a petition under section 397 of the Companies Act cannot be filed alleging single act of oppression. In paragraph No. 49 of the judgment, the Supreme Court observed : . . . The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. . . . (p. 1320) 20. In Suresh Kumar Sanghi v. Supreme Motors Ltd. [1983] 54 Comp. Cas. 235, B.N. Kirpal, J. of the Delhi High Court (as his Lordships then was) following the decision of the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 quoted : there must be continuous acts on the part of the majority shareholders, continuing up to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered? 22. The petition as originally filed on 23rd July, 2002 made grievance only in respect of a single act viz., meeting of the directors held on 4th June, 2002 and the decisions taken thereat. Since the act was a single act, Mr. Sibal submitted, the petition could not have been filed under section 397 of the Act. The petition was subsequently amended and further actions viz., the decisions taken at the general meeting on 9th September, 2002 and further nomination of 4 directors made by EMC by a letter dated 8th October, 2002 were also challenged as oppressive acts. It was alleged that all these actions were part of the series of acts designed to oppress the appellant. Mr. Sibal however, submitted that events subsequent to the filing of the petition cannot be taken into consideration. He relied on the observations of the Supreme Court in Shanti Prasad Jain s case ( supra ). In that case the Supreme Court observed: . . . In this connection reliance is placed on certain matters which transpired after the application was filed on September 14, 1960. These matters however cannot be taken into account for the application has to be decided on the basis of the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1969 retrospectively prohibiting the new landlord who had purchased the premises, from filing of a suit on the ground that the premises were required for the purpose of building or re-building, or were required for his own use and occupation, for a period of three years from the date of the purchase of the premises was valid and was applicable to the pending suits and appeals. The Division Bench of the High Court had upheld the amendment but struck down the retrospective effect and it s applicability to the pending suits and proceedings. On appeal to the Supreme Court, Krishna Iyer, J. speaking for the majority observed (at paragraph No. 28): We are satisfied that as far as possible courts must avoid multiplicity of litigation. Any interpretation of a statute which will obviate purposeless proliferation of litigation, without whittling down the effectiveness of the protection for the parties sought to be helped by the legislation, should be preferred to any literal, pedantic, legalistic or technically correct alternative. On this footing we are prepared to interpret section 13 of the Amendment Act and give effect to section 4 of that Act. How do we work it out? We do it by dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002, there is not even an allegation in the petition of any oppressive actions by EMC who is a majority shareholder holding 65.85% equity. Under Articles of Association, EMC was entitled to appoint six directors in it s own right by virtue of it s holding of more than 60% of the equity share capital and nomination of the four persons as directors by it as per Articles of Association cannot be regarded as an act of oppression. It was not even alleged in the petition that the said four nominees had performed any further acts or taken any actions which were oppressive. Mere nomination of four directors by EMC in exercise of its right under the article 10 of the Articles of Association cannot be construed as oppressive. If the act of appointment of four directors by EMC is held to be not oppressive and excluded for the purpose of this petition, then the allegations of oppression would be only against CIPM and EEMC each who themselves were minority shareholders, holding only 10% equity each. Mr. Sibal submitted that the oppressive acts giving rise to a petition under section 397 of the Act must be acts of oppression by majority shareholders against minority shareholders. There can be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 397 of the Act was filed by a holding company, which obviously was a majority shareholder, complaining of actions by minority shareholders as oppressive. He specifically invited my attention to the following observations made in paragraph No. 40 of the judgment: It is necessary to refer briefly to the relevant part of the pleadings before examining the charge of oppression made by the holding company against a group of the minority shareholders of NIIL. . . (p. 1316) He then submitted that Supreme Court specifically considered the charge of oppression made by a majority shareholder against minority shareholders and did not dismiss the petition at the threshold on the ground that petition under section 397 of the Act could be filed only for an oppression of minority shareholders by majority shareholders. The fact that the petition was ultimately dismissed on merits was immaterial and what was material was that the Supreme Court did not dismiss the petition on the ground that majority shareholders cannot complain of an oppression at the hands of minority shareholders. 28.1 Mr. Seervai also referred to and relied upon a judgment of a Single Judge of the Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred by a statute and the remedy for enforcement of the right is also provided therein, then the remedy can be enforced in the manner provided in the statute and no artificial restriction on the enforcement of that right in that manner can be imposed by judicial interpretation unless such restriction can be found expressly or by necessary implication in the statute itself. In today s commercial world, it is possible that even a minority shareholder can cause oppression of the majority. In fact, Mr. Sibal himself in the latter part of his argument submitted that the appellant who is a minority shareholder is by oblique methods causing an oppression of majority shareholders by preventing the respondent No. 1 company from lawfully persuing arbitration proceedings lawfully instituted by it. The said allegation, if correct, itself would be an act of oppression of the majority shareholders by minority shareholders. It cannot be said that if minority shareholders are oppressed by majority shareholders, the oppressed would have the special remedy, but if minority shareholder oppresses majority shareholder, the oppressed would not have the special remedy provided under section 397 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1. It is necessary to consider the nature of the company. It is necessary to pierce the corporate view and to look to the real nature of the company. If the corporate veil was pierced, the respondent No. 1 was a quasi partnership. The respondent No. 1 has only four shareholders. They had entered into a shareholders agreement and had agreed to carry out the business in accordance with the shareholders agreement. Things which were a ground for dissolution of a partnership would also be a ground for winding up of the respondent No. 1; it would not be necessary to prove a complete deadlock in the management of the respondent No. 1 to invoke the principle of just and enquitable for winding up of the respondent No. 1. In support, Mr. Andhyarujina relied upon the decision of the House of Lords in Ebrahimi West Bourne Gallaries 1973 A.C. 360. In the Ebrahimi West Bourne Gallaries case ( supra ), the House of Lords allowed winding up of the company holding that a limited company was more than a legal entity with a personality in law of it s own but, there was a room in the company law for recognition of the fact that behind it, or amongst it, there were individuals with ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the principles in Ebrahimi West Bourne Gallaries case ( supra ) generally in all cases could create problems and difficulties, the Supreme Court observed in paragraph No. 32 of it s judgment : In a given case, the principles of dissolution of a partnership may apply squarely if apparent structure of the company is not the real structure and on piercing the veil, it is found that in reality, it is a partnership. On the allegations and submissions in the present case, we are not prepared to extend these principles to the present company. 33. In the present case also, I am not inclined to hold that the respondent No. 1 in reality is a quasi partnership and that equitable considerations exist which would justify pressing of an order for winding up. Sometimes a small family business or partnership business is converted and incorporated into a company in order to have the advantages of a limited liability. I am conscious that it is not always necessary that there should be a pre-existing family business or partnership for applying the principle of quasi partnership to a company but, the pre-existence of a partnership or family business is certainly a factor w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership should be applied for considering whether it was just and equitable to wind it up. Loss of confidence - Packing the Board - an oppression, and a ground for winding up 34. Mr. Andhyarujina then submitted that the conduct of the EEMC and CIPM was so oppressive that that the appellant had completely lost faith in the majority shareholders and consequently it was just and equitable to wind up the respondent No. 1. He submitted that EEMC and CIPM has virtually hijacked the respondent No. 1 by appointing majority of the directors either by themselves or by securing nomination of their own employees as nominee directors of EMC. They have grabbed the management of the respondent No. 1 by packing the board with their own men resulting into total loss of confidence. 35. In Shanti Prasad Jain s case ( supra ) the Supreme Court observed (at page 366 of 35 Comp. Cases): . . . As has already been indicated, it is not enough to show that there is just and equitable cause for winding up of the company, though that must be shown as preliminary to the application of section 397. . . . The conduct must be burdensome, harsh and wrongful and mere lack of confidence betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be given to the appellant as a shareholder who was entitled to nominate a director on the Board. The notice of the proposed Board meeting dated 4th June, 2002 was deliberately omitted to be given to the appellant, to carry out the business clandestinely and in a manner oppressive of the appellant. Decisions taken at the Board meeting were illegal and oppressive. The holding of the Board meeting without notice to the appellant was illegal. Mr. Andhyarujina relied upon the judgment of the Supreme Court in Parmeshwari Prasad Gupta v. Union of India AIR 1973 SC 2389, in support of the contention that the requirement of notice was mandatory and resolutions passed at the meeting of the Board of directors without prior notice to all the directors were invalid. In the case of Parmeshwari Prasad Gupta s case ( supra ) notice was not given to one of the directors and he was not present at the meeting. In para No. 11 of the judgment the Supreme Court referred to a passage form the Halsbury s Laws of England to the effect : It is essential that notices of the meeting and of the business to be transacted should be given to all persons entitled to participate and that if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 4th June, 2003, there were initially only two directors till Mr. Freeman was co-opted (co-option is also challenged as illegal). As there were only two directors in office and only two directors attended the meeting on 4th June, 2002, the meeting was without quorum and therefore, the decision taken by the said two directors in co-opting and/or appointing Mr. Freeman as a director was illegal for want of quorum. Article No. 2 of the Articles adopts Regulations set forth in Table E of the Companies Act which itself incorporates all of the Regulations of Table A except some regulations. Regulation 75 of Table A reads : The continuing directors may act notwithstanding any vacancy in the Board, but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or summoning the general meeting of the company, but for no other purpose. The main purpose of Regulation 75 is to ensure that the Board does not become non-functional for want of quorum and that is the reason why continuing directors are authorised to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions under the preceding sentence) also shall be entitled to nominate one candidate for election to the Board in respect of each 10 per cent of the total voting power they collectively hold. If any time fewer than 10 candidates have been nominated as provided in the proceeding two sentences or elected, the members whose noting power has not been taken into account in making a nomination under the preceding two sentences shall, by a majority vote of the voting power not so taken into account, nominate a candidate(s) so that 10 shareholder Directors in the aggregate are in office. 10.3 The Members agree to vote in favour of the appointment of the candidates nominated pursuant to Article 10.2 or Article 10.4 at a general meeting of the company. 10.13 Directors other than shareholder directors shall be elected by members having a majority of the shares. The Members agree to procure the election of individuals as directors (other than shareholder directors) to the extent required under the Financing Agreements. 40. Article No. 10.1 prescribes the minimum number of directors to be 3 and maximum number of directors to be 13 . The scheme of the article No. 10 contemplates sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board. It must also be noted that before the CLB, the respondents made an offer to voluntarily substitute Mr. Freeman with a nominee of the appellant if the appellant chose to appoint one. The offer was not accepted by the appellant and this fact is recorded by the CLB at the end of paragraph No. 28 of it s judgment. It is thus, clear that the real intention of the appellant in challenging appointment of Mr. Freeman is for collateral purpose of making the respondent No. 1 non-functional by ensuring that the total number of directors of the respondent No. 1 are reduced below the quorum prescribed by the Articles. Looked at from this angle, even if it is held that the appointment of Mr. Freeman in the meeting of 4th June, 2002 was illegal, it cannot be said to be oppressive of the appellant as it was made to make the Board functional. If at all there is an oppression, it is by the appellant who wants the respondent No. 1 to be without an effective management without there being a quorum for meetings of the Board and it is for this reason that the appellant appears to have declined the offer made by the respondents to substitute Mr. Freeman with the nominee of the appellant if it ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nda was circulated or not is a question of fact. Therefore, absence of agenda is required to be pleaded. In the absence of the necessary pleadings, the respondents had no opportunity of placing on record the relevant facts relating to the circulation of the agenda and/or waiver thereof by the directors. It was also contended that under the article No. 10.7, the directors could not only waive the notice of the meeting altogether but could, in any event, waive the requirement as to the period of the notice and accept shorter notice as valid. If a shorter notice could be valid then the notice of the meeting could be as short as few minutes and can be given just prior to the meeting when the directors assembled on 4th June, 2002. The agenda could then be circulated along with such notice. 44. Relying upon two judgments of the Calcutta High Court in Mohta Bros. (P.) Ltd. v. Calcutta Landing Shipping Co. Ltd. [1970] 40 Comp. Cas. 119 and of this Court in P.S. Offshore Inter Land Services (P.) Ltd. v. Bombay Offshore Suppliers Services Ltd. [1992] 75 Comp. Cas. 583 , Mr. Sibal submitted that the contention about absence of agenda cannot be considered in the absence of ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the chair . An item not contained in the agenda is raised by a member of the Board with the permission of the chair and is discussed by Board members without anybody raising any objection thereto, and all Board members participate in the discussion and finally a resolution is passed on that item. Can a Board member who raised no objection to the item discussed with the permission of the chair and who took part in the discussions without any demur be subsequently allowed to contend that the resolution was bad in law because it was not specifically included in the agenda ? In my opinion, not. If a director himself cannot raise an objection, no shareholder be allowed to do it. If allowed, it would open a back door challenge by a director who participates in the resolution without any objection and challenges the resolution subsequently through a shareholder, who could be his own nominee. In P.S. Offshore Inter Land Services (P.) Ltd. s case ( supra ), also it was contended that no agenda for the Board meeting was forwarded even though it was stated in the notice of the meeting that agenda would follow. After referring to the judgment of the Supreme Court in the case of Parmeshwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Board dated 4th June, 2002 the continuing directors could only have considered the proposal to increase the number of directors to that fixed for the quorum and nothing else. The CLB has further held that all other decisions taken in the Board meeting dated 4-6-2002 were null and void and all further actions taken on the basis of those decisions were also null and void. This finding is assailed by respondent Nos. 2 to 5 by filing an appeal bearing (lodging) No. 6 of 2003. The meeting of the Board dated 4th June, 2002 can be divided into two parts. In the first part, Mr. Allison was replaced by Mr. Walsh by nomination by CIPM and Mr. Freeman was co-opted/appointed as a director. Replacement of Mr. Allison by Mr. Walsh is not challenged before me. In the second part the meeting was continued after appointment of Mr. Freeman and establishment of quorum, and some decisions were taken by the reconstituted Board. This second part of the meeting can be construed as a separate and independent meeting of the reconstituted Board. There is nothing in law which prevents two Board meetings being held one after the other. The only possible objections about absence of notice and absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who had made claims were G.E. Bechtel or their associate or sister concerns. Per contra, Mr. Sibal pointed out that the claims made by contractors were previously certified by MSEB or its Officers. A draft reply prepared by M/s. Lehman and Eilmen admitting the certified claims was previously approved by the Board. M/s. Lehman and Eilen were directed to admit only previously certified claims, and that was not against the interests of the respondent No. 1. All other liabilities were disputed and were to be contested. Therefore, the said decision was not against the interests of respondent No. 1 and certainly not oppressive of the appellant. Continuation of the arbitration proceedings was also a decision which was in the interest of the respondent No. 1. If the respondent No. 1 succeeds in the arbitration, it would receive money by way of compensation and/or damages. May be that compensation would be required to be paid by MSEB-holding company of the appellant, or the Government of Maharashtra or the Union of India. The interest of the appellant as a member of the respondent No. 1 and the interest of the appellant as a subsidiary of MSEB are clearly conflicting. The recovery of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo directors. The two directors nominated by the appellant were not elected because the EMC and CIPM voted against the resolution and committed breach of the article No. 10.3 ( ii )Mr. Freeman could not be elected and appointment as a director as he was neither a shareholder director nor a nominee of a financial institution. 52. In paragraph No. 31 of the judgment, the CLB has held that the appellant was not entitled to nominate two directors by virtue of it s 14.15 per cent equity holding but was entitled to nominate only one director. In my opinion, the said finding is correct for the reasons mentioned below: Under the article No. 10.1 the respondent No. 1 is to have minimum 3 and maximum 13 directors. Under the article No. 10.2, 10 directors are to be elected by the shareholders in the manner mentioned therein. Article No. 10.2 consists of only three sentences. The first sentence says that each member is entitled to nominate one candidate for election to the Board in respect of each 10 per cent of the total voting power (voting power in the present case is proportionate to the equity shareholding) held by it. In the present case, EMC would be entitled to nominate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised voting power the nomination of one director had to be made by them by a majority of their respective unutilised voting power. Thus, EMC who held 5.85% i.e., majority of unutilised 10% of the voting power was entitled to nominate the 10th director. The appellant was entitled to nominate one director in it s own rights by virtue of it s 10% voting power and in respect of it s unutilised fractional 4.15% voting power, it being minority of unutilised 10% of the voting power, could not nominate one additional director. Therefore, the stand taken by the CIPM and EEMC that appellant was not entitled to nominate second director was lawful. At the meeting of 9th September, 2002, the appellant nominated two persons viz., Mr. A.K. Mago and Mr. R.B. Budhiraja for the post of directors. CIPM and EEMC objected to the nomination of two persons and requested the appellant to nominate only one. The appellant did not agree. CIPM and EEMC then suggested that the resolutions regarding election of two persons nominated by the appellant as directors be put to vote separately. This would have enabled the CIPM and EEMC to vote in favour of the appointment/election of one nominee of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for election of two nominees of appellant as directors on two grounds viz. ( i ) the appellant was not entitled to nominate two directors by virtue of article No. 10.2 and ( ii ) the appellant had himself committed a breach of the article No. 10.3 by abstaining from voting on the resolution for election of Mr. Walsh, the nominee of CIPM, as a director and the other members of respondent No. 1 were consequently not bound to perform their reciprocal promise contained in the article No. 10.3. 53. In para No. 32 of its order, the CLB has held that CIPM, EEMC and EMC should have supported appointment of 2nd nominee director of the appellant on equitable grounds especially because place for one more director was unfilled under the article No. 10.13. As stated earlier, the appellant was entitled to nominate only one director by virtue of 14.15% of the voting power. This decision of the CLB regarding appointment of the 2nd nominee director by the appellant is assailed by the respondents by filing an appeal bearing lodging No. 6 of 2003. The challenge appears to be correct. The minimum number of directors required to form a quorum were elected in the general meeting of 9th Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have a power to nominate, by a letter dated 8th October, 2002, respondent Nos. 6 to 9 as directors. The contention has no force. The order of the Supreme Court of Mauritius dated 9th May, 2002 itself makes it clear that all powers were not vested with the JPLs. Paragraph No. ( vi ) of the order of the Supreme Court of Mauritius reads as under : ( vi )Save as specifically set out herein : ( a )JPLs will have no general or additional powers or duties with respect to the property or records of the company; and ( b )the Board of Directors of the Company shall continue to manage the Company s affairs in all respects: Provided that should the JPLs consider at any time that the Board of Directors of the Company is not acting in the best interests of the Company and creditors of the Company and the creditors of Enron Group, the JPLs shall the power to report the same to this Court and seek such directions from this Court as the JPLs are advertised as appropriate. 56. The order of the Supreme Court of Mauritius is clear that the power of managing the EMC was not vested with the JPLs but its Board of directors continued to have the power to manage the affairs of EMC in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an order of the Court, are divested from the Board of directors. All residuary powers vest in the Board. Even after the appointment of a provisional liquidator, the Board of directors have a power to make a reference to BIFR under Sick Industrial Companies (Special Provisions) Act, 1985 (for short SICA ) and also have power to propose a Scheme of Arrangement by way of a compromise or arrangement with its creditors under sections 391 to 394 of the Act so as to rehabilitate the company. In Rishabh Agro Industries Ltd. v. PNB Capital Services Ltd. [2000] 101 Comp. Cas. 284 1 , the Supreme Court observed : . . . It is contended that after the order of the winding up and appointment of the liquidator, the board of directors had no jurisdiction to move the BIFR by passing a resolution. Such a submission cannot be accepted. In a winding up petition the liquidator is appointed to protect the assets of a company for the benefit of its creditors, secured and unsecured and others. It is not the function of the official liquidator to start the process of rehabilitation of the company as is aimed at under the Act. Despite appointment of the official liquidator, the board of direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Board of respondent No. 1 They all resigned in March/April 2002. Under the article No. 10.4, the members were entitled to remove and substitute the nominee directors. This power would include the power to nominate another in place of its nominee director who resigns. Article No. 10.4 does not fix any time limit to nominate a director who is to be replaced or who has resigned. The vacancy could be filled in at any time. In any event, the said vacancy was sought to be filled in, within about six months of the resignation by previous nominee directors. This period cannot be said to be unreasonable, especially taking into consideration that EMC itself was facing a bankruptcy proceedings in the Supreme Court of Mauritius. It must however be noted that the persons who is nominated by EMC as a shareholder directors under the article No. 10.4 do not automatically become directors immediately on their nomination. The said nominees would have to be elected in the general meeting and till such general meeting is held, the article No. 10.4 obliges the Board to co-opt and appoint the nominees as a directors. Article 10.4 reads as under :- 10.4 Any Shareholder Director nominated and ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the power sector in India. In such circumstances, this Hon ble Board be pleased to look into the affairs of the Company and declare that the affairs of the Company are being conducted in a manner oppressive to the Petitioner and prejudicial to public interest. It is also necessary, just and proper that this Hon ble Board be pleased to consider whether it is just and equitable that the Company be wound up or whether any provisions be made with regard to the conduct of the affairs of the Company, in future. 61. The allegation in the petition are that continuation of the arbitration proceedings in London is against the interests of the State of Maharashtra and the power sector in India and as such it is prejudicial to public interest. Mr. Andhyarujina submitted that the MSEB/State of Maharashtra have lawfully terminated the PPA and the respondent No. 1 has unnecessarily dragged MSEB, the Government of Maharashtra and the Government of India in the arbitration proceedings before the Arbitral, Tribunal in London. The arbitral proceedings are said to be against the interest of the people in the State of Maharashtra because if an order for payment of compensation or damages is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court also held that it is not necessary for the shareholders to give any reasons or justification for the change of directors. EEMC and CIPM have a right to nominate 1 person each as a director by virtue of their shareholding of 10 per cent each. EEMC also has a right to nominate six directors by virtue of its holding more than 60 per cent of the equity. It has accordingly nominated respondent Nos. 6 to 9 i.e., as its nominees for the 4 posts of directors. Exercise of the rights by the shareholders in appointment of directors in accordance with the rights conferred by the articles cannot be said to be against public interest. Conclusion 62. ( i ) The appellant has not proved that affairs of the respondent No. 1 company were conducted in a manner prejudicial to public interest or in a manner oppressive to the appellant. ( ii ) The appellant has not proved that the facts exist which would justify making of an order for winding up of the respondent No. 1 on the ground that it is just and equitable to do so but to wind up the company would unfairly prejudice the appellant. ( iii ) In the absence of any proof that the affairs of the respondent No. 1 company were be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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