TMI Blog2004 (3) TMI 428X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company be wound up or any provision be made with regard to the conduct of the affairs of the company in future, that the respondent Nos. 4 and 5 be restrained from acting and representing as directors of the company; that respondent Nos. 6, 7, 8 and 9 be restrained from acting, representing or holding themselves to be the directors of the company; the respondent Nos. 4 and 5 be re-strained from interfering and/or intermeddling with the management and affairs of the company in any manner whatsoever; that the respondent Nos. 6, 7, 8 and 9 be restrained from interfering and/or intermeddling with the management and affairs of the company in any manner whatsoever; that the respondent Nos. 1 to 5 be restrained from altering the composition of the Board of Directors of the company without leave of the Company Law Board; that the respondent Nos. 2, 4 and 5 be restrained from representing in the name or on behalf of the company; that the declaration be made that that the action/s taken by respondent Nos. 2, 4 and 5 acting as directors of the company/managing director are null and void and not binding upon the shareholders of the company and on the company and that an investigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I equity, three directors were appointed by the petitioner who held 30% Phase I equity and one each from CIPM and EEC who held 10% Phase I equity each. The Industrial Development Bank of India (IDBI) being one of the lenders had appointed one nominee director. In or about September, 2001, another lender - Industrial Credit and Investment Corporation of India (ICICI) appointed its nominee as the second nominee director and from September, 2001, the company had 12 directors. In or about November/December, 2001, Enron filed for bankruptcy under the laws of the United State of America. The company was excluded from the bankruptcy proceedings. In December, 2001, the company committed default in making phase I rupee loan instalment to various financial institutions. The equity holding of the petitioner was reduced to 14.15% to 30% in or about January, 2002 after the company issued Phase II equity to EMC, CIPM and EEC. Accordingly, the petitioner withdrew two of its shareholder directors from the board of the company. Thus, from February, 2002, the petitioner had only one shareholder director viz., Mr. Ravi Bhushan Budhiraja. On 1st March, 2002 Mr. Mohan Gurunath who was a nominee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 5, according to the petitioner, is to acquire exclusive control of the company and perpetrate and perpetuate their illegal and wrongful control of the same for some ulterior motive. The illegal appointments and the manner of conducting the affairs of the company is harsh, burdensome and wrongful. There is total lack of confidence arising from the oppressive manner of working. There is total lack of probity and fair dealing affecting the rights of the shareholders. The affairs of the company are being conducted in illegal, invalid and wrongful manner and in complete violation of the provisions of Articles of Association, the Companies Act and Principles of Natural Justice. The facts would justify the making up of a winding up order on the ground that it was just and equitable that the company should be wound up but such winding up order shall unfairly prejudice the shareholders who have invested substantial funds in the company. 5. In respect of the annual general meeting of the company held on 9th September, 2002, the petitioner has alleged that though its authorised representative attended the AGM and raised a number of objections inter alia validity of the authorisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the directors on the board. The said respondents denied that their action lacked in probity and/or has been or was/is unfair and/or has caused any prejudice to the petitioner in exercise of its rights as a member of the company or otherwise. They denied any harsh or unfair treatment and/or any oppressive conduct affecting the rights of the petitioner. The said respondents submitted that on March 29, 2002, six directors nominated by EMC resigned and in the month of April, 2002, the two nominee directors of lenders resigned leaving only three directors viz., Mr. Donald C. Stummer - Director nominated by EEC. Mr. Richard Allison - Director nominated by CIPM and Mr. Ravi Budhiraja - Director nominated by the petitioner. In the meanwhile, due to serious disputes having arisen between the company on the one hand and the Government of Maharashtra and the MSEB on the other as also between the company and the financial institutions (IDBI ICICI), multifarious litigations were initiated against the company by and/or on behalf of the and at the behest of the Government of Maharashtra, MSEB and by other third parties and the company was also forced to initiate and file certain legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors of the company considered and passed certain resolutions for protecting the interest of the company. The petitioner was sent the minutes of the board meeting dated 4th June, 2002 alongwith the letter dated 30th July, 2002. 7. In respect of the AGM held on September 9, 2002, it is the reply of the said respondents that the said AGM was held under the Chairmanship of Mr. C.R. Mehta, retired member of the Company Law Board but untenable and frivolous objections were raised by the petitioner s representative. The petitioner did not choose to appoint its director on untenable plea that it would either appoint two directors or none at all. The representative of EEC and CIPM in the said meeting made it clear that they would support and approve the appointment of any one director on behalf of the petitioner as per the mandate of the Articles of Association of the company but they did not agree to the appointment of the second director as it was not in accord with the Articles of Association. The said respondents set up the plea that the AGM held on 9th September, 2002 did not suffer from any infirmity and all actions by the respondents are wholly transparent and ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner which offer was not accepted, the petitioner cannot be permitted to challenge the legality/validity of his appointment and in any case, the appointment of Mr. Peter Freeman as an additional director came to an end on 9-9-2002 when the AGM was held; ( e ) that all the decisions taken in the meeting of 4th June, 2002 were in the interests of the company but in view of the regulation 75 of Table A, after the quorum was established in the meeting on 4th June, 2002, the other items in the meeting could not have been considered and therefore, all decisions taken in the board meeting of 4th June, 2002 other than the constitution of the board being against the mandatory provisions and regulation 75 of Table A are null and void; ( f ) that as far as AGM held on 9-9-2002 is concerned, it cannot be held that in terms of article 10.3, the second nominee of the petitioner could not have been voted against; ( g ) that the petitioner did not have right to demand election of the second nominee in respect of its fractional holding of 4.15 shares, however on equitable grounds, the petitioner s second nominee on the board ought to have been approved and ( h ) that in so far as nomination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and R.S. Mohite, JJ.) by the speaking order dated 10th October, 2003 overruled the objection of respondent No. 1 and respondent Nos. 2, 4 and 5 about the maintainability of appeal. That order has been carried by the respondent Nos. 1, 2, 4 and 5 to the Supreme Court and the appeal is pending. We had little hesitation in the beginning in hearing the appeals on merits in this fact situation but the learned senior counsel appearing for the respondent Nos. 1, 2, 4 and 5 submitted that pendency of the said appeal before the Supreme Court need not deter us from hearing the appeal on merits and that the said respondents shall not press for interim application before the Supreme Court and rather he invited our attention to the order dated 12th December, 2003 passed in petition for special leave to appeal No. 22654/22657 of 2003 wherein the Supreme Court while dismissing the said SLP, requested this court to dispose of these appeals as soon as it was conveniently possible. It is then that we heard the appeal on merits. 13. We heard Mr. T.R. Andhyarujina, the learned senior counsel for the appellant, Mr. P. Chidambaram and Mr. Manmohan, the learned senior counsel for respondent Nos. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany [are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members (including any one or more) of themselves may apply to the [Company Law Board] for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the [Company Law Board] is of opinion- ( a )that the company s affairs [are being conducted in a manner prejudicial to public, interest or] in a manner oppressive to any member or members; and ( b )that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the [Company Law Board] may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 17. The Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. AIR 1965 SC 1535, considered the scope of the applicability of section 397 in the context of oppression by majority shareholder/s. The Supreme Court held thus- It gives a right to members of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king of a winding up order would unfairly prejudice the minority members qua shareholders. (4)Although the word oppressive is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are treating the company and its affairs as if they were their own property to the prejudice of the minority shareholders - and in which just and equitable grounds would exist for the making of a winding-up order but in which the alternative remedy provided by section 210 by way of an appropriate order might well be open to the minority shareholders with a view to bringing to an end the oppressive conduct of the majority. (5)The power conferred on the Court to grant a remedy in an appropriate case appears to envisage a reasonably wide discretion vested in the Court in relation to the order sought by a complainer as the appropriate equitable alternative to a winding-up order. (16) and 17 )****** 18. In Harmer s case (1958) 3 All ER 689, it was held that the word oppressive meant burdensome, harsh and wrongful . It was also held that the section does not purport to apply to every case in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and equitable cause for winding up the company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing upto the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company s affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to section 397. (p. 1542) 18. In Needle Industries (India) Ltd. v. Needle I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. The rule as regards the duty of utmost good faith, on which stress was laid by Lord Keith in Meyer, received further and closer consideration in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 (HL) wherein Lord Wilberforce considered the scope, nature and extent of the just and equitable principle as a ground for winding up a company. The business of the respondent company was a very profitable one and profits used to be distributed among the directors in the shape of fees, no dividends being declared. On being removed as a director by the votes of two other directors, the appellant petitioned for an order under section 210. Allowing an appeal from the judgment of the Court of Appeal, it was held by the House of Lords that the words just and equitable which occur in section 222( f ) of the English Act, corresponding to our section 433( f ), were not to be construed ejusdem generis with clauses ( a ) to ( e ) of section 222 corresponding to our clauses ( a ) to ( e ) of section 433. Lord Wilberforce observed that the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e required to show, not only that he has the law on his side, but that his conduct will bear to be tried by the highest standard of honour. 48.****** 49. The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by W.H. Bhagwati, J. in S.M. Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co. [1964] 34 Comp. Cas. 777 at pp. 830-831 : AIR 1965 Guj 96 at p. 103 that a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the company . On this question, Lord President Cooper observed in Elder v. Elder [1952] SC 49 : The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the just and equitable jurisdiction and conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the just and equitable jurisdiction has been applied in cases of this type, the circumstances h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company s affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n within the meaning of section 397, there must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. His Lordship also held that if an action of the directors is illegal or invalid then the company or the shareholders may take appropriate action in a court of law by challenging the validity of such an action, but a petition under sections 397 and 398 of the Act is not an appropriate remedy. 20. The Division Bench of Kerala High Court in Palghat Exports P. Ltd. v. T.V. Chandran [1994] 79 Comp. Cas. 213 (Ker.) had an occasion to consider the scope of provision of oppression contained in section 397 and culled out the legal position thus : ( i )that even a company which was not doing business could form the subject-matter of action under sections 397 and 398 of the Act. ( ii )that a plain reading of section 397 that the object of the section is to terminate or prevent an existing, present state of prejudicial, oppressive, harsh, unfair conduct and past conduct or closed affairs are not encompassed in the section. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned of must affect the petitioner in his character as a member of the company : harsh or unfair treatment in any other capacity, e.g., as a director or creditor, cannot entitle him to relief under the section. Association to nominate the stranger as director. (2)The matters complained of must relate to the conduct of the affairs of the company. (3)They must be such as not only to make the winding up of the company just and equitable, but also to lead to the conclusion that the affairs of the company are being conducted in a manner which can properly be described as oppressive of the petitioner, and, it may be, other members. Despite the somewhat restricted working of section 210, the requirements of the section should be interpreted in a liberal spirit in order to carry out the intention of Parliament, which designed this remedy in order to suppress an acknowledged mischief . . . . Oppressive conduct, for the purposes of section 210, means that the company has exercised its authority in a manner burdensome, harsh and wrongful . It must go beyond what is required to make out a case for a winding-up order and must indicate some lack of probity or fair dealing towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in limine. 22. Robert R. Pennington in the Company law, 6th Edition while dealing with the subject of oppression states that every member of the company is entitled to have its affairs properly conducted according to law, and if those who control the company have persistently disregarded the requirements of the Companies Act, or the provisions of the Company s constitution, even with the highest motives, relief was given. The author, in this connection, relied upon H.R. Harmer Ltd. [1958] 3 All. E.R. 689. 23. In H.R. Harmer, the Court of Appeal, with reference to section 210 of the English Companies Act, 1948 held that the word oppressive meant, burdensome, harsh and wrongful and that viewing the events proved as a consecutive whole, the affairs of the company if conducted in a manner oppressive to the members, the case for relief under section 210 could be made out. 24. The legal position is fairly established that in order that the court may make an order under section 397, the court must be satisfied, Firstly, the company s affairs are being conducted in the manner oppressive to any members as the members, secondly, the facts would justify the making of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arujina, the learned counsel for the petitioner submitted that the acts of oppression by GE Bechtel or for that matter EEC and CIPM should not be viewed as isolated events each but as a connected series of their actions. The oppression consists of repeated actions by GE Bechtel to pack, dominate and control the board of directors of the defunct company and thereby usurp the corporate shell of the company for their own private purposes. They involve at least an element of lack of probity or fair dealing to the petitioner. He contended that GE Bechtel extensively sought to exclude the presence of the petitioner s directors on the board of the defunct company which would prejudice or dilute their control of the company. Mr. Andhyarujina stressed that the most essential feature which reveals is the repeated inclusion of Mr. Peter Freeman who is neither a shareholder director nor the nominee of the financial institution but an outsider and a stranger. If the decision of the nominee directors of GE Bechtel in the meeting of 4th June, 2002 was only to constitute valid quorum and obtain the working board, then they should have asked the petitioner to nominate a director just as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned senior counsel submitted that it was inconceivable that EMC that has lost interest in the company and was under the provisional liquidation should suddenly appoint four directors that two employees of GE Bechtel. The letter dated 8th October, 2002 to Mr. Walsh by the authorised represen- tative of EMC, according to the learned senior counsel, manoeuvered and inspired by GE Bechtel to pack the board in their own favour. The learned senior counsel would urge that the cumulative effect of these actions clearly show that GE Bechtel desired to dominate the board with their own nominees for their own self serving purposes and to appropriate the corporate shell of the defunct company. In their desire to pack the board, the conduct of GE Bechtel at the board meeting of 4th June, 2002 and at the AGM of 9th September, 2002 were repeated with illegalities, irregularities and violations of the provisions of the Companies Act and the Articles of Association of the company. The learned senior, counsel vehemently contended that such repeated illegalities perpetrated by GE Bechtel itself constitute oppression within the meaning of section 397. 27. We must hark back to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominated by CIPM) and ( iii ) Mr. Ravi Budhiraja (nominated by the petitioner). On 2nd May, 2002, Mr. Ravi Budhiraja, also resigned. It is not in dispute that by then the company had become defunct as the Court Receiver stood appointed; purchase agreements were terminated by MSEB and the generation of the power stopped. As to why the petitioner asked its nominee director to resign on 2nd May, 2002 is anybody s guess. Was it because the company had no activity, no sale of power and no revenue? Was it because serious disputes had arisen between the MSEB/Government of Maharashtra on the one hand and the company on the other hand? Was it because there was thereat of prosecution due to breach of Pollution Control Laws? Was it fall out of Enron s bankruptcy? Was it intended to render the Board of the company non-functional for want of quorum? Or simply the petitioner lost interest in the management of the company. Whatever be the reason, it is not the case of the petitioner that if they had any notice of meeting of 4th June, 2002, they would have nominated its director on the board. Though before the Company Law Board at the time of hearing on 2nd August, 2002, respondent Nos. 2 and 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also discussed the fact that unless DPC filed an answer in connection with the action, a default judgment could be rendered against it for the entire sum claimed. On motion proposed by Mr. Walsh, and seconded by Mr. Freeman, the directors unanimously passed by the following resolutions : Now therefore be it resolved, that Dabhol Power Company, retain the firm of Lehman Eilen to represent it, and file an answer in the suit brought against it, by certain contractors in state court in New York relating to payments claimed in connection with work on the Dabhol Power Project. Now therefore, be it further resolved, that Lehman Eilen be directed (by the Manager for Special Affairs or otherwise) to file an answer substantially similar in nature to that presented to the Board of Directors in which liability for amount previously certified for payment (as set forth in Count I of the amended complaint in the suit) is admitted, liability for amount previously certified for payment (as set fourth in Count I of the amended complaint in the suit) is admitted, liability for interest thereon is recalculated as appropriate, and liability for other amounts is contested until further inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eviously certified by MSEB or its officers. A draft reply prepared by M/s. Lehman and Eilen 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 money through the arbitration proceedings is for the benefit of the respondent No. 1 and all its creditors and members including the appellant in the capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take the resolution on its face. The amount claimed in the suit as was told to us during the course of arguments is : ( a ) count-I US $ 19,702, 239.51 + ₹ 1,38,001,164.83; and ( b ) count II - US$ in excess of 35 millions. The resolution reads that the matter has been presented before the board of directors on an early occasion and the directors considered it appropriate to admit the liability for the previously certified amounts viz., count I admitted liability of US$ 19,369,144.86 + ₹ 1,38,001,164.83 and Count II was decided to be contested in full. 33. It was vehemently contended by Mr. T.R. Andhyarujina, the learned senior counsel that passing of the resolution at serial No. 5 by respondent Nos. 2 to 4 with the help of respondent No. 5 would show that they took advantage of the absence of the petitioner to push through their private agenda of settling their own claims. The learned senior counsel submitted that the resolution would show that there was an answer presented to the board of directors in which liability for an amount previously certified for payment as set forth in count I was existing and had been admitted. The respondents were called upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company are in the hands of the Court Receiver appointed by this court. The board can do nothing as there is no business, no revenue, no generation of power and no activity. 36. The opposition to the petitioner s resolution in the AGM held on 9-9-2002 for two nominees on the board of the company obviously was based on their understanding and construction of Article 10.2 of the Articles of Association. The construction of Article 10.2 by the respondents 2 and 4 may or may not be correct (this aspect we shall deal when we consider legality of that action) but one thing is clear that such construction is not absurd or impossible. 37. The nomination of respondents 6 to 9 by EMC vide letter dated 8th October, 2002 was legal or not, shall have to be seen in the light of Article 10.4 but by such nomination, they did not stand appointed to the Board of the company an such action of EMC, we are afraid, cannot be construed, and act of oppression by GE Bechtel. The shareholder has unquestioned right to elect directors in accord with the Companies Act an Articles of Association of the company and the nomination of respondents 6 to 9 by the EMC which admittedly has 65.85% equit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The super-imposition of equitable considerations requires something more, which typically may include one, or probable, more, of the following elements : ( i ) an association formed or continued on the basis of a personal relationship, involving mutual confidence this element will often be found where a pre-existing partnership has been converted into a limited company; ( ii ) an agreement, or understanding, that all, or some (for there may be sleeping me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company is not a real structure and on piercing the veil it is found that the 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. (p. 33) 43. In Kilpest (P.) Ltd. s case ( supra ) the Supreme Court held thus- We respectfully agree with the observations in the case of Hind Overseas (P.) Ltd. [1976] 46 Comp. Cas. 91 (SC) and would add this. Sections 397 and 398 of the Companies Act, provide relief to shareholders against oppression and mismanagement. The powers exercisable in such petitions, at the relevant time by the courts and now by the company law board, have been set out in section 402. Section 402 reads thus- ****** The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under section 402, very rarely would it be necessary to wind u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould show that the continuing directors may act irrespective of any vacancy in the Board. To that extent, there is no dispute. It provides that if and so long as their number is reduced below the quorum, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum or for summoning a general meeting of the company, but for no other purpose. It would, thus, be seen that Regulation 75 restricts the power of the continuing directors to act until number of directors is increased to that fixed for the quorum. We are in agreement with the submission of Mr. Chidambaram that Regulation 75 is in two parts. The first part, the continuing directors may act notwithstanding any vacancy in the board is the unrestricted power. The second part places the restriction on the powers of the continuing directors to act where number of continuing directors falls below the quorum. That restriction is for a duration of time. The construction of Regulation 75 put by Mr. Andhyarujina, if accepted, obviously shall result in rendering the words so long as as surplusage and redundant which we are afraid, cannot be accepted. The words used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice shall contain, inter alia, an agenda specifying the reasonable detail the matter to be discussed at the relevant meeting and shall be accompanied by any relevant papers for discussion at such meeting and shall be sent by courier or by fax. 52. In Parmeshwari Prasad Gupta s case ( supra ) the Supreme Court held thus- 11. Article 109 of the Articles of Association of the Company provides as follows : 109. When meeting to be convened. -A Director may at any time summon meeting of the Directors by serving every Director with at least 72 hours notice in writing, through the officer of the Company authorised to issue such notice who shall arrange to convene the meeting. In Hulsbury s Laws of England, Vol. 9, p. 46, it has been stated that it is essential that notice of the meeting and of the business to be transacted should be given to all persons entitled to participated and that if a member whom it is reasonably possible to summon is not summoned, the meeting will not be duly conveyed, even though the omission is accidental or due to the fact that the member has informed the officer whose duty it is to serve notice that he need not serve notice on him. In V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which, though unauthorised, was done on behalf of the Company. Ratification would always relate back to the date of the act ratified and so it must be held that the services of the appellant were validly terminated on December 17, 1953. The appellant was not entitled to the declaration prayed for by him and the trial court as well as the High Court was right in dismissing the claim. (p. 2390) 53. The Single Judge of the Punjab and Haryana High Court in Col. Kuldip Singh Dhillon v. Paragaon Utility Financers P. Ltd. [1988] 64 Comp. Cas. 19 held that notice must be sent to all the directors for convening a meeting of the Board of Directors, otherwise the resolution passed in such meeting is invalid. 54. Section 286, mandates the notice to be given to the director/s only. The petitioner as a shareholder could not claim as a matter of right the notice of the meeting of the Board of Directors. As a shareholder, the petitioner cannot have any grievance that no notice was given to all the directors for the meeting convened on 4th June, 2002. The fact of the matter is that at that time there were two directors and both the directors attended the meeting without any object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll contain inter alia the agenda is only directory and not mandatory. The Board of Directors can always discuss the matter even if it is not on the agenda. Re : ( ii )( d ) 59. The learned senior counsel for the petitioner contended that under no circumstances Mr. Peter Freeman could have been validly appointed to the Board of Directors on 4th June, 2002. The argument is that Mr. Peter Freeman could only have been elected at the general meeting and not nominated by the board even if it is assumed that Article 10.13 enables the appointment of the outsider. According to the learned senior counsel for the petitioner the provisions of Article 10.13 were not invoked for the appointment of Mr. Peter Freeman at the board meeting of 4th June, 2002 as the agenda circulated for the AGM of 9th September, 2002 stated that he had been appointed as additional director under section 260 of the Companies Act by the board. He would submit that though section 260 of the Companies Act, 1956 authorises the appointment of the additional director but that is not authorised by articles; the Articles of Association do not have a provision for additional director as such. The same is equally o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany to appoint the additional director. The director includes any person occupying the position of director, by whatever name called by virtue of section 2(13). Such additional director holds office only upto the date of next AGM. By resolution dated 4th June, 2002, continuing directors appointed Mr. Peter Freeman as a director with stipulation that he would hold office till the next AGM of the company, we hardly find any illegality in his appointment. 65. Article 10.13 reads thus : 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. 66. Article 10.13 of the Articles of Association would only be attracted for an election of the director in the Annual General Meeting and is not invokable for appointment of the director by the Board. To that extent Mr. Andhyarujina is right. However, the appointment of Mr. Peter Freeman as director in the board meeting of 4th June, 2002 is valid being permissible and in accord with Regulation 72 of Table A read with s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andidates have been nominated as provided in the preceding two sentences or elected, the members whose voting 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, nominates a candidate/s so that 10% shareholder directors in the aggregate are in office. 70. It was submitted by Mr. Andhyarujina that sentence C does not contemplate nomination by collectivity of votes. Collectivity of votes is only under sentence B . The majority vote referred to is the individual majority of each shareholder taken by itself. It is a stand alone fraction. There is no mandatory requirement that the board must always have 10 shareholder directors and the board will still function. It was submitted that as proportionality is the key factor in Article 10.2, the fractions of each member which are unutilised are intended to be utilised for nominating a candidate under sentence C . Such utilisation must be by some mechanics to nominate a candidate. Mr. Andhyarujina would submit that if any shareholder does not enter into fray with his fraction for the specific purpose of nominating a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 10.2, EMC has clearly having factional power of 5.85 while the petitioner has fractional power of 4.15. Between 5.85 and 4.15 fractional power, EMC alone will be entitled to nominate a candidate under the third sentence and the petitioner could not claim nor had any right to nominate a candidate under the sentence C . In any case, the learned senior counsel for the respondent Nos. 2 to 5 submitted that there is serious dispute regarding the scope and interpretation of Sentence C of Article 10.2, and therefore, an act of defeating the resolution of the petitioner insisting for two directors cannot be said to be an act of oppression of a shareholder within the meaning of section 397. 72. Mr. Janak Dwarkadas, the learned senior counsel for the first respondent gave few more illustrations while supporting the construction of sentence C put forth by Mr. Chidambaram. 73. Article 10.2 deals with nomination of candidates for the post of directors. Sentence A entitles the nomination of one candidate by the shareholder for every 10% voting power. It confers sort of a vested right. The sentence B that provides for consensual pooling enables two or more shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74. The submission of Mr. Andhyarujina, the learned senior counsel for the petitioner is that the election of Mr. Peter Freeman at the AGM of 9th September, 2002 was also illegal as there is no power under articles to nominate a stranger as a director viz., who is neither a shareholder nominee director under Article 10.2 nor a financial institution director under Article 10.13. It was submitted that Article 10.13 was not mentioned in the nomination of Mr. Peter Freeman. It was also contended that GE Bechtel having exercised their right to nominate one director each under Article 10.2, they had no power or authority to invoke or nominate any other person; having done so, GE Bechtel violated the Articles of Association. 75. Article 10.13 has already been reproduced by us above. This article is in two parts : First Part - Directors other than the shareholders directors shall be elected by members having a majority of the shares. Second Part - The members agree to procure the election of individuals is directors to the extent required under the financial agreement. 76. Out of the total number of thirteen directors, the ten directors are required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstituted by the Member that nominated such Shareholder Director. The members agree to procure that any election pursuant to Article 10.3 and any such removal and/or election shall take place at a general meeting of the Company to be held as soon as reasonably practicable after receipt from the applicable Member of a written notice served on each of the other Members or specifying the removal and/or election of the substitute shareholder Director and pending such general meeting shall produce that the Board shall appoint such candidate. If any Shareholder director ceases to hold office the Members shall procure the election of substitute nominated by the Member who appointed such Shareholder Director. 79. This article can also be analysed conveniently by dividing it in three sentences : Sentence I - Any shareholder director nominated and appointed pursuant to this Article 10 may at any time be removed and substituted by the member that nominated such shareholder director. Sentence II - The members agree to procure that any election pursuant to Article 10.3 and any such removal and/or election shall take place at a general meeting of the company to be held as soon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In any case such act of nomination by no stretch of imagination can be said to be oppression in the facts and circumstances of the instant case. 81. As regards the contention that the respondent Nos. 6 to 9 could not have been nominated vide letter dated 8th October, 2002 because EMC was in liquidation and was not authorised to nominate any directors, suffice it to say firstly that EMC is not a party impleaded in the company petition and, therefore, in their absence this aspect cannot be gone into. Besides that, in the proceedings under section 397, the correctness of the order of the Supreme Court in Mauritius appointing the provisional liquidators but at the same time allowing board to function and continue to manage the company affairs in all respects, can hardly be gone into. 82. All in all, the nomination of four persons as the shareholder directors to represent EMC by the letter dated 8th October, 2002 cannot be treated as an act of oppression. Re : ( v ) 83. Since the answer to the points Re ( ii )( a ) to ( d ), ( iii )( a ) and ( b ) is in the negative and with reference to point Re ( iv ) we have clarified the legal position about the proposed nom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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