TMI Blog2004 (11) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of majority Directors on the Board of the first respondent Bank before the Company Law Board. 2.2 After hearing all necessary parties, the Company Law Board satisfied that the Board of Directors had not been constituted in accordance with law for the first respondent Bank directed the second respondent to appoint three of its nominees on the Board with a view to have some checks and balances on the functioning of the Board. 2.3 Thereafter, by an order dated 14-8-2003, the Company Law Board directed the first respondent Bank to convene Annual General Meetings for the years 1996-97 to 2002-03, appointing a retired Judge of this Court, Hon ble Mr. Justice S. Ramalingam as Chairman, and gave certain directions. The operative portion of the said order dated 14-8-2003 reads as follows: "4. To ensure that the AGMs are held properly, in exercise of our powers under section 403 of the Act, and subject to any subsisting orders in any other pending proceedings in relation to appointment of directors and/or registration of transfer of shares (the Bank may take steps to get the orders vacated) we direct as follows: i. The Bank will convene and hold the AGMs for the years 1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares constituting 33.55 per cent are concerned, which are to be transferred in the names of four other companies, they will also be entitled to participate and vote but the votes would be counted only if by the time of holding the AGM, acknowledgement from RBI has been received in respect of these shares. vii. We appoint Justice Mr. S. Ramalingam (Retd.) to preside over all these meetings. He will fix his own fee in consultation with the Bank. To assist him in discharge of his assignment, we also appoint Shri B. Ravi and Shri R. Balasubramaniam, Practicing Company Secretaries who will work under the control and superintendence of the Chairman and their remuneration will be fixed by the Chairman. The remuneration for the Chairman and the Practising Company Secretaries shall be paid by the Bank. viii. Even though the Board of Directors of the Bank has proposed to hold the AGMs on 25-9-2003, the Chairman appointed by us shall decide, in consultation with the Bank, a suitable date for holding the AGMs one after the other on the same day. ix. Besides sending individual notices to the shareholders, the Bank will also publish the notice in an English and in a Tamil newspaper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prayed to set aside the election conducted on 12-3-2004. 2.7 The main contention of the appellants herein, who were the applicants in C.A. No. 46 of 2004 was that when 67 per cent of the shares were sold to Essar Group of Companies and said shareholders also executed power of attorneys in favour of the Essar nominees, till the said sale of shares are acknowledged by the Reserve Bank of India, their votes could not be taken into consideration. It was also brought to the notice of the Company Law Board that the said Essar Group of Companies subsequently sold the said shares to Sterling Group, who applied to the Reserve Bank of India for acknowledgement of the purchase of shares from Essar Group of Companies, and the Reserve Bank of India rejected the purchase of shares by the Sterling Group, and the same had become final and, therefore, the nominees of the Essar Group are not entitled to exercise their proxies, as the ultimate sale in favour of the Sterling Group was rejected by the Reserve Bank of India. According to the appellants, once the Reserve Bank of India refused to acknowledge the transfer of 67 per cent of the shares to four companies which belong to Essar group, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India assured us that the Reserve Bank will definitely take a decision and communicate the same to the Company within a period of two weeks from today. 27. We direct the Reserve Bank of India to complete the process within two weeks from today so that thereafter, in the event of the transfer being approved, notice of the AGM can be sent to the purchasers after bringing their names on record in the Register of Members, and in the event of permission being refused, notice of the meeting can be sent to persons in whose names those shares presently stand in the Register of Members. 28. The Company Law Board shall fix the date for holding the annual general meeting after giving sufficient time for the despatch of notice and that meeting shall as far as possible be held before the end of February, 2004 and in any event not later than 15-3-2004. 29. The Committee now constituted by the Company Law Board under the impugned order shall only take decisions with regard to day-to-day matters and the normal functioning of the bank and shall not embark upon any new major project or take any major decision affecting the future of the bank, as the directors to be elected by the general bod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant herein, who are the applicants in C.A. No. 46 of 2004, and also that of the elected members, referred to above, who are the respondents 4 to 13 herein, the Company Law Board in its order dated 13-7-2004 made in C.P. No. 15 of 2003 held that, ( i ) the Chairman was right in allowing the proxies of the powers of attorney holders to exercise votes and taking the votes into consideration; ( ii ) the purpose of the petition filed by the Central Government, second respondent herein, had served, ensuring that the first respondent-Bank is managed by the newly elected representatives; and ( iii ) accordingly, closed C.P. No. 15 of 2003 finding no further orders are required. 2.10 Aggrieved by the same, the applicants in C.A. No. 46 of 2004 have preferred the above appeal, on the following substantial question of law: "Whether the Company Law Board was correct in law in the various findings arrived at by it and whether the order of the Company Law Board is sustainable in law?" 3.1 During the course of the argument, the learned counsel for the Reserve Bank of India-third respondent herein, produced a letter dated 13-8-2004 passed by the Reserve Bank of India, claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders to exercise votes and taking the votes into consideration, is right under the facts and circumstances of the case. 7.1 In this regard, a reference to section 408 of the Companies Act, which was invoked by the Central Government, with reference to sections 397 and 398 of the Companies Act, in preferring C.P. No. 15 of 2003, are relevant to be referred to: "Section 408. Powers of Government to prevent oppression or mismanage-ment. (1) Notwithstanding anything contained in this Act, The Central Government may appoint such number of persons as the Tribunal may, by order in writing, specify as being necessary to effectively safeguard the interests of the Company, or its shareholders or the public interests to hold office as directors thereof for such period, not exceeding three years on any one occasion, as it may think fit, if the Tribunal, on a reference made to it by the Central Government or on an application of not less than one hundred members of the company or of the members of the company holding not less than one-tenth of the total voting power therein, is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the appointment or appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as director or additional director of a company in pursuance of sub-section (1) or sub-section (2), the Central Government may issue such directions to the company as it may consider necessary or appropriate in regard to its affairs and such directions may include direction to remove an auditor already appointed and to appoint another auditor in his place or to alter the articles of the company, and upon such directions being given, the appointment, removal or alteration, as the case may be, shall be deemed to have come into effect as if the provisions of this Act in this behalf have been complied with without requiring any further act or thing to be done. (7) The Central Government may require the persons appointed as directors or additional directors in pursuance of sub-section (1) or sub-section (2) to report to the Central Government from time-to-time with regard to the affairs of the Company. Section 397. Application to Tribunal for relief in cases of oppression. (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members including any one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Company, its shareholders and the public interest and to prevent oppression and mismanagement. Thus, the powers conferred under section 408 of the Companies Act are extraordinary in nature as the said powers require the Central Government virtually to step in and interfere with the day-to-day management of the Company through its nominated Directors in the case of oppression or mismanagement or a complaint that the Company is being managed in a manner prejudicial to the company s interest or public interest. 7.3 The power conferred on the Tribunal under section 397 of the Companies Act for the relief in the case of oppression and under section 398 of the Companies Act for the relief in the case of mismanagement are equally intended to safeguard the interest of the member or members as well as the shareholders, debenture holders, creditors, as well as in the interest of the Company and the public interest. In the instant case, there were sufficient materials placed before the Company Law Board by the Central Government to prove that there were acts of omissions and commissions attracting oppression of the interest of the members, shareholders, debenture holders, credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny banking company being conducted in a manner detrimental to the interests of the depositor or in a manner prejudicial to the interests of the banking company; or ( c ) to secure the proper management of any banking company generally; it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time-to-time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect" [Emphasis supplied] 7.8 Exercising the said power conferred under section 35A(1) of the Banking Regulation Act, 1949, The Reserve Bank of India had issued guidelines for acknowledgement of shares in private banks and, therefore, they have to be scrupulously given effect to. The powers conferred on the Reserve Bank of India under section 35A of the Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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