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TMI Blog2009 (11) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... even different companies constituting a group, known as ESSAR group of companies, purchased 1,91,455 shares from about 229 individual shareholders. The shares purchased by this group worked out to about 67 per cent of the total paid-up capital of the bank. When the transferees filed applications for effecting the transfers in the register of members, the board of directors rejected them, by a resolution dated 6-2-1995. 3. Aggrieved by the resolution of the Board, the transferee-companies filed company petitions in Company Petition Nos. 7 to 13 of 1995 on the file of the Southern Region Bench of the Company Law Board. The bank also filed petitions in Company Petition Nos. 30 and 31 of 1995, under section 250 of the Companies Act, 1956, for an investigation into the ownership of the shares sought to be transferred. Another petition was filed by some of the directors in Company Petition No. 39 of 1995 under section 409 of the Act. 4. All these petitions were disposed of by the Company Law Board by various orders, the effect of which was that the refusal to effect the transfers was held to be illegal. Consequently, a direction was issued to the bank to accept the transfers and then s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vene all the annual general meetings for the years 1996-97 to 2002-03. 9. However, a new problem cropped up with the board of directors suspending the chairman of the bank. On being informed of the same, the Company Law Board passed orders on 19-12-2003 reinstating the chairman and suspending all the other directors. The Company Law Board also directed that the bank would function under the supervision of a committee comprising of 2 nominees of the RBI and 2 nominees of the Central Government. The decision of the Company Law Board was to a great extent upheld by this Court in an appeal in CMA No. 3379 of 2003 [see P. Natarajan v. Central Government [2004] 51 SCL 76 (Mad.)]. 10. Subsequently, seven annual general meetings were held en bloc on 12-3-2004 under the chairmanship of a retired Judge of this Court, Mr. Justice S. Ramalingam. The right of the power of attorney agents to appoint proxies was questioned in that meeting, but the chairman allowed the proxies. 11. Thereafter, the 82nd annual general meeting was convened to be held on 24-12-2004. After the notice for the annual general meeting was circulated, an outfit known as Tamilnadu Mercantile Bank Shareholders' Associatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26-7-2006, S.R. Singaravelu, J. (as he then was), passed an order in those applications, permitting the 83rd annual general meeting to go on, in respect of agenda items 1, 2 and 6, but directing the postponement of agenda items 3 to 5, which related to election of directors. 15. In the meantime, two directors by name M.G.M. Maran and B. Ramachandra Adityan (who are defendants 20 and 19, respectively, in CS No. 481 of 2008), entered into agreements with the Sterling group. By that agreement dated 10-3-2006, these two directors were authorised to identify buyers, to whom shares could be sold in consonance with the guidelines issued by the Reserve Bank of India and other applicable laws. In accordance with the said agreement, these two directors (of whom one is the applicant herein) identified resident Indian investors, who agreed to buy small percentage of shares, aggregating to 10 per cent. They also identified 9 non-resident Indians and foreign institutional buyers, each of whom agreed to buy less than 5 per cent shares, aggregating to 23.6 per cent of the shares. 16. After identification of the buyers, these two directors wrote a letter dated 4-12-2006 to the Executive Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made an endorsement abandoning their claim as against defendants 12 to 19. Consequently, CS No. 491of 2007 was dismissed as against defendants 12 to 19 therein. 20. At this stage, taking a sudden u-turn, the board of directors of TMB passed a resolution on 17-3-2008 restricting the voting rights of the foreign investors to 10 per cent, in terms of section 12(2) of the Banking Regulation Act. The resolution was forwarded to the Reserve Bank of India on 20-3-2008. This resolution ran contrary to the earlier resolution dated 13-5-2007. 21. In the meantime, the bank took out an application in A. No. 23 of 2007 seeking suitable directions for holding the 84th annual general meeting. In that application, an order was passed by me on 27-3-2008 appointing Justice R. Balasubramanian (Retired) as the chairman for holding the 83rd, 84th and 85th annual general meetings and also extending the time for holding the meetings up to 6-6-2008. Immediately after the said order, the TMB also communicated to the foreign investors by a letter dated 23-4-2008 that their voting rights will be restricted to 10 per cent, by virtue of the resolution of the board of directors dated 17-3-2008. 22. On coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies appointed by the same set of shareholders, in favour of different persons. The chairman, therefore, evolved a set of formula, with the assistance of two experts appointed by him, and submitted sealed covers containing the results of the election. 25. After the Court re-opened after summer recess on 6-6-2008, the applications in OA Nos. 534 to 536 of 2008 in CS No. 481 of 2008 were listed and the learned counsel appearing for the TMB submitted the sealed covers containing the report of the chairman of the meeting. The sealed covers were then opened by me in the open Court, in the presence of all the learned counsel, on the same day, viz., 9-6-2008. The report of the chairman contained three different sets of results that were possible of production. The projection of the results under three different possibilities were,- (i)The possible outcome if the holders of all the disputed shares or their proxies, were permitted to vote fully; (ii)The possible outcome if the voting rights of the holders of the disputed shares were restricted to 10 per cent; (iii)The possible outcome if the holders of the disputed shares were denied voting rights in full. 25.1 I read out in open Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in the contempt application filed by the plaintiff in CS No. 481/2008 was disposed of. 27. As against the order passed on 23-6-2008, dismissing their injunction applications, the plaintiffs filed appeals in OSA Nos. 274 to 277 of 2008. These appeals were dismissed by the Division Bench with costs of Rs. 25,000, by an order dated 4-9-2008. The special leave petitions, arising out of the judgment of the Division Bench, were also dismissed by the Supreme Court in SLP (C) Nos. 26996-26999 of 2008 by order dated 21-11-2008. 28. As against the initiation of contempt proceedings by the plaintiffs against the managing director of the bank, two third parties, who had secured sufficient votes in the elections held on 5-6-2008 to be declared elected, filed contempt appeals. Since the very maintainability of these appeals were questioned, a Division Bench of this Court considered the issue in detail and passed an order dated 29-7-2008, holding the appeals to be maintainable. The plaintiffs filed special leave petitions against these orders of the Division Bench, but the Supreme Court dismissed the same with heavy costs reported in Tamilnadu Mercantile Bank Shareholders Welfare Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly in respect of 17,780 shares. 31.1 In other words, the applicant herein wants the declaration of the results, after excluding the votes in respect of above 1,07,581 shares. 32. The contentions of Mr. C. Harikrishnan, learned senior counsel appearing for the applicant/19th defendant, are as follows :- (a)The defendants 10 to 18, who, together purchased 70,906 shares, were found to have 'acted in concert' and actually constituted a 'group'. Therefore, the board of directors of the bank resolved on 26-5-2008, to keep in abeyance all the rights attached to these equity shares. The board of directors had necessary powers to pass such a resolution, in view of section 291 of the Companies Act, 1956. Though section 9 of the Companies Act confers overriding effect for the provisions of the Act, both upon the memorandum and articles of the company and upon any resolution passed and though section 87(1) of the Act confers a right to vote upon every member of a company, in proportion to his share of the paid-up capital of the company, the learned senior counsel contended that by virtue of section 616(b), the provisions of the Companies Act would apply to banking companies only insofar as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegedly executed by them in respect of their 13,289 shares ought to have been rejected. It is also the contention of the applicant that the 20th defendant had received a sum of Rs. 31 crores for the transfer of the shares in favour of the 10th defendant at a time when he was the chairman of the bank. Therefore, the votes polled by them in the election were liable to be rejected. (c)The votes polled by P.S. Sathyaseelan and C.S. Rajendran, both on their own behalf and as proxies for others, were also liable for rejection, since they entered into a compromise with some of the transferees and attempted to withdraw the suits instituted by them in a representative capacity, in CS Nos. 491 of 2007 and 1099 of 2007. Therefore, according to the applicant, these persons had also become part of the 'group' of transferees and, hence, their votes were also liable to be rejected. (d)In the meeting held on 5-6-2008, the chairman appointed by this Court rejected the proxies representing 24,717 shares, from out of the proxies lodged by the applicant in respect of 80,369 shares. The reason stated by the chairman for the rejection of these proxies was that if two proxies had been executed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GM convened on 5-6-2008 under orders of this Court along with the agenda for the 84th and 85th AGMs. Article 97 of the articles of association, which is in tune with section 255 of the Companies Act, 1956, makes one-third of the directors liable for retirement by rotation. Since the 82nd, 83rd, 84th and 85th meetings related to the years 2003-04, 2004-05, 2005-06 and 2006-07, respectively, any person elected in the 83rd AGM cannot hold office beyond the 86th AGM. Since 86th AGM relates to the year 2007-08, the AGM should have been convened either before 30-9-2008 or at least before 31-12-2008 with the permission of the Registrar. A director, who is liable to retire, cannot continue in office, merely because of non-convening of the AGMs. (b)4 directors by name R. Kannan Adityan, B. Ramachandra Adityan (applicant herein), Selva Ganesh and M.G.M. Maran, who were liable to retire by rotation in the 84th AGM, ceased to be directors on 5-5-2007 as the 84th AGM was not held on time. They were co-opted as additional directors on 5-5-2007 and, hence, they could at best hold office till the 85th AGM. Consequently, there were four vacancies even in the 84th AGM, which was not notified by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI had indicated in paragraph-20C of his order dated 12-10-2009 that the request made to him, not to take into account the voting on 95,898 shares, in the elections held on 83rd, 84th and 85th AGMs, cannot be accepted, since the matter is sub judice before this Court. In such circumstances, the Executive Director issued a direction in paragraph 21 of his order to the Tamil Nadu Mercantile Bank to approach RBI along with full details in the format enclosed, for the acknowledgement of transfer of shares in favour of the aforesaid transferees. 37. Apart from bringing to my notice, the order passed by the Reserve Bank of India, Mr. A.L. Somayyaji, learned senior counsel for the bank, submitted the following, for my consideration :- (i)The bank is now being managed only by two nominee directors of the Reserve Bank of India and the managing director, who were authorised by this Court only to carry on the day-to-day administration. Since a full-fledged board of directors is not in place, policy decisions could not be taken and the stress on the management is increasing day by day. A lot of vacancies have arisen in various cadres of employees, which could not also be filled up. (ii)All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the contestants have not chosen to challenge the election. The learned senior counsel further submitted that the entire controversy in the suit relates only to 95,418 shares and that even if the votes in respect of these shares are totally excluded, his client gets elected. Therefore, the learned senior counsel pleaded that the results should be declared. 39. Mr. R. Murari, learned counsel appearing for the 31st defendant, took exceptions to the very maintainability of the application, on the ground that the prayer in this application travelled beyond the scope of the suit. At any rate, a harmonious construction of sections 87 and 616(b ) of the Companies Act, 1956, with section 12(2) of the Banking Regulation Act, would show that there was no bar on transfer of shares. The learned counsel also requested me to look at the metamorphosis in the stand taken by the applicant herein as a member of the Board, from 13-5-2007 to 26-5-2008. In the meeting of the board of directors held on 13-5-2007 the transfer of these 95,418 disputed shares were approved by the Board and the applicant herein was a party to the resolution. However, in the next meeting held on 17-3-2008, the board of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement for the purchase of shares could be gone through. This cannot be taken to amount to 'acting in concert'. The very same applicant and the 20th defendant did not think that these defendants constituted a group, when they spotted these defendants, negotiated with them, made them agree to buy the shares and also wrote letters to RBI and went to the extent of passing Board resolutions. Therefore, the sudden volte face on the part of the applicant, according to the learned senior counsel, should not be allowed, especially in view of the fact that the applicant himself has not made any specific averment as against these defendants at any point of time. Moreover, it is the contention of the learned senior counsel that if more than two persons should be taken to be acting in concert, merely because of the number of proxies delivered by them, the applicant would also get disqualified, since he himself lodged proxies in respect of 80,369 shares. The learned senior counsel also relied upon certain decisions to highlight that the transfer of shares could not be categorised as void transactions and that, therefore, the question of curtailing their voting rights would not arise. 41. Mr. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application. 44. Mr. C. Mohan, learned counsel appearing for the Reserve Bank of India, after taking me through the contents of the written statement filed by the Reserve Bank of India and also the various guidelines issued by the RBI from time to time, in exercise of the power conferred by section 35A of the Banking Regulation Act, 1949, submitted that, by the order dated 12-10-2009, the Executive Director has directed the Tamilnad Mercantile Bank to submit proposals in the enclosed format for considering the question of grant of acknowledgement. This, according to the learned counsel, being a statutory requirement, should necessarily be complied with. Even while pointing out this stand of the RBI, the learned counsel submitted that from 9-6-2008, the Tamilnad Mercantile Bank is carrying on its activities only with a managing director and two nominee directors of the RBI and that it is always the endeavour of RBI to ensure that a full complement of board of directors take over the day-to-day affairs. In the notes of submissions made by the learned counsel for the RBI, it is stated that the participation of two nominee directors in the day-to-day affairs, involves a serious co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 26-5-2008, by which all the rights including the voting rights of foreign investors relating to 70,906 shares were decided to be kept in abeyance. The third was the fax message sent by the Reserve Bank of India on 30-5-2008 to the effect that the Reserve Bank had earlier given its approval for the transfer of 53,611 shares, after examining the proposal from various regulatory angles, on the basis of the information furnished at that point of time and that since the issue became subjudice, the RBI was unable to comment upon the second resolution of the Board dated 26-5-2008. (e)After the discussions, the chairman was requested by some to decide on the validity of the resolutions of the board of directors dated 17-3-2008 and 26-5-2008. However, the chairman took a decision to leave it to the Court to decide this issue. He also decided to allow every eligible shareholder to exercise his voting right in proportion to the number of shares held by him. Consequently, the chairman directed the consultants (described as 'scrutineers') to prepare the results of the election, after everyone is allowed to vote, on the following lines :- (i)Result that would be produced by applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the meetings. (i)Two representations were made to the chairman. One was by the plaintiff in CS No. 981 of 2004, to count the votes in respect of the transferred shares, viz., 95,418 shares separately and to put them in a separate cover. The other representation was by one Mr. Soundarapandian, alleging that the proxies lodged by M.G. Muthu and his son, M.G.M. Maran, were forged ones. (j)Before the commencement of the meeting on 5-6-2008, the bank furnished the list of valid and invalid proxies, arrived at after a strict scrutiny. The list is as follows :- No. of proxies No. of shares Valid proxies 11,065 2,01,468 Invalid proxies 4,389 24,717 Total 15,454 2,26,185 (k)After disposing of all other items in the agenda for all the three AGMs, the chairman took up the agenda relating to election of directors. He found that there were three directors who were retiring by rotation, out of whom two did not offer for reappointment. There were four additional directors appointed by the Board, out of whom, two had completed a term of eight years, beyond which they cannot continue on account of statutory bar. Therefore, the chairman found that there were three vacancies d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Thirukumar Vethanayagam 84,714 5 S. Ganapathy 84,562 6 P. Yesunathan 81,.069 7 47. Thus, it is seen from the results compiled by the chairman and the consultants that insofar as the 83rd AGM is concerned, there was no variation in the results between the situation in which all votes are considered and the situation in which the voting rights in respect of the disputed shares are restricted to 10 per cent. However, the results vary, in respect of two out of three directors, if all the voting rights relating to the disputed shares are frozen. But insofar as the 85th AGM is concerned, there is no variation in the results at all, under all the three possible alternatives. In other words, it is the very same set of seven persons, who would get elected as directors, in the 85th AGM, irrespective of whether all votes are considered or all votes are rejected or the voting rights are curtailed to 10 per cent. 48. Keeping the above dynamics in mind, let us now scan the contentions raised by the applicant. As pointed out earlier, the contentions of the applicant (i) raised in the affidavit in support of this application, (ii) raised in the additional affidavit filed in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing right on a poll shall be in proportion to his share of the paid-up equity capital of the company." 49.3 Section 182 of the Companies Act, 1956, reads as follows :- "182. Restrictions on exercise of voting right in other cases to be void.-A public company, or a private company which is a subsidiary of a public company, shall not prohibit any member from exercising his voting right on the ground that he has not held his share or other interest in the company for any specified period preceding the date on which the vote is taken, or on any other ground not being a ground set out in section 181." 49.4 Section 616 of the Companies Act, 1956, reads as follows :- "616. Application to Act to insurance, banking, electricity supply and other companies governed by Acts.-The provisions of this Act shall apply- (a)to insurance companies, except insofar as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 (IV of 1938); (b)to banking companies, except insofar as the said provisions are inconsistent with the provisions of the Banking Companies Act, 1949 (X of 1949);" 50. Coming to the provisions of the Banking Regulation Act, 1949, it is seen that simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o minimum paid-up capital and reserves, contains a non obstante clause which excludes the applicability of section 149 of the Companies Act. (iv)Section 12(3) containing a non obstante clause bars a suit or other proceedings against any person registered as the holder of a share in a banking company on the ground that title to the share vests in another person, notwithstanding anything contained in any law. (v)Section 13 restricting the payment of commission, brokerage, discount, etc., on sale of shares, applies to a banking company notwithstanding anything to the contrary contained in sections 76 and 79 of Companies Act, 1956. (vi)Section 15(2) enabling a banking company to pay dividend on its shares, contains a non obstante clause, excluding the provisions of the Companies Act. (vii)Section 20 restricting the grant of loans or advances on the security of its own shares, is made applicable to a banking company, notwithstanding anything to the contrary contained in section 77 of the Companies Act. (viii)Section 20A restricting the power of a banking company to remit certain types of debts, applies notwithstanding anything to the contrary contained in section 293 of the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 1956. (xix)Section 42 enables the High Court to dispense with any meetings of creditors or contributories, in any proceedings for the winding up of a banking company, notwithstanding anything to the contrary contained in section 460 of the Companies Act. (xx)Section 43 raises a rebuttable presumption in favour of a depositor of a banking company, notwithstanding anything to the contrary contained in section 474 of the Companies Act. (xxi)Section 44(1) restricts the right to voluntary winding up, of a banking company, notwithstanding anything to the contrary contained in section 484 of the Companies Act. However, the power of the High Court to order the winding up of a banking company, under section 44(3) is made without prejudice to the provisions of sections 441 and 521 of the Companies Act. (xxii)Sections 44A and 44B, respectively prescribing the procedure for sanctioning a scheme of amalgamation or a compromise or arrangement in respect of a banking company, have non obstante clauses, excluding anything contained in any law for the time being in force. (xxiii)The power of the Reserve Bank to seek moratorium in respect of a banking company under section 45(1) is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this scheme of the Banking Regulation Act, 1949, in mind, let us now see what section 12(2) of the Banking Regulation Act, 1949, around which the case of the applicant spins, says. Section 12(2) of [the] Banking Regulation Act, 1949, reads as follows :- "12(2) No person holding shares in a banking company shall, in respect of any shares held by him, exercise voting rights on poll in excess of ten per cent of the total voting rights of all the shareholders of the banking company." 54. It is interesting to note that while sub-section (3) of section 12 contains a non obstante clause in relation to any law for the time being in force, while barring the institution of a suit against a shareholder, sub-section (2) does not contain such a non obstante clause, either in relation to the Companies Act or in relation to any other law. The Legislature, while amending the Banking Regulation Act, 1949 (after the advent of the Companies Act, 1956) and even while enacting the Companies Act, 1956, must be presumed to have taken note of sections 9, 87 and 182 of the Companies Act, 1956. This is why, section 616(b) of the Companies Act, 1956, made the provisions of the Companies Act, applicable ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y limited by shares and holding an equity share capital. There is no provision in the Banking Regulation Act which is inconsistent with section 87(1)( a) of the Companies Act. Even section 12(2) of the Banking Regulation Act is not inconsistent with section 87(1)(a) of the Companies Act. But section 87(1)(b) which confers voting right upon a member, in proportion to his share of the paid-up capital, is inconsistent with section 12(2) of the Banking Regulation Act, 1949, which restricts such voting right of any single member, only to 10 per cent of the total paid-up capital. Therefore, despite section 87(1)(b) of the Companies Act, 1956, conferring voting rights in proportion to one's shareholding, the restriction under section 12(2) of the Banking Regulation Act, 1949, would still apply, on account of section 616(b) of the Companies Act, 1956, itself. Even section 182 of the Companies Act, which declares as void, any restriction on the exercise of voting rights of a member of a public company, may not stand against section 616(b ). This is because the mandate under section 182 is primarily against the company. It says, in simple terms, that a public company shall not prohibit any m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows :- (a)By the Circular dated 16-4-1994, the RBI made it necessary for the banks to make a reference to them, even when individual allotment/ transfer of shares is for less than 1 per cent of the paid-up capital of the bank, if a dubious method was adopted to get over the ceiling and to camouflage the purpose of cornering of shares by individuals/groups. The boards of directors of the banks were also directed to await Reserve Bank's acknowledgement, for approving the registration of the transfers in their books. (b)By the Circular dated 21-9-1999, the ceiling limit of 1 per cent was increased to 5 per cent. But the other instructions contained in the earlier Circulars were retained. (c)By the Circular dated 3-2-2004, a set of detailed guidelines was issued, for the purpose of streamlining procedure for obtaining acknowledgement and removing uncertainties for investors, including foreign investors. In paragraph 3 of the said Circular, the private sector banks were directed to ensure, through an amendment to the articles of association, that no transfer takes place, of any acquisition of shares to a level of 5 per cent or more of the total paid-up capital of the bank, unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Reserve Bank in exercise of the power conferred under section 35A of the Banking Regulation Act, 1949, either (i) in public interest, or (ii) in the interest of the banking policy, or (iii) to prevent the affairs of the banking company being conducted in a manner prejudicial to the interest of the depositors or the company, or (iv) to secure the proper management of the banking company. 62. The Reserve Bank of India Act, 1934, defines the word 'bank' under section 2(aii) to mean the Reserve Bank of India constituted by the Act. Under section 3, the Reserve Bank is constituted as a statutory corporation wholly under the control of the Government of India. Section 7 of the Act speaks of the management of the Reserve Bank. Sub-sections (2) and (3) of section 7 vest with the Central Board of Directors and the Governor and in his absence the Deputy Governor, all the powers to do all acts and things that may be exercised or done by the bank. Section 7 of the Reserve Bank of India Act, 1934, reads as follows :- "7. Management-(1) The Central Government may, from time to time, give such directions to the bank as it may, after consultation with the Governor of the bank, consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policy decisions taken by the Central Board or by the Governor/Deputy Governor or about the delegation of their powers in favour of the Chief Officer/Deputy Chief Officer/Chief General Manager. 63. By the above observations, I am neither suggesting that those Circulars do not have the force of law nor am I coming to a conclusion that they do not fall within the ambit of section 35A. I am not concerned in this case, either with the validity of those Circulars or with their applicability to the situation on hand. The only purpose for which I have gone into greater detail into the contents and the scope of the Circulars is to find out how far the contention of the appellant on the basis of these Circulars would hold good. 64. From the above limited perspective, if we analyse the provisions of the Companies Act, 1956, the provisions of the Banking Regulation Act, 1949, and the above Circulars issued by the RBI, it appears, prima facie, that there is no total prohibition or absolute bar on the transfer of shares. There is also no total and blanket restriction on the voting rights of such transferees. The picture that emerges from cumulative consideration of the provisions of both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y authority of law. Despite being conscious of this, the Parliament thought fit, not to curtail, through section 12(2) of the Banking Regulation Act, 1949, the property rights of a person, which include the right to dispose of the property, viz., the shares. On the other hand, section 12(2) sought to curtail only the voting rights attached to these shares, in view of the fact that they are conferred either by contract or by statute or by both. Since voting rights are either contractual or statutory rights, the Companies Act, 1956, envisaged the possibility of such voting rights being curtailed by contract, viz., the articles of association. In order to prevent such contractual contraception, the Companies Act contains section 9, which confers overriding effect to the provisions of the Act upon the memorandum and articles of association of a company. The Act also contains several provisions under sections 87 to 90, dealing with the voting rights in detail. 67. Therefore, two things are very clear from a careful reading of the Banking Regulation Act, 1949, and the Companies Act, 1956, viz.,- (i)that the Companies Act recognises the property rights of a shareholder in a public compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted to an acknowledgement from the RBI, the contention of the applicant was that they did not. I have carefully avoided going into this question, in view of the latest development in the form of the letter dated 12-10-2009 issued by the Executive Director of the Reserve Bank of India. I have also not gone into the question of correctness of this letter dated 12-10-2009 of the RBI, as it is beyond the scope of the present application. I have only analysed the provisions of the Companies Act and the Banking Regulation Act as well as the impact of the Circulars issued by the Reserve Bank of India, just for the purpose of testing the first contention of the applicant that these transfers are invalid and that they confer no voting rights. 71. In fine, I am of the considered view, in the light of the above discussion, that the voting rights of the transferees could at the most be restricted to 10 per cent but cannot be washed out. Since the chairman of the meeting has provided the possible outcome of the elections, even in a situation where the voting rights of the transferees are confined to 10 per cent, it is not possible to stretch the legal provisions to the extent of annulling th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as pointed out by Bowen, L.J., in Harben v. Phillips [1883] 23 Ch D 14, 'to act together in the conduct of a business, the way in which that business is to be carried on must depend on each case on the contract, express or implied, which exists between them as to the way of carrying it on'. The decision on every question relating to the business of an incorporated company should essentially be that of the shareholders, having regard to their interest in the company. Unless, therefore, there was a contract between the company and the shareholders, they could not delegate this power of expressing their opinion at a meeting of the company to another. These propositions are so well established as not to require citation of a number of authorities in support of them. It is summarised in Palmer's Company Law, 19th Edition, at page 153. A proxy is defined by Lord Hanworth, M.R., in Cousins v. International Brick Co. [1931] 2 Ch 90 as 'a person representative of the shareholder who may be described as his agent to carry out a course which the shareholder himself has decided upon' and the Lord Justice in the same case defined a proxy as an agent of the shareholder who, as between himself an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal should be denied his right to revoke a contract which brought about the relationship of principal and agent. The articles might make the proxy irrevocable or impose restrictions or circumscribe the limitations within which the power of revocation should be exercised. But all these are matters within the region of contract between the parties and, in the absence of anything to the contrary, there is no reason to exclude the right of revocation which is recognised under section 203 of the Contract Act. There are other limitations imposed by the Contract Act on the exercise of the power of revocation, e.g., if the revocation is made after the authority had been partly exercised, section 204 of the Act preserves the validity of such acts and obligations and makes the revocation effective only in respect of future acts. If the agency is limited to a period of time and without sufficient cause it is revoked before the expiry of the period, under section 205 the agent is entitled to compensation. The principal is bound to give reasonable notice of revocation as otherwise he would be liable to pay damages to the agent which result from such act of his. As regards third persons, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as amended in 1936. But the Company Law Committee, while recommend- ing a new provision for proxies in the 1956 Act, observed that the provisions relating to proxies in the 1913 Act, constituted one of the least satisfactory features of the 1913 Act. Therefore, the decision in S.RM.S.T. Narayanan Chettiar's case (supra) has to be seen in the backdrop of section 176 of the Companies Act, 1956. 77. Section 176 of the Companies Act, 1956, reads as follows :- "176. Proxies.-(1) Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of himself; but a proxy so appointed shall not have any right to speak at the meeting : Provided that, unless the articles otherwise provide- (a)this sub-section shall not apply in the case of a company not having a share capital; (b)a member of a private company shall not be entitled to appoint more than one proxy to attend on the same occasion; and (c)a proxy shall not be entitled to vote except on a poll. (2) In every notice calling a meeting of a company which has a share capital, or the articles of which provide f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by the articles. (7) Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company, provided not less than three days notice in writing of the intention so to inspect is given to the company." 78. Two significant features are to be noticed in section 176. The first is that by virtue of clause (b) of the proviso under sub-section (1) of section 176, a member of a private company is not entitled to appoint more than one proxy to attend on the same occasion, unless the articles provide otherwise. No such restriction is found in respect of a member of a public company. The second feature is that, by implication, sub-section (2) of section 176 enables a shareholder of a public company to appoint one or more proxies, where it is permitted by the articles. In other words, a shareholder is entitled to appoint different proxies for different shares. But if he appoints more than one person as proxy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting, despite appointing a proxy earlier, and seeks to exercise his right to vote (even before the proxy could cast his vote), three things would become obvious, viz., (i) that there is implied revocation; (ii) that the revocation becomes known to the agent; and (iii) that it also becomes known to third parties, viz., the company and the other shareholders. This is because of the fact that the shareholder, the proxy holder and the third parties are physically present at the same time at the same venue. 82. But when two proxy holders stake rival claims, the chairman would only have two options, viz., (i) either to contact the shareholder and get a confirmation as to which of the two proxies would terminate the other, or (ii) to take a decision on the spot, depending upon the information filled up in both the proxy forms, if he is unable to contact the shareholder. 83. While exercising the second option, out of necessity, it is not possible for the chairman of a meeting to conduct a roving enquiry, as to whether both the proxy forms were filled up by the shareholder himself, indicating the date and time thereon or whether the date and time were filled up by the proxies themselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting, given the time constraint. Therefore, if the chairman simply goes by the dates indicated in both the forms and allows the proxy holder holding the form that carries a later date, he cannot be found fault with. Similarly, if the chairman rejects both the forms on the ground that both carry the same date, the said decision cannot also be said to be arbitrary or illegal. Theoretically it can be argued that a proxy executed at 11.00 a.m., on a day, revoked by implication, the one executed at 10.59 a.m., on the same day. But it would be too much to expect the chairman of a meeting to hold an enquiry about the time at which the proxies could have been executed by the shareholder. Though the right to vote is a valuable right conferred by statute, a shareholder who distributes proxies like pamphlets because of being fickle minded or trades with them at the time of elections, by executing more than one proxy, cannot be allowed to contend later on that he lost a valuable right. 86. Therefore, I am of the considered view that the chairman was right in accepting the form that carried a later date and rejecting both forms if they carried the same date. This is why, as rightly pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meeting. But his proxies were admittedly present. It is seen from the report of the chairman that about 21 persons contested in the election, for the post of seven directors, in the 85th AGM. None of them have so far raised any objection. 90. In Choppington Collieries Ltd. v. Johnson [1944] 1 All ER 762, a similar question arose. The notice for the 17th ordinary general meeting con- tained three items of agenda, viz., (i) to receive the report of the directors and the accounts of the company to 31-12-1943, with the auditors' report thereon, (ii) to elect directors, and (iii) to appoint auditors for the ensuing year. Along with the second item, there was included a line reading 'in accordance with the articles of association Mr. C.W. Coan retires and, being eligible, offers himself for re-election'. A motion for amendment and later a substantive motion were moved for electing three other persons as directors, apart from C.W. Coan. The motions were rejected by the chairman, on the ground that the notice for the meeting was confined to the election of one director. The Chancery Division held that the chairman was wrong both in refusing to allow the amendment and in not putting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to fulfil this prescription. As seen from the report of the chairman, 21 persons fulfilled the requirements and contested for seven vacancies. Therefore, it appears that the shareholders rightly understood the agenda for the meeting, participated in the poll, exercised their voting rights and accepted the results without any murmur. In such circumstances, the third contention that the election of four out of seven directors in the 85th AGM was invalid for want of notice cannot be accepted. 92. Though article 71 of the articles of association of Tamil Nad Mercantile Bank stipulates that 'no general meeting, annual or extraordinary shall be competent to enter upon, discuss or transact any business which has not been mentioned in the notice convening such meeting', article 100 gives a leverage. It reads as follows :- "The bank at any annual general meeting at which any directors retire in the manner aforesaid may fill up the vacated offices by electing a like number of persons to be directors and may fill up any other vacancies." 92.1 Therefore, the election held for filling up seven vacancies cannot be held to be vitiated for want of inclusion of an agenda in the notice for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art from the applicant, no other shareholder, out of those holding 2,37,514 shares, who participated in the poll, has so far raised any objection. Therefore, the third contention of the applicant is also rejected. Fourth contention (no purpose will be served in declaring the results) 94. It is the contention of the applicant that no purpose will be served in declaring the results of the elections held in the 83rd and 85th AGMs, since the very tenure of office of those elected, had expired. This contention is raised on the basis that the 83rd and the 85th AGMs related to the years ending 31-3-2005 and 31-3-2007 respectively. Therefore, these meetings ought to have been convened on or before 30-6-2005 and 30-6-2007. The Registrar of Companies is entitled to extend the time by a period not exceeding three months. Therefore, according to the applicant, the meetings could have been held at the most before 30-9-2005 and 30-9-2007, respectively. The directors elected in the 83rd AGM, would have got elected in the normal course, at the latest by 30-9-2005 and, hence, they would have retired by 30-9-2008. Alternatively, a person elected in the 83rd AGM has to retire in the 86th AGM. The 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iday, till the next succeeding day which is not a public holiday, at the same time and place, and if at the adjourned meeting the places of the vacating directors are not filled up, the vacating directors or such of them as have not had their places filled up, shall, subject to the provisions of section 256(4)(b) of the Act be deemed to have been re-elected at the adjourned meeting." 97.1 The above article 101 is in tune with section 256(4) of the Act. If the directors elected at a particular meeting would cease to hold office on the last date for convening the meeting in respect of the year in which their tenure would come to an end, there is no scope for article 101 containing a deeming fiction. It must be noted that the deeming fiction under article 101 comes into play even in cases where a meeting is held but the vacancies are not filled up either at the same meeting or at the adjourned meeting. Let us take for instance a case where the AGM is held exactly on the last day, but no election takes place. By virtue of section 256(4) and article 101, the meeting would get adjourned to next week and if none get elected even in the adjourned meeting, the vacating directors would be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes Ltd., In re [1914] 1 Ch 883 has also been approved and quoted in all well-known Treatises on Company Law, viz., Buckley's Companies Acts 14th edition, page 1014; Gore-Browne on Companies 44th edition, 1986, paragraph 25-16 and Palmer's Company Precedents (17th edition, page 598)}." 99. But the above principle has been evolved to prevent directors from taking advantage of their own wrongs, in not convening the annual general meetings and thereby continuing in office beyond the period up to which they are statutorily entitled to. However, in the case on hand, it is not the directors who have delayed the holding of the meetings. The directors elected at the 83rd and 85th AGMs, have not even assumed office. They are actually waiting in the wings from the date of the election, viz., 5-6-2008. It is not the object behind section 256 to make an appointment entirely on paper and to declare the retirement, also on paper, without the elected person assuming office even for a single day. We must remember that section 256(1) merely makes a director who is liable to retire, to bow out of office, at the annual general meetings. The Act by itself does not speak of the liability to retire on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was a booty (of Rs. 31 crores) which was not shared. Therefore, I reject the first ancillary contention. 102. Insofar as Sathiyaseelan and Rajendran are concerned, the compromise reached by them with some of the defendants cannot per se make them part of the 'group'. If it is so, the applicant himself is guilty of lodging more than 80,000 proxies. If all his votes had gone in favour of a few individuals, he is also to be treated as part of a group, though different from the one he is now attacking. Therefore, the second ancillary contention is also rejected. 103. Though on the basis of my conclusions on the contentions raised by the applicant, the present application is liable to be dismissed, I need to consider the submissions of Mr. Vedantham Srinivasan, learned counsel, appearing for the 12th defendant in CS No. 981 of 2004 and the submis- sions of Mr. V. Narayanan, learned counsel, appearing for the first plaintiff in CS No. 481 of 2008. 104. The contentions of Mr. Vedantham Srinivasan, learned counsel, for the 12th defendant in CS No. 981of 2004 are: (i) that without obtaining an acknowledgement from RBI, the transfer of shares is void, in view of section 12(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has only directed the Tamil Nad Mercantile Bank to file necessary forms. Therefore, the contract cannot be said to have been frustrated. 109. Though an early hearing of the suit is not only warranted but also already suggested by the Apex Court, it does not mean that the results of the election need not be declared. After a long drama with several twists and turns matching only a tele serial, the time for holding the AGM was extended, a chairman was appointed and the whole exercise has been carried out. The election was conducted way back on 5-6-2008. Till date, the results could not be declared, article 89 of the articles of association of the company prescribes a minimum of seven and maximum of eleven directors. By virtue of the orders passed by me in OA Nos. 534 to 536 and 621 of 2008 on 9-6-2008, the board of directors holding office at that time got disbanded. Ever since then, a truncated Board comprising of one managing director and two nominee directors of the Reserve Bank of India alone are holding office. Therefore, the Reserve Bank of India itself has sought for the declaration of results at the earliest on the ground that it is not possible for their nominee directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.R. Arvind Kumar have been elected under two contingencies, viz., (i) when all the votes are considered, and (ii) when the voting rights are restricted to 10 per cent. But if all the votes relating to the disputed shares are ignored, (1) S.C. Sekar, (2) P.H. Arvindh Pandian and (3) A. Venugopalan would get elected. Therefore, in my considered view, (1) S.C. Sekar, (2) V.V.D.N. Vikraman and (3) S.R. Arvind Kumar could be declared to have been elected, since their election would not be violative of section 12(2) of the Banking Regulation Act, 1949. Moreover, these three persons are going to hold office only till the next annual general meeting (86th), which has already become overdue and for which the time has been extended by the order dated 8-10-2009. Therefore, the declaration of their results is not of serious consequence, considering the short tenure that they have. 112. In view of the above, the application A. No. 2954 of 2008 is dismissed. The Tamil Nad Mercantile Bank is directed to declare (1) S.C. Sekar, (2) V.V.D.N. Vikraman and (3) S.R. Arvind Kumar to have been elected in the 83rd annual general meeting. The bank shall also declare (1) P. Mahindravel, (2) B. Prabhakara ..... X X X X Extracts X X X X X X X X Extracts X X X X
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