1997 (9) TMI 437 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the appointment of the Managing Director.
2. Compliance with the joint venture agreement and Articles of Association.
3. Maintainability of the petition under Section 9(ii)(e) of the Arbitration and Conciliation Act, 1996.
4. Interim measures sought by the petitioner.
5. Arbitration proceedings and their impact on the current dispute.

Issue-wise Detailed Analysis:

1. Legality of the Appointment of the Managing Director:
The petitioner argued that the appointment of Mr. R.S.S.L.N. Bhaskarudu as Managing Director was illegal, void, invalid, and ultra vires. They asserted that the resolution for his appointment was never passed and could not have been passed as the nominees of the petitioner-company had rejected it. The petitioner further contended that if the resolution had been put to vote, it would have been defeated by a margin of 5 to 4. Additionally, the petitioner claimed that there was no vacancy on 27-8-1997, as the previous Managing Director's term was to expire only after the 5th annual general meeting of shareholders scheduled for 22-9-1997.

2. Compliance with the Joint Venture Agreement and Articles of Association:
The petitioner emphasized that the respondents failed to comply with Article 5.4 of the joint venture agreement, which required all major corporate decisions to be made only after consultation and concurrence with Suzuki Motor Corporation. The petitioner argued that the concurrence of their nominees was not obtained, rendering the purported resolution dated 27-8-1997 ineffective. The respondents countered that the amended joint venture agreement dated 2-6-1992, particularly Article 5.2, did not require consultation before the appointment of the Managing Director. They argued that the Government had the right to designate the Managing Director by turns, and it was the Government's turn to nominate the Managing Director.

3. Maintainability of the Petition under Section 9(ii)(e) of the Arbitration and Conciliation Act, 1996:
The respondents argued that the petition under Section 9(ii)(e) for interim measures was not maintainable in law. They contended that Mr. Bhaskarudu had been acting as Managing Director since 27-8-1997, and challenging his appointment at this stage was not permissible. The respondents also argued that there was no balance of convenience or prima facie case in favor of the petitioner-company.

4. Interim Measures Sought by the Petitioner:
The petitioner sought interim measures, including staying the operation of the purported resolution of the Board meeting of 27-8-1997, restraining the holding of the annual general meeting proposed for 22-9-1997, and appointing a senior court official or Registrar to act as Chairman of the 16th AGM. The court held that it would not be appropriate to set aside or hold Mr. Bhaskarudu's appointment in abeyance or to restrain the holding of the annual general meeting. The court emphasized that the appointment had to be ratified at the annual general meeting, where the petitioner could raise objections.

5. Arbitration Proceedings and Their Impact on the Current Dispute:
The court noted that the petitioner had already initiated arbitration proceedings as per Article 7.7 of the joint venture agreement. The court held that the question of whether the consultation and concurrence of the petitioner Corporation were required would have to be determined by the arbitrator. The court directed that the proposed annual general meeting of the company be held as scheduled and that the appointment of Mr. Bhaskarudu, if approved by the shareholders, would be subject to the decision/award of the arbitrator.

Conclusion:
The court disposed of the petition with the following directions:
A. The proposed annual general meeting of the company shall be held on 22-9-1997, as scheduled.
B. The appointment of Mr. R.S.S.L.N. Bhaskarudu in the Board meeting held on 27-8-1997, if approved by the shareholders, shall be subject to the decision/award of the arbitrator in the arbitration proceedings.

The court also expressed regret over certain statements made by the respondent Government in the press and on television, which were deemed inappropriate while the matter was sub judice. The court emphasized the importance of exercising restraint and acting in the best interests of the parties and the public.