1993 (11) TMI 199 - HC - Companies Law

Summary

Issues Involved:

1. Authority to institute the suit.
2. Validity of the board meeting and appointment of additional directors.
3. Alleged corporate injury and fairness of share valuation.
4. Compliance with the Companies Act and Articles of Association.

Issue-wise Detailed Analysis:

1. Authority to institute the suit:
The plaintiff, Mr. Ferruccio Sias, filed a suit for damages, declaration, and injunction, asserting his position as a whole-time director of SAE (India) Limited. The court emphasized the necessity for proper authorization to institute a suit on behalf of a corporation. According to Order 29 of the Code of Civil Procedure, 1908, a suit must be signed and verified by an authorized person. The court referenced previous judgments, including Oberoi Hotels (India) Pvt. Ltd. v. Observer Publications (P) Ltd. and Nibro Limited v. National Insurance Co. Ltd., which necessitated proper authorization by resolution or power of attorney for instituting a suit. Mr. Sias's power of attorney, dated May 28, 1993, only allowed him to sue jointly with others, not independently. Therefore, the court concluded that Mr. Sias lacked the authority to institute the suit on behalf of SAE (India) Limited.

2. Validity of the board meeting and appointment of additional directors:
The plaintiff contested the legality and mala fide nature of the board meeting held on September 15, 1993, during which four additional directors were appointed. The court noted that the notice for the meeting was sent by facsimile to all directors, including those abroad. The quorum for the meeting, as per the company's Articles of Association, was met. The court referenced Abnash Kaur v. Lord Krishna Sugar Mills, which held that only a notice of the meeting is required, not an agenda. The court found that the notice was adequate and the meeting was validly convened. The appointment of additional directors was within the board's powers under Article 88 of the Articles of Association and section 260 of the Companies Act.

3. Alleged corporate injury and fairness of share valuation:
The plaintiff alleged that the appointment of additional directors caused corporate injury to SAE (India) Limited. The court found no evidence of corporate injury. The disputes arose from the economic liberalization policies and the valuation of shares for the proposed amalgamation with Asea Brown Boveri (India) Limited. The court emphasized that the directors of SAE (India) Limited were duty-bound to protect the interests of the company and its shareholders. The valuation of shares was to be determined by a known expert, Mr. Malegam of S.B. Billimoria and Co., and approved by ICICI Securities and Finance Company Limited. The court concluded that the valuation process was fair and just.

4. Compliance with the Companies Act and Articles of Association:
The court examined the compliance with the Companies Act and the Articles of Association of SAE (India) Limited. The Articles vested control of the company in the board of directors, who were authorized to act on behalf of the company. The board's decision to issue additional shares to Elettrofin Societa Anonima Finanziaria and the proposed amalgamation with Asea Brown Boveri (India) Limited were within their powers. The court reiterated that the directors must act in the best interest of the company and its shareholders, not under the influence of any holding company. The court found no violation of the Companies Act or the Articles of Association.

Conclusion:
The court held that Mr. Sias lacked the authority to institute the suit on behalf of SAE (India) Limited. The board meeting on September 15, 1993, and the appointment of additional directors were valid. There was no corporate injury to SAE (India) Limited, and the share valuation process was fair. The suit was dismissed following the principles laid down in previous judgments.