2002 (10) TMI 682 - HC - Companies Law

Summary

Issues Involved:
1. Injunction against resignation of directors.
2. Injunction against appointment of new directors.
3. Injunction against the adoption of annual accounts.

Summary:

Issue 1: Injunction Against Resignation of Directors
The petitioners sought an injunction restraining the first respondent from giving effect to the resignation of the second, third, and fourth respondents from the board of directors. The court noted that the subscription agreement provided that the second respondent shall not resign from the board "till the validity of the agreement." However, this provision was not incorporated into the articles of association of the company. Citing the Supreme Court's decision in V.B. Rangaraj v. V.B. Gopalakrishnan, the court held that a restriction not specified in the articles of association is not binding on the company or its shareholders. Therefore, the relief sought in prayer clauses (a), b(i), and b(ii) was rejected.

Issue 2: Injunction Against Appointment of New Directors
The petitioners sought an injunction against the appointment of the fifth and sixth respondents as directors. The court found that the appointment of these directors on 20th August 2002 was contrary to the provisions of the articles of association, specifically article 159B(xxix), which required the affirmative vote of the nominee director of the petitioners for any proposal to include or remove members on the board. The court held that the appointments were ultra vires the articles of the company and granted interim relief in terms of prayer clause (b)(iii).

Issue 3: Injunction Against Adoption of Annual Accounts
The petitioners challenged the adoption of annual accounts at the board meeting held on 6th September 2002 on multiple grounds, including the absence of their nominee directors and the lack of proper notice. The court found that the meeting was unlawful due to the absence of the petitioners' nominee directors, who were required to constitute a quorum under article 151 of the articles of association. The court also noted that the affirmative vote of the petitioners was necessary for the adoption of accounts as per article 159B(viii). Consequently, the adoption of accounts was declared unlawful, and the court directed the first respondent to reconvene a fresh meeting for the finalisation of accounts, granting relief in terms of prayer clause (b)(iv).

Additional Observations:
The court clarified that the reliefs granted under section 9 of the Arbitration and Conciliation Act, 1996, are in aid of the final relief and are necessary to ensure that the rights of the petitioners under the subscription-cum-shareholders' agreement are not abridged pending the arbitral proceedings. The court also emphasized that the observations made in the order are confined to the disposal of the application under section 9 and should not be construed as final opinions on the merits of the case.

Conclusion:
The arbitration petition was allowed in terms of prayer clauses (b)(iii) and (b)(iv), while the prayers for relief in terms of clauses (a), (b)(i), and (b)(ii) were rejected. The parties were directed to comply with the directions regarding the holding of a fresh board meeting for the finalisation of accounts.