2001 (12) TMI 834 - HC - Companies Law

Summary

Issues Involved:
1. Mala fides by Indian promoters.
2. Requirement of shareholders' consent u/s 293(1)(a) of the Companies Act.
3. Ultra vires nature of the transaction without shareholders' approval.
4. Plaintiff's right to vote on preference shares u/s 87(2)(b)(ii) of the Companies Act.

Summary of Judgment:

Regarding Mala Fides:
The plaintiff alleged mala fides on the part of Indian promoters, claiming they acted with ulterior motives and without the approval of foreign investors. The court noted that the proposed Bluetooth transaction was in the interest of the company and was conducted with the knowledge and concurrence of foreign investors. The court found no evidence of mala fides, and the plaintiff failed to establish this claim. Additionally, allegations of mala fides against directors require them to be impleaded as parties, which was not done in this case.

Requirement of Shareholders' Consent u/s 293(1)(a):
The plaintiff argued that the transaction required shareholders' approval u/s 293(1)(a) of the Companies Act, which pertains to the sale or disposal of the whole or substantially the whole of the undertaking of the company. The court held that defendant Nos. 16 and 17, being separate legal entities with their own boards, were the owners of the cellular business. The court concluded that section 293(1)(a) did not apply as the business continued to belong to the subsidiaries, and the holding company's resolution was not required.

Ultra Vires Nature of the Transaction:
The plaintiff contended that the transaction was ultra vires the company based on Object B-37 of the memorandum of association, which requires shareholders' approval for the sale or disposal of the company's property. The court interpreted Object B-37 to mean that shareholders' approval is required only when section 293 is applicable. The court found that the argument led to absurd results and rejected the contention that the impugned action was ultra vires.

Plaintiff's Right to Vote on Preference Shares:
The plaintiff claimed the right to vote on preference shares u/s 87(2)(b)(ii) of the Companies Act, due to unpaid dividends. The company argued that exercising such voting rights would violate conditions imposed by the Reserve Bank of India, which capped foreign equity at 49% and required management control to remain with Indian shareholders. The court agreed with the company, stating that granting voting rights would breach the 49% equity cap and transfer management control to non-Indian shareholders. The court held that the plaintiff was not entitled to vote on preference shares.

Conclusion:
The notice of motion and the appeal were dismissed. The court continued the ad interim order for six weeks and directed that any resolutions passed in the annual general meeting regarding item Nos. 7 and 8 would not be implemented for six weeks.