2004 (11) TMI 331 - HC - Companies Law

Issues Involved:
1. Legality of the Company Law Board's findings and order.
2. Appointment of majority Directors by the Central Government.
3. Validity of the Annual General Meetings (AGMs) and elections.
4. Transfer and registration of shares.
5. Exercise of votes by proxies and power of attorney holders.
6. Role and decisions of the Reserve Bank of India (RBI).

Detailed Analysis:

1. Legality of the Company Law Board's Findings and Order:
The substantial question of law presented was whether the Company Law Board (CLB) was correct in its findings and if its order was sustainable in law. The High Court upheld the CLB's decision, noting that the CLB's actions were in line with the powers conferred under sections 408, 397, and 398 of the Companies Act, intended to safeguard the interests of the company, its shareholders, and the public.

2. Appointment of Majority Directors by the Central Government:
The Central Government invoked section 408 read with sections 397 and 398 of the Companies Act to appoint majority Directors on the Board of the first respondent Bank to prevent oppression and mismanagement. The CLB found that the Board of Directors was not constituted according to law and directed the appointment of three nominees by the Central Government to ensure checks and balances.

3. Validity of the Annual General Meetings (AGMs) and Elections:
The CLB directed the first respondent Bank to convene AGMs for the years 1996-97 to 2002-03, appointing a retired Judge as Chairman to oversee the meetings. The AGMs were to transact statutory businesses and elect new Directors. The High Court confirmed the CLB's order and the subsequent election of 10 Directors during the AGM held on 12-3-2004, managed by the elected representatives of the shareholders.

4. Transfer and Registration of Shares:
The CLB directed the transfer of 96,000 shares directly to individual shareholders based on a list provided by the Nadar Mahajana Bank Share Investors' Forum, waiving compliance with section 108 of the Act. Additionally, 95,418 shares were to be transferred to four companies, with voting rights contingent on RBI acknowledgment. The High Court noted that the process of share transfer was in accordance with the CLB's directions and the guidelines provided by the Madras High Court.

5. Exercise of Votes by Proxies and Power of Attorney Holders:
The appellants contended that the nominees of the Essar Group, holding power of attorneys for 67% of the shares, should not be allowed to vote as the RBI had not acknowledged the transfer of shares. The CLB and the High Court found that the proxies of the power of attorney holders were entitled to vote, as supported by the subsisting decree dated 3-10-1996 and the absence of objections from shareholders before the election.

6. Role and Decisions of the Reserve Bank of India (RBI):
The RBI's letter dated 13-8-2004, treated as a secret document, refused to recognize the sale of shares from Sterling Group to seven individuals. The High Court acknowledged the RBI's powers under section 35A of the Banking Regulation Act, 1949, and the guidelines for share acknowledgment. The High Court held that the RBI's decision could not be ignored and allowed the aggrieved parties to challenge the RBI's order.

Conclusion:
The High Court dismissed the appeal, affirming the CLB's order and the legality of the elections and share transfers. It upheld the proxies' right to vote and recognized the RBI's authority to regulate share transfers, allowing the aggrieved parties to seek redress from the RBI.

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