2011 (2) TMI 1274 - HC - Companies Law

Permission to convene the extraordinary general meeting - Held that - Whether the arbitration proceedings initiated by Zenotech against a subsidiary of Ran-baxy are likely to be affected by Ranbaxy getting a seat on the board of Zenotech is a matter to be decided by a properly constituted board of Zenotech. The submission of learned counsel for Dr. Jayaram that he may be permitted to go out of Zenotech is a matter to be considered in the company petition filed by him (C. P. No. 51 of 2009). Since Ranbaxy is the majority shareholder it is necessary that their nominees are on the board of Zenotech in its large interest. In the facts and circumstances of the case, I am inclined to allow this petition by granting permission to the applicant (Ranbaxy) to convene the extraordinary general meeting of Zenotech (respondent No. 1).

Issues Involved:
1. Convening an extraordinary general meeting (EGM) of Zenotech Laboratories Ltd.
2. Maintaining the status quo with respect to the affairs and management of Zenotech.

Issue-wise Detailed Analysis:

1. Convening an Extraordinary General Meeting (EGM):

Ranbaxy Laboratories Ltd. filed C.A. No. 150 of 2010 under Section 186 of the Companies Act, 1956, seeking a direction to convene an EGM of Zenotech to consider the appointment of nominee directors on behalf of Ranbaxy on the board of Zenotech. Ranbaxy alleged that the managing director of Zenotech, Appellant No. 1, had resisted all attempts by Ranbaxy to exercise its rights as the major shareholder to have its nominees on the board. The Company Law Board (CLB) allowed the application, directing that an EGM be convened, noting that Ranbaxy, as a major shareholder, was entitled to appoint directors on Zenotech's board. The CLB observed that the conduct of the EGM and decisions taken thereon should be subject to the final outcome of C.P. No. 83 of 2009 and C.P. No. 51 of 2009.

The appellants opposed the application, contending that no cause of action was established to invoke Section 186 and that the annual general meeting (AGM) for 2008 and 2009 had been duly held, where Ranbaxy did not opt to appoint any director. They also filed C.A. No. 167 of 2010 seeking to maintain the status quo with respect to Zenotech's management, alleging that any change in the board would prejudice their interest and the company.

The High Court upheld the CLB's decision, stating that the power under Section 186 is discretionary and can be exercised if it is impracticable to call a meeting in the manner prescribed by the Act. The court found that the serious disputes between the parties and the actions of Appellant No. 1 justified the CLB's order. The court noted that Ranbaxy, holding 46.85% of Zenotech's shares, had a right to appoint its nominees on the board, and the CLB's direction was in the interest of the company.

2. Maintaining the Status Quo:

Appellants filed C.A. No. 167 of 2010 to maintain the status quo with respect to Zenotech's management until the disposal of C.P. No. 83 of 2009 and C.P. No. 51 of 2009, arguing that any appointment of directors by Ranbaxy would affect the affairs of Zenotech and prejudice the subject matter of the company petitions. The CLB dismissed this application, stating that the order of status quo passed in C.P. No. 51 of 2009 was in reference to the development and license agreement and did not extend to board appointments or holding of an EGM.

The High Court affirmed the CLB's decision, noting that the disputes between the parties and the lack of agreement on the administration of Zenotech justified the CLB's direction to convene an EGM. The court found no justifiable reason to interfere with the CLB's order, as it was aimed at ensuring that the company's affairs were regulated in the best manner by appointing independent directors representing the majority shareholders.

The High Court dismissed both appeals, noting that the purpose for which the EGM was directed had already been served, as the AGM was held during the pendency of the appeals, and the issue of appointing Ranbaxy's nominees as directors was considered and approved by the majority.

Conclusion:

The High Court upheld the CLB's decision to allow Ranbaxy to convene an EGM to appoint its nominee directors on Zenotech's board and dismissed the appellants' application to maintain the status quo. The court found that the CLB's order was justified given the serious disputes between the parties and the need to regulate Zenotech's affairs in the best interest of the company. The appeals were dismissed, and the decisions taken in the EGM were to be subject to the final outcome of the pending company petitions.

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