2015 (6) TMI 707 - HC - Companies Law

Right vested by the Articles of Association denied - Control of Yes Bank - Family dispute - Held that - Yes Bank s Articles do contain a set of proprietary and participative rights; particularly in Article 110(b). These are rights that are attached to shares, and flow from, and only from the shareholding of Ashok Kapur and Rana Kapoor. Of these various rights, the right to recommend under Article 110(b) decidedly is not and never was personal to either Ashok Kapur or Rana Kapoor. It endures to each of their successors, legal representatives and assigns. This right is not in the nature of a contract of personal service and was not limited to the two individuals in question. There is no question of contextual repugnancy. The right to recommend, read in context, is much more than the right to suggest. The very nature and context of Article 110 clearly indicates that this was always intended to be a right to nominate three IP Representative Directors to Yes Bank s Board. It was unnecessary to include in the Articles a mere right to suggest ; brute strength in shareholding and even mere shareholding would have done as well. It is the right to nominate. It is equally incorrect to suggest that the Plaintiffs have, only on account of Ashok Kapur s demise, transmogrified into some sort of non-promoter capacity. The applications to the RBI to this end are motivated, self-serving and prima facie unlawful. It also follows that any recommendations made by the 1st Defendant, Rana Kapoor, without the concurrence and consent of the Plaintiffs are also ultra vires the Articles and are null and void. For the reasons previously discussed, Defendant No. 8 cannot have been validly appointed as an IP Representative Director or an Independent Director. His appointment is invalid. The appointment of Defendant No.9 to the chairmanship of Yes Bank is ultra vires the Articles, and null and void, and the so-called approval of the RBI to that appointment is inconsequential. Similarly, the appointments of Defendants Nos. 10, 11 and 12 as whole time directors of Yes Bank s Board are also prima facie ultra vires its Articles and void. As regards Defendants Nos. 7 and 18, I am unable to understand how it could have been proposed to treat them as Independent Directors. They were required to be appointed as such by validly passed resolutions at a properly called General Meeting and there is no provision in the 2013 Act to allow any person to be treated as an independent director. Yes Bank has before it even now a plenitude of options even when it comes to the directors whose appointments are in jeopardy, what need is there for an interim order? Here, too, I think the answer is an inevitability if something has been done that is illegal or ultra vires, to allow it to continue for the next two decades while the suit wends its tortuous way through a trial is patently unfair. On the question of balance of convenience, commercial expediency cannot trump acts ultra vires or illegal. If reliefs are not granted, the Articles meaning is forever lost. The Articles of a company are to it very like what the Constitution is to citizens. Shareholders are truly invested in the enterprise not merely for making profits and earning dividends, but also with a view to ensure that their rights, enshrined in the Articles, are always protected. It is of little use to say that the Plaintiffs are not a minority because they have a large shareholding. - Pending the hearing and final disposal of the present Suit, the Defendants be restrained by a temporary order and injunction from nominating and/or recommending the appointment of any Directors under clause 110(b) of the Articles of Association of Defendant No. 6 without consulting and obtaining the consent of the Plaintiffs - restrain Defendant No.7 from acting or holding himself out as Chairman of Defendant No.6 - restrain Defendant No. 1 by a temporary order and injunction from acting or holding himself out as Managing Director or Chief Executive Officer of Defendant No. 6 - that the Hon ble Court be pleased to declare that Defendant No. 9 was not validly appointed the Non-Executive Part-time Chairman of Defendant No. 6 from the date of his purported appointment - restrain Defendant Nos. 1 and 6 by themselves, their servants, agents and officers by a temporary order and injunction from appointing any person either as chairman and/or as managing director without consulting and obtaining the prior written consent of the Plaintiffs in this regard - restrain Defendant Nos. 1 to 6, by themselves, their servants, agents and officers by a temporary order and permanent injunction from in any manner initiating, taking or continuing any steps (including, making representations to any regulators/authorities and acting on the representations already made to regulators /authorities) for de-classifying and/or changing the category of the Plaintiffs as the promoter of Defendant No. 6 in the Annual Reports of Defendant No. 6 or otherwise howsoever.

Summary

Issues Involved:
1. Rights of the Plaintiffs under Articles of Association.
2. Validity and interpretation of the right to recommend under Article 110(b).
3. Validity of appointments of various directors.
4. Nomination and rights of Shagun Kapur Gogia.
5. Applications to RBI for declassification of Plaintiffs' shareholding.
6. Interim reliefs sought by Plaintiffs.

Detailed Analysis:

1. Rights of the Plaintiffs under Articles of Association:
- The Plaintiffs, successors of Ashok Kapur, claim participatory rights in Yes Bank's management, asserting these rights under the Articles of Association, particularly Article 110(b).
- The Court found that these rights were not personal to Ashok Kapur and Rana Kapoor but extended to their successors, legal representatives, and assigns.
- The right to recommend under Article 110(b) is interpreted as a right to nominate, not merely suggest, and must be exercised jointly by the Indian Partners.

2. Validity and Interpretation of the Right to Recommend under Article 110(b):
- The Court held that the right to recommend is indeed a right to nominate directors to Yes Bank's Board.
- This right is not personal and survives to the successors of Ashok Kapur and Rana Kapoor.
- The right must be exercised jointly by the Indian Partners, and any unilateral exercise of this right is invalid.

3. Validity of Appointments of Various Directors:
- Rana Kapoor (Defendant No. 1): His reappointment as Managing Director and CEO was contested but found valid. The Court did not find sufficient grounds to invalidate the RBI's approval or the shareholder approval obtained.
- Ravish Chopra (Defendant No. 8): His appointment was invalid as it was a unilateral nomination by Rana Kapoor, which is ultra vires the Articles.
- M. R. Srinivasan (Defendant No. 9): His appointment as Non-Executive Part-Time Chairman was invalid due to the flawed initial appointment as a director.
- Diwan Arun Nanda (Defendant No. 7) and Ajay Vohra (Defendant No. 18): Their appointments as Independent Directors were invalid as they were not appointed by valid shareholder resolutions.
- Rajat Monga (Defendant No. 10), Sanjay Palve (Defendant No. 11), and Pralay Mondal (Defendant No. 12): Their appointments as Whole Time Directors were invalid as they were not sitting Board members at the time of their appointment.

4. Nomination and Rights of Shagun Kapur Gogia:
- The Court rejected the claim that Shagun Kapur Gogia's nomination should be deemed a joint nomination under Article 110(b).
- The Board's rejection of her nomination was upheld, and the Court did not find it appropriate to question the sufficiency of the Board's decision.

5. Applications to RBI for Declassification of Plaintiffs' Shareholding:
- The Court found the applications to the RBI for declassification of the Plaintiffs' shareholding as non-promoter holdings to be motivated, self-serving, and prima facie unlawful.
- An injunction was granted against Yes Bank and Rana Kapoor from pursuing these applications.

6. Interim Reliefs Sought by Plaintiffs:
- The Plaintiffs made a prima facie case, and interim reliefs were granted in terms of certain prayers, including restraining the Defendants from acting on certain Articles without the Plaintiffs' concurrence and from pursuing the declassification application.
- The Court granted interim reliefs to preserve the Plaintiffs' rights under the Articles and to prevent ultra vires actions by the Defendants.

Conclusion:
- The Plaintiffs' rights under the Articles were upheld, and several director appointments were invalidated.
- The Court emphasized the necessity of joint exercise of rights under Article 110(b) and restrained the Defendants from pursuing actions that would undermine the Plaintiffs' rights.