2021 (11) TMI 486 - HC - Companies Law

Validity of Requisition Notice to call Extraordinary General Meeting ( EGM ) - Seeking declaration that the refusal to act on the Requisition Notice, is in accordance with law or not - Refusal to act on the Requisition Notice - seeking injunction against Invesco from acting in furtherance of the Requisition Notice in question - HELD THAT - There are no reason to hold that Indian company law should be in departure from a general, and evidently salutary provision, merely because it has not made this aspect a part of the code. Sometimes, it happens that a company must be saved from its own shareholders, however well-intentioned. If a shareholder resolution is bound to cause a corporate enterprise to run aground on the always treacherous shoals of statutory compliance, there is no conceivable or logical reason to allow such a resolution even to be considered. Shareholder primacy or dominion does not extend to permitting shareholder-driven illegality. A perfectly legal resolution, if carried, may well result in the diminution of the company s profits or business. That is not a court s concern. But the resolution must be legal. The interpretative question is therefore not over the word valid at all but about the matters proposed to be considered at a requisitioned EGM. And the Court is never foreclosed from considering this. Cricket Club of India came at a time well before the slew of regulatory provisions we see today. In particular, there was no distinction or special provisioning for a public listed company. These companies today, with wide shareholder basis, operating in tightly regulated fields must receive distinct considerations. Compliance is not only with the Companies Act. Parallels to the Companies Act controls are to be found elsewhere too. There is also no call to examine the motivations of either side. That is certainly for the general body to take into account. For this reason, it is found that Mr Sibal s endeavour to take me through a compilation of past communications between the two sides to be somewhat distracting, even possibly dangerous - what Invesco seeks today might be perfectly attainable if the substance - and therefore the form - of the proposed resolutions is correctly done. I am only assessing the current form and substance, not the underlying motivations or purposes, nor suggesting that Invesco can never, under any circumstances and no matter what the substance or the form, properly exercise its shareholders rights - The injunction is against Invesco. Indeed, in any anti-suit injunction proceeding, the frame is precisely against the party prosecuting a rival action in another forum, not the forum itself (unless the other forum is hierarchically subordinate). There will be an injunction, restraining Defendants Nos. 1 and 2 (including their employees, agents and anyone acting by, through or under them) from taking any action or step in furtherance of the Requisition Notice dated 11th September 2021, including calling and holding an EGM under Section 100(4) of the Companies Act, 2013 - application disposed off.

Summary

Issues Involved:
1. Legality and validity of the Requisition Notice issued by Invesco.
2. Compliance with Section 100 of the Companies Act, 2013.
3. Jurisdiction of the Court under Section 430 of the Companies Act.
4. Potential contravention of various statutory and regulatory provisions.
5. Effectiveness and legality of the proposed resolutions.

Detailed Analysis:

Legality and Validity of the Requisition Notice:
Zee sought a declaration that the Requisition Notice dated 11th September 2021 issued by Invesco was illegal, ultra vires, invalid, bad in law, and incapable of implementation. Zee argued that the proposed resolutions would contravene the Companies Act, SEBI Listing Regulations, SEBI Takeover Regulations, MIB guidelines, and the Competition Act. Zee also sought an injunction to prevent Invesco from acting on the Requisition Notice.

Compliance with Section 100 of the Companies Act, 2013:
Section 100 allows shareholders holding at least 10% of the equity to requisition an EGM. The Board must call the EGM within 21 days of receiving a valid requisition. If the Board fails to do so, the requisitionists may call the meeting themselves within three months. Zee argued that the proposed resolutions were illegal and thus the Requisition Notice was not valid under Section 100. Invesco contended that the Board or the company should not decide on the legality of the resolutions; this should be left to the shareholders at the EGM.

Jurisdiction of the Court under Section 430 of the Companies Act:
Invesco argued that the Court's jurisdiction was ousted by Section 430, which bars civil courts from entertaining any suit or proceeding in respect of any matter which the NCLT or NCLAT is empowered to determine. Zee countered that the NCLT does not have the power or authority to decide the questions at hand, and thus the Court's jurisdiction was not ousted.

Potential Contravention of Various Statutory and Regulatory Provisions:
Zee argued that the proposed resolutions would violate several statutory and regulatory provisions:
- Regulation 17 of the SEBI Listing Regulations: Requires a specific composition of the Board.
- Section 203 of the Companies Act: Mandates the company to have a Managing Director or CEO.
- MIB Guidelines: Require prior approval for changes in the Board.
- SEBI Takeover Regulations and Competition Act: Could be violated by the proposed changes.

Effectiveness and Legality of the Proposed Resolutions:
The Court examined whether it could assess the validity of the proposed resolutions before the EGM. Zee argued that the proposed resolutions were illegal and would result in non-compliance with statutory and regulatory requirements. The Court agreed with Zee, noting that if the resolutions were illegal or ineffective, it would be a waste of resources to allow the EGM to proceed.

Summary of Findings:
The Court found Zee's arguments compelling, particularly that the proposed resolutions would cause Zee to be non-compliant with statutory and regulatory requirements. The Court held that it had jurisdiction to assess the legality of the resolutions and granted the injunction sought by Zee.

Factual Background:
Invesco issued the Requisition Notice on 11th September 2021, meeting the necessary requirements. The Notice proposed nine resolutions, including the removal of Goenka as a director and the appointment of six new independent directors. Zee's Board, after considering legal opinions, concluded that the Requisition Notice was invalid and decided not to convene the EGM.

Final Order:
The Court granted an injunction restraining Invesco from taking any action in furtherance of the Requisition Notice, including calling and holding an EGM. The Court emphasized that the proposed resolutions were illegal and would result in non-compliance with statutory and regulatory requirements. There was no order of costs.

In conclusion, the Court's detailed analysis focused on the legality and compliance of the proposed resolutions with various statutory and regulatory provisions, ultimately granting an injunction to prevent the EGM from being held based on the invalid Requisition Notice.