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2024 (8) TMI 1414 - AT - Insolvency and BankruptcyAmendments made in the Articles of Association in Extra Ordinary General Meeting held on 30.09.2014 amending Article of Association, Article 59 and Article 60 - entrenched Articles as referred to in Section 5, sub-sections (3) and (4) of the Companies Act, 2013 or not - amendment of Articles 59 and deletion of Article 60 could be done by a special Resolution as passed in the AGM dated 03.05.2019 or for amendment of Article 59 and deletion of Article 60, requirement was that all Members of the Company to agree for amendment, i.e., all 12 Members as existing on the relevant date - error in approving the meeting held on 03.05.2019 - nominee under Section 113 of the Companies Act is bound to exercise his powers as per the decision of Board of the Company - reappointment of Deepak as Executive Chairman of the FCL. Whether the amendments made in the Articles of Association in Extra Ordinary General Meeting held on 30.09.2014 amending Article of Association, Article 59 and Article 60 were to be treated to be entrenched Articles as referred to in Section 5, sub-sections (3) and (4) of the Companies Act, 2013? - HELD THAT - There was no concept of entrenched articles in 1956 Act, as now has been brought by Section 5, sub-sections (3) and (4). An entrenchment provision in the Articles, which identifies special provisions, which can be altered only, if the conditions or procedure, which are much more restrictive than those applicable in the case of special resolution as is applicable for altering any provision of the Articles are met - The Resolution passed on 30.09.2014, cannot be said to be a Resolution, which was agreed to by all the Members of the Company. In the Meeting held on 30.09.2014, neither Prakash, nor Vijay the brother of Deepak were present. Thus, the Resolution dated 30.09.2014, cannot be said to be agreed to by all the Members of the Company. Hence, the statutory requirement to treat the Articles as entrenched Articles cannot be accepted. The statutory scheme of Section 5, sub-section (4) provides that amendment in the Articles providing for entrenchment shall only be made by an amendment in the Articles agreed to by all the Members of the Company in the case of a private Company. Thus, Articles 59 and 60, which were approved by the Company in the AGM dated 30.09.2014, cannot be held to be entrenched Articles. It goes without saying that entrenched Article within the meaning of Section 5, sub-section (3) can be amended only when its is agreed by all the Members of the Company. The amendments made in Articles of Association in AGM held on 30.09.2014, amending Articles 59 and 60, cannot be treated to be entrenched Articles as referred to in Section 5, sub-sections (3) and (4) of the Companies Act, 2013. Whether the amendment of Articles 59 and deletion of Article 60 could be done by a special Resolution as passed in the AGM dated 03.05.2019 or for amendment of Article 59 and deletion of Article 60, requirement was that all Members of the Company to agree for amendment, i.e., all 12 Members as existing on the relevant date? - Whether the Adjudicating Authority committed error in approving the meeting held on 03.05.2019 by the impugned order? - HELD THAT - The amendment in Article 59 and deletion of Article 60 was made in exercise of power under Section 14 by Special Resolution. The Resolution dated 03.05.2019 was passed as a Special Resolution, which is apparent from the result of the Scrutinizer. Thus, alteration of Article 59 and deletion of Article 60 was fully permissible by Special Resolution and it did not require agreement of all the Members of the Company, Articles 59 and 60 being not entrenched Articles as held above. Thus, it cannot be held that Resolution passed by EOGM on 03.05.2019 was not in accord with the provisions of the Companies Act, 2013 and the Articles of Association. The amendment of Article 59 and deletion of Article 60 could be done by Special Resolution as passed in EOGM dated 03.05.2019 and there was no requirement of agreement by all the Members of the Company, i.e., all twelve Members, as existing on the relevant date. (Pralhad Prakash Chhabria having died on 05.05.2016, reducing the Member numbers from 13 to 12) - The Adjudicating Authority did not commit any error in approving the EOGM held on 03.05.2019. Whether nominee under Section 113 of the Companies Act is bound to exercise his powers as per the decision of Board of the Company? - HELD THAT - Section 113 of the Companies Act is bound to exercise his power as per the decision of the Company or he having been appointed a representative of the Company is free to exercise his right, as per his discretion. Sub-section (2) of Section 113 throws a clear light on the statutory intendment. Sub-section (2) provides that a person authorised by resolution under sub-section (1) shall be entitled to exercise the same rights and powers, including the right to vote on behalf of the body corporate, which he represents as that body could exercise if it were an individual member. What is manner and exercise of a representative of the Corporation at the meeting of Companies is, as per the decision of the Body, which has authorized individual Member to cast his vote. Authorised representative is merely an Agent of the Company and is bound to act as per directions of the Board or Board of Directors. A representative under Section 113 of the Companies Act, 2013 is bound to exercise his representation as per the decision of the Board of the Company. In event Board has not given any specific decision for exercise of power, the representative is free to exercise his representation as per his will. Whether the result of the Annual General Meeting held on 29.09.2023 on Resolution No. 4 with regard to reappointment of Deepak as Executive Chairman of the FCL need to be interfered with in this Appeal? - HELD THAT - The result of AGM held on 29.09.2023 on Resolution No.4 with regard to re-appointment of Mr. Deepak Chhabria as Executive Chairman of the FCL, need no interference in this Appeal. The relief, if any, to which the Appellant is entitled to in this Appeal? - HELD THAT - NCLT should proceed to decide the Company Petition No. 47 of 2016 finally. The pleadings by both the parties in the Company Petition having already been completed long ago, we are of the view that ends of justice will be served in observing that NCLT shall endeavour to dispose of Company Petition No. 47 of 2016 as early as possible, preferably within a period of six months from the date of copy of this order is produced. The impugned order dated 31.12.2019 passed in MA No. 1449 of 2019 is not interfered with - The decision of Annual General Meeting held on 29.09.2023 on Resolution No. 4, which took place during the pendency of this Appeal is not interfered with - The NCLT is requested to finally decide the Company Petition No. 47 of 2016 expeditiously, preferably within a period of six months from the date of copy of this order is produced.
Issues Involved:
1. Whether the amendments made in the Articles of Association in the EOGM held on 30.09.2014 were to be treated as entrenched Articles under Section 5, sub-sections (3) and (4) of the Companies Act, 2013. 2. Whether the amendment of Articles 59 and deletion of Article 60 could be done by a special resolution as passed in the EOGM dated 03.05.2019 or required agreement by all members of the company. 3. Whether the Adjudicating Authority committed an error in approving the meeting held on 03.05.2019. 4. Whether a nominee under Section 113 of the Companies Act is bound to exercise his powers as per the decision of the Board of the Company. 5. Whether the result of the AGM held on 29.09.2023 on Resolution No. 4 with regard to the reappointment of Deepak as Executive Chairman of the FCL needs to be interfered with in this Appeal. 6. The relief, if any, to which the Appellant is entitled in this Appeal. Detailed Analysis: Issue 1: Entrenched Articles The amendments made in the Articles of Association in the AGM held on 30.09.2014, amending Articles 59 and 60, cannot be treated as entrenched Articles under Section 5, sub-sections (3) and (4) of the Companies Act, 2013. The statutory requirement for entrenchment requires agreement by all members of the company, which was not met as only four out of thirteen members were present at the meeting. Issue 2: Amendment by Special Resolution The amendment of Article 59 and deletion of Article 60 could be done by a special resolution as passed in the EOGM dated 03.05.2019. There was no requirement for agreement by all members of the company since Articles 59 and 60 were not entrenched Articles. The special resolution passed in the EOGM met the statutory requirements under Section 14 and Section 114 of the Companies Act, 2013. Issue 3: Approval of the Meeting The Adjudicating Authority did not commit any error in approving the EOGM held on 03.05.2019. The resolutions passed in the EOGM were in accordance with the provisions of the Companies Act, 2013 and the Articles of Association, as the amendments did not require unanimous agreement from all members. Issue 4: Nominee's Powers under Section 113 A representative under Section 113 of the Companies Act, 2013 is bound to exercise his representation as per the decision of the Board of the Company. If the Board has not given any specific decision for the exercise of power, the representative is free to exercise his representation as per his will. This ensures that the representative acts as an agent of the company and follows the Board's directions. Issue 5: Result of AGM on 29.09.2023 The result of the AGM held on 29.09.2023 on Resolution No. 4 regarding the reappointment of Mr. Deepak Chhabria as Executive Chairman of the FCL does not need interference in this Appeal. The voting result showed 72.34% against the resolution and 27.66% in favor, which was declared by the Scrutinizer subject to the outcome of the Appeal. Issue 6: Relief to the Appellant The impugned order dated 31.12.2019 passed in MA No. 1449 of 2019 is not interfered with. The NCLT is requested to finally decide the Company Petition No. 47 of 2016 expeditiously, preferably within six months from the date of the copy of this order being produced. The decision of the AGM held on 29.09.2023 on Resolution No. 4 is also not interfered with. The parties shall bear their own costs.
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