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TMI Blog1994 (3) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... irman is illegal, void and non-est and consequent reliefs of issue of permanent injunction and mandatory injunction restraining the directors of the second respondent company to implement the resolution as it relates to the appointment of the chairman in the meeting held on February 1, 1994, and for a mandatory injunction. The appellants have filed three interlocutory applications for getting interim reliefs. All these interlocutory applications are filed under Order 39, rules 1 and 2 of the Code of Civil Procedure, 1908. Under I.A. No. I, the relief sought was for grant of a temporary injunction restraining the third respondent from claiming . . . holding out . . . acting . . . functioning or discharging any powers or duties as chairman of the second respondent company pending disposal of the suit. I. A. Nos. II and III were also for reliefs almost similar to I.A. No. I where, in addition to the third respondent, the restraint order was sought against the other directors to give legal status to the proceedings held on February 1, 1994. The trial court has passed a common order and all these three interlocutory applications were rejected by its order dated March 21, 1994. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director of the first appellant and a nominated director of the second respondent company. A copy of the joint venture agreement dated December 5, 1977, entered into between the first appellant and the first respondent is produced. Consequent on which, the incorporation of the second respondent on November 6, 1979, is also produced. The memorandum and articles of association of the second respondent include provisions to give effect to the joint venture agreement. The fourth respondent was the chairman of the 71st meeting of the board of directors of Astra IDL Ltd. held on February 1, 1994. The minutes of the meeting of the board of directors held on November 10, 1993, was confirmed. Under the second subject other subject of the minutes of the meeting dated November 10, 1993, was considered. Immediately after the second subject, the fourth respondent, the then chairman of the board of directors, has made an announcement expressing his desire to relinquish the chairmanship of the board which he held for a continuous period of nine years and tendered his resignation with immediate effect. However, he expressed his desire to continue as a director of the company. He has also reques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the points as required to be determined in the matter of granting temporary injunction such as prima facie case, balance of convenience and the question of irreparable loss and injury; and held all the points against the appellants and dismissed the applications. After hearing the arguments of the learned advocates, the validity of election of the chairman is mainly dependent upon the interpretation of article 146 of the articles of association governing the second respondent. This point required a careful consideration as no personal allegation was made against Mr. Udwadia and Mr. Ghosh regarding their integrity, efficiency and service rendered throughout their career either as board of directors or chairman. Articles 112 and 113 also play a decisive role in deciding the controversy. Sri S.G. Sundaraswamy, the learned senior advocate for the appellants, submits that the election of the chairman is vitiated in the absence of an affirmative vote by the second appellant, a nominated member to the board of directors in accordance with the articles of association. The learned advocate further submits that the entire proceedings are a stage managed affair as there was no diffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as a director of the company and to remove such person from office, on a vacancy being caused in such office from any cause whatsoever including resignation, death or removal of any such person so appointed to appoint another in the vacant place. Sub-article (2) of article 113 is one and the same found in sub-article (2) of article 112. The IDL representation was duly approved by the first respondent. Under article 114, subject to the provisions of section 255 of the Act, the directors appointed by the first appellant and the first respondent pursuant to articles 112 and 113, respectively, shall not be liable to retire by rotation. All other directors of the company shall be elected by the shareholders of the company in the general meeting and shall be liable to retire by rotation as provided under the article. Article 145 deals with the election of a chairman and the duties to be performed by him as chairman. Article 145 reads thus : "The directors may from time to time elect from among their number a chairman of the board and determine the period for which he is to hold office. The chairman of the board shall be entitled to take the chair at every meeting of the board. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d can address a written communication expressing their concurrence or approval which will be deemed to be their affirmative vote. After the board meeting held on February 1, 1994, the first appellant sent a letter dated February 14, 1994, to the secretary of the second respondent in which he contends that the appointment of the new chairman was irregular and improper as according to him, in the midst of the meeting Mr. Ghosh without any prior notice or consultation expressed his wish not to continue as chairman with immediate effect and simultaneously proposed the name of D.E. Udwadia as a new chairman and he has refused to postpone the consideration of this matter and the resolution purported to be passed on the show of hands by six directors where two directors dissented and one director not voted. It is further contended that the directors of the board were not appraised of article 146 which makes it mandatory to obtain the concurrence of the nominee of the first appellant, for the questions arising in the meeting. So the provisions of article 146 were ignored and the directors were misled as the item was considered by a mere motion. He has also brought to the notice of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is agreed that three directors each shall be of the choice of Astra and IDL making in the aggregate six directors and two directors shall be persons possessing professional repute who shall be acceptable to both Astra and IDL. One of the directors of the choice of Astra shall be a non-rotational director. IDL also had the right to appoint one non-rotational director out of the directors of the choice of IDL. Under sub-clause ( c ) all the directors other than the non-retiring directors shall be liable to be retired by rotation. Other clauses in the agreement deal with the subject to safeguard the interest of the first appellant and the first respondent. Consequent to this joint venture agreement, articles 113 and 114 came into existence in the articles of association. A reading of these two articles makes it clear that the first appellant and the first respondent have reserved the right to appoint one person each as non-rotational director. The power conferred on such a director under article 146 is that the questions arising at any meeting of the board shall be decided by a majority of votes provided such majority shall include the affirmative votes of the non-retiring direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the second appellant in seeking re-election by the shareholders, but it is very difficult to accede to the fact that the second appellant was ignorant of article 146 and he came to realise after 14 days from the date of election of the chairman. The second respondent contended that the company is not a party to this joint venture agreement. But the fact remains that the object of the joint venture agreement by the first appellant and the first respondent is the birth of the second respondent company and the spirit of the joint venture agreement is clearly incorporated in the articles of association. It is equally binding on the second respondent. In fact, the fourth respondent, who is the founder-member of the second respondent company who subsequently nominated, has also undergone the process of retirement and re-election along with the second appellant. The object of articles 113 and 114 is to control the activities of the second respondent company due to the fact that the first appellant and the first respondent held 52.50 per cent, of shares of that company. Therefore, by invoking the rule of promissory estoppel and estoppel by conduct made out by the second respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But the real question that requires to be determined is whether the nomination of the second appellant through the letter dated July 13, 1984, is to be construed as a nomination that would fall under article 114. The respondents have made available the minutes of the 25th meeting of the board of directors of the second respondent company held on September 28, 1984. Subject No. 3 is related to changes in directors, which reads as follows : "A letter received from Mr. S. Ghosh dated July 19, 1984, was placed before the board. The board noted that Mr. Ghosh had resigned from the office of director of the company. Board placed on record its deep appreciation of the services rendered by Mr. Ghosh during his tenure as a director. The board also considered a letter dated July 13, 1984, received from IDL Chemicals Limited. The board unanimously resolved that Dr. E.G. Mahadevan be and is hereby appointed as the director of the company in the vacancy caused by the resignation of Mr. S. Ghosh and that Dr. E.G. Mahadevan will hold office up to the date at which Mr. Ghosh would have held office had he not resigned." A reading of this minute along with the letter of nomination dated Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as a letter having retrospective effect. If it is held that the second appellant was a retiring director, who, in fact, retired by rotation and re-elected by the shareholders, the election of the third respondent as a chairman cannot be held as invalid, as admittedly, the majority of the directors have voted in favour of the third respondent. These directors who have voted in favour of the third respondent also made statements before the trial court that the mode of election was in accordance with the articles of association. Though the joint venture agreement and the shareholders' agreement invested power to the first appellant and the first respondent to exercise their right to check the activities of the second respondent, they have not exercised such an option so far, except the letter dated February 26, 1994. If the nomination of the second appellant was either under article 112 or article 113 there was no impediment to spell out the clear intention in the letter dated July 13, 1984. Though the contention of Sri S. G. Sundaraswamy is quite attractive to hold that the nomination letter, dated July 13, 1984, was made only in the background of articles 112 and 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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