9911796707
TMI Blog2003 (9) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... - an arm of the Government of Maharashtra - was not a promoter shareholder and was not a party to the shareholders agreement. It is only after several years of incorporation that the appellant became a shareholder by purchasing 30% of the equity from the EMC. The appellant did not join the respondent No. 1 as a quasi partner but joined it as a purchaser of part of the equity from an existing shareholder in Kilpest (P.) Ltd. v. Shekhar Mehra [ 1996 (10) TMI 347 - SUPREME COURT] , the Supreme Court laid down that the submission that the limited company should be treated as a partnership should not be readily accepted. The interest of the appellant as a member of the respondent No. 1 and the interest of the appellant as a subsidiary of MSEB are clearly conflicting. The recovery of money through the arbitration proceedings is for the benefit of the respondent No. 1 and all it s creditors and members including the appellant in the capacity as a member. The fact that the compensation may come from the coffers of the Government of Maharashtra or MSEB is against the interest of the appellant. The money would come to the respondent No. 1 and for the benefit of the respondent No. 1. It would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Articles were breached and such breach, in the opinion of the CLB was oppressive. In my opinion, there was no oppression of the appellant. The CLB could have permitted nomination of one person as a director by the appellant on the Board. And if one nominee is nominated by the appellant even now, the other members of respondent No. 1 would be bound to elect him in the general meeting and pending a general body meeting, the Board would be required to co-opt him as required in the article No. 10.4. Subject to this, the order of the CLB regarding the reconstitution of the Board of the Respondent No. 1 is also required to be set aside. Conclusion - ( i ) The appellant has not proved that affairs of the respondent No. 1 company were conducted in a manner prejudicial to public interest or in a manner oppressive to the appellant. ( ii ) The appellant has not proved that the facts exist which would justify making of an order for winding up of the respondent No. 1 on the ground that it is just and equitable to do so but to wind up the company would unfairly prejudice the appellant. ( iii ) In the absence of any proof that the affairs of the respondent No. 1 company were being conducted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Electric Company, a Company incorporated in the State of New York, USA and Bechtel Enterprises, Inc., a Company incorporated in the State of Delaware, U.S.A. The respondent No. 1 became a deemed public Company with effect from 31st October, 1998 under section 43A(1) of the Act and was reconverted to a private company under section 43A(2A) of the Act with effect from 9th February, 2001. The respondent No. 1 originally had three shareholders viz. (i) Enron Mauritius Company (for short 'EMC'), a special purpose vehicle of Enron Development Corporation holding 80% of the equity share capital of the respondent No. 1. (ii) Capital India Power Mauritius (for short "CIPM"), a special purpose vehicle of General Electric Company (GE) holding 10% of the equity capital of respondent No. 1 and (iii) Energy Enterprises Mauritius Company (for short "EEMC"), a special purpose vehicle of Bechtel Enterprises Inc. holding 10% equity share capital of respondent No. 1. 3. The appellant, Maharashtra Power Development Corporation Limited is a public limited company incorporated on 4th December, 1997 under the Act and it's 100% share capital is held by Maharashtra State Electricity B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or each. In or about September 2001, Industrial Credit and Investment Corporation of India (for short "ICICI"), another lender, nominated one more director and thus on and from September 2001, the respondent No. 1 had the Board of 12 directors. The respondent No. 1 held it's eighth annual general meeting on 26th September, 2001. It was the last annual general meeting of the company which was held without any disputes. 7. The respondent No. 1 is a power utility company with the main objects as: carrying on business of producers, generators, suppliers, distributors, transformers, transmitters, developers, storers and dealers in electricity and any by products derived from this business as also dealing in hydro-carbons, fuel handling equipment and machinery. The respondent No. 1 has set up a plant for generation of electric power at Dabhol in the State of Maharashtra. The first phase of the plant became operational and the respondent No. 1 started supplying power to MSEB under an independent "Power Purchase Agreement" (hereinafter referred to as the "PPA"). Copy of the PPA has not been filed on record but it appears that this PPA has become the focal poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent No. 1. On 28th March, 2002, Mr. Mohan Gurunath resigned as the Managing Director and on 29th March, 2002, six other nominee directors appointed by EMC resigned as directors of the respondent No. 1. On or about 5th April, 2002, the two nominee directors appointed by IDBI and ICICI also resigned from the Board of the respondent No. 1. Therefore, on and from 5th April, 2002, the respondent No. 1 had only three directors viz. Mr. Donald Stummer, the respondent No. 2 herein, Mr. Richard Allison, the respondent No. 3 herein & Mr. Ravi Buddhiraja, the nominee of the appellant. On 2nd May, 2002, Mr. Ravi Buddhiraja also resigned and so the respondent No. 1 was left with only two directors after 2nd May, 2002. 10. As per its Articles of Association, the respondent No. 1 has to have minimum 3 and maximum 13 directors. Coram for the meeting of the Board is three. Since 2nd May, 2002, the respondent No. 1 company was left with only 2 directors. The respondent No. 1 therefore, was unable to hold any Board meeting to manage it's affairs. Something had to be done immediately. An application was filed before the Arbitratral Tribunal in London by the MSEB/Government of Maharashtra praying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd against public interest. 12. Initially, the Company Petition No. 45 of 2002 was filed on 23rd July, 2002 challenging only the legality and validity of the Board meeting dated 4th June, 2002 and the decisions taken therein, as illegal and oppressive. On 2nd August, 2002, Mr. Sibal, the learned counsel appearing for the respondents, submitted before the CLB that since the Board of respondent No. 1 had only 2 directors left in office after resignation of Mr. Buddhiraja on 2nd May, 2002, Mr. Freeman was appointed as a director to ensure that there was a quorum Board meetings. He further submitted that if the appellant was willing to appoint it's own nominee on the Board, Mr. Freeman could be relieved as a director, as there would be a quorum of Board meetings with the appointment of a nominee director by the appellant. On request of the learned counsel for the appellant, who sought time for instructions, the petition was adjourned. In the next hearing, on 22nd August, 2002, the appellant declined the offer to appoint a nominee director on the Board of the respondent No. 1. The CLB thereafter passed an order directing that the general body meeting of the respondent No. 1 be convened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only on questions of law under section 10F of the Act which reads as under:- "10F. Appeals against the orders of the Company Law Board.-Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order. [Emphasis supplied] 14. Mr. Dwarkadas relied on the judgment of the Division Bench of this court in Minoo H. Modi v. Hemant D. Vakil AIR 1994 Bom. 39, in support of the contention that an appeal under section 10F lies only on questions of law and not on questions of facts. Mr. Dwarkadas is right in his submission that an appeal under section 10F of the Act is maintainable only on questions of law and not on questions of facts. However, it cannot be said that the impugned decision of the CLB involves only questions of facts. As would be seen from the further discussion, that appeal involves questions of interpretation of the Articles of Association and in particular the article No. 10 and it's various sub-clauses. In Sir Chunilal V. Mehta & Sons Ltd. v. Century Spg. & Mfg. Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y." The Supreme Court then held : "Neither the judgment of Bhagwati, J. nor the observations in Elder are capable of the construction that every illegality is per se oppressive or that illegality of an action does not bear upon its oppressiveness. . . ." (p. 1320) It can therefore, be safely held that an irregular or illegal action is not per se oppressive but the illegality of an action may have a bearing upon its oppressiveness. Acts of oppression 17. Mr. Andhyarujina, learned counsel for the appellant submitted that actions of the majority of the shareholders viz. EMC, CIPM and EEMC were illegal and oppressive of the minority and against the public interest. Actions complained of are divided in three sets of events viz. (i) Meeting of the Board of directors held on 4th June, 2002 and decisions taken thereat (ii) Conduct of the shareholders at the general meeting held on 9th September, 2002 in pursuance of the directions of the CLB and this court. (iii) Subsequent conduct of the EMC in nominating 4 nominees for directorship on the Board of respondent No. 1 under a letter dated 8th October, 2002. Before I consider these actions it is necessary to deal with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 Comp. Cas. 351 quoted : "there must be continuous acts on the part of the majority shareholders, continuing up to the date of the petition, showing that the affairs of the Company were conducted in a manner oppressive to some part of the shareholders." It is ordinarily correct to say that a single act of oppression would not give rise to a cause of action for filing of a petition under section 397 of the Companies Act. However, this is not a rule of law, but a rule of prudence evolved by the Courts to prevent a frivolous litigation so that a dissatisfied group of shareholders do not obstruct the regular working of the company at the hands of majority of the shareholders by complaining of any trivial act of oppression by filing a petition under section 397 of the Act. If the effects of the single act which is burdensome, wrongful and oppressive are of continuing nature, and the member concerned is deprived of a right and privileges for all time to come in future, then the petition under section 397 of the Act can be filed even in respect of a single act. In Tea Brokers (P.) Ltd. v. Hemendra Prasad Barooah [1998] 5 Comp. L.J. 463, a Division Bench of the Calcutta High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese matters however cannot be taken into account for the application has to be decided on the basis of the facts as they were when the application was made. . . ." (p. 377) As subsequent events cannot be taken into consideration. Mr. Sibal submitted, the amendment should not have been allowed and the subsequent events introduced by means of an amendment should have been ignored by the CLB. I am unable to agree for the reasons mentioned below. 23. By an order dated 30th October, 2002, the Division Bench of this Court permitted the appellant to amend the petition before the CLB to challenge the general meeting dated 9th September, 2002 and the decisions taken thereat. The appellant was thus allowed to include events subsequent to the filing of the petition. This order of the Division Bench is binding on the parties as on me and the CLB. The CLB has, therefore, rightly considered the events added in the petition by way of an amendment. 24. The matter can be looked at from another angle. The petition which was originally filed on 23rd July, 2002 was amended in November 2002 in pursuance of an order of the Division Bench of this Court dated 30th October, 2002. While it is true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Amendment Act and give effect to section 4 of that Act. How do we work it out? We do it by directing the plaintiffs in the two cases to file fresh pleadings setting out their grounds under clauses (f) and/or (ff) of sub-section (1) if they so wish. On such pleading being filed we may legitimately hold that the transferee-landlord institutes his suit on grounds mentioned in clause (f) or (ff) of sub-section (1) on that date." It is possible for the court to avoid multiplicity of proceedings, by holding that the proceedings (i.e., petition under section 397) on the amended grounds of oppression were instituted on the date on which the amendment was allowed. So construed, the court would be entitled to take into consideration the oppressive actions up to the date of the amendment and avoid multiplicity of litigation. (iii) Whether it is necessary that oppression must be of minority shareholders by majority shareholders? 25. Mr. Sibal also referred to the decisions in Suresh Kumar Sanghi's case (supra) at (page 242, 243), Hungarford Investment Trust Ltd. v. Turner Morrison ILR 1972 (1) Cal. 286 (at page Nos. 307, 313, 314, 416 and 419), Maharani Lalita Rajya Lakshmi v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority shareholders against minority shareholders. There can be no oppression of one group of minority shareholders by another group of minority shareholders nor can there be an oppression of majority shareholders by minority shareholders. In support of this proposition, Mr. Sibal relied upon the decision of the Supreme Court in Shanti Prasad Jain's case (supra) and decision of the Delhi High Court in Suresh Kumar Sanghi's case (supra). 27. In Shanti Prasad Jain's case (supra) the Supreme Court observed: "It must further be shown that the conduct of majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as part of consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of the petition, showing that affairs of the Company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between majority shareholders and minority shareholders would not be enough unless the lack of confidence springs from oppression of minority by majority in the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon a judgment of a Single Judge of the Calcutta High Court in Hungarford Investments Trusts Ltd.'s case (supra). In paragraph 57 of the judgment it was observed : "A Division Bench of this Court in Ramashankar Prosad v. Sindri Iron Foundry Ltd. (15) (reported in AIR 1956 Cal. 512) also discussed this aspect of the case and noticed the difference between English law and the Indian law on the point and came to the conclusion that an application for relief under section 397 even by a majority of shareholders was maintainable." 29. Mr. Seervai also referred to and relied upon another judgment of the Calcutta High Court in Tea Brokers (P.) Ltd. (supra). In paragraph Nos. 44 to 46 of the said judgment, a Division Bench of the Calcutta High Court has held that if a member who holds majority of the shares in the Company was reduced to the position of minority in the company by a mala fide act of the company or by it's Board such an act could be considered to be an act of oppression of the said member. The petition was held to be maintainable by such a majority shareholder. 30. On principle also, there seems to be no support for the proposition that the petition under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial remedy provided under section 397 of the Act. I am therefore, of the opinion that a petition under section 397 of the Act is maintainable by members who complain of the oppression even if they do not form the minority shareholders or the oppressers are not the majority shareholders. The only restriction on the members who can file the petition is to be found in section 399 of the Act. (iv) Whether facts exist which would justify the winding up of the respondent No. 1 company on the "just and equitable" ground, but the order of winding up would unfairly prejudice the appellant? 31. It is necessary for the appellant to allege and prove that facts exist which would justify the winding up of the respondent No. 1 on the ground that it is just and equitable to do so but under the circumstances, it would unfairly prejudice the appellant to pass an order for winding up. Mr. Sibal pointed out that in the petition as originally filed, there were no averments at all which, if proved, would justify that, respondent No. 1 should be wound up on the ground that it was "just and equitable" to do so. Even in the amended petition, there is no material in the body of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehind it, or amongst it, there were individuals with rights, expectations and obligations inter se which were not necessarily submerged in the company structures equally always enabled the court in subject the exercise of legal rights to equitable considerations. The super imposition of equitable considerations requires something more which typically may include one or more of the following elements: (i) An association formed or continued on the basis of personal relationship involving mutual confidence, this element would often be found where a pre-existing partnership has been converted into a limited company, (ii) An agreement or understanding, that all or some (for there may be sleeping members) of the shareholders shall participate in the conduct of business, (iii) A restriction on transfer of the members interest in the company-so that even where the confi- dence is lost a member cannot take out his share and go elsewhere after having found that Mr. Ebrahimi was excluded from the management of the company the House of Lords allowed the petition for winding up. The decision of House of Lords in Ebrahimi & West Bourne Gallaries' case (supra) was considered by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainly a factor which would to be taken into consideration while considering the real nature of the company. Secondly, in a company which is quasi partnership, the business is usually a small business at least in the beginning, though it may grow in course of time. Thirdly, the members of the company are usually few in number with restrictions on their right to transfer the shares as in case of a partnership a partner cannot transfer his right and share in the partner- ship to a stranger. In the present case, there was no pre-existing business. The business by no means was small nor was it intended to be small; it was of generation of hundreds of 700 mega watts of power involving investment of thousands of crores of rupees. Though the members were few and initially only three, they were all multinational corporations. Enron before it's fall was a "Fortune 500" company. G.E. and Bechtel continue to be "Fortune 500" companies. The normal reason why a partnership firm is converted into an incorporated company viz. to avail the benefits of limited liability was absent as the respondent No. 1 was incorporated with unlimited liability of members. The appellant who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the Company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a share-holder. . . ." (p. 366) I would hesitate to come to a conclusion that there was lack of probity on the part of the CIPM, EEMC or EMC. All that was done in the meeting of 4th June, 2002 was to appoint a third director as the respondent No. 1 could not function with only two directors. The CLB has recorded a finding of fact (in paragraph No. 29 of it's judgment) that all decisions taken in the meeting of 4th June, 2002 were in the interest of respondent No. 1. Firstly, this being a finding of fact cannot be assailed in an appeal under section 10F of the Act. Secondly, the said finding is not only a possible finding but even if I were to reappreciate the facts. I would come to the same conclusion. There is no lack of probity or fair dealing and no violation of proprietary rights of the appellant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that if a member whom it is reasonably possible to summon is not summoned, the meeting will not be duly convened, even though omission is accidental or due to the fact that the member has informed the officer whose duty its to serve notice that he need not serve notice on him." Relying on this passage, Mr. Andhyarujina submitted that giving of notice of the Board meeting to the appellant as a member was mandatory. The word "member" used in the passage quoted above is to denote a "member of the Board" and not a "member of the company" or a shareholder. A shareholder is not entitled to a notice of meeting of the Board of directors even in respect of a closely held company. Article 10.7 also contemplates notice of a Board meeting to be given to the directors and not to the shareholders. Therefore, it was not necessary to give a notice of the meeting of the Board to the appellant in its capacity as a shareholder. In the absence of any director in office nominated by the appellant, it was not entitled to a notice of meeting of the Board. Mr. Andhyarujina, however, referred to the letter of Mr. Stummer dated 30th July, 2002 in which he has stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son why continuing directors are authorised to appoint a director or directors to the extent necessary to form the quorum or to call for a general meeting. Regulation 75 thus permits the continuing directors to convene a Board meeting for the purpose of increasing the number of directors to that fixed for the quorum. As there were only two directors in office which number was less than the quorum fixed by the article No. 10.8 of the Articles of Association, they could by virtue of the powers conferred by Regulation 75 either convene a general meeting or convey a meeting of the Board for the purpose of increasing the number of directors to the extent fixed for the quorum. Thus, the two exiting directors could validly convene and hold the Board meeting on 4th June, 2002 for the purpose of co-option or appointment of one more director in accordance with the provisions of the Articles of Association. The finding of the Company Law Board that Regulation 75 permitted continuing directors to convene and hold a Board meeting for the purpose of increasing the number of directors to that fixed for the quorum and therefore, convening of the meeting of the Board on 4th June, 2002 was not illeg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the article No. 10 contemplates shareholder directors who are nominees of the shareholders appointed under the article Nos. 10.2 and 10.3 and other directors. The shareholder directors cannot exceed 10. Articles prescribe maximum number of directors to be '13'. Thus, 3 more directors other than shareholder directors can be appointed. The source of power for the appointment of these 3 directors is to be found in the article No. 10.13. Mr. Andhyarujina contended that under the article No. 10.13, only nominees of the financial institutions can be elected or appointed as directors. I am unable to read any such limitation in the article No. 10.13. Any person other than a shareholder director would be covered by the article No. 10.13. The second sentence of the article No. 10.13 is only permissive and records an agreement between the shareholders that they would vote in favour of an election of an individual director who is nominated by the financial institutions in pursuance of a financing agreement. If there is no financing agreement or if the financing agreement does not provide for the nomination of 3 directors by of the financial institutions or if it so provides but the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nominee of the appellant if it chose to appoint one as a director of the respondent No. 1. (D)Replacement of Mr. Allison by Mr. Walsh 41. In the meeting of the Board dated 4th June, 2002, Mr. Allison resigned and Mr. Walsh who was nominated in his place was appointed as a director. Though initially, the validity of replacement of Mr. Allison by Mr. Walsh was questioned, the challenge, as noted by the CLB, was given up in view of the article 10.4 of the articles which permitted substitution. Before me, no grievance was made regarding the replacement of Mr. Allison by Mr. Walsh. (E)Agenda for the Board Meeting dated 4th June, 2002. 42. Mr. Andhyarujina lastly contended that no agenda of the business to be transacted at the Board Meeting was not circulated to the directors and on that ground also the Board Meeting dated 4th June, 2002 and decisions taken therein were illegal. Reliance was placed on the article No. 10.7 of the Articles of Association which reads as under :- "10.7 Board meetings shall be held not less than four times in every year and with intervals of not more than three months. Unless waived by the Shareholder Directors, not less than five Business Day's not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings. In Mohta Bros. (P.) Ltd.'s case (supra) a Division Bench of the Calcutta High Court observed: ". . . In our view, this contention on behalf of the respondent is well founded. Full particulars must be given by a petitioner in an application under sections 397 and 398 of the Act of acts of mismanagement and oppression. . . ." (p. 128) 45. In the case of P.S. Offshore Inter Land Services (P.) Ltd. (supra ), a learned Single Judge of this Court observed: ". . .The grounds of challenge not to be found in the petition but evolved during the course of arguments will have to be ignored. In a petition under sections 397 and 398 of the Companies Act, (1 of 1956), all material must be set out in the petition itself and allegations of fraud, coercion mala fides if any, must be supported by particulars." (p. 592) At page No. 594 of the report, the Court further observed : "I must state that I will have to restrict my prima facie enquiry to the ground set out in paragraph 12 of the petition and I cannot allow the parties to travel beyond the petition and reply to the contentions (sic-not) urged in the petition. . . ." (p. 594) Grounds of oppression are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmeshwari Prasad Gupta (supra), this Court held that the alleged defect was curable and declined to interfere in view of the subsequent conduct of the parties (see page Nos. 604 and 605 of the report). Mr. Sibal also referred to and relied upon the judgment of a Division Bench of Delhi High Court in Smt. Abnash Kaur v. Lord Krishna Sagar Mills Ltd. [1974] 44 Comp. Cas. 390 (at page 413). In that case the Division Bench pointed out the distinction between section 172 of the Act which deals with general meetings of a company and section 286 of the Act which deals with Board meetings. It was held that any business whatsoever can be transacted at a Board meeting while the shareholders are required to be informed in advance of the agenda in case of a general meeting. In Needle Industries (India) Ltd.'s case (supra) the Supreme Court rejected the contention that the appointment of an additional director was invalid as there was no item on the agenda of the meeting for the appointment of the additional director. (see para 117 of the judgment). Matters to be discussed are required to be included in the notice of the general meeting of the company, but the rigors of section 172 of the Act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting of the reconstituted Board have been considered and rejected earlier. Therefore, the finding of the CLB that further decisions taken in the meeting dated 4th June, 2002 after reconstitution of the Board were illegal is required to be set aside. Assuming however, that the holding of the Board meeting of the reconstituted Board on 4th June, 2002 was irregular or even illegal, the questions that are required to be considered are : (i) Whether the decisions taken in the continued Board meeting were oppressive of the respondent ? (ii) If they were not oppressive, whether the CLB could have entertained the petition under section 397 of the Act and declared the continued Board meeting or the decisions taken thereat as null and void? 48. The decisions taken in the meeting of the reconstituted Board on 4-6-2002 can be summarized as follows : (i)Resignations of the various directors from 28th March, 2003 onwards were accepted (though acceptance may not be necessary) (ii)Mr. Freeman was appointed as the Manager, special affairs of the respondent No. 1. (iii)The services of counsel (including but without limitation of Mr. P. Chidambaram and firm M/s. Bhaishankar Kanga & Girdharlal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent No. 1 and all it's creditors and members including the appellant in the capacity as a member. The fact that the compensation may come from the coffers of the Government of Maharashtra or MSEB is against the interest of the appellant. The money would come to the respondent No. 1 and for the benefit of the respondent No. 1. It would also benefit the members of the respondent No. 1 inasmuch as their liability-unlimited as it is - would be reduced. The fact that the holding company, of one of the members, would be a loser in a different capacity and some other members would be beneficiaries (in their capacity as creditors who have supplied the plant machinery), cannot make the decision taken by the Board to continue the arbitration proceedings oppressive of the appellant. 50. In my opinion, the continued meeting of the Board after establishment of a quorum by appointment of Mr. Freeman can be construed as an independent and separate Board meeting to which the provisions of Regulation 75 would not apply. Therefore, the meeting was legal. Assuming however, that the said meeting was illegal, the decisions taken at the said meeting were in interest of the respondent No. 1 and were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to nominate one director by virtue of it's 14.15 per cent voting power and EEMC and CIPM each would be entitled to nominate one director by virtue of 10 per cent voting power held by each of them. This makes a total of nine shareholder directors. Second sentence of article No. 10.2 lays down that members who do not hold voting power in exact multiple of 10 per cent are allowed to consolidate their fractional unused voting power which is not exact multiple of 10 per cent and by mutual consent nominate 1 director for each 10 per cent of the consolidated voting power. If all the shareholders holding fraction of 10 per cent of the unutilised voting power agree upon a common nomination or nominations then obviously, 10 directors would be in office. The third sentence of article No. 10.2 would be required to be resorted to only where the persons who hold unutilised fraction of 10 per cent of voting power are unable to reach a consensus about a nominee. The third sentence of article No. 10.2 lays down that if fewer than 10 candidates have been nominated as provided in the preceding two sentences then the members whose fractional voting power has not been utilised under the preceding two s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight. However, as section 263 of the Act is not applicable to the respondent No. 1 being a private company, the appellant insisted upon putting to vote the resolution for appointment of its 2 nominee directors, as a single resolution. EEMC and CIPM voted against the said resolution as voting in favour of the resolution would have been contrary to the article Nos. 10.2 and 10.3. It therefore, cannot be said that voting by CIPM or EMC against resolution for the election of two persons nominated by the appellant as directors constituted breach of the Articles or that it constituted oppression of the appellant. At this stage, it must also be pointed out before the resolution for election of two nominees of the appellant as directors was put to vote, the resolution for election of Mr. Kevin Walsh - nominee of CIPM was put to vote. The appellant did not vote in favour of the resolution but abstained from voting. Under article No. 10.3, members had agreed to vote in favour of the appointment of the candidates nominated by members pursuant to the article No. 10.2. Abstaining from voting on the resolution of appointment of Mr. Walsh thus constituted a breach of the Article No. 10.2 by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n regarding the manner of appointment of directors have been made in the Articles. There was no occasion for the CLB to interfere in the said arrangement unless the Articles were breached and such breach, in the opinion of the CLB was oppressive. In my opinion, there was no oppression of the appellant. The CLB could have permitted nomination of one person as a director by the appellant on the Board. And if one nominee is nominated by the appellant even now, the other members of respondent No. 1 would be bound to elect him in the general meeting and pending a general body meeting, the Board would be required to co-opt him as required in the article No. 10.4. Subject to this, the order of the CLB regarding the reconstitution of the Board of the Respondent No. 1 is also required to be set aside. Regarding nomination of respondent Nos. 6 to 9 by EMC by a letter dated 8th October, 2002 54. Mr. Andhyarujina challenged the nomination of respondent Nos. 6 to 9 for appointment as directors made by EMC by a letter dated 8th October, 2002 on following grounds : (i)EMC was bankrupt. The EMC had filed a proceeding for bankruptcy before the Supreme Court of Mauritius. By an order dated 9th Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the Board of Directors of EMC, was illegal, null and void and should be ignored. He invited my attention to the prayers in paragraph No. 38 of the Bankruptcy petition made before the Supreme Court of Mauritius and order passed by the Supreme Court of Mauritius on 9th May, 2002, and contended that the Supreme Court of Mauritius granted, almost verbatim, all the prayers made in paragraph No. 38 of the petition without giving any reasons. He submitted that this showed that the Supreme Court of Mauritius had not applied it's mind. He further contended that the order was contrary to the basic principles of the Company Law as applicable in India viz. that once a provisional liquidator is appointed, the Board of directors of the company ceases to have any powers and all the powers of management stand vested in the provisional liquidator. Mr. Andhyarujina submitted that the order which runs counter to the basic philosophy and principles of the Indian Law should be ignored and this court should hold that the Board of directors of EMC had no power to nominate respondent Nos. 4 to 6 as directors of respondent No. 1. Mr. Andhyarujina also took me through certain provisions of the (Mauritius ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (p. 292) 57. Secondly, a foreign law - the ( Mauritius) Companies Act, 1984 cannot be interpreted by us on the basis of interpretation put upon the provisions of the (Indian) Companies Act, 1956, even if some of the provisions (regarding provisional liquidators) appear to be similar. It would be preposterous to hold that an order passed by the highest court of a foreign country is null and void and is without jurisdiction applying principles of the Indian Law. Ordinarily, an order passed by the highest court of a foreign country must be accepted as correct, governing rights and liabilities of the parties in that country. Thirdly, this court cannot hold that an order passed by the highest court of a foreign country is passed without application of mind and/or without jurisdiction merely because all the prayers made by a party are granted and the order ex facie does not record any reasons therefor. Often, this Court also passes orders exactly in terms of the prayers and merely because reasons are not given ex facie in the order, it does not mean that the order is passed without application of mind, or is without jurisdiction. 58. The second ground of attack of Mr. Andhyarujina ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procure that any election pursuant to Article 10.3 and any such removal and/or election shall take place at a general meeting of the Company to be held as soon as reasonably practicable after receipt from the applicable Member of a written notice served on each of the other Members or specifying the removal and/or election of the substitute Shareholder Director and pending such general meeting shall procure that the Board shall appoint such candidate. If any Shareholder Director ceases to hold office, the Members shall procure the election of a substitute nominated by the Member who appointed such Shareholder Director." The CLB, in paragraph No. 33 of its order, has rightly come to the conclusion that respondent Nos. 6 to 9 did not become the directors immediately on their nomination by a letter dated 8th October, 2002. They would have to be co-opted or appointed as directors by the Board as per the agreement between the members contained in the article 10.4. The Board would, however, be bound to accept the nomination. In my opinion, there is nothing which prevents a member from exercising his rights under the article No. 10.4 soon after the general meeting and nominating its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of money to the respondent No. 1, out of public ex chequer and the people of the State of Maharashtra would suffer. Buying of a power at an exorbitant rate charged by the respondent No. 1 is not in the interest of the people of the State of Maharashtra and therefore, it is not in public interest to continue the arbitral proceedings. The real purpose of the arbitral proceedings is recovery of money not for the benefit of the respondent No. 1 but for being paid and transferred to the principals or associates of EMC and CIPM which is not in public interest. I am unable to accept these submissions. Instituting any legal proceedings whether in a Court of law or before any other forum chosen by agreement of parties like the Arbitral Tribunal, for enforcement of contractual rights, in my opinion, cannot be against public interest. The mere fact that the proceedings (in the present case 'the Arbitral proceedings') are against MSEB or the Government which would ultimately be liable to make the payment out of public exchequer would not make continuation of such proceedings against public interest. If exercise of contractual rights against the Government can be considered as against public in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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