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TMI Blog2011 (2) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... INI, J. B. Adinarayana Rao and Smt. M. Madhavi Priya for the Appellant. Arvind Dattar, K.R. Raman, S.R. Ashok and D. Seshadri Naidu for the Respondent. JUDGMENT These two appeals are preferred against the common order dated November 24, 2010, passed by the Company Law Board, Additional Principal Bench, Chennai in C. A. Nos. 150 of 2010 and 167 of 2010 in C. P. No. 83 of 2009 Ranbaxy Laboratories Ltd. v. Dr. Jayaram Chigurpati [2011] 163 Comp Cas 547. The appellants in both the appeals are respondent Nos. 1 to 3 in C. P. No. 83 of 2009. 2. C. P. No. 83 of 2009 was filed by Ranbaxy Laboratories Ltd. ('Ranbaxy') under sections 397 and 398 of the Companies Act, 1956, to declare that the acts of the appellants herein are prejudicial to public interest and oppressive to the shareholders of Zenotech Laboratories Ltd. ('Zenotech'). 3. Pending C. P. No. 83 of 2009, Ranbaxy filed C. A. No. 150 of 2010 under section 186 of the Companies Act, 1956, seeking a direction for convening an extraordinary general meeting of Zenotech immediately to consider the appointment of nominee directors on behalf of Ranbaxy on the board of Zenotech. The appellants herein fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbaxy in Zenotech to 46.85 per cent. 7. Subsequently Daiichi Sankyo Co. Ltd., Japan, respondent No. 5 in C. P. No. 83 of 2009-had acquired 63.92 per cent. of equity share capital in Ranbaxy. As a result of the said acquisition, Daiichi Sankyo Co. Ltd., (hereinafter referred to as "Daiichi Sankyo") acquired control over the Ranbaxy and it had indirectly acquired 46.85 per cent. of share capital of Zenotech held by Ranbaxy. Pursuant to the said acquisition of the shares of Ranbaxy, Daiichi Sankyo made a public announcement to the shareholders of Zenotech on January 19, 2009, for the acquisition of the 20 per cent. of the share capital of Zenotech in accordance with the provisions of Takeover Regulations. 8. On June 30, 2009, the appellants herein filed C. P. No. 51 of 2009 before the Company Law Board under sections 397, 398 and 402 of the Companies Act, 1956, seeking a declaration that the acts of Daiichi Sankyo, Ranbaxy and their directors (arrayed as respondent Nos. 2 to 8 to the said company petition) are prejudicial to the interest of Zenotech and are oppressive against the appellants herein. It was alleged in C. P. No. 51 of 2009 that Ranbaxy after assuming complete con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Sankyo to maintain status ago with regard to the affairs and management of Zenotech till the disposal of C. P. No. 83 of 2009 and C. P. No. 51 of 2009 alleging that any appointment of directors by Ranbaxy would affect the affairs of Zenotech and would prejudice the subject-matter of the company petitions. 14. By common order dated November 24, 2010, which is under challenge in these two appeals, the Company Law Board allowed C. A. No. 150 of 2010 and dismissed C. A. No. 167 of 2010. 15. As could be seen, the Company Law Board, having taken note of the serious disputes between the appellants herein and Ranbaxy, held that it was impracticable to convene and hold an extraordinary general meeting at the requisition by Ranbaxy. The Company Law Board has also taken into consideration the admitted fact that Ranbaxy, being a major shareholder is entitled to exercise its right to appoint the directors on the board of Zenotech and that the purpose of the extraordinary general meeting sought to be convened by Ranbaxy is only to consider appointment of its nominee directors on the board of Zenotech. Accordingly the application was allowed and extraordinary general meeting was directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o appoint its nominee director in the annual general meeting held on February 26, 2010 and that even the three directors initially appointed by Ranbaxy did not attend the board meetings and in fact Ranbaxy never made any requisition to convene the extraordinary general meeting. Thus, it is contended that the failure to nominate the directors of Ranbaxy was due to its own lapses and there was no reason to conclude that it was impracticable to convene and hold the extraordinary general meeting in the manner prescribed by the Act. It is also contended that since the present board consists of two independent directors appointed by this court, there is no scope for appellant No. 1 to control on his own the administration of Zenotech and therefore the allegations that appellant No.1 was acting against the interest of Zenotech and that he was thwarting all the attempts by Ranbaxy to have its nominee directors on the board, ought not to have been accepted by the Company Law Board. 21. Per contra , it is contended by learned counsel for the respondents that appellant No. 1 had been acting on his own without the concurrence of the two independent directors appointed by this court and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted." 23. On a plain reading of the above section, it is clear that the Company Law Board on being satisfied that it is impracticable to call a meeting of a company in any manner in which meetings of the company may be called, is competent to order meeting of the company to be called, held and conducted in such manner as the Company Law Board thinks fit. It is evident from the language employed in section 186 that the power which the Company Law Board exercises is purely discretionary subject to its satisfaction that it is impracticable to call a meeting in the manner in which meetings may be called. 24. In the present case, the board of directors of Zenotech admittedly consists of only three directors, namely, appellant No. 1 who is also the managing director and the two independent directors appointed by this court by order dated February 23, 2010, in Company Appeal No. 30 of 2009. It is also not in dispute that though Ranbaxy, which is holding 46.85 per cent. of shareholding, is the largest shareholder of Zenotech, it has no nominees on the board of Zenotech. 25. So far a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of 2009 shows that various allegations and counter-allegations have been made by the appellants herein and Ranbaxy against each other. Whereas the appellants herein alleged that Ranbaxy had failed to pursue the clinical trials of the products of Zenotech despite being the largest shareholder and that Ranbaxy and Daiichi Sankyo had failed to market the products resulting in enormous financial and operational damage to Zenotech and that because of their indifferent attitude the brand of Zenotech was going to be eliminated completely and it might even lead to winding up of Zenotech adversely affecting the interest of the appellants and the other minority shareholders, it is alleged by Ranbaxy that appellant No. 1 had been misusing his office as managing director and had been promoting and safeguarding his own interests by preventing Ranbaxy from exercising their rights in the management of the business of Zenotech. It is also alleged by Ranbaxy that appellant No. 1 wanted to divest his shareholding in Zenotech so as to escape accountability for the acts and deeds of mismanagement and that the conduct of appellant No. 1 was injurious to the interest of all the shareholders and the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enting the majority shareholders so that the company's affairs are regulated in the best manner. There is absolutely no justifiable reason to find fault with such order. 33. For the aforesaid reasons, the order passed by the Company Law Board in C. A. No. 150 of 2010 cannot be held to be illegal on any ground whatsoever. In view of the said order, the Company Law Board had rightly dismissed C. A. No. 167 of 2010 which was filed by the appellants herein to maintain status quo with respect to the affairs and management of Zenotech. Hence the interference by this court under section 10F of the Companies Act is not warranted and both Company Appeal Nos. 20 and 23 of 2010 are liable to be dismissed. 34. It is also brought to my notice that during the pendency of the present appeals, the annual general meeting was held and the issue of appointment of the nominees of Ranbaxy as directors was also considered and approved by majority in the annual general meeting. Thus, the purpose for which the extraordinary general meeting was directed to be convened by the Company Law Board has already been served. 35. Viewed from any angle, the appeals are without any substance and accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the hon'ble Supreme Court on July 8, 2010, which held that Ranbaxy and Daiichi are not persons acting in concert for the purpose of acquisition of shares of Zenotech by Daiichi. Dr. Jayaram as per his past conduct has not considered the request for holding of extraordinary general meeting. Hence this petition. 2. Respondent Nos. 1 to 3 oppose the application on the ground that any order passed in this application is in conflict with the "order of status quo " ordered by this Bench on May 21, 2010, in C. P. No. 51 of 2009 and it will amount to the review of the above order. The board of Zenotech is under the control of independent directors appointed by the High Court of Andhra Pradesh and that the board cannot be suspended without the leave of the High Court. No cause of action is established to invoke section 186 of the Act. The annual general meeting of Zenotech for the year 2008 could not be held due to the mala fide attitude of the applicant. The two nominee directors of the applicant avoided the board meetings following which there was no quorum. The annual general meetings for 2008 and 2009 were duly held on February 26, 2010. Though the applicant attended the meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he board of Zenotech in its large interest. 4. In the facts and circumstances of the case, I am inclined to allow this petition by granting permission to the applicant (Ranbaxy) to convene the extraordinary general meeting of Zenotech (respondent No. 1). C. A. No. 167 of 2010 5. C. A. No. 167 of 2010 has been filed under regulation 44 of the Company Law Board Regulations, 1991, by Dr. Jayaram and others in the company petition seeking to maintain the status quo with respect to the affairs and management of Zenotech. According to them any appointment of directors by Zenotech, Ranbaxy and Daiichi will prejudicially affect the affairs of Zenotech. It is stated that a change in the board of directors will have an adverse impact on C. P. No. 51 of 2009 filed by them and that it will also amount to suppression of the board appointed by the hon'ble High Court. 6. Ranbaxy already served a notice calling an extraordinary general meeting for appointing its nominees on the board. As per the order in C. A. No. 150 of 2010 above, permission has been granted to Ranbaxy to convene the extraordinary general meeting for appointing their nominees on the board. For the reasons state ..... X X X X Extracts X X X X X X X X Extracts X X X X
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