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TMI Blog2013 (5) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 397 and 398 of the Act read with Sections 402, 403, 406 & 408 thereof was that the AGM of the company for the financial year ended 31st March 2010, which ought to have been held on or before 30th September 2010, was not so held. Held that:- The Board meeting was held pending the decision of the CLB on the main petition u/s 397 of the Act filed by the Respondent. Therefore, the validity of any of the decisions taken subsequent to the transfer will depend on the outcome of the final decision in the petition u/s 397 of the Act filed by the Respondent/WPIGI. It is considered appropriate to direct that the interim order passed by this Court on 12th December 2012 to the effect that the resolution passed in the fresh Board meeting "shall not be given effect" is directed to continue for another period of eight weeks or till such time the CLB passes a final order in the petition filed by the Respondent, which decision, in any event, should not be later than 12 weeks from today. If for some reason, the CLB is unable to pronounce its final order in the petition within twelve weeks then, it will be open to either party to approach this Court. In that event, the interim order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch 2010 which showed an increase in the salary of Mr. Vivek Dhir. It may be mentioned that on 20th September 2010, Ms. Malini Dhir was appointed as an Additional Director of the Appellant No.1. Consequently, as on date, there are three Directors in the Appellant No.1: Mr. Vivek Dhir, Ms. Malini Dhir and Mr. Aditya Ahluwalia. 4. According to Mr. Ahluwalia, there were discrepancies noticed by him in the accounts and the notice for the AGM, which was to be held to consider the accounts for the year ending 31st March 2010, which he brought to the notice of Appellant Nos.2 and 3. He alleges, however, that he subsequently downloaded the annual accounts filed by Appellant No.2 with the ROC which showed that they had been approved by the Board of Directors ('BoD') on 22nd July 2010 and that the AGM was held on 20th September 2010. According to him, the documents sent to him mentioned the date of the Board meeting for approval of accounts as 9th August 2010 and the date of the AGM as 12th September 2010. The petition also listed out all the instances of oppression and mismanagement, including the legality of the appointment of Appellant No.3 as a Director of the company, the holding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hluwalia at the Board meeting held on 31st October 2012 the resolution for approving the rights issue as proposed was approved without his being present and voting. This according to him, therefore, severely prejudiced his rights. 7. One of the questions that was considered by the CLB in CA No. 566 of 2012 was whether Clause 6.2 incorporated in the JVA could ipso facto bind the company inasmuch as there was no corresponding amendment to the articles of association ('AoA') of the company. The question framed by the CLB, as is evident from the impugned order dated 15th November 2012 was whether the approval of WPIGI was required to raise equity for the company and whether Mr. Ahluwalia had sufficient time to examine issues since at the relevant time he was in New Jersey (USA) which was hit by a hurricane. 8. The findings of the CLB in the impugned order were that since the company was a private one and not covered by Sections 81 to 89 and 171 to 176 of the Act, it had the liberty to carve out the rules which were not repugnant to the other provisions of the Act. The company was governed by the AOA as to its internal management. Therefore, any agreement entered into amongst the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation of Section 9 of the Act which the CLB has understood as not being applicable to private companies. 13. Section 9 of the Act reads as under: "9. Act to override memorandum, articles, etc. - Save as otherwise expressly provided in the Act- (a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and (b) any provision contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be." 14. While Sections 81 to 89 and 171 to 186 of the Act insofar as they relate to issuance of shares do not apply to private companies, there is no basis for concluding that Section 9 of the Act per se does not apply to private companies. A plain reading of Section 9 makes no such exception. The following features of Section 9 are requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , who had entered into a family arrangement which was reduced in writing in the form of a Memorandum of Understanding ('MoU'). The submission was that in terms of the said doctrine of identification, the actions of the key personnel should be taken to be the actions of the company itself. Mr. Ganda has submitted that in the present case, the JVA was in the nature of an agreement between the key personnel of the Appellant No.1 company and since their actions were taken to be the actions of the company itself, Clause 6.2 which provided for an affirmative vote should be taken to be applicable and enforceable notwithstanding the fact that no amendment was made to the AoA to incorporate such an affirmative vote of WPIGI. 17. The above submission overlooks the fact that even in the Reliance Natural Resources Ltd. case (supra), the Supreme Court was not prepared to treat the MoU as binding. It was emphasised that the company in that case, i.e., Reliance Industries Limited was 'separate' from the key personnel. The observations made in para 58 of the said judgment that the doctrine of identification "may be applicable only in respect of small undertakings" does not mean that irrespective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation and as per the requirement of the Corporation, in January 1957 the company was converted into a public company and appropriate amendments for the purpose were made in the Articles. However, even on this occasion, the agreement of July 1954 was not incorporated into the Articles. Disputes having arisen, the matter reached the Court. The appellant claimed the benefit of the agreement of July 1954. It was held by this Court that the said agreement was not binding even on the private company and much less so on the public company when it came into existence in 1957. It was an agreement between a non-member and two members of the company and although for some time the agreement was in the main carried out, some of its terms could not be put in the Articles of Association of the public company. As the company was not bound by the agreement it was not enforceable." Further, in V.B. Rangaraj (supra) the Supreme Court quoted Palmer's Company Law (24th Edn.) and observed: "In Palmer's Company law (24th Ed.) dealing with the 'transfer of shares' it is stated at page 608-9 that it is well-settled that unless the Articles otherwise provide the shareholder has a free right to tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the decision in the Board meeting may have been "technically legal and correct." 23. The above observations in Sangramsinh P. Gaekwad (supra) were made in the context of the question whether an isolated act of oppression may be sufficient to grant relief. That question was answered in the negative. It was further observed that the test of lack of bonafides should be applied "in both the winding up petition and while determining an application under Section 397." However, the question whether any just and equitable relief ought to be granted has to be tested in the facts and circumstances of each case. 24. There were two grounds on which the CLB proceeded to interfere with the decision of the Board meeting held on 31st October 2012. One of those grounds was that the decision could not have been taken without the affirmative vote of WPIGI. For the reasons explained above, this Court is unable to sustain the above finding as it is based on an erroneous reading of Section 9 of the Act. Accordingly, this Court sets aside the above finding. 25. The other ground on which the CLB interfered with the decision at the Board meeting held on 31st October 2012 was that the notices of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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