IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 25-07-2012 CORAM THE HONOURABLE MR.JUSTICE R.S.RAMANATHAN C.A.No.11 of 2011 and M.P.No.1 of 2011 1.New Bridge Holdings B.V. a Company incorporated under the provisions of law of The Netherlands and having its Registered Office at Siriusdreef 14, N.L-1232 WT Hoofddorp, The Natherlands P.O.Box 721, NL-2130 AS Hoofddorp, The Netherlands through its Authorized signatory Mr.Rajesh Kumar Jah : Appellant/Petitioner vs. 1.TTK-LIG Limited, a company incorporated under the provisions of Companies Act, 1956 provisions of companies Act, 1956 and having its Registered Office at 6,Cathedral Road, Chennai 600 086. 2.Mr.T.T.Jagannathan s/o.T.T.Krishnamachari Chairman of the Board of Directors of TTK-LIG Limited, 3, Cathedral Road, Chennai 600 086. 3.Mr.T.T.Raghunathan s/o.T.T.Krishnamachari Director, TTK-LIG Limited, 3, Cathedral Road Road, Chennai-600 086. 4.Dr.(Mrs).Latha Jagannathan wife of Mr.T.t.Jagannathan Director of TTK LIG Limited 3, Cathedral Road, Chennai-600 086. 5.Ms.Bhanu Raghunathan w/o Mr.T.T.Raghunathan Director of TTK LIG Limited, 3, Cathedral Road, Chennai 600 086. 6.Mr.J.Srinivasan 7.Mr.H.T.Rajan 8.Mr.Girish Rao 9.Mr.S.Ramkumar 10.Mrs.Stina Ostlund Vasu 11.T.R.Venkatesh Managing Director, TTK-LIG Limited, 6, Cathedral Road, Chennai-600 086. 12.London International Group Plc. a company incorporated under English Companies Act having its office at Toft Hall, Toft, Knutsford, Cheshine WA 16 SPD, United Kingdom. : Respondents Prayer: Appeal filed under section 10F of the companies Act 1956, to set aside the impugned order passed on 07.07.2011 in C.P.No.41 of 2011 on the file of the Company Law Board,Southern Region, Chennai to the extent and to stay operation of the Resolutions passed by the JV Company in its Board Meeting held on 02.05.2011 and any action implementing such Resolutions; appoint an Independent Administrator to control the management and operations of the JV Company and ) holds that TTK Group have the option to purchase the shares of the applicant, based on valuation. For Applicant : Mr.M.K.Raghavan, Senior counsel for Mr.J.Jawaharlal For Respondents 1&11 : Mr.A.L.Somayaji for R.Sankar Narayanan For R3 & R5 : Mr.H.Karthik Seshadri for M/s.Iyer and Thomas J U D G M E N T This company appeal is filed by the appellant against the interim order passed in C.P.No.41 of 2011 by the Company Law Board, Chennai Bench, on the application filed by the appellant under sections 397 and 398 of the Companies Act. 2.The appellant filed the company petition seeking for the main relief:- (i)Directing the respondents 2 to 9 to abide by and give effect to the terms and conditions contained in the management agreement, dated 02.07.1990 and amendments made therein, (ii)To declare that the appellant is entitled to equal representation on the Board of Directors of respondent No.1, (iii)To reconstitute the Board of Directors of the Joint Venture Company and appoint a new Board of Director with equal representation of TTK Group and the petitioner an independent Chairman, (iv)Terminate the appointment of the respondent No.11 as 'Managing Director' of the Joint Venture Company and direct appointment of a new Managing Director that the Board of Directors meeting held on May 2, 2011 is illegal and void; (v)Frame a Scheme of Management for the respondent No.1 Company securing Petitioner's right to have equal say in management and equal representation at the Board of Directors of the Company. 3.In the said petition, the appellant also prayed for interim reliefs:- (i)for staying the resolutions passed in the meeting of the Board of Directors held on 02.05.2011 and restraining the respondent Nos.1 to 9 from acting or implementing the resolutions, dated 02.05.2011. (ii)Restraining the respondent No.1 Company from holding any meeting of the Board of Directors of the shareholders; (iii)Appointing an independent and neutral administrator to supervise and control the management of the company. 4.Before going into the merits and the interim order passed by the Company Law Board [herein after called as CLB], the brief history of formation of the Joint Venture Company has to be stated:- Originally, the London International Group Plc., a Company incorporated under English Companies Act, having its office at Toft Hall, Toft, Knutsford, Cheshine WA 16 SPD, United Kingdom [herein after called as LIG] and TTK formed a Joint Venture Company in the year 1963 and the Joint Venture Company was known as 'London Rubber Company (India) Limited. On 14.02.1997, the name of the Joint Venture Company was changed into TTK-LIG Limited and in the said Joint Venture Company, LIG was having 49.87% of shares, TTK is having 49.87% of shares and the remaining shares are held by the respondents 2 to 11. The Articles of Association of the Joint Venture Company enables the TTK-LIG to appoint any Director in the casual vacancy and as per the Article 108, if a Director, who vacates office has been designated or appointed by or represents LIG or TTK Group, the Board shall appoint a designee of LIG or TTK Group as the case may be to fill the vacancy. Similarly, as per Article 109, the same principle shall be followed in the case of appointment of alternative Director. Under Article 116(A) specifies that questions arising at meeting of the Board of Directors or Committee thereof shall be decided by a majority of votes and further provided that no resolution will be passed by the Board or its Committee in respect of the certain matters enunciated therein, unless the non-retiring Directors appointed by LIG and TTK Group or their alternates, who are present at the meeting shall have voted in favour of such resolution or where such Directors have waived in writing the requirement of their, respective affirmative votes and among 14 matters enunciated therein, exports and major changes in marketing policies are two among them. On 02.07.1990, two major constituents of Joint Venture Company, namely LIG and TTK entered into a management agreement, by which they agreed that the TTK and LIG shall have the right to nominate an equal number of Directors to serve on the Board of the Company and as per clause (2) of management agreement, originally each constituent was permitted to appoint five persons as Directors and latter, it was reduced to four by the amendment made latter. Similarly, as per clause 3 of the management agreement, dated 02.07.1990, the Chairman of the Board of Directors shall be a Director from the Company of TTK and such Chairman shall not have a casting vote and that was also changed by addendum, dated 11.09.1997 and as per addendum, the Managing Director shall be appointed by agreement between the parties and shall not be one of the Directors, nominated by the parties in terms of clause 2 in the original management agreement. 5.Further, as per addendum, LIG was also permitted to transfer the shareholding in the Company to any of its subsidiary Companies, the equity of which is owned more than 50% by LIG subject to necessary approval of the Government of India and the Reserve Bank of India and such subsidiary will be bound by the Management Agreement. 6.Further, in the year 1997, a Memorandum of Understanding was also arrived at between TTK Group and LIG regarding management of the business. As per clause 5.3 of Memorandum of Understanding, it was agreed that decisions to make major changes in marketing policy shall also include appointment of/changes in distributor. In the year 1999, LIG was acquired by SSL, a Major Health Care Company incorporated in UK and LIG became the wholly owned subsidiary of SSL and it continued to provide all support to the JV Company, including contracts for exports. On 19.03.2001, LIG transferred its entire shares in the Joint Venture Company to its wholly owned subsidiary-New Bridge Holdings B.V., the appellant herein and since then, the appellant has been exercising all rights of LIG, as per the shareholder agreements/understandings and Articles of Association of the Joint Venture Company, with the consent of TTK Group. The transfer of shares in favour of the appellant was also approved and the appellant company has been registered as a member of the Company and its name also finds place in the register of Members. In November 2010, 'Reckitt Benchkiser' [herein after called as RB] took over the SSL and its subsidiary/affiliates and the appellant became the step down subsidiary of RB. After RB has taken over the SSL, misunderstanding arose between the two constituents of Joint Venture Company, as RB indicated its willingness to take over, both the sales and marking of its trade marks, tasks that are currently delegated to TTK of the Joint Venture Company, as RB believes that it is much better placed to do so than TTK. TTK Group was given the right to market the products of the Joint Venture Company and therefore, they did not like the attitude of RB to take over the sales and marking of its product and trademarks and hence, difference of opinion arise between the parties and that is reflected in the various correspondents and email exchanged between them. 7.As stated supra, each constituent of the Joint Venture Company, namely LIG and TTK are entitled to nominate 4 Directors to the Board of Directors of the Joint Venture Company and by resolution, dated 15.10.2000, the nominees of SSL-LIG namely, Bart Becht, Freddy Caspers, Amedeo Fasano and Chander M Sethi were appointed in the place of Mark Moran, Jon Gray, Shaun Davis, Stephen John Coplin, who resigned their posts. Thereafter, Mr.Chander M Sethi, one of the Directors, by email, dated 01.04.2011 appointed by SSL Group, informed TTK Group to replace Bart Becht, Freddy Caspers and Amedeo Fasano by appointing Steve Coplin, Parag Agarwal and Rajesh Jha. It was followed by the appellant in its email, dated 29.04.2011 informing the Company Secretary of the Joint Venture Company that they received all the letters of resignation of Bart Becht, Freddy Caspsers and expressed their willingness to nominate Rajesh Kumar Jha and Parag Agarwal in their place and also to nominate Sreenivas Rao Nandigam as alternative Director to Mr.Fasano. Thereafter, the meeting of Board of Directors held on 02.05.2011 and in that meeting, TTK was represented by four of its Directors and the appellant was represented by Mr.Chander M Sethi and the resignation of the Bart Becht, Freddy Caspers were accepted. Thereafter, the Chairman informed the Board that proposal was received from the appellant to appoint Mr.Rajesh Kumar Jah, Mr.Parag Agarwal to fill up the casual vacancies caused by Bart Becht, Freddy Caspsers and also observed that these nominations are not in accordance with the Articles of Association and hence, that cannot be considered and appointed H.T.Rajan and Mr.Girish, who are the respondents 7 and 8 herein in their place. The resolution was adopted by majority and Mr.Sethi cast his dissenting vote. The proposal to nominate Sreenivas Rao, as alternative Director of Amedeo Fasano was also rejected stating that the appellant has no right to appoint an alternative Director. Thereafter, the newly appointed Directors joined the meeting and agreed to extend the distribution right to market the products of the Company to TTK Health Care Limited for a further period of 5 years with effect from 1st July 2011 and also revised pricing policy in respect of supply made to SSL at Fully Absorbed Manufacturing Costs (FAMAC) plus 50% in respect 15% subject to the condition that SSL should execute an agreement for specified number of years and committed volume of business. 8.The appellant was aggrieved by the rejection of the nominees in the Board of Directors and also felt that the action of TTK Group amounts to oppression of minority and mismanagement and filed Company Petition No.41 of 2011 under sections 397 and 398 of the Act 1956 seeking for the reliefs and the interim reliefs as stated above. 9.The Company Law Board passed an order on 20.5.2011 as follows:- Heard the arguments on the both sides and perused the records. With regard to the interim relief (ii), the learned counsel appearing for the respondents undertook that no Board meeting of general meeting of the company will be convened without the permission of the CLB. The above undertaking is recorded. With regard to the domestic supply of goods manufactured by the company the agreement between the parties is valid upto 30.06.2011 and no interim order are called for at this stage. The third contentious issue pertains to supply of goods on export. The Joint Venture Company had been exporting the products to SSL Group at a price of FAMC+15%. Despite the protest from the petitioners' nominee, it was proposed to enhance the price to 50% as against 15% and a draft agreement has been circulated. The petitioner says that the decision is illegal for non participation of the nominee Director of the petitioner company and also there is no justification to increase the net profit from 15% to 50%. However, as per a letter dated May 6, 2011 the petitioner agreed to 50% increase provided supply is resumed immediately. The respondents submitted that they are ready to go by the commitments made by the petitioner in the above letter. The mail dated 06.05.2011 is available at Pg 208 of the CP. According to the learned senior counsel for the petitioner the above letter has been withdrawn by the petitioner subsequently and the same has been signed under duress. this is a matter to be decided in the company petition. As rightly pointed out by the learned counsel for the respondents, no judicial intervention can be based on the commercial agreement between the company and the petitioner. Till the matter is heard I think it is just and proper to direct the respondents to restore the supply of goods as per the terms detailed in the letter dated 06.05.2011 i.e. at 50% as against 15%. The above order is made without prejudice to the contentions on both sides. The supply made by the respondents on the basis of this order shall be subject to the final outcome of the CP. 10.Even after the passing of the order, the Joint Venture Company did not supply the products to SSL and therefore, the appellant moved C.A.No.113 of 2011 in CP No.41 of 2011 for initiating proceedings under Regulations 44 and 47 of the Company Act against the respondents for willfully disobeying the order of CLB, dated 20.05.2011 and for passing appropriate orders for punishing the respondents. 11.The respondent filed a counter and a rejoinder was also filed by the appellant and an order was passed by CLB on 01.06.2011 as follows:- Respondents filed counter to CA No.113/2001. Elaborate arguments were heard on both sides. After hearing both sides, it appears that there are some difficulties in implementing my order passed on 25.05.2011, particulars with respect to the supply of goods without a commitment towards quantity or tenure. The respondent company wanted an assurance from the petitioner and RB for the uninterrupted supply of goods, so that the company can have a plan to regulate the production. At this juncture, the petitioner has filed an affidavit with the following undertakings: 2.1 The petitioner, LIG, SSL and its affiliates had earlier placed Purchase Orders on the JV Company. they would re-place those Purchase Orders on the JV Company within 24 hours; at a price stipulated by this Hon'ble Board in its Order, dated 20.05.2011. The JV Company would commence supply within 48 hours and complete the same, in terms of previously existing arrangement. 2.2.Payments for the supplies so made, would be made to the JV Company, within 15 days, from the date of receipt of delivery of individual consignments of the ordered goods. 2.3.The petitioner, LIG,SSL and its affiliates would place purchase orders for a total of 200 million pieces (condoms)or 50% of their collective global requirement, whichever is lower (which includes the purchase orders referred to in paragraph 2.1 above), over the next three months i.e. June, 2011 to August, 2011, at prices stipulated by this Hon'ble Board's Order dated 20.05.2011. The petitioner, LIG, SSL and its affiliates, would remain bound by the terms of the aforesaid undertaking. The copy of the affidavit has been served on the respondents. The affidavit is taken on record. The draft agreement has been made available by the respondents for perusal, as per which 800 million units per annum or 50% global sales of Durex whichever is lower will be supplied for a term of five years. In my view, till a formal agreement is drawn up, it will be in the interest of the company and the joint venture partners to limit the supply for a period of three months form June 2011 to August 2011 at the price stipulated in my order dated 20.05.2011 and on the undertaking given in the affidavit by the petitioner, LIG, SSL and its affiliates. In partial modification of my order dated 25.05.2011, the respondents are hereby directed to resume the supply as per the terms undertaken in the affidavit filed by the petitioners and its affiliates. The respondent company has made clear that the mutual trust and confidence that was prevalent in the past decades between the parties have been completely destroyed and expressed their willingness to exit from the company on a fair price. The petitioner had undertaken to respond to the offer made on behalf of respondents (TTK Group) on June 22, 2011. I therefore direct both sides to come with proposals in this regard. XXX XXX) and modified on 01.06.2011 Thereafter, the appellant and the 12th respondent prayed to CLB to stay the resolution passed in the meeting of the Board of Directors held on 02.05.2011 and also to appoint an independent administrator to supervise the management of the Joint Venture Company and those were rejected by CLB holding that staying of the resolution passed in the meeting of the Board of Directors on 02.05.2011 will lead to deadlock in the management of the affairs of the Company and restoration of status quo prior to 02.05.2011 will not be in the interest of the Company, as it will not in any way help the resumption of supply by the respondents to SSL & LIG and also held that whether the appellant has the right to nominate any Director on the Board of the Company, whether the appellant has no any special right vis-a-via the Joint Venture Company, whether the appellant is entitled to claim equal representation on the Board of the Company based on the management agreement, dated 02.07.1990, whether the Articles of Association will prevail over the private agreement between the shareholders of the Company etc., are the issues to be decided in the company petition and appointed a valuer to value the shares of the Company to enable TTK Group to opt out and also permitted TTK Group to purchase the shares of SSL, as per the value fixed by the Valuer and adjourned the company petition, by order, dated 30.06.2011. This order is challenged in this Company appeal by the appellant. 12.Mr.K.G.Ragavan, the learned Senior counsel appearing for the appellant submitted that CLB committed a serious error in not staying the resolution, dated 02.05.2011 of the Board of Directors, even after holding that as per the Board resolution, dated 15.09.2010, equal participation and representation between the Joint Venture partners, namely TTK and SSL has been agreed in principle and that was disturbed by resolution, dated 02.05.2011 by TTK Group refusing to appoint the nominee Directors of the appellant Group and even after the order passed by the CLB directing the Joint Venture Company to supply the goods to Foreign partner of the Joint Venture Group, no acceptable reason or explanation was given by TTK justifying their defiance and having observed and given a clear finding against the respondent 1 to 11, CLB ought not to have framed various issues to be decided in the company petition stated above and ought to have stayed the resolution of the meeting of the Board of Directors, dated 02.05.2011. 13.The learned Senior counsel further submitted that by not staying the resolution, dated 02.05.2011 of the Board of Directors of Joint Venture Company, the CLB is giving a premium to TTK group, who acted in-defiance of the CLB order, acted against the provision of Articles of Association, management agreement and also acted against the resolution, dated 15.09.2010 and the conduct of TTK group in disobeying the orders of the CLB and acting in contravention of the Articles of Association justified the grant of stay of the resolution passed in the Board of Directors meeting, dated 21.05.2011 and also the appointment of administrator, as the TTK Group which has taken control of the Joint Venture Company has acted in oppression of the other partner and also is acting to promote its Group by extending the distribution contract regarding the products of the Joint Venture Company to TTK Health Care Limited for a further period of five years and not supplying the products to the foreign partner as agreed earlier. 14.The learned Senior counsel appearing for the appellant further submitted that the appellant Company has got a locus standi to maintain the application, as the appellant Company purchased the entire equal shares held by LIG in the Joint Venture Company and the name of the applicant Company is also entered in the register of Members and as such, the appellant Company is one of the major shareholders along with the other partner TTK and as such, it has got every right to participate in the management of the Joint Venture Company. He further submitted that as per the management agreement, dated 02.07.1990, LIG, includes its subsidiaries and assignees and LIG was acquired by SSL and the appellant is the subsidiary of SSL and the Joint Venture Company also recognized the right of the appellant company in the management of the Joint Venture Company and that is also evidenced in the Board meeting held on 10.01.2011, wherein it has been stated in resolution No.5 of the minutes of the meeting that New Bridge Holdings B.V., Joint Venture partner of M/S.TTK-LIG Limited, by its letter, dated 07.12.2010 have requested the Board of Directors of TTK-LIG Limited to change its financial year from 1st January to 31st December and that was also approved and resolution was also passed to that effect in that meeting. He further submitted that having accepted the appellant as Joint Venture partner of TTK-LIG Limited and having accepted the rights of SSL, which acquired LIG to nominate its own Directors, it is not open to the respondents now to contend that the appellant has no right in the administration or management of the Joint Venture Company and it has no locus standi. 15.He further submitted that after the transfer of shares in favour of the appellant Company by LIG, it steps into the shoes of LIG and all rights of LIG under the Articles of Joint Venture Company as well as the shareholders agreement/understanding stands transferred in favour of the appellant Company. He further submitted that CLB also held that parties agreed to have equal participation and representation between the Joint Venture partners, namely TTK and foreign partners and that was disturbed on 02.05.2011 and that finding became final. 16.He further relied upon the judgment reported in Vol.59 Company Cases 548 (SC) in the case of Life Insurance Corporation of India vs. Escorts Limited and others, wherein the Hon'ble Supreme court upheld that the rights of the shareholders in the administration of the company. He further submitted that after the transfer of shares in favour of the appellant Company by LIG and entering the name of the appellant in the register of members of the Joint Venture company, the appellant is a shareholder having 49.89% of shares has got every right to nominate its nominees in the the Board of Directors and it cannot be stated that only LIG has got right to nominate Directors in the Board of Directors as per the management agreement. He further submitted that having regard to the conduct of TTK Group in not obeying the order of CLB and refused to supply the products to the foreign partner, despite the order passed to that effect and appointing two Directors of its choice in the Board of Directors by denying