Case: The Maharashtra Power Development Vs. Dabhol Power Company &amp; Others

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 office the Members shall procure the election of substitute nominated by the Member who appointed such Shareholder Director.79. This article can also be analyzed conveniently by dividing it in three sentences.Sentence I Any shareholder director nominated and appointed pursuant to this Article 10 may at any time be removed and substituted by the member that nominated such shareholder director.Sentence II The members agree to 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 embers 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.Sentence III If any shareholder director ceases to hold office, the members shall procure the election of substitute nominated by the member who appointed such shareholder director.80. Sentence I deals with the situation of removal and substitution by election of the shareholder directors, nominated under Article 10.2 or elected under Article 10.3. Sentence II interalia provides that the board shall appoint such candidate pending such general meeting until the election pursuant to Article 10.3. Sentence III makes a provision that if any shareholder director ceases to hold the office, the member shall procure the election of substitute nominated by the member who appointed such shareholder director. In other words, the shareholder director who has ceased to hold the office could only be elected in the general meting. To that extent, there is substance in the submission of Mr. Andhyarujina, the learned senior counsel for the petitioner. Though Mr. Chidambaram, the learned senior counsel for the respondents 2 to 5 submitted that sentence II which ends within the crucial words, and pending such general meeting shall procure that the board shall appoint such candidates and therefore, a shareholder director can be appointed before the next general meeting, we are afraid, the submission of Mr. Chidambaram is inconsistent with the plain language of Article 10.4. Sentences I and II of Article 10.4 deal with the removal and substitution and the nomination until the next general meeting in that contingency but where the shareholder director has ceased to hold the office like by way of resignation, sentence III of Article 10.4 comes into play and shall be applicable and that only provides for election at the general meeting and not appointment by the board. That is the legal position, yet, that does not improve the case of the petitioner since by nomination of respondent Nos.6 to 9 vide letter dated 8th October, 2002, they had not ipso facto become members of the Board. As already indicated they have to be elected at the general meeting. In any case such act of nomination by no stretch of imagination can be said to be oppression in the facts and circumstances of the instant case.81. As regards the contention that the respondent Nos.6 to 9 could not have been nominated vide letter dated 8th October, 2002 because EMC was in liquidation and was not authorized to nominate any directors, suffice it to say firstly that EMC is not a party impleaded in the company petition and, therefore, in their absence this aspect cannot be gone into. Besides that, in the proceedings under section 397, the correctness of the order of the Supreme Court in Mauritius appointing the provisional liquidators but at the same time allowing board to function and continue to manage the company affairs in all respects, can hardly be gone into.82. All in all, the nomination of four persons as the shareholders to represent EMC by the letter dated 8th October, 2002 cannot be treated as an act of oppression.Re : (v)83. Since the answer to the points Re (ii)(a) to (d), (iii)(a) and (b) is in the negative and with reference to point Re (iv) we have clarified the legal position about the proposed nomination of Respondents 6 to 9, no further discussion is needed with regard to this point.Re : (vi)84. Mr. Janak Dwarkadas, learned senior counsel for respondent No.1 strenuously urged that the petitioner has not come to the court with clean hands and rather approached the court for a collateral motive. This aspect need not detain us any longer in view of the observations made by the Company Law Board in paragraph No.26 of its order. Te relevant observations read thus-As far as public interest is concerned, I am in full agreement with the submissions of the learned counsel for the respondents that action towards enforcement of contractual rights against a government could never be construed to be against public interest. Any way, since in the rejoinder arguments, the learned counsel for the petitioner submitted that the petitioner is not against the prosecution of the arbitration proceedings but is questioning the context in which the arbitration proceedings were reactivated, this issue has become academic. Therefore, it cannot be said that the petition is filed for an improper motive.85. Since the learned senior counsel for the petitioner only pressed the appeals on the ground of oppression and not on the ground of public interest, the aforesaid observation of the Company Law Board calls for no interference. We overrule the objection of the respondent No.1 that the petition suffers from collateral motive.86. In what we have discussed above, we hold that the petitioner has failed to establish that the company affairs are being conducted in the manner oppressive to the petitioner as a shareholder. The petitioner also failed to show that the facts would justify in making of the winding up order on the ground that it was just and equitable that the company should be wound up.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]31. How could the decision to pursue arbitration proceedings be oppressive. As a matter of fact, before the Company Law Board, ultimately, it was submitted that the petitioner was not against the prosecution of legal proceedings but was only questioning the context in which the respondent Nos.2 and 4 reactivated the arbitration proceedings. The interest of the company is paramount and cannot be made subordinate to the interest of the shareholders. The directors owe a fiduciary duty to the company to diligently prosecute and defend the legal proceedings. The decision, therefore, to pursue arbitration proceedings has to be viewed in that context. The decision of serial No.5 is in respect of a suit brought by certain contractors including GEBechtel in the Supreme Court of New York against the company for amounts owing to those contractors for work done. This decision is stoutly criticized and it is submitted that the purpose of packing the Board was for selfish purpose of GE and Bechtel.32. It is true that in the resolution, the names of the contractors are not disclosed but dies it lead to an inference that it was so done to disguise. The petition is not specific and necessary facts in this regard are not pleaded. We have, therefore, to take the resolution on its face. The amount claimed in the suit as was told to us during the course of arguments is: (a)US$ 19,702, 239.51 + Rs.138,001, 164.83; and (b)US$ in excess of 35 millions. The resolution reads that the mater has been presented before the board of directors on an early occasion and the directors considered it appropriate to admit the liability for the previously certified amounts viz. count I admitted liability of US$ 19,369,144.86 + Rs.138,001,164.83 and Count II was decided to be contested in full.The nomination of respondents 6 to 9 by EMC vide letter dated 8th October, 2002 was legal or not, shall have to be seen in the light of Article 10.4 but by such nomination, they did not stand appointed to the Board of the company and such action of EMC, we are afraid, cannot be construed, an act of oppression by GEBechtel. The shareholder has unquestioned right to elect directors in accord with the Companies Act and Articles of Association of the company and the nomination of respondents 6 to 9 by the EMC which admittedly has 65.85% equity share holding in the company has to be seen as an exercise of that right in corporate democracy. If the petitioner decided to nominate its two directors for election in the AGM held on 9.9.2002 when its sole nominee director resigned on 2.5.2002, what is wrong in the action of EMC to nominate its four directors vide letter dated 8.10.2002 though its directors had earlier resigned in the month of April, 2002. Of course, the appointment or election of these proposed four directors has to be as per law.It is true that the principles enunciated in Ebrahimis case as noticed above have been held by the Supreme Court to be sound principles but it has been stated in unambiguous terms that the limited company should be treated asshould not be easily accepted. If the apparent structure of the company is not real structure and on lifting the veil, it is found that in reality it is the partnership, the principles of dissolution of partnership may apply but that is not the case here. The company was incorporated by EMC, EEC and CIPM. The petitioner was not in the picture at the time of incorporation. The petitioner joined as a shareholder after incorporation of DPC. The share holding is not equal. There is no deadlock that way. The original promoters and the petitioner as subsequent share holder have voluntarily and knowingly bind themselves by the provisions of the Companies Act. There is no personal relationship amongst shareholders. It is true that the Articles of Association provide restriction on the transfer of members interest in the company and reflect the understanding amongst shareholders for participation in conduct of the business but taking overall facts and circumstances of the case as noticed above, we find it difficult to extend the principles ofto the company.45. We, therefore, are unable to accept that actions of respondents 2 and 4 bear upon the general pattern of oppression and that they intend to hijack the management of the company or their actions lack probity.Out of the total number of thirteen directors, the ten directors are required to be nominees of shareholders under Article 10.2. Any person can be elected to fill the remaining three vacancies. As per the second part. Obviously, if there is financing agreement or more than one financing agreement, the election of Individuals as directors to the extent required under the financial agreement/s shall have to be procured. However, if there is no financing agreement or that there is less than three financial agreements, the vacancy 11, 12 or 13, as the case may be, can be filled by the shareholders. This seems to us to be reasonable construction of Article 10.13 on 9th September, 2002, admittedly, only two lenders had financing agreements under which hey were entitled to have a representative each. So 11 and 12 vacancies go to financial institutions. The shareholders were entitled to elect Mr. Peter Freeman to fill the 13th vacancy in the AGM. Merely because no reference was made of Article 10.13 in his nomination, that would not render his election invalid. The Articles of Association do not prescribe any qualification for the director. The filing of the vacancy of a director for the 13th position under Article 10.13 has nothing to do with the nomination of one director each by GEBechtel under Article 10.2. It, therefore, cannot be held and rightly held to be not so by the Company Law Board and the Company Judge that election of Mr. Peter Freeman at the AGM of 9th September, 2002 was illegal.Since the learned senior counsel for the petitioner only pressed the appeals on the ground of oppression and not on the ground of public interest, the aforesaid observation of the Company Law Board calls for no interference. We overrule the objection of the respondent No.1 that the petition suffers from collateral motive.86. In what we have discussed above, we hold that the petitioner has failed to establish that the company affairs are being conducted in the manner oppressive to the petitioner as a shareholder. The petitioner also failed to show that the facts would justify in making of the winding up order on the ground that it was just and equitable that the company should be wound up.