If an urgent relief is required to be obtained from a court of law by way of an interim relief you must go to the court as immediately as possible from the time you came to know about an event or happening or anything that is apprehended that is likely to put you in a situation where if such event takes place or continues you will suffer an irreparable loss. Ordinarily from the date of knowledge, a period of 7 days may not be considered as a delay that would defeat the immediate purpose. For instance, if a director of a company receives a notice which contains a proposal for his removal, he must seek protection by acting swiftly! If he takes a lot of time moves the court at the elventh hour, it would be fatal. Court granting interim portection would see the conduct of the applicant; the lawgic is if he is really aggrieved, he would run to the court for relief! Better act fast!!
Sunday, August 22, 2010
delay does not get you interim relief
Wednesday, August 18, 2010
removal of directors - not an easy job
To remove a person holding the position of a director in private or public limited company is not an easy job. Even a shareholder holding one share will be able to move a resolution in any general meeting; and the Board of Directors will be obliged to complying with all statutory requirements relating thereto. However it is difficult to gather necessary votes for ensuring success of the proposal. Further the Company Law Board may grant an injunction if the removal of director would amount to oppression. Even if proposing shareholder has fair chances of success, it may be difficult if facts and circumstances are such.
Wednesday, August 11, 2010
What would be construed to be contrary to mandatory provisions of Company Law?
A Clause in the Articles of Association of a public company allows even proxies to speak at general meetings.
Is this clause invalid because Section 176 of the Companies Act, 1956 provides that the proxies are not allowed to speak at the meeting?
Section 170 states that notwithstanding anything to the contrary contained in the Articles of Association of a company, the provisions of Sections 171 to 186, shall apply to a public company.
If a clause in the Articles of Association of a public company allows proxies to speak, should that particular clause be construed to be contrary to Section 176 and as such ‘invalid’ due to Section 170 of the Act?
Monday, August 9, 2010
Takeover Code and Offer under Public Announcement
Recently I was talking to a man of fifty years, a post graduate in commerce, having been working as an officer of a nationalized bank. He showed me what is in fact is an open offer issued by the acquirers of a company in pursuance of the SEBI [Substantial Acquisition of Shares and Takeovers] Regulations. He was telling me that he had received that offer to purchase his 200 shares way back in 2008. He had didn't hear anything thereafter. He did not write to the comapny nor did he make any complaint about non-receipt of notices and reports. He didn't know that the offer was in pursuance of a regulation. Therefore he didn't even appreciate that reguations exist in the interests of unwary investors like him. In this backdrop we find many a such investors who are not even aware of their own rights nor do they understand that there are regulations issued by SEBI for protecting their interests. India, is a country of masses regulated by a few who know it fully well that the regulations are intended for the masses too but masses do not even know such regulators exist not to speak at all about their understanding the existence and purpose of regulations! In India, retail investors are docile even now; that is the reason why there is a strong need for a vibrant regulatory authority and swift justice delivery system!
Thursday, August 5, 2010
IT IS NOT THE END OF SHARE TRANSFER RESTRICTIONS IN PUBLIC COMPANIES
Smt. Pushpa Katoch Vs. Manu Maharani Hotels Ltd. and Ors. [2006] 131 Comp Cas 42 (Delhi), 121(2005)DLT333, 2005 (83) DRJ 246
The Delhi High Court also held that by virtue of the provisions of Section 111A, the right of a shareholder to transfer his/her shares could not be fettered. Mr. Justice A.K. Sikri held thus:
The CLB further rightly mentioned that as per the provisions of Section 111A of the Act, there could not be any fetters on the right of a shareholder to transfer his/her shares. It may be noted that the Legislature has made different provisions for transfer of shares in case of private limited company and public limited company. Section 111, which deals with "Power to refuse registration and appeal against refusal", relates to the private limited companies. On the other hand, provisions of Section 111A dealing with "Rectification of register on transfer" are attracted in the case of public limited companies. While restrictions can be stipulated in the Articles of Association so far as transfer of shares of a private limited company is concerned, sub¬-section (2) of Section 111A of the Act specifically provides that the shares or debentures and any interest therein of a company shall be freely transferable. Proviso to this sub-section further stipulates that if a company, without sufficient cause, refuses to transfer the shares within two months, the transferee may file an appeal to the Company Law Board and "it shall direct company to register the transfer of shares". Since the respondent No. 1 company is a public limited company, the CLB rightly opined that there could be no fetters on the right of a shareholder to transfer his/her shares. We have already noted that there is no such provision giving pre¬emptory right to other promoters in the Articles of Association. Even if there was such a provision in the Articles of Association, it would have been ultra vires the provisions of the Act, as no company can provide in the Articles of Association any matter which offends the specific provision of an act (see Re. Denver Hotel Co., 1893(1) Chancery Division 495). No doubt, the four sisters promoted the company and their intention was to make the family property as a hotel and run the same. No doubt, in the Board meeting held on 16th March 1994 and the Memorandum of Family Agreement it was recorded that any promoter wanting to sell the shares would first offer the same to other promoters. However, at the same time, while incorporating this company, the promoters decided to have a public company limited by shares rather than a private company. They should have understood the implication and consequences of getting a public company incorporated. If they wanted such an arrangement, as recorded in the minutes of the meeting dated 16th March 1994 and the Memorandum of Family Settlement, they should have been wise enough to incorporate a private company and further to provide such a clause in the Articles of Association. After incorporating a public company, it was too late in the day to think of such an arrangement and recording the same in the Board meeting or the family settlement, which could not have any legal basis.
A Special Leave Petition against the judgment of the Delhi High Court was dismissed by the Supreme Court on 7th April 2006. I am in respectful agreement with the view of the Delhi High Court which reflects the correct position in law.
The above decision of Justice A K Sikri was quoted with approval by the Bombay High Court in Western Maharashtra Development Corpn. Ltd. v Bajaj Auto Limited [2010] 154 Comp Cas 593 (Bom). Setting aside an Arbitral Award, the Bombay High Court held that “the Arbitrator has ignored the express and specific provisions of the Companies Act, 1956; lost sight of the very concept of free transferability of the shares of a Public Limited Company and failed to apply the provisions of Section 9 under which overriding force is given to the Act notwithstanding anything to the contrary contained in the Memorandum, Articles or agreement. In the said case, the Bombay High Court held that the position in law of a Public Company is materially different. By the provisions of the Companies' Act, 1956, restrictions on the transferability of shares which are contemplated by the definition of a "private company" under Section 3(1)(iii) are expressly made impermissible in the case of a public company by the provisions of Section 111A. The High Court held that the submission that Section 111A would not interdict "an agreement between particular shareholders relating to the transfer of specified shares" is cannot be accepted. Elaborating further the Bombay High Court held as follows:
“In essence, the submission of the Respondent is that the provisions of Section 111A should be read as being subject to a contract to the contrary. A restriction to that effect cannot be read into the provision of Section 111A; firstly because, such a restriction is not mentioned in the statutory provision; secondly, the word "transferable" is of the widest import; and thirdly, the context in which the provision has been introduced, is susceptible to the inference that it should be given a wide meaning. Where the language of the statute is plain and unambiguous, neither the consequence nor the conduct of parties would be of relevance.”
Clause 6 of the Companies Bill, 2009 contains provisions relating to articles of association [regulations] of a company. This clause allows incorporating entrenchment rights in the articles of association of any company including a public company. There is no provision similar to Section 111A that states shares of a public company are freely transferable. Therefore if restrictions relating to transfer of shares are incorporated in the Articles of a public company the decision of the Delhi and Bombay High Court in the above cases would get nullified!
Investors acquiring stake in public companies have no reason to worry if the bill becomes an enactment at the earliest!
The Delhi High Court also held that by virtue of the provisions of Section 111A, the right of a shareholder to transfer his/her shares could not be fettered. Mr. Justice A.K. Sikri held thus:
The CLB further rightly mentioned that as per the provisions of Section 111A of the Act, there could not be any fetters on the right of a shareholder to transfer his/her shares. It may be noted that the Legislature has made different provisions for transfer of shares in case of private limited company and public limited company. Section 111, which deals with "Power to refuse registration and appeal against refusal", relates to the private limited companies. On the other hand, provisions of Section 111A dealing with "Rectification of register on transfer" are attracted in the case of public limited companies. While restrictions can be stipulated in the Articles of Association so far as transfer of shares of a private limited company is concerned, sub¬-section (2) of Section 111A of the Act specifically provides that the shares or debentures and any interest therein of a company shall be freely transferable. Proviso to this sub-section further stipulates that if a company, without sufficient cause, refuses to transfer the shares within two months, the transferee may file an appeal to the Company Law Board and "it shall direct company to register the transfer of shares". Since the respondent No. 1 company is a public limited company, the CLB rightly opined that there could be no fetters on the right of a shareholder to transfer his/her shares. We have already noted that there is no such provision giving pre¬emptory right to other promoters in the Articles of Association. Even if there was such a provision in the Articles of Association, it would have been ultra vires the provisions of the Act, as no company can provide in the Articles of Association any matter which offends the specific provision of an act (see Re. Denver Hotel Co., 1893(1) Chancery Division 495). No doubt, the four sisters promoted the company and their intention was to make the family property as a hotel and run the same. No doubt, in the Board meeting held on 16th March 1994 and the Memorandum of Family Agreement it was recorded that any promoter wanting to sell the shares would first offer the same to other promoters. However, at the same time, while incorporating this company, the promoters decided to have a public company limited by shares rather than a private company. They should have understood the implication and consequences of getting a public company incorporated. If they wanted such an arrangement, as recorded in the minutes of the meeting dated 16th March 1994 and the Memorandum of Family Settlement, they should have been wise enough to incorporate a private company and further to provide such a clause in the Articles of Association. After incorporating a public company, it was too late in the day to think of such an arrangement and recording the same in the Board meeting or the family settlement, which could not have any legal basis.
A Special Leave Petition against the judgment of the Delhi High Court was dismissed by the Supreme Court on 7th April 2006. I am in respectful agreement with the view of the Delhi High Court which reflects the correct position in law.
The above decision of Justice A K Sikri was quoted with approval by the Bombay High Court in Western Maharashtra Development Corpn. Ltd. v Bajaj Auto Limited [2010] 154 Comp Cas 593 (Bom). Setting aside an Arbitral Award, the Bombay High Court held that “the Arbitrator has ignored the express and specific provisions of the Companies Act, 1956; lost sight of the very concept of free transferability of the shares of a Public Limited Company and failed to apply the provisions of Section 9 under which overriding force is given to the Act notwithstanding anything to the contrary contained in the Memorandum, Articles or agreement. In the said case, the Bombay High Court held that the position in law of a Public Company is materially different. By the provisions of the Companies' Act, 1956, restrictions on the transferability of shares which are contemplated by the definition of a "private company" under Section 3(1)(iii) are expressly made impermissible in the case of a public company by the provisions of Section 111A. The High Court held that the submission that Section 111A would not interdict "an agreement between particular shareholders relating to the transfer of specified shares" is cannot be accepted. Elaborating further the Bombay High Court held as follows:
“In essence, the submission of the Respondent is that the provisions of Section 111A should be read as being subject to a contract to the contrary. A restriction to that effect cannot be read into the provision of Section 111A; firstly because, such a restriction is not mentioned in the statutory provision; secondly, the word "transferable" is of the widest import; and thirdly, the context in which the provision has been introduced, is susceptible to the inference that it should be given a wide meaning. Where the language of the statute is plain and unambiguous, neither the consequence nor the conduct of parties would be of relevance.”
Clause 6 of the Companies Bill, 2009 contains provisions relating to articles of association [regulations] of a company. This clause allows incorporating entrenchment rights in the articles of association of any company including a public company. There is no provision similar to Section 111A that states shares of a public company are freely transferable. Therefore if restrictions relating to transfer of shares are incorporated in the Articles of a public company the decision of the Delhi and Bombay High Court in the above cases would get nullified!
Investors acquiring stake in public companies have no reason to worry if the bill becomes an enactment at the earliest!
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