Maharashtra Power Development … vs Dabhol Power Company And Ors. on 2 April, 2003

ORDER

S. Balasubramanian, Vice Chairman

1. The first respondent, Dabhol Power Company (the company) was promoted by Enron Development Corporation, USA (Enron) General Electric Company, USA (GE) and Bechtel Enterprises, Inc (Bechtel) and was registered as a private company with unlimited liability in April 1993, with the object of developing a 2000 MW capacity power plant in Maharashtra State, to be implemented in two phases. The authorized capital of the company in Rs. 3,862.65 crores. The Company has adopted Table E of the Companies Act (which itself adopts Table A with omission of certain Regulations of Table A) as its Articles of Association in so far as matters not specifically incorporated in the Articles. The above three companies have incorporated three subsidiary companies in Mauritius and these companies hold shares in the company. They are Enron Mauritius Company (EMC) by Enron, Energy Enterprises (Mauritius) Company (EEC) by Bechtel and Capital India Power Mauritius (CIPM) by GE. The company entered into a Power Purchase Agreement (PPA) with the Maharashtra State Electricity Board (MSEB) in December 1993. Government of Maharashtra (GOM) also signed a guarantee agreement in February 1994. In September 1994, a counter guarantee agreement was signed with Government of India (GOI). 5 project contracts were signed between the company, GE and Bechtel for supply and erection of power plant equipments in May 1995. Some disputes arose between GOM and the company in 1995 in regard to the validity of the PPA, GOM guarantee etc. After negotiations, it was agreed that MSEB or its nominee would acquire 30% of the shares in the company. Accordingly, the petitioner, being a 100% subsidiary of MSEB acquired 30% of the shares held by EMC in October 1998 and appointed 3 of its nominees on the Board of the company. In May 1999, Phase I commercial production started. However, in January 2001, once again disputes started between the company and MSEB with regard to the compliance with the terms and condition of the PPA resulting in claims and counter claims between the parties. In May 2001, MSEB stopped drawing power from the company and the power generation was stopped. GOM appointed a Commission of Enquiry in November 2001. The phase II of the project is yet to be completed. While some court proceedings were going on between the company and GOM/MSEB, the company issued Phase II equity shares in January 2002, by which the shareholding of the petitioner in the company came down to 14.15% and its representation in the Board of the company came down to one nominee. Presently, these are four shareholders in the company with the shareholding position as EMC — 65.85%, EEC — 10%, CIPM – 10% and the petitioner 14.15%.. As per the Articles of Association of the Company, every member is entitled to appoint one director for each 10% shares held in the company by a such member. In March, 2002 the Board of the company comprised of 12 directors- seven nominees of EMC and one nominee each of the other three shareholders totaling to 10 shareholder directors and one nominee each of IDBI and ICICI. The company had initiated certain Arbitration proceedings against MSEB, Government of Maharashtra (GOM) and Government of India (GOI) in early 2001. In November 2001, Enron Corporation filed for Bankruptcy under the laws of USA.Even though some of the subsidiaries of that company were included in the Bankruptcy proceedings, yet Dabhol was excluded. However, on an application by IDBI, Bombay High Court appointed a Receiver of the various assets of the company and he has taken over charge of the assets of the company in April, 2002. By this time the company ceased to have any operations and no employee is left in the company.In other words the company had become defunct. On an application by EMC for voluntary winding up, the Supreme Court of Mauritius appointed joint provisional liquidators (JPL) by an order dated 9nd May 2002. In May/June 2002, DRT proceedings were initiated against the company.

2. In March, 2002 all the seven nominees of EMC resigned as Directors. Around 5thof April, 2002 the two nominees of IDBI and ICICI also resigned from the Board of Company. Thus on 5thApril, 2002 the company had only three directors namely, the second respondent nominated by EEC, the third respondent nominated by CIPM and one Mr. Ravi Budhiraja nominated by the petitioner. On 2ndMay, 2002 Mr. Budhiraja also resigned from the Board. Thus, as on 2ndMay the Board consisted of only two directors namely, the second and third respondents. As per the Articles of the company, the quorum for Board meetings is 3 directors. However, on 4thJune, 2002 a Board meeting was held at San Francisco, USA, with only two directors viz the second respondent Mr. Donold C. Stummer, and the third respondent Mr. richard Allison. In that meeting, in response to a request from CIPM, its nominee Mr. Allison was replaced by Mr. Kevin P Walsh, the forth respondent. In addition, one Mr. Peter C Freeman was appointed as a director to hold office till the next Annual General Meeting. In the Board meeting various other decisions were also taken. On 6thJune, these three directors wrote a joint letter to the Sr.Clerk, Esses Court Chambers expressing their desire to continue the arbitration proceedings against GOM guarantee.

3. Aggrieved by these two appointments and the decisions taken the rate, that they are in violation of the Articles, oppressive and against public interest, the petitioner filed the instant petition under Section 397 of the Companies Act, which was mentioned on 2.8.2002. Shri Kapil Sibal, Senior Advocate appearing for the respondents submitted that since the Board has only two directors, with the view to constitute a quorum in terms of the Articles which stipulate that quorum for Board meetings is three directors, Mr. Freeman was appointed as a Director to ensure that there was quorum for Board Meetings. He also submitted that in case the petitioner was willing to appoint its own nominee on the Board, Mr. Freeman could be relieved as a Director as there would be quorum for Board Meetings with the appointment of the nominee of the petitioner. The learned advocate for the petitioners sought for time to consult his client. In the hearing held on 22.8.2002, when the petitioner desired to go ahead with the petition, this Board passed an order that with a view to put an end to the disputes, a General Body Meeting of the company could be convened to elect directors and accordingly fixed the date of the General Body Meeting on 9th September, 2002. Aggrieved by this order, the petitioner filed an appeal before a Single Judge of the Bombay High Court. By an order dated 9.9.2002, the learned Single Judge allowed the meeting to go on with certain directions. Accordingly, the said meeting was held on 9th September 2002 under the Chairmanship of Shri C.R. Mehta, a former member of the Company Law Board. In that meeting, EMC did not propose appointment of any of its nominees even though its authorized representative attended that meeting. The petitioner had proposed the names of two nominees while the other two shareholders nominated one each. In addition, these two shareholders also jointly proposed the name of Mr. Freeman for appointment as a regular director. IDBI also nominated its own nominee. In that meeting Mr. Stummer and Mr. Walsh were elected as nominees of EEMC and CIPM respectively. Mr. Freeman was elected by majority votes, the representative of the petitioner voting against. The nomination of two candidates by the petitioner was opposed by the other three shareholders on the ground that in terms of the Articles, the petitioner holding 14.15% shares was entitled for nomination of only one director. In view of this, neither of the nomination of petitioner was elected. On 11.9.2002, the petitioner filed an appeal before the Division Bench of Bombay High Court against the order of the CLB and that of the learned Single Judge. While those proceedings were pending, by a letter dated 8.10.2002, EMC conveyed appointment of four of its nominees as directors on the Board of the company. This issue was also agitated before the Division Bench of Bombay High Court. By an order dated 30.10.2002, the Division Bench permitted the petitioner to amend the petition before this Board to include all the issues pending before Bombay High Court and directed that this Board should endeavor over to dispose of the petition within a period of eight weeks. Accordingly, this petition was heard on 17th and 18th February, 2003 after admitting the amended petition and completion of all pleadings. The main grievances of the petitioner relate to the Board meeting on 4.6.2002, the general meeting on 9.9.2002 and the nomination of 4 directors by EMC.

4. Shri Andhyarujina, Senior Advocate appearing for the petitioner submitted: The action of the nominees of EEC and CIPM in convening the Board Meeting on 4.6.2002 has to be seen with reference to the preceding events. Enron filed Bankruptcy proceedings under Chapter 11 in USA on 2.11.2001. EMC also sought for joint administration in those proceedings and accordingly an order was passed by US Bankruptcy Court on 28.3.2002 EMC also initiated voluntary winding up proceedings in Mauritius and the Supreme Court of Mauritius has appointed joint provisional liquidators (JPL). On 29.3.2002 all the directors of EMC resigned as Members of Board of the Company and by doing so they had abandoned the company. Thereafter, on 5.4.2002, the two nominees of the financial institutions also resigned. Thus, the Board was left with only three directors representing the remaining three shareholders. On 2.5.2002 the nominee of the petitioner also resigned thus leaving the Board with only two directors. The company does not have any employee nor any funds. The Bombay High Court had already appointed a receiver in respect of the assets of the company. The company had stopped generation of power as early as on 1.5.2001 in spite of an investment of over Rs. 11,000 crores. MSEB had also terminated the power purchase agreement. Thus there is nothing that has to be done by the Board of Directors, as the company has practically become defunct. However, notwithstanding the provisions in Article 10.8 that for Board Meetings there should be a quorum of three Directors, the nominees of EEC and CIPM – Mr Stummer and Mr. Allision – with the sole object of taking control of the company – not for the purpose of generation of power – but for certain ulterior motives – convened a Board Meeting on 4.6.2002 in San Francisco without any notice to the petitioner. In that meeting, with the view to form a quorum, these two directors had appointed Mr. Freeman who is a stranger to the company, as a director. Thereafter, they had also accepted the resignation of Mr. Richard Allison and in his place appointed Mr. Kevin Walsh as a director as a nominee of EEC. Thereafter, Mr. Freeman was appointed as the Manager for special affairs and was conferred with extensive powers with the sole intention of reviving certain arbitration proceedings pending against MSEB, Govt. of Maharashtra and Government of India.

5. The learned senior counsel further submitted: The holding of the meeting on 4th June, 2002 was kept as a secret from the petitioner till by a letter dated 30.7.2002 the second respondent informed the petitioner about the said meeting enclosing therewith a copy of the minutes of that meeting. In that letter it was specifically mentioned that the said meeting was held with the intention to establish minimum quorum of three directors. Mr. Freeman could have never been appointed as a director as in terms of the Articles only a nominee of a shareholder could be appointed as a director. Therefore, his appointment being illegal and abinitio void, there would have been no quorum to transact any business in that meeting. Even though the respondents rely on Regulation 75 of Table ‘A’ for appointment of directors with a view to constitute a quorum, yet, this Regulation is subject to the Articles of the company. The Articles are very specific that only a nominee of the shareholders could be appointed as a director. Likewise even the reliance on Section 260 of the Companies Act to contend that anyone could be appointed as Additional Director is also misconceived. It has been held in Morris v. Kanssen (1946 AC 459) that appointment of directors cannot override the substantive provision in the Article relating to such appointments. Since Freeman’s appointment is against the provisions of Articles the same is null and void.

6. Elaborating further, the learned Senior Advocate submitted: Not only the appointment of Mr. Freeman was illegal, the decision to appoint him as Manager Special Affairs and conferring on him all executive powers was also irregular. Even in terms of Regulation 75 of Table ‘A”, the continuing directors could have acted only for appointment of directors for the purpose of constituting a quorum but no further decisions could have been taken in that meeting. Therefore, all the decisions taken in that meeting are also illegal and void. The Bombay High Court has already held that disputes between the company and the MSEB in regard to the PPA should be resolved through the Maharashtra Electricity Regulatory Commission, but after the Board was reconstituted on 4.6.2002, the company activated the arbitration proceedings without the consent or knowledge of the petitioner as is evident from the letter written by these three to Sr Clerk, Essex Court Chambers on 7th June, expressing their interest in continuing with the arbitration proceedings against GOM guarantee. This action is a grave act of oppression against the petitioner and against the public interest.

7. As far as the General Body Meeting held on 9th September, 2002 is concerned, the learned counsel submitted: The representatives of EEC, CIPM and EMC continued their oppressive conduct even in the AGM. The petitioner had nominated two of its representatives for election as shareholder directors on the Board since it held 14.15% shares in the company. Since as per Article 10.2 it has the right to nominate one director by virtue of its holding 10% shares, the petitioner could also nominate another director for the balance fractional holding of 4.15% shares. Article 10.2 consists of three distinct provisions. As per the first sentence of that Article, a member could nominate one candidate for election to the Board in respect of each 10% of the shares held by it/him. As per the second sentence of that Article, if some shareholders hold fractional shares not amounting to 10%, they could consolidate such fractional holdings and for every 10% of such consolidation one candidate can be nominated. The third provision as contained in the third sentence of that Article is relevant. As per that provision, when the number of directors nominated by the shareholders is less than 10, then a shareholder with a fractional holding of less than 10%, can nominate a candidate. If more than one shareholder have fractional holdings, then the shareholder holding higher percentage will have the right to appoint a director. In the present case, there are only two shareholders with fractional shareholdings. EMC with 66.85% and the petitioner with 14.15%. Since EMC did not nominate any candidate in respect of its higher fractional shareholding, the petitioner with 4.15% fractional shareholding was entitled to nominate a person in addition to one director for its 10% shareholding. Article 10.2 does not envisage a negative vote by a shareholder, who has not nominated any one for its fractional holding. neither EEC nor CIPM had any role in the election of the second nominee of the petitioner However, all the other three shareholders including EMC opposed the second nominee of the petitioner which is in violation of the provisions of Article 10.3 which mandates that all shareholders should agree to vote in favour of appointment of a candidate in terms of Article 10.2. EMC having abandoned the company and having decided not to appoint any of its nominees, could not have exercised its voting rights against the nominees of the petitioner. Since the three shareholders jointly denied the exercise of rightful claim of the petitioner, they have acted in a manner oppressive to the petitioner.

8. The learned counsel further submitted: In terms of the Articles, there are only two types of directors- shareholder directors to be nominated by shareholders in terms of Article 10.2 and FI directors to be nominated by Financial Institutions. By virtue of holding 10% each, both CIPM and EEC nominated Mr. Walsh and Mr. Stummer respectively and both were elected as shareholder directors. However, in addition, they jointly proposed the name of Mr. Freeman for election as a director, which proposal, they had no right to make after having nominated their own candidates for holding 10% shares each. The reliance of the respondents on the provisions of Article 10.13 for his appointment is misconceived. This Article relates only to the appointment of FI nominees. Therefore, Mr. Freeman being an outsider, could not have been appointed as a director and therefore, the petitioner voted against his appointment but other three shareholders voted in favour of his appointment. Even though for his appointment as an additional director, the respondents gave a justification of forming a quorum, for his appointment in the AGM they have not given any justification. With the election of Mr. Stummer and Mr. Kelvin Walsh and appointment of Mr. Ramamurthy being the nominee of IDBI, there would have been quorum for Board Meetings and therefore, there was no justification for appointment of Mr. Freeman. By denying the right of the petitioner to have two of its nominees as shareholder directors and appointing Mr. Freeman as a director, the other three shareholders have ensured majority on the Board only with the single agenda of fighting against the Government by activating the arbitration proceedings.

9. In regard to the appointment of four nominees of EMC, the learned counsel submitted: In the AGM on 9.9.2002, EMC did not nominate any candidate. However, within a short period of one month, one 8.10.2002, it nominated four directors. EMC has already applied for voluntary liquidation and joint provisional liquidators had been appointed. This appointment was made when the entire matter was subjudice before Bombay High Court. It was done behind the back of the petitioner and by overreaching the Bombay High Court. Apparently CIPM and EEC had masterminded these appointments apprehending that their actions in the Board Meeting held on 4.6.2002 and in the AGM on 9.9.2002 would not be approved either by the High Court or by the Company Law Board in which case they would not be able to prosecute the arbitration proceedings. Various queries were raised by the petitioner in regard to the appointment of 4 nominees of EMC, but no reply was forthcoming from them and they have not filed any reply to the petition. The admitted fact is that EMC is only a shell company of Enron and it has no assets or employees. It itself has valued the worth of its shares in the company as “zero”. This being the position, there is no rationale for the Board of Directors of EMC to pass the resolution on 3.10.2002 to nominate two employees each of GE and Bechtel as EMC nominees on the Board of the company. The very fact that EMC had nominated employees of GE and Bechel, it is obvious that EMC is being used like a puppet. A larger issue as to whether the Board of EMC had powers to act at all in view of the appointment of Joint Provisional Liquidators requires consideration. The general principle of Company Law is that once a provisional liquidator is appointed in respect of a company, the Board of Directors of that company ceases to have any powers. This has been statutorily recognized by Section 491 of the Indian Companies Act. This position has been affirmed in Mayson, French and Ryan on Company Law (pages 692 — 694) and in Re Ferrow’s Bank Limited (1921 AER 511.). Respondents 6-9 have not been able to show the relevant provisions of Mauritius Company Law which permits the Board of a company to function after appointment of a provisional liquidator. Even though the respondents have relied on the order of Supreme Court of Mauritius to contend that the Supreme Court has permitted the Board of EMC to function, yet it is to be noted that the Supreme Court has passed orders in terms of an application made by EMC. A perusal of the application and the order would indicate that in verbatim the prayers in the application and the order are similar. In that order there is no reference to bankruptcy law. IT appears that the Supreme Court has passed that order without application of mind and as such the Company Law Board is not bound by that order. Therefore, the appointment of respondent 6-9 as nominees of EMC should be declared as null and void. Further, in terms of Article 10.4, EMC nominees cannot function till a validly constituted Board appoints them as directors.

10. Summing up his arguments Shri Andhyarujina submitted: The respondents 2 to 5 have acted in a manner oppressive to the petitioner and in a manner prejudicial to public interest. The sequence of events-holding the illegal Board meeting on 4.6.2000 without notice to the petitioner, appointing Mr. Freeman, not withstanding that the same was ultravires in the Article, taking various decisions in that meeting inspite of the specific ban in Regulation 75 of Table A, reactivating the Arbitration proceedings in London, denial of the right of the petitioner to appoint two nominees, again appointing Mr. Freeman as a regular director in the AGM on 9.9.2002, filing of statement of claims before the Arbitrators on 26.9.2002 inspite of the restraint order of the Division Bench of the Bombay High Court, and procuring the nomination of 4 directors by EMC etc would indicate that there have been continuous acts of oppression on the part of the majority shareholders. Therefore, the petitioner, being a minority shareholder, has every right to agitate against the oppressive, ultra-vires and illegal acts of the other three shareholders. Therefore, the election of Mr Freeman as an additional director on 4.6.2002 should be set aside, all the decision in that meeting and follow up actions taken on those decisions should be declared as null and void, the election of Mr. Freeman again on 9.9.2002 should be set aside, the nominees of the petitioner should be declared to have been elected in the AGM on 9.9.2002 and the respondents 6-9 should be restrained from functioning as directors of the company.

11. Shri Dave, Senior Advocate appearing for the second respondent submitted: The petition itself is not maintainable. It has been filed for a collateral purpose with a view to obstruct the arbitration proceedings pending against MSEB and State of Maharashtra. In a petition under Section 397, the acts complained of should relate to shareholders rights and should justify winding up of the company on just and equitable grounds In Santi Prasad v. Kalinga Tubes Ltd (35 CC 351) the Court has held that in addition to justification for winding up of the company on just and suitable grounds, it must be shown that the conduct of the majority shareholders is oppressive to the monitory and the events should be considered not in isolation but as a part of a consecutive story. This test is not satisfied in the present case. There are no particulars as to how the action of the other three shareholders is oppressive to the petitioner and if at all the arbitration proceedings are oppressive to MSEB or State of Maharashtra, the petitioner cannot advance their cause. In Palghat Exports P Ltd v. T.V. Chandran (79 CC 213), the Kerala High Court has held that action under Section 397 must be representative and personal grievances cannot be agitated. The present proceedings are not public interest litigation but a proceeding under Section 397 wherein only the shareholders’ legal and proprietary rights can be agitated. In V.M. Rao v. Rajeswari Ramanakrishnan (61 CC 20), the Madras High Court has held the acts of oppression complained of should be in the capacity of a member and not in any other capacity. Liability of the Government does not come under the purview of this section. Even assuming that the action of the other three shareholders is unwise or illegal, yet, they can never be considered to be oppressive to the petitioner. In the present proceedings the complaint is about the composition of the board with the sole objective of preventing the Board from enforcing the company’s contractual rights. Before entertaining this petition, CLB should examine as to whether a writ petition could be filed to restrain a company from prosecuting arbitration. If the answer could beys, then only this petition is maintainable. In paragraph 32 of the petition, the petitioner has averred that the arbitration proceedings in London are not in the best interest of State of Maharashtra and the power sector in India and therefore, the reliefs sought for should be granted. This averment itself would clearly indicate that the purpose of this petition is not for remedying the alleged acts of oppression but to prevent the company from enforcing its contractual rights. In Madhusudan v. Madhu Woolen Industries P Ltd (1971 3 SCC 632) the Apex Court has held that a petition filed for an improper motive deserves to be dismissed. Exercise of contractual rights could never be considered to be oppressive or against public interest. The petitioner is a Maharashtra Govt. company and therefor,e to prevent the company from proceeding with the arbitration against MSEB and Maharashtra Government, the petitioner has been put up to file this petition. It is an unknown proposition that any proceeding against a Government is an act of oppression and that no contractual rights could be enforced against a Government on the ground that it is against public interest. In terms of Section 5 of the Arbitration and Conciliation Act, no Court shall interfere in Arbitration proceedings. Further in terms of Section 16 of that Act, the Arbitrator can adjudicate on the correctness of invoking arbitration by the Board of the company. Therefore, there is no need for the petitioner to institute the present collateral proceedings. It is wrong on the part of the petitioner to allege that any award given by the Arbitrator would be taken away by GE or Bechtel as, they being unsecured creditors, any award made by the arbitrators would only go to the receiver appointed by the Bombay High Court.

12. The learned counsel further submitted: The reliance of the petitioner on the terms ‘public interest’ appearing in Section 397 is misconceived. This term was introduced in Companies Act, 1963. The purpose of insertion of this term, as is evident from the Lok Sabha debates at the time, was that the Central Government would be in a position to invoke the provisions of Section 397 in terms of Section 401 on the grounds of public interest and not merely when the affairs of the company are being conducted in a manner prejudicial to the interest of the shareholders. The Central Government has not filed any petition under Section 401 before the Company Law Board on the ground that the other three shareholders are acting against public interest when the Board decided to prosecute the arbitration proceedings arising out of contractual rights. Therefore, no shareholder can allege that the action of the Board is against public interest. When MSEB refused to purchase power at the agreed rates in terms of the PPA, the company was left with no option but to invoke the arbitration clause in the PPA. Granting of the relief sought for by the petitioner would amount to the Company Law Board denying the right of the company to have a functional Board. Further, neither GE no Bechtel, being reputed companies, has anything to do with Enron and abandonment of the company by Enron cannot be a ground for denying the right of to her shareholders to constitute the Board. Presently, both GE and Bechtel are trying to revive the company in consultation with the Government of Maharashtra and the Government of India. Public policy is not static. In the WTO regime and opening of economy, the courts should endeavour to create a good environment and should not discriminate against foreign shareholders. Therefore, the plea of public interest should be rejected.

13. In regard to the Board meeting on 4.6.2002, Shri Dave pointed out that thee is no prohibition in appointing a non shareholder candidate as an additional director as shareholder director have been defined in the Articles as one appointed in terms of Article 10.2 and 10.3. Any appointment of directors in terms of Article 10.13 is not covered under the term shareholder director. Therefore, appointment of Mr. Freeman as an additional director in that meeting is in accordance with the Articles. Even assuming that Mr. Freeman could not have been appointed, the Board consisting Mr. Stummer and Mr. Walsh could have constituted a quorum as in terms of Section 287 as the company being a private company, two directors could constitute the quorum. In Needle Industries case (51 CC 743), the Apex court has held that two directors could constitute a valid quorum. Therefore, even the Article fixing the quorum as three directors in derogatory of the provisions of Section 9 of the Act is void. The petitioner having permitted its nominee to resign, knowing fully well that with his resignation there would be no quorum, cannot now question the continuing directors from taking action in terms of Regulation 75 of Table ‘A’ to constitute a quorum. The right of the continuing directors to appoint additional directors to form a quorum has been upheld in Sailesh Harilal v. Matushree Textiles Ltd (82 CC 5). The action of EEC and CIPM was a bonafide action and was taken to fill up the vacuum created by the resignation of the nominee of the petitioner. If at all the appointment of Mr. Freeman is oppressive, the same was brought about by the resignation of the nominee of the petitioner and therefor,e the petitioner is estopped from challenging the meeting held on 4.6.2002. There is nothing on record to show that the petitioner had at any time alleged oppression till 2.5.2002 when its nominee resigned. It is to be noted that the Arbitration proceedings were originally initiated when the nominees of the financial institutions and the petitioner were on the Board. In LIC v. Escorts Ltd case (59 CC 548) the Court has upheld the right of majority shareholders to appoint directors on the Board to protect their interests. In this case EEC and CIPM holding 10% shares each appointed an additional director with a view to make the Board functional and as such cannot be considered to be an act of oppression.

14. In regard to the election of directors in the AGM held on 9.9.2002 Shri Dave, submitted that when majority shareholders elect directors, the same cannot be set-aside by any Court. The petitioner was originally having 30% shares and had three of its nominees on the Board. When its shareholding came down to 14.15%, it withdrew two of is nominees clearly indicating that the petitioner was aware that it cannot have more than one nominee on the Board. The Article of Association of a company is a contract and if the terms of the Articles had been understood to be something for a long time, its meaning cannot be sought to be changed when disputes starts. The petitioner had proposed the election of two of its candidates by a single resolution. Even though the other three shareholders were willing to support one candidate, the petitioner was not willing and therefore, the composite resolution was defeated. Even now the other shareholders have no objection in taking one nominee of the petitioner on the Board. As far as the election of Mr. Freeman in the AGM is concerned, it was done in accordance with Article 10.13 and therefore, cannot be challenged.

15. Summing up his arguments, Shri Dave submitted that the company being an unlimited company, all the shareholders have the right to take any action that is warranted to reduce their liabilities. Further, Indian financial institutions have high stakes in the company and their interest also have to be protected. The bankruptcy proceedings against Enron is of no consequence as far as the other shareholders are concerned. it is not that only Arbitration proceedings are pending, but there are a number of winding up petitions pending against the company which have to be prosecuted in the interest of the company and shareholders and this could be done only by a validly constituted Board. Both EEC and CIPM have acted only with this objective and not with any view to act in an oppressive manner against the petitioner. Therefore, this petition should be dismissed.

16. Shri Kapil Sibal, Senior Advocate for respondents 4 and 5 submitted; Pursuing a litigation before a Court can never be an act of oppression and vindication of legal rights an never be against public interest. Any contrary proposition can never be accepted. It is the petitioner which, by its conduct, is trying to put spokes in the company’s pursuing its legal rights and therefore, the intention of the petitioner in seeking the various reliefs in the petition is malafide. In fact, the Govt. of Maharashtra wanted to terminate the arbitration proceedings on the plea that there was no Board in the Company. There is absolutely no surety that the arbitration award would be against MSEB or the Govt. of Maharashtra. The admitted position is that the petitioner had no nominee on the Board after May 2002 and therefore, it had no right to demand any notice of Board Meetings nor there is any provision in the Articles that notice should be given to a shareholder for Board Meetings. So far, the petitioner has not given any reason as to why Mr. Budhiraja resigned from the Board. Perhaps the reason was that he wanted to make the Board non functional for want of a quorum. After Shri Budhiraja resigned, the other continuing directors had no option but to induct one more director to make the Board functional. The right of continuing directors to appoint directors to form a quorum has been recognized by Regulation 75 of Table ‘A’ read with Regulation 72 and Section 260 of the Act. The bonafides of CIPM and EEC is evident from the fact that in the hearing held on 2.8.2002, an offer was made to the petitioner to nominate its own director so that Mr. Freeman against whose appointment the petitioner voiced grievance, could be relieved. But with a view to ensure that the Board should not function, the petitioner did not accept the offer. Therefore, now the petitioner cannot complain that by appointing Mr. Freeman, EEC and CIPM have acted in an oppressive manner against the petitioner.

17. In regard to the AGM on 9.9.2002, Shri Kapil Sibal contended that none of the allegations of the petitioner in regard to the proceedings in the meeting has any merits. The petitioner was entitled for nomination of only one director but nominated two directors on the ground that for the fractional shareholding of 4.15 % it was entitled to appoint a second nominee. The provisions in the third sentence of Article 10.2 would come into play only when there are nine shareholder directors and the fractional holding wold entitle the appointment of the tenth director that too by majority of votes. In the present case, in the AGM, only three directors were elected and therefore, the question of utilizing the fractional shareholding does not arise. Even otherwise the fractional shares should have the support of majority voting for appointing a director. There is nothing in the Articles to deny EMC its voting rights just because it had not nominated any candidate for directorship in the AGM. In corporate democracy, every shareholder is entitled to vote according to his preferences including opposing certain candidates. Therefore, all the other three shareholders had voted against the proposal for the second nominee and as such the petitioner cannot complain of oppression. As far as appointment of Mr. Freeman is concerned, CIPM and EEC proposed his name only because the petitioner did not convey its decision to nominate its candidate by 3.9.2002 as per the letter written to it on 29.8.2002. If the petitioner had indicated its nominee, there would have been no need to propose the name of Mr. Freeman. Article 10.13 envisages appointment of non-shareholder directors and therefore, Mr. Freeman was proposed as a non shareholder director. In view of this specific provision in the Article, the petitioner cannot claim that only shareholders directors can be appointed besides nominees of FIS. As far as the appointment of four directors by EMC subsequent to AGM is concerned, Article 10.4 permits the same. No doubt, as per Indian Law, when a provisional liquidator is appointed the Board cases to function, but the Mauritius Supreme Court, by an order, specifically permitted the Board of EMC to function. If the petitioner contends that the order of the Supreme Court is wrong, it has to agitate the issue before the Court and he cannot ask the Company Law Board to ignore the order of that Court.

18. Shri Ganesh, Sr Advocate appearing for respondents 6 to 9 submitted: His clients are the nominees of EMC. All the allegations/complaints by the petitioner are against EMC. However, the petitioner has not chosen to implead EMC as a party to the present proceedings and as such these allegations/complaints against EMC cannot be considered by the Company Law Board at all. Further, there are no complaints or allegations against his clients and that is the reason why they have not filed any reply to the petition. However, they did file affidavits in the proceedings before Bombay High Court which have been produced by the petitioner and relied on by its Counsel in the present proceedings. The main complaint of the petitioner regarding the nomination of respondents 6 to 9 as directors by EMC is that Provisional Liquidators have been appointed in EMC and as such its Board cannot function and cannot nominate its candidate. Even though the learned counsel for the petitioner alleged that the order of the Supreme Court of Mauritius is bad in law, yet, there is no averment in the petition to this effect. Further, there is no pleading to the effect that the Board of EMC is non-est. In a petition under Section 397, the Company Law Board cannot travel beyond the pleadings as held in Mohta Bros P Ltd v. Calcutta Landing & Shipping Co Ltd (40 CC 119), N.K. Mohapatra v. State of Orissa (1995 1 CLJ 266) and Re Lundie brothers (1965 2 AER 692) and as such these allegations cannot be considered by the Company Law Board. In paragraph (vi) (b) of the order of Supreme Court of Mauritius at Annexure R-5 dated 9.5.2002 it is stated that “the Board of Directors of the company shall continue to manage the company’s affairs in all respects”. This will indicate that the said court has not superseded the Board of Directors of the EMC notwithstanding the appointment of Provisional Liquidators. EMC sought for protection under Section 220 of the Mauritius Companies Act 1984 and accordingly, the Supreme Court of Mauritius has passed the said order. Section 252 of that Act clearly specifies that the corporate existence and powers of EMC would continue not withstanding appointment of liquidators. If the petitioner contends that the said order is wrong or illegal, it has to agitate the same before the Court. Therefore, when the Board of EMC has acted in terms of the powers given to it by the Supreme Court of Mauritius, the petitioner cannot challenge the same. The Supreme Court itself has specifically stipulated in that order that if the Provisional Liquidators (JPLs) consider that the Board of Director of EMC is not acting in the best interest of the company, the Joint Provisional Liquidators should move that Court. So far the JPLs do not appear to have made any complaint regarding the nomination of four directions by EMC on the Board of the company. The very fact that one of the JPLs represented EMC as authorized by its Board in the AGM on 9.9.2002, would indicate that the Board of EMC had the authority to function.

19. The learned counsel further submitted: In terms of the Articles of the company, no shareholder needs to give any reason for appointment of its nominees. Further in LIC v. Escorts Limited (59 CC 548) the Supreme Court has held that for change of directors there is no need to give any reasons no justify the same. The allegation of the petitioner that having decided not to nominate any directions in the AGM, EMC could not have thereafter nominated directors has no validity in as much as EMC has the right to fill up vacancies caused by the resignations of its earlier nominees at any time as is evident from Article 10.4. Just because EMC had decided to nominate employees of GE and Bechtel, it does not mean that EMC is a puppet of these shareholders, as, in the Articles, there is no qualifications prescribed for the shareholder directors. One of the grounds taken by the petitioner is that EMC had abandoned the company by resignation of its nominees and as such it cannot appoint directors. It is no record that the nominee of the petition also resigned from the Board but now it is seeking two of its nominees to be appointed on the Board. What is applicable to EMC is applicable to the petitioner also. Therefore, there is no scope to grant the prayer of the petitioner also. Therefore, there is no scope to grant the prayer of the petitioner that the respondent 6-9 should be perpetually restrained from acting as directors of the company.

20. In regard to the Board meeting on 4.6.2002 and the proceedings of the AGM held on 9.9.2002, the learned counsel submitted: In the Board meeting on 4.6.2002, Mr. Freeman was appointed only as an Additional Director in terms of Section 260 of the Act to hold office till the next AGM. Neither this Section nor Regulation 72 of Table A stipulates that an additional director has to be a nominee of shareholders. It is for the Board to decide as to who should be appointed as an additional director. Even though EMC did not nominate any candidate for election in the AGM, yet, its representative attended the said meeting and exercised the voting rights of EMC. Since petitioner held only 14.15% shares in the company, in terms of Article 10.2, it was entitled to nominate only one candidate. Since there was a joint proposal for appointing two nominees of the petitioner, EMC voted against this resolution. The contention of the petitioner that EMC having decided not to appoint any nominee cannot exercise its voting rights against the proposal of the petitioner is not in accordance with the Article. If the contention of the petitioner is accepted, then, no shareholder with less than 10% can any time exercise his/its voting rights. The third sentence of the Article 10.2 specifically provides that for election of a candidate under this sentence, the majority of voting power which has not been taken into account in making nomination in terms of the first two sentences, is necessary. Therefore, since EMC had not utilized its shares for making any nomination, it could exercise voting rights in respect of all the shares. Therefore, EMC has not acted in any manner oppressive to the petitioner in opposing two nominations of the petitioner.

21. Regarding public interest Shri Ganesh submitted: There is no averment in the petition that the respondents have acted against public interest in election of the Board of Directors. The contention of the petitioner is that the respondents were interested in forming a quorum only for pursuing arbitration proceedings against MSEB, Govt. of Maharashtra and Govt. of India. Pursuing cases in the interest of the company can never be considered to be against public interest. The arbitration proceedings were initiated in April, 2001 when three nominees of the petitioner and two nominees of the financial institutions were on the Board. In November, 2001 the arbitration tribunal gave procedural instructions and the same was not opposed by the petitioner. The Board constituted on 4.6.2002 only followed up the earlier initiated arbitration proceedings and, therefore, this can never be considered to be either oppressive or against public interest. IF exercise of contractual rights against Governments could be considered as oppressive or against public interest, then no contact with any Government could be enforced. One of the basic concepts of law is that whoever has any claims, he should be allowed to have access to court of law to enforce the claims. Further, in terms of Section 28 of the Contract Act, any restraint to legal proceedings is void. However, as an exception, recourse to Arbitration is provided in that Section. Likewise Section 41(b) of Specific Relief Act precludes a court from restraining a person from instituting or prosecuting a proceeding in a court of law and this has been affirmed by the Supreme Court in Cotton Corporation of India Ltd v. United Industrial Bank Ltd (AIR 1983 SC 1272). Therefore, granting of any of the reliefs sought for by the petitioner by the CLB would amount to restraining the company from prosecuting proceedings in courts and therefore would be against public interest. Further, the company is an unlimited company and therefore the shareholders are entitled to recover all the dues to the company so as to reduce their ultimate liability. Since this petition has been filed for an oblique purpose, it should be dismissed.

22. In rejoinder, the learned counsel for the petitioner submitted: The case of the petitioner is not that the company should not prosecute legal proceedings. The petitioner’s grievance is that the majority shareholders are oppressing the petitioner. Every shareholder expects a fair dealing and fair play. Any departure from this would be oppressive as held in Re HR Hammer Ltd (1959 1 WLR 62.) The petitioner is never against having an effective Board but the respondents, by constituting an illegal quorum, have revived the arbitration proceedings which were put in cold storage as early as in February, 2001. The Board Meeting held on 4.6.2002 has no legal validity. The contention of the respondents that since the petitioner had no director on the Board and as such there was no need to give a notice for the Board Meeting on 4.6.2002 has no validity as the company being a closely held company, notices should have been given to all the shareholders. As a matter of fact, in their letter dated 30.7.2002, the respondents have clearly stated that for future Board Meeting, notices would be issued to the petitioner. The contention, that in terms of Section 287 of the Act, the quorum for the Board could only be 2 directors is fallacious. This Section only fixes the minimum requirement and Articles providing larger number of directors for a quorum can never be against the provisions of Section 9 of the Act. This Section would apply only to provisions in the Articles which are repugnant to the provisions of the Act. In Amit Kaur v. Kapurthala Flour and Oil Mills Ltd (56 CC 114), it has been held that Articles could provide for a larger quorum than prescribed under Section 287. The petitioner never questioned the right of directors to appoint additional directors for forming a quorum. Mr. Freeman who is not a nominee of a shareholder could have never been appointed as a director. Neither the provisions of Section 260 nor Regulation 72 can apply when Articles are specific that only a nominee of a shareholder could be appointed as a director. No one can override the Articles especially in a company which is a closely held private company. The exception in the Article 10.13 is applicable only to nominees of financial institutions. Article 10.13 has to be interpreted taking into consideration that the company is a closely held private company and that each shareholder has been given the right to appoint directors on the basis of his/its shareholding. No director could be appointed by shareholders beyond their entitlement. If the interpretation of the respondents that beyond 10 directors, the shareholders could appoint 3 more directors, then, there is absolutely no need to have the provisions in Article 10.2. Any director beyond 10 directors could only be the nominees of the financial institutions. In 82 CC 5, the Bombay High Court has very clearly held that directors could appoint additional directors to form a quorum provided such an appointee is qualiFfied to be appointed in terms of the Articles. Not only the appointment of Mr. Freeman was illegal, further decisions taken in that meeting were completely against the provisions of Regulation 75 of Table A in as much as this Regulation specifically stipulates that continuing directors cannot act for any other purpose other than appointing additional directors or for convening a general meeting. The counsel for none of the respondents justified further decisions taken in that meeting like appointing Mr. Freeman as Manager and conferring upon him all the executive powers. Further oppressive conduct of the respondents is apparent from the fact that Freeman was once again appointed with majority vote in the AGM held on 9.9.2002. If the purpose of appointing him as an additional director in the meeting held on 4th June, 2002 was for the purpose of forming a quorum, the same excuse is not available for appointing him as a director in the AGM as with the nomination of the IDBI nominee, the quorum was complete in the AGM. Further, since both EEC and CIPM had already nominated one director each, they could not have jointly proposed the name of Mr. Freeman for election as a director. Having illegally nominating and electing Mr. Freeman, the majority shareholders denied the right of the petitioner to appoint two of its nominees. EMC, having failed to nominate any candidate could not have utilized its voting power to defeat the two candidates of the petitioner.

23. The learned counsel further submitted: As far as the nominees of EMC are concerned, the petitioner is questioning the authority of the Board of EMC to nominate directors. The settled principle of law is that once a provisional liquidator is appointed in a company, its Board ceases to function. This point has been specifically raised at Para 30(r) of the petition. There is nothing on record to show, in spite of the repeated requests of the petitioner, as to how, why and by whom the defunct Board of EMC was activated to nominate 4 directors. In a petition under Section 397 alleging oppression, the parties should give full details to this Bench to adjudicate on all the allegations. When EMC had decided not to nominate any candidate in the AGM on 9.9.2002, the reasons for nominating 4 directors within a period of one month have to be explained which the respondents have failed. The only object of EMC to have nominated 4 directors after the AGM was with a view to give a lending hand to the other two shareholders to prosecute the pending arbitration proceedings and not for either revival of the company or to generate power. The reliance on Escorts case by the respondents is misconceived as that case deals with only extraordinary general meetings.

24. Summing up his arguments, the learned counsel submitted: The petitioner admits that no one can file a petition under Section 397 of the act with a view to stop prosecuting legal proceedings but the petitioner is questioning the context in which the respondents have sought to re-open the arbitration proceedings which had almost come to a stop in early 2001. No doubt, the petitioner had a nominee on the Board when arbitration proceedings were instituted in 2001, but at that time, EMC had the majority on the Board and the nominee of the petitioner could not have influenced any decision. But when, EMC had gone out with its nominees resigning from the Board, the entire circumstances had changed. Now the petitioner finds that Enron Corporation was nothing but a fraud and it had completely abandoned the company. The other two shareholders are acting more like creditors to the company with the objective to take away whatever award the arbitrators are likely to make. It is evident from the letter dated 21st November, 2002 of GE to IDBI wherein GE has claimed US $ 72 Millions for work related to the Dhabol Project. Therefore, since the award money has to come out of the exchequer, the element of public interest is very great and as a shareholder the petitioner has the right to prosecute this petition. In N.R. Murthy v. Industrial Development Corporation of Orissa (47 CC 389), the Orissa High Court has held that the element of public interest is paramount in conducting the affairs of a company and if the affairs of a company are being conducted in a manner prejudicial to the public interest, then, one could invoke the provisions of Section 397. In National Textiles Workers Union v. P.R. Ramakrishnan (AIR 1983 SC 75), it has been held that the majority shareholders cannot say that the company is their own concern and they can do whatever they like with it, as, with the ever changing socio economic concepts and values, a company is looked upon as a socio economic institution influencing the life of the people. This being the case, the 3 shareholders holding majority of the shares cannot do whatever they want to do without any concern to the public interest. Therefore, the reliefs sought should be granted.

25. I have considered the pleadings, arguments and the written submissions given by both the sides after conclusion of the hearing. The petitioner has raised three main issues i.e. the Board meeting held on 4.6.2002, AGM held on 9.9.2002 and nomination of four candidates by EMC. All the issues raised by the petitioner, in a way, relate to the composition of the Board of the company. In raising these issues, the petitioner has alleged that EMC, CIPM (GE) and EEC (Bechtel) have acted in a manner oppressive to the petitioner and in a manner prejudicial to public interest. The petitioner has also alleged that GE and Bechtel are trying to hijack the Board only with a view to reactivate pending arbitration proceedings against MSEB, Govt. of Maharashtra and Govt. of India. The proceedings have indicated that while initially both the sides were agitating on the issue of forming a quorum, later both the sides have started agitating as to who should have majority on the Board.

26. Before I deal with the merits of the case, the issue raised by the respondents as to the motive of the petitioner and the rights which it has sought to protect in filing this petition require to be examined. According to the learned counsel for the respondents the motive of the petition is to stall the arbitration proceedings and not with the view to enforce the rights of the petitioner in its capacity as a shareholder. They cited the case of Madhu Woolen Industries P Ltd to the proposition that a petitioner filed for an improper motive deserves to be dismissed and cited the cases of Palghat Exports P Ltd and VM Rao (supra) to the proposition that only shareholders rights can be agitated in a petition under Section 397. As far as public interest in concerned, the petitioner has raised this on the ground that in the arbitration proceedings, the company has claimed substantial, amounts which would become payable by GOM and GOI, if the company succeeds in those proceedings, and therefore the same is against public interest. In this connection, it is relevant to point out that the shareholders of this company wear two hats- one as a shareholder and the other-in respect of the petitioner, its principal shareholder-MSEB-an organ of GOM-as also a customer of the company and GE and Bechtel as contractors to the company. That is the reason why the petitioner alleges that GE and Bechtel are acting in furthering their interests as creditors, while, the respondents allege that the petitioner is acting on behalf of MSEB/GOM which control the petitioner. 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. Whether the petition is for enforcing the rights of the petitioner in its capacity as a shareholder or not, the same can be determined only after examining its allegations of oppression.

27. I consider it necessary to reproduce certain Articles of the Articles of Association of the company, the interpretation of which would be material in deciding the issues raised in the petition.

Article 10.1 — Unless and until otherwise determined by the members, the maximum number of Directors shall be thirteen and the minimum number of Directors shall be three.

Article 10.2 – Each Member shall be entitled to nominate one candidate for election to the Board in respect of each 10 percent of the total voting power held by it and its Affiliates (and so on for integral multiples thereof). Any Member or group of Members holding in the aggregate 10 percent of the total voting power (excluding any voting power taken into account in nominations under the proceeding sentence) also shall be entitled to nominate one candidate for election to the Board in respect of each 10 per cent of the total voting power they collectively hold. If at any time fewer than 10 candidates have been nominated as provided in the preceding two sentences or elected, the Members whose voting power has not been taken into account in making a nomination under the preceding two sentences shall by a majority vote of the voting power not so taken into account nominate a candidate(s) so that 10 Shareholder Directors in the aggregate are in office.

Article 10.3 — The members agree to vote in favour of the appointment of the candidates nominated pursuant to Article 10.2 or Article 10.4 at a general meeting of the company.

Article 10.4 — Any shareholder Director nominated and appointed pursuant to the Article 10 may at any time be removed and substituted by the Member that nominated such Shareholder Director. 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 Members of specifying the removal and/or election of the other Members specifying the removal and/or election of the substitute Shareholder Director and pending such general meeting shall procedure that the Board shall appoint such candidate. If any Shareholder Director ceases to hold office, the Members shall procure the election of a substitute nominated by the Member who appointed such Shareholder Director.

Article 10.5: In the event that any member or group of Members no longer holds the voting power entitling such Member(s) to nominate a Director(s) pursuant to Article 10.2, such Member(s) shall procure that the shareholder Director(s) nominated by it (or them) and holding office in accordance with such Article shall immediately resign and a substitute thereof shall be nominated as provided in Article 10.2 and elected as provided in Article 10.4.

Article 10.8 — The quorum for a meeting of the Board shall be one-third of its members or three directors, whichever is greater.

Article 10.13 — Directors other than Shareholder Directors shall be elected by Members having Majority of the Shares. The Members agree to procure the election of individuals as directors (other than Shareholder Directors) to the extent required under the Financing Agreements.

28. As far as the Board Meeting held on 4.6.2002 is concerned, the grievance of the petitioner are manifold: That the said meeting was convened without notice to the petitioner and in an unknown place, the continuing directors could not have held the meeting for want of quorum, they could not have substituted Mr. Walsh for Mr. Allison and Mr. Freeman being a non shareholder nominee could not have been appointed as a director. According to the petitioner the entire exercise to constitute a quorum was with a view to pursue the arbitration proceedings which is oppressive and against public interest. As far as non-issue of notices to the petitioner is concerned, the settled principle of law is that only directors are entitled for notices for Board Meetings. As a matter of fact, Article 10.7 only stipulates that not less than 5 business days’ notice shall be given to each of the directors and there is nothing in the Articles that notices for the Board Meetings should be given to members. The petitioner has not indicated any where that even when it had its nominee on the Board, the petitioner itself was served with notices for Board Meetings. If it has been so, then, non issues of notice to the petitioner for this meeting could be considered to be oppressive. Therefore, non sending of notice for this meeting to the petitioner cannot be considered to be an act of oppression. The learned counsel urged that in view of the willingness expressed by Mr. Stummer in his letter dated 30th July 2002, that for future Board Meetings notices would be sent to the petitioner, they should have sent notices for the meeting held on 4.6.2002. In view of this letter, petitioner can demand notice only for future meetings. As far as the deliberations in that meeting are concerned, the first issues to be decided is as to whether the continuing directors, without a quorum, could have convened the meeting at all and taken various decisions in that meeting. Shri Dave took a stand that since Section 287 prescribes a quorum of 2 directors, Articles could not have fixed a quorum of 3 directors. This stand, as rights pointed out by Shri Andhyarurjina, relying on Kapurthala Flour Mills case (supra), is misconceived. The Act only prescribes the minimum and the company is at liberty to fix the quorum at any level not below the one fixed by the Act. Recently, in another case, it was urged that the stipulation in the Articles that s special resolution was required for increasing the authorized capital was against the provisions of Section 9 as in terms of Section 94 of the Act, only an ordinary resolution is required. This Board held that Section 9 comes into the picture only when the provisions in the Articles are in dilution of any of the other provision of the Act but not when they are more stringent. Further, when the stand of both the continuing directors is that they convened the meeting with the view to constitute a quorum of three directors, this stand cannot be changed during arguments. As pointed out earlier, the company has adopted Table E, which itself has adopted Table A with omission of certain Regulations of Table A. Regulation 75 of Table A reads “The continuing directors may act notwithstanding any vacancy in the Board: but, if and so long as their number is reduced below the quorum fixed by the Act fora meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or summoning a general meeting of the company, but for no other purpose”. The main purpose of this Regulation is to ensure that the Board does not become non functional for want of a quorum and that is the reason that the continuing directors have been authorized to appoint directors or to call for a general meeting. Thus, this Regulation permits continuing directors to convene and hold a Board Meeting for the purpose of increasing the number of directors to that filed for the quorum and therefore, I do not find any illegality or oppression in holding the said meeting for the purpose of increasing the number of directors. This view is in line with the view taken by Bombay High Court in Matushree Textiles Ltd Case (supra). As far as substitution of Mr. Allison with Mr. Walsh is concerned, even though during the initial arguments the learned counsel for the petitioner questioned the validity of the same, yet, after it was pointed out that in terms of Article 10.4, such a substitution was permissible, he did not pursue this grievance. In regard to the appointment of Mr. Freeman as an additional director, in terms of Section 260, additional directors could be appointed if the Articles so permit. Regulation 72 of Table ‘A’ permits appointment of Additional Directors. Therefore, there is no illegality in the appointment of Mr. Freeman as an additional director in that meeting. His appointment could be considered to be oppressive, if the petitioner had offered to nominate its candidate and without considering that nominee, the continuing directors had appointed some one else. One significant aspect that I have noticed is that neither in the petitioner nor in the rejoinder, there is any averment that the petitioner would have nominated its candidate if notice had been received for the Board meeting on 4.6.2002. Therefore, the only issue for consideration, in so far as this appointment is concerned, is as to whether a non shareholder candidate could have been appointed. According to the petitioner, there is no provision in the Articles permitting the appointment of a non shareholder candidate as a director except appointment of nominees of FIs. Only for the limited purpose of adjudicating this complaint, I am presuming that the petitioner is right in claiming that no non-shareholder candidate can be appointed as a director in terms of the Articles (even though in a later part of this order, I have held that a non shareholder candidate could be appointed as a director). If so, then, the appointment of Mr. Freeman as a director was invalid. Originally when the petition was filed, the appointment of Mr. Freeman as a director was the main grievance of the petitioner. In a petition under Section 397, the Company Law Board may make such order as it thinks fit with a view to bringing to an end the matters complained of. When the learned counsel for the respondents offered, in the hearing held on 2.8.2002, to substitute Mr. Freeman with a nominee of the petitioner, the main complaint of the petitioner would have come to an end if the said offer had been accepted by the petitioner. Unfortunately, the petitioner did not do so, where after by an amendment petition, the petitioner has made further allegations on the basis of subsequent events. Therefore, even assuming that Mr. Freeman’s appointment was invalid, yet, when the respondents offered to voluntarily substitute him with a nominee of the petitioner, which offer was not accepted, the petitioner, as rightly pointed by the counsel for the respondents, cannot challenge the legality/validity of the said appointment. Further, his appointment as an additional director has come to an end on 9.9.2002 when the AGM was held. As far as the grievance of the petitioner relating to the decisions taken in that meeting is concerned, the same is discussed later in this order.

29. Another grievance of the petitioner in regard to the said meeting is that the purpose of establishing the quorum was with the ulterior motive to pursue the arbitration proceedings against MSEB, GOM and GOI and not for the purpose of reviving the company. From the minutes of the said meeting at Annexure R-1, I find that after recording that quorum had been established, the Board took various decisions. The decisions related to appointment of Mr. Freeman as manager, special affairs, and through him to retain counsel for prosecuting pending and future cases in India against the company, prosecuting the pending Arbitration Proceedings against GOM and GOI, for contesting an action in USA filed by certain contractors against the company and for appointing a suitable person for compliance of statutory requirements. The Board had also authorized appealing against the oral order of the Bombay High Court, as and when received that the Maharashtra Electricity Regulatory Commission would alone have the powers to adjudicate the disputes between the company and MSEB. Therefore, even though prosecuting arbitration proceedings was one of the decisions, yet, other decisions had also been taken with a view to protect the assets and corporate interests of the company. Therefore, the contention of the petitioner that the quorum was constituted only for the purpose of prosecuting the arbitration proceedings has no substance. The directors of a company occupy a fiduciary position and they have to act in the interests of the company. All the decisions taken in that meeting are found to be in the interests of the company. Even though, during the initial arguments, the learned counsel for the petitioner submitted that reactivating the arbitration was an act of oppression and against public policy, in the rejoinder arguments, he submitted that the petitioner is not against prosecution of legal proceedings but was only questioning the context in which the respondents had reactivated the arbitration proceedings.

30. However, there is another dimension in regard to the deliberations in that meeting. The right of the continuing directors in convening the said meeting without a quorum arose out of the provisions of the Regulation 75 of Table ‘A’. Regulation 75 is both an enabling and a restrictive prohibitive provision. While it permits the continuing directors to act for either of the two limited purposes, by usage of the words “but for no other purpose” it has restricted the powers of the continuing directors. Since this wordings are negative in nature, this provision has to be taken as mandatory as held by the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan (47 CC 185) wherein the Court observed that where the language used is the negative form “it emphasizes the insistence of compliance” and therefore it is mandatory and any action contrary to the mandatory provision would be void. This being the case, the only proposal that the continuing directors could have considered in that meeting was to increase the number of directors and nothing else. A question would arise as to the purpose of constituting the quorum if no business could be transacted after establishing the quorum and if it be the position, conferring the right on continuing directors to establish the quorum has no meaning. This Article does not prohibit the Board functioning normally in subsequent meetings after the quorum is established. For every Board meeting there should be an agenda and in terms of Regulation 75, the only agenda for the meeting proposed by the continuing directors could have been the proposal for appointment of directors. If it had contained any other business, then, the continuing directors had acted beyond the powers conferred on them by the provisions of Regulation 75 and even the Board with the quorum established in that meeting could not have considered those items in that meeting. Therefore, all decisions taken in the Board meeting on 4.6.2002, other than the constitution of the Board, being against the mandatory provision of Regulation 75, even if they are in the interests of the company, are null and void. It follows that any further action taken on the basis of those decisions are also null and void. In other words, the Board could not have appointed Mr. Freeman as Manager, special affairs and could not have conferred on him various executive powers. Likewise, Mr. Freeman could not have taken any decision by virtue of the powers conferred on him. In view of this, all subsequent actions taken in pursuance to the decisions taken in that meeting, including the letter written by these three directors to Sr. Clerk, Essex Court on 7.6.2002, letters from Linklaters addressed to the Arbitrators on 20.9.2002 as also the statement of claims dated 26.9.2002 etc have no validity and as such cannot be acted upon.

31. As far as the AGM held on 9.9.2002 is concerned, the grievances of the petitioner are two fold. They are – denial of two directorship for the two nominees of the petitioner and appointment of Mr. Freeman as a director. The claim of the petitioner for two directorships is based on its holding of 14.15% shares in the company. In this connection it is essential to note that Article 10.2 talks of voting power and not shares. since there is only one class of shares, the percentage of voting power held by a member has to be necessarily the same percentage of shares by him/it. The claim of the petitioner is based on these premises as also the arguments of all the counsel. In terms of Article 10.1, the company could have a maximum of 13 directors. In terms of the first sentence of Article 10.2, every member of the company is entitled to nominate one director for every 10% of the voting power (shares) held by him/it. In other words for the 100% voting power in the company, there could be 10 shareholder directors and no more. As long as every shareholder holds 10% shares or multiples thereof and nominates directors in accordance with the first sentence of this Article, there would be ten directors. However, this sentence of the Article does not make it mandatory that every shareholder holding 10% or multiples thereof is bound to exercise the right of nomination. With the view to ensure that those holding fractional shares of less than 10% shares also utilize such fractional holdings in nomination of shareholder directors, consolidation of such fractional holdings has been provided in the second sentence of Article 10.2 so that for each 10% of such consolidation, one director could be nominated as a shareholder director. The Articles are silent as to which of the shareholders holding fractional shares could nominate a candidate when the shareholdings are consolidated. In the absence of a clear indication, the presumption is that such a candidate would be an agreed candidate of those whose fractional shareholding is consolidated to arrive at 10% shares. In other words, no competition among those holding fractional shares is envisaged by the provisions of the second sentence of Article 10.2 in nominating a candidate. The third sentence reads “If at any time fewer than 10 candidates have been nominated as provided in the preceding two sentences or elected, the number whose voting power has not been taken into account in making a nomination under the preceding two sentences shall, by a majority vote of the voting power not so taken into account nominate a candidate(s) so that 10 shareholder directors in the aggregate are in office”. Proper interpretation of this Sentence is crucial to decide as to whether the petitioner was entitled for appointment of a second nominee. When one interprets the provisions of an Article, such an interpretation cannot be only with reference to the status prevailing at a particular point of time but should be capable of application in any circumstance. From this provision, it is evident that to demand a nomination for fractional holdings, two conditions have to be fulfilled. One is that less than ten candidates should have been nominated in terms of the first two sentence and the second is that the election would be by majority vote of the voting power not taken into account in nominating a person in accordance with the first two sentences. The third requirement as propounded by Shri Kapil Sibal is that, with the nomination of a director/directors in terms of the third sentence of Article 102, the number of directors should reach the number 10. I would like to examine this issue by an example. Let us assume that there are four shareholders holding 44%, 17%, 18% and 21% shares and that they have nominated 4, 1, 1 and 2 directors in terms of the first sentence of Article 10.2. Thus, there would be 8 shareholder directors. They will still hold fractional shares of 4%, 7%, 8% and 1% totaling to 20%. In case, in respect of the fractional holdings, they do not consolidate in terms of the second sentence of the Article 10.2, the 3rd sentence will come into play for filling up the remaining two vacancies of shareholder directors which will have to be filled up on the basis of majority of these 20% shares. No vote in respect of 80 per cent of shares can be exercised in an election of directors in terms of third sentence of Article 10.2. If all these four shareholders nominate one candidate each in respect of their fractional holdings, obviously the nominees of the shareholders holding 7 per cent, 8 per cent will be elected. Suppose, the shareholder holding 44% shares does not nominate any candidate for his entire shareholding, then there would be only four shareholder directors appointed in terms of the first sentence of the Article leaving the other six directorship vacant. Now the issue that would arise for consideration is whether the other three shareholders holding fractional shares of 7%, 8% and 1% could nominate one director each and get them elected. Theoretically it is possible as long as the shareholder holding 44 per cent does not vote. Thus, the total number of shareholder directors would be 7. Incase, the shareholder holding 44 per cent shares desires to nominate his own candidates at a later date, in terms of the first sentence of Article 10.2 he could be nominate only 3 directors against the three existing vacancies and not four directors in terms of his entitlement. Thus, he would be denied of his rightful entitlement of four directorship. I do not think that Article 10.2 as a whole could be interpreted in this manner. When the first sentence talks of entitlement, it would amount to creation of a vested right that can be utilized at any time and no other shareholder can appropriate that entitlement. This interpretation is also supported by Article 10.4, according to which a member is entitled to fill up the vacancies arising out of vacation of office by his earlier nominees. On the basis of the above interpretation I shall examine in the present case. EMC had earlier appointed seven directors in respect of its 65.85% shareholding – 6 directors in terms of the first sentence of Article 10.2 and the 7th director obviously consolidating its fractional holding of 5.85% shares with that of 4.15% holding of the petitioner. In other words the petitioner had consented to the appointment of the 7th nominee of EMC in respect of its fractional holding of 5.85%. Now the dispute is with regard to the 7th director as to whether, the petitioner holding 4.15% fractional shares could demand election of its nominee as a director in respect of its fractional holding of 4.15% when EMC had not nominated a candidate in respect of its fractional holding of 5.85%. Since EMC holds larger fractional shares, this constitutes majority and therefore without the support of EMC, the 2ndnominee of the petitioner cannot be elected. Relying on Article 10.3, the petitioner has urged that EMC, which has not nominated any candidate, should have supported the second candidate of the petitioner and could not have voted against. To me, it appears that, the unanimity provision in the Article 10.3 would apply only to the nomination made in virtue of the first two sentences of Article 10.2 and not to a nomination made in terms of the third sentence for the fact the third sentence itself talks of election by majority only. This being the position, it is not possible to hold that in terms of Article 10.3, EMC should/could not have voted against the 2ndnominee of the petitioner. The claim of the petitioner for a second nominee could be examined with reference to Article 10.4 also. The admitted position is that EMC had appointed seven of its nominees earliest and in terms of Article 10.4, it can fill up all the seven vacancies arising out of the resignation of its nominees at any time. If as contended by the petitioner, it can nominate a second candidate, then, when EMC desires to fill up the vacancies it can do only in respect of six vacancies and not seven, since the maximum number of shareholder directors is restricted to 10. As I have observed earlier, the entitlement in terms of the first sentence of Article 10.2 is a vested right, it appears to me that the third sentence of Article 10.2 also creates a vested right in the shareholder holding larger percentage of shares to appoint its nominee. In the present case, as against the fractional holding of 4.15% shares by the petitioner, EMC holds 5.85% which is larger. Therefore, the petitioner cannot demand appointment of a second candidate. In this connection, it is worth examining as to when the Article 10.2, itself comes into play. The company is a private company to which the provisions relating to retirement by rotation in terms of Section 260 do not apply. In the Articles also there is no provision for retirement by rotation. Therefore, in terms of Article 10.2, once ten shareholder directors are appointed, they continue as such subject to the right of the shareholders to remove their nominees and replace them with substitutes in terms of Article 10.4. Last line of Article 10.4 provides that if any shareholder director ceases to hold office, the member who had nominated such a director would have the right to fill up that vacancy with his own nominee. This sentence takes care of resignation etc. Therefore, the inescapable conclusion is that the Article 10.2 as a whole would apply only at the time of initial constitution of the Board, that is, when all 10 shareholder directors are appointed for the first time and not at any time afterwards, as vacancies arising later are to be filled up in accordance with Article 10.4. In other words, once 10 shareholder directors are appointed in terms of Article 10.2, the nominating shareholders get an undeniable right to fill up the vacancies of their nominees and no other shareholder can demand filling up that vacancy with his/its candidate. Thus, once 10 shareholder directors are appointed in terms of Article 10.2, thereafter only the provisions of Article 10.4 would prevail. The only occasion when an election after the initial appointment of 10 shareholder directors is called for (except in terms of Article 10.4) is when there is a change in the shareholdings. It is provided in Article 10.5. In line with this Article only, when there was a change in the shareholding of the petitioner (reduced from 30% to 14.15%) two nominees of the petitioner were withdrawn by it. This being the position, this Bench need not have directed the holding of an AGM at all to elect directors. Instead, it could have given an opportunity to the petitioner and EMC to nominate their directors on the Board in terms of Article 10.4. (EEC and CIPM had their nominees already on the Board). This Bench ordered election only because it did not have the occasion to examine the Articles in detail at that time. Thus, on an overall analysis of the provisions of the Articles, I am of the considered view that the petitioner did not have the right to demand election of his second nominee in respect of its fractional holding of 4.15% shares. However, whether, on equitable grounds the other three shareholders should have supported the second nominee of the petitioner is examined later.

32. In regard to the appointment of Mr. Freeman, it was fairly admitted during the hearing by the counsel for the respondents that his candidature had been proposed only because EMC had decided not to nominate any candidate and that the petitioner had not indicated its nominee and therefore, with the view to ensure that there would be quorum for Board Meetings, the name of Mr. Freeman had been proposed jointly by EEC and CIPM. Now the issue is whether in view of the stand of the petitioner that in terms of the Articles, no non shareholder director other than nominees of FIs could be appointed, Mr. Freeman could have been appointed. Article 10.1 provides that the maximum number of directors would be 13. Article 10.13 reads “directors other than shareholder directors shall be elected by members having a majority of the shares. Members agree to procure the election of individuals as directors (other than shareholder directors) to the extent required under financing agreements”.With the stipulation of 10 shareholder directors in terms of Article 10.2 out of the maximum of 13, the company could appoint three more directors. According to the petitioner the three directors refer to nominees of FIs. For this stand the learned counsel for the petitioner urged that the nature of the company that it is a closely held private company and that the right of the members to appoint their nominees has been elaborated in Article 10.2, there is no scope for any shareholder to propose appointment of any other director other than the nominees of FIs. While I find substance in this argument, yet, we have to examine whether the Article, which is in black and white, reflects the same position. Article 10.13 has two sentences. The first sentence postulates election of directors other than shareholder directors and the term “shareholder director” has been defined as one elected in terms of Article 10.2/Article 10.4. They are to be elected by members having majority of the shares. It would mean that there is no unanimity required for election of non shareholder directors. However, the second sentence of Article 10.13 postulates unanimous decision in respect of directors nominated by FIs. If the contention of the petitioner that the entire Article 10.13 relates to FI nominees, then, the first sentence of that Article would not specify of majority and the second sentence of unanimity. Therefore, it is apparent that other than FI nominees, election of non shareholder directors is envisaged by this Article as long as FIs do not nominate 3 directors. From the wordings of Article 12.1 which stipulates that majority of the directors including more than half of the shareholder directors will have to approve certain decisions, it further appears that Article 10.13 envisages appointment of non shareholder non FI nominees on the Board. In view of this, the decision in Moriss v. Kensen cited by the petitioner is not applicable in this case. However, the question as to who has the right to propose a non shareholder, non FI candidate requires examination. The Article is silent on this. The relevancy of this question becomes apparent from the fact that both EEC and CIPM having got one each of their nominees elected by virtue of holding 10% shares each must be enabled to propose a joint candidate by some provisions of the Article. In this connection,it is relevant to point out that the first and second sentences of Article 10.2 talk of voting power, the third sentence of majority voting, but Article 10.13 talks of election by members having majority of the shares. This differentiation in the wordings between Article 10.2 and Article 10.13 – voting in Article 10.2 and having majority of the shares in Article 10.13 – is significant and could raise a presumption that such a non shareholder, non FI candidate could be proposed only by a member/members holding majority of the shares, that is more than 51% shares. In other words, the Articles gives predominance to the majority shareholder, who even otherwise would have majority on the Board in terms of Article 10.2. If this interpretation is taken as correct, then, EEC and CIPM each holding only 10% shares could not have proposed the name of Mr. Freeman without joining EMC also as a proposer. Assuming that this interpretation is not correct and that this Article only talks of election by majority of votes, which in the present case were cast in favour of appointment of Mr. Freeman, the question, as rightly raised by the petitioner, is why he should have been proposed, as the quorum was complete with the nomination of Mr. G.M. Ramamurthy by IDBI as its nominee. The respondents submitted that his name was proposed only because the petitioner had not indicated its nominee before the agenda was circulated and the IDBI nomination was received only on the day of the AGM, that is after circulation of the agenda, I find from the report of the Chairman of the AGM, that the proposals from both the petitioner and IDBI were received only on the day of the AGM. I also find that the learned Single Judge of Bombay High Court had allowed the business of election of Mr. Freeman as a director subject to the final decision of this Bench. Even though I have raised a doubt about the eligibility of EEC and CIPM in proposing the name of Mr. Freeman, since he has been elected in terms of Article 10.13, with majority vote, I do not propose to set aside his election. But at the same time, I am of the view, considering the fact that the company is a closely held company, the other 3 shareholders should have treated the petitioner in a more equitable manner. When they had approved a candidate proposed by EEC and CIPM each individually holding only 10% shares, equity demanded that they should have approved the second nominee of the petitioner holding individually 14.15%, as a nonshareholder director, especially when after the appointment of Mr. Freeman and Mr. Ramamurthy, one more non FI/non shareholder directorship was available. Not doing so could be considered to be an act of oppression against the petitioner. Since the process of election has already been concluded and in view of my finding that the 2ndnominee of the petitioner should have been elected as a non shareholder director on equitable grounds, I declare that one of the nominees of the petitioner shall be deemed to have been elected as a shareholder director in terms of the first sentence of Article 10.2 and the other as a non shareholder director in terms of the first sentence of Article 10.13. Accordingly, on the conclusion of the AGM on 9.9.2002, the Board of the company should be deemed to have comprised of Mr. Donald C. Stummer, Mr. Kevin Walsh, Mr. Peter Freeman, mr. A.K. Mago, Mr. R.B. Budhiraja and Mr. G.M. Ramamurthy. Accordingly, I order so. The petitioner will intimate to the company as to which of its nominee would be the shareholder director and the other as a non shareholder director, within 15 days of this order where after the Board can start functioning.

33. As far as the nomination of respondents 6-9 by EMC as its nominees on the Board of the company is concerned, the petitioner has raised various issues – that with the view to hijack the company, GE and Bechtel have produced these nominations that too of their own employees, that it was done when the matter was subjudice before the Bombay High Court and the CLB, that these respondents have not replied to various queries raised by the petitioner in regard to their nominations and that the Board of EMC had no powers to function once provisional liquidators have been appointed by the Court. The learned counsel for these respondents questioned the right of the petitioner in challenging the nominations on the ground that there are no pleadings in this regard in the petition and that no relief could be granted against EMC when it is not a party in the proceedings. I am in full agreement with these contentions. Even though the petitioner has not sought for any direct relief against EMC, yet, seeking of restraining these respondents from functioning as directors would amount to denying the right of EMC to nominate its candidates in terms of Articles 10.2/10.4. Therefore, the petitioner should have impleaded EMC as a party especially when the various issues raised in Paragraph 30(r) of the petition could be answered only by EMC and not by the respondents 6-9. Even other wise, the allegation of the petitioner that the Board of EMC had no authority to function after appointment of provisional liquidators cannot be examined by me for two reasons. One is that, any enquiry by this Bench regarding the functioning of the Board of EMC would amount to this Board looking into the affairs of a company incorporated outside India. This Board has powers to look into the affairs of companies incorporated under the Indian Companies Act only. The second is that, in its order dated 9.5.2002, while appointing joint provisional liquidators, the Supreme Court of Mauritius also allowed the Board to function by providing “the Board of Directors of the company shall continue to manage the companies affairs in all respects”. This being the case, even though as submitted by the learned counsel for the petitioner, relying on authorities that once a provisional liquidator is appointed, the Board ceases to function and that the Supreme Court of Mauritius had passed that order mechanically without application of mind, the settled law is that once a court of law passes an order-whether with or without jurisdiction, rightly or wrongly- it remains in force till the same is vacated/modified by the same court or set aside/modified by an appellate court. In Tayabbhai M Bagasarwalla v. Hind Rubber Industries Pvt Ltd (AIR 1997 SC 1240), the Apex Court has taken the same view. In the present case, the Highest Court in a foreign country has permitted the Board to function and I cannot ignore the same. Thus, the question of examining as to whether the Board of EMC could have nominated these respondents does not arise. It is for the petitioner to agitate this issue before a competent court of law in Mauritius. However, since EMC is a shareholder of the company, the only issue for consideration is, whether, by nominating four candidates, EMC has acted in a manner oppressive to the petitioner. The contention of the petitioner is that since EMC had abandoned the company when all its 7 nominees resigned as directors, the present nominations are at the behest of GE and Bechtel. To examine this, I have to only point out that the nominee of the petitioner also resigned and the petitioner did not accept the offer to replace Mr. Freeman with its own nominee but now is claiming to have two of its nominees on the Board of the company. I have already held in an earlier paragraph that every shareholder has a vested right to appoint its nominees as shareholder directors in terms of Article 10.2 and that in terms of Article 10.4, a shareholder has the undeniable right to fill up the vacancies arising out of the vacation of office of its nominees at any time. The right of EMC to nominate has not ceased merely because it had not nominated its candidates in the AGM as Article 10.4 does not fix any time limit to fill up vacancies out of resignations. When one exercises his right vested by the Articles, a judicial forum cannot look into the purpose or motive behind the exercise of such a right. As long as EMC continues as a member, it can exercise this right not withstanding the fact that it has no funds or employees. Since the Articles do not prescribe any qualification for directorship, EMC is free to nominate any person as its candidate- whether employees of GE or Bechtel. The petitioner has sought for perpetual injunction against respondents 6-9 from acting as, representing themselves to be or holding themselves to be directors of the company in any manner whatsoever. In terms of Article 10.4, it is the Board which has to appoint the nominees on receipt of intimation of nomination, pending election in the general meeting. There is nothing on record to show that the Board has appointed the respondents 6-9 as directors and as such, as rightly contended by the petitioner, presently these respondents cannot claim themselves to be directors of the company. Now that in terms of paragraph 32 ante, a new Board has been constituted, it is for that Board to take a decision on the nomination of these respondents by EMC.

34. A summary of my findings on the main issues raised by the petitioner are. In terms of Regulation 75 of Table A, the continuing directors-the second and the 3rd respondents- had the authority to convene the Board meeting on 4.6.2002 for appointment of directors for the purposes of constituting a quorum. In regard to the appointment of Mr. Freeman as an additional director in that Board meeting, since the petitioner did not accept the offer to replace Mr. Freeman with its own nominee, the validity or otherwise of his appointment cannot be challenged by the petitioner. However, since the Board took various other decisions on that day not withstanding the specific mandatory prohibition in Regulation 75 of Table A, all the decisions taken in that meeting, other than the appointment of Mr. Freeman are null and void as also all further actions taken pursuant to those decisions. As far as the AGM on 9.9.2002 is concerned, the petitioner had no right to demand for appointment of a second nominee as a shareholder director. There is no prohibition in appointing a non shareholder/non FI nominee as a director and therefore, appointment of Mr. Freeman as a director was valid. However, on equitable grounds, the second nominee of the petitioner should have been appointed as a director in terms of the first sentence of Article 10.13. Accordingly, the following are deemed to have been elected as directors in that AGM-Mr. Donald C. Stummer, Mr. Kevin Walsh, Mr. Peter Freeman, Mr. A.K. Mago, Mr. R.B. Budhiraja and Mr. G.M. Ramamurthy. In so far as the nomination of respondents 6-9 by EMC as directors is concerned, this Board has no jurisdiction to enquire as to whether the Board of EMC had the power to function, more so, in view of the order of the Supreme Court of Mauritius permitting that Board to function. EMC has the right to appoint substitutes in place of its earlier nominees who had resigned. However, since the nominations of respondents 6-9 have not been considered by the Board of Directors and have not been appointed as directors, they cannot claim themselves to be or act as directors. It is for the Board of Directors now constituted, to take a decision on these nominations.

35. Petition is disposed of in the above terms with no order to cost.

Pronounced in the open court today 2nd April 2003.