1. The petitioners collectively holding 10.61 per cent shares in United Western Bank Ltd. (the bank) have filed this petition under section 397/398 of the Companies Act, 1956 ('the Act') alleging acts of oppression and mismanagement in the affairs of the Bank and seeking appropriate reliefs. The 11th respondent, holding about 9 per cent shares in the bank has filed affidavits supporting the petition.
2. This bank is a private sector bank incorporated in 1936. It has about 53,000 shareholders and its shares are listed in the stock exchange. The authorized and paid up capital on the company was Rs. 50 crores and about Rs. 30 crores respectively. The equity shares are of the denomination of Rs. 10 per share. The Bank convened an extraordinary general meeting on 7-8-2000 to transact the businesses relating to amendment to articles, issue of bonus-cum-right shares. In all, there were 4 proposals to be considered as special resolutions.
The second item was to increase the authorized capital from Rs. 50 crores to Rs. 100 crores, issue of Bonus shares in the ratio of 1:2 was the third item and issue of right shares at a premium of not exceeding Rs. 15 per share was the 4th item. According to the petitioners, while the first three resolutions were passed unanimously by show of hands, the shareholders protested against the resolution relating to the right issue and demanded a poll. However, the Chairman of the meeting announced the withdrawal of this item and abruptly concluded the meeting and left. Thereafter, according to the petitioners, the remaining shareholders continued the meeting and passed a unanimous resolution by show of hands rejecting the proposal for the right issue.
However, the Board of Directors passed a resolution in the Board Meeting on 8-8-2000 to issue the right shares at 1:5 with a premium of Rs. 10 per share. According to the petitioners, the conduct of the Chairman in withdrawing the resolution, the action of the Board to approve the issue of right shares when the same had been rejected by the shareholders arc oppressive to the petitioners. Accordingly they have filed this petition seeking for a permanent injunction against the bank from taking any further action in pursuance to the resolution of the Board dated 8-8-2000. The 2nd respondent is the Chairman of the Bank and respondents 3 to 9 are directors and the 10th respondent is the company secretary.
3. When this petition was mentioned, considering the facts and circumstances of the case, by an ex parte order dated 21-9-2000, we restrained the Bank From acting on the resolution of the Board to issue right shares. The Bank was also given the liberty to apply for modification of the said order. The Bank filed an application CA 200/2000 seeking vacation of the restraint order. During the pendency of the proceedings, the petitioners along with the 11th respondent, requisitioned an extraordinary general meeting of the Bank for appointment of 4 directors by a notice dated 12-10-2000. Thereafter, on 25-10-2000, they filed an application CA 204 of 2000 for appointment of an independent Chairman to conduct this meeting on the ground that the Bank has been obtaining proxies through its employees and as such they have no confidence in the Chairman of the Bank to preside over this meeting. With the view to hear these applications along with the petition, we directed the bank to defer the convening of the EOGM sine die. Later, in the rejoinder, the petitioners have made further allegations that the company has used its own funds for purchasing shares of the Bank in the name of employees stock option trust against the provisions of the Act, RBI & SEBI Regulations etc. The applications as well as the petition were heard together on a number of days.
4. Shri Sarkar, the senior Advocate appearing for the petitioners argued as follows: The members of the Board of Directors collectively hold only 0.4 per cent shares in the Bank but they have been carrying on the business of the Bank to the detriment of the shareholders and the Bank. The 11th respondent, which is the largest single shareholder having about 9 percent shares in the company, is supporting the petitioners. The motive for the issue of the right shares is not to benefit the shareholders but to allot the same to a foreign bank to be identified by KPMG, with whom the company has entered into an agreement for identifying a suitable foreign bank as is evident from the press report dated 31-5-2000, annexed at page 94 of the petition. Even though the Bank claims, that, in a Board Meeting held on 29-5-2000 prior to the annual general meeting, the decision to issue bonus-cum-right issue was taken, yet, the same was not mentioned in the annual general meeting held on the same date. Further, the bank had also not intimated the Stock Exchange about the same in time. Reference was made to the pamphlets at RJ-3/4 which were circulated to the shareholders during the annual general meeting on 29-5-2000 wherein the bank had projected the paid up capital as in March 2005 at Rs. 30 crores which is the present paid up capital. Normally, banks issue shares only for the purpose of maintaining prescribed capital adequacy ratio (CAR). As far as this bank is concerned, the CAR is higher than the prescribed ratio and at no time the bank had indicated inadequate CAR. Therefore, the decision to issue right shares was with some ulterior motive and not for the interest of the Bank. Therefore, this aspect has to be kept in mind while considering the proceedings of the EOGM held on 7-8-2000.
5. As far as the proceedings of the EGM are concerned, certain amendments (RJ 8) were proposed to the first proposal for the consideration of the meeting, but no mention was made about the 4th proposal. The first three resolutions, including the 3rd relating to issue of bonus shares, were passed unanimously by show of hands.
However, when the 4th item relating to the right issue was taken up, the shareholders protested against the same and demanded a poll.
Apprehending that the resolution would be defeated, the Chairman of the meeting announced the withdrawal of the resolution without assigning any reason and ended the meeting abruptly and left. Thereafter, the shareholders elected a new chairman -representative of the 11th respondent - and tried to continue the meeting but could not do so due to disturbances created by the employees of the Bank. Therefore, the shareholders assembled at another nearby venue and defeated the resolution by show of hands. A copy of the resolution was sent to the bank but was not accepted. Thereafter, on the 8-8-2000, the Board had passed a resolution to issue right shares at 1:5 at a premium of Rs. 10 per share. The action of the Chairman in withdrawing the resolution and later on the Board passing the resolution exhibit the oppressive conduct of the management.
6. The learned counsel contended that the chairman of the meeting had no authority or power to withdraw a resolution once proposed by the Board and as per article 71, he cannot even adjourn the meeting without the sanction of the general body. Therefore, the Chairman had exceeded his authority in withdrawing the proposal, that too after having the proposal to increase the authorised capital carried through. If at all he decided to withdraw the resolution, he should have obtained the approval of the members before doing so. Further, before the starling of the meeting, certain amendments were proposed in relation to the first resolution but nothing was said about the withdrawal of the fourth resolution. The withdrawal was only on account of the apprehension of the Chairman that the proposal would be defeated. The manner in which the meeting was held is so oppressive that the views of the members had not been taken into consideration. The oppressive conduct of the Board of Directors is evident from the fact that after the members had defeated the resolution, the Board chose to pass the same resolution later on.
7. On the powers of the Chairman in conducting a general meeting he relied on certain authorities: Halsbury's Laws of England 1996 issue : Except where empowered by the regulations of the company, the chairman cannot adjourn the meeting nor dissolve it while any of the business for which it was called remained untransacted and if he refuses to act, the shareholders may elect another chairman. He cannot adjourn against the wishes of the majority.
Seth Sobhag Mat Lodha v. Edward Mills Co. Ltd [1972] 42 Comp. Cas.
(Raj.) : It is settled law that when once a meeting is called, no chairman can arbitrarily dispose of it. Its continuance or dispersal rests entirely on the will of the shareholders.
S. Rm. S.T. Narayana Chettiar v. Kaleeswarar Mills Ltd. AIR 1952 Mad. 515, Deodutt Sharma v. Zahoor Ahmed Zaid AIR 1969 Raj. 25 and National Dwelling Society v. Sykes 1894 Chd. 159 : The chairman of the meeting is not entitled to stop the meeting at his own will and pleasure. It is not open to him to stop the meeting and dissolve it.
If the chairman unjustly and without the consent of the shareholders stops the meeting and declares it dissolved, it is perfectly within the powers of the meeting to elect a chairman and conduct the remaining business.
8. In regard to the proceedings of the EOGM, he pointed out that the Bank did not reveal that without thcright issue, no bonus shares could be issued and they never brought to the notice of the general body about the RBI stipulation in this regard. If the members had known about the stipulation, they would have examined as to whether to approve the increase in the authorized capital or not. The meeting could be cancelled on this issue alone that full particulars had not been revealed to the general body even though the same was in possession/knowledge of the Board of Directors. He further pointed out that when two proposal are made independent of each other, the shareholders are at liberty to approve one and reject the other. If the members had been advised that without approval for right issue, bonus shares could not be issued, then the shareholder would have weighed the pros and cons of approving the bonus issue. Therefore, it is wrong to contend that having approved the bonus issue, the shareholders cannot disapprove the right issue.
9. Referring to the reply of the bank, wherein the bank has averred that the resolution was withdrawn on the basis of a legal advice that in terms of section 81(1), in case of rights shares there is no need to obtain the general body approval, he pointed out that the Chairman never mentioned about the legal advice during the meeting, as is evident from the minutes of the EOGM as prepared by the Bank at Annex A-19. Even though this minutes talks of mentioning about section 81(1), no mention was actually made. Notwithstanding this, as per the provisions of articles 45 to 47 of the articles of association of the company, whenever new shares are created or issued, the same has to be approved by the general body. The practice in this bank in the past also was that whenever further shares were allotted, even on a right basis, the approval of the general body was taken. Further, when the company approached the RBI on 5-6-2000, (Annex C to CA 200/2000) for permission to issue bonus-cum-right shares, it had indicated to the RBI that the Bank would obtain general body approval. Referring to annexure SSR 3 to the reply to the sur-rejoinder, he pointed out that in this letter dated 14-6-2000, the Bank had informed the RBI that in the EOGM which had to be convened to get the approval of the shareholders for bonus-cum-right issue, the bank would also get the articles amended to provide for capitalisation of reserve for issue of bonus shares and for increasing the authorized capital. Thus, he contended that now the Bank cannot take a stand that it did not require the approval of the members for issue of right shares, after having obtained the approval of the RBI on the basis of certain undertaking. Even otherwise, the residual power always vests in the general body and the ultimate authority on issue of shares rests with the general body. While the shareholders cannot force the Board to do something, yet, they can exercise negative control on the Board of Directors. Even though, the Bank contends that by issue of bonus shares and right shares, the Bank is rewarding the shareholders, yet, when the majority do not want the reward, the same cannot be forced on them. The entire episode clearly indicates that the intention of the Bank is to off load the un-subscribed right shares to a foreign partner and as such the proposal to issue right shares itself is a motivated and a mala fide act.
10. Shri Sarkar, referring to the interlocutory application relating to the EOGM requisitioned by the petitioners, pointed out that the explanatory statement furnished by the petitioners was not circulated to the members while the bank has circulated its own explanatory statement containing derogatory and wrong information to the members.
Further, the Bank has started using its own machinery to collect proxies for the meeting which is prohibited. Therefore, the petitioners have no confidence in the Chairman of the Bank chairing the requisitioned EOGM and such CLB should appoint an independent Chairman.
He further pointed out that without RBI and the SEBI and the general body approval, the company has introduced an Employees Stock Option Scheme and has also established a trust for the same purpose. The funds of the Bank have been used to purchase about 9 per cent of the shares of the Bank in favour of the Trust. This purchase has been going on from the last quarter of 2000 perhaps only with the view to consolidate the voting power with the management in the EOGM requisitioned by the petitioners. Further this also exhibits utter mismanagement of the affairs of the company.
11. Summing up his arguments, Shri Sarkar argued that there are inconsistencies in the stand of the Bank in regard to the reasons/need for the bonus-cum-right issue. According to the minutes of the EOGM as prepared by the bank, the purpose was to reward the shareholders. In the Board Meeting held on 8-8-2000 approving the right issue, the reason given is to improve the CAR. In the letter to the stock exchange dated 8-11-2000 (RJ-2), the bank has intimated that the decision to issue bonus-cum-right shares as reward to the shareholders was suddenly decided. In the reply to the petition it is stated that the decision to issue bonus-cum-right shares was a well reasoned one. In the Press Conference held by the Bank on 31-3-2000, the Bank had informed that mandate had been given to KPMG to find a foreign partner for sale of 20 per cent shares in the Bank. Thus, the whole idea of the right issue seems to be only to off load the un-subscribcd shares to a foreign partner and not for the needs/benefit of the Bank. Therefore, he submitted that the decision of the Board to issue right shares should be declared as null and void and since no bonus shares could be issued without a right issue as per the RBI Guidelines, the entire proceedings of the EOGM held on 7-8-2000 also be declared as null and void 12. Shri Arvind Datar appearing for the bank argued as follows: In terms of section 397, the CLB has to come to a conclusion that the company is liable to be wound up on just and equitable grounds and that such a winding up would not be in the interests of the shareholders.
Winding up of a company on just and equitable grounds is provided under section 433(f). Since section 38 of the Banking Companies Regulation Act deals with the winding up of banking company, the provisions of section 433 of the Companies Act are not applicable to a banking company. If so then a petition under section 397 of the Companies Act in respect of a banking company is not maintainable. The Kerala High Court in K.P. Chockochan v. Federal Bank [1989] 66 Comp. Cas. 953, has held that a banking company cannot be wound up under section 433.
Therefore, this jurisdic-tional aspect has to be first examined before proceeding with the merits of the case. Further, since the petitioners' only allegation in the petition relates to the proceedings in the EOGM which is a single act, this cannot be a ground for petition under section 397/398 since a single and an isolated act cannot constitute oppression as decided in Nanalal Zaver v. Bombay Life Insurance Company AIR 1950 SC 172. The same proposition has been applied in Maharani Lalita Rajya Lakshmi v. Indian Motor Co. Ltd. [1962] 32 Comp. Cas. 207.
In Needle's case also [1981] 1 SCC 333, the Supreme Court has held that an isolated act which is contrary to law may not necessarily and by itself support the inference that the law was violated with a mala fide intention and such violation was burdensome, harsh or wrongful.
Therefore, this petition founded on a single and isolated act is not maintainable. Further, the petitioners' group owes a substantial amount of money to the Bank and therefore, with the mala fide intention to deprive the Bank of additional share capital, this petition has been filed. In addition if the petitioners were to subscribe to the right issue, they have to pay about Rs. 6 crores and with a view to avoid such payment, they have filed this petition challenging the right shares. The bonus-cum-right issue has been made not only with a view to reward the shareholders but also improve the CAR of the Bank. At the time when the right issue was proposed, the market price of the share was Rs. 40 while the right shares could have been acquired for Rs. 20 including the premium of Rs. 10. Therefore, when such an issue of bonus and right shares would benefit the shareholders, the question of their interest being affected does not arise. By this issue, the directors who collectively hold less than 0.4 per cent are not in any way benefited and as such no motive could be altributed to them in this regard. The petitioners have not shown prima facie that there is lack of probity or that the substratum of the company has gone or that the company is liable to be wound up on just and equitable grounds. He further argued that the only prayer in the petition is to set aside the proceedings of the EOGM, which could be done only by the civil court in a suit and as such the petitioners should have resorted to a suit.
13. In regard to the proceedings of the EOGM Shri Datar pointed out that the petitioners having voted for the bonus shares could not have opposed the right issue as both are un-serverable in view of RBI guidelines that bonus shares can be issued only if simultaneously rights/public issue is made by a bank. Before the commencement of the meeting, the Chairman, informed the members that the meeting has been convened for the purpose of issuing bonus-cum-right shares and therefore the shareholders were fully aware that they had to approve right issue in case they decided to have bonus shares. Further, a reading of the explanatory statement in regard to increase in the authorized capital would clearly reveal that the authorized capital was being increased for the purposes of issuing bonus-cum-right shares. He appointed out that in case the petitioners opposed the right issue, then, they cannot get bonus shares inasmuch as the same would be against the guidelines of the RBI. He pointed out that in the petition the petitioners have not sought for cancellation of the bonus issue.
14. By the time the EOGM took place, the Bank had obtained legal opinion from Kanga & Co. to the effect that in respect of right issue, there is no need to get the approval of the general body and therefore the Board had decided to withdraw the resolution in his regard and accordingly the Chairman rightly withdrew the proposal. He contended that neither in the Articles nor in the Act, there is any provision to restrict the powers of the Chairman from withdrawing a resolution.
According to him, as long as something is not prohibited by the statute, then, the same is legal as decided by the Supreme Court in New India Assurance Ltd. [2000] 3 SCC 242. The Chairman of a meeting is fully empowered to take whatever decision is needed in the larger interest of the company and the shareholders and as such there is no limitation to his powers. As long as the decision is bona fide, which in the present case is based on a legal opinion, the same cannot be questioned. He submitted that as a proposition, the court should not interfere with the decisions taken in a company meeting and the burden to prove that the decision of the Chairman is wrong rests with the petitioners, as the Chairman of a meeting has full powers to conduct the proceedings. Mahaliram Santhalia v. Fort Gloster Jute Mfg. Co. Ltd [1954] 24 Comp. Cas. 311.
15. As far as the applicability of articles 45, 46 and 47 is concerned, the learned counsel submitted that these articles are not applicable in respect of right issue of shares. Article 46 required general body approval only when there are variations in the rights attached to the shares and not in a case where same class of shares are issued on a right basis. Article 47 deals with right issue of shares which is more or less in line with section 81(1). Since section 81(1) empowers the Board to issue shares on a right basis, there is not need to get the general body approval. No doubt, the Board had made a mistake of including this item to be transacted in the general body, but it docs not mean that general body approval has to be obtained when as per the statute, the Board of Directors had the full authority. He further contended that even assuming that the Chairman had acted wrongly in withdrawing the resolution, yet, it cannot be considered to be oppressive to any shareholder inasmuch as the bonus-cum-right issue is beneficial to all the shareholders, He pointed out that in Nagavampu Krishna Prasad v. Andhra Bank Ltd. [1983] 23 Comp. Cas. 73 (AP), it was held that in case a resolution passed in a meeting is invalid or illegal due to non compliance with the provisions of the Act, the same docs not constitute oppression and such act could be challenged in a civil proceedings.
16. He also contended that the alleged meeting held by the shareholders themselves is invalid inasmuch as the shareholders cannot usurp the powers of the Board as held in Morarka Paint & Varnish Works (P.) Ltd. v. Mohan Lal Morarka [1961] 31 Comp. Cas. 301 (Cal.), Sububan Bank (P.) Ltd. v. Thariah [1968] 38 Comp. Cas. 13 (Ker.), Pothen v. Hindustan Trading Corpn. (P.) Ltd. 37 Comp. Cas. 266 (Ker.). He also pointed out that holding a meeting by the shareholders in a place other than the one specified in the notice, for the meeting is invalid as decided in Sikkin Bank Ltd. v. R.S. Chowdhury [2000] 102 Comp. Cas. 387 (Cal.).
17. As far as the need for increase in the capital is concerned, referring to various details filed by the bank as well as the petitioners, he pointed out that if the Bank does not go for right issue, its CAR would come down and once it goes below 10 per cent, then, the Bank would not be able to advance any further loans. In this connection, he also referred to RBI directions according to which the private sector banks will have to have a minimum of Rs. 50 crores as paid up capital. Further, the issue of further shares is a managerial and commercial decision which cannot be challenged by the shareholders.
In the present case, since the RBI which is the regulatory authority in respect of the banks has already approved the proposal of bonus-cum-right issue, no other authority including the CLB could go into the question as to whether there is need for funds for the Bank or not. It is an issue purely between the Bank and the RBI. To the proposition that bona fide issue of further shares cannot be challenged, he relied on Nanalal Zaver's case (supra) Khemka v. Deccan Enterprises (P.) Ltd. 100 Comp. Cas. 211.
18. As far as the interlocutory application relating to the EOGM requisitioned by the petitioner is concerned, Shri Datar pointed out that since this matter has not arisen out of the main petition, CLB has no jurisdiction to entertain this application as it has no nexus with the allegations in the petition. Since it an independent action of the petitioners themselves, they have to invoke relevant provisions of the Act to seek whatever remedy they need in respect of the same and cannot claim any relief in this petition. On this proposition, he relied on Lipton India Ltd. v. UOI[1994] 6 SCC 524 wherein the Supreme Court has held that interlocutory application in a writ petition making a claim not arising out of but independent of the writ petition is not maintainable. Therefore, he urged that the interlocutory application should be ignored.
19. Summing up his arguments, Shri Datar contended that the main motive of the petition is to avoid payment of about Rs. 6 crores which the petitioners will have to pay in case they accept the right issue. A right issue cannot be challenged on the ground of inability to pay for the shares as held in Jetu Jacques Taru Lalwani v. JBA Printing Inks Ltd. [1997] 88 Comp. Cas. 759 (Bom.). He also pointed out that petitioners owe a sum of more than Rs. 51 crores to the Bank and the Bank has already filed a winding up petition. Therefore, with a view to put pressure on the bank, this petition has been filed. He further contended that the petitioners have not either alleged or established that by issue of the right shares, they are going to be in any way prejudicially affected inasmuch as the option to apply for right issue vests with them and it is not mandatory. Unless and until they are not in a position to establish some prejudice, they cannot prosecute this petition. On this proposition, he relied on Aligarh Muslim University v. Mansoor Ali Khan [2000] 6 Scale 125. Once the petitioners fail to establish that the action by the Bank is prejudicial to their interest, then they have no locus standi to pursue the petition. When a person is benefited by the action of the company, he can never claim to have been aggrieved by such an act of the company. He also pointed out that the petitioners being business people were fully aware that the Bank cannot issue bonus shares without offering right shares but they have not chosen to challenge the bonus shares in the petition. The oral submissions by the counsel to declare the entire proceedings of the meeting as null and void, having not been sought in the petition, cannot be considered by the CLB on the basis of the oral prayer as it would be against the provisions of Regulation 16 of the CLB Regulations according to which the petitioners will have to indicate the specific reliefs in the petition. He also contended that if the prayer of the petitioners that the proceedings of the EOGM should be declared as null and void, then, the effect of the same would be completely against the interest of the Bank as well as a large number of other shareholders as decided by Allahabad High Court in Raghunath Swarup Mathur v. Har Swarup Mathur [1970] 40 Comp. Cas. 282, according to which, the court has to be careful and astute enough to prevent a misuse of the provisions of section 397/398 by a party, lest a remedy proposed and granted to overcome an alleged mischief becomes a source of greater oppression than the one sought to be removed or prevented. According to him if the bonus-cum-right issue does not go through, then, by the year 2002 the bank would reach a level endangering its survival. The very fact that instead of issuing only right shares, the bank had also decided to issue bonus shares which is not in any way going to benefit the persons in management, would show that the bank has acted bona fide in proposing bonus-cum-right issue. The allegations of the petitioners is that the right issue has been proposed only with a view to off load un-subscribed portion of the right issue to a foreign bank or institution. If the intention of the bank is to induct a foreign bank, it need not have to adopt this circuitous route and it could have sought the permissions of the general body for a preferential issue. In this connection, he referred to the sur-rejoinder wherein the bank has expressly stated that it would not allot un-subscribed portion of the right issue to any foreign bank/institution.
20. He also pointed out that as per the listing agreement, shares have to be issued with the right to renounce and without stock exchange approval the bank cannot issue shares without the right to renounce.
Since the articles are subject to any other law, notwithstanding the provisions in the articles for getting the approval of the shareholders for issue of shares with the right to renounce, in view of the listing agreement, no approval of the general body is needed for issue of shares with the right to renounce. Therefore, the contention that the general body approval should have been obtained for issue of shares with the right to renounce is not correct. As far as the allegation relating utilisation of the bank funds for employees stock option shares, Shri Datar pointed out that there are no pleadings in this regard and as such oral complaints made during the hearing should not be taken cognizance of. Any way he pointed out that the RBI is seized of this matter and the Bank would abide by the decision of the RBI in this regard. He also pointed out that that all cases cited by Shri Sarkar in relation to the applicability of the provisions of section 397/ 398 in respect of the banking companies related to the provisions of section 391/394 while the case cited by him of the Kerala High Court directly relates to a section 397/398 petition and as such the Kerala High Court case is directly applicable to the present proceedings.
Therefore, he pleaded that the petition should be dismissed both as not maintainable as also on merits. He also contended that the petitioners had impleaded KPMG only with a mala fide intention as they are not necessary parties at all to the proceedings. The demand for a copy of the contract between the bank and KPMG cannot be considered inasmuch as, shareholder is not entitled to the same. He also pointed out that in view of the interim stay given by the CLB, the bank has been deprived of the substantial cash inflow which has resulted in heavy loss of interest which the bank would have earned by advancing the same to the borrowers. Since this petition is a mala fide petition, the petitioners should be directed to compensate the Bank for the loss of interest.
21. Shri Neeraj Kaul appearing for the 2nd respondent also concurred with the submissions of Shri Datar and reiterated the same. In addition, he pointed out that the cancellation of the proceedings of the EOGM as sought for by Shri Sarkar would deprive 50,000 odd shareholders their bonus entitlement and as such should not be cancelled. Further, even assuming that the interpretation of the provisions of section 81 (1A) by the Chairman of the meeting was wrong, yet, it cannot constitute a ground for this petition as the petitioners are at liberty to challenge the same in a civil suit.
22. Shri Dilip Goswamy appearing for KPMG sought for deleting the name of his clients from the array of parties on the ground that his clients are not necessary parties to the proceedings. He contended that his clients had been impleaded as parties only with a view to get a copy of the agreement with the bank to find a foreign party which his clients are not bound to supply. In this connection, he also referred to paragraph XLU of the sur-rejoinder filed by the Bank wherein the Bank has explicitly stated that it had not intention of issuing shares to a foreign bank/institution out of the un-subscribcd portion of the right issue. Therefore, he sought for deleting the name of his clients from the array of parlies.
23. Shri Chaudhary, the senior advocate, appearing for the 11th respondent submitted that his clients have entered into an MOU with the bank for induction of two of their representatives on the Board as such he is not taking part in the arguments.
24. In reply, Shri Sarkar, the senior Advocate for the petitioners contended that the decision of the Kerala High Court in KP Chockochan (supra) in which the court has held that since the provisions of section 433 are not applicable to Banking companies, the provisions of section 397/ 398 are also not applicable to the banking companies cannot be taken as a legal proposition as there are prior decisions of other High Courts to the contrary which had not been considered by the Kerala High Court. He referred to section 616 which makes it clear that the provisions of the Act shall be applicable to Banking companies except insofar as the provisions are inconsistent with (he provisions of Banking Companies (Regulation) Act, 1949 (Banking Act). Section 2 of the Banking Act makes it clear that the provisions of that Act shall be in addition to and not in derogation of the Companies Act with certain exceptions. Section 38 dealing with winding up of a banking company has excluded the application of certain sections of the Companies Act but the provisions of section 397/398 arc not excluded. He pointed out that section 38 is an additional provision as far as winding up of banking companies is concerned as it makes it mandatory for the court to make a winding up order on two instances as provided in that section unlike the provisions of section 433 where discretion is vested with the Court. Thus it would be evident that the provisions of section 433 are still applicable to banking companies and therefore winding up of abanking company on just and equitable grounds under section 433(f) is permissible and as such the shareholders of a banking company can approach the CLB under section 397/398. To the proposition that the powers of the court under section 38 in respect of winding up of a banking company is in addition to such powers under section 433 he relied on Dilip Singh v. First National Bank Ltd. AIR 1952 Pun. 158, Dwarkadas Agarwall v. Dharam Chand Jain AIR 1954 Cal. 583, Chotanagpur Banking Association Ltd, In re AIR 1959 Pat. 288, Federal Bank of India (PB) v. Durga Das Kapur AIR 1954 Pun. 21, GOI v. Court Liquidators Employees Association [1999] 8 SCC 560, T.S. Arumugham v. Laxmi Vilas Bank Ltd. 1993 Bank J 435 Mad. wherein in some of the cases it has also been held that banking companies are governed by the provisions of the Companies Act as also the Banking Act.
25. In regard to subsequent events which are part of CA 2004 and rejoinder, he pointed out, that in a section 397/398 petition, since that affairs of company are under scrutiny, the entire affairs of the company could be looked into notwithstanding that some of the events had taken 'place after filing of the petition. In this connection he referred to the decision of this Board in Vinod Kumar Agarwal v.Ringtong Tea Co. (P.) Ltd. [1995] 1 CLJ 138 wherein this Board held that further affidavits to make good the petition could be considered.
He also relied on the same case, that even a single act, if its effect were to have permanent effect, could be considered to be an act of oppression. In this connection, he also referred to Needles's case wherein also the act complained of was one in relation a single meeting. In the same way he pointed out that in Shoe Specialities case 82 CC 836, the allegation related to a single act of issue of shares, which was held to be an act of oppression by the CLB and upheld by the Division Bench of the Madras High Court. He also referred to Howard Smith v. Ampol Petroleum Ltd. case 1974 AER 1126 wherein also the only issue was allotment of further shares. Therefore, he contended that the proposal of the bank to issue right shares, even though may be a single act, yet it would have effect for all the time to come and such could be challenged as an act of oppression.
26. In regard to the contention of Shri Dalar, that in view of there being no prejudice caused to the petitioner by issue of right shares and as such the petitioners can have no complaints, Shri Sarkar pointed out that to invoke the provisions of section 397/398, there is no need for proving personal prejudice as is evident from section 397 itself.
Section 399 confers statutory rights on the shareholders to invoke the provisions of section 397/398 as long as the ingredients of these sections are satisfied. He also pointed out that section 401 of the Act empowers the Central Government to invoke the provisions of section 397/398 and if it is so, it cannot be said that the Central Government has to satisfy personal prejudice. According to him, the provisions of section 397/398 are special provisions giving wide powers to the CLB under section 402. He pointed out that by investing the funds of the Bank, shares of the Bank have been purchased which is not only against the provisions of the Act but also done with a view to consolidate voting powers indirectly.
27. In regard to the proceedings of the EOGM, he pointed out that the Bank did not reveal that without the right issue, no bonus shares could be issued and they never brought to the notice of the general body about the RBI stipulation in this regard. If the members had known about the stipulation, they would have examined as to whether to approve the increase in the authorized capital or not. The meeting could be cancelled on this issue along that full particulars had not been revealed to the general body even though the same was in possession/knowledge of the Board of Directors. He further pointed out that when two independent proposals are placed for consideration, the shareholders arc at liberty to approve one and reject the other. If the members had been advised that without approval for right issue, bonus shares could not be issued, then the shareholder would have weighed the pros and cons of approving the bonus issue. Therefore, it is wrong to contend that having approved the bonus issue, the shareholders cannot dis-approve the right issue.
28. We have considered the pleadings and the arguments of the counsel.
The issues that have been raised for our consideration are, the maintainability of the petition, need for further capital, the power of the chairman to withdraw a resolution, the scope of articles 45-47 allegations subsequent to the filing of the petition etc. We shall first examine the issue as to whether a petition under section 397/398 the Act could be filed in respect of a banking company as this issue has a bearing on our jurisdiction to entertain this petition. Shri Datar relied on Federal Bank of India's case (supra) to state that against a banking company, a petition under section 397/398 does not lie, while according to Shri Sarkar, there is no such bar and he cited a few cases in support of his stand. We are generally in agreement with the submissions of Shri Sarkar that there is no bar in filing a section 397/398 petition, in respect of a banking company. In Federal Bank of India's case, (supra), the Kerala High Court has held that since a banking company cannot be wound up under section 433, a petition under section 397/398 cannot be maintained. This judgment has not referred to any of the judgments cited by Shri Sarkar, even though some the judgments were rendered before rendering the judgment of Kerala High Court.
29. As per section 616 of the Act, the provisions of this Act shall apply to banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Companies Regulation Act, 1949. Section 2 reads: "Application of other laws not barred: The provisions of this Act shall be in addition to, and not, save as hereinafter expressed provided, in derogation of the Companies Act, 1956 and any other law for the time being in force". An analysis of these two sections would indicate that like any other company, a banking company is also governed by the provisions of the Companies Act except as provided in the Banking Act. In this connection we may refer to the observation of the Apex Court in GOI v. Court Liquidators Employees Assn's case (supra) that "The distinction between the banking company and the non banking company, broadly speaking, is that a banking company is a company which deals with banking business and a non banking company, on the other hand, deals with non banking business. The general law applicable to both the categories of companies is the Companies Act". Similar view has, been expressed by the Madras High Court in Laxmi Vilas Bank Ltd. s case (supra). In respect of winding up of a banking company, the Banking Act provides in section 38 as: "Winding up by High Court: (1) Notwithstanding anything contained in sections 391, 392, 433, 583 of the Companies Act but without prejudice to its power under sub-section (1) of section 37 of this Act, the High Court shall order the winding up of a banking company - (a) If the banking company is unable to pay its debts; (b) If an application for its winding up has been made by the Reserve Bank under section 37 of this Act". (It is to be noted that there is no mention of section 397/398 of the Act in this section). This section deals with the winding up of a banking company which is unable to pay its debts, while section 433 of the Companies Act provides for five other circumstances under which a company could be wound up.
The issue for consideration is whether a banking company could be wound up under any of the other five circumstances as insection 433 of the Act. As per this section, the power of the court is discretionary even when a company is unable to pay its debts.
However, section 38 of the Banking Act provides that when a banking company is unable to pay its debts or if the RBI applies in terms of section 37 of that Act, the Court is bound to order winding up of that company. In other words it is mandatory for the court to order winding up of a banking company under these circumstances. The words 'notwithstanding anything contained in section 433 of the Companies Act' has to be interpreted to mean that the discretionary power under section 433 is not available to the court in respect of a banking company when it is unable to pay its debts. In other circumstances the court has the discretionary powers even in respect of a banking company and petitions could be filed for winding up a banking company in any of these circumstance envisaged in section 433 including for winding up on just and equitable grounds. In First National Bank case (supra), the Punjab High Court has held that the provisions of the Banking Act is in addition to the provisions of section 162 of the 1913 Companies Act (section 433 of 1956 Act). In Federal Bank of India (Pb) case (supra), the same Court held that 'From the words used in section 38 of the Act of 1949, it cannot be sustained that the banking company cannot be wound up by the court under clauses (i), (ii), (iii) (iv) and (vi) of Act'. Similar is the decision of Calcutta High Court in Dwarkadas Agarwall case (supra).
Thus, in law according to us, there is no bar in an application being filed under section 433 against a banking company, which would also include winding up on just and equitable grounds. If so then a petition under section 397/398, which is alternative to a winding up petition, can also be filed in respect of a banking company. In view of this finding, we hold that this petition is maintainable.
30. Shri Datar raised an objection that a single and an isolated act cannot constitute oppression. As a legal proposition it is difficult to accept this contention. Whether a single act would constitute oppression or not would depend on the facts of a case, the nature of the company, the relationship between the parties and also on the provisions of the Articles and the Act. In a family company wherein participation in the Board is provided in the Article, removal as a director, even, if it is a single act could constitute oppression as the removal has a permanent effect of keeping one from the management.
In the same way, further issue of shares by which the percentage holding of person a comes down, even though a single act, has continuous effect, in Indian Motor case (supra), the allegation with reference to which the court held that a solitary act cannot constitute oppression related to the complaint that the petitioner was denied the right of inspection of books of account. While the court held that a shareholder is not entitled to the same, it also remarked as above.
Even in Needles case (supra) relied on by Shri Datar, the Court has not categorically stated that a single and isolated act would not constitute oppression, but it only observed that only observed that 'an isolated act which is contrary to law may not necessarily and by itself support the inference that the law was violated with a mala fide intention and that such violation was burdensome, harsh or wrongful'.
In other words, the court has cautioned against drawing a presumption of oppression once a law is violated. However, if one could establish that the law was violated with a mala fide intention, then there is no bar in challenging the same. In fact the allegation in the Needle's case related to the deliberations in a single Board meeting. Even in Nanalal Zaver's case (supra) also, the only issue before the court was issue of further shares. Therefore, as we have observed whether a single act constitutes oppression or not would depend on the facts of a case and as a general proposition, it cannot be held that a single and isolated act cannot constitute oppression.
31. Shri Datar also argued to state that, personal prejudice should be established in a section 397/398 petition. The action under these sections is a derivative action for the benefit of all the shareholders, the company and in public interest. The usage of the words in section 397 'oppressive to any member or members (including any or more of themselves)' would indicate that there is no need to establish personal prejudice in a section 397 petition. As far as section 398 is concerned, the action is in the interest of the company and public interest and the members interest does not figure in this section. In Aligarh Muslim University's case (supra) in which the Apex court held that personal prejudice should be established was in connection with the grievance that principle of natural justice was not followed. Therefore, the said ruling is not applicable in the instant case.
32. In regard to the question as to whether subsequent events can be considered in a section 397/398 petition, there arc conflicting decisions of the High Courts, some holding in the affirmative and others in the negative. This Board had an occasion to examine this issue in detail in Karelda Suryanarayan v. Sri Ramdas Motor Transport Ltd. [1998] 1 CLJ 342. In that case, while certain interim reliefs were sought on the basis of subsequent events, this Board observed "there is no bar in subsequent events being brought on record and being considered by us but such consideration would be only to mould the relief to be granted in case the petitioner succeeds in the main petition and that any interim relief granted, based on subsequent events, would be limited to the status quo being maintained in regard to the affairs of the company". In view the above, we do not find any bar in subsequent events being considered in a section 397/398 petition.
33. As far as the need for additional capital is concerned, as rightly pointed out by Shri Datar, it is a managerial decision and a judicial forum, should not interfere with the decision of the Board except when the increase in the share capital is with an ulterior motive and not for the bona fide needs of the company, but, in the garb of raising capital, shares are issued cither to consolidate one's position or with a view to create a new majority or to convert a majority into a minority. In such cases, a petition under section 397/398 can be maintained. In the present case the company is a banking company having over 50,000 shareholders. The board of directors hold only 0.4 per cent shares in the company. Further the bank cannot increase its share capital without the approval of the RBI and even the pricing of the shares has to be approved by the RBI. A chronology of the events leading to the issue of right shares is a relevant aspect to be considered. According to the Bank, in the AGM held on 29-5-2000, the Chairman, indicated about the decision to issue bonus-cum-right issue and this is recorded in the minutes of that meeting. Even though the petitioners contend that no such mention was made, yet in the press report dated 31-5-2000, it is stated that the same was mention in the meeting. The petitioners have not challenged the report in the press till the petition was filed. The decision of the Board on 29-5-2000, is corroborated by the letter of the Bank to the Stock Exchange about thesame on the same day (Annex B to CA 200). In the same way the Bank had also sought the approval of the RBI through an application on 5th June (Annex C to CA 200). In this application, the Bank had indicated the CAR as 11.94 per cent and the Bank had informed the RBI that the Bank would get the approval of the shareholders for bonus-cum-right issue. Thereafter, the Bank issued the notice for the EOGM on 23-6-2000. It is on record that the RBI gave its 'in principle' approval on 21-7-2000 for the bonus-cum-right issue as proposed by the Bank on the basis of the application subject to complying with the SEBI guidelines (Annex D to CA 200). Thus, when a competent authority has applied its mind and had given the approval for the bonus-Cum-right issue, the shareholders cannot question of the wisdom of the Board on the ground that the bank has adequate CAR and therefore, there is no need to go in for right issue. That is the reason why we have also not elaborated the extensive arguments of the counsel in regard to the need for capital referring to various statements on CAR etc. Once the Board decides about the quantum and the price which has also been approved by the RBI, we are of the view that further examination by us is not called for. Even though Shri Sarkar pointed out the inconsistent stand taken by the bank regarding its decision to go in for right issue, yet, we do not think that the same would call for scrutiny by us as to whether the Bank needs additional capital or not. The petitioners have not stated as to why they are objecting to the right issue especially, the option to invest or not is with them. They have only expressed their apprehension that the Bank likely to allot the un-subscribed shares to a foreign partner which would not be in the interest of the shareholders/bank. Even then they have not indicated as to how and why the same would be against their interest or that of the bank. We also note that in the meeting held with the representative of the 11th respondent as the Chairman, wherein the resolution for right shares was defeated, the minutes of the meeting does not indicate the grounds on which the resolution was defeated. However, now that the bank has filed an affidavit in the form of sur-rejoinder that it has no intention to off load the shares to a foreign partner, we do not find that the decision of the bank to issue right shares could be considered to be an act of oppression.
34. The next issue is the authority of the Chairman to withdraw a resolution included in the agenda for the general meeting. The companies Act does not specify the powers and duties of the Chairman of a meeting. Section 175 of the Act deals with election of a chairman, section 178 stipulates that the decision of the Chairman in case of voting by show of hands is final, section 176 permits the Chairman to seek a poll on his own motion and makes it mandatory on his part to order poll if the same is demanded by the members possessing the requisite qualification prescribed in that section, section 184 stipulates that the Chairman shall appoint two scrutinizes in case of a poll and section 185 empowers him regulate the manner in which the poll is to be taken. Thus, there are no substantive provisions in the Act regulating the powers of the Chairman of a meeting. Regulations 49 to 55 of Table A also does not specify the powers of the chairman of a meeting except that Regulation 53 deals with the powers of the Chairman to adjourn the meeting, that too with the consent of the members. The articles of the company incorporates practically all the provisions as indicated above, including the one that the Chairman may adjourn the meeting with the consent of the members in article 71. None of the cases cited by the respective counsel deals with the power of the Chairman to withdraw a resolution. All the cases cited by Shri Sarkar relate to the power of the Chairman to adjourn the meeting. We are of the view that once a resolution is placed before the general meeting, more so a special resolution, it cannot be withdrawn without the leave/approval of the members for the reason indicated hereinafter. The duty and the authority of the Chairman, according to us, is limited to ensure that the meeting is held in an orderly manner and the will of the shareholders is ascertained properly on the businesses placed before them. To this end he has full authority and powers to regulate the proceedings of the meeting and nothing more. We do not accept the contention of Shri Datar, relying on New India Assurance Ltd.'s case (supra) that what is not prohibited by law can be done, because in that case, the court made that observation in the context whether a court can dismiss a complaint for non prosecution when no such power is vested in the court by the statute. The businesses to be transacted in a meeting are decided by the Board (except in cases of meetings requisitioned by the members) and once the same are placed before the general body by the Board, it is for the general body to approve the same with or without modification or disapprove the same. If the Chairman desires to withdraw a matter placed before the general body, he has to get the approval of the members. The Chairman of the meeting could be the Chairman of the company or any one of the directors or one of the members elected. (In article 66 of the Bank the same provision has been made). If the Chairman or a director chairs the meeting, he assumes the position of the Chairman of the meeting and is not acting in his capacity as the Chairman or a director of the company to take whatever decision he could take in that capacity. The Chairman of the meeting should be disinterested and impartial and he cannot, at his will, decide whether a resolution is to be tabled and voted upon or to be withdrawn. Once, matters are placed before the members through a valid notice for their consideration, these matters come under their domain and cannot be withdrawn without their consent.
35. In the present case, as per the minutes of the meeting, the Chairman informed the members, that the Board had decided to withdraw the resolution, but no minutes of the Board taking the said decision was either placed before the meeting nor before us. It is also doubtful whether any decision was taken by the Board in this regard before the meeting commenced as we find from the minutes of the Board meeting on 8-8-2000, that there is no mention about thesame. Rather it records.
'In the Extra Ordinary General Meeting held on August 7, 2000, the Chairman had announced that as per the provisions of law, the special resolution was necessary only when shares were to be offered on a basis other than the right basis. . .'. Thus it appears that the decision to withdraw was the decision of the Chairman and not by the Board. Even if the Board had decided that way, then, as rightly pointed out by Shri Sarkar, the resolution should have been withdrawn at the beginning of the meeting, when amendments were proposed to the first resolution. It is to be noted that even for these amendments, the approval of the members was obtained. Nothing prevented the Chairman from explaining the legal provisions to the members and seek their approval for the withdrawal. Thus, the manner in which the resolution was unilalerally withdrawn, gives credence to the version of the petitioners that the resolution was withdrawn only in view of the objections raised by the members and on the apprehension that the same would be defeated. In that case, the petitioners have a legitimate grievance that they have been oppressed by the denial of their right to express their decision on a matter placed before them.
36. In regard to the rights of shareholders to continue with a meeting after the sameis terminated, thesame would depends on the facts of a case. The general proposition, as it emerges from the cases cited by Shri Sarkar, is that, when the chairman adjourns the meeting or dissolves the same without the consent of the members when the businesses placed before the meeting are yet to be concluded, then the members can elect a new chairman and continue with the meeting. In the present case, according to the learned counsel for the Bank, with the withdrawal of the 4th resolution, no business remained untransacted to apply this general proposition. Therefore, according to him, the meeting held by the members thereafter has no validity and that is why the Bank did not accept the copy of the resolution passed by the members rejecting the 4th resolution. We have already held that the Chairman had erred in withdrawing the resolution when the members desired discussion on the same. Therefore, we have to hold that the said business remained un-transacted and that the members were at liberty to continue with the meeting with a new chairman.
37. Now that we have held that the meeting chaired by the representative of the 11th respondent is valid, the issue for consideration is, whether the Board could have resolved to issue right shares in the Board meeting held on 8-8-2000. It is admitted by the learned counsel for the petitioners too that the board has powers to issue right shares under section 81 but according to him, in terms of articles 45 to 47 of the Bank, the approval of the shareholders is necessary even for a right issue and for offering shares with the right to renounce. He also pointed out that on an earlier occasion of issue of right shares, the approval of the shareholders was taken in terms of Articles and that the Bank itself had committed to the RBI to seek shareholders approval.
Article 45 : The bank, in general meeting may, from time to time increase the capital by creation of new shares of such amount as may be deemed expedient.
Article 46 : The new shares shall be issued upon such terms and conditions, and with such rights and privileges annexed thereto as the General Meeting resolving upon the creation thereof shall direct and if no direction be given, as the director shall determine; and in particular such shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the company, and with a special or without any right of voting.
Article 47 : Subject to any other direction to the contrary, that may be given by the resolution passed by the bank in general meeting, all new shares shall, before issued be offered in the first instance, and either at par or at premium, to all then members in proportion, as nearly as circumstances admit, to the amount of the capital held by them and such offer shall be made by notice specifying the number of shares to which the member is entitled and limiting a time not being less than fifteen days from the date of offer within which the offer is not accepted will be deemed to have been declined and after the expiration of such time or receipt of an intimation from the members to whom such notice is given that he declines to accept the shares offered, the directors may deal with such shares as if they form part of the shares in the original ordinary capital and may dispose of the same in such manner as they think fit. The directors may likewise deal with any new shares which (by reason of the ratio which the new shares bear to the shares held by persons entitled to an offer of new shares) cannot in the opinion of the directors conveniently offered under this article. The offer aforesaid shall not be deemed to include a right exercisable by the members concerned to renounce the shares offered to him or any of them in favour of any other person unless the resolution sanctioning the increase of share capital so provides.
38. These articles talk of new shares. Article 45 deals with creation of new shares, article 46 with issue of new shares with differential rights and article 47 with offer of new shares on a proportionate basis. A reading articles 45 and 46 would indicate that the general body approval is necessary only when authorized capital is increased and shares are proposed to be issued with differential rights. (In terms of section 88 of the Act, the provisions contained in article 46 are void as section 88 prohibits issue of shares with differential rights. It rnay be noted that this section has been omitted by amendment Act, 2000). In the present case, the general body has approved the increase in the authorized capital and, therefore, there is compliance with this article. Article 47 requires approval of the general body only when shares are not issued on a right basis, which is in accordance with section 81(1). Therefore, the only issue for consideration is whether this article requires general body approval for issue of shares with the right to renounce. There is nothing in this article to bar the Board from issuing right shares with the right to renounce even though it may appear from the last sentence of the article that the Board cannot do so without the approval of the general body. We arc of the view that this sentence cannot be read in isolation but has to be read with the earlier sentence. If it is done so, then it is evident that only when shares are not issued on a right basis, then the persons to whom shares are offered, cannot have the right to renounce without the approval of the general body. In other words, there is no specific bar in the articles to issue shares on a right basis with the right to renounce and therefore we do not agree with the petitioners that right shares could not be issued with the right to renounce, without the approval of the general body.
39. Shri Sarkar contended that the Bank had given assurance to the RBI that general body approval would be obtained for bonus-cum-right issue and therefore, the bank is bound to honour the commitment. He referred to the letters of the bank to the RBI dated 5-6-2000 and 14-6-2000. The 'in principle' approval contained in the RBI approval dated 21-7-2000 only stipulates that the same is subject to making necessary provisions in the articles and the memorandum in regard to capitalization of reserve and enhancement of the authorized capital. Both would require the general body approval which the bank has obtained in the EGM held on 7-8-2000. Thus, we find that there is compliance with the stipulation made by the RBI.40. Even though we have held that the act of the Chairman in withdrawing the resolution is an act of oppression, we have also held that neither in law nor by virtue of the articles, the Board is required to obtain the approval of the general body to issue right shares with the right to renounce. It is a settle position of law that an act, even if lawful could be oppressive and an illegal act need not be oppressive. In the present case, on the basis of the oppressive act, the petitioners have sought for cancelling the right issue. We are of the view that such a drastic relief is not called for in this case. It is an admitted position that as per RBI guidelines, no bonus shares could be issued without simultaneous right/public issue. The grant of the relief would result in the cancellation of the bonus issue which had been approved unanimously by the shareholders. Further, none of the shareholders is prejudiced by the issue of right shares as every shareholder has the option to subscribe to the share or not. The only apprehension by the petitioner that the Bank would allot the un-subscribed shares to a foreign partner has also been set at rest by the Bank in its affidavit. As rightly pointed out by Shri Datar, relying on Ragitnath Swamp Mathur's case (supra), the cancellation of the bonus issue arising out of a restraining the bank from issuing right shares, would result in greater oppression to the 50,000 odd shareholders by depriving them of the bonus shares. Therefore, considering the fact that issue of right shares is for the benefit of the company and the shareholders would also be getting bonus shares, we allow the Bank to implement its decision to issue right shares as approved in the Board meeting on 8-8-2000.
41. Insofar as the purchase of the shares for the trust out of the bank funds, we find that RBI is already seized of the matter and that certain directions have been given to the Bank in this regard. Further, we do not have enough material to form an opinion on this allegation.
Therefore, we are not dealing with this allegation in detail.
42. The next issue is the application of the petitioners for appointment of an independent Chairman to conduct the proceeding of the EOGM requisitioned by the petitioners. This meeting has been adjourned sine die as per our directions. The petitioners have complained that the explanatory statement annexed with the requisition notice had not been circulated to the members. They have also complained that the explanatory statement circulated by the Bank contains certain wrong particulars. They have also complained that the Bank is utilizing its resources to collect proxies etc. Therefore, according to them, to ensure that the meeting is properly held, an independent person should chair the proposed meeting. We find that there is justification in the prayer of the petitioners in view of what happened in the EOGM held on 7-8-2000. However, instead of appointing an independent person as Chairman of the meeting we propose to appoint an observer to observe the proceedings of the meeting and report. Accordingly we appoint Shri C.R. Mehta, former member of the CLB as an observer, who will send a report to us on the proceedings of the meeting. Since, this meeting convened on 24-11-2000 has been deferredsme die, we give the following directions in regard to holding of this EGM. The requisitioned notice dated 12-10-2000 shall be deemed to have been lodged with the Bank on 30-4-2001 and the Board shall act in accordance with the provisions of section 169 of the Act on this basis. The bank will circulate the explanatory statement received from the petitioners along with the requisition. In case the bank desires to circulate its own explanatory statement, it will ensure that the same does not contain any wrong or incorrect particulars. The bank will not utilize its resources in collection of proxies. A copy of the notice convening the EGM will be given to the observer. The bank will pay a sum of Rs. 10,000 to the observer as honorarium.
43. The learned counsel for the Bank forcefully argued for award of cost to compensate the loss of interest on the funds that the bank would have earned by usage of the proceeds of the right issue, occasioned by the institution of the present proceedings by the petitioners. We would have found merit in the claim of the bank if this petition had been a frivolous one. We have held that the Chairman was wrong in withdrawing the resolution which has occasioned this petition.
Further we also note that the shareholders had not been advised of the guidelines of the RBI that issue of bonus shares has to be accompanied by right/public issue. Therefore, on the grounds of irregular withdrawal of the resolution and non furnishing of relevant information, the petitioners had the right to file this petition and therefore, the question awarding any cost to the Bank does not arise.
44. The petition is disposed of in the above terms, without any order as to cost.