G. Rohini, J.@mdashThese two Appeals are preferred against the common order dated 24.11.2010 passed by the Company Law Board, Additional Principal Bench, Chennai in C.A. Nos. 150 of 2010 and 167 of 2010 in C.P. No. 83 of 2009. The Appellants in both the appeals are the Respondents 1 to 3 in C.P. No. 83 of 2009.
2. C.P. No. 83 of 2009 was filed by Ranbaxy Laboratories Limited (hereinafter referred to as ''Ranbaxy'') under Sections 397 and 398 of the Companies Act, 1956 to declare that the acts of the Appellants herein are prejudicial to public interest and oppressive to the shareholders of Zenotech Laboratories Limited (hereinafter referred to as ''Zenotech'').
3. Pending C.P. No. 83 of 2009, Ranbaxy filed C.A. No. 150 of 2010 u/s 186 of the Companies Act, 1956 seeking a direction for convening an Extraordinary General Meeting (EGM) of Zenotech immediately to consider the appointment of nominee directors on behalf of Ranbaxy on the Board of Zenotech. The Appellants herein filed C.A. No. 167 of 2010 seeking a direction to maintain status quo with respect to the affairs of the management of Zenotech alleging that any change in the Board of Directors of Zenotech would prejudice their interest as well as the company. After hearing both the parties, the Company Law Board, by common order dated 24.11.2010 allowed C.A. No. 150 of 2010 and granted permission to Ranbaxy to convene the EGM of Zenotech and consequently dismissed C.A. No. 167 of 2010. However it was observed that the conduct of EGM and the decisions taken thereon should be subject to the final outcome of C.P. No. 83 of 2009 and C.P. No. 51 of 2009. The said common order dated 24.11.2010 is under challenge in the present two Appeals.
4. The admitted facts in brief are as under:
Zenotech is a company incorporated under the provisions of the Companies Act, 1956, having its registered office at 8-2-120/112/88-89/P/2, IV Floor, Park View Estate, Road No. 2, Banjara Hills, Hyderabad. The said company is involved in the business of developing and manufacturing Generic Bio-Pharmaceuticals. The Appellants 1 and 2 are the promoters of Zenotech and as on today they are holding 25.76% shareholding in the said company.
5. Ranbaxy is a company incorporated under the Companies Act, 1956, having its registered office at A-11, Industrial Area, SAS Nagar, Mohali, Punjab. The said company is carrying on, amongst its several businesses, business in the field of Bio-Pharmaceuticals similar to that of Zenotech.
6. Ranbaxy entered into a Development, License & Supply Agreement, dated 31.01.2007 for using the intellectual property of Zenotech apart from marketing and sales. Subsequently Ranbaxy entered into a Share Purchase Agreement dated 03.10.2007 with Zenotech for purchasing 78,78,906 equity shares of Zenotech (equivalent to 27.35%) of Rs. 10/- each. Consequent to the said agreement, Ranbaxy issued a public announcement on 5.10.2007 as per SEBI (substantial acquisition of shares and takeovers) Regulations, 1997 (for short, Takeover Regulations''), for acquisition of 20% shares from the public at a price of Rs. 160/- per equity share for a total investment of Rs. 87.83 Crores into Zenotech, resulting in increase of the shareholding of Ranbaxy in Zenotech to 46.85%.
7. Subsequently Daiichi Sankyo Company Limited, Japan - the Respondent No. 5 in C.P. No. 83 of 2009 - had acquired 63.92% of equity share capital in Ranbaxy. As a result of the said acquisition, Daiichi Sankyo Company Limited (hereinafter referred to as ''Daiichi Sankyo'') acquired control over the Ranbaxy and it had indirectly acquired 46.85% of share capital of Zenotech held by Ranbaxy. Pursuant to the said acquisition of the shares of Ranbaxy, Daiichi Sankyo made a public announcement to the shareholders of Zenotech on 19.01.2009 for the acquisition of the 20% of the share capital of Zenotech in accordance with the provisions of Takeover Regulations.
8. On 30.06.2009 the Appellants herein filed C.P. No. 51 of 2009 before the Company Law Board under Sections 397, 398 and 402 of the Companies Act, 1956, seeking a declaration that the acts of Daiichi Sankyo, Ranbaxy and their Directors (arrayed as Respondents 2 to 8 to the said company petition) are prejudicial to the interest of Zenotech and are oppressive against the Appellants herein. It was alleged in C.P. No. 51 of 2009 that the Ranbaxy after assuming complete control over Zenotech, had started exercising its control in a manner prejudicial to the interest of the Zenotech, its creditors and other stakeholders and also in a manner oppressive to the minority shareholders including the Appellants herein.
9. On 7.10.2009 Ranbaxy filed C.P. No. 83 of 2009 under Sections 397, 398 & 402 of the Companies Act seeking a declaration that the acts of the Appellants herein are prejudicial to public interest and oppressive to the shareholders of Zenotech. Both C.P. No. 51 of 2009 and C.P. No. 83 of 2009 are pending before the Company Law Board, Additional Principal Bench, Chennai.
10. Pending the said Company Petitions, various orders have been passed by the Company Law Board from time to time on the applications moved by Ranbaxy as well as the Appellants herein with regard to administration of Zenotech. The order under challenge in these two appeals is one such order made in C.A. No. 150 of 2010 filed by Ranbaxy and C.A. No. 167 of 2010 filed by the Appellants herein.
11. As already noticed, C.A. No. 150 of 2010 has been filed by Ranbaxy u/s 186 of the Companies Act, 1956 seeking a direction for convening EGM of Zenotech alleging that the Appellant No. 1 herein as the Managing Director of Zenotech had resisted and thwarted all the attempts by Ranbaxy to exercise its rights as the major shareholder of Zenotech to have its nominee on the Board of Zenotech. It was also alleged that in view of the past conduct of the Appellant No. 1 in not considering the request of Ranbaxy to hold AGM, it was impracticable to convene EGM by way of requisition u/s 169 of the Act. Thus the power u/s 186 of the Companies Act, 1956 was invoked to direct convening of EGM.
12. The Appellants herein opposed C.A. No. 150 of 2010 contending that no cause of action was established to invoke Section 186 of the Companies Act. While denying the allegation that the Appellant No. 1 failed to convene AGM, it was pleaded that though the AGM for 2008 and 2009 were duly held on 26.02.2010, the Ranbaxy did not opt to appoint any Director.
13. The Appellants herein filed a separate application being C.A. No. 167 of 2010 seeking a direction to the Ranbaxy and Daiichi Sankyo to maintain status quo with regard to affairs and management of the Zenotech till the disposal of C.P. No. 83 of 2009 and C.P. No. 51 of 2009 alleging that any appointment of Directors by the Ranbaxy would affect the affairs of the Zenotech and would prejudice the subject-matter of the company petitions.
14. By common order dated 24.11.2010, which is under challenge in these two Appeals, the Company Law Board allowed C.A. No. 150 of 2010 and dismissed C.A. No. 167 of 2010.
15. As could be seen, the Company Law Board, having taken note of the serious disputes between the Appellants herein and Ranbaxy, held that it was impracticable to convene and hold an EGM at the requisition by the Ranbaxy. The Company Law Board has also taken into consideration the admitted fact that the Ranbaxy, being a major shareholder is entitled to exercise its right to appoint the directors on the Board of Zenotech and that the purpose of the EGM sought to be convened by Ranbaxy is only to consider appointment of its nominee directors on the Board of Zenotech. Accordingly the application was allowed and EGM was directed to be convened in exercise of powers conferred u/s 186 of the Companies Act.
16. The said order is assailed before this Court mainly on the ground that the Ranbaxy had miserably failed to establish that it was impracticable to call EGM so as to grant the relief u/s 186 of the Companies Act. It is also contended that since Ranbaxy could not establish any cause of action to invoke Section 186 of the Companies Act, the Company Law Board committed a grave error in directing to convene EGM.
17. In the counter-affidavit filed on behalf of the Ranbaxy, it is contended that the appeals are not maintainable since the Appellants are not the persons aggrieved. It is also contended that no question of law as required u/s 10F of the Companies Act arose out of the impugned order so as to maintain the appeals. On merits, it is contended that in the light of the facts borne out of the record the Company Law Board had rightly directed to convene EGM in exercise of the discretionary power conferred u/s 186 of the Companies Act and the contention that there was no material to establish the impracticability is untenable.
18. I have heard Sri B. Adinarayana Rao, the learned Counsel representing Smt. M. Madhavi Priya, appearing for the Appellants; and Sri Aravind Dattar, the learned Senior Counsel representing Sri K.R. Raman, appearing for Ranbaxy (arrayed as Respondent No. 1 in Company Appeal No. 20 of 2010 and Respondent No. 2 in Company Appeal No. 23 of 2010). I have also heard and Sri S.R. Ashok, the learned Senior Counsel appearing for Daichi Sankyo Company Limited - the 3rd Respondent and Sri D. Seshadri Naidu, the learned Counsel for the Zenotech Laboratories Limited.
19. Sri B. Adinarayana Rao, the learned Counsel for the Appellants, while submitting that the finding recorded by the Company Law Board as to the impracticability of convening EGM was not based on any evidence, vehemently contended that the said finding on the face of it being perverse had given rise to a question of law so as to maintain an appeal u/s 10F of the Companies Act.
20. Elaborating the said contention, the learned Counsel submitted that though the Ranbaxy held 46.85% shareholding in Zenotech since January, 2008, no steps were taken to appoint its nominee director in the AGM held on 26.02.2010 and that even the three directors initially appointed by the Ranbaxy did not attend the Board meetings and in fact the Ranbaxy never made any requisition to convene the EGM. Thus, it is contended that the failure to nominate the directors of Ranbaxy was due to its own lapses and there was no reason to conclude that it was impracticable to convene and hold EGM in the manner prescribed by the Act. It is also contended that since the present Board consists of two independent directors appointed by this Court, there is no scope for the Appellant No. 1 to control on his own the administration of Zenotech and therefore the allegations that the Appellant No. 1 was acting against the interest of Zenotech and that he was thwarting all the attempts by Ranbaxy to have its nominee directors on Board, ought not to have been accepted by the Company Law Board.
21. Per contra, it is contended by the learned Counsel for the Respondents that the Appellant No. 1 had been acting on his own without the concurrence of the two independent directors appointed by this Court and that even after the appointment of the said two independent directors, the Appellant No. 1 had terminated the Development, License and Supply Agreement dated 31.01.2007 without the concurrence of the independent directors. It is also contended that though the Ranbaxy appointed 3 directors in January, 2008, whose appointment was to be confirmed in the AGM, the Appellant No. 1 did not convene AGM and even a Board Meeting was not held, but on the other hand the Appellant No. 1 filed Form-32 declaring that the directors appointed by the Ranbaxy had vacated their office w.e.f. 31.12.2008. It is also explained by the learned Counsel for the Respondents that in the AGM held on 26.02.2010 the Ranbaxy could not appoint its nominee directors due to bona fide belief of the restrictions under Regulation 22(7) of the Takeover Regulations.
22. For proper appreciation of the rival contentions, it is necessary to refer to Section 186 of the Companies Act which empowers the Company Law Board, either on its own motion or on the application of any Director of the Company, to order a meeting to be called.
23. Section 186. Power of Company Law Board to order meeting to be called: (1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the Company Law Board may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,-
(a) order a meeting of the company to be called, held and conducted in such manner as the Company Law Board thinks fit; and
(b) give such ancillary or consequential directions as the Company Law Board thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company''s articles.
Explanation: The directions that may be given under this Sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted.
24. On a plain reading of the above Section, it is clear that the Company Law Board on being satisfied that it is impracticable to call a meeting of a company in any manner in which meetings of the company may be called, is competent to order a meeting of the company to be called, held and conducted in such manner as the Company Law Board thinks fit. It is evident from the language employed in Section 186 that the power which the Company Law Board exercises is purely discretionary subject to its satisfaction that it is impracticable to call a meeting in the manner in which meetings may be called.
25. In the present case, the Board of Directors of Zenotech admittedly consists of only three directors namely the Appellant No. 1, who is also the Managing Director and the two independent directors appointed by this Court by order dated 23.02.2010 in Company Appeal No. 30 of 2009. It is also not in dispute that though Ranbaxy, which is holding 46.85% of shareholding, is the largest shareholder of Zenotech, it has no nominees on the Board of Zenotech.
26. So far as the contention on behalf of the Appellants that there is no scope for the Appellant No. 1 to control the administration of Zenotech on his own is concerned, it is to be noticed that the agreement dated 31.01.2007 was terminated by the Appellant No. 1 alone in his capacity as the Managing Director. When the said action was questioned by the Ranbaxy, the Company Law Board by order dated 21.05.2010 granted stay of operation of termination notice holding that there was nothing to show that the agreement was terminated after getting the approval of the Board of Directors of Zenotech. The contention of the Appellant No. 1 that in his capacity as the Managing Director he was competent to cancel the agreement as per Clause-120 of Articles of Association was also not accepted by the Company Law Board.
27. It is also clear from the material available on record that in the AGM held on 26.2.2010 the resolution for appointment of two directors namely M.R. Vikram and Uma Devi by the Appellant No. 1 was disapproved by the shareholders of the Zenotech. In spite of the same, the Appellant No. 1 had re-inducted the said two persons as directors on the very same day and aggrieved by the same Ranbaxy filed Company Application No. 45 of 2010 for removal of the said two directors. The Company Law Board by order dated 22.03.2010 ordered that all further appointment of directors on the Board of Zenotech should be subject to the approval of the Company Law Board.
28. In the light of the above noticed orders passed by the Company Law Board, it cannot be said that there is no material on record to substantiate the plea of Ranbaxy that the Appellant No. 1 was acting on his own without the concurrence of the two independent directors and was thwarting all the attempts of Ranbaxy to have its nominee directors on Board of Zenotech.
29. It is also relevant to note that in view of the disputes between the Appellants herein and the Ranbaxy, the Annual General Meetings of the Zenotech were not conducted during the years 2008 and 2009 for want of required number of directors on the Board. Ultimately the AGM could be held only on 26.2.2010 after appointment of two independent directors by this Court by order dated 23.02.2010 in Company Appeal No. 30 of 2009.
30. A perusal of the pleadings in C.P. No. 51 of 2009 and C.P. No. 83 of 2009 shows that various allegations and counter-allegations have been made by the Appellants herein and the Ranbaxy against each other. Whereas the Appellants herein alleged that the Ranbaxy had failed to pursue the clinical trials of the products of Zenotech despite being the largest shareholder and that the Ranbaxy and Daichii Sankyo had failed to market the products resulting in enormous financial and operational damage to Zenotech and that because of their indifferent attitude the brand of Zenotech was going to be eliminated completely and it might even lead to winding-up of Zenotech adversely affecting the interest of the Appellants and the other minority shareholders, it is alleged by the Ranbaxy that the Appellant No. 1 had been misusing his office as Managing Director and had been promoting and safeguarding his own interests by preventing Ranbaxy from exercising their rights in the management of the business of Zenotech. It is also alleged by the Ranbaxy that the Appellant No. 1 wanted to divest his shareholding in Zenotech so as to escape accountability for the acts and deeds of mismanagement and that the conduct of Appellant No. 1 was injurious to the interest of all the shareholders and the management of Zenotech.
31. From the tenor of the allegations made against each other it is clear that there is no agreement between the two groups with regard to the administration of Zenotech. Admittedly various litigations are pending between the parties. The facts and circumstances undoubtedly give rise to a reasonable presumption that the holding of EGM for the purpose of appointment of the nominee directors of the Ranbaxy on the Board of Zenotech may not be possible without further litigation.
32. The expression ''impracticable'' employed in Section 186 of the Companies Act, in my considered opinion need not be construed as ''impossible''. The word ''impracticable'' implies only impracticability from a reasonable point of view and it is sufficient if a reasonable presumption can be drawn from the surrounding circumstances as to the impracticability of calling a meeting in the manner prescribed by the Act or the articles of the company. I am also of the opinion that for exercising the power u/s 186, the Company Law Board is not required to enter upon a consideration of the various allegations and counter-allegations as regards the management of the company.
33. Both C.P. Nos. 51 & 83 of 2009 are pending on the file of the Company Law Board and the order dated 22.03.2010 directing that all further appointment of directors of Zenotech shall be subject to the approval of the Board has admittedly been in operation. Having regard to the serious disputes among the parties with regard to the management of Zenotech and keeping in view that the nominee directors of Ranbaxy are not there on the Board, the Company Law Board thought it fit to direct convening EGM in exercise of the power conferred u/s 186. It was also made clear by the Company Law Board that the decisions taken in EGM shall be subject to final outcome of C.P. Nos. 83 & 51 of 2009. The discretion so exercised by the Company Law Board in the interest of the company cannot be termed as ''perverse''. It is also relevant to note that Section 186 empowers the Company Law Board to convene EGM even on its own motion. Admittedly the impugned direction is only for the purpose of ensuring that the independent directors are appointed to the Board of Zenotech representing the majority shareholders so that the Company''s affairs are regulated in the best manner. There is absolutely no justifiable reason to find fault with such order.
34. For the aforesaid reasons, the order passed by the Company Law Board in C.A. No. 150 of 2010 cannot be held to be illegal on any ground whatsoever. In view of the said order, the Company Law Board had rightly dismissed C.A. No. 167 of 2010 which was filed by the Appellants herein to maintain status quo with respect to affairs and management of Zenotech. Hence the interference by this Court u/s 10F of the Companies Act is not warranted and both Company Appeal Nos. 20 and 23 of 2010 are liable to be dismissed.
35. It is also brought to my notice that during the pendency of the present appeals, AGM was held and the issue of appointment of the nominees of Ranbaxy as directors was also considered and approved by majority in the AGM. Thus the purpose for which the EGM was directed to be convened by the Company Law Board has already been served.
36. Viewed from any angle, the Appeals are without any substance and accordingly both the Company Appeals are hereby dismissed. No costs.
