Section 317
MANAGING
DIRECTOR NOT TO BE APPOINTED FOR MORE THAN FIVE YEARS AT A TIME
[1998] 15 SCL 187 (DELHI)
v.
Union of India
C.M. NAYAR, J.
SEPTEMBER 22, 1997
Section 166 of the Companies Act, 1956 -
Annual general meeting - Company was joint-venture between 'MUL' and 'SMC’ -
Parties had right to designate MD by turns - On completion of terms of nominee
of 'SMC’ on 27-8-1997 'MUL' appointed 'B' as MD on same date - Appointment of
'B' was to be ratified at annual general meeting scheduled to be held on
22-9-1997 - 'SMC’ alleged that no concurrence and no effective consultation
with it was held before appointment of 'B' and it approached International
Court for Arbitration - Pending arbitration invoking section 9 of Arbitration
and Conciliation Act, 1996 petitioner sought for stay of annual general meeting
- Whether it will not be in interest of justice to restrain holding of such a
meeting as petitioner will not suffer any irreparable injury which cannot be
cured at a subsequent stage when proceedings in arbitration are concluded -
Held, yes
Section 317 of the Companies Act, 1956 -
Managing Director - Tenure of appointment - 5 years term of previous MD was
completed on 27-8-1997 but fifth annual general meeting after his appointment
fell on 22-9-1997 - 'B' was appointed as managing director from 27-8-1997 -
Whether since in view of provisions of section 317 an embargo is placed on
company that term of managing director cannot exceed five years at a time,
appointment of 'B' as MD could be said to be outside framework of provisions of
section 317 - Held, no - Whether it would be appropriate to set aside or hold
appointment of new MD in abeyance and stay operation of resolution appointing
him or to restrain holding of annual general meeting proposed to be held -
Held, no
The company
in question was a joint-venture between 'MUL' and 'SMC’ According to the joint venture
agreement the parties had the right to designate the managing director by turns
and the party which nominated the managing director should be entitled to
remove such managing director and nominate a new managing director for the term
of the office up to the expiry of term of office of the predecessor. On
27-8-1997 the term of the managing director who was nominee of 'SMC was
completed and accordingly 'MUL' appointed one 'B' on the same day as the
managing director which was to be ratified at the annual general meeting of
shareholder which was to be held on 22-9-1997. 'SMC’ on allegation that before
appointing 'B' there had been no concurrence and no effective consultation with
it and its nominee had opposed the said appointment filed arbitration petition
before International Chamber of Commerce. Thereafter, invoking section 9 of the
Arbitration and Conciliation Act, 1996 it sought for a stay order against the
proposed annual general meeting as it had approached for arbitration before
International Court of Arbitration. It was further contended that the
petitioner's nominee managing director was to hold office till the conclusion
of the fifth annual general meeting which fell on 22-9-1997 and the appointment
of nominee of 'MUL' prior to that date was not valid.
In view of
the provisions of section 317 an embargo is placed on the company that the term
of the managing director cannot exceed five years at a time. The board approved
the appointment of nominee of 'MUL' as managing director of the company with
effect from 27-8-1997, till the conclusion of the 5th annual general meeting of
the company following his assumption of office subject to the approval of the
shareholders. Therefore, the appointment of managing director could not be said
to be outside the framework of the statutory provisions as well as of the joint
venture agreement. Further, 'B' was functioning as the managing director of
'MUL' from 27-8-1997 till date, i.e., for about three weeks and it would not be
appropriate to set aside or hold his appointment in abeyance and stay the
operation of the resolution appointing him or to restrain the holding of annual
general meeting proposed to be held on 22-9-1997. The appointment in any case
had to be ratified at the annual general meeting wherein 'SMC’ would be at
liberty to raise objection. As disputes and differences had arisen between the
parties out of or in relation to or in connection with the agreement, 'SMC’ had
taken recourse to arbitration and approached an appropriate authority in this regard
It was established from record that the consent and concurrence of the
petitioner was not taken while nominating the present managing director of the
respondent-company. In any case, his appointment had to be concurred and
approved at the annual general meeting and it would not be in the interest of
justice to restrain holding of such a meeting. 'SMC’ would not suffer any
irreparable injury which could not be cured at a subsequent stage when the
proceedings in arbitration were concluded. In view of the above, the petition
was disposed of with the following directions : The proposed annual general
meeting of the company should be held on 22-9-1997, as scheduled as no prima
facie ground was made out for restraining the holding of such meeting in the facts
and circumstances of the case. The appointment of 'B' in the board meeting held
on 27-8-1997, in case it was finally approved by the shareholders in the annual
general meeting should be subject to the decision/award as may be rendered by
the arbitrator in the arbitration proceedings which have since commenced.
Bentley-Stevens
v. Jones [1974] 2 All ER 653; United Commercial Bank v. Bank of India AIR 1981
SC 1426; Life Insurance Corporation of India v. Escorts Ltd AIR 1986 SC 1370; Dalpat Kumar v.
Prahlad Singh [1992] 1 SCC 719; Gujarat Bottling Co. Ltd v. Coca Cola Co.
[1995] 5 SCC 545 and Centre for Public Interest Litigation v. Union of India
[1997] 68 DLT 650 (Delhi).
K.K.
Venugopal, S.S. Shroff, Miss Ritu Bhalla, Ms. Manali Singh, Ms. Lira Goswami,
Ms. Amita Duggal and Sriniwas
Murthy for the Petitioner. V.R. Reddy, Sarabjit Sharma, Rakesh Tikku,
Ashok Desai, Rohington Nariman, P.K. Ganguli, Dinesh Agnani, Sukumaran and D.S.
Narula for the Respondent.
1. The
present petition is filed under section 9(ii)(e) of the Arbitration and
Conciliation Act, 1996, for interim measures of protection by the petitioner
against the respondents as specified in the prayer clause.
2. The
petitioner entered into a joint venture agreement with respondents No. 1 and 2
on 2-10-1982. This agreement was amended on 2-6-1992. The controversy between
the parties arose as a consequence of the Board resolution allegedly passed in
its meeting held on 27-8-1997, to nominate Mr. R.S.S. L.N. Bhaskarudu, Joint
Managing Director, as Managing Director of the Board of Directors of respondent
No. 2, Maruti Udyog Ltd. with effect from the same date. The communication in
this regard reads as follows :
"Government of India
Ministry of Industry
Department of Heavy Industry
No.
2(8)/89-PE.VI Dated 27-8-1997
To,
Shri Abhijit
Mukhopadhyay,
Company
Secretary,
Maruti Udyog
Limited,
25, K.G.
Marg,
New Delhi.
Subject : Appointment of Managing Director in Maruti Udyog Ltd. (MUL)
on behalf of Government of India
Sir,
In pursuance
of article 88(4) of the articles of association of Maruti Udyog Ltd. (MUL), the
Government has appointed Shri R.S.S. L.N. Bhaskarudu, JMD, MUL, as Managing
Director on the Board of Directors of MUL w.e.f. 27-8-1997 and till further
orders.
Yours faithfully,
Sd/—Sanjay Bhatia,
Deputy Secretary"
3. The
learned counsel for the petitioner has vehemently argued that in the above said
Board meeting this decision could not have been taken as nominees of the
petitioner-company were in majority and they had protested against the
appointment of R.S.S.L.N. Bhaskarudu. The Board, therefore, could not have
passed this resolution. The following grounds of attack have been reiterated :
(a) The appointment is
illegal, void, invalid and ultra vires. The resolution was never passed and
could not have been passed as the nominees of the petitioner-company had
rejected the appointment;
(b) The resolution passed,
in any case, on 27-8-1997, if put to vote would have been defeated by a margin
of 5 to 4;
(c) The respondents failed
to comply with the provisions of article 5.4 which lays down 'that all major
corporate decisions with respect to Maruti Udyog Ltd. will be made only after
consultation with Suzuki Motor Corpn. and with the concurrence of Suzuki Motor
Corpn. The major corporate decisions with respect of Maruti Udyog Ltd. shall
mean an action requiring shareholders' approval under the Companies Act, 1956.'
The concurrence of the nominees of the petitioner was not obtained and the
purported resolution dated 27-8-1997, could not be given effect to;
(d) There was no vacancy as on 27-8-1997, as the previous
managing director took over on 28-8-1997, and he would only be deemed to have
vacated the office at the close of 5th annual general meeting of shareholders
which is now fixed to be held on 22-9-1997. Therefore, there was no vacancy as
on 27-8-1997, when the Board allegedly approved the appointment of Mr. Bhaskarudu.
4. On the other hand,
the learned Attorney General has argued that the present petition under section
9(ii)(e) of the Arbitration and Conciliation Act, 1996, for interim measures is
not maintainable in law. Mr. R.S.S.L.N. Bhaskarudu acted as managing director
of respondent No. 2 since 27-8-1997, for the last three weeks and to impugn his
appointment at the belated stage on the eve of the annual general meeting in
the present proceedings is not permissible in law. It will not be in the
interest of justice to stop a meeting as no restraint order can be passed on
the facts and in the circumstances of the case. There is no balance of
convenience or prima facie case in favour of the petitioner-company. The new
managing director was earlier the joint managing director of the company and he
is fully qualified to hold the present post. The concurrence of the petitioner
company was not required in terms of the joint venture agreement. The learned
Attorney General has made reference to the amended joint venture agreement
dated 2-6-1992, particularly, to the provisions of article 5.2 to show that the
word 'consultation' is missing in the amended provisions. Therefore, it was not
imperative on the part of the respondent company to have consultations before
appointment of the managing director. The only condition which was applicable
was that the petitioner and the Government shall have the right to designate
the managing director by turns provided that the party which nominates the
managing director shall be entitled to remove such managing director and
nominate the new managing director for the term of the office on the expiry of
term of office of the predecessor. It is submitted that presently, it is the
turn of the Government to nominate the managing director and the petitioner
company should have no grievance on that account. Lastly, in answer to the plea
of the petitioner that the appointment of the managing director could only take
place at the annual general meeting and the meeting of the Board held on 27-8-1997,
nominating the managing director was bad in law, the learned Attorney General
has cited the provision of section 317 of the Companies Act, 1956 ('the Act')
which lays down that no company shall, after the commencement of this Act,
appoint or employ any individual as its managing director for the term
exceeding 5 years at a time. The period of the previous managing director as
nominated by the petitioner company having expired on 27-8-1997, it was
imperative in law to appoint a new managing director.
5. The
clauses which are relevant for deciding the present controversy between the
parties may be reproduced as follows :
“5.1 Confirmation of the
provisions of the joint venture agreement and Maruti s articles of
association.—All agreements, promises, representations, warranties and/or
provisions set forth in the joint venture agreement, as amended by this article
5, shall remain in full force and effect in accordance with their respective
terms as so amended.
5.2 Board of directors and
management.—Notwithstanding the provisions of article 5 of the joint venture
agreement, the parties hereto hereby agree as set forth below with respect to
the Board of directors, officers and management of Maruti :
(a) Article 5.1 of the Joint Venture
Agreement shall be amended to read as follows :
'5.1 Board of
directors.—The Board of directors of Maruti will consist of not more than
twelve (12) persons. The Board of directors will have the right to manage and responsibility
for the management of Maruti. All directors of Maruti shall be nominees of
Suzuki and the Government. So long as Suzuki and/or its subsidiary or
subsidiaries and the Government (and/or any financial institution wholly owned
by the Government) together with shares held by Maruti Udyog Employees Mutual
Benefit Fund hold 50% each in the issued share capital of Maruti, both Suzuki
and the Government shall be entitled to nominate an equal number of directors
on the Board of Maruti. Suzuki and the Government, as the case may be, shall be
entitled to remove the directors nominated by each of them.
The
Government and Maruti shall take and cause directors of Maruti to take any and
all steps required for any purpose contained in this clause 5.1 under the
articles of association and other regulations of Maruti and the laws of India.
The term of office of the Chairman of the Board of directors shall expire at
the close of the fifth annual general meeting of shareholders to be held
following his assumption of office. The Chairman of the Board of directors
shall be nominated by Suzuki and the Government by turns : provided that the
party which nominates the Chairman of the Board of directors shall be entitled
to remove such Chairman and nominate the new Chairman of the Board of directors
for the term of office upto the expiration of the term of office of the
predecessor. The Government shall cause the Chairman of the Board of directors
in office as of the date of this agreement to retire at the close of the annual
general meeting of shareholders to be held first following the date of this
agreement (such meeting currently scheduled to be held on or before 31 July,
1992) and the Government shall have the right to designate the next Chairman of
the Board of directors to be appointed at such annual general meeting of
shareholders. Chairman shall be a part-time director of Maruti.'
(b) Article 5.2 of the Joint Venture
Agreement shall be amended to read as follows :
'5.2
Officers.—The managing director shall be the chief executive officer of Maruti,
who will have the power and authority to represent Maruti. The term of office
of the managing director shall expire at the close of the fifth annual general
meeting of shareholders to be held following his assumption of office. Suzuki
and the Government shall have the right to designate the managing director by
turns: provided that the party which nominates the managing director shall be
entitled to remove such managing director and nominate the new managing
director for the term of office upto the expiration of the term of office of
the predecessor. The Government shall cause the managing director in office as
of the date of this agreement to retire at the close of the annual general
meeting of shareholders to be held first following the date of this agreement
(such meeting currently scheduled to be held on or before 31 July, 1992) and
Suzuki shall have the right to nominate the next managing director to be
appointed at such annual general meeting of shareholders. Any nominee as
managing director shall be the person who has an experience of work for Maruti
as employee and/or full time officer for not less than three consecutive years
before the nomination and is well acquainted with matters of Maruti. The
aforesaid qualifications for nominee as managing director may be waived or
modified in a particular case when Suzuki and the Government so agree for such
case. Notwithstanding any provision herein contained to the contrary, in case
the Government and Suzuki so agree, the managing director can concurrently be
the Chairman of the Board of directors. Suzuki, the Government and Maruti shall
take any and all steps required for any purpose set forth in this clause 5.1
under the articles of association and other regulations of Maruti and the laws
of India. The officers of Maruti will perform such duties as are required by
law and as are authorised by resolution of the Board of directors. When the
managing director proposes any agenda concerning a matter important for
operation or management of Maruti, such proposal shall be made after
consultation with the Chairman of the Board.'"
The above
provisions are also incorporated in article 88 of the articles of association
of Maruti Udyog Ltd., respondent No. 2 company, as framed in pursuance to the
provisions of the Companies Act.
6. Article
10 of the agreement dated 2-10-1982, provided the arbitration agreement. The
amended agreement dated 2-6-1992, also contained an arbitration clause in
article 7.7 which may be reproduced as follows :
"7.7
Arbitration.—Any and all claims, disputes, controversies, disagreements or
differences between the parties arising out of or in relation to or in
connection with this agreement or a breach hereof, which cannot be
satisfactorily settled by correspondence or mutual conference between the
parties hereto, shall be determined by arbitration in accordance with the then
prevailing rules of conciliation and arbitration of the International Chamber
of Commerce by one or more arbitrators appointed in accordance with such rules
upon written request of any party hereto. The site of such arbitration shall be
London, United Kingdom. The decision of such arbitrator or arbitrators shall be
final and binding upon the parties hereto and judgment thereon may be entered in
any court having jurisdiction thereon or application may be made to such court
for judicial acceptance of the award and/or order of enforcement, as the case
may be."
7. The short
question in the present facts which arises for consideration in this petition
is as to whether it will be open for the court to pass restraint orders and
stop annual general meeting of the company which is scheduled to be held on
22-9-1997, at 3 P.M. The parties, admittedly, have equal stakes in the joint
venture and it cannot be categorically said that views of each other can be
by-passed, ignored and considered irrelevant. The term of the previous managing
director who was the nominee of the petitioner company was approved in the
annual general meeting held on 28-8-1992, when the following resolution was
passed :
"Item
No. 3. To approve the appointment of Shri R.C. Bhargava, as Managing Director -
With the consent of all members present in the meeting Shri R.S.S.L.N.
Bhaskarudu, Director (Materials), chaired the meeting for this item of business
as it concerned Shri R.C. Bhargava, Chairman of the meeting.
Smt. Abha
Anand Kishore, authorised representative of the President of India, proposed
the following motion to be passed as special resolution :
'Resolved
that in terms of article 88 of the articles of association of the company Shri
R.C. Bhargava be and is hereby elected and appointed as hereunder:....'"
8. The above
resolution would indicate that Mr. Bhargava was appointed for a period of five
years with effect from 28-8-1992, and the period of five years obviously had
expired on 27-8-1997, when the Board took up the matter to appoint his
successor. The relevant portions of the minutes of the Board meeting which took
place on 27-8-1997, read as under :
"The
Board examined the position and concluded that the tenure of Shri Ravindra
Chandra Bhargava as managing director expired on 27-8-1997. Mr. Yoshio Saito,
director, stated that he could not accept Government's nominee as managing
director and that there was no need for a managing director till the next
annual general meeting. Chairman and Shri Anup Mukerji pointed out that it was
necessary to have a managing director for a company with operations of the size
of MUL and that substantial powers of management stand delegated to the managing
director. Hence, there was a need for the managing director.
The Board thereafter taking all this into account,
passed the following resolutions subject to the approval of the shareholders at
the ensuring annual general meeting of the company :
1. Resolved that in terms of article 88(4) of the articles of
association and subject to the provisions of sections 198,309,310,311, Schedule
XIII, and other applicable provisions, if any, of the Companies Act, 1956, Mr.
R.S.S.L.N. Bhaskarudu be and is hereby appointed as managing director of the
company w.e.f. 27-8-1997 till the conclusion of the 5th annual general meeting
of the company to be held following his assumption of office subject to the
approval of the shareholders in the annual general meeting on the following
terms and conditions………."
9. The Board in view
of the above, approved the appointment of Mr. R.S.S.L.N. Bhaskarudu as managing
director of the company with effect from 27-8-1997, till the conclusion of the
5th annual general meeting of the company following his assumption of office
subject to the approval of the shareholders. The learned Attorney General is
quite right to contend that in view of the provisions of section 317 an embargo
is placed on the company that the term of the managing director cannot exceed
five years at a time. Section 317 reads as follows :
"317.
Managing director not to be appointed for more than five years at a time.—(1)
No company shall, after the commencement of this Act, appoint or employ any
individual as its managing director for a term exceeding five years at a time.
(2) Any individual holding at the commencement of
this Act the office of managing director in a company shall, unless his term
expires earlier, be deemed to have vacated his office immediately on the expiry
of five years from the commencement of this Act.
(3) Nothing contained in sub-section (1) shall be
deemed to prohibit the re-appointment, re-employment, or the extension of the
term of office, of any person by further periods not exceeding five years on
each occasion :
Provided that any such re-appointment, re-employment
or extension shall not be sanctioned earlier than two years from the date on
which it is to come into force.
(4) This section shall not
apply to a private company unless it is a subsidiary of a public company."
Therefore, on the above basis, the appointment of
managing director cannot be said to be outside the framework of the statutory
provisions as well as of the joint venture agreement.
10. The
judgments as in Bentley-Stevens v. Jones [1974] 2 All ER 653; United Commercial
Bank v. Bank of India AIR 1981 SC 1426; Life Insurance Corporation of India v.
Escorts Ltd. AIR 1986 SC 1370; Dalpat Kumar v. Prahlad Singh [1992] 1 SCC 719
and Gujarat Bottling Co. Ltd v. Coca Cola Co. [1995] 5 SCC 545 have been cited
by the learned counsel for the respondents to reiterate the proposition that
the court would not grant an interlocutory injunction in respect of
irregularities which could be cured by going through a proper process.
11. In
Bentley-Stevens' case (supra) the notice of motion which was before the court
asked for an order on behalf of the plaintiff restraining the defendants and
each of them until the trial of the action or further order from acting upon
the resolution purported to have been passed by the defendant company at a
purported extraordinary general meeting thereof held at 9.30 A.M. on 26-2-1974,
removing the plaintiff as a director of the defendant company. The following
passage from the judgment may be reproduced as follows :
"The
plaintiff's case is first of all that proper notice of the Board meeting of
Holdings on Monday, 28 January, 1974, was not given, with the consequence that
the proceedings of that meeting, and everything that flowed from them, were
invalid. Secondly, it was submitted on behalf of the plaintiff that even if
sufficient notice of the meeting was given, a Board meeting of the defendant
company was necessary before an extraordinary general meeting of that company
could be validly convened, and no such meeting was ever held, with the
consequence that the extraordinary general meeting was not properly convened
and its proceedings were, therefore, a nullity. Alternatively, counsel for the
plaintiff submitted that this is what is popularly known as a
'quasi-partnership' case and that on the principles enunciated by the House of
Lords in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL)], the
court should restrain the first and second defendants, as two of the three
partners in the quasi-partnership, from expelling the third partner, namely,
the plaintiff.
I will deal
with the first and second submissions together. In my judgment, even assuming
that the plaintiff's complaint of irregularities is correct, this is not a case
in which an interlocutory injunction ought to be granted. I say that for the
reason that the irregularities can all be cured by going through the proper
processes and the ultimate result would inevitably be the same. In Browne v. La
Trinidad [(1888) 37 Ch D 1], Lindley LJ said :
'I think it
is most important that the court should hold fast to the rule upon which it has
always acted, not to interfere for the purpose of forcing companies to conduct
their business according to the strictest rules, where the irregularity
complained of can be set right at any moment.'
It seems to me that the motion which is before me falls within the
principle stated by Lindley LJ."
12. The case
as reported in United Commercial Bank's case (supra) is not of great relevance
when it is correlated to the facts of the present case. It is only said by the
Supreme Court that the court usually refrains from granting injunction to
restrain the performance of the contractual obligations arising out of letter
of credit or a bank guarantee between one bank and another.
13. In Escorts
Ltd's case (supra) the case of Bentley Stevens' (supra) was referred to by the
Supreme Court reads as under :
"99.
Again in Bentley-Stevens v. Jones [1974] 2 All ER 653, it was held that a
shareholder had a statutory right to move a resolution to remove a director and
that the court was not entitled to grant an injunction restraining him from
calling a meeting to consider such a resolution. A proper remedy of the
director was to apply for a winding-up order on the ground that it was 'just
and equitable' for the court to make such an order. The case of Ebrahimi v.
Westbourne Galleries Ltd. (1972) 2 All ER 492 was explained as a case where a
winding-up order was sought. In the case of Ebrahimi v. Westbourne Galleries
Ltd (supra) the absolute right of the general meeting to remove the directors
was recognised and it was pointed out that it would be open to the director
sought to be removed to ask the Company Court for an order for winding-up on
the ground that it would be 'just and equitable' to do so. The House of Lords
said ;
'My Lords,
this is an expulsion case, and I must briefly justify the application in such
case of the just and equitable clause…….The law of companies recognises the
right, in many ways, to remove a director from the Board. Section 184 of the
Companies Act, 1948, confers this right on the company in general meeting
whatever the articles may say. Some articles may prescribe other methods, for
example, a governing director may have the power to remove [Cf. Re Wondoflex
Textiles Pty. Ltd. (1951) VLR 458], And quite apart from removal powers, there
are normally provisions for retirement of directors by rotation so that their
re-election can be opposed and defeated by a majority, or even by a casting vote.
In all these ways, a particular director member may find himself no longer a
director, through removal, or non-re-election : this situation he must normally
accept, unless he undertakes the burden of proving fraud or mala fides. The
just and equitable provision nevertheless comes to his assistance if he can
point to, and prove, some special underlying obligation of his fellow member(s)
in good faith, or confidence, that so long as the business continues, he shall
be entitled to management participation, an obligation so basic that, if
broken, the conclusion must be that the association must be dissolved...."
(p. 1423)
14. In Dalpat
Kumar's case (supra) the principle that existence of a prima facie case must be
shown that non grant of injunction must result in irreparable injury to the
parties seeking relief. Paragraph 5 of the judgment may be reproduced as
follows :
"5.
Therefore, the burden is on the plaintiff by evidence aliunde by affidavit or
otherwise that there is 'a prima facie case' in his favour which needs
adjudication at the trial. The existence of the prima facie right and
infraction of the enjoyment of his property or the right is a condition for the
grant of temporary injunction. Prima facie case is not to be confused with
prima facie title which has be established, on evidence at the trial. Only
prima facie case is a substantial question raised, bona fide, which needs
investigation and a decision on merits. Satisfaction that there is a prima
facie case by itself is not sufficient to grant injunction. The court further
has to satisfy that non-interference by the court would result in 'irreparable
injury' to the party seeking relief and that there is no other remedy available
to the party except one to grant injunction and he needs protection from the
consequences of apprehended injury, or dispossession. Irreparable injury,
however, does not mean that there must be no physical possibility of repairing
the injury, but means only that the injury must be a material one, namely, one
that cannot be adequately compensated by way of damages. The third condition
also is that 'the balance of convenience' must be in favour of granting
injunction. The court while granting or refusing to grant injunction should
exercise sound judicial discretion to find the amount of substantial mischief
or injury which is likely to be caused to the parties, if the injunction is
refused and compare it with that which is likely to be caused to the other side
if the injunction is granted. If one weighing competing possibilities or
probabilities of likelihood of injury and if the court considers that pending
the suit, the subject matter should be maintained in status quo, an injunction
would be issued. Thus the court has to exercise its sound judicial discretion
in granting or refusing the relief of ad interim injunction pending the
suit."
15. Similarly
in Gujarat Bottling Co. Ltd.'s case (supra) the court considered relevant tests
for exercise of discretion. The judgment makes the following reading :
"43. The
grant of an interlocutory injunction during the pendency of legal proceedings
is a matter requiring the exercise of discretion of the court. While exercising
the discretion, the court applies the following tests.— (i) whether the
plaintiff has a prima facie case; (ii) whether the balance of convenience is in
favour of the plaintiff; and (iii) whether the plaintiff would suffer an
irreparable injury if his prayer for interlocutory injunction is
disallowed. The decision whether or not to grant an interlocutory injunction
has to be taken at a time when the existence of the legal right assailed by the
plaintiff and its alleged violation are both contested and uncertain and remain
uncertain till they are established at the trial on evidence. Relief by way of
interlocutory injunction is granted to mitigate the risk of injustice to the
plaintiff during the period before that uncertainty could be resolved. The
object of the interlocutory injunction is to protect the plaintiff against
injury by violation of his right for which he could not be adequately
compensated in damages recoverable in the action if the uncertainty were
resolved in his favour at the trial. The need for such protection has, however,
to be weighed against the corresponding need of the defendant to be protected
against injury resulting from his having been prevented from exercising his own
legal rights for which he could not be adequately compensated. The court must
weigh one need against another and determine where the 'balance of convenience'
lies, [see Wander Ltd. v. Antox India (P.) Ltd. [1990] (Supp) SCC 727, at pages
731-32]. In order to protect the defendant while granting an interlocutory
injunction in his favour the court can require the plaintiff to furnish an
undertaking so that the defendant can be adequately compensated if the
uncertainty were resolved in his favour at the trial."
16. In view of the
settled position of law, as referred to above, the facts of the present case
may now be briefly examined. The term of the previous managing director had come
to an end after the expiry of five years from the date of his appointment. The
Board resolved in its meeting held on 27-8-1997, that the Government has
appointed Mr. R.S.S.L.N. Bhaskarudu, Joint Managing Director (MUL) as managing
director on the Board of directors of MUL with effect from 27-8-1997, and till
further orders. The appointment of managing director has to be in compliance
with the provisions of law and as contained in the agreement entered into
between the parties and must be ratified at the annual general meeting of
shareholders which is scheduled to be held on 22-9-1997. It is also not denied
that it is the turn of the respondent-company (MUL) to nominate its managing
director. The main grievance of the petitioner Corpn. is that there has been no
concurrence and no effective consultation and its nominees had opposed the
appointment of Mr. Bhaskarudu. The present petition has been filed under
section 9(ii)(e) of the Arbitration and Conciliation Act, 1996, for urgent
interim measures. The following relief is prayed for in the application :
"(a) stay the operation of the purported
resolution of the Board meeting of 27 August, 1997, purportedly appointing Mr.
R.S.S.L.N. Bhaskarudu as the managing director of respondent 2;
(b) restrain the holding of
the annual general meeting proposed to be held on 22 September, 1997;
(c) alternatively, restrain
respondents 1 and 2 from considering at the 16th AGM to be held on 22
September, 1997, the item No. 11 of the agenda, being the resolution for the
appointment of Mr. R.S.S.L.N. Bhaskarudu, as the managing director of
respondent 2;
(d) alternatively, appoint
a senior court official or the Registrar or a senior advocate of this Hon'ble
court to act as the Chairman of the 16th AGM of Maruti to be held on 22 September,
1997, and suspend the effect of the resolutions, if any, passed at the 16th
annual general meeting pending the adjudication of the disputes in the
International Commercial Arbitration initiated by the applicant."
17. Paragraph
9 of the application states that the request of arbitration has been forwarded
to the International Court of Arbitration of the International Chamber of
Commerce and the applicant/petitioner has requested Lord Mustill to be
appointed as a sole arbitrator to adjudicate upon the disputes, differences and
claims arising out of the JVA on a fast track route.
18. Mr.
Bhaskarudu is functioning as managing director of respondent No. 2 with effect
from 27-8-1997, till date (for about three weeks) and it will not be
appropriate to set aside or hold his appointment in abeyance and stay the
operation of the resolution appointing him or to restrain the holding of annual
general meeting proposed to be held on 22-9-1997. The appointment, in any case,
has to be ratified at the annual general meeting where in the petitioner
Corporation will be at liberty to raise objections.
19. The
question which has been highlighted and agitated is that the consent,
concurrence and opinion of the petitioner Corporation was not taken into
consideration before nominating Mr. Bhaskarudu. This question as to whether it
was incumbent on the respondent company to take the decision in consultation
and concurrence with the petitioner will have now to be determined by the
arbitrator as the petitioner has chosen to take recourse to that remedy as
provided by article 7.7 of the joint venture agreement. As, admittedly,
disputes and differences have arisen between the parties out of or in relation
to or in connection with the agreement, the petitioner Corporation has taken
recourse to arbitration and approached an appropriate authority in this regard.
Articles 3 and 4 of the ICC Rules of Conciliation and Arbitration may be read
as follows :
Article 3 :
Request for Arbitration
1. A party wishing to have
recourse to arbitration by the International Chamber of Commerce shall submit
its request for arbitration to the Secretariat of the International
Court of Arbitration, through its National Committee or directly. In this
latter case, the Secretariat shall bring the request to the notice of the
National Committee concerned.
The date when the request is received by the
Secretariat of the Court shall, for all purposes, be deemed to be the date of
commencement of the arbitral proceedings.
2. The request for
arbitration shall inter alia contain the following information :
(a) names in full, description, and addresses of the parties,
(b) a statement of the claimant's case,
(c) the relevant agreements, and in particular, the agreement to arbitrate, and such documentation or information as will serve clearly to establish the circumstances of the case,
(d) all relevant particulars concerning the number of arbitrators and their choice in accordance with the provisions of Article 2 above.
3. The Secretariat shall send a copy of the request and the documents
annexed thereto the defendant for his answer.
Article 4 : Answer to the Request
1. The defendant shall within 30 days from the receipt of the documents
referred to in paragraph 3 of article 3 comment on the proposals made
concerning the number of arbitrators and their choice and, where appropriate,
nominate an arbitrator. He shall at the same time set out his defence and
supply relevant documents. In exceptional circumstances, the defendant may
apply to the Secretariat for an extension of time for the filing of his defence
and his documents. The application must, however, include the defendant's
comments on the proposals made with regard to the number of arbitrators and
their choice and also, where appropriate, the nomination of an arbitrator. If
the defendant fails so to do, the Secretariat shall report to the International
Court of Arbitration, which shall proceed with the arbitration in accordance
with these Rules."
20. An affidavit has also
been filed in court by Director and General Manager of Asia and Oceanza,
Automobiles Department, Overseas Automobile Marketing Division, Suzuki Motor
Corporation, which reads as under :
"Affidavit
I, J.
Sugimori, son of Shri Yuri Sugimori, aged 55 years, resident of 1-406, 2640
Tomitsuka, Hamamastu, Japan, and temporarily resident in New Delhi do hereby
solemnly affirm and declare as under :
1. I state that I am the
Director and General Manager of Asia and Oceanza, Automobiles Department,
Overseas Automobile Market ing Division, Suzuki Motor Corporation.
2. I state that Suzuki Motor
Corporation commenced the arbitration proceedings before the commencement of
section 9 proceedings in the Hon'ble Delhi High Court.
3. I state that M/s. Amar Chand
and Mangal Das and Suresh A. Shroff & Co., the Solicitors and Advocates of
Suzuki Corporation, by their communication dated 18 September, 1997, bearing
No. D-AB/6-A0001-02-03 sent out the requests to arbitrate to the International
Chamber of Commerce (International Court of Arbitration) by Fax No.
003349532933) and 10.35 A.M.
4. The same request was also couriered by them at 14-50 hours on
the 18th of September.
5. I also state that a sum of
US $2,000 was also telex paid to the account of the International Court of Justice
in Switzerland (Bank SARASIN & Co.). A copy of the courier slip and fax
despatch sheet is enclosed herewith as Annexures A and B respectively.
Solemnly affirm at New Delhi on this the 19th day of September,
1997."
21. The
question as to whether the consultation and concurrence of the petitioner
Corporation was required in the Board meeting which was held on 27-8-1997, will
have to be determined by the arbitrator and the proceedings in this regard have
since been commenced by the petitioner. It is established from record that the
consent and concurrence of the petitioner was not taken while nominating the
present managing director of the respondent company. In any case, his
appointment has to be concurred and approved at the annual general meeting and
it will not be in the interest of justice to restrain holding of such a
meeting. The petitioner will not suffer any irreparable injury which cannot be
cured at a subsequent stage when the proceedings in arbitration are concluded.
In view of the above, the present petition is disposed of with the following
directions :
A. The proposed annual
general meeting of the company shall be held on 22-9-1997, as scheduled as no
prima facie ground is made out for restraining the holding of such meeting in
the facts and circumstances of the present case;
B. The appointment of Mr. R.S.S.L.N. Bhaskarudu in the Board
meeting held on 27-8-1997, in case it is finally approved by the shareholders
in the annual general meeting shall be subject to the decision/ award as may be
rendered by the arbitrator in the arbitration proceedings which have since
commenced.
22. During the course of
arguments it was put to learned counsel for the parties to sit across the table
and find an amicable solution to the controversy which has been raised. They
have very fairly stated that the matter is still open and they will examine the
pleas and talk to each other to find out whether the disputes can be resolved.
However, it has now been stated that there is no progress in this regard to
resolve the same.
23. Regretfully, I am
constrained to say that the resondent Government in the press as well as on
television made certain statements which cannot be said to be in the best
interests of the parties and should have been avoided when the matter was subjudice
before the court. The following paragraph which appeared in the daily newspaper
'The Economic Times' dated 29-9-1997, may be reproduced :
"Maran
calls Suzuki's bluff, says suitors a dozen.—The face off between the Government
and Suzuki Motor Corporation worsened today with Industry Minister Murasoli
Maran cocking a snook at Suzuki saying other candidates were ready to step in
if the Japanese car maker pulled out of the joint car venture Maruti Udyog Ltd.
'There are
thousands of people waiting', he said. 'The Americans are there, the Germans
are there, and there is no dearth of technology. There are several people
better than Suzuki', he told newsmen today.
Suzuki and
the Government, which jointly own MUL, are at loggerheads over the nomination
of the venture's new managing director. But Mr. Maran added the Government was
not averse to a dialogue with Suzuki to sort out the crisis. The interests of
Maruti would not be allowed to suffer at any cost.
'We are
waiting for the High Court's decision. It is not going to affect foreign
investment at all if Suzuki backs out.'
'Toyota is there. All the automobile majors are waiting to jump to this
opportunity', he said."
Similarly, the headlines in 'The Times of India' of the same date read
as follows :
"Suzuki is welcome to step out of Maruti: Maran says other foreign
automobile majors are ready to invest
New Delhi :
Industry Minister Murasoli Maran on Friday said Suzuki Motor Corporation (SMC)
was welcome to withdraw from Maruti Udyog Ltd. (MUL) if it so desired, adding
there were other automobile majors waiting to step in.
'We welcome
it if Suzuki decides to step out', 'let them go', he said when asked what would
happen if the Japanese company decided to step out owing to differences between
the two parties. Even if Suzuki backed out, it would not affect foreign
investment inflow into India, he added. 'Why should it, every foreign major is
in India?' he said."
24. Similar
news items have appeared in other newspapers as well as on television. These
are most unfortunate when the proceedings have been pending in court. The
Government must realise that it is dealing with such situations on behalf of
the country as well as the people. The matters of public importance may have to
be ratified by the Parliament which is supreme and is representative of people.
There cannot be any absolute discretion with one individual. The concept of
'discretion' has been defined by a recent judgment of the Division Bench of
this court in Centre for Public Interest Litigation v. Union of India [1997] 68
DLT 650. From the judgment reads as under :
"In
these cases where the allotments of petrol pumps, etc., made by the Minister
under his discretionary quota have been called in question, it is necessary to
lay down as to what is the concept of 'discretion'. 'Discretion' implies good
faith in discharging public duties. The exercise of 'discretion' has to be
based on relevant considerations. When it is exercised by taking into
extraneous considerations such action has to be quashed. The concept of
absolute, untrampled or unfettered 'discretion' is wholly inappropriate to a
public authority. When given power to exercise 'discretion' it has to be used
for public good. The concept of unfettered 'discretion' is appropriate only
when dealing with a private property and not when dealing with public property.
'Discretion' does not empower a person to do what he likes. He has to act
reasonably. When it is found that no right thinking or conscientious person
would have exercised the 'discretion' in the manner it was exercised, the
action will have to be quashed. The power is to use the 'discretion' and not
abuse it. The authority granted 'discretion' has to exercise power in a
fiduciary capacity. If the court finds that there were illegitimate motives in
exercise of the 'discretion', the action would not be sustained. While going
into individual cases, we have kept in view that it is not for this court to
usurp the 'discretion' of public authority. If the decision to make
discretionary allotment is within the confines of reasonableness, this court
will not go into the merits, even if two views are possible. But, at the same
time, arbitrary exercise of 'discretion' cannot be legitimated (legitimized?)
by this court. The court may overlook certain aberrations and allow
considerable freedom of 'discretion' on being satisfied that the public
authority was acting bona fide but at the same time when it is found that by
exercising discretionary powers allotments were given only as benevolence
to those who do not deserve it, and the grant of such benevolence was for
illegitimate motives, the court is duty bound to set right the wrong...."
Further it is said in paragraph 17 :
"What is given away by way of exercise of discretionary
power is not the personal property of an individual. It is the property of the
people of the country. The personal property can be given away at one's whim
and fancy. That cannot be the standard while parting with the property of the
others, namely, the Nation. We may note that most of these petrol pumps
particularly, in big cities like Delhi, Bombay, Bangalore, Calcutta and Madras,
are worth huge amounts if put to auction. If a person has to acquire a petrol
pump in a city like Delhi he would have to spend lakhs of rupees. We are not
suggesting that ignoring these financial aspects or loss of revenue which may
result on grant of discretionary allotment, the Government cannot make
allotment for the benefit of certain persons or class of persons to carry out
its welfare object. Such allotments, however, have to be made on rational basis
and on consideration of relevant factors whether there exists or not any
written guideline. If there are no written guidelines governing such
discretionary allotments, the yardstick has to be reasonableness and fairness
of action. If the procedure is not laid down, it only means a reasonable and
just procedure from the viewpoint of a reasonable average man. This has to be
the standard while considering the exercise of discretionary power of the
Government in the matter of grant of allotments concerning the public property.
Non-adherence to these principles has necessarily to result in quashing of
impugned action. We are unable to accept the plea urged by some counsel
equating these allotments with that of favour for a bed in a Government
hospital or a railway ticket or a domestic gas connection or alike."
25. In view of the
above, it will not be correct to make sweeping statements as to who should step
out and who should come in. I will not say anything more on this question
except to reiterate that exercising restraint has its own advantages and in
discretion must be avoided.
26. Petition disposed of.