Company Law Board
Aidqua Holding (Mauritius) Inc. vs Tamil Nadu Water Investmant Company ... on 28 September, 2007
Equivalent citations: [2008]142COMPCAS497(CLB), [2008]83SCL434(CLB)
ORDER
K.K. Balu, Vice-Chairman
1. In the company petition filed under Sections 397, 398, 402 and 403 of the Companies Act, 1956 ('the Act") at the instance of the petitioners/respondents collectively holding 47.32% of the issued, subscribed and paid up capital of M/s New Tirupur Area Development Corporation Limited ("the Company"), on account of certain alleged acts of oppression and mismanagement in the affairs of the Company, the applicant/first respondent has come out with the present application under regulation 44 of the Company Law Board Regulations, 1991 to restrain the Company from holding any board meeting on 27.07.2007 at Tirupur and considering the matters in relation to - (a) appointment of the internal auditors of the Company; and (b) approval of directors' and officers' liability insurance policy for the Company, being the reserved matters as defined under Clauses 197(h) & (p) of the articles of association of the Company, in support of which Shri Sudipto Sarkar, learned Senior Counsel submitted as under:
1.1 The board meeting of the Company has been proposed at Tirupur in v complete disregard and contravention of the articles of association. Clause 190 of the articles provides that the board meetings of the Company will be held primarily either at Chennai or Mumbai, or at such other place as may be mutually decided upon by the board of directors. The purported reason being furnished for holding the board meeting at Tirupur is that the annual general meeting of the Company was being held at Tirupur on the same day, namely, 27.07.2007. It cannot be merely said that the decision regarding the annual general meeting will be applicable for the board meeting as well, in the light of the restriction prescribed in the articles. This reason of the Company is totally untenable and cannot be the basis for violating the terms of the articles of association of the Company.
1.2 The applicant's nominee, on receipt of the notice for the proposed board meeting at Tirupur, pointed out the requirement of the articles of association for a decision on the venue of the board meeting, and the past resolutions made by the board of directors regarding the circulation of a draft of the prior board minutes, which came to be discussed by the Company Secretary, in terms of the e-mail correspondence exchanged in this behalf. The Company Secretary in violation of the earlier board resolution, notified the board meeting for 27.07.2007 at Tirupur, which is not permissible under the articles. The e-mail correspondence dated 22.05.2007, 23.05.2007, 24.05.2007, 29.06.2007 and 31.07.2007 from the Company Secretary to the nominee director of the applicant showing that directors agreed to hold the next board meeting at Tirupur contemporeous with the annual general meeting at Tirupur in July and that the decision to fix the date of annual general meeting as well as the board meeting was delegated to the managing director are belied by the minutes circulated by the same Company Secretary, where there is no discussion regarding the venue and date of the next board meeting, much less, any resolution by the board to hold the meeting on 27.07.2007 at Tirupur.
1.3. Item No. 8 of the minutes of board meeting dated 27.04.2007 reveals that the managing director has been authorised to convene the annual general meeting at Tirupur on a convenient date in consultation with the Chairman. The minutes do not speak any thing about convening of the board meeting at Tirupur. The board of directors at the last board meeting held on 27.04.2007 never decided any thing regarding the date and venue of the next board meeting. The board meeting was scheduled for 27.07.2007 without seeking consent of the applicant's nominee. The minutes of the board meeting dated 27.04.2007, as circulated by the Company, does not even indicate that the venue of the board meeting at Tirupur was mutually agreed or even discussed. No consent was sought for or given by the applicant's nominee director to hold the board meeting at Tirupur or at any other place. Hence, the board meeting held on 27.07.2007 at Tirupur in violation of the articles of association of the Company is illegal and arbitrary.
1.4 The board meeting when held for the first time at Tirupur on 10.09.2004, there was no quorum and therefore, the board meeting came to be adjourned to 17.09.2004. Article 191(i) dealing with quorum for a board meeting stipulates that when any General Reserved Matter is to be considered, no quorum shall be deemed to be present unless at least 1 (one) nominee director of each Shareholder (who is entitled to nominate director(s) under article 119 and 120) is present at the board meeting; and further any AIDQUA Reserve Matter is to be considered, no quorum shall be deemed to be present unless at least l(one) nominee director of AIDQUA is present at such board meetings. Article 192(1) provides that if a board meeting could not be held for want of quorum, the meeting shall be automatically adjourned to the same day in the following week at the same time and place or if that day is not a business day till the next business day, as specified therein. If at such adjourned meeting, the quorum is not present within one-half-of an hour of the time appointed for the meeting, then at the adjourned meeting one-third of the total strength of the board or 2 directors, whichever, is higher, present at such adjourned meeting shall constitute the quorum. However, in the event of a nominee director of the applicant is not present for the said adjourned meeting, no General Reserved Matter or AIDQUA Reserved Matter will be considered at the adjourned meeting. Article 193 specifies that in the case of an AIDQUA Reserved Matter, no board resolution shall be effective and valid unless it is adopted by the affirmative vote of at least one nominee of AIDQUA.
1.5 The articles of association of the Company provide for mandatory requirement of affirmative vote by the applicant in certain matters before the board of directors, which are classified as "AIDQUA Reserved Matters" and are set out in Clause 197 of the articles. A number of agenda items, including (i) appointment of the internal auditors of the Company and (ii) approval of the directors' and officers' liability insurance cover for the Company proposed at the board meeting of 27.07.2007 fall within the scope of "AIDQUA Reserved Matters", as defined under Clause 197 (p) and (h) of articles of association of the Company. The whole object of article 197(p) is to cover the financial matters of the Company. By virtue of article 197(p), appointment or removal of any auditor or change in any accounting policies of the Company must be approved by the applicant. Articles of association is a business document and the applicant's consent is required while approving any AIDQUA Reserved Matter. Since, the appointment of internal auditors is an AIDQUA Reserved Matter, it would not be valid until the same is approved by the applicant. Nevertheless, the board of directors constituting only three, out of which two are nominated by the first petitioner and the other one being nominee of IDBI, in disregard of the articles appointed M/s Ray and Ray as the internal auditors of the Company for a period of two years commencing form the financial year 2007-2008. M/s Ray and Ray are presently the statutory auditors of the first petitioner Company, a majority shareholder in the Company and therefore, appointment of M/s Ray and Ray as internal auditors of the Company would inevitably result in a conflict of interest and set up a poor corporate governance precedent. Article 169 makes it clear that no nominee of the first petitioner will be appointed on the Audit Committee & Project Management Committee. By appointing Ray & Ray as the internal auditors, they, being the statutory auditor of the first petitioner will form part of the audit committee contrary to Article 169. The first petitioner may furnish a list of Chartered Accountants to enable the applicant to agree for appointment of any one common Chartered Accountant as internal auditor of the Company. The Company had never any internal auditor and there is no need for any such appointment of internal auditor. There is no urgency in the matter in view of litigation between the parties.
1.6 The Company proposed to take insurance policy, by which it would be purchasing the indemnity/insurance for wrongful acts done by-the officers and directors of the Company. The insurance policy will cover former, present and future members of the board of directors and the management for wrongful acts in their official capacity, which shall include misuse of corporate funds, Companies Act violations, customer suits, financial loss to corporation, action by creditors etc. This will encourage nominee directors of the petitioners, being majority shareholders, officers and employees to commit such wrongful acts. Any approval for such policy will adversely affect the proper functioning of the Company. However, every director, officer or servant of the Company is already indemnified by the Company under Clause 320 of the articles and there is no need for any additional liability insurance cover. The Company would become liable to pay premium for such insurance policy. Thus, any resolution in regard to the insurance policy falls within the scope of AIDQUA Reserved Matter, attracting Clause 197(h) of the articles. Nevertheless, the board of directors, in disregard of the articles accorded its consent for obtaining directors' and officers' liability insurance cover for the Company to an extent of Rs. 5 crore. The applicant does not get any return on its investment of Rs. 90 crore in the Company and the applicant should have some control over the accounts and financial policy of the Company by requiring their affirmative vote in financial matters as held in IL & FS Trust Co. Limited v. Birla Perucction Limited (2004) Vol. 121 CC 335. The above two issues considered at the board meeting are essentially related to the management and affairs of the Company and any resolution on the same will cause prejudice to the interest of the Company and the applicant, more so when they are contrary to the articles and totally illegal. The Bench may suspend the implementation of the resolutions in respect of the AIDQUA Reserved Matters passed at the board meeting held on 27.07.2007 at Tirupur. The petitioners are endeavouring to remove all the restrictions contained in the articles, which are prejudicial to the applicant and cannot be allowed, especially when the said article protects the applicant's interest.
1.7 At the board meeting held on 27.04.2007 six directors were present, out of, whom only two directors attended the board meeting held on 27.07.2007, on which date the Chairman sought to ascertain if any director has comments on the minutes of the board meeting of 27.04.2007. The comments of other directors including the Chairman who presided over the board meeting on 27.04.2007 were not received. The IDBI nominee, who did not participate, could not know any mistake in the minutes of the board meeting dated 27.04.2007. The applicant's nominee in his e-mail pointed out that no resolution was passed at the board meeting on 27.04.2007 fixing the venue of the next board meeting on 27.07.2007 at Tirupur. Therefore, these two out of six directors cannot amend the minutes dated 27.04.2007. Consequently, the minutes of the board meeting 27.04.2007 as amended on 27.07.2007 to the effect that the annual general meeting was due to be convened in July and hence the next board meeting could also be held on the same date at Tirupur and the board delegated the decision to fix the date of annual general meeting and the board meeting to Mr. Sameer Vyas are not in consonance with article 190. The amended resolution amounts to afresh resolution, which cannot be retrospectively applied. Hence, none of the resolutions passed at the board meeting held on 27.07.2007 can be implemented.
2. Shri C.A. Sundarm, learned Senior Counsel representing the respondents/petitioners opposed the company application on the following grounds:
2.1 The application having been filed belatedly is not maintainable. The board at its last meeting held on 27.04.2007 decided to hold the annual general meeting on 27.07.2007 at Tirupur. The directors would be attending the annual general meeting and hence it was decided to hold the board meeting along with the annual general meeting. Thus, there has been no violation of article 190 by the Company. The Company's registered office is at Tirupur and no prejudice or hardship would be caused to any of the directors to attend the board meeting at Tirupur. The applicant's nominee who had attended the last board meeting had not expressed any objections to hold the board meeting at 1'irupur along with the annual general meeting. The applicant's nominee was reportedly not in a position to attend the board meeting at Tirupur on account of his compelling prior commitments, for which the board meeting cannot be postponed. Furthermore, it would cause inconvenience to all the other directors, who were to attend the board meeting. The only basis on which the applicant's nominee opposed the holding of the board meeting is that he is unable to recollect the decision to hold the board meeting at Tirupur.
2.2 By virtue of article 197(p) the applicant's consent will be required if there is any change in the auditors of the Company. Auditor, as per Article 2, means the statutory auditor of the Company as appointed from year to year. Article 2 further provides that words importing the singular number only, include the plural number and vice versa. M/s Gopal & Moorthy, Chartered Accountants are the statutory auditors. "Independent auditor" has the meaning as set out in the Concession Agreement, article 16 which prescribes the procedure for appointment of an independent auditor. Accordingly, the Tamil Nadu Government by a G.O. dated 28.05.2002 approved the name of M/s. SB Billimoria & Company, Chartered Accountants, to be the independent auditor of the Company. There is no provision in the articles governing appointment of "internal auditors". The appointment of an internal auditor does not either fall within the ambit of article 197(p), as it deals only with any change in the accounting policies of the Company or with appointment of an independent auditor or auditors of the Company. When appointment of the internal auditor came up for consideration in September, 2004, the applicant's nominee raised a similar objection stating that it is a Reserved Matter and did not attend the board meeting on 10.09.2004. Consequently, the said meeting did not take place and thereafter it was conceded that the appointment of internal auditors is not a Reserved Matter, upon which M/s. Brahamaya & Co. Chartered Accountants came to be appointed as the internal auditors, who however, did not take up the assignment. This is not denied by the applicant.
2.3 Article 197(h) stipulates that the applicant's consent will be required only in the event of assuming or providing any guarantee or indemnities or becoming liable for the obligations of any other person. The board of directors accorded consent for obtaining directors' and officers' liability insurance policy for the Company, which is standard insurance policy, for an amount of Rs. 5 crore. Therefore, the insurance policy approved by the board of directors is not a Reserved Matter, covered by article 197(h), which deals only with the Company providing a guarantee or indemnity.
2.4 Any restriction contained in the articles of association must be strictly construed. The Apex Court held in (i) V.B. Rangaraj v. V.B. Gopalakrishnan that in determining the extent of any restriction contained in the articles, a strict interpretation must be adopted. In Bhavnagar University v. Patitana Sugar Mills Private Limited the Supreme Court, while dealing with interpretation of legislation held that it ought not to be assumed without the clearest language that the legislature intends to destroy common law rights. The presumption is that the legislature intends not to interfere with any legal rights or any legitimate expectations of any person whatsoever. Any rights, whether private or public, cannot be taken away or hampered by implication from the language employed in a statute, unless the legislature otherwise clearly authorises to do so. An Act should be so interpreted as in no respect to interfere with or prejudice a clear private right or title unless that private right or title is taken away per directum. In view of the legal principles enunciated by the Supreme Court in these cases, article 197 (h) and (p) should not be interpreted in a way prejudicial to the rights of the applicant. M/s Ray & Ray, who are the statutory auditors of the first petitioner, IDBI and LIC have been appointed as the internal auditors of the Company for a period of two years commencing from the financial year 2007-2008. The first petitioner has immense confidence in M/s Ray & Ray and these is nothing irregular in appointing them as the internal auditors. Therefore, the appointment of an internal auditor will not in any way adversely affect the applicant, but only will assist the applicant in the affairs of the Company. The CLB will not interfere with the internal management of a company, unless any action is against law or article of the company. If the resolutions are not allowed to be implemented, the Company will be put to irreparable loss & hardship and such implementation may be made subject to the outcome of the main petition.
2.5 The rejoinder filed by the applicant covers the subsequent developments, which deserves to be rejected. The rejoinder is dated 10.08.2007 complaining non-receipt of a copy of the board minutes dated 27.07.2007, while the minutes were received by the applicant on 08.08.2007. The applicant has sought to recall the order dated 24.07.2007, wherein it has been directed that any resolutions which may be passed on (a) appointment of internal auditors; and (b) approval of the director's and officer's liability insurance cover, at the board meeting will be placed before the Bench by 31.07.2007, for appropriate directions towards implementation of the same. However, no separate application has been filed for recalling the order dated 31.07.2007 and moreover, the said order cannot be recalled at the interlocutory stage, but only on merits at the time of disposing the main petition. In view of this, the board of directors of the Company may be permitted to implement the decisions taken on those items, namely, item Nos.6 & 7 at the board meeting held on 27.07.2007.
3. After considering the pleadings and arguments of learned Senior Counsel, the issues, which arise for my consideration are:
(i) Whether the board meeting of the Company held on 27.07.2007 at Tirupur is hit by Clause 190 of the articles of association of the Company; and
(ii) Whether the matters relating to (a) appointment of the internal auditors of the Company; and (b) approval for obtaining directors' and officers' liability insurance policy for the Company do fall under "AIDQUA Reserved Matters", requiring the applicants' consent as envisaged in Sub-clauses (p) and (h) of Clause 197 of the articles of association of the Company.
4. The controversial issues involve interpretation of several of the clauses forming part of the articles of association of the Company. The Bombay High Court held in IL and FS Trust Co. Ltd and Anr. v. Birla Perucchini Ltd. and Ors. (Supra) that "a company and its members are bound by the provisions contained in its articles of association. The articles regulate the internal management of the company and define the powers of its officers. The articles also establish a contract between the company and members and between the members inter se. The contract governs the ordinary rights and obligations incidental to the membership in the Company. " Any rights, as laid down by the Supreme Court in Bhavnagar University v. Palitana Sugar Mills Private Limited (supra) "cannot be taken away by implication from the language employed in a statute unless the legislature clearly and distinctily authorise the doing of a thing which is physically inconsistent with the continuance of an existing right". Applying the cardinal principles of interpretation of a statute, I am to follow the literal rule of interpretation, when a rule is clear as well as unambiguous. Where the language is clear, the intention of the articles has to be gathered from the language used therein and must be understood in the ordinary sense and construed according to their grammatical meaning. Against the above settled proposition of law, the issues in question are being examined.
Issue No. 15. Clause 190 of the articles of association of the Company provides, inter-alia, that board meeting will be held primarily either at Chennai or Mumbai or at such other place as may be mutually decided upon by the board of directors. The natural or ordinary interpretation of this clause would show that any board meeting of the Company will essentially be held either at Chennai or at Mumbai. However, with mutual consent of the board of directors, the board meeting may be held at any other place. It is, therefore, far from doubt that the board of directors must mutually decide to hold any board meeting at a place other than Chennai or Mumbai. The minutes of meeting of the board of directors of the Company dated 27.04.2007 discloses that Shri S. Venkataraman (Chairman), Shri Sameer Vyas (Managing Director); Shri Faizal N. Syed, Shri Ravi Parthasarathy; Shri K. Deenabandu; and Shri R.V. Rao (Directors) were present at the board meeting, wherein among other things, the following resolution was found to be passed:
RESOLVED to approve the draft notice convening the Annual General Meeting and authorise the Mr. Sameer Vyas, Managing Director to convene the Annual General Meeting at Tirupur on a convenient date in consultation with the Chairman.
6. It observed from the above resolution that the board authorised the managing director to convene the annual general meeting at Tirupur on a convenient date in consultation with the Chairman. This resolution does not even whisper about any decision of the board to hold the next meeting at Tirupur. In this connection, a series of e-mail communications between the applicant's nominee and the Company Secretary of the Company, which form part of the present company application assumes relevance. The communication dated 24.05.2007 would show that the annual general meeting and next board meeting were proposed to be held at Tirupur, based on the discussions at the board meeting held on 27.04.2007. The board while considering the agenda item on fixation of the date of the annual general meeting decided that the date for the annual general meeting can be fixed in such a way that it would be contemporaneous with the next board meting. The board further authorised the managing director to fix up the date of the annual general meeting. As the annual general meeting was required to be held at Tirupur as per the articles of association, a board meeting was also fixed at Tirupur. The communication dated 29.06.2007 categorically states that when the matter of fixing a date for the annual general meeting was discussed by the board at the meeting held on 27.04.2007, one of the directors suggested that the next board meeting could be held at Tirupur, since the annual general meeting was to be held at Tirupur. Thus, the board of directors after deliberations decided to hold both the annual general meeting and the board meeting on 27.07.2007 at Tirupur. The communication dated 13.07.2007 of the Company Secretary reads thus: "At the board meeting held on 27th April 2007, it was decided that the AGM would be held in Tirupur during the month of July and that since the next Board meeting was also required to be held for the July-September quarter, both the meetings, namely, the AGM and the Board meeting could be held contemporaneously during the month of July at Tirupur. The Board had accordingly authorised Mr. Sameer Vyas to fix the date for the AGM/Board meeting during July at Tirupur. None of the Directors had expressed their dissent with regard to this. Consequently, the date for the AGM and the Board meeting has been fixed to be held on the 27th of July 2007 at Tirupur."
7. The Company Secretary's version on convening of the board meeting, in terms of her above communications is not reflected in the board resolution dated 27.04.2007 before confirmation by the board of directors at the next meeting, namely, 27.07.2007. I am, therefore, of considered view that the board of directors at the meeting held on 27.04.2007 resolved to hold only the annual general meeting on 27.07.2007 at Tirupur. There was neither any discussion nor any decision in regard to convening of any board meeting at Tirupur. In the absence of any other documentary proof, substantiating the requirement as stipulated in clause 190 of the articles of association, namely, decision of the board of directors to hold any board meeting outside Chennai or Mumbai, the claim of the respondents will not merit any consideration. Item No. 8 of the agenda for the board meeting held on 27.04.2007 is to consider and approve the date, time and the notice convening the annual general meeting and not of the board meeting. As many as seven directors, including Chairman and managing director, detailed elsewhere, present at the board meeting on 27.04.2007 resolved to convene the annual general meeting at Tirupur in consultation with the Chairman. The board resolution does not reflect any discussion or decision of the board to hold the next board meeting at Tirupur. In this context, the minutes of meeting of the board of directors held on 27.07.2007 assume relevance. Shri Ravi Parthasarathy (Chairman); Shri Sameer Vyas (Managing Director) who attended the board meeting on 27.04.2007 and Ms. Vatsala Krishnakumar (Director), who did not attend the previous meeting, participated in the board meeting held on 27.07.2007. At this board meeting, the Chairman placed the minutes dated 27.04.2007, as finalised, before the board seeking to know, if any, director has comments on the minutes, for the purpose of confirmation of the minutes of the board meeting held on 27.04.2007. No comments from any of the directors who were present at the board meeting held on 27.04.2007 including the Chairman save the applicant's nominee were received on the minutes of the board meeting of 27.04.2007. The discussion of the board that took place before confirming the minutes of the meeting of 27.04.2007, as recorded in the minutes dated 27.07.2007 runs as follows:
The Board also noted the letter dated July 13, 2007 from Mr. Faizal Syed that he had no recollection of any Board resolution being passed in the Board meeting held on April 27, 2007 to the effect that the next Board meeting would be held in Tirupur. In this regard, the Board recollected its discussion at the Board meeting held on April 27, 2007 that the next Board meeting be held contemporaneous with the Annual General Meeting at Tirupur in July and the fact that the decision to fix the date of the AGM and the Board Meeting was delegated to Mr. Sameer Vyas. The Board also discussed that even earlier, in September 2004, the Board meeting of NTADCL had been held on the same day along with the AGM in Tirupur. The Board was surprised that when Mr. Faizal Syed had not objected to the said discussions at the aforesaid decision at the Board meeting held on April 27, 2007, there should be subsequent objection thereto on the basis that he did not recollect that decision being taken. The members of the Board who were present at the meeting held on April 27, 2007 discussed the matter and recollected that this matter had been discussed and decision taken to hold the Board meeting on the same date as that of the AGM at Tirupur as a mater of convenience. The Board also noted the error in not recording the above decision of the Board at its meeting held on April 27, 2007 in the finalised minutes of the meeting, and accordingly decided to amend the minutes of the Board meeting of April 27, 2007 to include the following: 'It was decided that since the AGM was due to be convened in July, the next Board meeting could also be held on the same date at Tirupur and the Board delegated the decision to fix the date of the AGM and the Board meeting to Mr. Sameer Vyas'.
8. It is thus, the board noticed, at the board meeting held on 27.07.2007, while confirming the minutes dated 27.04.2007, the mistake in not recording the decision of the board to hold the board meeting on the same day as that of the annual general meeting at Tirupur as a matter of convenience. However, the IDBI nominee director who was not present at the board meeting held on 27.04.2007 cannot have any knowledge of the purported error in the minutes dated 27.04.2007. There is no legal impediment to make any correction of errors crept into the minutes and the remaining two directors, namely, Shri Ravi Parthasarathy and Shri Sameer Vyas, are competent to rectify the minutes of the earlier meeting. However, it may be observed that the purported errors in the minutes of the board meeting of 27.04.2007 came to be rectified after a period of three months on 27.07.2007 and that too during the pendency of the present application, wherein the specific stand of the applicant's nominee is that the board meeting at Tirupur has been convened in violation of article 190. The beleted amendment to the minutes dated 27.04.2007, in my view, is perhaps to circumvent the strong objections consistently being raised by the applicant's nominee that no decision was taken by the board of directors on the venue of the next board meeting on 27.07.2007. Section 193(1) of the Act mandates that every company shall cause minutes of all proceedings of every meeting of its board of directors to be kept by making within thirty days of conclusion of every such meeting, entries thereof in books kept for that purpose (i.e.) writing the minutes with their pages consecutively numbered, failure of which attracts penalty in terms of Sub-section (6) of Section 193. Clause 237 envisages that the proceedings of every board meeting shall be entered in the minutes book as envisaged in Section 163 of the Act. It is on record that the board of directors, while finalising the minutes of board meeting at the meeting of 30.09.2002 resolved that "draft minutes of the Board meeting will be prepared within two working days by the Company Secretary and circulated to all Directors (including the Chairman) with a request to give their views if any on the draft within ten working days of its receipt." The minutes of meeting of board of directors held on 19.06.2002, 17.12.2002 and 23.03.2005 clearly show that the minutes of previous board meetings were circulated to all the directors and based on the comments received, the concerned minutes were appropriately confirmed by the board of directors. In this background the assertion of the Company Secretary in her e-mail communication dated 13.07.2007 that "the present procedure of securing the approval of the Chairman as soon as the minutes are prepared and presenting it at the next board meeting for confirmation has been in vogue for the past three years" is not in consonance with the practice adopted by the board even at the board meeting held on 23.03.2005, wherein the minutes of previous meeting of the board of directors held on 22.12.2004 as circulated to all the directors were taken on record. The restriction specified in clause 190 of the articles is binding on the Company, the shareholders as well as the officers and therefore, the board meeting held at Tirupur on 27.07.2007 contrary to clause 190, none of the decisions taken by the board of directors, despite the belated amendment to the minutes of the board meeting of 27.04.2007, cannot be put into operation in any manner. Accordingly, the issue No. 1 is answered in the affirmative. Consequently, all the decisions taken at the board meeting held on 27.07.2007 must set aside. Ordered accordingly.
Issue No. 2:
9. Clause 197 sets out a series of matters, which require the applicant's consent. They are named as "AIDQUA Reserved Matters". By virtue of Sub-clause (ii) of clause 191 of the articles, the quorum for a board meeting at which any "AIDQUA" Reserved Matter is to be considered, no quorum shall be deemed to be present without at least one nominee director of AIDQUA is present. If a board meeting could not be held for want of quorum and at the adjourned meeting, as envisaged in article 192(a) no "AIDQUA Reserved Matter" can be considered, without the presence of a nominee director of "AIDQUA". Clause 193(ii) stipulates that in the case of an "AIDQUA Reserved Matter" no resolution thereon shall be effective and valid unless it has been adopted by the affirmative vote of at least one nominee of the applicant. It is in this context the matters relating to (a) approval to obtain directors' and officers' liability insurance policy for the Company; and (b) appointment of the internal auditors of the Company, which, according to the applicant, are "AIDQUA Reserved Matters", but strenuously denied by the respondents herein, shall be considered. This involves the interpretation of clauses 197(h) and (p) of the articles of association of the Company. The applicant's consent is essential under clause 197(h) for assuming or providing any guarantee or indemnities or, in any manner, becoming directly or contingently liable for the obligations of any other person, other than as required by a governmental or regulatory body. This clause makes it clear that the Company is not to assume any liability by providing any guarantee or indemnity of any person, as specified therein. In other words, no liability should devolve on the Company, on account of any of the events listed out in clause 197(h). The scope of the insurance policy, as made out in the note to the board of directors, on record, is as under:
i) to indemnify the loss of each director, officer or employee for a wrongful act in their capacity as director, officer or employee of the Company to the extent that the Company has not indemnified their loss; and
ii) to indemnify the Company for a wrongful act of the director, officer, employee of the Company to the extent that the Company has indemnified the director, officer, employee for the loss.
10. It is clear from the type of insurance cover taken by the Company that the directors' and officers' liability insurance policy will come into operation in the event of any loss suffered by any director, officer or employee on account of their wrongful act in their official capacity, on which the insurer will make good such loss suffered by the directors, officers or employees, as the case may be. Similarly, the insurer is to compensate the Company for a wrongful act of the director, officer or employee of the Company. In both these eventualities, the Company is not ultimately mulct with any financial obligation within the meaning of clause 197(h). Moreover, the question of any assumption of guarantee or liability of any other person, other than as required by a governmental or regulatory body, in terms of clause 197(h) does not arise pursuant to the directors' and officers' liability insurance policy, in view of non-devolvement of any financial liability whatsoever on the Company as found elsewhere, save the insurance premium payable by the Company in respect of the Insurance Policy and in the light of clause 320 of the article, which empowers the Company to indemnify every of its director, managing director, officer, of employee against any of the specified eventualities therein. The persons who are covered and types of wrongful acts sought to covered by the insurance policy do not fall within the issue on hand and, therefore, do not arise for my consideration. I am, therefore, of the view that the matter in relation to obtaining of directors' and officers' liability Insurance Policy does not fall within the ambit of "AIDQUA Reserved Matter", as envisaged in clause 197(h).
11. By virtue of article 197(p) the applicant's consent is required for effecting any O change in the accounting policies of the Company, Independent Auditors, Independent Engineer, and Auditors of the Company. The short issue here is whether appointment of the internal auditors is encompassed by clause 197(p). This clause will come into operation in the event of any change in independent auditors and auditors of the Company. The independent auditors, not being internal auditors, are M/s SB. Billimoria, admittedly appointed pursuant to Article 16 of the Concession agreement. The term "Auditor" as defined in clause 2 of the articles, means the statutory auditor of the Company as appointed from year to year. The applicant seriously contends that the term "Auditors" enumerated in clause 197(p), does not fall within the meaning of "Auditor", as defined in the articles to mean the statutory auditor. It shall be borne in mind that in the light of article 2 words importing the singular number only, include the plural number and vice-versa, in which case the term "Auditor" would include "Auditors". Therefore, the term "Auditors" appearing in clause 197(p) would mean the statutory auditors of the Company. M/s Gopal & Murthy, Chartered Accountants are the statutory auditors of the Company, which is not however under dispute. In this connection, Section 224 of the Act, dealing with appointment and remuneration of auditors assumes relevance, according to which every Company shall, at each annual general meeting, appoint an auditor or auditors (emphasis supplied) to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting. Such an auditor or auditors is/are in commercial parlance known as statutory auditor or statutory auditors of the Company. Furthermore, clause 210 of the articles contemplates that notice of every meeting of the Company shall be given to the Auditor or Auditors of the Company, as prescribed therein, which means, by virtue of the definition of the "Auditor" read with the relevant interpretation clause, whereby the singular number includes the plural number, the statutory auditor or statutory auditors of the Company. I am, therefore, firmly of the view that the term "Auditors" reflected in clause 197(p) would only mean the statutory auditors and therefore, internal auditors do not come within the purview of clause 197(p) of the articles of association of the Company. This position cannot in any way get altered despite the mere acceptance of the applicant on an earlier occasion that appointment of the internal auditors is not a Reserved Matter.
12. In view of my foregoing conclusions, the matters relating to (a) approval for obtaining directors' and officers' liability Insurance Policy for the Company; and (b) appointment of the internal auditors of the Company do not require the consent of the matter, as they do not fall within the "AIDQUA Reserved Matters" as specified in clauses 197(h) and 197(p) of the articles of association of the Company respectively. The Company, therefore, is at liberty to take appropriate steps for taking suitable decisions on these matters at a validly constituted board meeting of the Company. With the above directions, the company application stands disposed of.