Company Law Board
Icici Bank Limited vs Federal Bank Limited on 4 February, 2005
Equivalent citations: [2006]65SCL5(CLB)
ORDER
S. Balasubramanian, Chairman
1. CP 42 of 2004 (the first petition) has been filed by ICICI Bank Limited holding 45,32,400 shares constituting 20.4 per cent shares in the Federal Bank Limited (the Bank) alleging that in the annual general meeting convened on 27.09.2004, ICICI Bank might be denied exercise of voting rights to the full extent of 20.4 per cent shares on various grounds stated in the petition and accordingly sought for a declaration that the ICICI Bank was entitled to exercise its voting on its entire shareholding in the Bank. When this petition was mentioned on 24.09.2004, this Bench passed an ex-parte order directing the Chairman of the AGM to ensure that the petitioner was not in any manner prevented from exercising its full voting rights in respect of the shares held by it. However, the petitioner filed CA 120/2004 on 28.09.2004 complaining that in the AGM held on 27.09.2004, even though the Chairman permitted the petitioner to exercise voting in respect of the shares held by it, yet the Chairman had taken into consideration only part of the shares for counting purposes and had also announced the results of the Poll, in complete breach of the directions contained in the order of this Bench dated 24.09.2004, which was served on the Chairman of the AGM before the meeting. As such, the petitioner sought for a direction to the Bank not to implement the decisions taken in the AGM till the petition was disposed of. Accordingly, by an order dated 28.09.2004 it was directed that all the results which were put to vote by Poll at the AGM shall not be implemented or given effect to till the disposal of the application. This order was taken on appeal by the Bank before Kerala High Court which disposed of the said appeal directing the Bank to approach this Bench for orders.
2. CP 45/2004 (the second petition) has been filed by the administrator of the Specified Undertaking of Unit Trust of India holding 1,94,449 shares constituting 0.87% of the shares in the Bank and the second petitioner holding 6,20,565 shares constituting 2.79% shares. This petition had been supported by ICICI Bank holding 20.4% of shares in the Bank. Their grievance is that even though both were allowed to exercise their voting rights in respect of all the shares held by them, yet for counting purposes, none of the votes cast by them was considered by the Chairman on some flimsy grounds. In the same petition, it has also complained that the Chairman had rejected votes cast by HDFC trustee company holding 6.5% of shares on the ground that since it was holding beyond 5 per cent shares in the Bank, it was not entitled to exercise any voting rights. It is further alleged in the petition that the votes cast by Kotak Mahindra holding 1% shares was also rejected by the Chairman on the ground that the original resolution of the Board of Kotak was not produced before the meeting authorising the authorised representative who had exercised the votes. It is further alleged that votes cast by certain other shareholders had also been rejected on flimsy grounds.
3. The facts of the case in relation to the first petition are that initially ICICI Limited was allotted 26,67,000 equity shares in the year 1993. Since in terms of Section 12(2) of Banking Regulation Act, no one holding shares in the bank could exercise voting rights in excess of 1 per cent, presently 5 per cent of the total voting rights of all the shareholders in that bank, the Bank made an application to RBI seeking for exemption from the provisions of Section 12(2) of the Banking Regulation Act in respect of the shares allotted to ICICI Limited. On the basis of the recommendation of RBI, the Central Government issued a notification on 4th January, 1994 to the effect that the provisions of Section 12(2) of the Banking Regulation Act shall not apply to the Bank in respect of its shares allotted to ICICI Limited. During the period 1994 to 1997, ICICI Limited acquired further 20,63,400 shares by way of transfer, allotment in public issue and by way of allotment of rights issue. Thus, the total shareholding of ICICI Limited in the Bank came to constitute 20.4% shares in the Bank. In the year 2002, ICICI Limited, along with two of its subsidiaries, were merged with the petitioner in terms of the sanction by the High Court of Gujarat and High Court of Bombay. In view of this amalgamation, all the shares held by ICICI Limited came to be vested in the petitioner. Therefore, the petitioner contends that it has the right to exercise voting rights in respect of all the shares, without any restrictions in view of the exemption granted by Government of India in 1994.
4. Even though the ex-Chairman of the Bank who was also the Chairman of the AGM, has filed affidavits in replies to both the petitions and the applications, justifying his action to exclude the votes cast on the shares impugned in both the petitions on various legal grounds, the Board of Directors of the Company, in its amended affidavits in replies in both the petitions, have stated that the affidavits filed by the ex-Chairman did not have the approval of the Board of the Bank and as such the amended affidavits in replies in both the petitions alone should be taken on record and considered. In the amended replies to the first petition, the Bank has averred that the action of the Chairman of the meeting to exclude the votes cast in respect of a part of the shares held by the petitioner was wrong and that the petitioner was entitled to have the votes cast in respect of all the shares held by it for counting purposes. Likewise, in the amended reply to the second petition also, the Bank has submitted that the Chairman was not right in excluding the votes cast by UTI MF, Kotak Mahindra MF, HDFC MF and other two shareholders from counting and therefore the votes cast by all these shareholders should have been considered by the Chairman to determine the results of the Poll.
5. When the matter was heard, Shri Arvind P. Datar, learned Sr.Counsel appearing for the petitioner in the second petition, Shri A.L. Somaiyaji, Sr.Counsel appearing for the petitioner in the first petition and Mrs. Nalini Chidambaram, Senior Counsel appearing for the Bank referred to the amended replies filed by the Bank and submitted that the action of the Chairman to reject the votes cast by the shareholders impugned in both the petitions having been found to be wrong, this Bench should declare the results of the Poll taking into consideration the votes cast in respect of all the shares impugned in both the petitions.
6. Shri K.P. Fabian, who was elected as a director in the AGM, feeling aggrieved by the order of this Bench dated 28.09.2004 on the ground that having been elected in the AGM he had assumed charge as a director and therefore staying the implementation of the Poll results would prejudiciously affect him, moved the Kerala High Court by way of a writ. While dismissing the writ, the High Court gave liberty to Mr. Fabian to implead himself as a party to CP 42 of 2004. Even though, he filed an application for impleadment in that petition and when his application was heard on 03.02.2005 he sought for adjournment. And even though he is one of the parties in CP 45/2004, he has not filed any reply to that petition also in spite of specific directions given to that effect in the order of this bench dated 03.01.2005 that replies should be filed by 14.01.2005. In the hearing held on 03.02.2005, Ms. Subhashini Narasimhan, Counsel representing the Counsel for Shri Fabian desired further time to file a reply to the petition. The learned Counsel for the Bank and the petitioners opposed any adjournment and further contended that the nomination of Shri Fabian for directorship should not have been considered at all, as, in terms of the RBI directions contained in its circular, DBOD No. BC.104/08.139.001/2003-04 dated 25.06.2004, before appointing a person as a director, the Bank in the private sector should undertake a process of due diligence to determine the suitability of the person for appointment and that a nomination committee should approve the nomination. In case of Shri Fabian this exercise had not been carried out and as a matter of fact even his nomination was received only 13 days prior to the meeting as against 14 days prescribed in the Act/Article. They also pointed out that in terms of RBI directives, a person cannot be a director in two banks. Even though Shri Fabian, who was a director in Syndicate Bank had represented that he had resigned from the Board of that Bank before the AGM, yet he has reportedly attended a Board meeting of that Bank in December 2004 clearly signifying that he had not ceased to be a director of that Bank and therefore could not have proposed himself for appointment in the respondent Bank. Therefore, not only the name of Shri Fabian could not have been proposed in the AGM for election, since he has not filed his reply within the stipulated time, the matter should be proceeded with without his reply.
7. We have considered the pleadings and arguments. As far as Shri Fabian is concerned, we do not propose to examine whether he was eligible to be appointed as director etc. in the absence of his reply. It is on record that he is a party to CP 45/2004 and he also filed an application for impleadment in CP 42/2004. Directions were given to all the parties to file their replies to the petitions and the applications by 14.01.2005 with the directions that both the petitions and all the applications will be heard on 03.02.2005. Since, he has not filed any reply by the stipulated date and as in this order we are mainly concerned with the grievance of the petitioners that they had been denied of their right to have their votes counted, we proceeded with the matter without his reply.
8. During the hearing, the Bank and the petitioners sought for permission to scrutinise all the Poll documents which were kept in the sealed custody of the Company Secretary of the Bank in terms of the order of this Bench dated 18.10.2004. Permission was granted and the report of the scrutinisers is available on record. The scrutinisers have confirmed that all the shares impugned in both the petitions have been allowed to be voted and accordingly they had also exercised their voting rights in respect of shares, but in respect of the petitioner in the first petition only a part of the votes cast had been taken for counting purposes and in respect of all others impugned in the second petition none of the votes cast on the shares held by them had been taken into consideration for counting purposes. Since the Bank itself admits that the Chairman of the AGM had wrongly rejected the votes cast for counting, as prayed for by the petitioners and the Bank, we have decided to declare the results of the Poll in respect of the resolutions No. 3, 10, 16 & 17 by recasting the votes cast for and against these resolutions as below on the basis of the report of the scrutinisers:
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Voting Position as Revised voting position
announced by as per scrutiny carried
Resolution Subject Mr. Padma Kumar out
No.
FOR AGAINST FOR AGAINST
----------------------------------------------------------------------- 3 Reappointment of 3557080 5285752 7956913 5285752 Professor Salim
----------------------------------------------------------------------- 10 Appointment of 3556573 5286516 7956406 5286516 Mr. P.H. Ravikumar
----------------------------------------------------------------------- 16 Appointment of 5287198 3555511 5287198 7016400 Mr. K.P. Fabian
----------------------------------------------------------------------- 17 Appointment of 5288279 3554917 5288279 7015806 Mr. C.J. George
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In view of the above, we declare that resolutions 3 and 10 stand approved and 16 & 17 stand defeated. Accordingly the results of the Poll in respect of these resolutions as announced by the Chairman of the AGM stand modified as above. Now, the Bank is free to implement all the resolutions passed in the AGM as modified above.
9. While declaring the results, we make it abundantly clear that we have not examined the various legal issues raised in the reply of the ex-Chairman who was Chairman of the AGM as the Bank itself has sought for considering its amended reply only and also since both the Bank and the petitioners have sought for declaration of the Poll results by the Bench itself. We also note that Shri S. Santhanakrishnan who had filed the applications for impleadment has withdrawn the same on 03.02.2005.