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8. The Second relief that has been prayed is in regard to the appointment of the fifth and sixth respondents on the board of directors of the first respondent. Their appointment took place on 20th August 2002. The minutes of the meeting of the board of directors held on 20th August 2002 would show that at that meeting there were two directors of the first respondent present viz., Shri U.S. Sethia and Shri Arun T. Korati. The articles of association of the company provide in Article 126 that subject to the provisions of Sections 255 and 256 of the Companies Act, 1956 unless otherwise determined by the company in the General Meeting and subject to Section 252 of the Act, the number of directors shall not be less than 3 or more than 12 inclusive of all kinds of other directors, if any. In the present case, on 20th August 2002, following the resignations of the second, third and fourth respondents, the number of directors on the board was less than the minimum stipulated in Article 126. Article 131 of the articles of association provides that the continuing directors may act notwithstanding any vacancy in their body but so that if the number falls below the minimum above fixed, the directors shall not except in emergencies or for the purpose of filling vacancies or of summoning a general meeting, act so long as the number is below the minimum, Article 154 which was a part of the articles of association at one point of time provided that subject to the provisions of the Act, questions arising at any meeting shall be decided by a majority of votes, each director having one vote, and in case of an equality of votes, the chairman shall have a second or casting vote. However, it is common ground and there is no dispute between the parties that Article 154 had been deleted and that at the material time when the meeting of the board took place on 20th August 2002, there was no provision in the articles entitling the Chairman to cast a second or casting vote. Article 159B provides a list of matters on which inter alia a decision of the board of directors requires the affirmative vote of a nominee director of the petitioners. Besides, Article 159B provides that 7 days' prior notice is required to be issued by the company to the nominee director or directors of the petitioners in respect of a board meeting for discussing the agenda in relation to the aforesaid matters. Amongst the matters specified in Article 159B are (a) resolutions to adopt the annual accounts and approval to the principles and policies of accounting Clause (vii) and (b) "any proposal to include/remove members on the Board". (Clause xxix).

10. Now, ex facie, the induction of the two directors on 20th August 2002 was contrary to the provisions of the Articles of association. As already noted earlier, Article 159B(xxix) stipulates that the affirmative vote of the nominee director of the petitioners would be required for any proposal to include or remove members on the board. Counsel for the respondents sought to urge that the expression "members on the board" must mean "shareholders on the board" and that since one of the two directors inducted, respondent No. 6, was never a shareholder, there can be no objection to his appointment. The learned counsel sought to place reliance on the definition of the expression "members" in Article 2 of the articles of association which defines that expression to mean the duly registered holders, from time to time of the shares of the company. Article 2, however, provides that the meaning assigned to the expressions defined therein shall apply unless repugnant to the subject or context. Having regard to the provisions contained in Clause (xxix) of Article 159B, there can be no manner of doubt that the expression "members" in that clause refers to a director on the board. The expression, 'members on the board' in Clause (xxix) must be given its ordinary and natural connotation which means a member of the board of directors. The submission was that the clause uses the expression "members on the board" and not "members of the board". That in my view, is an exercise in hairsplitting. It must be realized that two verbs have been used in Clause 29 viz., to include and to remove. Inclusion can never be of a member of the Board but, of a member on the board. In that context, the clause used the expression as "members on the board". Besides, even apart from pure semantics, it would be wholly incongruous to give an interpretation to Clause (xxix) as suggested by the respondents. The petitioners have subscribed to the optionally convertible preference shares of the first respondent and have an investment of Rs. 8 crores. It was in that context, that an overriding right was conferred upon the petitioners by incorporating in the articles of association the requirement that the petitioners must agree to the taking of important decisions, amongst them, the induction or removal of directors. There is no reason why Clause (xxix) should be interpreted to mean that the petitioners could only be given the right to agree or disagree with the induction of a shareholder on the board of directors but that this right would not extend to a situation where the promoters seek to induct a person other than a shareholder on the board of directors. The petitioners could well have an objection whether or not the person who was sought to be inducted on the board of directors is or is not a shareholder and their affirmative vote would be necessary in either of the situations. That would be the plain meaning which can be ascribed to Clause (xxix).

11. Consequently, in the absence of the affirmative vote of the petitioners to the induction of the fifth and sixth respondents on the board of directors, their appointments were ultra vires the articles of the company.

12. After the meeting of the board of directors on 20th August 2002, the next meeting took place on 29th August 2002. The minutes of the meeting of 29th August 2002 provide, as is normal in such cases, that the minutes of the previous meeting were read, confirmed and signed by the Chairman. However, the confirmation of the previous minutes of 20th August 2002 cannot be read as amounting to an acceptance by the petitioners that the decision which was taken to induct the fifth and sixth respondents on the board of directors at the previous meeting was lawful. All that the confirmation meant was that the minutes of the meeting dated 20th August 2002 correctly recorded what had transpired at that meeting.

27. However, on behalf of the respondents, it was sought to be urged that the requirement in the articles of association that the adoption of accounts must have an affirmative vote of the petitioners is repugnant to the provisions of the Companies Act, 1956. Counsel urged that the petitioners have neither any voting right, nor any equity stake in the company and that it is for the equity shareholders of the company to pass the accounts of the company. In this regard, reliance was sought to be placed on the provisions of Sections 210 and 215 of the Companies Act, 1956. Section 210(1) of the Act provides that at every annual general meeting of the Company, the Board of directors of a company shall lay before the company a balance-sheet as at the end of the period specified under Sub-section (3) and a profit and loss account for that period. Section 215 provides that every balance-sheet and profit and loss accounts of a company shall be signed on behalf of the Board of directors in the case of a non-banking company, by its manager or secretary, if any, and by not less than two directors of the company and one of whom shall be a managing director where there is one. Sub-section (3) of Section 215 provides that the balance-sheet and profit and loss account shall be approved by the Board of directors before they are signed on behalf of the Board in accordance with the provisions of the section and before they are submitted to the auditors for their report thereon. It is not possible to accept the submission of the learned counsel appearing on behalf of the first respondent that the provision contained in Clause (xxix) of Article 159 is repugnant to the provisions of the Companies Act, 1956. The provisions of the Articles of association have been agreed upon by the shareholders of the company. Admitedly, the requisite procedures for the amendment of the articles of association, following the subscription-cum-shareholders' agreement, have been pursued before the articles were amended. The shareholders of the company agreed to a particular provision being incorporated in the articles requiring the affirmative assent or vote of the petitioners for the adoption of accounts. There is nothing repugnant in this provision to the Companies Act, 1956. The petitioners had contributed an investment of Rs. 8 crores in the form of opitionally convertible preference shares and it was in that view of the matter, that it was considered appropriate that the petitioners should have some control over the accounts and financial policy of the company by requiring their affirmative vote before the Board of directors accepted the accounts. Counsel for the Respondents, relied upon the judgment of the court of appeal in England in Bushell v. Faithand [1969] 1 All E.R. 1002; of the House of Lords in the same case, in (1970) 2 W.L.R. 272 and on the judgment of the Chancery Division in Ayre v. Skelsey's Adamant Cement Co. Ltd. [1904] 20 TLR 587. The principles which emerge from these decisions have been called out in the following extract from Halsbury's Laws of England, [1996 Edition, Vol. 7(1) Para 538]: