Industrial Investment Bank of India Limited (In Voluntary Liqn.) v. Smt. Persis A. Khambatta & Another

What happened

In December 1998 the respondents invested Rs. 1 crore in C-series redeemable cumulative non-convertible preference shares of the Bank, which were due for redemption on 3 January 2004, but the Bank pleaded financial difficulty and skipped dividends. A letter of 17 May 2010 offered all preference shareholders redemption of the paid-up capital without dividend since 1 April 2003. At the 13th annual general meeting on 20 September 2010 a special resolution by preference shareholders modified the terms for Rs. 221.08 crore of preference shares across series; the Chairman said 85.5 per cent had consented, and a later material showed 99.1 per cent consented and 0.9 per cent, including the respondents, did not. The respondents sued in CS No. 324 of 2013 for a declaration that the meeting was void under sections 80 and 106 and for injunctions. On GA 2899 of 2013 an order of 11 December 2013 directed the Bank to set aside Rs. 2 crores, which the Single Judge confirmed on 21 November 2016, holding that written consent was not proved. The Bank produced the notice, attendance sheet, minutes and consent letters with an application under Order XLI Rule 27.

Questions before the court

• Was a separate meeting of the C-class preference shareholders needed, and could the interim order to secure Rs. 2 crores stand?

Why the court ruled this way

Section 106 allows variation of class rights with the written consent of three-fourths of the issued shares of the class or a special resolution at a separate class meeting; the same terms were offered to the preference shareholders as a class and accepted by far more than 75 per cent, so no meeting of a sub-class was needed, relying on Mather and Platt Fire Systems and the principle in Miheer H. Mafatlal v. Mafatlal Industries (paragraphs 28 to 34). The notice of 23 August 2010 contained an explanatory statement and the issue was not pressed in appeal (paragraph 29). The documents put in on appeal, including the consent letters, were allowed and the earlier view that consent in writing was not proved could not stand (paragraphs 31 and 35). Interim relief must be in aid of the final relief; the injunction sought to protect assets and an amount that had no relation to the declaration sought, and a separate action for the money was pending, following State of West Bengal v. Pranjiban Dey and Milon Roy Chowdhury v. Ashish Kumar Saha (paragraphs 36 to 39). The earlier appeal order APO 86 of 2014 kept all issues open and so created no res judicata (paragraphs 40 to 43).

Controlling point

The impugned interim order could not be sustained, as the injunction was not in aid of the suit's relief and the Bank had shown the requisite written consent.

Order and next steps

The appeal was allowed and the order of 21 November 2016 confirming the order of 11 December 2013 was set aside; connected applications were disposed of.

Practical implications

A company varying class rights can rely on written consents of three-fourths of the class and a uniform offer to the whole class; a shareholder seeking interim security must show it is tied to the relief claimed in the suit.

Limits of this ruling

• The Court dealt with an interim order and did not finally decide the suit, the money claim in the pending summary suit or the validity of the 20 per cent redemption beyond what section 106 required.