Case Studies

RANBAXY LABORATORIES LTD. V. DR. JAYARAM CHIGURUPATHI [2010] 153 COMP CAS 162 9CLB0 KANTHI NARAHARI 9M0 [DECIDED ON 21-10-2009]

Companies Act, 1956 – sections 260 and 287 (2) – quorum for board meeting – board meeting convened by single director on account of resignation of two directors to appoint two additional directors to constitute quorum – whether such appointment is valid – held, yes.

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 – Regulation 22(7) – substantial acquisition of shares – applicant company acting in concert with acquirer company – applicant company shareholder of target company – whether applicant company could appoint any person on board of target company – held, no

Brief facts: The Board meeting was convened by a single director on account of resignation of two directors of the fourth respondent – company and the appointment of two additional directors as independent non – executive director and non – independent executive director on the board of the fourth respondent company with immediate effect was approved. The applicant submitted that the convening of the board meeting by a single director of the fourth respondent – company constituting a single member quorum was not in accordance with the provisions of section 287 (2) of the Act and was not vest in the eyes of law.

The respondent submitted that the first respondent had convened the board meeting in accordance with the regulation 75 of Table A of schedule 1 to the Act and also in accordance with the Article 97 of the Articles of Association, which provided that when the number of directors of the company falls below the requisite quorum, a single director present could be a quorum for the purpose of increasing the number of directors required to have a quorum, and that the meeting was legal and valid in the eyes of law.

Respondent No.8 submitted that it was an acquirer company and the applicant was subsidiary to respondent No.8 and could not appoint its directors in the fourth respondent – company, even though the applicant was a shareholder of the fourth respondent – company and once the public announcement had been made, the board of directors of the target company could not appoint an additional director or fill in any casual vacancy on the board of directors in terms of sub – regulation (3) of regulation 23 of the Securities and Exchange Board of India (Substantial Acquisition of shares and takeovers) Regulation, 1997.

Decision: Application dismissed.

Reason: The appointment of two additional directors at the board meeting held by a single director was in accordance with section 260 of the Act which was legal and valid in the eyes of law. There were no violations of the provisions of section 287 (2) of the Act. Consequently, all the decisions taken by the board of directors in the board meeting were legal and valid in the eyes of law.