The Bombay High Court recently pronounced its judgment in
Madhu Ashok Kapur and Ors. v. Rana Kapoor and
Ors., providing some relief in the two year long battle between
Yes Bank and Madhu Kapur, the widow of co-founder Ashok Kapur.
Ashok Kapur and the other co-founder, Rana Kapoor, enjoyed certain
privileges in the management of Yes Bank. The dispute arose when
Madhu Kapur and the other Plaintiffs, following Ashok Kapur's
demise, were denied these rights. The Court first considered
whether the said rights were hereditary. It agreed with the
Plaintiffs that, since shares include proprietary rights, the
participatory rights given in the articles which the founders
enjoyed are in the nature of moveable property. Moreover, the
articles contained express provisions pursuant to which any rights
that Ashok Kapur had would pass on to his heirs and legal
representatives. Hence, the Court held that the rights were not
personal but were heritable and assignable.
In relation to the right of appointment of directors to the
board of Yes Bank, the Court construed the right to recommend
directors, as given in the articles, to mean a right to nominate,
not just a right to suggest. Had it been a mere right to suggest,
it would not have been specifically provided for in the articles as
all members of a company have the very same right under the
Companies Act, 2013. Further, the Court observed that the articles
indicated that Ashok Kapur and Rana Kapoor were to act together.
Hence, neither the Plaintiffs nor Rana Kapoor's group had the
right to make a unilateral nomination to the exclusion of the
other. Based on these findings, the Court found the past
appointment of seven individual directors to be invalid and also
rejected the unilateral nomination of Ashok Kapur's daughter.
Further, the court rejected the Plaintiffs' content ion that
Rana Kapoor ' s appointment as the Managing Director was a
related party transaction by observing that it was made in the
ordinary course of business and was an arms-length transaction.
This decision comes at a time when corporate governance is being
given significant prominence and companies must stay clear of
deviations from the provisions within their articles. If not,
courts may go to the extent of invalidating the appointment of
directors even if it may hamper the operations of the company.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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