Corporate Law Case Brief – World Phone India Pvt. Ltd v. WPI Group Inc USA

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Facts:

  • WPIPL, is a private company partly owned by WPI Group (43.75%), Mr. Viviek Dhir (43.75%)and Mr. Pankaj Patel (12.5%).
  • On 22nd September, the shares of Mr. Pankaj Patel were transferred to Mr. Vivek Dhir and his wife, Mrs. Malini Dhi, who was also appointed as an Additional Director.
  • On 31st October, in the Board Meeting, the Board of Directors of the company passed a resolution approving a rights issue of 1,49,303 equity shares in accordance with the Articles of the company. Mr. Aditya Ahluwalia had not been present for this meeting as he had not been in the country at that time.
  • The result of this transfer of shares was that the chairman of WPI Group, Mr. Aditya Ahluwalia was now a minority stakeholder in the company.
  • He, therefore, challenge the validity of the board meeting on the grounds of Clause 6.2 of the JVA entered between the Board Members giving an affirmative vote to Mr. Aditya Ahluwalia in all matters.

Issue:

  • Whether the provisions of an agreement, that are not inconsistent with the Act, but are also not part of the AoA, can be said to be applicable?

Analysis:

  • The legal position is that where the AoA is silent on the existence of an affirmative vote, it will not be possible to hold that a clause in an agreement between the shareholders would be binding without being incorporated in the AoA.
  • In the present case, although the JVA was entered into in 1999 itself, there was no move made by Mr. Aditya Ahluwalia or WPIGI to have the AoA amended at any point in time to incorporate the affirmative vote provided to WPIGI under Clause 6.2 of the JVA.

Holding:

  • The court held that even a provision in the Shareholders’ Agreement which is not contrary to the Articles of Association or the Companies Act, 1956 cannot be enforced against the company if it is not mentioned in the AoA.

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