Judicial overreach unwarranted

By Shriram Subramanian

In a move that has raised eyebrows in corporate and legal circles, the Madhya Pradesh High Court (HC), through an order dated December 18, 2024, stayed the annual general meeting (AGM) of Religare Enterprises Limited (REL). The decision was in response to a writ petition filed under Article 226 of the Constitution. The petition sought, among other reliefs, the appointment of an independent commission of enquiry and protection of minority shareholder interests. The petitioners argued that the proposed acquisition by Burman Group entities that received Reserve Bank of India (RBI) approval could consolidate control in the hands of a few. However, the implications of the judicial intervention extend far beyond the immediate case.

Under Section 96 of the Companies Act, 2013, holding an AGM is a statutory obligation. This forum allows shareholders to express their views, deliberate on corporate decisions, and safeguard their interests. Interfering with this process without substantial legal grounds disrupts a fundamental aspect of corporate democracy. The HC’s decision jeopardises the statutory obligation to hold AGMs, undermining the fundamental rights of shareholders.

This approach contrasts with established judicial precedents. For instance, in the 2022 Zee Entertainment Enterprises case, the Bombay HC overturned a single-judge order restraining shareholders from calling an extraordinary general meeting (EGM). The judgment reaffirmed the principle that courts should refrain from obstructing statutory processes like AGMs or EGMs unless there is compelling evidence of fraud, oppression, or mismanagement.

In LIC vs Escorts (1986), the Supreme Court (SC) articulated the cornerstone of corporate democracy, emphasising shareholders’ rights to requisition meetings without being subjected to judicial scrutiny. The Bombay HC echoed similar sentiments in the Zee Entertainment case, warning against opening the floodgates to litigation that could delay or obstruct corporate governance processes. Such delays, the court noted, would render shareholder democracy “nugatory” and encourage obstructive behaviour by unwilling boards.

Corporate governance operates within a framework established by legislative and regulatory bodies, and undue interference disrupts this balance. The RBI and the Securities and Exchange Board of India, as trusted regulatory authorities, have approved the open offer for Religare Enterprises with stringent conditions to protect shareholder interests. Judicial intervention in such decisions risks undermining regulatory authority and market confidence.

Moreover, passing ex-parte orders in corporate matters — without giving affected parties an opportunity to present their case — contravenes the principle of audi alteram partem (let the other side be heard). This principle is a cornerstone of Indian jurisprudence and ensures fair decision-making.

Listed companies operate in a highly regulated environment, where shareholder rights and market integrity are paramount. Court-ordered delays in holding AGMs or implementing regulatory approvals could lead to operational paralysis, damaging business reputation and eroding stakeholder confidence.

The SC’s recent observations in a case involving credit card fees serve as a timely reminder of the need for judicial restraint in policy matters. It cautioned against intervention in the RBI’s policy decisions, highlighting the risks of venturing into “unknown paths” without adequate expertise or understanding of regulatory complexities. These observations resonate strongly in the present case, where judicial interference in a regulatory-approved corporate action threatens to derail established processes.

Ex-parte orders in commercial disputes are particularly susceptible to misuse. Such orders can be exploited to create delays, exert pressure, or stall legitimate business actions. In the REL case, the stay on the AGM potentially opens the door for entities with vested interests to disrupt corporate processes for personal gain. It sets a dangerous precedent, where litigants could weaponise judicial orders to achieve ulterior motives. The following are recommendations for judicial prudence.

Respect regulatory decisions: Courts should exercise restraint and defer to regulatory authorities like the RBI, especially when decisions are backed by detailed conditions and safeguards.

Comprehensive hearings: Ex-parte orders should be avoided in corporate and commercial matters to ensure all parties are heard, promoting balanced and fair outcomes.

Preservation of shareholder democracy: Judicial interventions should be limited to cases involving proven fraud or mismanagement, protecting the statutory rights of shareholders.

Alignment with precedents: Judicial decisions should align with established precedents, such as LIC vs Escorts and the Zee Entertainment EGM case, to maintain consistency and predictability in corporate law.

Minimising market disruption: Courts must consider the broader implications of their decisions on market stability, investor confidence, and ease of doing business.

The HC’s decision to stay Religare Enterprises’ AGM raises significant concerns about judicial overreach and its impact on corporate governance. By stalling a statutory process without demonstrable grounds of fraud or mismanagement, the order risks undermining shareholder rights, regulatory authority, and market confidence. In light of established judicial principles, regulatory safeguards, and the importance of preserving corporate democracy, this decision warrants reconsideration. A more balanced approach would protect the interests of all stakeholders while ensuring the smooth functioning of statutory corporate processes. If unchecked, such judicial interventions could have far-reaching repercussions for India’s corporate governance landscape and its global standing as a business-friendly destination.

The writer is founder and MD, InGovern Research Services.

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