Supreme court Approves Orbit Electricals’ Voting Rights in Finolex Cables 2023
In a significant decision by the Supreme Court of India, Orbit Electricals has been granted permission to cast its vote in the Annual General Meeting (AGM) of Finolex Cables. This verdict has vital implications for corporate governance, shareholder rights, and the dynamics of boardroom battles in the country.
Orbit Electricals, a key stakeholder in Finolex Cables, had been embroiled in a dispute concerning its voting rights in the latter’s AGM. T
he contention emerged when Finolex Cables’ board expressed reservations about allowing Orbit Electricals to exercise its voting power. The board cited concerns over potential conflicts of interest and the strategic direction of the company.
Even though the outcome of one resolution will be postponed until the National Company Law Appellate Tribunal (NCLAT) issued its final ruling, the Supreme Court has granted Orbit Electricals permission to participate in Finolex Cables’ annual general meeting (AGM).
The injunction, dated September 26, was received before Finolex Cables’ AGM, which was scheduled for Friday but was postponed due to a contentious family issue.
Finolex Cables is owned by Orbit Electricals, who owns 30.7% of the company, and Finolex Industries, who owns 14.51%.
The largest stakeholder in Orbit Electricals is Prakash Chhabria, the late Prahlad Chhabria’s son, while Deepak Chhabria, a relative, serves as executive chairman of Finolex Cables. Prakash and Deepak, cousins, are engaged in a conflict over Finolex Cables.
Orbit Electricals is owned by Prakash Chhabria to the tune of around 78%, with the KP Chhabria faction and his offspring owning the remaining 7%.
The conflict began in 2016, when Deepak Chhabria, Deepak’s cousin and the managing director of Finolex Cables, made accusations against Prakash Chhabria, the director of Orbit Electricals, and other directors. During the board meeting, it is claimed that group founder Pralhad Chhabria gave his son Prakash Chhabria control of the company through a gift deed.
Prior to this, the proxy consulting company InGovern Research Services had advised Finolex Cables shareholders to “defer” two resolutions, including the one that would have reappointed Deepak Chhabria as executive chairman for another five years. Additionally, it pushed for postponing commission payments to non-executive directors. Finolex Cables called the recommendations “biassed” on its end.
All six of the company’s resolutions, including the approval of the financial statements, the declaration of the final dividend of Rs 7 per share, and the reappointment of directors, were approved by Institutional Investor consulting Services (IiAS), a different proxy consulting service.
Orbit Electricals argued that, as a significant shareholder, it possessed the lawful right to vote in the AGM. They emphasized that preventing a primary stakeholder from participating in crucial decision-making processes was contrary to the principles of fairness, transparency, and corporate democracy.
In contrast, Finolex Cables expressed apprehensions that allowing Orbit Electricals to vote might skew decisions in favor of the latter’s interests, possibly jeopardizing the company’s objectives and compromising the interests of other shareholders.
The Supreme Court, after considering the merits of the case, ruled in favor of Orbit Electricals.The court emphasized the importance of preserving and upholding the rights of shareholders, especially when they hold a significant stake in the company. Denying them the right to vote could undermine the core principles of corporate governance.
The court noted that corporate decisions should be made in an environment of fairness and transparency. There wasn’t sufficient evidence to suggest that Orbit Electricals would act against the broader interests of Finolex Cables or its other shareholders.
The court also laid down specific guidelines for managing such conflicts in the future. It stressed the need for a balanced approach where significant shareholders can participate in decision-making without undermining the collective interests of the company.
The verdict might lead to a shift in the power dynamics within Finolex Cables, given that a major shareholder can now influence decisions actively.This ruling sets a precedent for future cases where similar conflicts arise between company boards and significant shareholders. The emphasis on shareholder rights might encourage other entities in similar situations to contest their exclusion from decision-making processes.
The verdict underscores the need for companies to ensure robust corporate governance mechanisms. It highlights the importance of balancing individual and collective interests within a corporate framework.
The Supreme Court’s decision to let Orbit Electricals vote in Finolex Cables’ AGM marks a pivotal moment in India’s corporate landscape. While the immediate implications concern the two involved entities, the broader ramifications touch upon the very heart of corporate governance and shareholder rights. As companies navigate this evolving landscape, the principles of fairness, transparency, and balance will become ever more crucial.
