NCLAT refuses to tinker with Finolex’s AGM vote that ousted Deepak Chhabria

In a setback to former executive chairman of Finolex Cables Ltd. Deepak Chhabria, the National Company Law Appellate Tribunal (NCLAT) on Wednesday refused to overturn the company's last year's annual general meeting (AGM) decision, where shareholders voted against his reappointment.

"The result of the AGM held on September 29, 2023, on Resolution No. 4 with regard to the reappointment of Mr. Deepak Chhabria as executive chairman of Finolex Cables Ltd (FCL), needs no interference in this appeal," the judgment noted.

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Additionally, the appellate tribunal's bench, led by chairperson Justice Ashok Bhushan and technical member Barun Mitra, dismissed Deepak Chhabria's plea to invalidate the 2019 extraordinary general meeting (EGM) that had amended the Articles of Association (AoA) of Orbit Electricals (the holding company of Finolex Cables), thereby revoking certain rights he held in relation to Finolex Cables. The NCLAT upheld the amendment to the AoA and affirmed the previous ruling by the National Company Law Tribunal (NCLT).

‘Resolve issues on shareholding’

The appellate tribunal also directed the Mumbai bench of the NCLT to resolve outstanding issues concerning the company’s shareholding, including the contentious approval of the transfer of 100,300 shares by the company's patriarch Pralhad Chhabria to his son Prakash Chhabria, during the 2016 AGM.

The Chhabria family's battle for control of Finolex Cables has been ongoing since the death of the company's founder, Pralhad Chhabria, in 2016. The conflict primarily involves two factions led by Deepak Chhabria and his cousin Prakash Chhabria.

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Deepak Chhabria, who was initially appointed as executive chairman in 2018, saw his five-year term end on 30 June 2023. The dispute over his reappointment escalated following an NCLAT order on 14 October 2023, which allowed him to remain in his position based on provisions in the company's Articles of Association. This decision recognized Deepak Chhabria as the authorized representative of Orbit Electricals on the Finolex board.

The AGM held on 29 September 2023 saw the resolution to reappoint him as executive chairman defeated, with 72.34% of the votes going against him.

The NCLAT had on 21 September directed a status quo on the conduct of the AGM till it decided a dispute between cousins Prakash Chabria and Deepak Chabria.

Apex court intervenes

The Supreme Court on 26 September vacated the order and said that important decisions such as the appointment of an executive chairperson would be subject to the outcome of the litigation at NCLAT. The apex court asked the scrutinizer of the AGM to publish the results immediately and also directed NCLAT to not pronounce the order till the results were published.

However, the NCLAT issued its ruling on 13 October, before the AGM results were released, prompting the Supreme Court to initiate an inquiry into the tribunal's actions. The inquiry, led by NCLAT chairperson Ashok Bhushan, aimed to determine whether the tribunal members were aware of the Supreme Court's order and why they chose to disregard it. Following the Supreme Court's intervention, the NCLAT suspended its order on 16 October.

On 18 October, a Supreme Court bench led by Chief Justice D.Y. Chandrachud summoned the two NCLAT members involved in the decision. Unsatisfied with their explanations, the court issued show-cause notices to both members and nullified the NCLAT's order, with Chief Justice Chandrachud remarking, "I am not talking about Justice Ashok Bhushan... but NCLT and NCLAT have gone down to rot now. This case is an illustration of that decline." The court also criticized the AGM scrutinizer for delays in releasing the results.

Also read | Finolex Cables case: NCLAT suspends order following SC intervention

On 30 October, the Supreme Court pardoned the two NCLAT members, who had resigned and submitted unconditional apologies for defying the court's directives. The court also imposed a fine of ₹1 crore on Deepak Chhabria for withholding the AGM voting results and instructed him to deposit the amount into the Prime Minister’s National Relief Fund within two weeks. The scrutinizer was also fined ₹10 lakh, payable to the same fund.

The Supreme Court directed NCLAT chairperson Justice Ashok Bhushan to re-hear the case and make a new decision, which led to the judgment delivered on Wednesday.

Finolex Cables' succession saga

Founded in 1958 by brothers Pralhad and Kishandas Chhabria, the Finolex Group started as a small operation selling electrical supplies door-to-door and eventually grew into two major public entities: Finolex Cables Ltd and Finolex Industries Ltd. Over time, the group established several joint ventures, with Pralhad managing commercial aspects like finance and sales, while Kishandas focused on technical facets, such as production and R&D.

In 1989, to address tax implications, Pralhad initiated a strategy to transfer shares of Finolex Cables to investment companies. By 2009-10, the brothers aimed to consolidate their holdings under a single entity, Orbit Electricals. After a series of transfers and mergers, Pralhad’s shares in Orbit were eventually entrusted to the Pralhad Chhabria Trust, with specific governance conditions.

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The succession dispute intensified following Pralhad's death in 2016, sparking legal battles over share transfers and corporate governance. Pralhad had drafted a succession plan in 2012, appointing his daughter Aruna Katara, son Prakash Chhabria, and nephew Deepak Chhabria as successive chairpersons of the trust. However, before his death, Pralhad transferred 80% of his shares to Prakash and nominated him to the board, bypassing the 2012 trust deed. These changes, made during a 2016 board meeting, were later contested by Deepak and Vinni Chhabria, leading to prolonged litigation.