The Supreme Court has cleared the air on how three trusts and societies, which collectively hold a crucial block of promoters’ share in Birla Corporation Ltd, can vote in the company’s resolutions, in a far-reaching judgment that could shape how the crown jewel of the MP Birla Group is run in future.
A bench of Justice Vikram Mehta and Justice Sandeep Mehta established the supremacy of the board of trustees (BoT) in the affairs of Hindustan Medical Institution, Eastern Indian Educational Institution and Belle Vue Clinic, including how they would cast a vote as shareholders of companies such as Birla Corp.
The bench also ruled that the trustees can decide on a subject by majority and such a decision need not be unanimous.
The judgment can have a far-reaching impact on the affairs of Birla Corporation, under the effective control of Harsh V Lodha, who is embroiled in a long-drawn legal battle with the Birla family over the ownership of the MP Birla group.
These trusts and societies collectively hold a 13.89 per cent stake in cement producer Birla Corp, which has a market capitalisation of ₹7,747 crore. Their votes were invalidated by the scrutiniser at Birla Corp’s annual general meeting on the last four occasions, starting from 2022, citing disputes over claims and counterclaims of casting votes and composition of BoT and managing committees.
Implications
A source close to the Birla family said the judgment would potentially split the promoters’ shareholding in Birla Corp, which stood at 62.9 per cent at the end of the March quarter, down the middle, with only half of it under the effective control of Lodha. As a consequence, carrying resolutions, especially special ones, which require three-fourths support of shares cast, may be challenging, the source argued.
Countering the claim, a source close to Lodha said the BoTs of these trusts and societies have been reconstituted, and Lodha is in control over them, stressing that the SC judgment does not move the needle on who is in control. However, a legal challenge to the reconstitution is pending before the Calcutta High Court.
The present special leave petition before the apex court followed an order by a division bench of the Calcutta HC, which had ruled that BoTs must decide unanimously while casting a vote. Anamika Lodha, wife of Harsh, was a dissenting trustee in all three entities.
The apex court also ruled that properties of the societies, in these cases, the shareholding in Birla Corp and other MP Birla Group companies, vest in trustees and the managing committee derives authority through delegation from trustees.
“The Supreme Court, rejecting the contentions of Anamika Lodha, has categorically held that the original board of trustees is competent to act through majority decisions, ignoring the dissent of Anamika Lodha and that the validity of votes cannot be determined merely on the basis of which vote was cast first,” Nalin Kohli, counsel for trusts and societies, said in a statement.
“The judgment comes as a significant relief for the Birla side, as it reinforces the authority of majority-backed decisions taken by the BoT of the respective societies.
“Importantly, the court has further clarified that the validity of votes cast on behalf of these societies must be tested on the basis of lawful authority traceable to the governing documents of the societies and the applicable statutory framework governing voting.
“Consequently, BCL and the scrutiniser would no longer be justified in invalidating the votes of the societies merely on account of rival claims or solely because another vote had been cast earlier in point of time,” Kohli added.
Lawyers at Fox & Mandal, representing Harsh V. Lodha, said the Supreme Court has unequivocally held that societies of the MP Birla Group are required to function in accordance with the rules governing them and that the shares held by such societies in various companies constitute the assets and properties of the respective societies.
“The trustees and office bearers are therefore bound to act in a manner consistent with their own governing framework and statutory obligations.
“It is therefore evident that members of the APL Committee appointed over the estate of Priyamvada Devi Birla have no authority to interfere with the functioning or administration of these trusts and societies, which are governed by their own rules and regulations,” they said in a statement.