Supreme Court Upholds Industrial Investment Bank Of India Resolution For Preference Share Redemption Payment

The Supreme Court of India has brought a definitive end to a long-standing corporate dispute, refusing to interfere with a Calcutta High Court judgment that validated a resolution regarding the redemption of preference shares by the Industrial Investment Bank of India (IIBI). The order, passed by a bench of Justices Vikram Nath and Sandeep Mehta, effectively upholds a settlement framework for shareholders of the bank, which is currently undergoing voluntary liquidation .

A Disputed Settlement

The root of the litigation traces back to a resolution passed at the bank's 13th Annual General Meeting on September 20, 2010 . The resolution proposed the redemption of redeemable cumulative preference shares worth ₹221.08 crore. Under the terms of the settlement, these shares were to be redeemed at 20% of their principal paid-up capital as full and final settlement .

Petitioner Persis A. Khambatta and other holders of C-series preference shares, originally purchased in 1998 , challenged the resolution. They argued that their rights were significantly altered without adhering to the procedural requirements mandated by Section 106 of the Companies Act, 1956 . This legal provision governs the variation of rights attached to different classes of shares, provided the governing documents allow for such modifications.

High Court’s Reasoning

The Calcutta High Court had previously ruled in favor of the Industrial Investment Bank of India , finding that the necessary procedural safeguards had been met. The court noted that the notice issued for the Annual General Meeting contained an explanatory statement as required by law. Crucially, the evidence demonstrated that over 75% of the preference shareholders had provided prior written consent, with more than 99% of the paid-up preference share capital ultimately supporting the proposal.

Furthermore, the High Court clarified a point of procedural law regarding class meetings: it held that when identical terms are offered to an entire class of preference shareholders, the convening of separate meetings for individual sub-classes is legally redundant.

Key Observations

In its decision to dismiss the Special Leave Petitions , the Supreme Court remained brief but firm in its stance. The Court stated:

"We are not inclined to interfere with the impugned judgment and order passed by the High Court. The Special Leave Petitions are, accordingly, dismissed."

Regarding the nature of the challenge, the High Court had remarked during the initial proceedings that the requested interim injunction was not aligned with the final relief sought in the suit, ultimately rendering it unsustainable.

Conclusion and Implications

By dismissing the petitions, the Supreme Court has cleared the path for the final settlement of the ₹221.08 crore redemption. For the Industrial Investment Bank of India , this ruling provides the necessary legal certainty to proceed with its voluntary liquidation process. The case serves as a notable reminder of the threshold for challenging corporate resolutions, particularly when the overwhelming majority of a shareholder class has signaled its consent to a restructuring or redemption plan.