The Supreme Court has held that a society can validly make decisions through resolutions signed by a majority of its trustees when its by-laws expressly permit such a process.
The Court also ruled that authorities cannot decide the validity of a vote cast on behalf of a society merely by determining which rival faction voted first.
A Bench comprising Justice Vikram Nath and Justice Sandeep Mehta delivered the judgment in a batch of appeals led by Hindustan Medical Institution v. Birla Corporation Limited & Ors.
Background of the Dispute
The appeals challenged a common judgment delivered by the Calcutta High Court on September 26, 2022.
The dispute involved voting rights attached to shares held by three societies in Birla Corporation Limited (BCL):
- Hindustan Medical Institution – 9.30%
- Eastern India Educational Institution – 4.36%
- Belle Vue Clinic – 0.23%
The conflict arose from internal governance disputes within the societies following the death of Priyamvada Devi Birla in 2004.
The societies relied on resolutions circulated on March 4, 2021. They claimed that these resolutions validly changed the composition of their Boards of Trustees and Managing Committees.
However, Anamika Lodha challenged the validity of those resolutions and initiated separate legal proceedings.
Although courts refused to stay the resolutions, disputes continued regarding who could exercise voting rights attached to the societies’ shares in BCL.
The issue resurfaced before BCL’s Annual General Meeting scheduled for September 27, 2022.
High Court Refused Interim Relief
The Single Judge declined to grant interim relief.
The Court held that disputes regarding voting authority were internal matters for the societies themselves.
According to the Single Judge, BCL could not decide competing claims of authority.
The Court also observed that the scrutiniser could not choose one rival authorisation over another at an interim stage.
The Division Bench agreed with this view.
Relying on Section 48 of the Indian Trusts Act, 1882, and Janakirama Iyer v. Nilakanta Iyer, the Division Bench held that trustees must act together.
The Bench further directed that the first vote cast by a society should prevail and that no later communication could invalidate it.
Supreme Court Upholds Majority Trustee Decisions
The Supreme Court disagreed with the High Court’s interpretation.
Justice Vikram Nath noted that Clause 24 of the societies’ by-laws expressly permits trustees to delegate authority through written resolutions signed by a majority of trustees.
The clause further states that such resolutions are as valid and effective as resolutions passed at a formal meeting.
The Court relied on Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. and J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P.
According to the Bench, courts must interpret governing documents as a whole and give effect to every provision.
The Supreme Court also rejected the High Court’s reliance on Section 48 of the Trusts Act.
The Bench noted that Section 48 itself contains an exception where the governing instrument provides otherwise.
Since Clause 24 expressly allows majority-backed resolutions, the requirement of unanimous trustee action did not apply.
The Court observed:
“The correct interpretation of Clause 24 of the by-laws thus is that, where the by-laws contemplate delegation or authorization by the trustees, the same may validly be accomplished through a resolution evidenced in writing under the hands of the majority of the trustees.”
Accordingly, the Court held that trustees need not always act in complete unanimity.
Trustees Hold Primary Authority
The Supreme Court also examined the governance structure of the societies.
According to the Court, the Memorandum of Association and Rules create a two-tier system.
The trustees hold and control the societies’ properties.
By contrast, the Managing Committee exercises only those powers delegated by the trustees.
The Bench described the Board of Trustees as the “source body” and the Managing Committee as a delegated administrative body.
Therefore, authority to exercise voting rights attached to society-held shares must originate from the trustees unless they lawfully delegate that power.
The Court found that the High Court wrongly treated both bodies as occupying the same position.
Court Rejects ‘First Vote Prevails’ Rule
The Supreme Court also rejected the High Court’s direction that the first vote cast should automatically prevail.
The Bench examined Section 108 of the Companies Act, 2013, Rule 20 of the Companies (Management and Administration) Rules, 2014, and BCL’s AGM notice.
The Court clarified that these provisions prevent duplicate voting and prohibit alteration of a valid vote.
However, they do not validate a vote simply because it was cast first.
For societies and other non-individual shareholders, lawful authority remains the decisive factor.
The Court observed that the High Court incorrectly replaced the requirement of authority with a test based on chronology.
The Bench held:
“A vote cast first but without lawful authority cannot become valid merely by reason of priority in time. The law protects the first valid vote of the member against duplication or change. It does not validate the first unauthorised act of a rival claimant.”
Supreme Court Restores the Suits
The Supreme Court allowed the appeals filed by Hindustan Medical Institution, Eastern India Educational Institution, and Belle Vue Clinic.
The Court set aside both the Division Bench judgment and the orders passed by the Single Judge.
It held that majority-backed trustee resolutions can constitute valid authorisations on behalf of the societies.
The Bench also struck down the High Court’s “first vote prevails” direction.
However, the Court clarified that it had not decided the validity of the March 4, 2021 resolutions or any subsequent authorisations.
Similarly, disputes regarding the appointment, removal, cessation, or nomination of trustees and Managing Committee members remain open.
The Court restored the suits and related applications to the Calcutta High Court for fresh consideration in accordance with law.
No order as to costs was passed.
