Case Study: Legal and Financial Implications of Escorts Ltd. vs. LIC

This case study examines the legal and financial dispute between Escorts Ltd. and the Life Insurance Corporation of India (LIC) in December 1995. The conflict arose from the Caparo group's investment in Escorts Ltd. through multiple subsidiaries and the subsequent actions of LIC, a major shareholder, to replace directors. The core issues revolved around LIC's right to call an Extraordinary General Meeting (EGM) and the requirement to disclose the meeting's purpose. The court ruled in favor of LIC, stating that the actions were within the scope of the Companies Act, 1956, and that shareholders have the right to appoint and regulate directors. The court also emphasized that there was no need to disclose the motive for resolutions in an EGM and that it could not intervene in the appointment of directors. The Reserve Bank of India (RBI) was not found liable, while the PNB was found guilty of not fulfilling its duties. The case highlights key aspects of corporate governance, shareholder rights, and the interpretation of company law in financial disputes.

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Table of Contents
BRIEF HISTORY............................................................................................................................3
KEY ISSUES:..................................................................................................................................3
REFERENCES................................................................................................................................4

BRIEF HISTORY
This case belongs to year December 1995. In order to promote foreign exchange,
government has initiated several provisions as per which Non-Resident individuals of Indian
origin with at least 60% of ownership in any organization can invest in shares of Indian
company for 1% shares individual and 5% aggregated of all. Although there was restriction on
individual investor but there was no restriction on each individual member of family. As per
which, Caparo group owned by Swaraj family trust and his family has invested in Escorts
limited through its 13 owned subsidiaries associating PNB as their banker and M/s. Raja Ram
Bhasin & Co. as broker. Which was preceded further after seeking approval from Reserve bank
of India by PNB countering that the limit is on Individual company and not on individuals. Due
to which LIC being one of the shareholders of Escorts Ltd. With 52% ownership issued an
order to arrange an (EGM) with the objective of removing 9 of the existing part time directors
and naming new 9 directors to fulfil the vacant place. Countering which RBI and Caparo Group
limited claimed a case against LIC saying the order to organise meeting by LIC was unlawful,
ultra vires and arbitrary.
KEY ISSUES:
The prominent issue of this case was the LIC was within its rights to hold or call for and
EGM and whether it was legally required for LIC to mention the clear subject or purpose of
meeting before calling the same. After going through the whole case and both arguments court
has ordered and provided conclusion that that the newly appointed managing directors and
director should continue the position till the time board of director decide on subject matter.
Court has ordered that ordering an EGM by LIC for Escorts Ltd. For the motive of removing
and appointing new directors was within compliance of section 284 of companies act, 1956 and
is not ultra vires to powers vested to LIC under section 6 of LIC Act.
As per the court all shareholders with majority shares of the company have power to
appoint new directors by election and also have power to regulate them.
Moreover, as per companies act, 1956 every shareholder is vested with power to call for
an extraordinary general meeting at any point without any legal need to disclose the motive for
resolution planned to be issued in the EGM and hence, the resolutions are not business for
judicial review. Moreover, it is not within the power of court to grant injunction or any restraint
order for carrying as general meeting or appointment of directors for the company and nor any
power to impose any restriction on shareholders.
There RBI isn't seen as liable of any malafide in allowing the authorisation to Caparo
gathering of organizations nor it was found guilty of non-application of mind in court, whereas

PNB was found guilty before the court for failure to discharge of their duties as authorized
dealers.
REFERENCES
Books and journals
Online
Life Insurance Corporation of India versus E scorts Ltd. & Ors, 1986 AIR 1370.
2020. [Online]. Available through:<https://thecompany.ninja/life-insurance-corporation-of-
india-versus-escorts-ltd-ors-1986-air-1370/ >.