LIC of India v. Escorts Ltd. & Ors, [1986] 59 Comp Cas 548

• EGM Power: Could LIC lawfully requisition an extraordinary general meeting to replace directors?
• Shareholder Rights: Can shareholders submit a valid requisition to appoint new directors without disclosing motives?
• RBI Approval: Does RBI have authority to authorise foreign share acquisitions, including post-facto approval, and is the company bound by it?

• LIC’s requisition valid: Issuing a notice to replace nine directors was not contrary to Section 284, not ultra vires, and not arbitrary under Article 14.
• Section 173(2): The notice must state the meeting and its business. Motives behind a proposed resolution need not be disclosed.
• Corporate democracy: Majority shareholders can choose/remove directors as per law and the company’s constitution.
• FERA/RBI: Transfer of shares is governed by FERA. Once RBI authorises acquisition, the company cannot refuse to register the transfer on its own view.
• Public vs private law: When the State acts as shareholder, it acts in the private law field; courts do not review such actions as public law decisions.

The Supreme Court allowed LIC’s appeal and dismissed Escorts’ cross-appeal. LIC’s EGM requisition to replace nine non-executive directors was lawful, not ultra vires Section 284, and not violative of Article 14. Section 173(2) needs disclosure of the meeting and its business; motives need not be stated. Under FERA, RBI’s approval controls; once granted, the company cannot refuse registration of such share transfers on its own view.

• Corporate democracy affirmed: Majority may change non-executive directors via due process.
• State as shareholder: When acting in private law, State has the same rights as any shareholder; public law review is inapplicable.
• RBI role: RBI’s authorisation is determinative for FERA-regulated share acquisitions.

Shareholders rule the boardroom, not the courts, when process is lawful. A valid requisition needs proper notice of business (not motives). For foreign share acquisitions, RBI’s FERA approval binds the company’s registration duty.

• Clarifies how corporate democracy works in India.
• Draws the line between public law review and private shareholder rights.
• Gives clear guidance on Section 173(2) notices and FERA/RBI approval effects.

1. EGM requisition valid: Majority can lawfully seek board changes.
2. Notice ≠ motives: Section 173(2) needs business detail, not reasons.
3. RBI says go: After FERA approval, company must register transfers.
4. State parity: State shareholder = ordinary shareholder in private law.

Mnemonic: “EGM, Not ‘Why’—RBI Says ‘Apply’.”

1. EGM: Majority can replace non-executives via valid requisition.
2. Not ‘Why’: State business in the notice; motives not needed.
3. RBI ‘Apply’: FERA approval controls registration of transfers.

Issue: Could LIC requisition an EGM to replace directors, and how do Section 173(2) and FERA/RBI approvals affect company action?

Rule: Requisition lawful if process is followed; motives need not be disclosed; RBI’s FERA approval binds registration duties.

Application: LIC met legal process; purpose disclosed; replacing non-executive directors was democratic; FERA approvals left no ground to refuse registration.

Conclusion: LIC’s requisition upheld; corporate democracy prevails; RBI approval decisive.

EGM

Extraordinary General Meeting—called to decide urgent/specific matters.

Section 173(2)

Provision requiring the notice to state the meeting and the business to be transacted.

Corporate Democracy

Rule that majority shareholders control director appointments/removals via due process.

FERA

Foreign Exchange Regulation Act (then in force) regulating foreign share acquisitions via RBI.

• John Shaw & Sons (Salford) Ltd v Shaw — courts won’t restrain lawful shareholder meetings.
• Tata Engineering v. State of Bihar — scope of public law review over State actions.
• Needle Industries v. Needle Industries Newey — shareholder rights and director control.