Is the Board’s Decision to Sell Land Valid Under the MOA and SHA?

Question from Nik, Is the Board’s Decision to Sell Land Valid Under the MOA and SHA?

Answer from AI:

When assessing the validity of a board’s decision to sell land, particularly in the context of a dispute between Oasis Pharmaceuticals Private Limited (Oasis) and Modern Life Saving Pharmaceuticals (MLSP), several legal and contractual elements must be considered. The Memorandum of Association (MOA) and Shareholders’ Agreement (SHA) are crucial documents that outline the governance and decision-making frameworks within a company.

Understanding the MOA and SHA

The MOA typically includes information about the company’s objectives and powers, while the SHA often details the rights and obligations of shareholders, particularly in decision-making processes. In this case, the key issues revolve around:

• The authority granted by these documents to the board or specific directors to sell company assets.
• Any specific clauses that might require special approvals or conditions, such as the need for an affirmative vote on critical decisions.

Arguments Supporting the Invalidity of the Land Sale

1. Requirement for an Affirmative Vote: If the SHA stipulates that decisions on critical matters, such as the sale of significant assets, require an affirmative vote or the consent of certain shareholders (in this case, possibly the sponsors or major shareholders like MLSP), the board’s decision could be challenged if such consent was not obtained.

2. Exceeding Authority: The argument that the Managing Director exceeded his authority by unilaterally making decisions that should require board approval or a specific procedure as outlined in the SHA or MOA could render the decision invalid. This is particularly relevant if the SHA or MOA explicitly limits the powers of individual directors or mandates a collective decision-making process.

3. Impact of Non-compliance with Agreed Terms: The refusal of MLSP to proceed with the third drawdown based on not meeting the EBITDA target introduces another layer of complexity. If the financial performance targets tied to governance rights or decision-making powers were not met, this could potentially affect the validity of subsequent decisions made by the board.

Legal Precedents and Principles

In similar cases, courts have often looked at the specific provisions of the governing documents and the intent behind them. Decisions are typically based on whether the actions of the board or specific directors were in accordance with the powers and procedures outlined in these documents. The principle of acting within the scope of granted authority and the necessity of following agreed procedures are fundamental.

Recommendations for Further Action

• Review the specific clauses of the MOA and SHA related to asset disposal and directorial powers.
• Consult with a legal professional to obtain a detailed interpretation of how these clauses apply to the current situation.
• Consider alternative dispute resolution mechanisms, such as arbitration, if outlined in the SHA, as a potential way to resolve the dispute.

For more detailed guidance, reviewing similar legal cases and precedents can provide further insights into how such disputes are typically resolved.

Note: This overview provides general information and is not a substitute for professional legal advice. Consulting with a legal expert who can offer advice tailored to the specific circumstances of this case is highly recommended.