Plaintiff (Law Firm Rate, Attorneys Park Jong-sung et al., Counsel for the plaintiff-appellant)

Defendant Co., Ltd. (Attorney Hwang Jong-sung et al., Counsel for the defendant-appellant)

September 3, 2008

1. The defendant's decision to appoint non-party 1 at the 52 regular shareholders' meeting dated March 27, 2008 is revoked.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Basic facts

A. The relationship between the parties

The defendant is a stock-listed corporation whose main business purpose is manufacturing, processing, and selling glass and whose total number of issued and outstanding shares is 10,534,427 shares (10,079,660 shares + 454,767 shares). The plaintiff is a shareholder who owns 428,584 shares out of the shares issued by the defendant.

B. The defendant's articles of incorporation

Article 21(4) of the Defendant’s Articles of incorporation (hereinafter “instant Articles of incorporation”) provides that “In the appointment of auditors, a shareholder may not exercise his/her voting right on shares in excess of the total number of issued voting shares if the aggregate of voting shares owned by the shareholder himself/herself, his/her specially related persons, or his/her specially related persons, exceeds 3/100 of the total number of issued voting shares.”

C. Establishment of the instant resolution

1) On March 27, 2008, the Defendant’s 52 regular shareholders meeting held Nonparty 1 as an auditor, with the majority shareholder Nonparty 10 (owned 4,481,748 shares) and Nonparty 2 (owned 3,474,738 shares), Nonparty 3 (owned 15,00 shares), and minority shareholders holding 93,93 shares. The Plaintiffs (owned 428,584 shares) and their specially related persons, and other persons prescribed in Article 84-18 of the Enforcement Decree of the Securities and Exchange Act (hereinafter “specially related persons, etc.”), who fall under Nonparty 4 (owned 62,950 shares), ○○ (owned 60,648 shares), ○○, a foundation corporation (owned 153,648 shares), Nonparty 5 (owned 14,198 shares), Nonparty 64, Nonparty 14, Nonparty 24, Nonparty 197, Nonparty 4819, Nonparty 19797

2) In accordance with the articles of incorporation of this case, the Defendant permitted not only Nonparty 10 and his specially related persons to hold 8,11,486 shares, but also limited to 302,389 shares, each of which corresponds to 3% of the total number of outstanding voting shares, 10,079,660 shares owned by the Plaintiff and its specially related persons, etc. 302,389 shares, respectively. As a result, as the result, a resolution was adopted to appoint Nonparty 1 as auditor (hereinafter “resolution of this case”) with Nonparty 10, 396,322 shares, opposing 302,389 shares, which secured 93,93 shares of friendly shares, according to Nonparty 10’s intention.

【Reasons for Recognition】 Records of Evidence Nos. 1 through 3 and 6, and the purport of the whole pleadings

2. Related statutes;

(a) Commercial Act;

Article 409

(2) Any shareholder who holds more than 3/100 of the total number of issued and outstanding shares, excluding nonvoting shares, shall not exercise his/her voting rights in the appointment of an auditor under paragraph (1) of this Article.

(3) A company may set in the articles of incorporation a ratio lower than that referred to in paragraph (2).

(b) Securities and Exchange Act and Enforcement Decree thereof;

1) The current Securities and Exchange Act

Article 191-11

(1) Where the total amount of voting stocks of a stock-listed corporation or a KOSDAQ-listed corporation owned by the largest shareholder, his specially related persons or other persons as prescribed by the Presidential Decree exceeds 3/100 of the total number of voting stocks issued by the corporation concerned (where the ratio is prescribed by the articles of incorporation, such ratio shall apply thereto), such stockholder shall not exercise voting rights in the appointment and dismissal of the auditor or members of the audit committee (limited to members who are not outside

2) The former Securities and Exchange Act (amended by Act No. 6176 of Jan. 21, 2000; hereinafter “former Securities and Exchange Act”)

Article 191-11

(1) Where the sum of voting stocks of a stock-listed corporation or an Association-registered corporation owned by the principal, his specially related persons, and other persons as prescribed by the Presidential Decree exceeds 3/100 of the total number of voting stocks issued by the relevant corporation (where the ratio is lower, referring to such lower ratio by the articles of incorporation), such a stockholder shall not exercise voting rights in the appointment and dismissal

3) Enforcement Decree of the Securities and Exchange Act

Article 84-18

The term "other persons prescribed by the Presidential Decree" in Article 191-11 (1) of the Act means the persons falling under any of the following subparagraphs:

1. A person who holds stocks on the account of the largest shareholder or his/her specially related persons;

2. Any person who has entrusted (limited to the entrusted portion concerned) voting rights (including the rights to give instructions as to the exercise of voting rights) to the largest stockholder or the specially related person.

3. The parties' assertion

A. The plaintiff's assertion

1) Voting rights can not be limited unless otherwise permitted by the law as the most fundamental and important rights of shareholders. Article 409 of the Commercial Act explicitly provides that "the ratio lower than 3/100 may be set by the articles of incorporation of a company" in relation to the method of restriction as "shareholders" and Article 191-11 (1) of the Securities and Exchange Act explicitly states that "the largest shareholder, his specially related persons and other persons prescribed by the Presidential Decree," and that the method of restriction may be set by the articles of incorporation at a lower ratio in relation to the method of restriction as "the largest shareholder, his specially related persons, and other persons prescribed by the Presidential Decree," unlike those stipulated as "the person in question, his specially related persons, and others prescribed by the Presidential Decree," in light of the nature and purport of the above

In addition, the principle of one voting right per share as stipulated in Article 369(1) of the Commercial Code is derived from the principle of shareholder equality, and it can not be determined differently in the articles of incorporation unless the law recognizes exceptions especially.

However, Article 409 of the Commercial Act and Article 191-11 of the Securities and Exchange Act restrict the shareholder's voting rights in entirely different contents and form, and rather restrict the shareholder's voting rights without any legal basis, on the ground of the provisions excluding the amendment of the Securities and Exchange Act. The restriction of shareholder's voting rights without any legal basis is contrary to the principle of shareholder equality and the principle of shareholder voting rights per share, and is null and void in excess of the limits of the principle of the autonomy in the articles of incorporation.

2) On January 21, 200, when the Securities and Exchange Act reduces the subject of restrictions on voting rights to the largest shareholder and his related parties, the Addenda of the amended Securities and Exchange does not include any provision to continue the effect of the articles of incorporation in accordance with the provisions on the transfer of amendment in relation to Article 191-11(1). Rather, Article 1 of the Addenda of the amended Securities and Exchange does not stipulate that other provisions are implemented from April 1, 200 with respect to Article 1 of the Addenda, but Article 191-11(1) of the amended Securities and Exchange Act does not allow the legislators of the amended Securities and Exchange Act to apply the provisions after the amendment of the amended articles of incorporation in accordance with the provisions on the amendment of Article 191-11(1) of the former Securities and Exchange Act. Accordingly, the articles of incorporation of the case is null

3) Article 191-11 of the Securities and Exchange Act restricts voting rights of all shareholders and their specially related persons, thereby resulting in a result of appointing auditors according to the purport of a controlling shareholder. Thus, the appointment of auditors is at the core of the controlling shareholder’s independence. Thus, even if the largest shareholder is discriminated against other shareholders, it is not in violation of the Constitution since it has the validity of purpose, suitability of means, minimum of infringement, and balance of legal interests.

4) Therefore, pursuant to Article 409(2) of the Commercial Act, only the Plaintiff and Nonparty 4, whose aggregate amount of voting shares exceeds 302,389 percent of the total number of issued voting shares, shall be limited to 302,389 shares, respectively. Thus, the number of voting shares opposed to the instant resolution is less than the majority of the number of shares present. Thus, the instant resolution should have been rejected even though it should have been resolved.

Therefore, the resolution of this case should be revoked because it constitutes a defect in violation of the law.

B. Defendant’s assertion

The defendant asserts that the articles of incorporation of this case cannot be deemed null and void for the following reasons.

1) In light of the legislative intent of Article 409(2) and (3) of the Commercial Act, Article 191-11(1) of the Securities and Exchange Act, and the form of a provision that allows a lower rate than 3% to be determined by the articles of incorporation, the above restriction on voting rights is a so-called mandatory provision that prohibits the mitigation of such restriction by the articles of incorporation, but permits the reinforcement of such restriction by the

Article 409(3) of the Commercial Act does not allow the strengthening of restrictions in the articles of incorporation to be permitted by the declaration that it shall not be limited by any other means other than the ratio. However, the method of strengthening such restrictions is only a provision that only strengthens the ratio. Article 191-11 of the Securities and Exchange Act recognizes special cases not only “ratio” but also “the method of calculating the stock holding” by deepening the restriction on the right to appoint auditors under the Commercial Act, and the purport that even in this case, the restriction may not be mitigated, but also be strengthened is the same as in the Commercial Act.

In the appointment of auditors, there is no reason to restrict the voting rights of major shareholders in the appointment of auditors, and there is no reason to deny any provision more unfavorable than the law by the articles of incorporation. Therefore, the articles of incorporation of this case is not in violation of the autonomy of the simple mandatory provisions as a matter of strengthening the voting rights of auditors under the Commercial Act and the Securities and

2) Unless the articles of incorporation are clearly declared invalid under the Addenda of the Securities and Exchange Act (amended on January 21, 2000) prior to the amendment, there is no ground to deem that the articles of incorporation provisions under the purport of the preceding provision of the Securities and Exchange Act prior to the entry into force of the said amended Securities and Exchange Act as invalid at the same time.

3) Article 191-11 of the Securities and Exchange Act discriminates against one major shareholder and two major shareholders without reasonable grounds, and itself has problems in the principle of shareholder equality. Thus, if the articles of incorporation, which are municipal ordinances and rules, cannot equally limit the voting rights of other major shareholders, it shall be interpreted as unconstitutional law that violates the principle of equality under the Constitution.

4. Determination

A. The principle of shareholder equality and the principle of one voting right per share;

1) The principle of equality of shareholders is formally that shareholders shall be treated equally in legal relations between a company and a shareholder. In substance, the rights and obligations of each shareholder to each company should be determined in proportion to the number of shares held. Although the Commercial Act does not have a general and general provision on the principle of equality of shareholders, the principle of equality of shareholders is realized in the voting rights (Article 369(1) of the Commercial Act), including the right of the most important shareholder (Article 464 of the Commercial Act), the right to claim dividends (Article 418 of the Commercial Act), and the preemptive right to new shares (Article 418 of the Commercial Act). The shareholders of a stock company are only involved in the company only in capital through shares, and there is no personal trust between shareholders, and there is no harm caused by abuse of shareholders due to the resolution of the general meeting of shareholders. In addition, since the authority of the general meeting of shareholders is concentrated in the board of directors when the ownership and management of a company are separated, the principle of equality of shareholders is not recognized as an exception to the principle of equality of shareholders by a general shareholder.

2) Voting rights cannot be deprived of the provisions of the articles of incorporation, a general meeting of shareholders, or a resolution of the board of directors without the consent of a shareholder as one of the most important rights of a shareholder. Moreover, the principle of 1 share voting rights under Article 369(1) of the Commercial Act is based on the principle of equality of shareholders, and are mandatory regulations taken from consideration to realize the proportionality between the risk burden of shareholders and the exercise of influence over the company, and thus, it cannot be separately determined by the resolution of the articles of incorporation, the general meeting of shareholders, etc., except for the cases of special exceptions recognized by law.

B. The mandatory regulations and the limitation of articles of incorporation under the Act on the Stock Companies

1) In general, the provisions of the Act on the Stock Companies are highly strong, and most of the regulations on internal relations as well as the regulations on external relations are regarded as mandatory regulations. This is based on the fact that, in a case where the shareholders are incorporated only into capital without personal trust and the economic purpose pursued by each individual is different, there is a possibility that conflict of mutual interests arises between the company and the creditor of the company, and the public interest, and that the external and internal management of the company requires the guardianship action of the Act to protect the company and the interests of the general shareholders from the crossing of directors or abuse of authority

2) The articles of incorporation, which generally reports the nature of municipal ordinances and rules, is binding on both promoters, shareholders, companies, institutions, etc., but municipal ordinances and rules are deemed effective only within the framework of the mandatory provisions. Therefore, the articles of incorporation in violation of the mandatory provisions are not binding.

(c) Purport of the provisions on restrictions on voting rights when appointing auditors under the Commercial Act;

1) The audit system is developed when it is necessary to establish an organization to supervise the management in lieu of shareholders in order to overcome the system because general shareholders, who are investors, are in space far away from the management, and are unable to properly supervise the management due to the absence or non-experience in corporate management. The most important issue in the operation of the audit system under the Commercial Act is to ensure the status guarantee or independence of the auditor from the management institution.

2) However, the Commercial Act allows a general meeting of shareholders to exercise all the personnel rights of supervisory agencies and the members of an executing agency, thereby causing the influence of the major shareholder to both directors and auditors. As such, Article 409(2) and (3) of the Commercial Act that limits voting rights in the appointment of auditors was introduced at the time of the enactment of the Commercial Act in 1962, which is an original system that cannot be found in other legislative cases. The legislative intent of the above provision is to elect a fair auditor who is not affected by the purport of the major shareholder in order to prevent the failure of the audit system from being able to serve as a general resolution of the general meeting of shareholders by the auditor and the auditor’s new intention in the event of the appointment of auditors. However, as the major shareholder avoided the application of the above provision by distributing shares, since the enactment of Article 191-11(1) of the Securities and Exchange Act was newly established after the amendment of the Securities and Exchange Act in 197, the total number of voting rights shares of stock-listed corporations and KOSDAQ-listed corporations became limited.

D. Effect of the articles of incorporation provision of this case

1) The limitation of shareholder’s voting rights in appointment of an auditor constitutes an exception to the principle of shareholder equality or the principle of shareholder’s voting rights per share, such as in the case of other restrictions on voting rights. In a case where there is no explicit reservation in law, such restriction may not be limited by the articles of incorporation, and the articles of incorporation that restrict it shall be null and void. In addition, even if there is a provision on the limitation of voting rights in law, such provision shall be strictly interpreted in that the voting rights can not be arbitrarily deprived of

2) Article 409(2) of the Commercial Act provides that the ratio below the above ratio may be set by the articles of incorporation pursuant to Paragraph (3) of the same Article while restricting the exercise of voting rights to shares exceeding 3% based on individual shareholders. The relaxation of restrictions by the articles of incorporation is prohibited, but strengthening of restrictions is the same as the defendant asserts. However, in the method of strengthening restrictions by the interpretation of the language and text of Paragraph (3) of the same Article, it cannot be deemed that the law allows not only the ratio but also the method of limiting voting rights by summing up the shares of a person in a specific relationship with a shareholder, such as the articles of incorporation, as well as the ratio simply to strengthening restrictions by the interpretation of the language and text of the above Paragraph (3) of the same Article. However, the articles of incorporation of the same case is not the purport of allowing the law to limit voting rights if the shares held by the person with a special relationship are more than 3% and the voting rights are added to the shares held by the delegated shareholder

3) Article 191-11(1) of the Securities and Exchange Act adopts the method of limiting voting rights to 3% by aggregating the shares of the largest shareholder and the specially related persons, which are not stipulated in the Commercial Act, as well as the method of restricting voting rights, and does not include a reservation clause stipulating that “the scope of shareholders,” which should be limited by adding the shares of the specially related persons, etc., may be determined differently in the articles of incorporation. Thus, Article 191-11(1) of the Securities and Exchange Act provides that a shareholder whose voting rights are restricted by the articles of incorporation may determine only the limited ratio under the premise that the shares of the specially related persons, etc., and expanding the scope of shareholders whose voting rights are restricted by the articles of incorporation with the shares of the specially related persons, etc., does not fall under the scope of convenience permitted under Article 191-11(1) of the Securities and Exchange Act. In addition, Article 191-11(1) of the former Securities and Exchange Act allows all shareholders to limit voting rights in the same way as the amended provision of the Securities and Exchange Act does not apply to this case.

4) As seen earlier, the principle of shareholder equality and the purpose of the 1 week voting right principle, the reason why the corporation law was enforced, and the purport of the restriction on voting rights at the time of appointing a major shareholder and an auditor under the Korean Commercial Code is to protect general shareholders or to supervise major shareholders and managers from abuse of rights by managers such as directors who are controlled by major shareholders or from arbitrary business performance. As such, the restriction on voting rights in the appointment of an auditor should be interpreted so that auditors who control the management of the company through directors such as directors can efficiently check the major shareholders. If the articles of incorporation permits the restriction on voting rights of all shareholders by adding up with specially related persons, etc. as claimed by the Defendant, if extremely extremely, the majority shareholder who has secured the quorum for amending the articles of incorporation may limit all shareholders' voting rights at the same level as that of them by amending the articles of incorporation to reduce the ratio explicitly permitted by the Securities and Exchange Act, thereby completely eliminating the legislative intent of the restriction on voting rights in the appointment of the general shareholders. Therefore, it is difficult for the general shareholders to control voting rights through the articles of this case.

5) Even though the amended Securities and Exchange Act did not declare that the articles of incorporation becomes null and void under Article 191-11(1) of the Securities and Exchange Act, so long as Article 191-11(1) of the same Act is regarded as mandatory provisions, the articles of incorporation contrary thereto shall be deemed null and void simultaneously with the enforcement of the amended Securities and Exchange Act (a separate issue is whether the legal relationship already occurred, such as the status of auditor appointed before the enforcement of the amended Securities and Exchange Act, becomes null and void retroactively). In addition, in light of the purport of the voting restriction provisions in Article 191-11(1) of the current Securities and Exchange Act, it is difficult to view that there is a discrimination without reasonable grounds against one major shareholder and two major shareholders to the extent that it infringes on the principle of equality under the Constitution, and

6) For the foregoing reasons, the instant Articles of Incorporation is a invalid provision that violates the mandatory law and unfairly limits the shareholder’s voting rights. Therefore, it is unlawful for the Defendant to limit the voting rights to 302,389 weeks by aggregating all the number of stocks of the Plaintiff, its related parties, etc. pursuant to the instant Articles of Incorporation, and thus, constitutes a case where there is a defect in violation of the method of resolution.

5. Conclusion

Therefore, the resolution of this case shall be revoked, so the plaintiff's claim of this case shall be accepted for the reasonable ground, and it is so decided as per Disposition.

Judges Lee Jae-chul (Presiding Judge)