1982 (6) TMI 216 - HC - Companies Law

Meetings and proceedings Explanatory statement to be annexed to notice, Contents and manner of service of notice and persons on whom it is to be served, Certain perosns not to be appointed as managing director

Issues Involved:
1. Legality of the resolution passed on May 14, 1982, for the removal of the petitioner as managing director.
2. Compliance with the provisions of the Companies Act, 1956, specifically Section 173.
3. Right of the petitioner to challenge the resolution given his non-membership status in the company.
4. Validity of the notice and explanatory statement concerning the extraordinary general meeting.
5. Relief sought by the petitioner for a perpetual injunction and declaration of the resolution as void.

Issue-Wise Detailed Analysis:

1. Legality of the Resolution Passed on May 14, 1982:
The petitioner argued that the resolution passed at the extraordinary general meeting on May 14, 1982, for his removal as managing director was illegal, void, and of no effect. He claimed that no board meeting was convened to consider the resolution, nor was he given notice of the extraordinary general meeting. The court found that the petitioner had been served notice, which he refused to accept. Under Section 27 of the General Clauses Act, 1897, such refusal constitutes valid service. Therefore, the resolution was deemed legally passed.

2. Compliance with the Provisions of the Companies Act, 1956, Specifically Section 173:
The petitioner asserted non-compliance with Section 173 of the Companies Act, which mandates that a statement setting out all material facts concerning special business be annexed to the notice of the meeting. The court held that the petitioner, not being a member of the company, was not entitled to challenge the non-compliance of Section 173. Moreover, the company's articles of association excluded the application of Sections 171 to 186, including Section 173, as per Section 170 of the Companies Act.

3. Right of the Petitioner to Challenge the Resolution Given His Non-Membership Status:
The court noted that the petitioner admitted he was not a member of the company, having no shareholding in defendant No. 1. As a non-member, he lacked the standing to challenge the resolution's compliance with Section 173. The court emphasized that the petitioner, being an employee (managing director), could not seek specific performance of an employment contract through an injunction.

4. Validity of the Notice and Explanatory Statement Concerning the Extraordinary General Meeting:
The petitioner contended that the explanatory statement accompanying the special notice was insufficient. The court found that the company had provided the requisite explanatory statement, and the petitioner's refusal to accept the notice served by registered post was considered valid service. The court dismissed the petitioner's argument regarding the inadequacy of the explanatory statement.

5. Relief Sought by the Petitioner for a Perpetual Injunction and Declaration of the Resolution as Void:
The petitioner sought a declaration that he remained the managing director and an injunction to prevent the company from enforcing the resolution. The court ruled that such relief was untenable, as a managing director is merely an employee, and no court can compel an employer to retain an employee in whom it has lost confidence. The court cited precedents, including Bentley-Stevens v. Jones and Palmer's Company Law, to support its decision. The court concluded that any irregularities in the meeting could be rectified in subsequent meetings, and thus, no injunction was warranted.

Conclusion:
The court dismissed the petitioner's application with costs, holding that the resolution for his removal as managing director was legally valid, and he had no standing to challenge it due to his non-membership status. The company had complied with the necessary legal requirements, and any procedural irregularities could be corrected in future meetings.

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