1985 (2) TMI 214 - SC - Companies Law

Company Membership of, Meetings and Proceedings - Representation of Corporation at Meetings of Companies & Creditors, Power to takeover industrial undertaking without investigation under certain circumstances

Issues Involved:
1. Validity of the extraordinary general meeting of Swadeshi Polytex Ltd.
2. Effect of the appointment of a receiver on the rights of the Cotton Mills Company.
3. Impact of attachment of shares under section 149 of the Land Revenue Act.
4. Consequences of pledging shares on the Cotton Mills Company's rights.
5. Effect of the Central Government's order under section 18AA(1)(a) of the Industries (Development and Regulation) Act, 1951.

Issue-wise Detailed Analysis:

1. Validity of the Extraordinary General Meeting:
The dispute pertains to the validity of an extraordinary general meeting of Swadeshi Polytex Ltd. called pursuant to a notice issued under section 169 of the Companies Act, 1956. The appellants contended that the meeting was invalid as the Cotton Mills Company, which had requisitioned the meeting, had lost its rights as a member due to the appointment of a receiver, attachment, and pledge of its shares. The court, however, upheld the validity of the meeting, stating that the Cotton Mills Company retained its rights as a member despite these actions.

2. Effect of the Appointment of a Receiver:
The court examined whether the appointment of a receiver under section 182A of the U.P. Land Revenue Act affected the Cotton Mills Company's rights as a shareholder. It concluded that the appointment of a receiver did not divest the Cotton Mills Company of its rights as a member, as the receiver holds the property for the benefit of the true owner and the property does not vest in the receiver. The Cotton Mills Company, therefore, retained its rights to vote and requisition meetings.

3. Impact of Attachment of Shares:
The court analyzed the effect of attachment under section 149 of the Land Revenue Act, which allows the attachment and sale of movable property. It determined that attachment does not deprive the owner of their rights to the property until it is sold. The Cotton Mills Company, therefore, retained its voting rights and the ability to requisition meetings despite the attachment of its shares.

4. Consequences of Pledging Shares:
The court considered the legal implications of pledging shares. It noted that a pledge creates a security interest but does not transfer ownership. The Cotton Mills Company, as the pledgor, retained its general property rights in the shares, including the right to vote and requisition meetings, even though 3,50,000 shares were pledged to the Government of Uttar Pradesh.

5. Effect of the Central Government's Order:
The appellants argued that the Central Government's order taking over the management of Swadeshi Cotton Mills under section 18AA(1)(a) of the Industries (Development and Regulation) Act, 1951, affected the Cotton Mills Company's rights. The court rejected this argument, clarifying that the order only pertained to the management of specific industrial units and did not affect the Cotton Mills Company's ownership or voting rights in the shares of Swadeshi Polytex Ltd.

Conclusion:
The Supreme Court dismissed the appeal, affirming the validity of the extraordinary general meeting and the rights of the Cotton Mills Company to vote and requisition meetings despite the appointment of a receiver, attachment, pledge of shares, and the Central Government's order. The costs of all parties were to be borne by Swadeshi Polytex Ltd. The court's order from February 1, 1985, remained in force.

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