1992 (5) TMI 155 - HC - Companies Law

Meetings and Proceedings Circulation of members resolution Resolution for appointing or removing auditors

Summary

Issues Involved:
1. Legality of the interim injunction dated September 7, 1991.
2. Compliance with Section 225 of the Companies Act, 1956.
3. Applicability of Section 188 of the Companies Act, 1956, to the proposed resolution.

Detailed Analysis:

1. Legality of the Interim Injunction Dated September 7, 1991:
The plaintiff sought to set aside the interim injunction granted by the learned Sub-Judge, which directed the defendant-company to include the plaintiff's proposed resolution in the agenda of the annual general meeting (AGM). The defendant contended that this interim order caused grave injustice, prejudice, and hardship, preventing the declaration of dividends for the year 1990-91. The court noted that the inability to hold the AGM indeed caused hardship to the company and its shareholders. The order of J.K. Mehra J., dated December 2, 1991, allowed the defendant to seek revocation, modification, or alteration of the interim order.

2. Compliance with Section 225 of the Companies Act, 1956:
Section 225 requires special notice for a resolution at an AGM appointing an auditor other than the retiring auditor or expressly providing that a retiring auditor shall not be reappointed. The plaintiff argued that a single shareholder could invoke Section 225 without complying with Section 188, which mandates a resolution to be signed by members representing 1/20th of the total voting power or by at least 100 members holding shares worth more than Rs. 1 lakh. The court analyzed Sections 190, 225, and 284, noting that Section 225 does not specify the number of shareholders required to move a resolution. However, it emphasized that the provisions of Section 188, which require a certain number of shareholders to support the resolution, are applicable.

3. Applicability of Section 188 of the Companies Act, 1956, to the Proposed Resolution:
Section 188 outlines the procedure for circulating members' resolutions, requiring support from a specified number of shareholders. The court observed that Section 225, which deals with the appointment and removal of auditors, necessitates compliance with Section 188. The court rejected the plaintiff's argument that a single shareholder could compel the company to circulate a resolution for the removal or appointment of an auditor without meeting the requirements of Section 188. The court emphasized that the independence of auditors is crucial, and the legislative intent does not support allowing a single shareholder to disrupt the company's functioning by introducing resolutions without adequate support.

Conclusion:
The court concluded that the plaintiff did not comply with the provisions of Section 188 regarding the number of members required to sign the requisition. Consequently, the defendant was not obligated to circulate the proposed resolution or include it in the AGM agenda. The learned Sub-Judge erred in granting interim relief by misconstruing the provisions of Sections 188, 190, and 225. The application was allowed, and the interim order dated September 7, 1991, was vacated.