1995 (2) TMI 299 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the notice dated June 29, 1994, regarding the annual general meeting.
2. Validity of the appointment and reappointment of the second respondent as a director.
3. Compliance with Section 173(2) of the Companies Act regarding the explanatory statement.
4. Waiver of remuneration paid to the second respondent.
5. Internal management and shareholders' rights.
6. Validity of the resolutions passed in the annual general meeting held on August 4, 1994.

Issue-Wise Detailed Analysis:

1. Legality of the Notice Dated June 29, 1994:
The applicants sought a declaration that the notice dated June 29, 1994, for the annual general meeting scheduled on August 4, 1994, was illegal and void concerning items Nos. 7 and 8. They also sought a permanent injunction to restrain the respondents from considering these items. The court initially allowed the meeting to proceed but ordered that any decisions on items Nos. 7 and 8 not be given effect until further orders.

2. Validity of the Appointment and Reappointment of the Second Respondent as a Director:
The second respondent was initially appointed to fill a casual vacancy caused by the death of a director. His reappointment in subsequent meetings was challenged due to non-compliance with Section 257 of the Companies Act, which requires a deposit of Rs. 500 for a valid nomination. The first respondent argued that the second respondent was appointed unanimously by shareholders and that any defect in his appointment was technical. The court noted that the first respondent had sought legal advice and acted upon it, leading to the second respondent's resignation and subsequent appointment as an additional director.

3. Compliance with Section 173(2) of the Companies Act:
The applicants argued that the explanatory statement for items Nos. 7 and 8 did not satisfy the requirements of Section 173(2) of the Companies Act. The court emphasized that the explanatory statement must set out all material facts to enable shareholders to make an informed decision. The court found that the explanatory statement provided by the first respondent contained the necessary material facts and was in compliance with Section 173(2).

4. Waiver of Remuneration Paid to the Second Respondent:
The applicants contended that the waiver of remuneration paid to the second respondent was ultra vires the company. The court noted that the first respondent had sought and obtained approval from the Central Government for the waiver, subject to the approval of the general body. The court found that the remuneration was paid for services rendered and that the waiver was a matter for the shareholders to decide.

5. Internal Management and Shareholders' Rights:
The first respondent argued that the court should not interfere with the internal management of the company. The court agreed, emphasizing that shareholders have the right to decide on internal matters, including the waiver of remuneration. The court also noted that the applicants had not objected to the second respondent's appointment during earlier meetings and had participated in the annual general meeting.

6. Validity of the Resolutions Passed in the Annual General Meeting:
The applicants challenged the validity of the resolutions passed on August 4, 1994, on the grounds that the explanatory statement was misleading and that the minutes of the meeting were fabricated. The court found that the minutes were prima facie evidence under Sections 193 and 195 of the Companies Act. The court held that the applicants had not provided sufficient evidence to dislodge the presumption of validity of the resolutions. The court also noted that the balance of convenience favored the respondents and that not giving effect to the resolutions would cause prejudice to the second respondent.

Conclusion:
The court dismissed the applicants' claims and allowed the resolutions passed in the annual general meeting to be given effect. The court found that the explanatory statement was in compliance with Section 173(2) of the Companies Act, the waiver of remuneration was a matter for the shareholders to decide, and the internal management of the company should not be interfered with. The interim order granted on August 3, 1994, was vacated.