1995 (3) TMI 349 - SC - Companies Law

Whether to grant or refuse the interim relief prayed for? Held that - Appeal allowed. Considerable justification in the plea put forward by the learned advocate who appears for the respondent insofar as it is true that they are left with virtually no time to approach the appeal court but more importantly because the appel- lants in the event of the appeal court taking a view contrary to the one which this court has taken, respondent No. 1 company should in that event not be subjected to the lengthy and expensive exercise of reconvening the meeting. It shall, therefore, be permissible for them to adjourn the meeting for such period of time as they consider reasonable to approach the appeal court if the appeal court grants permission to either to hold the same meeting or to continue with it, the respondents shall be entitled to do so. On the contrary, if the appeal court were to confirm the view of this court, the question of reconvening the meeting will not arise. The second application made by Mr. Holla is accordingly granted and respondent No. 1 is permitted to adjourn the meeting convened for 2-3-1995.

Issues Involved:
1. Legality of the High Court's injunction against holding the Extraordinary General Meeting (EGM).
2. Compliance with Section 173 of the Companies Act, 1956 regarding explanatory statements.
3. Validity of requisition for the EGM under Section 169 of the Companies Act, 1956.
4. Balance of convenience and potential harm from granting or refusing the interim relief.

Detailed Analysis:

1. Legality of the High Court's Injunction Against Holding the EGM:
The Supreme Court was satisfied that the High Court had no ground for setting aside the trial court's order refusing to grant the injunction for holding the EGM of the company. The injunction granted by the High Court was vacated, and the appeal was allowed.

2. Compliance with Section 173 of the Companies Act, 1956:
The appellants contended that the explanatory statement required by Section 173 of the Companies Act, 1956, was inadequately provided. They argued that the explanatory statement should include all material facts relevant to the agenda of the meeting. The appellants emphasized that the letter dated 7-1-1995 from the chairman of the bank to the RBI, which contained serious allegations against them, was not disclosed to the shareholders. The court agreed that this letter was a material fact that should have been included in the explanatory statement, as it would have provided shareholders with essential information to make an informed decision.

3. Validity of Requisition for the EGM Under Section 169 of the Companies Act, 1956:
The appellants argued that the requisition for the EGM did not comply with Section 169 of the Companies Act, 1956, as the names of the shareholders who signed the requisition were not disclosed. However, the court found no substance in this objection, stating that the law does not require duplication of a requisition. If a requisition is drafted by any shareholder and countersigned by the prescribed number of shareholders, the lodging of that requisition with the company is deemed compliance with Section 169 of the Act.

4. Balance of Convenience and Potential Harm from Granting or Refusing the Interim Relief:
The court considered the balance of convenience and the potential harm to both parties. While the respondents argued that significant inconvenience and financial loss would result from postponing the meeting, the court found that the appellants were exposed to a situation where a wrong or reckless decision could be taken at the meeting due to the lack of full disclosure of material facts. The court concluded that the balance of convenience lay in favor of the appellants, as the potential damage to them and the company outweighed the financial loss of postponing the meeting.

Conclusion:
The Supreme Court allowed the appeal, vacated the High Court's injunction, and restrained the respondents from holding the EGM until they fully complied with the legal requirements. The court emphasized the importance of providing shareholders with all material facts to ensure informed decision-making. The respondents were permitted to adjourn the meeting to approach the appeal court, with the condition that if the appeal court upheld the Supreme Court's view, the question of reconvening the meeting would not arise.

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