1995 (4) TMI 223 - HC - Companies Law

Summary

Issues Involved
1. Validity of the postponement of the Annual General Meeting (AGM).
2. Authority of the Board of Directors to postpone or adjourn the AGM.
3. Bona fides of the Board of Directors in postponing the AGM.
4. Balance of convenience in granting an interim injunction.

Issue-wise Detailed Analysis

1. Validity of the Postponement of the Annual General Meeting (AGM)
The plaintiffs, shareholders of the bank, challenged the postponement of the 73rd AGM initially scheduled for 28-9-1994. The Board of Directors resolved on 14-9-1994 to seek legal advice on resolutions proposed by certain shareholders to remove three directors and elect new ones. The legal advice received indicated the resolutions were invalid due to non-compliance with Section 188 of the Companies Act. Consequently, the Board decided to postpone the AGM, seeking and receiving permission from the Registrar of Companies. Notices were published on 23-9-1994 and 6-10-1994 informing shareholders of the postponement and the new date of 29-10-1994.

2. Authority of the Board of Directors to Postpone or Adjourn the AGM
The plaintiffs argued that once the AGM was convened under Section 166 of the Companies Act, the Board's power was exhausted, and they had no authority to postpone it. They cited legal precedents and texts, including Smith v. Paringa Mines Ltd., to support their contention that directors lack the power to postpone a properly convened meeting unless expressly provided in the Articles of Association. The Advocate General countered that the Board's power to convene a meeting inherently includes the power to postpone or adjourn it, referencing the Supreme Court's decision in J.M. Patel v. A.S. Mehta and Section 21 of the General Clauses Act.

3. Bona Fides of the Board of Directors in Postponing the AGM
The court examined whether the Board acted bona fide in postponing the AGM. The Advocate General argued that the postponement was justified due to confusion and speculations in the press about the AGM. The plaintiffs did not allege in their pleadings that the postponement was mala fide or that the Board gained any undue advantage. The court found no prima facie evidence of bad faith in the Board's actions, noting that the decision to postpone was based on legal advice and the need to address the validity of the resolutions for removing directors.

4. Balance of Convenience in Granting an Interim Injunction
The court considered the balance of convenience, noting that the bank is a significant banking institution with numerous branches. Granting an interim injunction could hamper its smooth functioning. The court also noted that the meeting held on 28-9-1994 by a group of shareholders was not in the agenda and the resolutions for removing directors had been ruled out by the Board. The court concluded that the balance of convenience did not favor granting the injunction, as any issues regarding the validity of the resolutions and the removal of directors could be rectified in the final decision of the suit.

Conclusion
The court held that the Board of Directors had the incidental or ancillary power to postpone the AGM and that the postponement was not prima facie vitiated by a lack of bona fides. The court confirmed the lower court's decision to refuse the interim injunction and directed the trial court to expedite the trial and disposal of the suit by 22-12-1995.