2003 (5) TMI 360 - HC - Companies Law

Summary

Issues Involved:
1. Application for ad interim injunction.
2. Interpretation of the Agreement dated 3-8-1995.
3. Alleged illegal allotment of shares and appointment of directors.
4. Validity of Board Meetings and compliance with statutory requirements.
5. Jurisdiction of the High Court versus Company Law Board.
6. Alleged fabrication of minutes and quorum issues.
7. Removal of plaintiffs from the Board of Directors.
8. Legality of the Extraordinary General Meeting (EGM) held on 25-1-2003.

Issue-wise Detailed Analysis:

1. Application for Ad Interim Injunction:
The Plaintiffs sought an ad interim injunction to restrain Defendant Nos. 3, 4, and 5 from acting as shareholders or directors of Defendant No. 6, and to prevent the Defendants from acting on resolutions passed in allegedly illegally convened Board Meetings. The Plaintiffs also sought to restrain the Defendants from interfering with the smooth running of Geetanjali Hospital.

2. Interpretation of the Agreement Dated 3-8-1995:
The Agreement dated 3-8-1995 between the Plaintiffs and Defendant No. 1 is central to the dispute. The Plaintiffs argued that they have the right to remain permanent Directors and to retain working chambers in the Hospital. The Agreement allowed Defendant Nos. 1 and 2 to acquire 66% of the shares and stipulated that the Plaintiffs would be permanent Directors. However, the Agreement also indicated that Defendant Nos. 1 and 2 could hold 80% of the shareholding, diluting the Plaintiffs' influence.

3. Alleged Illegal Allotment of Shares and Appointment of Directors:
The Plaintiffs discovered in January 2003 that Defendant Nos. 1 and 2 had allotted shares to Defendant Nos. 3, 4, and 5 and appointed them as Directors without the Plaintiffs' consent. The Plaintiffs argued that this was done to dilute their shareholding below 10%, depriving them of their rights under section 399 of the Companies Act.

4. Validity of Board Meetings and Compliance with Statutory Requirements:
The Plaintiffs contended that the Board Meetings held on 5-11-2002 and 25-1-2003 were illegally convened without proper notice. The Defendants admitted that notices were not sent by registered post until after the Plaintiffs raised objections. The Court noted that non-compliance with statutory notice requirements could invalidate the resolutions passed at these meetings.

5. Jurisdiction of the High Court versus Company Law Board:
The Defendants argued that the Plaintiffs should have approached the Company Law Board for redressal. However, the Court held that the civil court's jurisdiction is not excluded in cases of infringement of individual membership rights, as distinguished from corporate membership rights.

6. Alleged Fabrication of Minutes and Quorum Issues:
The Plaintiffs alleged that the minutes of the Board Meetings were fabricated and that the requisite quorum was not present. The Court noted that the presumption of correctness of minutes applies unless proven otherwise. The Plaintiffs' past conduct of signing documents without objection indicated their implicit consent to the Board's decisions.

7. Removal of Plaintiffs from the Board of Directors:
The Plaintiffs feared that Defendant Nos. 1 and 2 intended to remove them from the Board and prevent them from practicing in the Hospital. The Court observed that there was no specific prayer for restraining the removal of the Plaintiffs from the Board. The Court also emphasized the importance of corporate democracy and the rights of shareholders to remove directors through ordinary resolutions.

8. Legality of the Extraordinary General Meeting (EGM) Held on 25-1-2003:
The Plaintiffs challenged the legality of the EGM held on 25-1-2003, alleging that they were not given proper notice and that unauthorized persons were present. The Court found that the notice for the EGM was sent by registered post for the first time on 22-1-2003, following the Board Meeting on 5-11-2002, which the Plaintiffs claimed they were unaware of. The Court held that the Meeting of 5-11-2002 was deemed not to have taken place, rendering its resolutions null and void.

Conclusion:
The Court disposed of the application by directing the Defendants to issue fresh notices for any EGM or Board Meeting in strict compliance with statutory provisions and the Articles of Association. The Court emphasized the need for adherence to corporate democracy and the statutory rights of shareholders and directors.