2009 (2) TMI 469 - HC - Companies Law

Injunction orders - unfairness in conducting the meeting - Held that - Having accepted that there was an element of unfairness in conducting the meeting insofar as Item No. 6 is concerned, that the company s off-the-cuff response was unconvincing and that the conduct of postponing the voting was undesirable, in our opinion, the Trial Court erred in not continuing the injunction granted by it earlier on the premise that positive material had not been placed by the plaintiff to show that the resolution would have failed if poll had been conducted on the date originally fixed. Grant or refusal to grant injunction must be based on exercise of sound judicial discretion. We wonder what more was required of the plaintiff to have the injunction continued. We, therefore, find merit in the contention of the plaintiff that the shareholders who might have been present in the meeting held on 25-9-2006 to defeat resolution No. 6 were given a raw deal and we are of the considered view that the Trial Court erred in failing to exercise discretion by continuing the injunction already granted in his favour. The decision in Dalpat Kumar s case (supra) does not persuade us to refuse injunction since we are convinced that the plaintiff has succeeded in satisfying the recognised factors based whereon an injunction ought to follow. While allowing the appeals preferred by the plaintiff and dismissing the appeal filed by Teji Mandi, we direct that the order passed by the Trial Court on 6-11-2006 shall continue till disposal of the suit.

Issues Involved:
1. Validity of the explanatory statement attached to the notice of the Annual General Meeting.
2. Legality of the postponement of the poll during the Annual General Meeting.
3. Validity of the polling process conducted on the adjourned date.
4. Alleged breach of fiduciary duties by the directors of the company.
5. Compliance with the Articles of Association of the company.

Issue-Wise Detailed Analysis:

1. Validity of the Explanatory Statement:
The plaintiff contended that the explanatory statement attached to the notice of the Annual General Meeting was misleading and tricky, arguing that there was no need to raise funds and that the scheme was intended to increase the promoters' control over the company. The Trial Court and the High Court found no merit in this contention. The explanatory statement, which mentioned the need to augment capital and retire debts to improve the Debt Equity Ratio, was deemed not to be misleading. The High Court noted that no other shareholders raised grievances about the explanatory statement, suggesting that they were not handicapped in forming their judgment. The court did not find any contradiction between the explanatory statement and the Director's report.

2. Legality of the Postponement of the Poll:
The plaintiff argued that the polling was unlawfully postponed by the Chairman to the following day, which precluded a large number of members from participating. The High Court agreed with the plaintiff, noting that the Chairman's decision to defer the poll lacked a convincing reason and appeared to be a subterfuge to avoid the resolution being defeated. The court highlighted that the Chairman must exercise discretion reasonably and fairly, and in this case, the postponement did not pass the test of fairness and reasonableness. The drastic reduction in attendance from 365 shareholders on the original date to 46 on the adjourned date supported the plaintiff's contention that the postponement was intended to preclude opposition to the resolution.

3. Validity of the Polling Process:
The plaintiff contended that the polling conducted on the adjourned date was a farce, with valid votes being unlawfully rejected and representatives of some shareholders being prevented from voting. The High Court examined the cases of Teji Mandi and Jemco, who claimed they were unlawfully prevented from voting. The court found that Teji Mandi's claim of a second authorization was not supported by evidence and that Jemco did not assert a second authorization. Consequently, the court upheld the Trial Court's finding that there was no illegality in preventing these entities from voting. However, the court noted that the exclusion of votes from other shareholders who voted against the resolution would have affected the outcome, supporting the plaintiff's contention that the resolution would have been defeated if the poll was conducted on the original date.

4. Alleged Breach of Fiduciary Duties:
The plaintiff argued that the directors breached their fiduciary duties by issuing shares to consolidate the promoters' control over the company. The High Court did not find sufficient evidence to support this claim at the interlocutory stage. The court noted that the power to issue shares is a fiduciary power to be exercised for the proper purpose of raising capital when required and that the plaintiff failed to show that the company suffered any prejudice due to the issuance of shares.

5. Compliance with the Articles of Association:
The plaintiff contended that the Chairman of the Annual General Meeting violated Article 65 of the Articles of Association by nominating another person to chair the adjourned meeting. The High Court did not find this point to have been raised before the Trial Court and thus did not consider it. The court noted that the Chairman's action could not be branded unfair in the absence of an objection raised during the meeting.

Conclusion:
The High Court found merit in the plaintiff's contention regarding the unfair postponement of the poll and the conduct of the meeting, leading to the resolution being passed. The court set aside the Trial Court's judgment and continued the injunction granted earlier, preventing the company from giving effect to the resolution until the disposal of the suit. The court dismissed the appeal filed by Teji Mandi and upheld the Trial Court's order in that regard.

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