1998 (7) TMI 695 - Board - Companies Law

Summary

Issues Involved:

1. Impracticability of calling an extraordinary general meeting.
2. Validity of the requisition dated February 9, 1998.
3. Allegations of misappropriation of funds by the first respondent.
4. Deadlock in the management of the company.
5. Non-attendance of the first respondent at the board meeting.
6. Status and involvement of Mr. Faiz Mohammed.

Issue-wise Detailed Analysis:

1. Impracticability of Calling an Extraordinary General Meeting:

The core issue is whether it is "impracticable" to call an extraordinary general meeting under Section 186 of the Companies Act, 1956. The petitioner argued that the first respondent's refusal to attend meetings created a deadlock, making it impracticable to call a meeting. The petitioner cited various legal precedents to support the claim that "impracticable" is more limited than "impossible" and should be viewed from a reasonable point of view. The first respondent countered that impracticability should not be based on inter-rivalry between shareholders or directors. The judgment concluded that due to the serious disputes and deadlock in management, it was indeed impracticable to call, hold, and conduct an extraordinary general meeting.

2. Validity of the Requisition Dated February 9, 1998:

Pucci SRL, holding 90% of the company's equity shares, sent a requisition on February 9, 1998, to convene an extraordinary general meeting. The first respondent challenged its validity, arguing it lacked a specific resolution from Pucci SRL. The judgment found that while Pucci SRL had the requisite shareholding to convene a meeting, the validity of the requisition was disputed, making it impracticable to convene a meeting under Section 169 of the Act.

3. Allegations of Misappropriation of Funds by the First Respondent:

The petitioner accused the first respondent of misappropriating company funds, which the first respondent denied, stating the funds were used with the petitioner's consent to buy land for future profit sharing. The judgment did not delve deeply into this issue, focusing instead on the broader impracticability of convening a meeting.

4. Deadlock in the Management of the Company:

The petitioner highlighted a serious deadlock in the company's management, causing significant operational paralysis. The judgment acknowledged this deadlock, noting the larger interests of the company and the need to remove the deadlock to ensure proper functioning.

5. Non-attendance of the First Respondent at the Board Meeting:

The first respondent did not attend the board meeting on February 20, 1998, which the petitioner argued was deliberate to avoid quorum. The first respondent cited personal reasons for non-attendance. The judgment found the first respondent's explanation unconvincing and noted the ongoing disputes and strained relationships as factors contributing to the impracticability of convening a meeting.

6. Status and Involvement of Mr. Faiz Mohammed:

Mr. Faiz Mohammed, a subscriber to the memorandum and articles of association, had resigned as a director but continued to be a member. The judgment noted the strained relationship between Mr. Faiz Mohammed and the petitioner, questioning the practicality of convening a meeting with his involvement.

Conclusion:

The judgment directed that a board meeting be convened to fix a date for an extraordinary general meeting. If a board meeting could not be held due to lack of quorum, an extraordinary general meeting should be convened with one member constituting a quorum. The petition was disposed of with these directions, emphasizing the need to address the deadlock and ensure the company's proper functioning. No order as to costs was made.