1995 (3) TMI 495 - HC - Companies Law

Summary

Issues Involved:
1. Legality and validity of convening the extraordinary general meeting (E.G.M.).
2. Compliance with Section 173 of the Companies Act regarding the explanatory statement.
3. Requirements under Section 169 of the Companies Act for lodging a requisition.
4. Estoppel regarding the appellants' prior actions.
5. Balance of convenience in granting interim relief.

Detailed Analysis:

1. Legality and Validity of Convening the E.G.M.:
The appellants, directors of the bank, challenged the convening of an E.G.M. scheduled for 2-3-1995, alleging irregularities and illegalities. They argued that the meeting was instigated by the Chairman to remove them from directorship due to personal conflicts. The trial court declined to stop the meeting, leading to this appeal. The court focused on the legality and validity of the meeting's convening, noting that the mala fides and other surrounding circumstances would be examined later by the trial court.

2. Compliance with Section 173 of the Companies Act:
The appellants contended that the explanatory statement attached to the E.G.M. notice was insufficient. Section 173 mandates that the statement must contain all material facts relevant to the agenda. The appellants argued that the company failed to disclose a crucial letter dated 7-1-1995 from the Chairman to the Reserve Bank of India (R.B.I.), which recommended their removal due to alleged misconduct. The court emphasized the importance of this letter and held that the company had a statutory duty to disclose such material facts to the shareholders. The court cited the Firestone case and the Escorts case to support the mandatory nature of this requirement.

3. Requirements under Section 169 of the Companies Act:
The appellants argued that the requisition for the E.G.M. did not comply with Section 169, which requires all requisitionists to lodge the requisition with the company. The court dismissed this objection, stating that the law does not require duplication of the requisition. It is sufficient if one shareholder forwards the requisition with the prescribed number of signatures.

4. Estoppel Regarding the Appellants' Prior Actions:
The respondents argued that the appellants were estopped from challenging the meeting as they had participated in the board meeting that decided to convene the E.G.M. and had sent a detailed reply to the requisition. The court rejected this argument, stating that estoppel does not apply in situations where a legal right is being enforced.

5. Balance of Convenience in Granting Interim Relief:
The court considered the balance of convenience, weighing the financial loss and inconvenience to the shareholders against the potential damage to the appellants if the meeting proceeded without proper disclosure. The court concluded that the appellants were gravely exposed to a situation where a wrong or reckless decision could be taken due to the lack of material facts. The court held that the balance of convenience favored the appellants and granted the interim relief, restraining the respondents from holding the E.G.M. on 2-3-1995.

Conclusion:
The appeal was allowed, and the respondents were restrained from holding the E.G.M. on 2-3-1995 unless they fully complied with the legal requirements. The court also permitted the respondents to adjourn the meeting to seek further orders from the appellate court, ensuring that the company would not face undue hardship if the appellate court's decision differed. The court emphasized the importance of full disclosure of material facts to shareholders, as mandated by Section 173 of the Companies Act.