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2011 (6) TMI 671 - HC - Companies LawHUF - a special resolution to allot the premises No.3, Ratendone Road, New Delhi to Sh. Hansraj Gupta, Director and Chairman of the company or to any other officer, as the Board may determine from time to time free of costs Charges for residence purpose. The premises 3 Ratendone shall be maintained by the company at its cost and rent, House Tax, Electricity, water charges, Telephone facility, while washing, repairs, sanitary installation and fitting shall be borne by the company. The company shall also maintain the lawn and gardens at its cost - Disclosure of interest by - However, by a resolution dated 9-10-2000, appellant was removed from post of CEO - A resolution dated 12-1-2002 was passed by board of directors of respondent-company whereby a decision was taken to surrender tenancy of said property to its owner - Appellants filed suit in question challenging validity of above resolution - Appellants contended that respondents had interest in property being coparceners of HUF which was owner thereof and as directors of company and they failed to disclose their interest in terms of section 299.
Issues Involved:
1. Whether the resolution passed by the board of directors of the company can be voided on the ground that directors did not re-disclose personal interest in a contract. 2. Whether persons having no right, title, or interest in the property or authority to occupy a property leased to a company can challenge the actions/resolutions of the company. 3. Whether the plaintiffs (appellants) concealed material facts in the plaint and the consequences thereof. Issue-wise Detailed Analysis: (i) Whether the resolution passed by the board of directors of the company can be voided on the sole ground that directors did not re-disclose personal interest in a contract or arrangement which was discussed in the meeting even though admittedly such disclosure in the previous meetings was on record? 21. The purpose of Section 299 of the Companies Act, 1956 is to ensure that other directors and the company are aware of any personal interest held by a director in a matter under consideration. 22. The High Court of Mysore in S.M. Ramakrishna Rao v. Bangalore Race Club Ltd. held that if the board was aware of the interest of a director, further disclosure was unnecessary. This was also supported by the Company Law Board in A. Sivasailam v. Registrar of Companies. 23-24. Disclosure of interest is required only if other directors are unaware of it. In this case, the company's records, including accounts and statutory compliances, would have made the directors aware of the interest. 25-28. The resolution dated 27th February, 1974, which was relied upon by the appellants, contained sufficient disclosure of the directors' interest. The appellant no.1, as CEO since 1981, would be expected to know the company's affairs. 29-30. Sub-section (3) of Section 299 deems a general notice of interest sufficient. Thus, the respondents sufficiently disclosed their interest. 31-33. The appellants did not object to the resolution dated 12th January, 2002, even though appellant no.1 was present at the meeting. The resolution was confirmed on 23rd June, 2002, without any objection from appellant no.1. 34-38. The plaint did not mention the resolution dated 21st June, 2002, which ratified the earlier resolution, indicating concealment of material facts. 39-42. The plaintiffs are bound by strict rules of pleadings. The lack of challenge to the subsequent resolution means appellant no.1 is estopped from challenging the resolution dated 12th January, 2002. (ii) Whether persons having no right, title, or interest in the property or authority to occupy a property leased to a company can bring or maintain a challenge to the actions/resolutions of the company with regard thereto? 43-44. The ownership and interest in the property have not changed since 1974. 45-46. The tenancy was in favor of the company, not any individual. The appellants do not have any authorization from the company to support their occupation. 47-48. The appellants' claim to occupy the property lacks legal basis and authorization. 49-50. The suit and appeal were not filed in the capacity of directors/shareholders, nor authorized by the company. 51-52. The suit was filed to perpetuate the appellants' occupation of the property without any legal right. 53-54. The resolution dated 12th January, 2002, was necessary because the company derived no benefit from the lease due to the appellants' unauthorized occupation. 55-56. The decision-making by the Board of Directors must further the company's interest, not individual directors. The appellants' occupation was unauthorized and motivated by self-interest. 57-58. The suit does not fall within the stipulated categories for a declaratory suit under Section 34 of the Specific Relief Act, 1963. The appellants admitted they had no enforceable right to occupy the property. (iii) Whether the plaintiffs (appellants) concealed material facts? If so, consequences thereof. 59-60. The resolution dated 12th January, 2002, was ratified on 21st June, 2002, but this was not mentioned in the plaint, indicating concealment of material facts. 61. The Supreme Court in Rajappa Hanamantha Ranoji v. Sri Mahadev Channabasappa emphasized the need to curb fraudulent litigation and imposed exemplary costs. 62-64. The Supreme Court in Advocate General, State of Bihar v. Madhya Pradesh Kahir Industries and S.P. Chengalvaraya Naidu v. Jagannath held that courts must prevent abuse of process and strike out proceedings if material facts are concealed. 65-66. The appeal and application were dismissed with punitive costs of Rs. 75,000 payable to each respondent. 67. The appellants were directed to pay the balance costs awarded by the learned Single Judge and the costs awarded by the court within four weeks.
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