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2013 (2) TMI 143 - HC - Companies LawChallenge CLB in accepting application and directed DDIL a closely held company to call an EGM for holding election to the BOD within 15 days - BOD of DDIL contained an equal number of representatives of the Appellant group ( A group ) and of Respondents 2 to 4 ( B group ) - Respondent No.4 averred that board meetings of DDIL were held by the B group, including an Extraordinary General Meeting ( EGM ) without notice to the A group - challenging the action of the BOD in seeking to take control of the management of DDIL by ousting the A group - contended by the B group that the A Group was in a minority even with the shareholding of 33% whereas the B group was in the majority with a shareholding of 66% - Held that - A perusal of the minutes of the BOD meeting held on 28th March 2012 read with the notes accompanying the agenda for the meeting reveals that the factum of the exposure of DDIL to the loans advanced to DDPPL was disclosed. It was in the above circumstances that the B group filed Company Application seeking an order for convening an EGM of the shareholders of DDIL under the supervision of an Observer. It is not possible to accept the submission of the Appellants that the requirement of a group of shareholders desiring the convening of an EGM having to first make a requisition to the BOD is mandatory and in circumstance can be dispensed with, even by the CLB while making an order under Section 403 of the Act. That interpretation would in fact be contrary to the legislative intent behind Sections 402 and 403 and dilute the power of the CLB to pass orders which it thinks to be just and equitable in the facts of a case, particularly when an impasse has been created by one group of shareholders making it pointless for the other group to even make such requisition. In Bengal and Assam Investors Limited v. J.K. Eastern Industries Private Limited 1956 (7) TMI 24 - HIGH COURT OF CALCUTTA it was acknowledged that when a Court directs a meeting to be held under Section 186 it must necessarily modify or supplement the Articles or the Act. Also see Shailesh Harilal Shah v. Matushree Textiles Ltd. (1993 (4) TMI 239 - HIGH COURT OF BOMBAY) that the requiremnent of 21 days advance notice for holding an AGM was not mandatory notwithstanding the use of the word shall in that provision. As regards Section 186 the Supreme Court in R. Rangachari v. S. Suppiah 1975 (9) TMI 75 - SUPREME COURT OF INDIA has explained that before ordering the convening of a meeting the CLB must be satisfied that it is not practicable to (a) call for, (b) hold and (c) conduct such meeting. Therefore it will have to be examined in the facts of each case, whether the three requirements were cumulatively met to justify an order by the CLB. Thus the requirement under Section 186 that it must be impracticable to call, hold and conduct a meeting of a company, other than an AGM, can be said to be fulfilled in. As rightly observed by the CLB, it was pointless for the B group to send a notice under Section 169 to the BOD comprised entirely of directors of the A group for convening an EGM. In all probability that request could have been rejected. In the face of the unilateral acts of Mr. Karan Gambhir, the B group was not acting unreasonably in anticipating rejection of their request by the BOD constituted only by the directors of the A group. The CLB in the impugned order has rightly distinguished the decisions relied upon by the Appellants, which were pressed into service in these proceedings as well. As far as the question of the CLB building in safeguards into its decision is concerned, the minutes of the meeting of the EGM held under the supervision of the Observer shows Mr. Karan Gambhir continues as MD of DDIL. Thus the interests of the A group who continue as minority shareholders of DDIL and who are represented by Mr. Karan Gambhir on the BOD are accounted for. Consequently, this Court is satisfied that no ground has been made out for interference with the impugned order dated 22nd November 2012 of the CLB - appeal dismissed with costs of Rs. 20,000 which will be paid by the Appellants to Respondents 2 to 4 within four weeks from today.
Issues Involved:
1. Validity of the Board of Directors' (BOD) composition and actions. 2. Legality of the Extraordinary General Meeting (EGM) convened by the Company Law Board (CLB). 3. Compliance with Sections 169, 186, and 403 of the Companies Act, 1956. 4. Jurisdiction and powers of the CLB under Sections 397, 398, and 403 of the Companies Act, 1956. Issue-wise Detailed Analysis: 1. Validity of the Board of Directors' (BOD) composition and actions: The appellants (A group) and respondents (B group) were involved in a dispute over the control of the BOD of D.D. Industries Limited (DDIL). The A group, holding 33% shares, alleged that the B group, holding 66% shares, appointed four directors without notice to the A group, aiming to dilute their shareholding. The A group appointed additional directors on 8th April 2010, while the B group did the same on 12th April 2010, leading to conflicting claims over the BOD's composition. The A group contended that certain directors from the B group ceased to be directors due to a deemed vacation of office under Section 299 and 300 of the Act, as they failed to disclose their interest in a corporate guarantee resolution. However, the B group argued that the actions by Mr. Karan Gambhir (A group) in declaring the vacation of office were unilateral and without notice, thus invalid. 2. Legality of the Extraordinary General Meeting (EGM) convened by the Company Law Board (CLB): The CLB, in its order dated 22nd November 2012, directed DDIL to call an EGM for electing the BOD within 15 days, appointing an observer for the meeting. The CLB observed that the BOD should reflect the majority shareholders' wishes and that it was impracticable for the B group to requisition an EGM under Section 169 due to the BOD's composition being controlled by the A group. The CLB aimed to restore corporate democracy and ensure fair representation of the majority shareholders. 3. Compliance with Sections 169, 186, and 403 of the Companies Act, 1956: The appellants argued that the CLB's order overlooked the mandatory requirements of Sections 169 and 186, which prescribe procedures for calling EGMs and the Tribunal's power to order meetings. The appellants contended that the B group should have first made a requisition to the BOD under Section 169 before approaching the CLB. The court held that the CLB's power under Section 403, which allows it to issue interim orders for regulating the company's affairs, is broad and not limited by Sections 169 or 186. The court noted that the CLB could pass orders deemed just and equitable, especially when an impasse created by one group made it impracticable for the other group to follow the usual requisition process. 4. Jurisdiction and powers of the CLB under Sections 397, 398, and 403 of the Companies Act, 1956: The court emphasized that the CLB's jurisdiction under Sections 397 and 398, dealing with oppression and mismanagement, is independent of the civil court's jurisdiction. The CLB's power under Section 403 to grant interim relief is incidental to its power to grant substantial relief under Section 402. The court cited precedents affirming the CLB's broad authority to pass interim orders to ensure the proper conduct of the company's affairs. Conclusion: The court concluded that the CLB's order directing the convening of an EGM was justified given the impracticability of the B group requisitioning a meeting under Section 169 due to the BOD's composition. The court dismissed the appeal, upholding the CLB's decision to ensure fair representation of the majority shareholders and proper administration of DDIL's affairs. The appellants were ordered to pay costs of Rs. 20,000 to the respondents.
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