2019 (7) TMI 1849 - Tri - Companies Law

Seeking for directions from this Court for convening a general meeting of the company on requisition made by its shareholder - Section 98(1) and 100 of the Companies Act 2013 - HELD THAT - In the present case it appears that the respondent company not only modified the proposed agendas of the requisition but also proposed a different date to convene such meeting. Such action on the part of the respondent company is contrary to law. The contentions that the proposed resolutions may run contrary to the Joint Venture Agreement or it may disturb equities against the respondent group of members is not legally sustainable as even an agreement entered between the parties cannot prevail upon the statutory power conferred to its shareholders. For convening AGM or EGM nor it can fetters right of the shareholders nor can be estoppel to them to exercise their statutory right to vote and pass necessary resolution in such AGM. The Board of Directors of the respondent company is directed to proceed forthwith to call an Extra Ordinary General Meeting of the members of the respondent company in terms of the requisition dated 20.12.2017 issued by the petitioner. The Board of Directors of the respondent company shall proceed to call the EGM for considering matters specified in the requisition notice dated 20.12.2017 within 30 days from the date of receipt of an authentic copy of this order by prescribing minimum 21 days notice to its all shareholders. It shall not be convened beyond 45 days from receipt of this copy of this order without having express permission of this Court - In the event the Board of Directors does not proceed to call for the EGM within the time stipulated in this order it shall be open to the petitioner/ shareholders to convene that hold EGM themselves in another 45 days. Thus such meeting shall be convened thereafter within a period of three (3) months from the date of receipt of an authentic copy of this order and then such meeting as held by the shareholders / petitioner shall be deemed to be a valid EGM of the respondent company. The interim direction(s) issued if any by this Court stands modified suitably and merged with the present order. Other interim order/ direction(s) passed if any in the present company petition stands vacated and merged with the present order - Petition is allowed conditionally.

Summary

Issues Involved:
1. Validity of the requisition notice for convening an Extraordinary General Meeting (EGM).
2. Alleged oppression and mismanagement by the respondent company.
3. Adherence to the provisions of Section 100 of the Companies Act, 2013.
4. Impact of the Joint Venture Agreement (JVA) on the requisition notice and EGM.
5. Rights of shareholders to convene an EGM and pass resolutions.
6. Legality of the respondent company’s modifications to the requisition notice.

Detailed Analysis:

1. Validity of the Requisition Notice for Convening an EGM:
The petitioner, holding 66% of the paid-up share capital of the respondent company, sent a requisition notice under Section 100(2)(a) of the Companies Act, 2013, to convene an EGM for the appointment of four directors. The Tribunal examined Section 100 of the Companies Act, 2013, which mandates that the Board of Directors must call an EGM upon receiving a valid requisition from shareholders holding at least 10% of the paid-up share capital. The Tribunal found that the petitioner’s requisition notice was valid and that the Board had a statutory obligation to convene the EGM without modifying the proposed agenda.

2. Alleged Oppression and Mismanagement by the Respondent Company:
The petitioner alleged that SBPL, the respondent group, engaged in acts of mismanagement and oppression by sidelining the petitioner from the Board of Directors despite holding a majority share. The Tribunal noted that the petitioner had provided significant financial support to the company, including collateral security for loans, and was entitled to representation in the Board proportionate to its shareholding. The Tribunal found that the respondent’s actions in modifying the requisition notice and proposing a different agenda constituted oppression and mismanagement.

3. Adherence to the Provisions of Section 100 of the Companies Act, 2013:
The Tribunal emphasized that Section 100 of the Companies Act, 2013, grants shareholders holding more than 10% of the paid-up capital the right to requisition and convene an EGM. The Board of Directors must call the EGM solely for the matters specified in the requisition notice without alterations. The Tribunal cited the Supreme Court’s ruling in LIC vs. Escorts Limited, which affirmed the shareholders’ supremacy in convening EGMs and passing resolutions.

4. Impact of the Joint Venture Agreement (JVA) on the Requisition Notice and EGM:
The respondent argued that the petitioner’s requisition notice contravened the JVA, which stipulated equal shareholding and Board representation. However, the Tribunal found that the JVA had been effectively modified or novated by the parties’ conduct, as the petitioner had made additional financial contributions, increasing its shareholding to 66%. The Tribunal held that the JVA could not override statutory provisions granting shareholders the right to convene EGMs and appoint directors.

5. Rights of Shareholders to Convene an EGM and Pass Resolutions:
The Tribunal reaffirmed the shareholders’ right to requisition and convene EGMs, as established in the Supreme Court’s ruling in LIC vs. Escorts Limited. Shareholders cannot be restrained from calling a meeting or proposing resolutions, and the Board of Directors must adhere to the requisition notice without modifications. The Tribunal also cited the Madras High Court’s ruling in S. Varadarajan vs. Venkateswara Solvent Extraction Pvt. Ltd., which upheld shareholders’ statutory rights to convene EGMs.

6. Legality of the Respondent Company’s Modifications to the Requisition Notice:
The Tribunal found that the respondent company’s modifications to the requisition notice, including changing the mode of resolution and proposing additional resolutions, were illegal and contrary to Section 100 of the Companies Act, 2013. The Tribunal held that the Board of Directors must convene the EGM solely for the matters specified in the requisition notice and could not alter the proposed agenda.

Conclusion:
The Tribunal allowed the petitioner’s company petition, set aside the respondent company’s notice dated 12.01.2018, and directed the Board of Directors to convene an EGM within 30 days to consider the matters specified in the requisition notice dated 20.12.2017. The Tribunal appointed an observer and a permanent invitee from the secured creditors to ensure the EGM’s smooth conduct and protect the minority shareholders’ interests. The Tribunal emphasized the supremacy of shareholders in corporate governance and upheld their statutory rights to convene EGMs and pass resolutions.