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2018 (9) TMI 1609 - HC - Companies LawTenure of the Director - Permanent (non-rotational) director as supported by the Articles of association - Other directors proposed to removed the petitioner by calling EGM - Seeking permanent injunction against the Defendants from conducting an Extraordinary General Meeting ( EGM ) for removing the Plaintiffs - Held that - A perusal of the Articles of Association clearly shows that the Plaintiff No.1 is a non-rotational Director and can remain so long as he does not voluntarily resign. However, this Article is subject to the provisions of the Companies Act which permits the removal of a Director by majority share holders in a lawfully requisitioned EGM. Article 17 of the Articles of Association cannot therefore be treated as having precedence over the provisions of the Companies Act. No injunction from calling the EGM can therefore be granted. The resolutions sought to be passed in the EGM have already been circulated. The hearing, if any, that the Plaintiffs seek can only be granted at the EGM and not before. The EGM having not been held, the suit is not maintainable and is also premature. The injunction in respect of the EGM does not deserve to be granted. No other relief is pressed or arises. Thus, the present suit is not maintainable and is therefore dismissed.
Issues Involved:
1. Permanent injunction against conducting an Extraordinary General Meeting (EGM). 2. Permanent injunction against the removal of the Plaintiffs as Directors. 3. Validity of the notice period for convening the EGM. 4. Interpretation of the Articles of Association in relation to the Companies Act. Detailed Analysis: 1. Permanent Injunction Against Conducting an Extraordinary General Meeting (EGM): The Plaintiffs sought a permanent injunction to prevent the Defendants from conducting an EGM aimed at removing them from their directorial positions. The Plaintiffs argued that the notice for the EGM was not in accordance with legal requirements, specifically citing the lack of a 14-day notice period as mandated by Section 115 of the Companies Act, 2013 and Rule 23 of the Companies (Management and Administration) Rules, 2014. The Defendants countered that an injunction cannot be sought against the holding of an EGM as per the Supreme Court's ruling in Life Insurance Corporation v. Escorts Ltd. (1986) 1 SCC 264. The Court upheld this view, stating that the power to appoint and remove directors lies with the majority shareholders and cannot be restrained by an injunction. 2. Permanent Injunction Against the Removal of the Plaintiffs as Directors: The Plaintiffs argued that they were non-rotational directors as per the Articles of Association of Defendant No.4 and could not be removed without their consent. They contended that the Articles of Association should prevail over the provisions of the Companies Act. The Defendants argued that the Articles of Association are subject to the Companies Act, which allows for the removal of directors by majority shareholders. The Court agreed with the Defendants, stating that the Articles of Association cannot override the provisions of the Companies Act. The Court cited the Supreme Court's ruling that the reasons for removing a director need only be communicated during the EGM and not before. 3. Validity of the Notice Period for Convening the EGM: The Plaintiffs received the notice for the EGM on 13th July 2018, scheduled for 24th July 2018, thereby not meeting the 14-day notice requirement. The Plaintiffs argued that this was against the law. The Defendants contended that the notice was issued in compliance with Section 100 of the Companies Act, which governs the calling of EGMs. The Court noted that the notice period issue was secondary to the primary question of whether an injunction could be granted to prevent the EGM. The Court ruled that since the majority shareholders have the right to call an EGM, the notice period, even if short, does not warrant an injunction against holding the EGM. 4. Interpretation of the Articles of Association in Relation to the Companies Act: The Plaintiffs argued that the Articles of Association of Defendant No.4, which stated that Plaintiff No.1 was a non-rotational director, should take precedence over the Companies Act. The Defendants argued that the Articles of Association are subject to the Companies Act, which allows the removal of directors by majority shareholders. The Court examined Articles 17 and 18 of the Articles of Association and concluded that the continuation of directorship is subject to the provisions of the Companies Act. The Court ruled that the Articles of Association cannot be treated as having precedence over the Companies Act. Conclusion: The Court dismissed the suit, stating that no injunction could be granted to restrain the holding of an EGM. The Court held that the majority shareholders have the power to appoint and remove directors and that such decisions are not subject to judicial review. The Court also ruled that the Articles of Association are subject to the provisions of the Companies Act, which permits the removal of directors by majority shareholders. Consequently, the suit was deemed not maintainable and was dismissed along with all pending applications.
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