1948 (10) TMI 10 - HC - Companies Law

General provisions with respect to memorandum and articles - Effect of memorandum and articles Meetings and Proceedings Chairman of Meeting Length of notice for calling meeting Explanatory statement to be annexed to notice and Oppression & mismanagement

Summary

Issues Involved:
1. Validity of the extraordinary general meeting held on 7th November 1947.
2. Compliance with the notice requirements under Section 81(2) of the Indian Companies Act.
3. Legality of the election of the Managing Committee.
4. Validity of the amendments to the Articles of Association.
5. Legality of the annual general meeting held on 18th November 1947.
6. Maintainability of the suit under the rule in Foss v. Harbottle.

Detailed Analysis:

1. Validity of the Extraordinary General Meeting:
The plaintiffs contended that the special resolution was not put to the meeting and was not passed. The court agreed with the plaintiffs, concluding that the special resolution was not put to the meeting and was not passed. Consequently, the amendments to the Articles and the election of the Managing Committee were deemed void.

2. Compliance with Notice Requirements:
The notice of the meeting posted on 16th October 1947 did not comply with the requirement of Section 81(2) of the Indian Companies Act, which mandates "not less than 21 days" notice. The court found that excluding the date of service and the date of the meeting, there was only an interval of 20 days for 127 members, and less for others. Hence, the notice was inadequate and illegal, rendering the meeting not legally convened.

3. Legality of the Election of the Managing Committee:
The court found the election of the Managing Committee to be illegal for several reasons:
- The notice was insufficient as it did not provide adequate time for members to submit nominations.
- Mr. Natesan, who presided over the meeting, was himself a candidate, creating a conflict of interest.
- The election was rushed through without proper notice to the members about the functions and duties of the Managing Committee.

4. Validity of the Amendments to the Articles of Association:
The court held that since the special resolution was not passed, the amendments to the Articles of Association were not legally sanctioned. Additionally, the notice did not provide full particulars of the nature of the business, which was another ground for invalidating the amendments.

5. Legality of the Annual General Meeting:
The court concluded that the proceedings of the general meeting held on 18th November 1947 were void. The exclusion of proxies at this meeting was not warranted by the articles then in force.

6. Maintainability of the Suit:
The court discussed the rule in Foss v. Harbottle, which generally precludes individual shareholders from suing for wrongs done to the company. However, the court recognized exceptions to this rule, allowing the suit to proceed on the grounds that the acts complained of were illegal and that the special resolution was not passed. Therefore, the suit was maintainable.

Conclusion:
The court allowed the appeal, setting aside the decree dismissing the suit. The plaintiffs were granted the reliefs they sought, including declarations that the meeting of 7th November 1947 was invalid, the Managing Committee was not lawfully elected, and the proposed amended Articles were ineffective. The plaintiffs were also awarded costs for the appeal and the suit.