1969 (11) TMI 60 - HC - Companies Law

Meetings and Proceedings Quorum for meeting Contents and manner of service of notice and persons on whom it is to be served Proxies Director Disclosure of interest by Director Interested not to participate or vote in Board s proceedings Directors etc. not to hold place of profit

Issues Involved:
1. Validity of the board resolution dated November 14, 1968.
2. Requirement of a special resolution for the appointment of the sole selling agent.
3. Validity of the notices convening the extraordinary general meetings on April 28, 1969, and April 29, 1969.
4. Validity of the proxies and revocation letters.
5. Financial condition and entitlement of the private company to receive commission.

Issue-wise Detailed Analysis:

1. Validity of the Board Resolution Dated November 14, 1968:
The plaintiffs contended that the solicitor-director was prohibited by section 300 of the Companies Act, 1956, from participating in the discussion or voting on the appointment of the private company as the sole selling agent. Since he participated and voted, his vote was void, resulting in a tie (2 votes for and 2 against), making the resolution invalid. The defendants argued that the solicitor-director had no such concern or interest and that the plaintiffs, knowing about his role, did not object, thus estopping them from raising this contention. The court found that the solicitor-director had a fiduciary relationship with the Kilachand family and their concerns, making him indirectly interested in the appointment. The court concluded that the solicitor-director's vote was void, and the resolution was not duly passed.

2. Requirement of a Special Resolution for the Appointment of the Sole Selling Agent:
The plaintiffs argued that a special resolution was required under section 314 of the Companies Act, 1956, and article 183 of the company's articles of association. The defendants contended that section 294, dealing specifically with sole selling agents, did not require a special resolution. The court held that section 314, which aims to prevent directors from earning profits beyond their remuneration, required a special resolution for the appointment of the private company as the sole selling agent. Since the appointment in the first instance did not provide for a subsequent appointment, a special resolution was necessary for the further appointment.

3. Validity of the Notices Convening the Extraordinary General Meetings on April 28, 1969, and April 29, 1969:
The plaintiffs contended that the notices were invalid due to non-disclosure of material facts, including the interest of the solicitor-director and correspondence with the Company Law Board. The court found that the non-disclosure of these facts deprived shareholders of full and frank disclosure, rendering the notices invalid. The court also noted the deliberate suppression of the Company Law Board's letter dated April 9, 1969, by Tulsidas, which was a material fact that should have been disclosed to the shareholders.

4. Validity of the Proxies and Revocation Letters:
The plaintiffs challenged the validity of several decisions made by Tulsidas regarding proxies and revocation letters. The court found several directions given by Tulsidas to be legally untenable, including the rejection of proxies not bearing the company's seal, proxies with uncancelled stamps, and proxies from shareholders outside Maharashtra with Maharashtra stamps. The court also found that the decisions were not given bona fide and were aimed at invalidating proxies in favor of Reighley to secure a majority for the resolution.

5. Financial Condition and Entitlement of the Private Company to Receive Commission:
The plaintiffs argued that the private company should not receive any commission due to the invalidity of the appointment. The court noted that the private company had voluntarily not taken any commission since October 1, 1968, and that its financial condition was not sound enough to justify dispensing with security. The court directed that the private company could withdraw one-half of the commission amount upon furnishing a bank guarantee or security, pending the final disposal of the suits.

Conclusion:
The court granted an injunction restraining the company from paying and the private company from receiving any commission pending the final disposal of the suits. The court also appointed a receiver for the papers and documents related to the polls taken at the extraordinary general meetings and directed that the suits be expedited for hearing and final disposal. The costs of the notices of motion were to be taxed on the long cause scale with two counsel being allowed and to be costs in the cause.

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