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2017 (11) TMI 487 - HC - Companies LawRemoval from the Directorship of the Company - obligation to disclose the reasons for removing a person from Directorship of a Company prior to the EGM where such proposal is to be considered - Held that - In our view, no manner of doubt can remain, that the reasons for removal of Plaintiff No 1, in the present case, were required to be communicated, or made known, to her, only before the proposal, for removing her from office as Director of the Company, was taken up at the EGM. A notice under Section 100, were it to be issued, could not have been injuncted by the Court. If the notice which might possibly have been issued, consequent to the decision taken at the meeting to be held on 26th August 2017, was itself immune from interlocutory interdiction, we fail to understand how any interiminjunction, staying the operation of the notice dated 8th August 2017, or the decision to be taken at the meeting dated 26th August 2017, could be granted. At the cost of repetition, it needs to be emphasized that no decision, towards removal of Plaintiff No.1 from the Directorship of the company, was to be taken, this way or that, at the meeting to be held on 26th August 2017. The interests of Plaintiff No.1 were not, therefore, in any way prejudiced by the notice dated 8th August 2017, so that the very maintainability of the application for ad interim injunction filed by her was questionable. As such, the notice dated 8th August 2017, in our opinion, was not a notice under Section 100 of the Act at all, and the learned Single Judge has, therefore, clearly fallen in error in regarding as it one. No occasion, therefore, for granting any protection against such notice could be said to have existed. The notice, which was innocuous in terms, did not pose any threat, by itself, to Plaintiff No.1 as would justify ad interim protection from the Court. Nothing really turns on the issue of whether the communication dated 8th July 2017 was a Special Notice or a Requisition, as the decision to convene the EGM would be relatable to sub-clause (1) rather than sub-clause (2) of Section 100 of the Act. We may, however, in passing, note that no specific form or format of a requisition is prescribed in the Act, or in any cognate legislation, so that any document issued by the requisite member of Directors as specified in Section 100(2) of the Act (which calls for convening of an EGM) would be eligible to be styled as a requisition . It does not appear to us, that the expression requisition is a term of art, as used in Section 100 of the Act. We allow the present appeal, and set aside the impugned order, dated 11th September 2013, of the learned Single Judge. Resultantly, the notice dated 8th August 2017 would stand revived, and it would open for the Board to meet, as contemplated therein, to decide on whether, or not, to convene an EGM for considering the proposal to remove Plaintiff No. 1 from Directorship of the Company. On whether such EGM should, or should not, be convened, and whether the proposal to remove Plaintiff No. 1 from Directorship of the Company, is justified or not, we, needless to say, express no opinion.
Issues Involved
1. Jurisdiction of the Civil Court under Section 430 of the Companies Act. 2. Doctrine of election and whether the plaintiffs were estopped from invoking the jurisdiction of the Civil Court. 3. Alleged concealment of facts by the plaintiffs. 4. Grant of interim relief by the learned Single Judge while IA 9617/2017 was still pending. 5. Applicability of the Supreme Court's judgment in L.I.C. of India v Escorts Ltd. 6. Sufficiency of reasons in the notice dated 8th July 2017. 7. Nature of the notice dated 8th August 2017 under Section 100 of the Companies Act. 8. Alleged violation of Section 179(1) of the Companies Act by the notice dated 8th August 2017. 9. Whether the notice dated 8th July 2017 was a requisition for convening an EGM. 10. Justification of the interim relief granted by the learned Single Judge in view of the earlier order dated 25th August 2017. Detailed Analysis 1. Jurisdiction of the Civil Court under Section 430 of the Companies Act The court held that the jurisdiction of the Civil Court is not barred under Section 430 of the Companies Act. Section 430 bars the Civil Court from entertaining any suit or proceeding which the NCLT is empowered to determine. However, the court found that the reliefs claimed by the plaintiffs in CS (OS) 285/2017 do not fall within the purview of the jurisdiction of the NCLT under Sections 169(4) or 241 of the Act. Therefore, the Civil Court's jurisdiction is not ousted. 2. Doctrine of Election The doctrine of election applies only when there are two or more co-existent remedies available to the litigants at the time of election, which are repugnant and inconsistent. The court found that the plaintiffs were not barred from invoking the jurisdiction of the Civil Court merely because they had earlier invoked the jurisdiction of the NCLT. The original invocation of jurisdiction was by the defendants, and the plaintiffs' resort to the NCLT was in response to the ongoing proceedings. 3. Alleged Concealment of Facts The plaintiffs had suppressed the fact that they had moved the NCLT and the nature of the prayers made therein. The court found that this suppression disentitled the plaintiffs from seeking any discretionary or equitable relief of injunction from the Civil Court. 4. Grant of Interim Relief by the Learned Single Judge The court acknowledged that the power to do complete justice inheres in the court by virtue of various provisions in the CPC, such as Sections 94, 141, and 151. The learned Single Judge could have granted temporary ad interim injunction pending the disposal of the application for amendment. Therefore, the objection that the learned Single Judge erred in allowing IA 9618/2017 while IA 9617/2017 was still pending was not upheld. 5. Applicability of the Supreme Court's Judgment in L.I.C. of India v Escorts Ltd The court held that the judgment in L.I.C. of India v Escorts Ltd applies to the present case. The Supreme Court had held that shareholders are not required to disclose reasons for resolutions proposed to be moved at a meeting and that such reasons are immune from judicial review. The learned Single Judge erred in distinguishing this judgment. 6. Sufficiency of Reasons in the Notice Dated 8th July 2017 The court held that the notice dated 8th July 2017 was not required to disclose the reasons for the proposed resolution to remove the Director. The reasons were required to be communicated only in the Explanatory Note at the meeting where the proposal was to be considered. 7. Nature of the Notice Dated 8th August 2017 The court found that the notice dated 8th August 2017 was not a notice under Section 100 of the Act. It was merely a notice for fixing a meeting to decide whether to issue a notice under Section 100 for convening an EGM. Therefore, the learned Single Judge erred in treating it as a notice under Section 100. 8. Alleged Violation of Section 179(1) of the Act Since the notice dated 8th August 2017 was not a notice under Section 100 of the Act, there was no question of any infraction of Section 179(1) of the Act. 9. Whether the Notice Dated 8th July 2017 was a Requisition for Convening an EGM The court found that the notice dated 8th July 2017 was a Special Notice under Section 115 of the Act and not a requisition. The issue of whether it was a requisition ceased to be of serious relevance as the decision to convene an EGM would be taken by the Board under Section 100(1). 10. Justification of Interim Relief in View of the Earlier Order The court found that the learned Single Judge's interim relief was unsustainable as it was not open to the court to injunct or interdict the notice dated 8th August 2017 or the decision to be taken at the meeting dated 26th August 2017. Conclusion The appeal was allowed, and the impugned order dated 11th September 2017 was set aside. The notice dated 8th August 2017 was revived, and the Board was allowed to meet to decide on whether to convene an EGM for considering the proposal to remove Plaintiff No. 1 from Directorship of the Company. No opinion was expressed on whether such EGM should be convened or whether the proposal to remove Plaintiff No. 1 was justified. No order as to costs was made.
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