9911796707
TMI Blog1967 (7) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... or of the company, or of any member of the company who would be entitled to vote at the meeting, ( a )order a meeting of the company to be called, held and conducted in such manner as the court thinks fit ; and ( b )give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles. Explanation. The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted." It is to be observed at the outset that under section 186 the court in the exercise of its discretion calls a meeting of the company. Secondly, the court must be satisfied that it is for any reason "impracticable" to call a meeting in any manner in which meetings of the company may be called. Thirdly, the court has no power to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as Ruttonjee Co. (Private) Ltd. became public companies and the shares of Ruttonjee Co. (Private) Ltd., due to be taken by Phipson Co. (Private) Ltd., were allotted to the present petitioner, the United Breweries Ltd. In 1962, with the consent of the said partnership firm (which was the allottee of the land at Kalyani), Ruttonjee Co. Ltd. became the lessee thereof. Between 1961 and 1964 the company's factory was constructed and its machinery was installed. In 1962, there was cash credit arrangement between the Bank of India and Ruttonjee Co. Ltd. for Rs. 21,00,000. The guarantors were the United Breweries Ltd., H.R. Bhesania and F.R. Bhesania. The facility for the entire sum of Rs. 21,00,000 was taken by the company. That is why in 1963 another arrangement was entered into between the bank and the company for a cash credit facility of Rs. 5,00,000 with F. Bhesania, H. Bhesania and Vittal Mallya as guarantors. (In this second account a sum of Rs. 4,76,809.92 was due by the company to the bank on the 20th October, 1965). On the 23rd August, 1963, Dali Ruttonjee, a director of R.D. Sons (Private) Ltd., holding 7,000 shares in Ruttonjee Co. Ltd., was appointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd., wrote to F.R. Bhesania suggesting certain terms for manufacture of beer. It was suggested for instance that Ruttonjee Co. Ltd. will be given one-third of the production up to 24,000 dozen per month and one-fourth of the production in excess of 24,000 dozen per month and supplies would be made under the "Blue Label Export Lager" and "Beer Brand Lager Labels". The price structures of different varieties of beer or Lager was also suggested. On the 5th July, 1965, F.R. Bhesania replied to Vittal Mallya's letter of the 24th June accepting some of Mallya's terms and suggesting modifications of certain other terms said to be in the common interest of all concerned. The next important date is the 24th July, 1965, when the Government of West Bengal gave its approval to the grant of a brewery licence at Kalyani jointly in favour of "the partnership known as M/s. Ruttonjee Co. and the public limited company known as M/s. Ruttonjee Co. Ltd." On the 29th July, 1965, H. Bhesania as director of Ruttonjee Co. Ltd. circulated a proposed resolution amongst the other directors suggesting, inter alia, approval of the draft application to the Additional District Magistrate, Nadia, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the affidavit-in-opposition of Dali Ruttonjee affirmed on the 10th December, 1965), that since the annual general meeting could not be held on the 28th September, 1965, for lack of quorum, it was decided that the adjourned meeting would be held at such time, date and place as the directors might determine. On the 29th September, 1965, a notice was issued for a meeting of the board of directors on the 30th September, 1965. Sookamal Kanti Ghose, one of the admitted directors, wrote to H. Bhesania on the 6th October, 1965, complaining that this notice of the board's meeting was not in accordance with article 101 of the company's articles which requires ten days' notice. He says: "I had hardly any time left to attend the meeting." According to the Bhesanias this meeting of the board of directors was held on the 30th September, 1965, and it was decided that as Tuesday, the 5th October, 1965 (which was the date on which the adjourned annual general meeting should have been held under section 174(4) unless the directors determined otherwise), was the Vijaya Dasami day, that is, a public holiday, the adjourned annual general meeting would be held on Saturday, the 6th November, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter of the 12th October, 1965. In this letter Ghose upholds the validity of the annual general meeting and the proceedings thereof held on the 5th and the 6th October, 1965. He contends that no directors' meeting could be held on the 30th September, 1965, pursuant to the notice of the 29th September, 1965, and if any such meeting was held, the same was bad in law and any proceedings thereat were void and inoperative. His further contention is that H. Bhesania, F. R. Bhesania, F. M. Bhesania and Dali Rattonjee have all ceased to be directors of the company with effect from the 17th June, 1965, for contravention of section 295 of the Companies Act, 1956. We shall examine this last contention of Sookamal Kanti Ghose in detail later in this judgment. On the same date, namely, the 19th October, 1965, Vittal Mallya, as a director of the United Breweries Ltd., addressed a letter to the manager of the Bank of India Ltd. In this letter he informs the bank that the Bhesanias (incidentally, Dali Ruttonjee is also a Bhesania) have vacated their respective offices as directors with effect from the 17th June, 1965, owing to contravention of section 295 of the Companies Act, 1956. Mallya sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court reopened after the long vacation and the present application was moved on the following day. Certain interim orders were obtained on the application on the 17th November, 1965, which are not material for our purposes at present. On the 8th December, 1965, the learned interlocutory judge vacated the interim injunction in the suit and directed that board meetings of the company might be held ; but no effect was to be given to the board's resolutions until the disposal of the present application. The company has been functioning since then under interim arrangements made by orders of this court obtained from time to time. It is clear from the facts set out above that the company was initially started at the initiative of the Bhesanias with the financial backing of the Mallya group. For some time the company was functioning smoothly as the two groups were working in cohesion. From August/September, 1965, disputes and differences between the two groups started arising on various matters including payment of royalties to the United Breweries Ltd. These disputes and differences were not settled through dialogues or negotiations and the breach gradually appeared to be final. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the petitioner has urged that under article 87 of the company's articles read with section 284 of the Companies Act, 1956, a resolution for removal of all the directors would be a perfectly valid resolution. Learned counsel argues further that in view of the disputes between the Mallya group and the Bhesania group the only course open for a proper functioning of this company is to remove all its directors and elect a new set of directors and the court should accede to this request to solve the deadlock which exists. Now, article 87 of the company's articles provides : The number of directors shall not be less than two or more than six. The first directors shall be the promoters of the company, namely : 1.Mr. F. Bhesania. 2.Mr. H. Bhesania. These directors are permanent directors and not liable to removal unless they are otherwise disqualified from continuing as directors under the provisions of the law. Mr. Basu, learned counsel for the company, says that there is no difficulty in removing these permanent directors. He relies on section 284 of the Act. Under this section a company may, by ordinary resolution, remove a director before the expiry of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. I have elaborately set out the above provisions just to show that to remove a director under section 284 certain essential requirements are to be fulfilled. The director concerned must be given a reasonable opportunity to make representations against the proposal for his removal and the shareholders of the company should also have adequate opportunities of being acquainted with such representations before they subscribed to a resolution for removal. That is precisely why in clause ( b ) of the prayers in the present petition directions have been asked for dispensing with the giving of the special notice and the circulation thereof. The point is whether the court should go to this exent on the facts of this case. It is manifest that the Mallya group wants to eliminate the Bhesania group from the board altogether although at the inception it was solemnly agreed that two of the Bhesanias would be permanent directors. It may be that, if the two permanent directors were indulging in activities injurious or prejudicial to the interests of the company, there was no reason why they should be retained on the board : but before a court is asked to exercise its powers under section 186 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the excise authorities, presumably upon considering all the facts of this case, had granted a joint licence to the partnership firm and the company. And the Mallya group accepted that position. I have been told by counsel for the respondents (who were not contradicted by the petitioner's counsel) that after the present dispute had started an attempt was made to obtain the licence in the name of the company alone ; the then Excise Minister of West Bengal was approached ; and the Government passed an order for issue of the licence only to the company. The order was challenged under article 226 of the Constitution and D. Basu J. had set it aside. The company thereupon represented by A. K. Thakur preferred an appeal against the judgment of Basu J. The State Government also preferred a separate appeal. I understand that the company's appeal has been withdrawn and the State Government's appeal is pending. In these premises it would not be proper for me to infer that the Bhesanias have a mala fide intention as suggested by the petitioner's counsel especially in the face of a judgment of this court (which has not yet been reversed on appeal) that a licence only to the company, on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors of his own choice and to remove the Bhesanias : vide paragraph 6. In the board of directors of a company it is not at all unlikely that there would be differences of opinion on various matters between two individual directors or two sets of directors. These differences may be settled by mutual discussions or majority of votes. They may, by adopting the appropriate procedure, be also brought before the shareholders for a decision ; but I do not think that on this application I can hold that the Mallya group is justified in asking for a royalty or the Bhesania group is unreasonably objecting to it. It is possible that the Bhesania group honestly considers that payment of a huge sum as royalty every year to the petitioner is not in the interest of the company and its future prospects would be seriously affected if such an arrangement be agreed to. The forum for settlement of this dispute is, in my opinion, not this court trying an application under section 186 of the Companies Act, 1956. I do not think that the court should either be a party to or instrumental in the removal of all the Bhesanias from the company's board of directors simply because they do not want to pay royalti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Roy are now directors of the company ; and B. K. Roy is no longer a director. If the meeting has not been validly held, B. K. Roy is still a director and neither A. K. Thakur nor Sukumar Roy can claim to be directors. As regards the resignation of Sookamal Kanti Ghose also, there is a dispute. The Bhesanias group says that Ghose's letter of resignation was addressed to a non-existent secretary of the company and is of no effect. In the context of these facts we have to consider the "impracticability" of calling a general meeting to bring the case within the scope of section 186 of the Companies Act. Learned counsel for the petitioner refers to annexure "E" to the affidavit-in-reply of Hari Prem Bhagat affirmed on the 14th January, 1966. This is a copy of a letter dated the 12th October, 1965, which H. Bhesania addressed to Sookamal Kanti Ghose "for Ruttonjee Co. Ltd." and as a director thereof. In this letter, as we have already observed, Bhesania has explained why notice for an emergency meeting of the board of directors to be held on the 30th September, 1965, was issued on the 29th September, 1965. Then Bhesania goes on to say that :" "In view of the objection stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with section 166, the Central Government may, notwithstanding anything in this Act or in the articles of the company, on the application of any member of the company, call, or direct the calling of, a general meeting of the company and give such ancillary or consequential directions as the Central Government thinks expedient in relation to the calling, holding and conducting of the meeting. Explanation. The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) A general meeting held in pursuance of sub-section (1) shall, subject to any directions of the Central Government, be deemed to be an annual general meeting of the company." In the present case there is a dispute as to whether the 5th annual general meeting has been validly held and admittedly no annual general meeting has been held thereafter. Under the Companies Act, 1956, the Central Government appears to be a competent authority to call an annual general meeting in cases of default. Section 186 gives power to the court to call a meeting of the company other than an annual general me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany's articles clearly provides that 10 days' notice of every meeting of the board of directors shall be given in writing to every director for the time being in India and at his usual address in India to every other director, provided that a meeting of the board may be called at less than 10 days' notice with the consent of all the directors. There is no prima facie case that the Bhesanias have ceased to be directors. In the premises a meeting of the board of directors could not be convened without notice to the Bhesanias. If a meeting was held without such notice and in that meeting it was resolved that the registered office should be transferred, the resolution, to my mind, on the facts at present available, is of no effect. Moreover, admittedly, this meeting of the board was not held at the company's then registered office at No. 26, Ganesh Chandra Avenue, Calcutta. The registered office of the company, therefore, still continues to be at 26, Ganesh Chandra Avenue. Learned counsel for the petitioner then says that it is also not clear to whom the notice of the requisition is to be given. It is common case that before the disputes started H.R. Bhesania was the chairman of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osecution ought to succeed. Secondly, if there are serious difficulties in holding the annual general meeting or default is made in holding it, the Central Government may be approached under section 167 to solve the problem, but up-till now no such attempt has been made. I am not impressed by the argument that the greed of a minority of shareholders is holding back the normal functioning of this company. The minority group tells me in rebuttal of this allegation that the trouble has arisen owing to the greed of 88% of the shareholders headed by Vittal Mallya who claims a royalty of Rs. 16,00,000 a year according to Dali Ruttonjee (paragraphs 5( o ) and 6 of Dali Ruttonjee's affidavit-in-opposition) and about Rs. 13,00,000 a year according to Vittal Mallya (paragraph 7 of Mallya's affidavit-in-reply). I have said, I would not enter into the merits of the dispute and pronounce my opinion as to which group is justified in taking up its attitude ; but on the materials at present available to me, I am reluctant to accept the proposition that a meeting should be called by this court because a minority of shareholders is unreasonably causing obstructions. Learned counsel for the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p who took the initiative in bringing this company into existence without any positive complaint against them or without giving them an opportunity to answer the charges, if any, against them by a brute majority of votes in the general meeting. The court has a discretion under section 186 and that discretion, in my opinion, should not be used in favour of the petitioner with these facts in the background. Numerous decisions were cited at the Bar. I need not refer to all of them. I would only discuss the cases decided by our court and an English case in which the facts leading to impracticability of calling a general meeting were considered. In re Lothian Jute Mills Co. Ltd. [1951] 21 Comp. Cas. 290 , 293; 55 CWN 646. Sinha J., as he then was, had to consider the provisions of section 79(3) of the Companies Act, 1913, which were the same as in section 186 of the new Act. There were disputes between two rival groups of directors. His Lordship has laid down certain general principles to be observed in applying section 79(3). These principles are as follows : "The court would not ordinarily interfere in the domestic management of the company which must be conducted in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable" to call a general meeting in the ordinary way. The next case to which my attention was invited was the case of Malhati Tea Syndicate Ltd. [1951] 21 Comp. Cas. 323, 325 ; 55 CWN 653. Here also there were disputes as to whether there was a valid board of directors. At page 655, Banerjee J. observed : "It is difficult for me on this application and it would be inexpedient having regard to the pending suits to decide which of the directors have been validly appointed. I am not satisfied on the facts of this case that there is a board of directors who can call a meeting in the manner in which a meeting of the company may be called. Meetings held otherwise than under the direction of the court under section 79 in the circumstances of this case would lead to interminable troubles and prejudice the interests of the company." On the same grounds which I have advanced in discussing the Lothian Jute Mills Co. Ltd.'s case [1951] 21 Comp. Cas. 290 ; 55 CWN 646 the judgment of Banerjee J. is also distinguishable. We next come to the case of Indian Spinning Mills Ltd. v. M. S. J. Bahadur Rana AIR 1953 Cal. 355. This is a judgment of the appellate court by Harries C. J. sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting was called, difficulties would undoubtedly arise as to the conduct of the meeting. In an extraordinary general meeting the parties might elect their own chairman, but the probabilities are that objection would at once be taken to Mr. Roy Chowdhury either acting as chairman or even voting or being concurred in the proceedings at all. It seems to me that if the requisitionists were allowed to conduct this meeting endless difficulties would arise and, therefore, I think the learned judge was right in holding that it was impracticable to hold such a meeting." Harries C. J. supports the meaning of the word "impracticable" given by Banerjee J. in the case of Malhati Tea Syndicate Ltd. [1951] 21 Comp. Cas. 323; 55 CWN 653 [1951] 21 Comp. Cas. 323 ; 55 CWN 653. Banerjee J. adopted the meaning which the Judicial Committee gave to the word "impracticable" in Commissioner, Lucknow Division v. Deputy Commissioner of Partabgarh AIR 1937 PC 240 ; 41 CWN 1072. According to the Privy Council "impracticable" means impracticable from a reasonable point of view and Banerjee J. has added in the case of Malhati Tea Syndicate Ltd. s case ( supra ) that "the court takes a common-sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be deemed to constitute a quorum at such meeting. The directors opposed the application. Wynn-Parry J. has held: ( i )as a practical matter, the desired meeting of the company could not be conducted in accordance with the articles of association and the court had jurisdiction under section 135(1) of the Companies Act, 1948, to order a meeting to be held notwithstanding opposition by the shareholders other than the applicant, and ( ii )an order for meeting to be held and that one member present should constitute a quorum would be made because ( a )to refuse the application would be to deprive the applicant of his statutory right under section 184 to remove the directors by means of an ordinary resolution, and ( b )the respondent-directors had failed to perform their statutory duty to call an annual general meeting for the reason that, if they had convened a general meeting, they would have ceased to be directors. It is apparent that the facts of the case before Wynn-Parry J. were much stronger than the facts here. In the English case the facts established that there was an impracticability to which the directors themselves had contributed. In our case it cannot be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtially because his removal was sought in one of the proposed resolutions for the extraordinary meeting. P. B. Mukharji J., in paragraph 13, at page 661, says : "I am satisfied that K. L. Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting. If the applicant has on its side 55 per cent. of the votes of the shareholders, I do not see why they should be at all frightened. The chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of votes between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group." It is no doubt true, as the petitioner's counsel has contended, that the facts in this case were entirely different from the facts we have to deal with. And this case does not give us much assistance in deciding whether this application should be refused ; but P. B. Mukharji J., in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, upon considering all the facts and circumstances of a case, it can say with a reasonable approach to certainty or even prima facie that a meeting called in the manner in which meetings are ordinarily called under the Act or under the articles, would be invalid. 8.Before the court exercises its discretion under section 186 the court must be satisfied, when a director or a member moves an application, that it has been made bona fide in the larger interests of the company for removing a deadlock otherwise irremovable. When I apply the principles enunciated above to the facts of this case it seems to me that this is not a case which falls for the court's interference under section 186 of the Companies Act, 1956. Numerous other points have been urged before me. Mr. S. C. Sen, learned counsel for one of the contesting respondents, has also dealt with the history of company jurisprudence in relation to the provisions of section 186 ; but having regard to the conclusions I have already reached, I do not think it necessary to consider any other point raised in this application. The result is that this application is dismissed. The petitioner will pay to the respondents one set o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
