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TMI Blog1995 (3) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by two of the directors of the Karnataka Bank Ltd. and is directed against an order dated 28-2-1995, on IA. No. II, whereby the learned trial judge has declined to grant the application on the part of the appellants. Respondent No. 1 bank has, by a notice dated 27-1-1995, convened an extraordinary general meeting of the sharehold- ers which is scheduled to be held on 2-3-1995 at 10.30 a.m. at Mangalore. The two appellants, who are directors of the bank had moved the trial court principally on the ground that, according to them, there are certain irregularities/illegalities with regard to the convening of the general body meeting in question. Briefly stated it is their contention, quite apart from certain mala fides which have been pleaded, that the requirements of law prescribe that the convening of such a meeting has to be accompanied by an explanatory statement which is provided for under section 173 of the Companies Act, 1956 ('the Act'). The appellants, who are the plaintiffs before the trial court, have stated that on 7-1-1995, the chairman of the bank addressed a letter to the RBI which admittedly is the supervisory authority, wherein, inter alia, he has stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the meeting is scheduled for tomorrow, an urgent application was made to this Court and the appeal was virtually taken up out of turn. The respondents are represented by Mr. Holla, the learned counsel and I have heard both the learned advocates on the question of whether to grant or refuse the interim relief prayed for. 3. I shall confine this order to the material aspects of the case only, as the rest of the allegations and counter-allegations and the defence thereof are something which the trial court will look into and which I do not need to take cognizance of Mr. Raghavan, in support of his application submitted that section 173 casts a statutory duty, not merely an obliga- tion, on the company convening a meeting of this type, to circulate to the shareholders an explanatory statement containing all material facts that are relevant as far as the agenda of the meeting is concerned as also, from the point of view of the transmission to the shareholders, factual details for purposes of their coming to a right conclusion or decision with regard to the items on the agenda. In this regard, he has sought to place reliance on a judgment of the Bombay High Court in Fireston ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges against the appellants and what is the reaction of a senior person like the chairman of the company to that situation. More importantly, the letter to the RBI from the chairman is an aspect of crucial importance because it is an official letter seeking the removal of the two appellants because the chairman had come to the conclusion that their continuance on the board of directors is contraindicated and not in the interest of the company. According to Mr. Raghavan, these are all very material aspects that could not and should not have been kept back from the shareholders. They were facts within the knowledge of the company and for this purpose will come within the ambit of the requirements of section 173. It was very necessary that these material facts should have been disclosed. 4. Mr. Raghavan has also advanced certain other arguments with regard to the manner in which the extraordinary general meeting ought to have been convened and it is his submission that it is not enough for one of the shareholders to have forwarded a requisition and to have annexed 381 pages of signatures (?) to it but that it is a requirement of section 169 that all the requisitionists should lodge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligatory on the part of the shareholder to set out grounds and explanations in support thereof. Mr. Holla's argument proceeds on the footing that since there is no obligation on the part of a shareholder or group of sharehold- ers who ask for the convening of such a meeting to disclose the reasons, therefore, in such circumstances the company is relegated to the position of a post office. The learned advocate states that the only obligation on the part of the company in such circumstances is to make known to the shareholders through the explanatory statement a copy of the requisition and to mention that it is pursuant to such a requisition that the meeting is being held. In these circumstances, the learned counsel submits that the bank has more than fully complied with the requirements of law. Mr. Holla also relied on a passage from Ramaiya which is extracted at page 1094 wherein, the learned author has reproduced the ratio of the law as laid down in Life Insurance Corporation of India v. Escorts Ltd. (supra) . Apart from this, Mr. Holla has drawn my attention to several other decisions and it is his contention that on the special facts of the present case the company has mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 28,000, who are living all over the country and that in matters of importance such as the present one the attendance is reasonably high. He points out that even as far as similar meetings are concerned, a couple of thousand shareholders had physically attended the meeting and under these circumstances quite apart from the expenditure incurred by the bank, very serious loss, inconvenience and harassment would be caused to the shareholders if there is a last minute stoppage. He submits that in the decision referred to in Karnataka Bank Ltd.'s case (supra) , this Court has held that the overriding consideration which would weigh with the court in such cases is a question as to how much of damage should be prevented by refusal of an interim relief. In this regard, he has drawn my attention to one more decision of this court in Puma Investments Ltd. v. Southern Steelmet & Alloys Ltd [1977] 47 Comp. Cas. 752. This court on that ocassion had gone into an in-depth consideration of the aspect of balance of convenience. The court took the view that in a situation of this type, where at the eleventh hour a general body meeting is sought to be stopped, the balance of convenience lies he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the officially designated statutory and supervisory authority wherein he has set out certain grounds in support of his application that the appellants should be removed from the directorship of the bank. If the appellants justifiably need to be removed from the directorship, this letter is of paramount importance. If, on the other hand, the shareholders desire to fairly adjudicate on the question as to whether there is justification to take the step of dismissing them from the office, it is equally necessary that they should be made known of what exactly the allegations or the charges against the appellants are. The basic principles of natural justice that will guide most of such situations or almost all of them would apply even in a situation of the present type. The company in the present instance had on record this particular document and there is no reason set out as to why there is not even a reference to it in the explanatory statement. It is a short letter. On the other hand, if the company desires to place the material before the shareholders without commenting as it is required to do, it could have easily annexed a copy of that letter to the explanatory statement or could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of requisite material made available, the shareholder is heavily handi- capped and he is not fully equipped to take a fair decision with regard to the important issues that are the subject-matter of the meeting. In these circumstances, in my view, we are left with a situation whereby if the meeting were to be held on 2-3-1995, in the background that is disclosed to the court, it would be abundantly clear that the shareholders will be required to take a decision in the absence of a full and proper consider- ation of material facts. Such a decision would neither be in the interest of the company but more importantly, it could be highly damaging to the present appellants. It would be contrary to the scheme of the law which requires that such decision must be taken after a complete study of all the material that is relevant. 12. The aspect of balance of convenience is one of paramount impor- tance. I do not dispute the fact that in the majority of cases a court will refuse relief even if a case is made out if it is pointed out that heavy damage would be caused if that relief is granted. In the present case, it is demonstrated that the meeting is scheduled for tomorrow, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he holding of such a meeting is not fair. Under these circumstances, the application for stay of the order is rejected. 14. Mr. Holla has thereafter submitted that respondent No. 1 desires to take the matter higher and in the event of the appeal court either staying or setting aside this order, the company would be put to serious loss, inconvenience and time delay by having to issue a fresh notice and reconvene the meeting. Under these circumstances, he submits that since in effect this Court has taken the view that the meeting ought not to be held, the court should permit the meeting convened for tomorrow to be adjourned pending further orders to be passed by the appeal court. Mr. Raghavan has vehemently opposed this application because accord- ing to him, since this Court has held that the notice itself is bad in law, the meeting itself is virtually non est and consequently no garb of legality can be injected into it by seeking to adjourn it. I see considerable justification in the plea put forward by the learned advocate who appears for the respondent insofar as it is true that they are left with virtually no time to approach the appeal court but more importantly because the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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