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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 ..... spondent No. 1 is permitted to adjourn the meeting convened for 2-3-1995. - SPECIAL LEAVE TO APPEAL NO. 6358 OF 1995 - - - Dated:- 27-3-1995 - J.S. VERMA AND S.P. BHARUCHA, JJ. Kapil Sibal, D.D. Thakur, S.N. Bhatt, Dr. Garg and V. Lakshmi Narayan for the Appellant Salve, Ranji Thomas and N. Ganpathy for the Respon-dent. ORDER Leave granted. Heard. We are satisfied that there was no ground available to the High Court for setting aside the trial court's order refusing to grant the injunction for holding the extraordinary general meeting (EGM) of the company. We are informed that the extraordinary general meeting is scheduled to be held on 30-3-1995. The injunction granted by the High Court is, therefore, vacated. Moreover, the appellants also undertake to circulate a copy of the letter dated 7-1-1995, annexure 'B' to the shareholders who attend the extraordinary general meeting before commencement of the extraordi- nary general meeting. The appeal is allowed in these terms. No costs. TEXT OF KARNATAKA HIGH COURT'S JUDGMENT 1. This is an appeal filed by two of the directors of the Karnataka Bank Ltd. and is directed against an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances are larger issues which the trial court will subsequently look into. For purposes of the immediate interim order that was sought, namely, the stoppage of the holding of the extraordinary general meeting the plaintiffs essentially relied on the fact that a very cryptic explanatory statement has been annexed to the notice which states that the other directors have no interest in the item of business and only states that a requisition has been received for the convening of the meeting. A copy of the special notice has also been made part and parcel of the explanatory statement. That special notice sets out four proposed resolutions for removal of four directors which includes the two present appellants. The special notice is silent with regard to the reasons or circumstances under which the removal is sought for. 2. The learned trial judge after hearing the parties came to the conclusion that this was not a fit case in which ad interim orders for stoppage of the meeting are to the passed and, therefore, dismissed IA. No. II. The present appeal is directed against that order. In view of the fact that the meeting is scheduled for tomorrow, an urgent application was made to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extraordinary general meeting and in fact the only matter that is on the agenda for this extraordinary general meeting. He produced a copy of that letter in support of his submission that the chairman of the bank reported to the RBI, certain specific acts, which he termed as acts of grave misconduct on the part of the two appellants, and he also recommended that they should be removed from the directorship of the bank. Mr. Raghavan adverted to certain other averments in the plaint and in the correspon- dence and he submitted that having regard to the situation that prevails, as far as the chairman is concerned he is very much and in fact actively and personally interested in the removal of the two appellants. According to Mr. Raghavan, it was incumbent on the part of the company to have mentioned these material facts in the explanatory statement. Having regard to the importance of the matter, it would have perhaps impelled several persons who would otherwise not have attended the meeting to do so but more importantly many of the shareholders would have a desire to know as to what are the charges against the appellants and what is the reaction of a senior person like the chairma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present appellants. It is his case, therefore, that on the one hand the required material is now within the knowledge of the shareholders and he also advances the plea that under these circumstances the appellants are estopped from contending otherwise. As far as the plea of estoppel is concerned, there can be no such bar in situations of the present type. If the law permits a citizen to move a court for a relief, merely because he might have tried some salvage operation at an earlier point of time it would not preclude him from the enforcement of a legal right, I do not propose to deal with the aspect of estoppel. 6. Mr. Holla submitted that the ambit and scope of section 169 read with section 173 have been the subject-matter of several decisions. He drew my attention to the decision of the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp. Cas. 548. He laid particular emphasis on the headnote wherein the Supreme Court had occasion to observe that it is within the right of any shareholder to call for the convening of a special general meeting and that it is not obligatory on the part of the shareholder to set out grounds and explanations in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned judge in that decision had considered the usual plea that is advanced in such cases, namely, the aspect of irreparable damage and injury and had negatived the plea principally on the ground that a person functioning as a director of a company does so virtually on the basis of the confidence that is reposed in him by the shareholders, and at their will. If, therefore, for whatever reason, the shareholders propose to remove the person from the directorship, the learned judge observed that it would not be open to him to argue that the damage to his reputation is something irreparable. The grant of interim relief in that case was, therefore, turned down. On an analogy, Mr. Holla submits that the decision in this case applies on all fours to the present case and that consequently, this court regardless of whatever technicalities are pleaded, should refuse to stop the meeting particularly since it is to be held tomorrow. 9. The next submission canvassed by Mr. Holla is that the appellants have moved this Court virtually at the zero hour. He states that the bank has a large number of shareholders approximately 28,000, who are living all over the country and that in matters of impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the directors were virtually removed by the shareholders if this is.... Secondly, the law also takes serious note of the rights of the directors themselves who are the aggrieved and affected parties. In the case of removal of directors in the circumstances such as the present one, the act is on par with and tantamount to a situation of dismissal from office. The repercussions of such an action are very grave and very far reaching. In a given situation where it is warranted, such action is very necessary, but where the shareholders of a company are called upon to adjudicate on an issue whether directors should be dismissed from office or not, to my mind the shareholders must be posted with all the necessary material that con- cerns the issue in the present instance. It is true that the requisitionists have not set out any of the grounds on which they want the extraordinary general meeting to be convened. The matter, however, does not rest there because admittedly, the company had on record a document of impor- tance, namely, a letter dated 7-1-1995, addressed by the chairman of the company to the RBI which is the officially designated statutory and supervisory authority wherein he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in fact posted with the requisite facts and knowledge and that, therefore, the so-called lacuna is not existing in this case. I am unable to accept this argument because what has been circulated by the appellants is their side of the dispute or their defence to the proposed action or the charges. A shareholder who reads this explanation would get a totally lopsided view of the controversy. On the contrary, he would be left with only one side of the version and thereafter be relegated to a position wherein he would be hurriedly required to make up his mind at the meeting on the basis of whatever is stated there. That unfortu- nately is not the scheme of the law. The purpose of circulating an explanatory statement is in order to give the shareholders enough time to consider and reflect on the subject-matter of the agenda. There is also an additional reason for it, namely, the fact that after going through the explanatory statement it is often open to the shareholder to call for or inspect additional material prior to the holding of the meeting. The sum total of the situation can be summarised insofar as in the absence of requisite material made available, the shareholder is heavil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the first respondent company on 2-3-1995, or on an adjourned date unless and until they fully and completely comply with the requirement of law. At this stage, Mr. Holla points out to the court that the respondents would like to take the matter higher and since the appellants have virtually moved this court at the last minute and since he does not have a copy of even the operative part of this judgment, there is virtually no scope for him to obtain urgent orders from the Supreme Court. His first submission is that the order should be stayed for a reasonable time in order to enable him to consider his position. As far as this aspect of the matter is concerned since the meeting is to be held tomorrow, the effect of any order of stay would be that this court would be overruling its own decision. In sum and substance, the view taken by this Court is that the notice convening the meeting is bad in law as the explanatory statement communicating the notice does not set out the requisite material that the law obligates. There are also subsidiary reasons why this court has taken the view that in the present situation the holding of such a meeting is not fair. Under these circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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