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TMI Blog2018 (9) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. i.e. the entire share holding of the said company is held for the benefit of XAD Inc. Defendants No.2 and 3 are the CEO and CFO of XAD Inc. One of the nominee Directors in Defendant No.4 is Plaintiff No.2 - Mr. Ajay Kumar Srivastava. The Defendant No.4 company is in effect run by the Board of Directors comprising of Plaintiffs No.1 and 2. 3. It is the case of the Plaintiffs that they are responsible for the day to day management of Defendant No.4, however, due to various disputes that arose in view of an employee, the relationship between the Plaintiffs and Defendants No.1, 2 and 3 had soured. It is the case of the Plaintiff that on 24th May, 2018 when Plaintiff No.1 reached the office, he was stopped by an ex-employee and the HR head from entering the office. He, thereafter, received an e-mail dated 24th May, 2018 signed by the said ex-employee - Mr. Manoj Mishra terminating the employment of Plaintiff No.1. There were e-mails and counter e-mails sent by the parties. The resignation of Plaintiff No.1 was sought by the Defendants which was refused by Plaintiff No.1. The allegations in the plaint is that the business of Defendant No.4 was sought to be highjacked into another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to play only if there is no provision made in the Articles of Associations. According to him, as per the Articles of Association, Plaintiff no.1 was the first Director, and that too a non-rotational Director till he voluntarily resigns. According to Mr. Rao, therefore, the Articles of Association prevail over the provisions of the Companies Act. Thus, according to Mr. Rao, if a Director had to be removed, he had to be given reasonable opportunity of being heard under Section 169. 8. On the other hand, Mr. Sandeep Sethi, Ld. Senior Counsel for the Defendants submits that no injunction can be sought against the holding of an EGM. According to Mr. Sethi, Article 17 of the Articles of Association of the company by which the Plaintiff No.1 was appointed as a nonrotational Director was itself subject to the provisions of the Companies Act. Thus, the Defendant No.1 which was a 100% beneficial share holder had the right to call for an EGM. He further submits that a board meeting can be called and held within three months from the date of the notice at any point of time. He relies on the judgment of the Supreme Court in Life Insurance Corporation v. Escorts Ltd. (1986) 1SCC 264 (hereinafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time to time, in General Meeting increase or reduce the number of Directors within the limits laid down in Article 16 and determine in what rotation such increased or reduced number shall go out of office." 12. A perusal of the above Articles show that the continuation of Directorship of the Plaintiffs till they resign, is not unequivocal but is `subject to the provisions of the Companies Act'. The power of appointment of Directors in a company vests with the subscribers. In any event, such a power is one which vests purely with the share holders of the company and can be decided in an EGM. Calling of an EGM is the power of the share holders and a perusal of the notice dated 30th June, 2018 clearly shows that the said notice has been issued under Section 100 of the Companies Act. The notice clearly specifies the resolutions that are intended to be passed. The EGM was originally scheduled for 24th July, 2018 but was thereafter postponed. The Plaintiff herein objected that the EGM notice did not give the 14 days' notice period which was required to be given as per law. The question as to whether an injunction can be passed against holding of an EGM has been settled by the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general meeting cannot interfere. The most they can do is to dismiss the Directorate and appoint others in their place, or alter the articles so as to restrict the powers of the Directors for the future. Gower himself recognises that the analogy of the legislature and the executive in relation to the members in general meeting and the Directors of a Company is an over-simplification and states "to some extent a more exact analogy would be the division of powers between the Federal and the State Legislature under a Federal Constitution." As already noticed, the only effective way the members in general meeting can exercise their control over the directorate in a democratic manner is to alter the articles so as to restrict the powers of the Directors for the future or to dismiss the Directorate and appoint others in their place. The holders of the majority of the stock of a corporation have the power to appoint, by election, Directors of their choice and the power to regulate them by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a Director and appoint another. ......................... 97. ....... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point Directors and the power to regulate them by passing a resolution for removal. The reasons for passing of a particular resolution need not be disclosed in the notice calling for the EGM. Also, passing of the resolution and the reasons thereof are not subject to judicial review. Thus, in the present suit what the Plaintiffs only intend to seek is an injunction against calling of the EGM. 14. Even the reasons for removal of the Director, as per the settled pronouncement of the Division Bench in Jai Kumar Arya (supra), following the judgment of the Supreme Court in Life Insurance Corporation (supra) is also that the reasons have to be communicated only in the meeting and not before. Observations of the Division Bench in para 167 are set out herein below: "167. In view of the law laid down by the Supreme Court in L.I.C. of India (supra), we, with great respect, are unable to subscribe to the view, expressed by the Kerala High Court in Queens Kuries (supra), that the reasons for the proposal to remove the director from the Company had necessarily to be spelt out in the Special Notice issued under Section 115 of the Act. In this context, reference may usefully be made to a judgeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheduled to be held on 30-31995. The injunction granted [B.G. Somayaji v. Karnataka Bank Ltd., (1995) 83 Comp Cas 649 (Kant)] 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 extraordinary general meeting. (Emphasis supplied) 168. After this, 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. Queens Kuries (supra) has necessarily to yield place to L.I.C. (supra). This issue, therefore, as necessarily to be decided in favour of the appellants and against the respondents." 15. A perusal of the Articles of Association clearly shows that the Plaintiff No.1 is a non-rotational Director and can remain so long as he does not voluntarily resign. However, this Article is subject to the provisions of the Companies Act which permits the removal of a Director by majority share holde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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