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TMI Blog2012 (8) TMI 1239X X X X Extracts X X X X X X X X Extracts X X X X ..... y petition. For the sake of convenience, the parties are referred to as per their rank in the company petition. 3. Both these appeals are filed against the order dated July 27, 2012, made in C. P. No. 422 of 2011 by the Company Law Board in exercise of its power under section 186(1) of the Companies Act, 1956, thereby directing the company to conduct, an extraordinary general body meeting to consider the authenticity of the appointment of respondent Nos. 2 to 8 as directors of the first respondent-company within a period of 30 days from the date of receipt of a copy of this order, with due notice to all the shareholders/members of the company, with further direction that one member of the company present-in-person or by proxy shall be deemed to constitute a meeting. 4. The circumstances which led to the institution of the company petition before the Company Law Board by the petitioners, who are respondent Nos. 1 to 3 herein are as follows : The company herein is incorporated under the Companies Act on December 1, 1903. During 2011, the board of directors of the company having the first petitioner Lakshminaryanan as its managing director convened 107th annual general meeting of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst respondent, and for appointment of directors to the first respondent-company by its shareholders in the place removed/ disqualified director/s by following the procedure in accordance to the law ; (b) that the first respondent-company shall be directed by an order to facilitate the conduct of the extraordinary general meeting as may be ordered in such manner under the chairmanship of a retired judge of the High Court/Supreme Court or such other person of repute/ stature as shall be appointed by this hon'ble Bench; and (c) to give suitable ancillary or consequential directions in relation to the calling, holding and conducting of the extraordinary general meeting of the first respondent-company." 7. The petitioners have in the company petition, in addition to raising serious allegations against validity of conduct of 107th annual general meeting and validity of removal of the directors and appointment of new board of directors, explained the circumstances under which the petitioners are compelled to approach the Company Law Board to conduct the extraordinary general meeting of the first respondent-company. It is stated among other grounds that the petitioners are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no agenda for removal of the petitioners and for appointment of the respondents as new directors in the notice for the 107th annual general meeting which is mandatory and the removal of the directors is to be transacted by passing a special resolution and there is no mention of removal of the petitioners from the post of directors in the minutes passed in the annual general meeting and that the respondents have not followed the procedure as contemplated under law and the same amounts to clear violation of law and principles of natural justice and corporate democracy, as such, it is impracticable for the petitioners, who hold lesser share than one-tenth of total shares to call for a extraordinary general meeting of the first respondent-company. By holding so, the Company Law Board in exercise of the power under section 186(1) of the Companies Act, directed the company to conduct extraordinary general meeting. Aggrieved against the same, the company and its existing directors, i.e., respondent Nos. 1, 5, 6 and 8 have come forward with these two company appeals before this court. 10. Company Appeal No. 14 of 2012 is admitted on the following questions of law : "(a) Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the relevant provisions of law must be viewed from a reasonable point of view and the extraordinary power shall be exercised very sparingly with great caution, so as to avoid the court in participating internecine squabbles of the company, which the court would not ordinarily expected to do and it can be sparingly exercised with great caution only in the larger interests of the company for removing a deadlock which is otherwise irremovable. 13. The further argument advanced on the side of the appellants that the 107th annual general meeting is validly held as evident from the documents produced on the side of the appellants before the Company Law Board and the validity or otherwise of removal of directors and appointment of fresh directors in any of the vacancies cannot be challenged by convening extraordinary general meeting as the alleged act of removal of the petitioners as directors and appointment of the respondents in such vacancies is infringement of the individual membership right and can be lawfully challenged only before the civil court by way of a regular civil suit for the reliefs claimed and calling for the meeting to consider such dispute as specific agenda is unkn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of which the appeals are admitted by this court are to be considered. In both the appeals, the correctness of the impugned order is challenged mainly by questioning the jurisdiction of the Company Law Board to entertain the reliefs by invoking the provisions of section 186(1) of the Companies Act and the impugned order is also challenged as lacking in jurisdiction and falls outside the purview of the Company Law Board in respect of specific finding rendered on the validity or otherwise of removal of the then existing directors and appointment of new directors. As the main issue raised herein is against the propriety of removal of existing directors and appointment of new directors and the jurisdiction of the Company Law Board to direct extraordinary general meeting to decide the same as one of the agenda and as such issues are purely legal in nature, the objection regarding maintainability of the appeals is liable to be negatived. 20. On merits, there is undoubtedly serious dispute among the parties with regard to the management of affairs of the company by the existing board of directors. Both the removal of the petitioners as directors and appointment of new directors impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (Cal.), the principles to be adopted in an application under section 186 are summarised as follows (page 518 of 40 Comp Cas) : "1. The court would not ordinarily interfere with the domestic management of a company which should be conducted in accordance with its articles. 2. The discretion granted under section 186 should be used sparingly and with caution so that the court does not become either a shareholder or a director of the company trying to participate in the internecine squabbles of the company. 3. The word 'impracticable' means impracticable from a reasonable point of view . . . 6. But where the meeting can be called only by the directors and there are serious doubts and controversy as to who are the directors or where there is a possibility that one or other or both the meetings called by the rival groups of directors may be invalid, the court ought not to expose the shareholders to uncertainties and should hold that a position has arisen which makes it 'impracticable' to convene a meeting in any manner in which meetings of the company may be called. 7. The court should exercise its powers under section 186, when, upon considering all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement between two contesting groups with regard to administration of the company in question and the Andhra Pradesh High Court is of further view that the impracticability or otherwise can be decided only by drawing a reasonable presumption from the surrounding circumstances. 25. The Madhya Pradesh High Court has in the judgment reported in Pasari Flour Mills Ltd., In re [1962] 32 Comp. Cas. 896, at paragraph 11 held that under section 186(1) of the Companies Act, it is quite unnecessary to consider which of the parties are responsible for the dispute and who is acting in a high handed manner. 26. Whereas, as rightly argued by learned counsel for the appellants, the Company Law Board in the present case, while deciding question as to whether intervention of the court is warranted or not has gone to the extent of deciding against the validity of removal of directors and appointment of fresh directors and rendered specific finding as if there is flagrance and violation of procedural law and principles of natural justice and the same is against corporate democracy. The Company Law Board has not considered the allegations raised against each other, by appreciating the overall circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the smooth conduct of the meeting. When it is the admitted case that the order granting police protection is duly complied with by providing necessary police protection, the petitioners cannot be permitted to contend that they are prevented from attending the meeting. No other ground is averred in the petition and is proved before the Company Law Board to hold that the situation is such that it created a dead lock and it is totally impossible to call for any meeting with such dissenting shareholders and without the intervention of the court. 30. In this context, it is but relevant to refer to the observation made in the judgment Indian Spinning Mills Ltd. v. Madan Shuimshere Jang Bahadur [1952] 22 Comp. Cas. 162 (Cal.) wherein, the order of the single judge thereby calling a meeting was dismissed by the Division Bench on the ground that the calling of a meeting by the requisitionists would lead to endless litigation and where matters may arise for debate and discussion, which were already the subject-matter of suits. 31. Next, the reliefs sought for in the company petition is to be referred to herein to ascertain the maintainability of the same under section 186(1) of the Act in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt thinks expedient could be given under clause (b), including a direction within the meaning of the explanation appended thereto. The Supreme Court based its interpretation of sub-section (1) by also relying upon sub-section (2), as per which, any meeting called, held and conducted in accordance with an order under sub-section (1) to be a meeting of the company duly called, held and conducted. The hon'ble apex court, having observed so in paragraph 6 of its judgment and having found in paragraph 7 of its judgment that, the company petition, which came up for consideration before the Supreme Court, did not seek any prayer for an order for the calling of a meeting of the company, held the application as presented before the court under section 186 is not maintainable without any prayer for an order that the meeting of the company be called. In my considered view, the observation of the Supreme Court in the case cited above is squarely applicable to the facts of the present cases, wherein also, the main relief sought for in paragraph VI(a) of the company petition is only to conduct extraordinary general meeting and further direction sought for are only for the conduct of the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing shareholder to convene any extraordinary general meeting nor the petitioners have initiated any other appropriate legal proceedings thereby challenging their removal and appointment of fresh board as illegal. 34. In this context, the attention of this court is drawn to some of the authorities of other High Courts for the legal proposition that only civil suit is maintainable for determination of certain disputes ; Avanthi Explosives (P.) Ltd. v. Principal Subordinate Judge [1987] 62 Comp. Cas. 301 (AP) ; (ii) Ruttonjee & Co. Ltd., In re (supra) ; (iii) Bengal and Assam Investors Ltd. case (supra) ; and (iv) Shrimati Jain case (supra). 35. In all these cases, the civil suits are under identical situation filed for determination of rights of the parties. The parties, who are either aggrieved by the illegal removal of directors or appointment of new board of directors or improper conduct of annual general meeting, etc., approached civil forum by way of civil suits, challenging such conduct of the meeting or removal or appointment of directors and the suit reliefs sought for therein are declaratory reliefs with or without consequential reliefs and pending civil litigation, the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of different types and nature of the business be transacted in the same and the mode of passing resolutions, the relevant provisions of law in the Companies Act would disclose that the meeting to be periodically convened are annual general meeting and extraordinary general meeting. Annual general meeting shall be held in each year and not more than 15 months shall lapse between two annual general meetings. Whereas extraordinary general meeting shall be as per section 169(1) called for and held on requisition of such number of members of the company as is specified in sub-section (4), i.e., one-tenth of such of the paid-up capital of the company having a share capital. While the annual general meeting shall be called either by the company or by the Central Government under section 167 on the application of any member of the company and under section 189(1), ordinary and special resolution can be passed in the general meeting, extraordinary general meeting shall be under impracticable situation, called by the Company Law Board by exercising its power under section 186. Under section 186, the court is empowered to call for any meeting other than the annual general meeting. 40. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch he is removed, if not it may be filled as casual vacancy in accordance with the provisions of section 262. Under section 262, such resulting casual vacancy be filled by the board of directors at a meeting of the board. 44. Further, under section 284(7), the directors so removed is at liberty to initiate proceedings for recovery of compensation and damages against his removal and against any fresh appointment in the resulting vacancy. The director, who is not given any notice of resolution due to any default, shall make representation to be read out in the meeting without prejudice to his right of being heard orally. 45. When that being the procedure laid down under law regarding mode of convening of different type of meeting and the nature of the business to be transacted therein and nature of notice to be issued and mode and nature of resolution to be passed therein and the manner in which it is to be challenged and the remedy available to the aggrieved party, the petitioners cannot be permitted to aver denial of any knowledge either of the same. Under section 186 as the power of the court can be exercised only when it is impracticable to call for a meeting of a company, othe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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