PRAKASH ROADLINES LTD Vs. VIJAYAKUMAR NARANG

JUDGEMENT

(1.) DEFENDANTS are the petitioners before me, questioning the order of the trial court upholding the maintainability of the suit. For the sake of convenience parties are referred with reference to their rankings in the trial court. Admittedly the plaintiff is a shareholder of the first defendant-company. He asserts that his shareholding constitute 10.22% of paid up share capital of the company. The plaintiff took steps under sections 257 and 284 of the companies act ('the act' for short) by issuing notices under the said Provisions. According to the plaintiff, the second defendant managed/manoeuvred to effect a change in the directorship of the company and to become the chairman of the company. It is also stated in the plaint that one bharath bhushan narang became the deputy managing director. It is further alleged that these persons have been in management and control of the company and as such committed several illegal acts, benefiting themselves, etc. Therefore the plaintiff lodged with the company a notice under Section 284 read with Section 190 of the act giving notice of his intention to move four resolutions at the ensuing annual general meeting to be held on 30-9-1993. The notice was lodged on 13-9-1993. Plaintiff also got published a public notice relating to the matter in the times of India dated 15-9-1993. According to the plaintiff, a letter dated 20-9-1993 was issued to the plaintiff rejecting the application of the plaintiff which was received by the plaintiff on 22-9-1993. A notice was also issued by the counsel for the DEFENDANTS dated 20-9-1993. It is further stated in the plaint that the plaintiff had given a notice under Section 257 of the act proposing the name of one harban singh nagpal for election as director of the company at the ensuing annual general meeting. A similar notice had been issued by another shareholder proposing the name of the plaintiff for being appointed as director at the same general meeting. Two other members also issued similar notices proposing the election of the two more directors. All those notices were lodged on 13-9-1993. There was also a paper publication in the times of India regarding these matters. Further, the requisite amount stated in Section 257 had been deposited by all the four persons but the DEFENDANTS rejected the applications. It is unnecessary to refer to other averments in the plaint. The plaint proceeds to say that the DEFENDANTS have violated the mandate of sections 257 and 284 with impunity. The company also refused to accept the proxies which were sought to be lodged by the plaintiff. Therefore the plaintiff asserts that the DEFENDANTS are bent upon preventing the plaintiff from exercising the rights as members of the company and that four directors sought to be replaced have entrenched themselves in the management of the company contrary to the desire and wish of the majority of the members of the company. It is alleged that the action of the company in preventing the plaintiff from exercising its legal right under Section 284 is motivated and illegal. Therefore the plaintiff sought the relief of declaration that the actions of the DEFENDANTS referred in the plaint were illegal and contrary to law. There is a prayer for mandatory injunction to the DEFENDANTS to allow the plaintiff and other members to propose and transact the business in terms of the notices issued by the plaintiff and others. The plaintiff sought the appointment of a receiver to preside over the annual general meeting of the company. The suit was filed on 24-9-1993. I.as.1 to 3 were also filed. As per la. 1 plaintiff sought the grant of an order of mandatory injunction directing the DEFENDANTS, etc., to consider the resolutions regarding the removal and appointment of the directors as per the notices referred already. La. 2 filed by the plaintiff sought the appointment of a receiver to preside over the ensuing annual general meeting to be held on 30-9-1993, etc. La. 3 was filed by the first defendant under Section 9 read with Section 151, CPC read with Section 10 of the Companies Act, requesting the court to hear the question regarding the maintainability of the suit before considering any other i.as. According to the DEFENDANTS the suit was not maintainable arid the plaintiff at the most could have invoked the forum created under the Provisions of the Companies Act for the redressal of his grievances. The rights and liabilities of the parties are governed by the said act and therefore the same shall have to be considered only by the court on which the jurisdiction has been conferred by the act. On 29-9-1993 the trial court rejected la. 3 but allowed i.as. 1 and 2. The DEFENDANTS challenged the orders on i.as. 1 and 2 in m.f.a. nos. 1800 and 1801 of 1993 respectively, in this court. The present revision petition is against the order rejecting la. 3. The two appeals were presented before a learned judge of this court dealing with such appeals at 9.20 p.m. on the very day of pronouncement of the order by the trial court (i.e., on 29-9-1993). The learned judge directed the posting of the appeals on the next day at 10.30 a.m. and directed the postponement of the general body meeting till 3.00 p.m. of 30-9-1993. Thereafter on 30-9-1993 certain interim order was made governing the proceedings of the annual general meeting to be held on the said day which covered the subjects proposed by the plaintiff; however the court permitted the chairman of the company to preside over the meeting but directed the receiver appointed by the trial court to be seated along with the chairman to make a note of the proceedings and submit a detailed report to the court after the meeting is over. The court also stated that the decision taken at the meeting with regard to removal or appointment of the directors shall not be given effect to until further orders of this court. The court also directed the records to be called for from the trial court immediately by 5.00 p.m. this order refers to the contention of the appellants that the order of the trial court does not give any indication that the trial court had applied its mind over the dispute and points raised by the plaintiff and DEFENDANTS. The said order of this court also refers to the contention advanced on behalf of the plaintiff that the trial court has passed a separate detailed order and that only operative portion of the order was noted in the order sheet. The learned judge of this court observed that there is a serious dispute as to the factum of the trial court having made any detailed speaking order. The records of the said appeals show that the learned counsel for the respondent filed a memo on 14-10-1993 along with the certified copy of the detailed order made by the trial court. However, on 3-11-1993 those appeals were disposed of. The court held that it was unnecessary to consider the merits of the contentions regarding the order of the trial court on i.as. 1 and 2 since the said order of the trial court stood merged in the order made by this court on 30-9-1993. The court gave certain directions to the trial court while disposing of the appeals according to law. However, it was made clear that the said order made in m.f.as. Shall be subject to the result of the present c.r.p. in those appeals the trial court sent the records immediately on receipt of the order of this court conveyed over telephone to it on 30th September itself. I am referring to this aspect because the learned counsel for the DEFENDANTS contended that the records sent on the said day did not contain the detailed order made by the trial court. The civil revision petition was filed on 19-10-1993 though dated 18-10-1993. The affidavit of the second defendant filed in support of the la. For stay of further proceedings is also dated 18-10-1993. La. 2 for dispensing with the production of certified copy of the trial court's order is supported by the affidavit of the secretary of the company calling himself as the first petitioner, wherein he stated that the certified copy of the order had already been filed in m.f.as. And that the trial court records were not in the trial court. These affidavits are silent about the non-availability of the alleged detailed order. The affidavits are also silent about the factum of the certified copy of the detailed order made by the trial court which was produced by the learned counsel for the plaintiff in the appeals along with a memo dated 14-10-1993. However, in the memorandum of civil revision petition, as if by an after thought ground called "additional grounds" is raised in para 21 stating that no separate order other than the order sheet existed on 29-9-1993 and no other order was signed and that the only order which was pronounced and signed by the learned trial judge on 29-9-1993 in the open court was the order which has been enclosed as a certified copy (obviously referring to the order sheet). Sri s. Vijayshankar, learned counsel for the petitioners, raised two contentions: (1) the order of the trial court was not a speaking order and except that Order, contained in the order sheet of the trial court, no detailed order was made on 29-9-1993. (2) the suit was'not maintainable in the trial court and the remedy of the plaintiff, if at all, was to invoke the jurisdiction of the companies law board in view of Section 10 and 10-e of the act. Re. Contention No. 1: on 29-9-1993 the court purported to dispose of i.as. 1 to 3. The first sentence in the order sheet itself says that 'order on i.as. 1 to 3: pronounced in the open court'. Thereafter the order to be given effect to are repeated. The order further states that an application was filed thereafter by the counsel for the DEFENDANTS to keep the order passed on i.as. 1 and 2 in abeyance as he intends to seek an appeal against the said order before the high court; the order sheet further notes that the counsel were heard. It further states "by a detailed order this court has allowed i.as. 1 and 2 and rejected la. 3". Thereafter the court gives reasons as to why there cannot be any interim order of stay. The order further appointed a counsel of this court as a receiver. This was made because in the earlier order provided for the appointment of a receiver. On 30-9-1993 when the appeals were heard by this court the learned counsel for the plaintiff had asserted that the trial court had passed a detailed order which was pronounced in the open court. In fact a certified copy of the same was produced subsequently by the learned counsel for the plaintiff. Mr. Vijayashankar contends that the DEFENDANTS were not furnished with any certified copy of the detailed order so far. The nature of the application filed by the DEFENDANTS for the certified copy is not forthcoming. If the ministerial branch of the court committed any mistake in furnishing the certified copy, the same cannot be attributed to the presiding officer of the court and only on that ground it cannot be said that the learned judge failed to write a speaking order. While rejecting the prayer for stay, the trial court categorically observed that i.as. 1 to 3 were rejected by a detailed order; this statement is not specifically challenged in the grounds of appeals. The trial court had to despatch the records immediately on 30-9-1993 and it is quite obvious that whatever records available in the record Section were despatched. There is a presumption that statement of facts in the judgment and the orders of the court are correctly recorded and that the legal requirements have been complied with by those who discharge public functions. A reading of the order sheet also indicates that it was not possible to make such an order before considering the respective contentions in detail. In view of the above, it is not possible to accept the contention of the learned counsel for the petitioners (DEFENDANTS) that there was no speaking order at all made by the trial judge when he pronounced the order on 29-9-1993. It is also necessary to note that the petitioners filed an la. In the trial court for staying the operation of the order and in the said la. Also there is no reference to the present contention. If the speaking order was not available the first reaction of any party of the litigation will be to point out that the said litigant is not in a position to know the basis for the order and that it was not possible to challenge the said order properly and therefore its operation should be stayed. The said la. For stay was supported by the memorandum of fact signed by the learned counsel for the DEFENDANTS. Re: contention No. 2: Mr. Vijayshankar contended that the removal of the director and the election of a director to a vacant office are matters specifically provided for under the act. If the persons in management of the company refused to comply with the reasonable demands and give effect to the statutory requirements, it will be a case of mismanagement and the aggrieved persons who seek redress could do so only as provided under the act. The learned counsel referred to Section 9 under which the Provisions of the act are declared as having overriding effect. As per Section 10, the court having jurisdiction under the act is the court referred therein and under Section 2(11) the term 'court' is defined. Section 10-e provides for Constitution of the board of company law administration. Sections 397 and 403 were referred to contend that any member of the company may apply to the company law board for the reliefs referred therein under circumstances provided for. The DEFENDANTS contend that, having regard to the plaint averments, the plaintiff has been projecting a case of oppression and mismanagement on the part of the DEFENDANTS. The Provisions of sections 257 and 284 were referred to contend that these are statutory rights given to the members in general because the directors are to be elected by majority of the members and therefore the said right shall have to be enforced only by recourse to the Provisions of the act. The learned counsel for the petitioners agreed that a single member by himself cannot invoke the company law board under Section 397 because he has to satisfy the requirements of Section 399 whereunder sections 397 or 398 can be invoked by any member or members holding not less than 1/10th of the issued share capital of the company. Sub-section (3) of Section 399 also provides for the same situation. According to the DEFENDANTS this requirement is salutary requirement to prevent abuse of the Provisions of the act by a member or a small number of members so that the company and those who are in its management may not be harassed by frivolous suits and petitions; therefore the law contemplates that a member should have the backing of 10% of the shareholding to agitate for the matters provided under the act and the said agitation can be only through the forum created under the act. The present suit involves the enforcement of a right claimed by the plaintiff to elect directors and to remove the existing directors. Electing a director or removing a director, no doubt requires the support of the majority, as otherwise the candidate for the election v/ould not muster sufficient strength to get elected. Similarly a director cannot be removed unless the majority votes him out. The manner of notifying the candidature as well as the proposal to remove any director are specifically provided for under these Provisions. With regard to the respective subjects, both sections 257 and 284 are self- contained. No other provision of the act was brought to my notice requiring any further compliance by the person invoking these Provisions. Section 188 provides for the circulation of members' resolutions. But the said provision has nothing to do with sections 257 and 284. On this aspect i need not discuss the question in detail in view of the decision of a learned judge of this court in Karnataka bank ltd. V a.b. datar and others. The said appeals arose out of the suits filed to restrain the moving of resolutions to remove a few directors of the appellant-company. The trial court had granted an order of temporary injunction restraining the resolutions to be moved. There was also a prayer in the suit for the declaration that the special notices issued under Section 284, etc., were void and unenforceable. The court was concerned with the propriety and the correctness of the order of the temporary injunction made by the trial court. But the court had to consider the scope of Section 284 because the right asserted directly arose under the said provision. This court negatived the contention that Section 188 has to be read along with Section 284 and the requirements of Section 188 also should be complied with, while seeking the removal of director under Section 284. The learned judge after an elaborate discussion observed as follows: "a comparative view of the two sections shows that Section 284 is an independent provision providing for removal of the directors and it is available for any shareholder for moving a resolution for removal of a director in the meetings called by the company and there is nothing to insist on compliance of Provisions in Section 188(2) to call a meeting to move a resolution as urged. Therefore, prima facie the view of the law to be taken having regard to the Provisions of the two sections would be to hold that Section 284 of the Companies Act is not subject to Section 188 of the Companies Act and it is independent of that section." thereafter the decision of the Supreme Court in life insurance corporation of India v escorts ltd. And others, was referred wherein the Supreme Court observed at para 100 thus: "thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the Provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under Section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every director, the managing agent if any, the secretaries and treasurers if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a metting to disclose the reasons for the resolutions which they propose to move at the meeting. The life insurance corporation of india, as a shareholder of escorts limited, has the same right as every shareholder to call an extraordinary general meeting of the company for the purpose of moving a resolution to remove some directors and appoint others in their place. The life insurance corporation of India cannot be restrained from doing so nor is it bound to disclose its reasons for moving the resolutions." from the above decision of the Supreme Court in escorts ltd.'s case it is clear that every shareholder of a company has the right to call an extraordinary general meeting. The said right could be enforced after complying with the procedural and other requirements. It is his individual right. The enforcement of this right is independent of the requirements of Section 188 governing other kinds of resolutions. Therefore, before considering the contention advanced by the DEFENDANTS it has to be assumed that the right sought to be enforced by the plaintiff in the suit is an individual right statutorily recognised in him and the enforcement of the said right cannot be restrained even by a court of law. If the attempt of the individual to remove a director or to elect any other director in a vacancy is frivolous, the said attempt will be lost at the meeting and there will not be any undue harassment of the company at all to prevent speculative ventures to get elected under Section 257, the act itself provides a safeguard by requiring a deposit of Rs. 500/- by the person invoking Section 257. It is for the person invoking sections 257 or 284 to persuade the members at the annual general meeting to accept his proposals. If a person in the management of the company, controlling its affairs could ignore the demands made under those Provisions without any immediate remedy to enforce the said provision, the individual right conferred on the members would be stultified. In the very nature of things the remedy provided under Section 397 of the act and other similar Provisions is not available to the individual member immediately since it requires the member to get consent letters of others, in case he is not possessed of the requisite percentage of shareholdings. The fact that the plaintiff in the instant case possesses more than 10% of the shareholding is irrelevant to consider the question of law about the maintainability of the suit in view of the Provisions of the act. It is also necessary to note that under Section 397 it is not only the oppression that gives a cause of action but also the applicant or the applicants shall have to show that that the facts would justify the making of winding up order on the ground that it is just and equitable that the company should be wound up. In other words it is necessary to show that the facts are such that normally the company could be sought to be wound up under 'just and equitable' clause but such winding up would unfairly prejudice the members. Therefore I am of the view that Section 397 is not an effective forum to grant any relief to an individual member under all circumstances. Similar is the situation under Section 398 also. Being a constituent of the company a shareholder has several individual rights and those rights could be enforced by invoking the civil jurisdiction of the courts. Further, the act nowhere specifically excludes the jurisdiction of the civil courts. It was contended that the rights and liabilities under the act are statutory and the same could be enforced only in the manner provided under the act. Dhulabhai, etc. V state of Madhya Pradesh and another, was cited in this regard. At page 89 the Supreme Court summarised the various principles. The Supreme Court held as follows: