S VARADARAJAN Vs. VENKATESWARA SOLVENT EXTRACTION PRIVATE LIMITED

JUDGEMENT

(1.) THE first petitioner, S. Varadarajan , in the main company petition is the applicant in Company Application No. 602 of 1992. He filed the above application for an order of interim injunction restraining the second respondent, M. Sekaran, from holding the extraordinary general meeting on April 23, 1992, or any other adjourned date pending disposal of the main company petition. This application was opposed by all the respondents. Elaborate arguments were heard by me on April 21, 1992. Since the meeting was to be held on April 23, 1992, at 4 p. m. and having regard to the urgency of the matter, I passed an interim order on April 22, 1992, which is reproduced as under : "elaborate and lengthy arguments were advanced by counsel for the applicant as well as counsel for the respective respondents and very many decisions have been referred to in respect of the respective contentions. Since the meeting is to be held on April 23, 1992, at 4 p. m. it will not be possible for this court for want of time to pronounce final orders in the above application. Hence, having regard to the urgency of the matter and bearing in mind the interest of all parties the following interim order is passed subject to the ultimate final orders in the above matter. THE extraordinary general body meeting to be held on april 23, 1992, pursuant to the notice dated March 28, 1992, will go on and resolutions, if any, passed in the said meeting will not be implemented and given effect to. This above order is subject to final orders in the above application. " THE applicant herein and four others have filed the main company petition under sections 397 and 398 of the Indian Companies Act, 1956, against the second respondent and his associates for mismanagement and oppression of the affairs of the first respondent-company. While the main company petition was pending before this court, petitioners Nos. 2 to 5 in company Petition No. 126 of 1989 have sold their shares to the second respondent. THE applicant's counsel has also received a communication from petitioners Nos. 2 to 5 stating that they are not interested in prosecuting the main company petition. Hence the applicant alone has now taken out the present application. THE second respondent, Sekaran, was appointed as the managing director of the first respondent-company for a period of three years and his office as managing director came to an end with effect from September 1, 1990. THEreafter the board of directors of the first respondent has duly appointed at a meeting of the board held on December 20, 1991, the third respondent as the managing director of the company (viz. , M. Durai Raj ). According to the applicant, the company is being run by the third and fifth respondents as managing director and wholetime director of the company respectively. While so, the second respondent has lodged a requisition on February 8, 1992, under section 169 of the Companies Act calling upon the company to convene an extraordinary general meeting. Another notice dated March 28, 1992, received by the applicant from the second respondent mentions that he is convening the extraordinary general meeting since the company did not comply with his demand as per letter dated February 8, 1992. THE convening of the said meeting is challenged by the applicant herein. THE following are the grounds of challenge : (a) THE meeting convened by the second respondent on april 23, 1992, is not in order and the same is in violation of the mandatory provisions of section 169 of the Act. (b) As per section 169 of the Act, the requisitionist must lodge the necessary resolution with the company. THE board must convene the meeting within 21 days and if the board of directors of the company fail to convene the extraordinary general meeting within 21 days from the date of lodgment of the said requisition, then the requisitionists themselves within 45 days can convene the extraordinary general meeting. (c) THE notice sent by the second respondent convening the extraordinary general meeting on April 23, 1992, is not valid since the notice itself relies on the earlier requisition dated February 8, 1992, which does not contain any agenda. (d) THE second respondent cannot convene the meeting of his own without complying with the mandatory provisions of section 169 of the Act. (e) THE present notice includes various items of business not listed in the earlier requisition lodged by the second respondent with the company. (f) Section 284 of the Act has not been complied with by the second respondent since he wanted to remove the third respondent as the managing director of the company and he was also not given any opportunity to show cause about the receipt of the requisition from the second respondent. Thus, Mr. A. K. Mylsamy, learned counsel appearing for the applicant, contends that looking from any point of view the notice convening the extraordinary general meeting by the second respondent on April 23, 1992, to consider various items of business as set out in the said notice is illegal and opposed to the mandatory provisions of the Act. THErefore he prays that an injunction order should be issued restraining the second respondent and his associates from holding an extraordinary general meeting on april 23, 1992, pursuant to the notice dated March 28, 1992, or any other adjourned date pending disposal of the main company petition. THE second respondent, M. Sekaran, filed a detailed counter-affidavit. He is represented by Mr. A. C. Muthanna, learned senior advocate appearing on behalf of Mr. S. Sandurkar. THE main defence raised by the second respondent in his counter-affidavit at the time of hearing are : (1) THE applicant has no locus standi to interfere in the requisition meeting convened by the second respondent. As on date the applicant is neither a director of the company nor is he empowered to represent the first respondent-company. Hence the present application is misconceived. (2) THE present application cannot be maintained in this company petition, but only by way of separate suit and as the main company petition is not maintainable, this application is also not sustainable. (3) THE conduct of the applicant clearly brings out the collusion between the applicant and the third and fifth respondents-directors. THE present application has been presented in collusion with them. (4) THE applicant is holding only 3. 5 per cent. of the paid up share capital of the company. THErefore, such a minority shareholder cannot interfere with the extraordinary general meeting of the members convened by the second respondent holding nearly 62 per cent. of the paid-up capital of the respondent-company, in his own capacity and along with his friends. This is a clear case of the minority oppressing the majority. (5) THE purchase of shares by the second respondent to seek control of the respondent cannot constitute acts of oppression. THE requisition deposited by the second respondent is in accordance with the provisions of law. As required by the law the requisition clearly sets out the matters for consideration of which the meeting is convened. THE allegation that as per section 169 of the Act, the requisitionist must lodge the necessary resolution with the company is misconceived. (6) Section 284 of the Act has no application to any of the matters to be considered at the said requisition meeting, as there is no proposal to remove any director. In any event, the present applicant has no locus standi to raise any of the alleged objections which is purely within the domain of the board and the respondent-company. (7) THE requisition notice has been properly lodged and the matters to be considered have been properly set out therein. (8) Every shareholder of the company has the right to call an extraordinary general meeting in accordance with the provisions of the Act. (9) Since the board of the respondent-company did not even consider the requisition and it failed and neglected to take steps to convene the requisition meeting, the requisitionists themselves have every right to convene this meeting as per the provisions of law. Mr. Subramaniam, learned counsel appearing on behalf of mr. S. Sandurkar, learned counsel for the respondents Nos. 3, 6 and 7, has also raised the following submissions at the time of hearing : (1) THE applicant has no locus standi to file this application. (2) THE fundamental requisites under Order 39, rule 1 have not been satisfied. (3) THEre is no violation of section 169 of the Act. According to Mr. Subramaniam, there is a distinction between sections 169 and 172 of the Act. Under section 172 of the Act the statement of the business to be transacted must be given whereas under section 169, it is enough if the matters are mentioned. THEre is no further requirement. It is only when the notice under section 172 is sent, the details are necessary. Even if the notice contains additional matters to be considered it is for the general body to decide on the consideration of these matters. THE notice is not invalid on that score. THE word "agenda" is not used anywhere in the Act. "agenda" means the business to be transacted at the meeting. This has been mentioned in the requisition and the notice. (4) In any event, this is a new cause of action and cannot be agitated by way of an interlocutary application instead of a separate suit. THE meeting by the requisitionists cannot be injuncted as long as there is a valid requisition. (5) Section 284 does not apply to the removal of the managing director. Only the person concerned can question the resolution. THE matter is one of internal management, and the court should not ordinarily interfere in such matters. Mr. R. L. Narayanan, learned counsel appearing for the respondents Nos. 6 and 7, has adopted the arguments of the other learned counsel appearing for all other respondents. In the light of the rival contentions urged by learned counsel for both the sides, the following five crucial points arise for consideration : (1) Whether the notice sent on March 28, 1992, requisitioning the extraordinary general meeting is valid or not and whether the notice of the extraordinary general meeting dated March 28, 1992, conforms to the requirements of the statute or not ; (2) Whether the requirements of section 173 (2) should be satisfied where the requisitionists issue the notice of extraordinary general meeting ; (3) Whether the requirements of section 284 require to be satisfied in the present case ; (4) Whether the petitioner has locus standi to maintain the present application for injunction ; (5) Whether the petitioner is entitled for an order of injunction as prayed for. In order to appreciate the above points, it is necessary to refer to the provisions of sections 169, 172, 173 and 284 of the Companies act. THE said sections run as follows : "169. Calling of extraordinary general meeting on requisition.-- (1) THE board of directors of a company shall, on the requisition of such number of members of the company as is specified in sub-section (4), forthwith proceed duly to call an extraordinary general meeting of the company. (2) THE requisition shall set out the matters for the consideration of which the meeting is to be called, shall be signed by the requisitionists and shall be deposited at the registered office of the company. (3) THE requisition may consist of several documents in like form, each signed by one or more requisitionists. (4) THE number of members entitled to requisition a meeting in regard to any matter shall be-- (a) in the case of a company having a share capital, such number of them as hold at the date of the deposit of the requisition not less than one-tenth of such of the paid up capital of the company as at that date carries the right of voting in regard to that matter ; (b) in the case of a company not having a share capital, such number of them as have at the date of deposit of the requisition not less than one-tenth of the total voting power of all the members having at the said date a right to vote in regard to that matter. (5) Where two or more distinct matters are specified in the requisition, the provisions of sub-section (4) shall apply separately in regard to each such matter ; and the requisition shall accordingly be valid only in respect of those matters in regard to which the condition specified in that sub-section is fulfilled. (6) If the board does not, within twenty-one days from the date of the deposit of a valid requisition in regard to any matters, proceed duly to call a meeting for the consideration of those matters on a day not later than forty-five days from the date of the deposit of the requisition, the meeting may be called-- (a) by the requisitionists themselves; (b) in the case of a company having a share capital, by such of the requisitionists as represent either a majority in value of the paid-up share capital held by all of them or not less than one-tenth of such of the paid-up share capital of the company, as is referred to in clause (a) of sub-section (4) whichever is less ; or (c) in the case of a company not having a share capital, by such of the requisitionists as represent not less than one-tenth of the total voting power of all the members of the company referred to in clause (b)of sub-section (4 ). Explanation.--For the purpose of this sub-section, the board shall, in the case of a meeting at which a resolution is to be proposed as a special resolution, be deemed not to have duly convened the meeting if they do not give such notice thereof as is required by sub-section (2) of section 189. (7) A meeting called under sub-section (6) by the requisitionists or any of them-- (a) shall be called in the same manner, as nearly as possible as that in which meetings are to be called by the board ; but (b) shall not be held after the expiration of three months from the date of the deposit of the requisition. Explanation.--Nothing in clause (b) shall be deemed to prevent a meeting duly commenced before the expiry of the period of three months aforesaid, from adjourning to some day after the expiry of that period. (8) Where two or more persons hold any shares or interest in a company jointly, a requisition, or a notice calling a meeting, signed by one or some only of them shall, for the purposes of this section, have the same force and effect as if it had been signed by all of them. (9) Any reasonable expenses incurred by the requisitionists by reason of the failure of the board duly to call a meeting shall be repaid to the requisitionists by the company; any sum so repaid shall be retained by the company out of any sums due or to become due from the company by way of fees or other remuneration for their services to such of the directors as were in default. " " 172. Contents and manner of service of notice and persons on whom it is to be served.-- (1) Every notice of meeting of a company shall specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat. (2) Notice of every meeting of the company shall be given-- (i) to every member of the company, in any manner authorised by sub-sections (1) to (4) of section 53 ; (ii) to the persons entitled to a share in consequence of the death or insolvency of a member, by sending it through post in a prepaid letter addressed to them by name, or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been supplied, by giving the notice in any manner in which it might have been given if the death or insolvency had not occurred ; and (iii) to the auditor or auditors for the time being of the company in any manner authorised by section 53 in the case of any member or members of the company : Provided that where the notice of a meeting is given by advertising the same in a newspaper circulating in the neighbourhood of the registered office of the company under sub-section (3) of section 53, the statement of material facts referred to in section 173 need not be annexed to the notice as required by that section but it shall be mentioned in the advertisement that the statement has been forwarded to the members of the company. (3) THE accidental omission to give notice, or the non-receipt of notice by any member or other person to whom it should be given shall not invalidate the proceedings at the meeting. " " 173. Explanatory statement to be annexed to notice.-- (1) For the purposes of this section-- (a) in the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exception of business relating to (i) the consideration of the accounts, balance-sheet and the reports of the board of directors and auditors, (ii) the declaration of dividend, (iii) the appointment of directors in the place of those retiring, and (iv) the appointment of, and the fixing of the remuneration of, the auditors, and (b) in the case of any other meeting all business shall be deemed special. (2) Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular (the nature of the concern or interest), if any, therein of every director, and the manager, if any : Provided that where any item of special business as aforesaid to be transacted at a meeting of the company relates to, or affects, any other company, the extent of shareholding interest in that other company of every director and the manager, if any, of the first mentioned company shall also be set out in the statement if the extent of such shareholding interest is not less than twenty per cent. of the paid-up share capital of that other company. (3) Where any item of business consists of the according of approval to any document by the meeting, the time and place where the document can be inspected shall be specified in the statement aforesaid. " " 284. Removal of directors.-- (1) A company may, by ordinary resolution, remove a director (not being a director appointed by the central Government in pursuance of section 408) before the expiry of his period of office : Provided that this sub-section shall not, in the case of a private company, authorise the removal of a director holding office for life on the 1st day of April, 1952, whether or not he is subject to retirement under an age limit by virtue of the articles or otherwise : Provided further that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 265 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation. (2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed. (3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting. (4) Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so,-- (a) in any notice of the resolution given to members of the company state the fact of the representations having been made ; and (b) send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company) ; and if a copy of the representations is not sent as aforesaid because they were received too late or because of the company's default, the director may (without prejudice to his right to be heard orally)require that the representations shall be read out at the meeting : Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Company Law Board is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter ; and the Company Law Board may order the company's costs of the application to be paid in whole or in part by the director notwithstanding that he is not a party to it. (5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the board in pursuance of section 262, be filled by the appointment of another director in his stead by the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2 ). A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed as aforesaid. (6) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions, so far as they may be applicable, of section 262, and all the provisions of that section shall apply accordingly : Provided that the director who was removed from office shall not be reappointed as a director by the board of directors. (7) Nothing in this section shall be taken-- (a) as depriving a person removed thereunder of any compensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director ; or (b) as derogating from any power to remove a director which may exist apart from this section. " It is also necessary for me to refer to the contents of the notice of requisition dated February 8, 1992, and the notice of the extraordinary general body meeting dated March 28, 1992: From M. Sekaran Managing Director Venkateswara Solvent Extraction (Pvt.) Ltd. Pudukottai Road, Annavasal, Pudukkottai Dist. Phone : 47 Extn. /55 per. /48 R. H. Dated February 8, 1992. To Venkateswara Solvent Extraction (Pvt.) Ltd. Pudukottai Road Annavasal Pudukkottai Dist. Dear Sirs Sub : Extraordinary general meeting--Request to convene the extraordinary general meeting under section 169 of the Companies Act, 1956. I am having 49. 2 per cent. shareholding in our company and I request to convene the extraordinary general meeting immediately to fill the vacancy in our board and elect proper managing director for our company. Thanking you Yours faithfully (Sd.) M. Sekaran. C. Ct. All directors THE Registrar of Companies Sastri Bhavan Haddows Road Madras. Venkateswara Solvent Extraction Pvt. Ltd. 16, K. M. Pudukkottai Road, Annavasal-622 101 Pudukottai District Dated March 28, 1992. From M. Sekaran No. 30, Agraharam Varaganneri Trichy-620 008. To All shareholders Venkateswara Solvent Extraction P. Ltd. Pudukkottai Road Annavasal. An extraordinary general meeting of the shareholders of the company was requisitioned by the undersigned as per the provisions of section 169 of the Companies Act, 1956, by a requisition dated February 8, 1992. Although the said requisition was deposited with the company on February 8, 1992, the board of directors of the company have not called for a meeting of the shareholders in the manner contemplated under the said section. Hence, the undersigned requisitionist is issuing this notice to convene the extraordinary general meeting of the members of the company on Thursday the 23rd April, 1992 at 4 p. m. at No. 1, South St. , annavasal, Pudukkottai, to consider and transact the following business. 1. To elect a director to fill the vacancy on the board due to death of A. A. M. Ismail by passing the following resolution as ordinary resolution : "resolved that Mr. K. Palaniandi Pillai be and is hereby elected as director of the company liable to retire by rotation. "

(2.) TO elect a director to fill the vacancy on the board due to death of Mr. P. R. Muthiah by passing the following resolution as ordinary resolution : "resolved that Mr. K. Kandaswami Pillai be and is hereby elected as director of the company liable to retire by rotation. "