SHAILESH HARILAL SHAH Vs. MATUSHREE TEXTILES LIMITED

JUDGEMENT

(1.) MATUSHREE Textiles Limited is a Public Limited Company incorporated under the Companies Act, 1956 (hereinafter referred to as the `act) and the authorised share capital of the Company is Rs. 1,50,00,000/- only divided into 15,00,000 equity shares of face value of Rs. 10/- each. The subscribed capital is Rs. 89,00,000/- divided into 8. 90 Lakhs shares. The shares of the Company are listed on Bombay Stock Exchange and at the relevant time, the value quoted was Rs. 40/- per share. The 7th Annual General Meeting of the Company was held on September 30, 1989 for the year ending March 31, 1989 and consequently, the 8th Annual General Meeting was stuatutorily required to be held as per section 166 of the Act latest by December 31,1990. The meeting was not convened by the Company within the stipulated time. The 8th Annual General Meeting for the year ending March 31, 1990 was convened on September 30, 1991 by notice dated September 2, 1991. The notice to the shareholders was sent by post on September 7,1991 and under section 53 (2) (b) (i) of the Act, the notice is deemed to have been effected at the expiration of forty eight hours after the letter is posted and accordingly, the notice is deemed to have been served on September 9, 1991. The plaintiffs instituted Suit No. 3002 of 1991 on September 21, 1991 for a declaration that defendants Nos. 1 to 4 are not entitled to convene 8th Annual General Meeting on September 30, 1991 or any other date as calling of the said meeting is ultra vires and null and void. The plaintiffs sought a declaration that notice dated September 2, 1991 convening the Annual General Meeting is ultra vires, invalid and illegal. The plaintiffs sought a perpetual injunction restraining defendants from holding and/or proceeding with the Annual General Meeting and from in any manner giving effect or acting upon in furtherance of implementation of the resolutions to be passed at the meeting. The plaintiffs are holders of 3110 equity shares and their holding is 0. 3% of the total equity subscribed. The defendant No. 1 is the Company, while defendants Nos. 2 to 4 are the Directors. The notice of 8th Annual General Meeting sets out that the following subjects will be transacted at the meeting: 1. To receive and adopt Audited Profit and Loss Account and the Balance Sheet together with reports of Directors and Auditors thereon.

(2.) TO appoint a Director in place of Mr. Vimal Kumar Poddar who retire by rotation and is eligible for re-appointment. . To appoint Auditors and to authorise the Board to fix their remuneration. 4. To pass ordinary resolution appointing Mr. Santosh Kumar Poddar as a Director, and 5. to pass ordinary resolution appointing Rajnikant Mehta as Director. 2. The plaintiffs complained that the 8th Annual General Meeting convened on September 30, 1991 was proposed to be held beyond the statutory period contemplated under section 166 of the Act and, therefore, the Company is not entitled to call meeting unless appropriate orders are obtained from appropriate forum seeking extension of time. The plaintiffs further claimed that notice dated September 2, 1991 and which was deemed to have been served on September 9, 1991 for convening the meeting on September 30, 1991 does not comply with the requirement of section 171 of the Act as the duration of notice is less that 21 clear days. The plaintiffs further claimed that defendant No. 2 Santoshkumar Poddar ceased to be the Director of the Company as from January 1, 1991 and his appointment as Additional Director pursuant to the resolution of the Board of Directors was bad in law. The plaintiffs claimed that on retirement of defendant No. 2, the Board was not properly constituted as the minimum number of Directors required is 3 in number. The plaintiffs further claimed that the quorum required was two and defendants Nos. 2 and 3 being real brothers and closely related, it was not open for defendant No. 3 to participate in the meeting for appointment of defendant No. 2. The plaintiffs claimed that the resolution appointing defendant No. 2 as Additional Director was vitiated as there was no quorum required by the Act. The plaintiffs further claimed that if the appointment of defendant No. 2 was illegal and bad, the notice convening Annual General Meeting signed by defendant No. 2 is bad in law and inoperative. The plaintiffs further claimed that the Company had deliberately circulated an abridged balance sheet so as to cover up the acts of misconduct, misfeasance and mal-feasance indulged by defendants Nos. 2 and 4. The plaintiffs claimed that the perusal of the Auditors report and Notes on accounts makes it very clear that the substratum of defendant No. 1 has disappeared and defendants Nos. 2 to 4 are mismanaging the Company.

(3.) THE plaintiffs instituted Suit No. 3003 of 1991 in respect of 9th Annual General Meeting for the year ending March 31, 1991 convened on September 30, 1991 by notice dated September 2, 1991. The notices were issued by the Company to convene both 8th and 9th Annual General Meetings on the same date and both the meetings were also to be held on the same date, i. e. September 30, 1991. Suit No. 3003 of 1991 challenges the right of the Company to hold 9th Annual General Meeting for identical reasons as set out in companion Suit No. 3002 of 1991. The notice for convening 9th Annual General Meeting sets out the following agenda :.