CDS PROJECTS Vs. CDS SOLES (P.) LTD.

JUDGEMENT

(1.) THE present company petition has been filed under section 167 of the Companies Act, 1956 ('the Act') read with regulation 14 of the Company Law Board Regulations, 1991 praying this Bench to direct the first respondent to hold its 7th annual general meeting ('AGM') of the company on a date to be fixed by this hon'ble Bench and transact the business specified in the notice dated 11th August, 2012 issued by the 1st respondent -company and also issue directions that one member of the company to be present in person or by proxy shall be deemed to constitute a meeting. It is submitted that the petitioner currently holds 5,13,000 equity shares of Rs. 10 each representing 95 per cent of the authorised and subscribed share capital and the remaining 5 per cent is held by respondent No. 2. Thus, the R1 -company has only two shareholders. The affairs of the first respondent -company were carried on smoothly ever since the date of its incorporation and the AGMs held in time. The 6th AGM was convened on 30th September, 2011 and necessary notice of the AGM was duly sent to 2nd respondent but the 2nd respondent informed by e -mail dated 29th September, 2011 that he could not attend the AGM due to some personal problem. Subsequently, the 6th AGM was held on 5th December, 2011 in which the petitioner and the 2nd respondent were present. In the said AGM the audited balance -sheet and the profit and loss account for the year ended 31st March, 2011 was received, considered and adopted unanimously. It is submitted that the 2nd respondent demanded that the 5 per cent of the shares held by him should be acquired by the petitioner at the rate demanded by him. The same was not agreed to by the petitioner with the result the 2nd respondent started creating impediments in the smooth conduct of the affairs of the company. While matters stood, thus, the 1st respondent issued notice on 11th August, 2012 for convening its 7th AGM to be held on 15th September, 2012 to transact the business as stated in the notice. Subsequently, the R1 -company sent a copy of the audited balance sheet for the year ended 31st March, 2012 and reports thereto by e -mail followed by hard copies by speed post on 17th August, 2012. On 15th September, 2012 the meeting had to be adjourned, due to lack of quorum, to 22nd September, 2012. The notice for the adjourned meeting was issued both to the petitioner as well as to the 2nd respondent. Even on 22nd September, 2012, the 2nd respondent did not attend the meeting. Once again, the R1 -company issued notice dated 28th November, 2012 intimating the petitioner and the 2nd respondent that the adjourned meeting is to be held on 8th January, 2013. Even on the date of the adjourned meeting, i.e., 8th January, 2013 the 2nd respondent did not attend the meeting with the result that the meeting had to be adjourned sine die due to lack of quorum. The 2nd respondent started issuing e -mail seeking several unwanted and unwarranted documents from the R1 -company and adopted a completely hostile and non -cooperative attitude. While so, the 2nd respondent, in the interregnum sought for convening an extraordinary general meeting ('EGM') to discuss certain issues raised by him. Accordingly, the 1st respondent issued notice dated 11th December, 2012 to convene and hold the EGM to be held on 11th January, 2013. The said notice included an agenda to discuss about increasing the share capital of the company. Aggrieved by the said notice, the 2nd respondent filed a company petition before this Bench being CP No. 3/2013 and this Bench was pleased to grant stay of the EGM which was to be held on 11th January, 2013. In view of the altitude of the 2nd respondent in boycotting the AGM, the 1st respondent failed to hold its AGM in accordance with section 166 of the Act, which ought to have been held before 30th September, 2012. The 2nd respondent being quite aware of the fact that there are only two shareholders in the company and by boycotting the said meetings the 2nd respondent had virtually created a situation where the company and its directors are unable to comply with the statutory requirement of holding the AGM, thereby the directors and the company are in default. Therefore, it is requested that the company be directed to hold its 7th AGM on a day to be specified by this Bench.

(2.) THE 2nd respondent filed a detailed counter and alleged that the company has contravened and infringed the various provisions of the law such as FEMA and non -compliance with Reserve Bank of India Regulation ('RBI Regulations') on royalty payment paid under know -how agreement, failed to obtain prior sanction of the Board and thereby violated section 297 of the Act. Further it is stated that the company and the petitioner failed to adhere to the provisions of the articles of Association. The main grievance of the 2nd respondent is that the very conduct of the petitioner who is managing the day -to -day affairs of the R1 -company would establish that their acts are devious and seeking conduct of the AGM is only a ruse which can dupe a juvenile. The 2nd respondent further stated that be is not an impediment to the functioning of the 1st respondent. It is admitted by the 2nd respondent that he refrained from attending the 7th AGM to ensure that the illegal objectives of the petitioner are not met. It is further stated that he being a minority shareholder, his objections would be overruled by the petitioner and its cronies in the proposed 7th AGM. Further, there is an imminent possibility wherein the profits of the company are repatriated to Italy under the guise of technical fee. It is also stated that those acts have been challenged in the Company Petition No. 3/2013 by the 2nd respondent which is pending before this Bench. It is also stated that the present petition is initiated by the petitioner as a counter blast to the company petition filed by the 2nd respondent. It is stated that the petitioner approached this Bench with unclean hands and not entitled to any discretionary reliefs, more particularly, under section 167 of the Act. Heard the counsel appearing for the respective parties, perused the pleadings and documents filed in their support. The only issue is whether the petitioner has made out a case to grant the relief as prayed in the petition the grievance of the petitioner is that the respondent No. 1 -company is having only two shareholders, i.e., the petitioner and the 2nd respondent herein, holding 95 per cent and 5 per cent, respectively. It is an admitted position that there are only two shareholders in the company. The convening and holding of the meetings of the company are the statutory requirement of law. As per the notice dated 11th August, 2012 issued by the company to convene and hold the 7th AGM of the company on 15th September, 2012 at 11.00 AM to transact the business as stated in the notice. From the perusal, the notice was sent to the 2nd respondent, who is a shareholder of the company, by e -mail, fax and speed post. The petitioner has enclosed a copy of the letter addressed to the 2nd respondent intimating the date, time and place of the proposed 7th AGM. As per the minutes of the adjourned 7th AGM, leave of absence was granted to both the shareholders. In absence of quorum either in person or through proxy, the chairman adjourned the meeting to 22nd September, 2012. For the adjourned AGM, again notice dated 15th September, 2012 was sent to the shareholders to transact for business as stated in the notice. The proceedings of the adjourned AGM recorded that the 2nd respondent has not attended the meeting and has also not informed about his absents. It is also recorded that two members either in person or by proxy are required to form valid quorum. The chairman adjourned the meeting sine die and requested one Mr. Mumtaz Ahmed, a director to convene a meeting of the Board of directors and fix the adjourned AGM to a subsequent date. Once again, a notice dated 28th November, 2012 was issued to convene and hold the adjourned 7th AGM of the company to be held on 8th January, 2013 at 11 AM at the registered office, of the company to transact the business as stated in the notice. The notices were sent to both the shareholders. Even on 8th January, 2013, the 2nd respondent has not attended the adjourned 7th AGM. The proceedings of that AGM recorded that the 2nd respondent has not attended the meeting and has not informed about his absence nor has deputed any proxy. Further it is recorded that to members either in person or by proxy are required to form valid quorum. The chairman adjourned the meeting sine die. The 2nd respondent has not denied that he has not received the notices dated 11th August, 2012 for the 7th AGM to be held on 15th September, 2012, the notices dated 15th September, 2012 for the adjourned AGM to be held on 22nd September, 2012 and the notices dated 28th November, 2012 for the adjourned AGM dated 8th January, 2013. However, the 2nd respondent has given other reasons for not attending the meeting. Moreover, the contention of the 2nd respondent is that he has attended the six AGMs held previously but not attended the 7th AGM and refrained from attending the 7th AGM only to ensure that the illegal objectives of the petitioner are not met. The said stand of the 2nd respondent is not acceptable on the ground that if the AGM is not held as per the statutory requirement, the company, and its directors will be in default and liable for action as per law. The said default arises as the company is having only two shareholders and not attending the AGM even by one shareholder results in not having a quorum, therefore, the AGM could not he held. For convening and holding a valid AGM, two members either in person or by proxy, are required to attend the meeting. The 2nd respondent, if for any reason, not able to attend the AGM in person, can nominate a proxy. In the present case, the 2nd respondent has not attended the meeting nor intimated the Board that he is not attending the meeting nor given any valid reasons for his absence. As stated supra, conducting and holding the AGM is a statutory requirement. The company is having only two shareholders and absence of one shareholder is impracticable to conduct the AGM. Section 166 of the Act empowers the company to hold its AGM. Sub -section (1) of section 166 reads, thus: