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A.D. Chaudhary Vs. Mysore Paper Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKarnataka High Court
Decided On
Case NumberO.S.A. No. 4 of 1975
Judge
Reported in[1976]46CompCas639(Kar); ILR1976KAR505
ActsCode of Civil Procedure (CPC), 1908 - Order 39, Rule 5; Companies Act, 1956 - Sections 169, 186 and 186(1)
AppellantA.D. Chaudhary
RespondentMysore Paper Mills Ltd.
Appellant AdvocateVasantha Pai, Adv.
Respondent AdvocateT. Krishna Rao, Adv.
Excerpt:
.....of rs.7,34,730/- was paid to m/s. r.m.c till october, 1991 and from october 1991 onwards a sum of rs.6,03,546/- was paid to m/s. o.m.c. i.e., more than fifty percent of the commission charges. the formation of m/s. o.m.c is for a sham and nominal purpose of receiving the profits of the appellant which is a device to avoid tax. - the company further alleged that it was served with an order of the court of munsiff at howrah on november 22, 1974, retraining it from holding any annual general meeting or any other general meeting until further orders from that court, that the said proceedings and other proceeding in a court at bangalore had been filed by jalans referred to above and their associates (including the appellant) as they failed to succeed in getting sufficient support for the..........owns and is now running a paper mill at bhadravathi in the state of karnataka. the 39th annual general meeting of the company was held on september 30, 1974. on that day two directors had to be elected in the place of two retiring directors. the meeting also had to consider certain resolutions for removing some directors and for electing some others in their place and to elect three additional directors. according to the appellant, at the commencement of the meeting, an advocate of this court brought to the notice of the chairman and member present at the meeting that the meeting could not be proceeded with in view of an order of injunction issued by a court at calcutta and ignoring the said order the meeting was held. it is alleged that there was disturbance at the meeting and that.....
Judgment:

Venkataramiah, J.

1. This appeal is presented under section 4 of the Karnataka High Court Act, 1961, against the order of the learned single judge dated February. 3, 1975, passed in Company Petition No. 1 of 1975 on the file of this court, dismissing the petition. The appellant was the petitioner in that petition. He filed it under section. 186 of the Companies Act (hereinafter referred to as 'the Act') on the basis of the following allegations :

The appellant is a shareholder of the Mysore Paper Mills Ltd. (hereinafter referred to as 'the company') which was incorporated in 1936 under the Mysore companies Act, 1917, and is now governed by the Act. The authorised capital of the company is Rs. 1,50,00,000 divided into 15,00,000 shares of Rs. 10 each. The subscribed capital is Rs. 1,23,62,120 of which shares of the value of Rs. 58,980 have been forfeited. The company was started with the object of establishing and running a paper mill. The company owns and is now running a paper mill at Bhadravathi in the State of Karnataka. The 39th annual general meeting of the company was held on September 30, 1974. On that day two directors had to be elected in the place of two retiring directors. The meeting also had to consider certain resolutions for removing some directors and for electing some others in their place and to elect three additional directors. According to the appellant, at the commencement of the meeting, an advocate of this court brought to the notice of the chairman and member present at the meeting that the meeting could not be proceeded with in view of an order of injunction issued by a court at Calcutta and ignoring the said order the meeting was held. It is alleged that there was disturbance at the meeting and that the election of the directors was irregular for various reasons. He, therefore, along with some other shareholders served on the company a notice under section 169 of the Act on November 23, 1974, requesting the company to hold an extraordinary general meeting to consider the following subjects;

'(1) Resolved to place on record that the election on Sri V. T. Velu purported to have been made at the ordinary general meeting of the company held on 30th September, 1974, is void on account of non-compliance with the provisions of section 263 of the Companies Act.

(2) Resolved to place on record that the election of Sri K. Subbarao Ramaswamy purported to have been made at the ordinary general meeting of the company held on 30th September, 1974, is void on account of non-compliance with the provisions of section 263 of the Companies Act.

(3) Resolved to place on record that the election of Sri B. P. Ramakrishna purported to have been made at the ordinary general meeting of the company held on 30th September, 1974, is void on account of non-compliance with the provisions of section 263 of the Companies Act.

(4) Resolved to place on record that the election of Sri G. Ramarathnam purported to have been made at the ordinary general meeting of the company held on 30th September, 1974, is void on account of noncompliance with the provisions of section 263 of the Companies Act.

(5) Resolved to place on record that the removal of Sri B. P. Jalan as a director of the company is void under section 263 of the Companies Act as it was not separately and individually voted upon.

(6) Resolved to place on record that the removal of Sri L. S. Venkaji Rao as a director of the company is void under section 263 of the Companies Act as it was not separately and individually voted upon.

(7) Resolved that Sri S. N. Parthasarathy be removed from the directorship of the company under section 284 of the Companies Act by an ordinary resolution of which special notice has been given under section 284(2) of the Act.

Resolved to appoint Sri H. B. Datar by a separate resolution as a director of the company in the place of Sri S. N. Parthasarathy after his removal under resolution No. 7 of which special notice has been given under section 284(2) of the Act.

(9) Resolved to appoint Sri T. R. Jalan as director of the company in the place wrongly declared on 30th September, 1974, to have been filled by Sri V. T. Velu.

(10) Resolved to appoint Sri N. R. Morarka as a director of the company in the place wrongly declared to have been filled on September 30, 1974, by Sri K. Subbarao Ramaswamy.

(11) Resolved to increase the strength of the board from the existing number of 9 to 12.

(12) Resolved to appoint Sri S. Srinivasan as a director of the company in the vacancy caused by the increase in the strength of the board.

(13) Resolved to appoint Sri Ram S. Tarneja as a director of the company in the vacancy caused by the increase in the increase in the strength of the board. And

(14) Resolved to appoint Dr. S. L. Keshwani as a director of the company in the vacancy caused by the increase in the strength of the board.'

2. In reply to the said notice, the appellant received from the secretary of the company a telegram dated December 11, 1974, on December 12, 1974, and a letter dated December 12, 1974, stating that the meeting could not be convened in accordance with the notice of the appellant and others served on the company on November 23, 1974, as the subjects to be discussed of which notice had been given were the subject-matter of litigation in some courts. The appellant along with other requisitionists, therefore, convened an extraordinary general meeting under section 169(6) of the Act, the notice of which was given through the medium of advertisements in newspapers as the appellant could not secure from the company the list of members though a request was made in that behalf. The said meeting was to take place on February 5, 1975, at 3-00 at the Banquet Hall of Hotel Ashoka, Bangalore, to consider the subjects refereed to above. As the appellant apprehended that the chairman of the company who was entitled to preside over the meeting under the articles was prejudiced and as the minutes book, register of members, the share register and the register of proxies were all with the company, it was alleged that the holding of the meeting by the requisitionists on February 5, 1975, had become 'impracticable'. It was also alleged that there were factions amongst the shareholders and the chairman was not a fit person to preside over the meeting. According to the appellant the circumstances were such that there was need for the court appointing an advocate as chairman of the proposed meeting to be held on February 5, 1975, and for an order directing the company to for make available all the appellant, there fore, filed the petition on January 8, 1975, out or which this appeal arises for the following principal reliefs :

(a) an advocate-chairman be appointed to conduct the extraordinary general meeting of the company convened by the appellant and other requisitionists on February 5, 1975; and

(b) that the company be directed to place at the disposal of the advocate-chairman appointed by the court all the books and records of the company necessary for holding the meeting.

3. The petition was resisted by the company. In its statement of objections, the company denied that the election of directors held on September 30, 1974, was irregular. It was alleged that the petition had been filed at the instance of B. P. Jalan, T. R. Jalan and M. P. Jalan of Calcutta who had tried to corner the shares of the company recently with a view to acquiring control over the affairs of the company and hence the petition had been made mala fide. It was denied that the chairman was informed at the meeting held on September 30, 1974, that there was an order of a court at Calcutta restraining the holding of the said meeting and that it was read out at the meeting. It was asserted that the said meeting had been held regularly as could be seen from the minutes of the meeting. The company further alleged that it was served with an order of the court of munsiff at Howrah on November 22, 1974, retraining it from holding any annual general meeting or any other general meeting until further orders from that court, that the said proceedings and other proceeding in a court at Bangalore had been filed by Jalans referred to above and their associates (including the appellant) as they failed to succeed in getting sufficient support for the candidates put up by them at the election held on September 30, 1975. The company had informed the requisitionists of the extraordinary general meeting that it could not convene the meeting as desired by them because of the order of temporary injunction issued in a sit filed by Balakrishna Jalan, Civil Suit No. 146 of 1974, on the file of the Fifth Munsiff, Howrah, restraining the company from holding any general meeting. It was stated that the chairman who was an officer of the State Government was not in any way disqualified from acting as chairman of any general meeting. Several other allegations made by the appellant were also traversed in the course of the statement of objections.

4. After hearing the parties, the learned single judge who heard the petition came to the conclusion that the petition had not been filed bona fide and dismissed the petition. Hence, this appeal.

5. In this appeal, in an affidavit filed on behalf of the appellant, it is stated that the meeting called on February 5, 1975, had been adjourned to March 29, 1975. The truth of the above statement and the validity of the adjournment of the meeting are disputed by the company.

6. At this stage it is necessary to refer to the relevant provisions of the Act. Section 169(1) provides that 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) of section 169 forthwith proceed duly to call an extraordinary general meeting of the company. Section 169(6) provides that if the board does not within twenty-one days from the date of a valid requisition proceed duly to call a meeting for the consideration of the matters specified in the requisition, the meeting may be called by the requisitionists or others who satisfy the conditions in clauses (b) or (c) of section 169(6). Clause (b) of section 169(7), however, says that the meeting to be called by the requisitionists under section 169(6) shall not be held after the expiration of three months from the date of the requisition. Section 186 of the Act as it stood on the date of the petition read :

'186. Power of court to order meeting to be called. - (1) If for any reason it is impracticable to call a meeting of a company, Other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting. -

(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit, and

(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles :

Explanation. - The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) Any meeting called, held and conducting accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted.' The prayer made by the appellant in the petition filed by him is very restricted. He has only prayed for the appointment of an advocate as the chairman of the proposed meeting and for a direction to the company to make all the necessary books and records available to the advocate appointed as chairman to facilitate the holding of the meeting. There is no prayer for ordering a meeting of the company to be called. The question is whether, on the facts and in the circumstances of this case, the relief prayed for can be called in such manner as the court thinks fit.

7. It is not disputed that in Civil Suit No. T.S. 146 of 1974, on the file of the court of the Fifth Munsiff, Howrah, an order of temporary injunction has been passed restraining the company from 'holding the annual general meeting or any general meeting on September 30, 1974, or any other date' until further orders from that court and it was served on the company on November 22, 1974. The said order is still in force. The board of directors was, therefore, right in stating that it could not call a general meeting as per the requisition of the appellant and some others. It may be that, as stated on behalf of the appellant, a situation has arisen on account of the said order of temporary injunction making it 'impracticable' to call a meeting of the company, because neither the board of directors nor the requisitionists who have the knowledge of the order served on the company can call a general meeting as rule 5 of Order 39 of the Code of Civil Procedure makes the said order binding on all members and officers of the company. In these circumstances the appellant should have requested the court to order a meeting of the company to be called and to give such ancillary or consequential directions as may be necessary in the circumstances of the case because a meeting called in obedience to an order of this court under section 186(1) would not have company from calling a general meeting. The appellant has not requested the court to order a meeting to be called but has only prevented the company from calling a general meeting. The appellant has not requested the court to order a meeting to be called but has only prayed for the appointment of an advocate as chairman of a meeting called by him and other requisitionists in contravention of the order of temporary injunction. In these circumstances, we think that no court can give any relief which would have the effect of violating an order of another court which is in force unless it has the power to annul or modify the said order. The appellant cannot also be permitted to amend his prayer suitably now because the power under section 186 is exercisable after February 1, 1975, by the Company Law Board and not by the court by virtue of the amendment of the Act by the Companies (Amendment) Act. 1974 (41 if 1974). In fact, no application for such a relief has been filed before us either. As the requisitionists are prevented by an order of court from calling the meeting itself, the question of appointing a chairman and securing the registers and records of the company for that purpose does not arise. We are, therefore, of the view that this appeal has to fail.

8. In view of the foregoing, we do not propose to express any view on the correctness of the finding of the learned single judge that the petition filed by the appellant lacks bona fides. For the same reason, we do not express any opinion on the preliminary objections raised on behalf of the company regarding the maintainability of the appeal, viz., (i) that section 4 of the Karnataka High Court Act, 1961, is unconstitutional, and (ii) that Act, in the absence of an express provision in the Act. We, however, observe that the constitutionality of section 4 of the Karnataka High Court Act, 1961, has been upheld by a Full Bench of this court in Writ Appeal No. 35 of 1973, and the appeal filed against the order of the Full Bench is still pending before the Supreme Court. We do not also consider it necessary to decide the question whether a meeting can be held in this case after the expiry of three months from the date of deposit of requisition in view of section 169(7) of the Act.

9. In the result, this appeal fails and is dismissed. There shall, however, be no order as to costs.


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