K. Meenakshi Amma vs Sreerama Vilas Press and Publications (P.) Ltd. and Others

K. John Mathew, J.—This is an application for declaring that the election of directors and managing director of Sreerama Vilas Press and Publications (P.) Ltd. (hereinafter referred to as "the company") held on March 10, 1990, is illegal, void and inoperative. The applicant is a shareholder of the company. The company was ordered to be wound up-by order dated November 4, 1976. Subsequently, by an order dated March 19, 1985, this court approved a scheme for the revival of the company. As per the said order, the board of directors as on the date of the winding up petition was revived. Subsequent to that order, a general body meeting of the company was held on April 19, 1985, in which a new board of directors was elected. Subsequently, another general body meeting of the company was held on February 25, 1986, in which meeting a resolution was passed removing one of the directors, N. Madhavan Nair, who was the managing director of the company. Thereupon, he filed Application No. 63 of 1986 before this court on February 25, 1986, for a declaration that the resolution removing him was invalid. He also filed another petition for stay of operation of the said resolution, as Application No. 64 of 1986. An order of interim stay was passed on March 3, 1986.

By the time those petitions came up for hearing, the period of appointment of the managing director and board of directors of the company had expired. Therefore, this court, without going into the merits of those applications, directed a fresh election to the post of managing director and members of the board of directors. This court appointed advocate Shri V. A. Mohammed as the chairman to convene a general body meeting of the company for the purpose of conducting the elections. The court-appointed chairman convened a meeting on June 30, 1986, in which the said N. Madhavan Nair was again elected as the managing director.

Meanwhile, a misfeasance application was filed as Application No. 59 of 1986 against the said N. Madhavan Nair. By order dated January 13, 1989, this court directed him to pay to the company a total amount of Rs. 44,550. Against that order, an appeal, M. F. A. No. 174 of 1989, and a cross-appeal are pending.

After the meeting convened by the court appointed chairman, Shri V. A. Mohammed, in which the said Madhavan Nair was elected for a second time as managing director, only one meeting of the board of directors was held. The last date for convening the next meeting was January 29, 1988. Two of the shareholders of the company sent a requisition to the board of directors u/s 169 of the Companies Act, on December 31, 1988, requesting to convene an extraordinary general body meeting of the company. However, the managing director did not convene any meeting. Another director of the company filed a suit as O. S. No. 394 of 1989 praying for an injunction restraining the requisitionists from holding an extraordinary general body meeting. Although an interim order of injunction was passed by the Munsiff Court, that order was stayed by the district judge in C. M. A. No. 22 of 1989. That order was again challenged before this court in C. R. P. No. 861 of 1989.

The extraordinary general body meeting convened as per the requisition elected 5 directors. They authorised two of the directors to look after the day-to-day administration and management of the company. A report to that effect was filed in the company court on April 6, 1989. An application was also moved before this court to allow the newly elected board of directors to function.

When these matters came up for hearing, this court suggested that the disputes can be settled by convening a general body meeting so that further steps for revival of the company can be speeded up. One of the directors, R. Narayanan Nair, agreed that, for the time being, he will meet the expenses of the meeting. Thereafter, this court, as per order dated October 30, 1989, appointed Sri A. T. James, an advocate of this court as Chairman/Commissioner to convene a general body meeting of the company for the purpose of electing a managing director and members of the board of directors. By another order dated January 24, 1990, this court ordered that the general body meeting may be held at Hotel Shaw International at Kollam on March 10, 1990, and fixed the number of directors to be elected as four. When notices of the meeting were issued, the former managing director submitted an application as Application No. 187 of 1990 to stop the convening of the meeting. That application was dismissed by this court.

The meeting was held on March 10, 1990. Out of the shareholders of the company, six were present in person and three by proxy at the general body meeting. Those nine members together held 2,630 shares out of 4,689 shares held by the present total number of members, viz., 15. Originally, there were 17 members of whom two persons died. But those shares are not assigned to any member. In the meeting, the managing director and other directors were elected. A report to that effect was filed in court on March 22, 1990, by the court-appointed chairman. On this application, this court directed the impleadment of the newly elected directors. Another application was filed as Application No. 254 of 1990 for an order of stay of further proceedings pursuant to the election, till the disposal of Application No. 253 of 1990. That was dismissed by this court. The appeal filed against the order as M. F. A. No. 322 of 1990 was dismissed on June 18, 1990, with certain directions.

In Application No. 255 of 1990, five grounds are raised, viz., (1) the explanatory statement as contemplated u/s 173(2) of the Companies Act was not annexed to the notice convening the meeting, (2) along with the notice, the names of the candidates for election were not furnished, (3) since individual notices to the members of the company regarding the candidature of a person were not sent, Section 257(1A) of the Companies Act is violated, (4) this court has no jurisdiction to convene an extraordinary general body meeting, and (5) the petitioner reliably understood that the meeting was not held as notified in the notice.

Thus, the points to be decided are : (1) Whether the election of the directors is liable to be set aside since no proper explanatory statement was annexed to the notice ? (2) Whether the election is liable to be set aside on the ground that the names of the candidates were not furnished along with the notice ? (3) Is the meeting liable to be held invalid since the provisions of Section 257(1A) of the Companies Act were violated ? (4) Has the court jurisdiction to convene an extraordinary general body meeting of the company ? (5) Is the contention that the meeting was not held as notified true ?

Point No. 1 : According to the petitioner, the notice was not proper since no explanatory statement was annexed to the notice as required u/s 173(2) of the Companies Act. It is well-settled that if an explanatory statement was liable to be annexed to the notice and it was not annexed, the meeting will be a nullity (see Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 Comp Cas 377 SC).

The chairman appointed by this court filed report No. 1 dated November 10, 1989, seeking certain directions. By order dated November 15, 1989, this court directed that the meeting was to be held at Hotel Shaw International, Quilon, on Saturday January 13, 1990, at 1 p. m. Among other directions, there was a direction to the then managing director to furnish a list of members, articles of association and other necessary records to the chairman in order that he may issue proper notices to all the shareholders. When the chairman issued notice of the meeting to be held on March 10, 1990, the former managing director, N. Madhavan Nair, filed Application No. 187 of 1990 to stop the convening of the meeting on March 10, 1990. In the affidavit in support of that application, it was contended that the notice was violative of the provisions of sections 171, 173 and 257(1A) of the Companies Act. This court, by order dated March 8, 1990, held that, in view of clause 8 of the articles of the company; sections 171 and 173 will not apply in this case. The other objections were also overruled. This court also held that there was no infirmity in the notice issued by the chairman and the application was dismissed. The appeal in M. F. A. No. 333 of 1990 against the order in Application No. 187 of 1990 was dismissed by a Division Bench of this court observing that "it will be open to the appellant to urge various contentions including the contention regarding the order in Company Application No. 187 of 1990 in the course of trial of the main Application No. 253 of 1990". It may be observed that he has not, thereafter, challenged the validity of the notice. He was not impleaded as a respondent in this application (Application No. 253 of 1990).

Even so, the contention raised by the applicant in Application No. 253 of 1990 may be examined. According to the applicant, the notice was bad for not annexing a proper explanatory statement. The notice is as follows :

"Notice of general body meeting for the purpose of conducting election to the board of directors and the managing director of Sree Rama Vilasam Press and Publications (P.) Ltd., with its Registered Office, Main Road, Quilon-1, issued by Advocate Commissioner, A. T. James.

The Honourable High Court of Kerala, as per its order dated October 30, 1989, in C. P. No. 28 of 1984, has directed me to hold a general body meeting for the purpose of conducting an election to the board of directors and the managing director of Sree Rama Vilasam Press and Publications P. Ltd., Quilon. I am appointed as the chairman of the said meeting. The Honourable High Court, by its order dated November 15, 1989, in commission report No. 1 in C. P. No. 28 of 1984, further directed that the meeting is to be held for the above said purpose at Hotel Shaw International, Quilon, on Saturday January 13, 1990, at 1 p. m.

You, as a shareholder of the company, are hereby notified that the meeting of the shareholders of the company, Sree Rama Vilasam Press and Publications P. Ltd., will be held at Hotel Shaw International, Quilon, on Saturday January 13, 1990, at 1 p. m. for the said purpose. You are also requested to bring the necessary documents to prove your shareholding in the company for verification.

A. T. jAMBS, (Advocate-Commissioner/Chairman) 15-12-1989 Neethi Nikethan, Warriam Road, Cochin-16."

Clause 8 of the articles of association is as follows :

"Proceedings at general meetings :--

Fourteen days'' notice at least, specifying the place, the day and the hour of the general meeting and, in case of special business, the general nature of such business, shall be given to the members in the manner hereinafter mentioned or in such other manner as may be prescribed by the company in general meeting, but accidental omission to give such notice to, or non-receipt of such notice by, any member shall not invalidate the proceedings of the general meeting. A general meeting may, with the consent of all the members, be called on a shorter notice and, in such manner as the members think fit."

The company is a private limited company. It is not a subsidiary of a public company. Under Sub-section 1(ii) of Section 170 of the Companies Act, the provisions of Sections 171 - 186 shall, unless otherwise specified therein or unless the articles of the company otherwise provide, apply with respect to general meetings of a private company which is not a subsidiary of a public company. Article 8 of the articles provides for the period of notice required as well as the matters to be specified in the notice. It is also provided in article 8 that, in case of special business, "the general nature of such business shall be given to the members in the manner hereinafter mentioned, or in such other manner as may be prescribed by the company in general meeting". Therefore, there is a specific provision in that article regarding the notice of a general meeting where a special business is to be transacted. Since there is such a provision, Section 173, among other sections mentioned in Section 170, will not apply to this company. Moreover, the notice contains all material facts concerning the business that was to be transacted in the meeting, viz., election of managing director and other directors. The order to convene the meeting was passed after hearing all parties and the notice itself was approved by this court. The meeting was convened by the chairman appointed by this court and not by the company. Section 173 of the Companies Act is enacted for the protection of the shareholders so that the shareholders may not be duped by the management In Life Insurance Corporation of India Vs. Escorts Ltd. and Others, , at page 1423, para 100, : [1986] 59 Comp Cas 548, 636 . the Supreme Court held that the Life Insurance Corporation of India which was only a shareholder was not bound to disclose its reasons for moving the resolutions and that the duty was only on the management to disclose those facts.

The Calcutta High Court in Sitaram Jaipuria and Others Vs. Banwarilal Jaipuria, , held that provisions like Section 173(2) should not be construed in a rigid manner and that the interpretation should not be made so as to hamper the conduct of business. It was also held that the notice must be understood in a commonsense business way and so long as that standard was satisfied, the court should not be astute to find legal and technical points to defeat the notice and the explanatory statement.

Points Nos. 2 and 3. -- Names of the candidates not furnished along with the notice : No provision either in the Companies Act or in the articles of the company was brought to my notice requiring a candidate who proposes to stand for election as a director to intimate the company about it before the holding of the meeting. There is also no provision requiring the company to intimate the names of the candidates to the shareholders. In para 25 of the counter-affidavit filed by the third respondent, it is stated that all the 15 shareholders of the company belonged to the same family and are known to each other.

Learned counsel for the applicant submitted that, u/s 257(1A), the company was bound to inform its members of the names of the persons who propose to stand for the election to the Board. Section 257 of the Companies Act is as follows :

"257. Right of persons other than retiring directors to stand for director-ship.--(1) A person who is not a retiring director shall, subject to the provisions of this Act, be eligible for appointment to the office of director at any general meeting, if he or some member intending to propose him has, not less than fourteen days before the meeting, left at the office of the company a notice in writing under his hand signifying his candidature for the office of director or the intention of such member to propose him as a candidate for that office, as the case may be.

(1A) The company shall inform its members of the candidature of a person for the office of director or the intention of a member to propose such person as a candidate for that office, by serving individual notices on the members not less than seven days before the meeting :

Provided that it shall not be necessary for the company to serve individual notices upon the members as aforesaid if the company advertises such candidature or intention not less than seven days before the meeting in at least two newspapers circulating in the place where the registered office of the company is located, of which one is published in the English language and the other in the regional language of that place.

(2) Sub-section (1) shall not apply to a private company unless it is a subsidiary of a public company."

Sub-section (1A) refers to the "company". That can only mean the company mentioned in Sub-section (1). Sub-section (1) shall not apply to a private company unless it is a subsidiary of a public company. Sub-section (1A) was incorporated in the Companies Act by Amendment Act 65 of 1960. That sub-section applies only to "the company" mentioned in Sub-section (1). Thus, Sub-section (1A) is really a proviso to Sub-section (1) of Section 257. It has no independent existence. Therefore, the provision in Sub-section (2) to the effect that Sub-section (1) shall not apply to a private company applies to both subsections (1) and (1A). (See also the observation made in the Companies Act by A. Ramaiya, 11th edition, page 783 to the effect that Sub-section (1A) has to be read as a continuation of Sub-section (1)). Thus, there is no merit in this contention also.

Point No. 4.--According to learned counsel for the applicant, the court has no jurisdiction to convene an extraordinary general meeting of a company. Such a contention is raised on the basis of Section 188 of the Companies Act. Section 186 as it originally stood empowered the court to order a meeting to be called. By Section 14 of Act 41 of 1974, the word "court" was substituted by the words "Company Law Board" with effect from February 1, 1975. It is highly doubtful whether the power of the court to exercise control over any extraordinary general meeting of a company in respect of which a proceeding is pending in the court is taken away by this amendment. The High Court of Delhi in Dinekar Rai D. Desai v. R. P. Bhasin [1986] 60 Comp Cas 14, held that the court had such power. I am in respectful agreement with this view. In this case, the court is supervising a scheme approved by this court by order dated March 19, 1985, for the revival of the company. In any view of the case, the power of a court supervising a scheme sanctioned u/s 392(1) to call a general meeting of the company is not taken away by Section 186 of the Companies Act (see Indian Hardware Industries Ltd. v. S. K. Gupta [1981] 51 Comp Cas 51). u/s 392, the court has power to supervise the carrying out of the revival scheme. Therefore, in the course of implementation of the scheme, if the court is of the view that an extraordinary general meeting of the company is to be held in order to elect a new board of directors, the court has the power to do so. That power u/s 392 is not in any way affected or circumscribed by Section 186 of the Companies Act. In this case, on an earlier occasion, an extraordinary general meeting of the company was held on June 30, 1986, as ordered by this court under the chairmanship of an advocate-chairman appointed by this court. As stated above, in the general body meeting of the company held on February 25, 1986, a resolution was passed removing the managing director of the company, N. Madhavan Nair. He filed Application No. 63 of 1986 for a declaration that the resolution removing him was invalid. By the time that petition came up for hearing, his term had expired. Therefore, this court, without going into the merits of that application, directed a fresh election by holding a general body meeting under the chairmanship of a court-appointed chairman. It was under those circumstances that the meeting of June 30, 1986, of the company was held. There was a Misfeasance Application No. 59 of 1986 against the managing director, N. Madhavan Nair. On December 31, 1988, two of the shareholders of the company sent a requisition to the board of directors u/s 169 of the Companies Act requesting it to convene an extraordinary general body meeting. The managing director did not convene any such meeting. One of the directors filed a suit, 0. S. No. 394 of 1989, for an injunction to restrain the requisitionists from holding such a meeting. Even though an order of interim injunction was granted by the trial court, that was stayed in appeal and the extraordinary general body meeting was held in which five directors were elected. An application was also moved before this court to allow the newly elected board of directors to function. When all these matters came up before this court, the court suggested that the disputes can be settled by convening another general body meeting so that further steps for revival of the company can be speeded up. It was under those circumstances that this court passed an order dated December 30, 1989, appointing an advocate-chairman to convene a general body meeting of the company for the purpose of electing a managing director and members of the board of directors. From this, it is quite clear that this court was exercising its power u/s 392 of the Companies Act to enforce the revival scheme. The court had jurisdiction to convene the meeting.

Point No. 5.-The contention that the meeting was not held as notified is without any merit. In fact, such a contention was not urged at the time of arguments. The records show that the meeting was actually held as noti fied.

It may also be observed that the newly elected board of directors have taken charge as per the directions of this court. Learned counsel for the additional third respondent has raised several other grounds also in the counter-affidavit filed in this application. I do not think that it is necessary to go into the other contentions, although they had been also urged before this court at the time of arguments.

There is no merit in this application. It is, accordingly, dismissed.