Home Case Index All Cases Companies Law Companies Law + HC Companies Law - 2022 (3) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (3) TMI 1175 - BOMBAY HIGH COURTRestraint on shareholders of Zee Entertainment Enterprises Limited from calling for and holding an Extra Ordinary General Meeting - alleged illegalities in the resolutions proposed - Section 100(2)(a) of the Companies Act, 2013 - HELD THAT:- On a literal and plain reading of Sections 98 and 100, there are no discretion / power vested with the Board of a Company to sit in judgment over “any matter” for consideration of which the meeting is requisitioned. On a plain reading, the Board of a Company is mandatorily obliged to requisition a meeting if the requirements specified in sub-sections (2) and (3) of Section 100 are satisfied. Needless to state, whether or not the proposed requisition should be given effect to, is to be decided by the shareholders at the general meeting - the language used in the aforesaid Sections aid corporate democracy and protect the rights of shareholders. Section 100(4) in fact provides shareholders with an additional right to proceed to call for and hold an EGM despite an unwilling Board. This intent and object of the legislature cannot be ignored whilst construing the relevant provisions of the Act. The decision in Cricket Club of India vs. Madhav L. Apte [1974 (8) TMI 75 - HIGH COURT OF BOMBAY] applies squarely to the facts of this present case, where it was held that this Court has opined is that the word “valid” is restricted only to the satisfaction of the numerical and procedural requirements. Further, and more importantly, that the word or the adjective “valid” in Section 169 has no reference to the object of the requisition but rather to the requirements in that Section itself. Lastly and most importantly, that even if the requisition was illegal or invalid, the Board was still obliged to call for the meeting. Whether or not an Injunction could be passed against a shareholder restraining the holding of an EGM? - HELD THAT:- The Ld. Single Judge has restrained a shareholder of a Company from calling or holding an EGM. Such an injunction is in the teeth of the decision of the Supreme Court in LIC vs. Escorts [1985 (12) TMI 289 - SUPREME COURT] - the Ld. Single Judge could not have deviated from the law laid down by the Supreme Court in LIC vs. Escorts and proceeded to restrain a shareholder by way of an injunction from calling or holding an EGM. Consequences of interfering with Corporate Democracy - HELD THAT:- In the present case itself, the Appellants, being shareholders of Zee, have been unable to call for and hold an EGM despite the Requisition being addressed as early as on 11th September, 2021, i.e., over 6 months ago. For the past 6 months, the contesting parties have been arguing the alleged illegalities contained in the Requisition, whilst shareholders of Zee suffer an injunction - there are no precedent resulting in such drastic consequences derailing the democratic functioning of Companies across India owing to the non-cooperative and obstructive conduct of the Board of Directors. Jurisdiction - HELD THAT:- In the face of the absolute bar contained in Section 430, we cannot appreciate how the Ld. Single Judge could have granted the present injunction. The scheme of Sections 96 to 100 makes it clear that the subject of calling of a meeting of a Company has exhaustively been treated under them. So far as meetings of Companies other than Annual General Meetings are concerned, the law is governed by Section 98, which kicks in if it is for any reason “impracticable” to call such meeting. Section 100 gives a right to the requisitionists of an EGM to themselves call a meeting for consideration of the matter of their requisition, if the Board does not, within twentyone days, proceed to call a meeting. In the case on hand, as the facts have transpired, it is now clearly a case of the Appellants in the face of the Board’s stand vis-à-vis their Requisition, though they would be within their rights to call and hold the requisitioned EGM, it is impracticable for them to hold such meeting and accordingly, they pray for an order of the NCLT to do so under Section 98 - We do not see how such a matter would not fall within the purview of the NCLT and if it does, how a Civil Court could interfere by passing an order of injunction, which would have the effect of preventing the NCLT from considering the Appellants’ prayer. We find no credence on the reasoning based on the NCLT Rules or Schedule of Fees. Considering that the Impugned Judgment has in effect restrained a shareholder of a Company from calling for and holding an EGM, which injunction is in the teeth of the decision of the Supreme Court in LIC vs. Escorts, the appeal is allowed. Alleged illegalities in the proposed Resolutions - HELD THAT:- The law as prevalent in India does not entitle the Board of a Company to refuse a requisition calling for an EGM if such requisition satisfies the numerical and procedural requirements set-out under Section 100 of the Act - Zee takes advantage of its own wrong and argues that in the absence of such permission, the proposed resolutions are illegal and therefore, an injunction must be granted. This is another illustration as to why Courts must uphold corporate democracy and not indulge incumbent Boards in restricting the democratic functioning of Companies. The procedure for appointment of Independent Directors - HELD THAT:- The Requisition proposes the appointment of 6 persons as Independent Directors. To this, Mr. Chinoy objects by submitting that the provisions of the Act make detailed provisions which are mandatorily required to be followed for appointment of an Independent Director and these provisions make it clear that a member cannot propose himself or someone else for appointment as an Independent Director, merely by giving notice in writing of his candidature, or of his intent to propose another member as candidate for election as an Independent Director at the general meeting - In the present case, the proposed resolutions under the Requisition are to appoint ordinary Directors and not additional or alternate Directors. Therefore, from a reading of Sections 150(2) and 152(2), even in case of an Independent Director of a listed Company, the appointment will be made at the general meeting and not by the Board of Directors. The power given to shareholders of a Company by Section 160 and more importantly, the proviso thereto, cannot go unnoticed. In the teeth of the aforesaid provision, we cannot appreciate how the Ld. Single Judge agreed “on all counts” with Zee’s submission that “In the scheme of the Companies Act, shareholders do not get to choose individual independent directors.” - Section 160 does not make any distinction whatsoever between an Independent Director or otherwise. On a plain reading of Section 160, a shareholder of a Company clearly has the right to propose the appointment of an Independent Director. Zee’s submission cannot be accepeted by defeating corporate democracy and ignoring the safeguards provided to shareholders under Section 160 and 169 of the Act. Regulation 17 of the SEBI LODR - HELD THAT:- The expression “optimum combination” means the presence of one woman director and at least fifty percent of the Board of Directors shall comprise of non-executive Directors. Regulation 17 does not prescribe the maximum number of non-executive Directors but only the maximum number of executive Directors. Likewise, Section 149 of the Act provides that a listed company must have at least one-third of its Board comprising of Independent Directors. No other Regulation of the SEBI LODR or Section of the Act has been brought to our notice that prescribes a maximum number of Independent Directors. Thus, the proposed resolutions contained in the Requisition are neither illegal nor incapable of being lawfully implemented and consequently, set-aside all of the Ld. Single Judge’s findings in this regard on all counts. Appeal disposed off.
|