TMI Blog1993 (4) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... , partly allowing the prayer for temporary injunction in I.A.I. under Order 39, rules 1 and 2 read with section 151 of the Civil Procedure Code. Since the appeals involve common questions of facts and law, they are disposed of by the following common judgment. The facts giving rise to these appeals are as under : The Karnataka Bank Ltd. is a well known banking institution and it is registered under the Companies Act, 1956. The board of directors in its meeting on September 16, 1992, decided to hold the sixty-eighth annual general meeting of the Karnataka Bank Ltd. on October 29, 1992, and accordingly issued notices to all the shareholders. The appellant has despatched the annual report for 1991-92 and notice convening the sixty-eighth annual general meeting to be held on October 29, 1992, to the shareholders between September 25, and October 3, 1992. On October 3, 1992, one of the shareholders, Sri B. Narayana Somayaji, gave notice to the secretary, the Karnataka Bank Ltd. (hereinafter referred to as "the bank"), under section 190 of the Companies Act, 1956, of his intention to move three resolutions as ordinary resolutions under section 284 of the Companies Act, 1956 (herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who had issued notices of their intention to move the resolutions for the removal of Sri Datar and two other directors for the reliefs of (1) declaration that the general meeting notice dated September 16, 1992, of the first defendant-company and the special notice under section 284 issued by the second defendant on October 3, 1992, and the special notice issued by the third defendant under section 284 served on October 19, 1992, are bad in law and void ab initio , (2) permanent injunction restraining the first defendant from conducting the annual general meeting on October 29, 1992, in pursuance of the notices for general meeting dated September 16, 1992, and (3) restraining the first defendant from allowing to move the resolutions proposed to be moved by the special notices of defendants Nos. 2 and 3, and (4) permanent injunction against defendants Nos. 2 and 3 from moving the resolutions as per the special notices issued by them dated October 3, 1992, and another notice received on October 19, 1992, as published in the Udayavani on October 19, 1992, respectively. Original Suit No. 6843 of 1992 is a suit filed by Dr. K. Ravishankar Adiga, another director of the bank, for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e resolution though not confirmed was made to appear that it was confirmed. As the resolution is not confirmed by the board of directors, the bank has no right to incorporate the same in the general meeting and the notice issued is illegal and not in accordance with company law and the first defendant-company has no right to hold a general meeting on October 29, 1992. The special notices issued by defendants Nos. 2 and 3 under section 284 were not moved before issuing notices for general meeting to enable the bank to incorporate the same in the notice of the general meeting. After collecting the proxies from various shareholders giving them various hopes including sanctioning of loans to them through the branch managers, the chairman-cum-managing director set up defendants Nos. 2 and 3 to issue notices to move the resolutions stated above. The first defendant purposely did not send the notices to the individual shareholders and only published the notice in Udayavani newspaper even though there was sufficient time to send the notice to all the shareholders as contemplated under section 190(2) of the Act of 1956. The special notice itself is not in accordance with law and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit by way of objections to I.A.I filed by the plaintiff-applicant. He has stated in the affidavit as follows: The relief sought in the application is misconceived and the application is vexatious, groundless, untenable and is liable to be rejected. There is inordinate delay in approaching the court. The applicant was notified on October 3, 1992, that the first defendant had received a special notice from defendant No. 2 to the effect that a resolution would be moved at the annual general meeting to be held on October 29, 1992, to remove him from the office of director of the bank under section 284 of the Companies Act. A similar notice was received by the bank on October 13, 1992, and it was communicated to the plaintiff by registered post on October 15, 1992. The applicant has filed the suit on October 27, 1992, after a delay of 23 days without any proper explanation. The allegations have been levelled against the chairman of the first defendant-bank without making him a party to the suit and these allegations are untenable and false and are meant to prejudice the mind of the court. The proposal of the two members to move the resolutions to remove the directors is legal. The w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the meeting. It was impracticable to give individual notices of the special notice to all the members in the instant case and, therefore, the first defendant bank got published an advertisement in Udayavani , a Kannada daily of Manipal, dated October 19, 1992, and one issue of Indian Express dated October 21, 1992. The Udayavani newspaper has a wide circulation in the whole of Karnataka and particularly in Dakshina Kannada where the registered office of the first defendant-bank is situated. Therefore, the contentions relating to the legality of the same have no substance. On the question of balance of convenience, the order of injunction will seriously and prejudicially affect the first defendant bank. The first defendant-bank has over 26,000 shareholders and for convening a general body meeting, it has to spend over Rs. 1 lakh. The shareholders come from different places and all the preparations for holding the meeting on October 29, 1992, have been completed. The plaintiff-applicant, though notified of the resolution as long ago as October 3, 1992, took no action till October 27, 1992. The balance of convenience lies in favour of the defendants as the delay has not been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... futed the allegations of misuse of funds, etc., levelled against him. As per the documents placed on record, it is to be noticed that Sri B. Narayana Somayaji, the second respondent in these appeals, had filed O.S. No. 212 of 1992 against the appellant-bank in the Court of the Civil Judge, Mangalore, and had obtained an interim injunction to consider the notice dated October 3, 1992, issued by him and to allow him to move the resolutions mentioned in the said notice at the sixty-eighth annual general meeting to be held on October 29, 1992, or consider the same in the adjourned meeting if the annual general meeting is not held on October 29, 1992. This order is passed on October 22, 1992. The third respondent, Sri Krishna Holla, filed O.S. No. 1309 of 1992, on the file of the Principal Munsiff, Mangalore, against the present appellant and obtained an interim order directing it to transact the entire business of the sixty-eighth annual general meeting scheduled to be held on October 29, 1992, as published in the notice under section 190 of the Companies Act and the authorities concerned in strict adherence to the rules and procedure in conducting the meeting as envisaged. One S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other director in his place pending disposal of the suit. This order was passed on November 11, 1992. In respect of the interim application arising out of Dr. Ravishankar Adiga's suit in O.S. No. 6843 of 1992 out of which M.F.A. No. 2386 of 1992 arises, the lower court held on all the contentions raised by the plaintiff in his favour and went a step further in awarding relief to him by ordering that the appellant bank shall not give effect to the resolutions of the general body meeting held on October 29, 1992, in respect of removal of Dr. Ravishankar Adiga from the office of directorship and appointing any other director in his place and further ordering that all the directors who were on the board before October 29, 1992, should be continued as directors of the appellant-bank and preventing the bank from giving effect to the resolutions passed in the general body meeting in respect of items 8 and 9 in the agenda of the sixty-eighth annual general meeting. In passing these impugned orders in the suits filed by Sri A.B. Datar and Dr. Ravishankar Adiga, the lower court held that the provisions of section 188 of the Companies Act were applicable to the special notice in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act and the observations and findings of the trial court in that behalf are stated to be incorrect. With regard to the minutes of the meeting, it is submitted that the board of directors of the appellant resolved on September 16, 1992, to increase the strength of the board from 8 to 11 and an extract of the minutes of that meeting duly signed by the chairman is maintained in accordance with the provisions of the Companies Act and there is no need to ratify those minutes in the next meeting as contended and the contention of the respondents that the decision of the board dated September 16, 1992, is not confirmed and, therefore, the inclusion of the item in the agenda is illegal is untenable. It is also contended that the findings with regard to prima facie case, balance of convenience and the resultant irreparable injury are all unsustainable. The appellant also submitted that the trial court was not right in granting the relief by restoring status quo ante as on October 29, 1992, in respect of all the members that constituted the board of directors. It was submitted that the court exceeded its jurisdiction in granting the relief in those terms as it affected persons who were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director required reasons to be given and such reasons had not been admittedly mentioned and that the appellant's notice for holding the annual general meeting on October 29, 1992, was based on the board of directors meeting held on September 16, 1992, and the minutes of that meeting had not been confirmed in the subsequent meeting and, therefore, the meeting called without such confirmation was contended to be illegal and learned counsel for the respondent-plaintiff submitted that the lower court had power to correct its own mistake and in the instant case the trial court had chosen to set right the mistake committed by it in the order passed in B.R. Shetty's suit. Referring to the articles of association, learned counsel submitted that under article 23 the bank had to comply with the provisions of sections 165 to 167, 169, 171 to 191 and 193 of the Act in the calling and conduct of meetings and under article 28 subject to the provisions of section 188 of the Companies Act, members' resolutions shall be circulated to the members of the bank entitled to receive notice of the next annual general meeting and in view of the express provisions contained in the Companies Act in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision and, therefore, it has no right of appeal. It is also contended that the impugned order is one passed under section 151 of the Civil Procedure Code, and, therefore, there is no right of appeal to the appellant-bank. No doubt the respondents-plaintiffs filed the suit and sought the interim order for preventing the bank from holding the sixty-eighth annual general meeting scheduled for October 29, 1992, and for preventing the respondents, Sri Narayana Somayaji and Sri Krishna Holla, from moving the resolutions for removing the directors. Since the meeting had been held and Sri Datar and Dr. Ravishankar Adiga had been removed from the directorship, the court had passed the orders restoring them to their positions of directorship and, therefore, these orders are stated to be not appealable and the bank not being an aggrieved party is not competent to maintain the appeals. The board of directors is the executive body of the bank and the bank which consists of a large number of shareholders elects the executive body of the board of directors. The board of directors being the executive organ of the company acts on behalf of each and every shareholder constituting the corporate en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled by giving not less than twenty-one days' notice in writing. Section 173(1)( a ) states that for the purposes of that section in the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exception of business relating to ( i ) the consideration of the accounts, balance-sheet and the reports of the board of directors and auditors, ( ii ) the declaration of a dividend, ( iii ) the appointment of directors in the place of those retiring, and ( iv ) the appointment of and the fixing of the remuneration of the auditors. Section 190(1) of the Companies Act states that where, by any provision contained in the Companies Act or in the articles, special notice is required of any resolution, notice of the intention to move the resolution shall be given to the company not less than 14 days before the meeting at which it is to be moved, exclusive of the day on which the notice is served or deemed to be served and the day of the meeting. Section 188 deals with circulation of members' resolutions. No provision of the Companies Act requiring confirmation of the decisions of the previous meeting is brought to the notice of the court. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legally done at the first. If the first was a legal vestry the election thereat was legal. However, confirmation of the minutes as an accurate record of the decisions made at the previous meeting is usually obtained by submitting them to the chairman of the next meeting for signature. If they have not been previously circulated he will ask the secretary to read them, and, if the meeting confirms (usually on a show of hands) that they are a correct record, he will sign them. If they have previously been circulated, he will sign them without their being read out if the meeting so agrees. The chairman who signs the minutes at the next meeting need not necessarily have been present at the meeting of which the minutes are a record. His action in signing them is merely to record that they are a correct record of the business transacted." It is, therefore, apparent that the confirmation of the minutes reflects an accurate record of the decisions made at the previous meeting and there is no law requiring confirmation of the same in the subsequent meeting. In that view the contention of the respondents that the notice issued without confirmation of the minutes of the meeting held on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case [1988] 63 Comp Cas 310 (Bom), the court considered section 53(2)( b )( i ) of the Companies Act in respect of notice of a meeting deemed to be served at the expiration of forty-eight hours after the posting of the letter of notice and held that where notices for a meeting to be held on September 21, 1987, were posted on August 31, 1987, and September 1, 1987, they could be deemed to have been received on September 2, and 3, 1987, respectively, and the members, therefore, could not be held to have had twenty-one days' clear notice of the meeting. In the instant case special notices issued by Sri B. Narayana Somayaji and Sri Krishna Holla were published in Udayavani, a Kannada newspaper, dated October 19, 1992, and the Indian Express issue, dated October 21, 1992. Under section 190(2) of the Companies Act, the company shall, immediately after the notice of the intention to move any such resolution as referred to in section 190(1) has been received by it, give its members notice of the resolution in the same manner as it gives notice of the meeting or if that is not practicable, shall give them notice thereof either by advertisement in a newspaper having an appropriate circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to members and had kept quiet without taking any action and that it was awaiting a second notice from Sri Krishna Holla is without any basis. The inference drawn in this behalf prima facie does not appear to be justifiable. These are the practical difficulties obvious from the affidavit filed on behalf of the appellant-bank to justify circulation by advertisement in the newspaper of the notices of respondents Nos. 2 and 3 for removal of the directors under section 284 of the Companies Act. The appellant contended that section 284 of the Companies Act, 1956, is a self-contained code and an individual shareholder can issue a notice thereunder intimating his intention to move a resolution for removal of a director and it is open to a shareholder to take advantage of the provisions in section 284 in a meeting called by the company itself and as such the resolution to be moved for the removal of directors under section 284 of the Companies Act is not subject to the provisions of section 188 of the Companies Act. In this behalf the lower court in the order passed in Sri B.R. Shetty's suit in O.S. No. 6840 of 1992 held that section 284 of the Companies Act is not subject to sections 188 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be moved at an annual general meeting or at any other meeting, after circulation to members in each case, of the text of the proposed resolution with explanatory statement, if any, not exceeding one thousand words, in respect of the resolution or other business. It may be noted that it does not in any way affect the right of members to move any resolutions at an annual general meeting or other meeting which can properly be moved at such meeting. The object of the section is to confer on shareholders an important right to give, through the company machinery, publicity among all the members of the company for resolutions which they intend to propose or for statements which they want to make at the annual general meeting. Unless one or more shareholders satisfy the requirements of subsection (2) they have no right to move any resolution, ordinary or special, at an annual general meeting or at any extraordinary general meeting or insist on the company including such resolution in the agenda for the meeting, Pedley v. Inland Waterways Association Ltd. [1977] 1 All ER 209; [1978] Tax LR 2218 (Ch D). According to this decision, resolutions requiring special notice under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement shall be circulated to members of the company entitled to have notice of the meeting sent to them, by serving a copy of the resolution or statement on each member in any manner permitted for service of notice of the meeting ; and notice of any such resolution shall be given to any other member of the company by giving notice of the general effect of the resolution in any manner permitted for giving him notice of meetings of the company: Provided that the copy shall be served, or notice of the effect of the resolution shall be given, as the case may be, in the same manner and, so far as practicable, at the same time as notice of the meeting, and where it is not practicable for it to be served or given at that time, it shall be served or given as soon as practicable thereafter. (4) A company shall not be bound under this section to give notice of any resolution or to circulate any statement unless ( a )a copy of the requisition signed by the requisitionist (or two or more copies which between them contain the signatures of all the requisitionists) is deposited at the registered office of the company ( i )in the case of a requisition requiring notice of a resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, whether or not he is subject to retirement under an age limit by virtue of the articles or otherwise: Provided further that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 265 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation. (2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed. (3) On receipt of a notice of resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting. (4) Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arative view of the two sections shows that section 284 is an independent provision providing for removal of directors and it is available for any shareholder for moving a resolution for removal of a director in meetings called by the company and there is nothing to insist on compliance with the provisions in section 188(2) to call a meeting to move a resolution as urged. Therefore, prima facie the view of the law to be taken having regard to the provisions of the two sections would be to hold that section 284 of the Companies Act is not subject to section 188 of the Companies Act and it is independent of that section. The same view is also taken in Gopal Vyas ' case [1990] 68 Comp Cas 516 ; AIR 1990 Cal 45. Section 9 of the Companies Act provides that the provisions of the Act shall have an overriding effect on the memorandum or articles of a company. Therefore, despite the submission that the articles of the appellant-company make section 188 of the Companies Act applicable to circulation of members' resolutions prima facie, the finding recorded by the trial court with regard to non-applicability of section 188 to the special notice under section 284 of the Companies Act in B. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismiss the directorate and appoint others in their place, or alter the articles so as to restrict the powers of the directors for the future. Gower himself recognises that the analogy of the Legislature and the executive in relation to the members in general meeting and the directors of a company is an over-simplification and states 'to some extent a more exact analogy would be the division of powers between the Federal and the State Legislature under a Federal Constitution.' As already noticed, the only effective way the members in general meeting can exercise their control over the Directorate in a democratic manner is to alter the articles so as to restrict the powers of the directors for the future or to dismiss the Directorate and appoint others in their place. The holders of the majority of the stock of a corporation have the power to appoint, by election, directors of their choice and the power to regulate them by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another. Again in Bentley-Stevens v. Jones [1974] 2 All ER 653 (HL), it was held that a shareholder had a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting in accordance with the provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every director, the managing agent if any, the secretaries and treasurers if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting. The Life Insurance Corporation of India, as a shareholder of Escorts Limited, has the same right as every shareholder to call an extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om mala fides and bad faith. The trial court on the basis of these allegations has proceeded to hold that there is great force in this submission and observed that if the shareholders had been informed of such resolutions earlier in the notice of the annual general meeting, they would not have issued proxies and, therefore, the trial court has proceeded to find against the chairman-cum-managing director of the appellant-bank on the basis of the contentions so raised. In the first place, it is to be seen that the chairman-cum-managing director, Sri Rama Rao, in his counter-affidavit has denied his alleged complicity in collecting proxies through branch managers by promising loans to shareholders. This part of the material has been wholly lost sight of by the lower court. On page 184 of Shackleton on the Law and Practice of Meetings , 7th Edition, it is observed as under: "A proxy can be revoked. The most sure way in which a member may revoke a proxy is to attend and vote in person: It was held that there was nothing in the articles of a company to deprive a shareholder who was present at a meeting of the right to vote in person, even though he had given a proxy to some other pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that unless the appellant makes amends for contempt committed by it, it should not be heard to prosecute the appeals and it should be asked to make amends for the same. In this behalf, the respondents cited the decision in Hadkinson v. Hadhinson [1952] 2 All ER 567. In this decision, the headnote reads as under: "On a petition by a wife for the dissolution of her marriage, a decree nisi was granted, and it was directed that the child of the marriage should remain in the custody of its mother, but that he should not be removed out of the jurisdiction without the sanction of the court. On the decree being made absolute, the mother remarried, and without the sanction of the court she removed the child to Australia. On a summons by the father an order was made directing the mother to return the child within the jurisdiction. On an appeal by the mother against the order, the father objected that, as she was in contempt, she was not entitled to be heard. Held, it was the plain and unqualified obligation of every person against, or in respect of, whom an order was made by a court of competent jurisdiction to obey it unless and until it was discharged, and disobedience of such an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently made against him. A plaintiff in contempt has been allowed to prosecute his action when the defendant had not applied to stay the proceedings. Even in cases where the rule is prima facie applicable, the court appears to retain a discretion whether or not to hear the party in contempt, and may in its discretion refuse to hear a party only on those occasions when his contempt impedes the course of justice and there is no other effective way of enforcing his obedience." The contention on behalf of the respondents-plaintiffs is that the appellant-bank has disobeyed the order of the court. The respondents contend that the appellant-bank held the annual general meeting in contravention of the order of the Munsiff's Court at Holenarasipur. It is, therefore, obvious that the contempt complained is of the order of the Court of the Munsiff at Holenarasipur. The suit filed by Iyanna in Original Suit No. 204 of 1992, on the file of the Munsiff's Court at Holenarasipur is a separate suit and the question of consideration of contempt of the order of that court does not arise in the appeals before this court, as there is no allegation of disobedience of any order made in the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit in the argument that the appellant is guilty of contempt of court. If there is any breach of the order committed by the appellant as alleged, the remedy is available to the respondents-plaintiffs to invoke the provisions under Order 39, rule 2A of the Civil Procedure Code, that too before the court in which the alleged breach of the order has taken place and not before this court. With this observation the contention that the appellant is guilty of contempt and that it should be prevented from prosecuting the appeals is rejected. Points Nos. 6 and 7. The trial court is aware of its order dated November 13, 1992, that it cannot pass orders in respect of persons who are not parties before it. Despite knowing this position in law, the trial court, by passing the impugned order in the suit filed by Dr. Ravishankar Adiga, has restored all the directors working on the board as constituted on October 29, 1992, on which date the annual general meeting took place, to the position held by them on that day. By so doing, it has negatived the intention of the appellant-company as to the persons to whom its management should be entrusted. It is stated that some of the directors who were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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