TMI Blog1990 (4) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... lenge to the validity of the notice issued on December 8, 1989, by the president of the DDCA (defendant No. 2) for holding the annual general meeting on December 29, 1989. The challenge is based primarily on three contentions, namely, that immediately after the elections for the last year, which concluded on December 29, 1988, defendant No. 2, the president embarked upon to induct a large number of persons as members without compliance with the requirements, as laid down in the articles of association of the DDCA as also the relevant provisions of the Act which were applicable to this body by virtue of the provisions of section 25(2) read with section 9 of the Act and also without placing the matter before the executive committee, and that it was learnt by the plaintiffs that a large number of persons have been thus taken as members although it was decided in the meeting of the executive committee held on January 18, 1989, that the membership be increased by 500 and that apart from the fact that persons beyond this number have been reportedly taken as members, otherwise also no procedure as contemplated by the memorandum and articles of association has been adopted and in fact no s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd adopt the report of the president for the year ending March 31, 1989. 2.To elect office-bearers and members of the executive committee for the year 1989-90. 3.To appoint auditors for the year 1989-90 and to fix their remu nerations. It is contended on the basis of the notified agenda that it is apparent that the accounts for the financial year under consideration are not being placed before the annual general meeting which is violative of the provisions of section 166 of the Act, which enjoins upon every company that the annual accounts and balance-sheet along with profit and loss account be laid at every annual general meeting as per the requirement of section 210, so much so that contravention of these provisions makes the company and its directors liable to prosecution and that this requirement of placing the annual accounts of the company in the annual general meeting every year cannot be waived in any circumstances and that it was the requirement of law that these annual accounts have to be placed before the annual general meeting and not before any other meeting with the result that the agenda, as indicated by the notice, calling the annual general meeting would rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing held on December 4, 1989, a decision was taken to appoint an election officer for carrying out the election process for the annual general meeting of December 29, 1989, and Mr. M.S. Jaspal was thus appointed election officer with four persons to assist him whereas it was learnt subsequently that another person had been appointed as election officer without any meeting of the executive committee having been convened or any resolution by circulation having been passed and thus this appointment of the election officer is contrary to the rules. It is, therefore, contended that all the three items, as agenda for the annual general meeting, involve violation of the statutory provisions inasmuch as the report of the president is contrary to the provisions of section 217 of the Act which envisages that the annual report can only be the report of the board of directors (executive committee in the instant case) and that should be annexed to the annual accounts, and, secondly, a number of persons have been enrolled as new members with right to contest elections, as well as exercise voting rights, which act is also contrary to the provisions of the mandate of the law and, lastly, the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d without transacting any business till the disposal of the interim application. Thereafter, when the case was received in this court, Mr. Suman Kapur, advocate, appeared separately for defendant No. 3, Mr. Akash Lal, who is the vice-president of the DDCA, and sought time to file a separate written statement. It would be expedient to first take up the pleas taken up in this written statement singly by defendant No. 3. A perusal of the said written statement reveals that defendant No. 3 is confining his challenge primarily to the enrolment of members purported to have been finalised in the meeting held on November 29, 1989, the allegation being that no business was transacted in the said meeting of the executive committee for the reason that one of the members, Mr. S.C. Ladi, had raised an objection that he had not received a copy of the agenda and that this matter was then adjourned to December 4, 1989, and in this adjourned meeting, no decision regarding enrolment of members was taken. This defendant, therefore, alleges that the entire process of enrolment of 645 members was violative of the decision of the executive committee who had initially resolved to enrol 500 new member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legations made in the plaint and it is asserted that the applications were invited for enrolment as new members pursuant to a decision of the executive committee taken on January 8, 1989, and duly processed by the scrutiny committee that had been constituted by the executive committee on January 3, 1989, and that besides the fact that majority of the new members taken were relations or friends of one plaintiff or the other, with full particulars narrated in the written statement ; plaintiff No. 1, Mr. Sunil Dev, was a member of the scrutiny committee, and every application along with other three members of the scrutiny committee bears his signature by way of approval and that the imputation now being made against defendant No. 2 in this respect is wholly unfounded. The allegations made in the written statement of defendant No. 3 in this respect are also repudiated in the same manner by adding that the said defendant was himself the proposer or seconder for a number of applicants for membership including his own son and that earlier also in the years 1982 and 1984, when this defendant was an office-bearer, a number of new members were, enrolled by the same process, namely, on the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation and no sanction. The answer of the defendants to this allegation is total controversion by asserting that the applications were received during the course of the year to the full knowledge of the plaintiffs and, in fact, through them and in any case plaintiff No. 1, Sunil Dev being a member of the scrutiny committee was throughout associated with the processing of these applications and there was no question of their being put up during the course of the year before the executive committee because the applications were being received from time to time and it was in the fitness of things that they were kept together to be put up before the executive committee towards the end of the year. I have given my earnest thought to this controversy about the enrolment of new members and I am of the considered view that the fault being now found by the plaintiffs as well as defendant No. 3 is without any basis and that they themselves have been associated with the majority of persons whose applications for membership had been received and who were approved for being enrolled as members. The defendants have gone on record by specifically alleging, firstly, that the practice in the DD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to above that the applications were received in the following order : January, 1989 172 February, 1989 147 March, 1989 190 April, 1989 135 May, 1989 2 July, 1989 1 making a total of b47 out of which two were rejected as invalid and 645 applicants remained to be considered as having validly applied for membership and all of which applications passed through the hands of the members of the scrutiny committee, including plaintiff No. 1. There is also a resolution of the executive committee passed on November 29, 1989, which is to the following effect : "List of 645 members duly scrutinised by the scrutiny committee and recommended for enrolment as members was placed before the executive committee. It was also brought to the notice of the executive committee that, by an earlier resolution, it had been decided to enrol 500 members. However, if the recommendation of the scrutiny committee was to be accepted, the members of the association would be 3,500, which is the maximum allowed under the memorandum and articles of association. The executive committee decided to enrol 645 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears on each of these applications was not there when he signed, is of no consequence because when he signed the applications as member of the scrutiny committee, without -saying anything further, such as "to be rejected", the implication is that he approved the particular person for membership, besides the added fact that the other plaintiffs or defendant No. 3 were either proposers or seconders for a number of applicants. To say that their applications should have been placed before the executive committee does not sound to be a reasonable assertion for the reason that sub-committees like scrutiny committee in this case performed functions as delegate of the plenary committee, which is permissible under clause 12 of the articles. The plea that this item for enrolment of membership was taken on November 29, 1989, without any agenda also does not detract from the fact that a resolution was passed as a matter of fact in the said meeting. This is reflected in the minutes of this meeting recorded in the minutes book. I have gone through the original minutes book as well as the record of proceedings produced in the court in original. They have been found to be, on face of it, duly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee was also taken under the heading "Any other business" in the meeting held on January 3, 1989. This mode of conducting business is duly recognised by judicial decisions, one of which being the judgment of a Division Bench of this court in Smt. Abnash Kaur v. Lord Krishna Sugar Mills Ltd. [1974] 44 Comp Cas 390 , where it was held that the business of a company can be transacted even without a formal agenda. The same view was endorsed by the Division Bench of the Punjab and Haryana High Court in the case of Suresh Chandra Marwaha v. Lauls P. Ltd. [1978] 48 Comp Cas 110 , where it was specifically laid down that it is a well-known fact that every agenda of a meeting of a company has a residuary clause, " to consider any other matter with the permission of the chairman " , and that there is no provision for issuance of an agenda in the meeting of the board of directors, which would be the executive committee in the present case. It has also been held in a case of the Calcutta High Court reported as Joginder Singh Palta v. Time Travels P. Ltd. [1983] Tax LR 2487 ; [1984] 56 Comp Cas 103 , that even if there are certain irregularities committed, it would not be a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self becomes an indication that the rules or articles of association which are framed by way of internal management of a company were understood in that sense. In this view of the matter also, in view of the uncontroverted facts at this stage that in the year 1984 also, 500 members were taken on record only on the recommendation of the scrutiny committee when the applications passed through the hands only of two members of the scrutiny committee as against four in the current lot, and plaintiff No. 1 being a party to such endorsements on the applications during that year also, and there being no suggestion to a challenge having been made to that mode of enrolment, I do not think that the contention of the plaintiffs can, at this stage, be conceded while considering the application for an interlocutory order, which is disposed of on the basis of facts pleaded or submissions made at the Bar or during the course of hearing. The contention raised by Mr. Suman Kapur, appearing for defendant No. 3, that the resolution passed on January 3, 1989, constituting the scrutiny committee does not contain any indication that it was meant for enrolment of new members is very specious, on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Comp Cas 184 ; AIR 1983 SC 75, to the effect that a company cannot be considered as a proprietary body of the shareholders, though laying down very laudable principle, does not seem to be with all respect, having much relevance qua the present case for the reason that those observations were made on the facts of that case when the company happened to be a profit making company and it was then held that it existed not only for the benefit of the shareholders but also the workers consumers and other members of the community. I am, therefore, of the considered view that on this question of enrolment of new members the prayer of the plaintiffs for issuance of injunction order in respect of the annual general meeting cannot be entertained because their contention prima facie is not acceptable that the enrolment has been without the approval of the executive committee or in contravention of the provisions of clause 12 of the articles of association of the DDCA. The defendants have also explained prima facie the receipt of subscription with the membership fee by pleading that this was the normal practice and that like call money for shares this amount is always received with the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egular course, and there being no prima facie indication of the minutes being not genuinely recorded. I, therefore, find this allegation to be baseless, as it has been shown by the defendants that the requisite resolution approving the agenda for the annual general meeting as well as the President's report with the explanatory note about the accounts and guidelines was duly approved, and thus there has been no contravention of any of the provisions of the Act. A perusal of the notice dated December 8, 1989, also reveals that the agenda was very clearly notified and a note about the accounts being not presented has been appended containing the explanation that on account of a technical objection having been raised against the auditors, M/s. V.P. Batra, appointed for the current year in the last annual general meeting by the outgoing auditors, M/s. R.C. Dass Mathur and Co., the accounts could not be audited. It is also pleaded by the defendants that this matter had been brought to the notice of the Institute of Chartered Accountants and it is also now on record that the matter had been taken up with the Company Law Board. There is thus a prima facie satisfactory reason for the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prima facie sustainable for the reason that the relevant expression used is not "by ballot alone " (emphasis supplied) but only as " by ballot " and it thus cannot be argued at this stage that this notification is confined only to companies where polling is by ballot and would not cover companies where both the modes, namely, show of hands and ballot, are provided. Another challenge made by the plaintiffs is in respect of the change of election officer brought about, as per defendants, by resolution based on circular of December 5, 1989, whereby Lt. Col. M.S. Jaspal (Retd.) and others were replaced by Mr. M.S. Joshi, a retired judge of this court, to be assisted by Mr. R.D. Verma, Deputy Registrar of this court. The only contention in this respect is that the resolution purported to be by circulation was not in fact so, and thus in contravention of the provisions of section 289 of the Act inasmuch as it was never sent to the plaintiffs. The defendants have pleaded, on the other hand, that this resolution was passed by a majority of the members and was duly circulated. Before discussing further, I would first like to dispose of the contention of Mr. Kalra that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Newey ( India ) Holdings Ltd. [1981] 51 Comp Cas 743 ; AIR 1981 SC 1298, it is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without asking that person to submit to cross-examination and a total reliance on the written word involves the risk that the person accused of wrongful conduct is denied an opportunity to controvert the inference said to arise from the documents or affidavits. I may also passingly deal with the contention in relation to the proxies. Apart from the fact that there is no such challenge in the plaint, otherwise also I have found from the report of the election officer, Mr. justice M.S. Joshi that the proxies were received by him on the given dates and because of the suit having been filed and an interim order issued by this court, these were kept by him in safe custody with Mr. R.D. Verma, Deputy Registrar of this court after sealing the same. The fact therefore that forms of proxies may have been issued before the election officer came into the picture does not retain any significance because it is the proxies which had been received and which are to be used during the elect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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