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TMI Blog2003 (5) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... Plaintiffs and Defendant No. 1 from the erstwhile and original shareholders and promoters of Geetanjali Nursing Home Private Ltd. (Hospital for short). A Memorandum of Understanding dated 29-9-1992 was entered into between the Plaintiffs and Defendant No. 1 along with the promoters Dr. Chander Vir and Dr. Sheila Vir. Subsequently, Dr. Chander Vir and Dr. Sheila Vir transferred their shares in favour of Defendant Nos. 1 and 2 and a fresh agreement dated 3-8-1995 was entered into between the Plaintiffs and Defendant No. 1. The interpretation of the terms of this Agreement will be the fulcrum of the decision on the application. It is the Plaintiff's case that the Hospital has been running in accordance with the terms of the Agreement dated 3-8-1995 and the Plaintiffs have been appropriating the profession fee collected by them. The Plaintiffs asserted that they have a right to remain permanent Directors of the Hospital and to retain the working chambers in the Hospital and also to restrict new doctors from rendering consultancy from the Hospital. It is also the Plaintiff's case that while the Hospital was to be managed wholly and solely by Defendant No. 1 to the extent of making stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the informal atmosphere regarding the service of notice by hand and hence the Meeting of the Board of Directors without obtaining any signatures on the attendance sheet, particularly raised at the Meeting of the Board held on 5-11-2002." Predicated on this statement, Mr. Sudhanshu Batra, learned Counsel for the Plaintiffs, has submitted that all decisions of the Board have been rendered unenforceable and non est due to the violation of the mandatory statutory requirement of serving the notice of the meetings on the Plaintiffs. It is further averred that the Plaintiffs on inspecting the records of the Registrar of Companies learnt of the appointment of Defendant Nos. 3, 4 and 5 as Directors of the Hospital and the allotment of its share to them. 3. The gravamen of the defence to the suit centres on the overwhelming majority shareholding of Defendant Nos. 1 and 2, which has already been noted to extend to approximately 80%. Mr. Chaudhary has laboured to highlight that upon attaining 76% shares these Defendants could have passed not only special resolutions, but even those pertaining to the removal of any Director. It is also his submission that in these circumstances there would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire shareholding of Dr. Chander Vir and Dr. Sheila Vir, thereby increasing these Defendant's shareholding to 66% of the subscribed share capital. Clause 2 records the Defendant No. 1 would be the Chairman and Managing Director and the Plaintiff's "shall continue to be permanent Directors of the Company ....and shall have permanent working chambers in the hospital." Signifi- cantly, it was further agreed that the authorised capital would be raised to Rs. 55 lakhs and Defendant Nos. 1 and 2 and their associates "shall have 80% of the total shareholding or even more but not less than 76% at any given point of time." Thereafter there are covenants restricting new Doctors from practising in the Hospital as also the existing Doctors (including the Plaintiffs) from practising anywhere else. Clause 14A has been hand-written upon the Agreement but has admittedly been cancelled and scored out. It reads thus-"That no new directors would be inducted into the Board without unanimous decision of the Board." 6. At this stage of the litigation what must be inferred from the scoring out of the proposed holograph clause is that it was not agreed that persons could be taken on the Board of Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to disclose the reasons for the resolutions proposed to be moved at the meeting. Section 173(2) of the Companies Act, 1956, does not require the shareholder requisitioning a meeting to disclose the reasons for the resolutions which he proposes to move at the meeting." To my mind the balance must be found in strictly construing any agreement which has the consequence of severely curtailing the strength of the majority and giving effect to corporate democracy. We are dealing with financial issues here, and therefore the only safeguards that should be implemented are those statutorily articulated in the sundry provisions of the Companies Act. It would cause injustice if one loses sight of the sections prescribing the necessary percentage of votes required for the passing of any resolution. These categories are typified in section 189 which envisages ordinary resolution and special resolution respectively requiring a simple majority of votes cast, and votes in favour being "not less than three times the number of votes, if any, cast against the resolution." The Companies Act, in its pandect constituting Chapter VI of Part VI comprising sections 397 to 409 also protects the minority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht not to be glossed over is the fact that the Court considered it relevant that the Director who had not received the notice did not attend the meeting. Therefore, the infraction of the section can be regularised and legalised by the presence of the director and secondly that the repercussions of the infraction is only the imposition of a fine. At the present stage of the litigation, it would be wholly inappropriate for the Court to go into the allegation of failure to issue written notices of the meetings which have attained some antiquity. The plaintiffs have not objected to the meetings held earlier and it is possible to assume that the resolutions of the Board had their implicit, if not explicit, consent and approval. When issues pertaining to the past are raked up after the lapse of considerable time, I find it difficult to hold that a prima facie case has been disclosed and/or that the balance of convenience lies in favour of the Plaintiffs. This position would be altogether altered if the challenge is to the last meeting, of which none of the Plaintiffs had received notice and or to a future meeting. Of course the Plaintiffs may succeed in establishing the case at the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grievances. The answer in favour of the Plaintiff is to be found in the decision of his Lordship M. Jagannatha Rao in Avanthi Explosives (P.) Ltd. v. Principal Subordinate Judge, [1987] 62 Com. Cas. 301. His Lordship, while adorning the Bench of Andhra Pradesh High Court, had opined that the rule against interference by the Court with the internal management of the companies is not applicable to cases of infringement of individual membership rights as distinguished from corporate membership rights. It was further held that the general law of contract is the basis of the rights of parties and the Companies Act, 1956, merely regulates these rights and does not create any new rights or remedies. Unless there is an exclusion of the jurisdiction of the civil court, by words express or implied, a suit in respect of individual rights would not be excluded. In Maharaja Exports's case (supra) it was similarly held that the jurisdiction of the civil court is not excluded. 11. It has been contended on behalf of the Plaintiffs that the requisite quorum was not available in most of the previous meetings of the Board, as prescribed in section 287 of the Companies Act. It has been argued that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a prayer made after considerable delay. 14. The only argument which remains to be considered is whether certain members have been wrongly inducted on to the Board of Directors. It has been strongly emphasised that the Minutes pertaining to the Board Meeting held on 15-7-1998 state that "Chairman places before the Board papers received from Mrs. Raj Devi requesting the transfer of one share hold by her to one Ms. Meghna Mittal." It is not in dispute that Smt. Raj Devi died on 17-2-1993. I do not propose to go into the question of whether proper notice of the Meeting held on 14-7-1998 was given or not, for the reasons already outlined above. The transfer is of one share only to Ms. Meghna Mittal, Defendant No. 3, which seen in the backdrop of the Defendant Nos. 1 and 2 holding 80% shares, pales into insignificance. Counsel for the Plaintiffs has not shown that only a shareholder could have been appointed as a Director. I am mindful of that the presence of the Directors other than Defendant Nos. 1 and 2 would be critical to the latter's interests since they would not be in a position to pass any Resolutions without the consent of the Plaintiffs. There is also a possibility that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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