TMI Blog1998 (7) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... st respondent and Mr. Faiz Mohammed, became the directors on incorporation of the company. The Government of India, Ministry of Industry, granted permission in favour of the company to obtain foreign equity participation from Italy, upon which, Pucci SRL of Italy subscribed to 9,00,000 equity shares of ₹ 10 each, accounting for 90 per cent, of the equity share capital. Pucci SRL is represented by the petitioner, being its president. Though the remaining 10 per cent, of equity share capital was held by the first respondent the amount for acquiring the shares in favour of the first respondent was advanced by Graziella Shoes Private Limited in which the petitioner is a director and investor. The first respondent is not the beneficial owner of 10 per cent, shares. Besides the share capital contributed by Pucci SRL, Pucci SRL advanced an amount of ₹ 4,14,06,228 by way of payments towards imports by the company and ₹ 1,19,72,000 by way of unsecured loans. In the circumstances, the petitioner alone has a stake in the company and neither has the first respondent nor Mr. Faiz Mohammed. The factory was commissioned at Vellore on March 28, 1996. The goods were exported to bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly and deliberately avoided attending the board meeting convened on February 20, 1998. As there was no quorum in the board meeting held on February 20, 1998, no business was transacted in respect of the requisition of Pucci SRL. Mr. Faiz Mohammed already ceased to be a director and relinquished his interest in respect of his 100 shares in favour of the petitioner. Consequently, the first respondent is only the other share holder and director, apart from the petitioner. Though the requisitionists themselves are empowered to convene an extraordinary general meeting it would be a futile exercise, especially when the first respondent, being the only other shareholder wilfully refuses to attend the meeting. It has become impracticable from a reasonable point of view to convene a meeting of the company compelling the petitioner to invoke the provisions of Section 186. The Company Law- Board must take a practical view of the matter. In this connection, counsel for the petitioner relied on the following decisions : (a) El Sombrero Ltd., In re [1958] 28 Comp Cas 619 ; [1958J 3 All ER 1 (Ch D) to state that : . . . the word 'impracticable' is more limited than the word 'i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt may, either on its own motion or on the application of a director or any member entitled to vote, order a meeting to be called, held and conducted in such a manner as the court thinks fit, and may direct a 'meeting' of one member. 4. While concluding his arguments, counsel for the petitioner urged that the petitioner need not exhaust his remedy under the provisions of Section 169, which is independent of Section 186. It is in these circumstances, he sought for suitable directions against the company to convene an extraordinary general meeting to transact the business specified in the requisition dated February 9, 1998, fixing the quorum as one member at such meeting. 5. According to the first respondent and his counsel, Shri R. Sankaranarayanan, the petitioner, first respondent and one Mr. Faiz Mohammed, are members of the company. Both the first respondent and Mr. Faiz Mohammed subscribed to 100 shares each at the time of subscribing to the memorandum of association. Mr. Faiz Mohammed has not transferred his shares and continues to be a member, who can attend the extraordinary general meeting of the company. The provisions of Section 186 can be invoked only whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The discretion granted under Section 186 should be used sparingly and with caution so that the court does not become either a shareholder or director of the company trying to participate in the internecine squabbles of the company. 3. The word 'impracticable' means impracticable from a reasonable point of view. 4. The court should take a common sense view of the matter and must act as a prudent man of business. 5. A prudent man of business has not a sensitive officious view of intervention in case of every rivalry between two groups of directors ; prudence demands that the court should ordinarily keep itself aloof from participating in quarrels of rival groups of directors or shareholders. 6. But where the meeting can be called only by the directors and there are serious doubts and controversy as to who are the directors or where there is a possibility that one or other or both the meetings called by the rival groups of directors may be invalid, the court ought not to expose the shareholders to uncertainties and should hold that a position has arisen which makes it 'impracticable' to convene a meeting in any manner in which meetings of the company may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Act or articles, the Company Law Board may, either on its own motion or on the application of any director of the company, or any member thereof entitled to vote at the meeting, direct calling of a meeting and give directions therefore. It is, therefore, clear that either a director or a member of the company entitled to vote at the meeting can file an application under Section 186. Secondly, it should be impracticable to call an extraordinary general meeting of the company. Unless these two conditions are met, no petition will lie under Section 186 of the Act. 10. There is no dispute as to whether the petitioner is a director of the company. The petitioner is admittedly one of the directors. Therefore, this question does not arise for consideration by this Bench. 11. With regard to the issue whether it is impracticable to call an extraordinary general meeting of the company, the relevant facts and circumstances of the case shall be looked into. Article 2 of the articles of association of the company provides that the regulations contained in Schedule I, Table A of the Act so far as applicable to the private company shall apply to the company. Regulation 48 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 6, 1996. In the meetings held on February 6, 1997, February 19, 1997 and April 2, 1997, among other things, the progress of the company was reviewed and the accounts for the year ended March 31, 1996, were approved. At the annual general meeting held on May 2, 1997, the annual accounts for the year ended March 51, 1996, were adopted, and the reappointment of the petitioner as director of the company was approved. Several contentious issues were discussed in the meeting held at the factory premises of the company on December 19, 1997. It is, therefore, apparent that the first respondent was regular in attending the meetings save the one which took place on February 20, 1998. According to the first respondent in the reply-affidavit, the petitioner had convened the board meeting on February 20, 1998, with a one-point programme of eliminating the former. Counsel for the first respondent further urged that item No. 1 of the requisition dated February 9, 1998, relating to restructuring of the management of the company is very vague, under which, the first respondent was to be eliminated. In this connection, it is contended by the petitioner that the first respondent stopped attending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There has been a serious deadlock in relation to the management of the company. In the circumstances, the larger interests of the company shall primarily be seen for removing the deadlock in the management of the company, as laid down in Ruttonjee and Co. Ltd., In re [1968] 2 Comp LJ 155 ; [1970] 40 Comp Cas 491 ; AIR 1969 Cal 551. 15. On the facts and circumstances of the present case, where there are serious disputes among the petitioner on the one hand and the first respondent as well as Mr. Faiz Mohammed on the other hand, the first respondent and Mr. Faiz Mohammed have an insignificant stake in the company when compared to the petitioner ; the requisition dated February 9, 1998, of Pucci SRL is under dispute and there is a serious deadlock in relation to the management of the company and also taking a reasonable, prudent and common sense view of the whole of the matter. I am satisfied that it may be impracticable to call, hold and conduct an extraordinary general meeting of the company. Accordingly, in my considered opinion, in the present case, there is need to exercise my discretion under Section 186. It is in these circumstances and in the light of the principles enuncia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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