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2016 (6) TMI 185 - COMPANY LAW BOARD NEW DELHI

2016 (6) TMI 185 - COMPANY LAW BOARD NEW DELHI - TMI - Quorum for meeting - whether for convening general meeting by holding even single shareholder presence is deemed to constitute meeting as envisaged u/s 186 of Companies Act, 1956 - Held that:- records of R-1 Company were throughout being maintained in Lucknow, R-2 says, it is incomprehensible to him as 10 how the records which were earlier maintained at Lucknow have been suddenly shifted to Delhi just before convening a board meeting. It is .....

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change of venue and request for supply of material information connected to agenda items as a ground to invoke jurisdiction u/s 186 of the Act 1956, hence this petition is liable to be dismissed precisely when the respondents are agreeable to attend the meetings.

In the light of the ratio decided in R. Rangachari v S. Suppiah by Supreme Court [1975 (9) TMI 75 - SUPREME COURT OF INDIA ], to pass an order under section 186, it is binding on this Bench to see that there must be impracti .....

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. R-2 and his group admittedly have 34,67% shareholding; of course R-2 alleged in the CP 140/2014, that his group had 42.38% holding in P-1 before their shareholding was reduced. If Section 186 is invoked just by being coasted on the allegations in the petition, by ignoring other shareholders reservations to attend general meeting, it will amount to bulldozing the rights of the shareholders. This situation can't he extended to say that whenever shareholders absent to any meeting that will become .....

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t : Mr. Vivek Kohli, Ms Anubha Singh, Mr. Shwetank Tripathi, Advocates (for R2 to R4) ORDER The petitioners filed this CP 2/186/2015 against R-1 Company and other respondents for reliefs to direct R-1 Company to call, hold and conduct general meeting in such a manner as this Bench thinks fit u/s 186 of Companies Act, 1956 (herein referred as 'Act 1956') and for such other ancillary or consequential directions as this Bench thinks expedient for convening general meeting by holding even si .....

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-1 amounting 7.85% holding each. R-3 (Sanjay Kumar Singh) holds 292175 shares amounting 0.87% of the company. R-4 (Anil Kumar Singh) is another shareholder holding same 0.87% equivalent to the shares held by R-3. Now, P-1 Company and P-2 filed this CP asking reliefs as mentioned above. 3. Now the grievance is that R-2 has been avoiding attending board meetings on one or other excuse despite receipt of notices of every board meeting, which causes impairment to the growth of the company, P-2 had i .....

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To which, when R-2 replied that he was not agreeable to holding meeting at the registered office at New Delhi, if at all P-2 seeing any urgency to convene a meeting, he should convene it at Lucknow, and therefore, he could attend the board meeting, then the petitioner, on seeing such an obstinate stand from R-2, gave in to hold at Lucknow on 27.06.2015 instead of holding on 25.06.2015, for this also, R-2 raised an objection for convening meeting in the premises of VIL Ltd. i.e., P-1. For having .....

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17.07.2015, to convene a board meeting on 24.07.2015 at New Delhi to approve the agenda so provided and also to take a decision about an EGM proposed to be held on 25.08.2015, however R2 did not attend the same but sent an e-mail on 20.07.2015 raising various objections over the agenda of the meeting. On seeing R-2's objections, P-2 apprehended that R-2 was not interested in the growth and affairs of the company, for this reason alone, he has been, time and again, raising objections whenever .....

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ed to attend the board meeting vide its letter dated 20.07.2015 with baseless allegations. For having R-2 failed to attend the board meeting, R-1 communicated to P-1 on 03.08.2015 expressing the company's inability to hold EGM in terms of the provision of Section 100 of the Act, 2013. When R-1 Company expressed its inability to hold EGM on requisition, P1 being requisitionists, called the EGM in terms of Section 100(4) of the Act 2013 vide its letter dated 10.08.2015. To make it happen, P-1 .....

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ous matters which should be kept aside when it comes to the interest of the company. Since P-2 sent another letter to R-2 on 28.08.2015 regarding the notice of board meeting to be held on 30.08.2015, R-2 via e-mail dated 29.08.2015, asked queries about holding board meeting. Then, P-2 replied that every query would be clarified and discussed provided R-2 attends to the board meeting. To avoid attending board meetings, R-2 again came up with a request to adjourn the board meeting schedule to be h .....

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y of the respondents. R-2 is aware of the fact that the company could not do anything unless he attends meetings and it could not hold even General meetings for there is a clause in the Article-23(2) saying no business shall be transacted at any general meeting unless quorum of five members is present at the time when the meeting proceeds to business. Because of this reason, though the petitioners are two shareholders in the company, they could not pass any resolution by passing article 23 of Ao .....

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fused and/or denied the request of the petitioners calling and holding Board Meetings but only asked for information which needs consideration in board meetings scheduled. Though R-2 sought for information, P-2 has devised a standard answer to it saying that his queries would he cleared in the meetings. He further submits that P-2 indulged in gross mismanagement in running R-1 company by embezzling funds of P1 Company behind the back of R-2. In fact, the conduct of P-2 slowed down the business o .....

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excess payment to a tune of ₹ 66 crores from R-1 to the EPC contractor in violation of the legal provisions. P-2, being the sole signatory, grossly misused his powers and took excess payment in the name of EPC contractor (P-1) in compression to the work done. On seeing such a gross mismanagement and embezzlement of the funds, R-2 wrote a letter on 17.06.2015 to the Deputy General Manager. SBI Project financial, Delhi, by explaining as to how P-2 mismanaged the funds of the company. Here, .....

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ght the information below from the petitioner regarding the agenda of the meeting proposed to be held on 30.08.2015, the information sought on 24.08.2015 is as below: (a) Agenda Item 2; for supply of audited annual account with all the annexure, directors report and audit report for review (b) Agenda Item 5; for deletion of Item No. 5 because it needs to be complied with the provision of clause 38A of the Article of Association of the Company before considering any declaration of dividend (c) Ag .....

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draft balance sheet of F.Y. 2014-2015-ledger of unsecured loan, ledger of works done, ledger of expenditure of work done, details of shares issued during the year, ledger of mobilization advance, ledger of advances towards works to VIL Ltd, copy of VAT Return. Details of IDS, Labour Cess & WCT deducted and paid, IE fee shown ₹ 36790085/-. However, as per CA concessionaire liability is maximum 1% of TPC i.e., ₹ 2.90 crores. 7. R-2 says that the aforesaid information has till date .....

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any ingredients of Section 186 of the Act, because the Section could be invoked only when calling meeting is impracticable, not otherwise. 8. R-2 submits that they are always ready and willing to attend any meeting provided the meetings are held at a place convenient to the Respondents and provide information that is for consideration in discussion of agenda items flagged up in the notices. P-2 always plays hide and seek, on one hand he refuses to provide information to R-2, on the other, P-2 ap .....

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ich were earlier maintained at Lucknow have been suddenly shifted to Delhi just before convening a board meeting. It is true that R-2 declined to hold board meetings in the premises of P-1, because disputes are on in between P-1 and R-2. For if the petitioners are ready and willing to hold any board meeting or general meeting by supplying information to the Respondents in relation to agenda items of respective notices, there can't be any impracticability for holding general meeting, the Resp .....

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186 as sought by the petitioners? 11. The petitioners submit that both of them hold about 90% shares in R-1 Company, but it is also an admitted fact that R-2 group, as on date, has 34.67% shareholding in P-1 as well, therefore, it can't hold out that as if P-2 alone has owned P-2 Company exclusively. 12. The case of the petitioners is that the company could not hold and conduct any general meeting for carrying the functions of the company for there being a hostile and obstructive attitude fr .....

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usiness transaction in the company. This is long and short of this petition for a relief u/s 186 of the AC, 1956. 13. The reply is that the Respondents are always ready and willing to attend the Board meetings and General meetings as well, provided information is given to them in relation to the Agenda items that appear in the Agenda notices. The respondents submit, P-2 keeps surprising the respondents with Agenda items without supplying any material to the Respondents. When such information is .....

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t R-2 is not cooperating for holding Board meetings and General meetings. The respondents submit, it is their legitimate request to hold meetings at Lucknow for both the directors arc residing at Lucknow and most of the records are lying at Lucknow. it is therefore incomprehensible as to why R-2 insists upon holding Board meetings at Delhi. 14. Though there are allegations and counter-allegations of embezzlement of funds and other points, now this Bench is not on the points other than the point .....

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levant material is supplied to the other side. It is the case of the respondents that they have not been supplied even audit report and other valuable documents that reflect the financial of the company. 15. It is not the case that the petitioners have exclusive control over the company; however R-2 says he has participatory role in P-1 Company as much as he has in R-1 Company, therefore, the petitioners cannot take the entire control to themselves and pass resolutions under the refuge of Sectio .....

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ed this CP for a direction to call, hold and conduct Board Meeting as the absence of the Respondents called for the direction above u/s 186 of the Companies Act, 1956. 16. To know what section 186 says is, it is essential for reading the section mentioned below: "186. Power of Company Law Board to order meeting to be called. (1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be ca .....

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thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles. Explanation.- The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) Any meeting called, held and conducted in accordance with any such order shall, for all .....

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lish Companies Act, 1948. The plain meaning of section 186 is that the court may order a meeting of the company to be called, held and conducted in such manner as the court thinks fit in any or more of the following contingencies. (i) If for any reason it is impracticable to call a meeting of the company other than an annual general meeting. (ii) if for any reason it is impracticable to hold the meeting of the company in the manner prescribed by the Act or the Articles. (iii) If for any reason i .....

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ng which has already been called without ordering a meeting of the company to be called in place of the meeting already called. If an order under clause (a) has been made such ancillary or consequential directions as the court thinks expedient could be given under clause (b) including a direction within the meaning of the explanation appended thereto. The language of sub-section (2) further fortifies the above interpretation of sub-section (1) and makes any meeting called, held and conducted in .....

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to call, or to hold or even to conduct the meeting, if at all any order is passed, it shall be for calling, holding and conducting board meeting. Here it is evident that the respondents are available to receive notice for meetings and R-2 has been receiving notices to all the meetings, to some he is attending and to some he conveys that he would attend on supply of information and on change of venue, to this extent, it can't be construed it is impracticable to call a meeting. When it is not .....

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full Bench, consciously held that an order under section 186 can't be passed unless it is impracticable to all the three contingencies existing, that is calling, holding and conducting meeting. Relief u/s 186 of the Act is a relief inconsistent and contradiction to the ethos of corporate democracy. This could be invoked only when all doors are closed to the company to function, especially when the shareholders' whereabouts are not known and when they have abandoned the company. There ar .....

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ifeless entity; it is shareholders who breathe life into it. Paramount interest of the company means collective interest of the shareholders, because the company is set up for the interest of the shareholders, and therefore it is important to see whether canvass of some out of these shareholders is for collective interest or for the interest of them alone. At times, it is challenging task to delineate collective interest of the shareholders and interest of a group of shareholders of the company. .....

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ndian Law. 22. The petitioner relied upon In re El Sombrero Ltd (1958) 3 W.L.R 349 (Chancery Division) to say that there is nothing to prevent the court intervening in a proper case and where Section 186 application before the court is opposed by other shareholders, when the respondents are failing to perform their statutory duty to call General Meeting. 23. In re El Sombrero Ltd, this company had three shareholders: one owned 90% of the shares, and the other two held 5% each. The minority share .....

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shareholders holding 5% each u/s 184 of the Companies Act, 1948 (English Act), no General Meeting of the company, including first AGM had never been held and no Annual Return had been filed. The respondents being aware of the fact once meeting was held they would be removed as directors of the company, they did not attend to any meeting stultifying the applicant's statutory powers which entitles the applicant to exercise u/s 184(1) of the English Act to remove the respondents as directors. 2 .....

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being aware of the fact that the inevitable result of convening and holding AGM would be that they would find that they had ceased to be directors. 26. The reasons for passing such an order is altogether different from the reasons the petitioner herein raised in this CP for passing relief u/s 186 of the Companies Act, 1956. Moreover, the relief granted in the case supra is for holding AGM not for EGM, hence the ratio decided in the case supra is not applicable to the present case. 27. The petiti .....

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er 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 he impracticable to call, hold and conduct an extraordinary general meeting of the company. Accordingly, in my .....

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e specified business. If no board meeting could be called, held or conducted for want of quorum or otherwise it is further directed that an extraordinary general meeting shall be held after proper notice to the shareholders to transact the business as contained in the requisition dated February 9, 1998, and that one member of the company present in person or by proxy shall be deemed to constitute a quorum at such meeting. In the circumstances, I do not propose to go into the merits of the other .....

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h by Supreme Court, to pass an order under section 186, it is binding on this Bench to see that there must be impracticability for calling, holding and conducting General Meeting, when there is no impracticability for calling meeting, it can't be said that an order could be passed for holding and conducting general meeting alone. Therefore, the reasoning given in Pucci Dante's case (supra) can't be applied in this cast. Here, the respondents categorically stated that they are ready a .....

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ituation can't he extended to say that whenever shareholders absent to any meeting that will become impracticable, so that court is at liberty to grant relief under section 186 of the Act, 1956, wiping the rights of the other shareholders. 30. This relief could only be passed in a case where it is impracticable to call even a meeting, in a situation like where shareholders addresses are not known to the company and their whereabout are not known to the company. But not in a case where shareh .....

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s 397/398 of the Companies Act, 1956. The reason for passing such an order is - only one director was left in the board, therefore, that order was passed reconciling the provisions of Section 403 r/w 186 and 169 of the Act, 1956, it is also said that the facts and circumstance of each case will determine the extent to which it is practicable to hold meeting of a company. In that case, the MD representing minority group captured the board of directors, thereby a situation of minority oppressing t .....

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, this application is filed u/s 186 solely on the ground holding meeting is impracticable, thereby an order u/s 186 r/w section 403 in the case supra can't be taken as guiding force to pass the same order in this case where the shareholders are very much present and they are ready for attending to general meeting. 33. The petitioner relied upon M/s. Renaissance JMW Energy Ventures (BIV) Ltd. v. M/S Renaissance JMW Energy India Pvt. Ltd. (CP No. 01/186/2015) to say that since this Bench has p .....

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eholder, this Bench passed an order invoking jurisdiction u/s 186 holding that the petitioner alone shall be deemed to constitute a meeting. Here other shareholders are very much present and available for attending the meeting henceforth; the ratio decided in the case above is not applicable to this case. 35. The petitioner relied upon LIC Corporation of India v. Escorts Ltd and Ors (AIR 1986 SC 1370) to say that even shareholder of the company has a right to call an EGM in accordance with the p .....

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relied upon In Re: Ruttonjee & co. Ltd. (AIR 1969 Cal 550) to say that section 186 cannot be invoked in the facts and circumstances the petitioners raised, to which, the respondents relied upon the para below: "40. It is manifest that the Mallya group wants to eliminate the Bhesania group from the Board altogether although at the inception it was solemnly agreed that two of the Bhesanias would be permanent directors. It may be that, if the two permanent directors were indulging in activ .....

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