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TMI Blog1995 (5) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... ffer inspection of documents. Company Application No. 71 of 1995 relates to amendments to the main petition. 2. It is essential to record, in brief, the events which led to the filing of Company Application No. 59 of 1995. The petitioners filed the main petition Company Petition No. 23 of 1994 and the chairman of the Company Law Board sitting as a single member passed an interim order on June 15, 1994, restraining the company from transacting the business relating to the removal of the petitioners as directors of the company at the extraordinary general meeting convened June 20, 1994. This order was challenged in the High Court of Bombay and a single judge set aside the order of the Company Law Board on the ground that the constitution of a Bench for considering a Section 397/398 petition with a single member was not in accordance with the Company Law Board Regulations. However, he also passed an interim order that the decision of the extraordinary general meeting will not be implemented and that the petitioners would be permitted to participate in the board meeting but they will not represent themselves as directors on the board to conduct any work. The order of the single judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanatory statement, the company has simply reproduced the same without giving any additional very pertinent information that the petitioner, in the board meeting held on May 6, 1994, had stated that he was prepared to withdraw the said letter. His statement has been recorded in the minutes also. Secondly, according to Shri Devitre, a proper reading of the letter of April 25, 1994, would show that the purpose of writing the letter was only to give notice of withdrawing personal guarantees because the petitioners were against the company's financial mismanagement. He further stated that even though they had indicated that they desired to withdraw the personal guarantee to the tune of ₹ 1.51 crores, still personal guarantee to other financial institutions to the tune of ₹ 7.5 crores is still in force and this matter was not indicated in the explanatory statement. Further in the explanatory note, a statement has been made that this requisition was considered in the board meeting held on May 16, 1994, but the fact that the petitioners expressed their protest was not indicated in the explanatory note. 4. Shri Devitre narrated the sequences which culminated in the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] 41 Comp Gas 377 (Bom). He also stated that the respondents have not adduced any grounds against continuation of the petitioners as directors. Therefore, Shri Devitre pleaded that the impugned resolution may be declared void or in the alternative the implementation of the resolution may be stayed till the main petition is disposed of. 6. Shri Kapadia, senior advocate appearing on behalf of respondents Nos. 3 and 4, disputed the claim of the petitioners that the material facts had not been brought to the notice of the shareholders. According to him, the material facts are different from full particulars. Substantiating the stand of the company that the letter of April 25, 1994, written by the petitioner to the State Bank of India was against the interests of the company, Shri Kapadia, drew our attention to the said letter (exhibit R-88J) and stated that from the contents of the letter, two aspects are clear, i.e., the intention of the petitioner of dissociating from the company and its anti-company nature. He also drew our attention to the endorsement made thereon that copies of this letter have been endorsed to other top functionaries of the State Bank. He also stated that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner is only to somehow or other prevent the implementation of the resolution of the extraordinary general meeting. He further stated that the other objection of the petitioners that their protest in the board meeting should have been indicated in the explanatory statement, has no basis as it is immaterial inasmuch as, as per Section 169, the board was bound to call for an extraordinary general meeting when requisitioned and the protest in this regard by any of the members of the board had no bearing on the same. 8. In regard to staying the implementation of the resolution of the extraordinary general meeting, Shri Kapadia pointed out that under Section 397/398 of the Companies Act, it is only members' rights which could be agitated and not the directorial rights. On this aspect, he relied on Suresh Chandra Marwaha v. Lauls Private Ltd. [1978] 48.Comp Cas 110 (P & H), Suresh Kumar Sanghi v. Supreme Motors Lid, [1983] 54 Comp Cas 235 (Delhi), Nagavarapu Krishna Prasad v. Andhra Bank Ltd. [1983] 53 Comp Cas 73 (AP), Siddaramappa Bapurao Patil v. Ratna Cements (Yadwad) Ltd. [1991] 70 Comp Cas 27 (Kar) and Rao (V. M.) v. Rajeswari Ramakrishnan [1987] 61 Comp Cas 20 (Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were received by the petitioner on May 5, 1994, i.e., after they had written the impugned letter to the State Bank of India. Even otherwise it is not possible for the petitioner to presume that when the bank sanctioned enhanced credit facilities, the petitioner had been relieved from the earlier guarantee when two new directors gave the guarantee for the enhanced limit. Even it is recorded in the minutes of the board meeting held on May 16, 1994, that the State Bank of India had released the guarantee of the petitioners with retrospective effect from March 25, 1995. The petitioner had renewed the guarantee on October 6, 1993, in addition to extending the guarantee for ₹ 7.5 crores sanctioned by the IDBI for the capital project. Even the shares of the petitioner have been pledged with the IDBI. When the petitioner was withdrawing the guarantee of only ₹ 1.51 crores their guarantee for a larger amount of ₹ 7.5 crores was still subsisting and if this fact had been disclosed in the explanatory statement, the real import of the petitioner's letter to the State Bank of India would have been appreciated by the shareholders and as such this is a material fact which sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requisitionists have stated "the members of the company and the requisitionists in particular have lost faith in the two directors, namely, Mr. Vijay M. Porwal and Mr. Bhupat K. Shah, and are not satisfied with their holding office as directors of the company and, therefore, both of them be removed as directors of the company. As if what is stated above was not enough, Mr. Vijay M. Porwal and Mr. Bhupat K. Shah without any provocation in that behalf, addressed a very strange and anti-company letter No. TS/23, dated April 25, 1994, to the company's bankers, the State Bank of India, to the effect that the bank was not properly secured in relation to the credit facility granted to the company and also their intentions of dissociating with the company." 12. In the explanatory statement appended with the notice calling for the extraordinary general meeting by the company, the same reasons as indicated in the explanatory statement of the requisitionists has more or less been reproduced. The explanatory statement attached by the company also states that the notice of requisition by the shareholders had been considered by the board on May 16, 1994, and as required under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for their removal had been indicated in the notice of requisition. Escorts Ltd., in a writ before the Bombay High Court, contended that the notice was bad in as much as the notice did not contain any reasons for removal of directors in Escorts Ltd. v. Union of India [1985] 57 Comp Gas 241 (Bom). 15. In this case the Bombay High Court has said that when a meeting is requisitioned by some shareholders for the purpose of removing a director, the requisitionists must disclose the grounds on which they want to proceed against the director. This is necessary because the company has to inform the director before any of the resolutions to remove him is considered so as to enable him to exercise the statutory right of making a representation to the shareholders about the matter. The right of representation will be an empty formality if the proposed action does not inform the director concerned of the grounds on which he is sought to be removed since he will not know what representation he should make. Further, the court held that the notice of the meeting must be accompanied by a copy of the resolution and an explanatory statement. 16. This decision of the Bombay High Court was, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the meeting." 18. From the above decisions, it is explicit, that a shareholder requisitioning a meeting to transact special businesses like removal of directors etc. does not have to give any reasons nor any explanatory statement need to be attached. As per Section 169, the company has to call for an extraordinary general meeting to consider the resolutions proposed by the requisitionists failing which the requisitionists themselves can convene the meeting. The obligation of the company in a requisitioned meeting is to send a copy of the requisition along with the proposed resolution and if there is an explanatory statement with the notice, the same also has to be sent to the shareholders. In other words, the company itself is not bound to attach any explanatory statement inasmuch as the meeting has not been called by itself but only by the requisitionists and the company acts only as a medium to convene the meeting. In the present case we find that in the explanatory statement attached by the company, it has only reproduced the explanatory statement as given by the requisitionists and it has also complied with the provisions of Section 173(2) to indicate therein that some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were more than the votes cast against the resolutions. As far as the counting of votes relating to RCTC is concerned, the chairman's report covers that also. The final position that emerges, as per the chairman's report on the result of the votes polled in the extraordinary general meeting is that the resolutions removing the petitioners as directors had been passed by majority. Thus, we are unable to intervene on behalf of the petitioners in this matter. Accordingly, it is not necessary for us to continue with our order dated April 3, 1995, wherein we had directed the company not to implement the decision of the extraordinary general meeting and as such we vacate that order. 21. Regarding inspection of documents, it is the grievance of the petitioners that our order dated June 15, 1994, had not been complied with. Now that we have allowed the company to implement the decision of extraordinary general meeting removing the petitioners as directors, they will be only entitled to inspection of documents which they are entitled to as members and those which have been relied on by the respondents in their replies. Accordingly in modification of our order dated June 15, 1994, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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