TMI Blog2022 (5) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... e consent of 56 shareholders constituting 13.21% of the total number of shareholders of the Company holding about 20% of the paid-up capital to file this company petition under Section 241-242 of the Companies Act, 2013. The consenters are aware that their consent is for the purpose of filing a petition before this Tribunal questioning the action taken by the Respondents. Hence, the consent provided by the shareholders to the Petitioner for filing a petition is sufficient and the same can be accepted. In view of the above facts, the Petitioner is eligible to file a Company Petition under Section 241-242 of the Companies Act, 2013. Whether the removal of the Petitioner from the Directorship is illegal? - HELD THAT:- On reading of Section 169 of the Companies Act, 2013, which deals with the removal of Directors, shows that to remove a director from the Company, the Company has to comply with the procedure under Section 169 of the Companies Act, 2013. As per Section 169(2) a special notice is required to remove a Director under this Section or to appoint somebody in place of a Director so removed, at a meeting at which he is removed. The Company shall forthwith send a copy thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 242 unless the removal was oppressive or prejudicial. Petition dismissed. - CP/16/KOB/2020 - - - Dated:- 21-4-2022 - Hon ble Mr. Ashok Kumar Borah, Member ( Judicial ) And Hon ble Mr. Anil Kumar. B, Member ( Technical ) For the Appellant : Sukumar Nainan Oommen, Sherry Samuel Oommen and Nidhi Jacob, Advocates For the Respondents : Philip Mathew, Jomy George, P. Thomas Geeverghese, G. Muralikrishnan and Abraham George Jacob, Advocates ORDER Per : Ashok Kumar Borah, Member (J) 1. The present Company Petition bearing No. CP/16/KOB/2020 has been filed under Sections 98, 169, 241 and 242 of the Companies Act, 2013, by Mookada Moosa Mujeeb Rahiman (hereinafter called as Petitioner ) against Respondents M/s. Saw Mill Owners Service Enterprises Limited Others, seeking the following reliefs: i. Issue an Order declaring the proceedings at the impugned EGM held at 11.00 hours on 03.03.2020 at Y's Mens Club Hall, Vallam, Rayonpuram, Perumbavoor to be illegal and in contravention of Article 72 (2) read with Article 75 (iv) (b) of the Articles of Association and Section 102 (1) (a) and (b) and 169(3) of the Act as well as Articles 110 read with Articles 112 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 10th Respondent RoC; vii. Issue an Order quashing and setting aside Annexure 21 with regard to the appointment of 11th Respondent as Managing Director of the Company; viii. Issue an Order quashing and setting aside any changes that may have been made by the 12th, 13th, and 14th Respondents in the signatories to the accounts of the Company in their respective branches on or after 19.05.2020; ix. Issue an Order to the 1st Respondent Company and to the Petitioner, the Managing Director of the Company, under Section 98 of the Act, to hold an Extraordinary General Meeting under the supervision of this Tribunal to reconstitute if required, the Board of Directors of the Company. 2. The brief facts of the case are as under:- 3. The Petitioner is a shareholder of the 1st Respondent Company (Company) holding 17566 shares. He was appointed as the Managing Director (MD) of the Company by the Board of Director son 29.08.2019. The appointment was subsequently ratified by the shareholders at the 26thAnnual General Meeting (AGM) held on 30.09.2019, for a period of five years with effect from 29.09.2019. The Petitioner has filed this Company Petition on behalf of himse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner and Mr. Poly Thomas, Mr. Sadhiq Thacharukudy Pareed, Mr. Basheer Koottayi Abdul Rahiman, Mr. Salim Karimpanackal Veeran, Mr. Sulaiman Karavathukudy Kochahamed, and Mr. Babu Saidaly as Directors, for want of confidence in them; and the appointment of the 2nd to 8th Respondents as Directors in their place. 6. It is stated that the Board considered the real intention behind the special notice was to run the management of the Company by few families and to further the business interests of a few individuals at the costs of the Company. Since the Board was of the unanimous opinion that the nominees proposed in place of the existing Directors would not inspire confidence in the shareholders. It was unanimously resolved to reject the Special Notice 1 for removal of the Petitioner and the said Directors as Directors of the Company and the Special Notice 2 on the appointment of the 2nd to 8th Respondents as Directors. The Board circulated its decision to the signatories to the said letter and to all shareholders. It is also stated that 61.2% of the shareholders expressed their confidence in the Board. 7. It is stated that as a matter of abundant caution, the Petitioner and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition is the right of the shareholders/Petitioners represented herein to permit the Petitioner and six other Petitioners/Directors/shareholders, who have been elected as Directors of the Company at 24th AGM held on 28.09.2017, 25th AGM held on 29.09.2018, and 26th AGM held on 30.09.2019, to continue in their office as Directors for the terms for which they have been duly elected. There is abuse of power by a minority of shareholders, actuated by personal animosity, to disturb the management of the Company by removal of the Petitioner and the said Directors and to induct their persons with doubtful integrity, whose interests are in conflict with the interests of the Company. Submissions by the Respondents 1 and 11 10. The Respondents 1 and 11 filed their reply statement and stated that the Company Petition has been filed as a composite petition under Sections 98, 169, 241 and 242 of the Companies Act, 2013. The requisite pleadings for seeking reliefs under Sections 98, 169, 241 and 242 of the Companies Act, 2013 are absent in the Company Petition and on that ground alone, the Company Petition is liable to be dismissed. The Petitioner in the Company petition who holds 1756 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Munsiff Court, Perumbavoor and the claim not raised in the said suit is now barred by Order II Rule 2, Civil Procedure Code, 1908. Since the petitioner failed to avail his opportunity to make representation in writing as contemplated under Section 169(4) of the Companies Act, 2013, he is estopped from challenging the decision of the shareholders to remove him from the Board of the Company which the shareholders have taken in the best interests of the Company and in their best commercial wisdom. 12. The Extraordinary General Meeting was conducted by the Requisitionists by complying with the requirements under the Companies Act, 2013, particularly Section 100 to 104 of the Companies Act, 2013 and Companies (Management and Administration) Rules, 2014, particularly Rules 17 and 18. Only special notice as required under Section 169(2) r/w Section 115 of the Companies Act, 2013 is required in respect of the resolutions dealing with the removal of the directors. There is no need to have an explanatory statement as required under Section 102 of the Companies Act, 2013 as in the case of a General Meeting convened by the Company by virtue of Rule 17(5) of the companies(Management a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voor by filing O.S. No. 33/2020 and failed to obtain any favourable orders for staying the EGM held on 03.03.2020. When the Petitioner failed in his attempt, he changed his venue and forum and is gambling before Tribunal through this Company Petition. It is further stated that there is no need to disclose the reason by the Requisitionists for removing a Director in the special notice issued for removing a Director, as contented by the petitioner. The issue is now well settled by the judgement of the Constitution Bench of the Hon'ble Supreme Court in the decision reported in LIC of India vs. Escorts Ltd. and Others (1986(1) SCC 264). 16. These Respondents have also followed the contention raised by Respondents 1 11. Hence, to avoid repetition we do not recapitulate here. Submissions by the Respondent Nos: 3, 6, 7 and 8 17. The Respondents 3, 6, 7 and 8 filed their reply statement and stated that the provisions by which the Company Petition filed are different in nature and procedure, and requires different sets of documents, for obtaining the relief. They are applicable to separate causes of actions, which cannot be jointed together into a single petition. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le concept is legally unsustainable. Directors of the company hold their position at the pleasure of the shareholders. It is well settled principle of law that Directors are Agents of the company, and general principles of agency govern the relationship of directors with the company' . Agency can be terminated by the principal, at any time, notwithstanding the period for which an agency is created. So, a director can also be similarly removed unceremoniously by the shareholders of the company, before the expiry of period of appointment. Therefore, the concept of legitimate expectation, contractual violation etc. alleged by the Petitioner will not stand. 21. It is stated that the Respondents were engaging in expanding the company, rather than declaring profits for bribing the shareholders, just before an EGM seeking petitioner's removal. These respondents acted ethically, and for the welfare of the company, rather than using the company for personal gains. It is also stated that there is no family, group or cartel trying to control the company. Majority of shareholders were dissatisfied with the functioning, attitude and arrogance of the petitioner, and it caused his remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le this company petition under Section 241-242 of the Companies Act, 2013. The consenters are aware that their consent is for the purpose of filing a petition before this Tribunal questioning the action taken by the Respondents. Hence, the consent provided by the shareholders to the Petitioner for filing a petition is sufficient and the same can be accepted. In view of the above facts the Petitioner is eligible to file a Company Petition under Section 241-242 of the Companies Act, 2013. 24. Issue number 2:- With regard to the issue framed, we have gone through Section 169 of the Companies Act, 2013, which deals with the removal of Directors. Section 169: Removal of directors. 169. (1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard: [Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard:] [Provided further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Director under this Section or to appoint somebody in place of a Director so removed, at a meeting at which he is removed. The Company shall forthwith send a copy thereof to the Director concerned, and the Director shall be entitled to be heard on the resolution at the meeting. 26. In this respect we have gone through Annexure-9 submitted by the Petitioner himself which are special notices dated 19.12.2019 sent by the 2nd, 5th 6th Respondents along with 34 other Shareholders to the Board of Directors for convening an Extraordinary General Meeting of the shareholders of the 1st Respondent Company, with a Resolution proposing the removal of Petitioner/Director of 1st Respondent Company and appointment of the 2nd to 8th Respondents as Directors of the Company in their place by complying with Section 100 of the Companies Act 2013. 27. With respect to special notice, it is profitable to quote Section 100 of the Companies Act, 2013 which reads:- Section 100: Calling of extraordinary general meeting. 100(1): The Board may, whenever it deems fit, call an extraordinary general meeting of the company. [Provided that an extraordinary general meeting of the company, oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord or the adjective valid in section 169 has no reference to the object of the requisition but rather to the requirements in that section itself. If these requirements indicated in the earlier part of the section are satisfied, then the requisition deposited with the company must be regarded as a valid requisition on which the directors of a company must act. However, in B. Sivaraman and Others vs Egmore Benefit Society Ltd.[ (1992) 75 Com Cases 198, 221, 224 (Mad)]the point of validity of requisition and remedies available thereof was discussed. It was held that The word valid provided in this sub-section clearly indicates that the requisition which was made must be valid and lawful. In other words, such a requisition was for consideration of a resolution which would amount per se to a valid requisition; otherwise, it would clearly mean that the directors were not required to call a meeting. May be true that the word valid , adopted in this section, has no reference to the object of the requisition but rather to the requirements in that section itself. Therefore, it is clear that what is required to be seen is whether the requisition deposited with the first respondent was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from calling-a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under Section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every director, the managing agent if any, the secretaries and treasurers, if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting. The Life Insurance Corporation of India, as a shareholder of Escorts Limited, has the same right as every shareholder to call an extraordinary general meeting of the company for the purpose of moving a resolution to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact, the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition, it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. But CPM himself invited trouble, by declaring an all-out war, which led to his removal from Directorship 16.47 But it must be remembered that the origin of just and equitable clause is to be traced to the Law of Partnership which has developed, according to the House of Lords, the conceptions of probity, good faith and mutual confidence . Having said that, Ebrahimi pointed out that the reference to quasi partnerships or in-substance partnerships is also confusing for the reason that though the parties may have been partners in their 'Purvashrama', they had become co-members of a company accepting new obligations in law. Therefore, a company, however small, however domestic, is a company and not a partnership or even a quasi-partnership . 17.17. It is significa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a court normally would not give a declaration that the contract subsists and the employee, even after having been removed from service can be deemed to be in service against the will and consent of the employer. This rule, however, is subject to three well recognised exceptions - (i) where a public servant is sought to be removed from service in contravention of the provisions of Article 311 of the Constitution of India; (ii) where a worker is sought to be reinstated on being dismissed under the Industrial Law; and (iii) where a statutory body acts in breach or violation of the mandatory provisions of the statute. 17.20 The position in law that a contract of personal services cannot be enforced by Court is a long-standing principle of law and cannot be displaced by the existence of any implied power, though none is shown in the present case. This is described as the Principle of Legality:- As statutes are not enacted in a vacuum, it is assumed that long standing principles of constitutional law and administrative law are not displaced by use of merely general words. This is styled as the principle of legality. In the words of SIR JOHN ROMILLY: The general words of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find any oppression and mismanagement in the Company, while doing so. 35. To sum up, after analysing the issues framed, we are of the considered opinion that one of the crucial rights which Companies Act, 2013 gives to the shareholders is the right to remove the Directors of the Company, if they are not acting in consonance with the Articles of Association of the Company, but only utilizing their powers for their benefits. Therefore, the said removal of the Petitioner from the Directorship is not an illegal act done against the Petitioner and the Petitioner failed to prove any continuing oppressive acts on the part of the Company or its management. Hence this Tribunal cannot hold that the removal of the Petitioner is an oppressive act, in view of the dictum laid down in the TATA Consultancy Services Limited (Supra). 36. Even though we found that the Petitioner is eligible to maintain Company Petition on behalf of the other shareholders with their consent, we do not find any reason to allow the Company Petition and grant any relief to the Petitioner as sought for, since the issues number 2 and 3 framed above have been negatived. The Company Petition No. 16/KOB/2020 being bere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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