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1986 DIGILAW 259 (ORI)

S. N. CORPORATION LTD. v. UMAKANTA RATH

1986-07-16

P.C.MISRA

body1986
JUDGMENT : P.C. Misra, J. - This appeal has been preferred challenging the order passed by the learned Subordinate Judge, Dhenkanal in Misc. Case No. 60/85 arising out of Title Suit No. 48/85. Respondent No. 1 as Plaintiff filed the said suit for a declaration that the letter dated 18-7-1985 from Defendant No. 16 to the Chairman of the Board of Directors of the Appellant-Company for convening an extraordinary general body meeting was incompetent and therefore null and void. It has been also prayed to declare the notice of the extraordinary general body meeting dated 8-8-1985 issued by the Deputy Manager (Administration) of the Appellant-Company (Defendant No. 17) as null and void. The Plaintiff has also prayed for a further declaration that he is not liable to be removed from the office of the Director and the Managing Director before the expiry of his term of office and for permanent injunction against Defendants 1 to 15, 17 and 18 from holding any meeting of the extraordinary general body of the shareholders in pursuance of the aforesaid notice. Injunction was also sought for against all the Defendants from participating in or attending any such meeting if held at any place. An application under Order 39, Rules 1 and 2 read with Section 151 CPC was filed by the Plaintiff describing himself as the Petitioner and the Defendants as opp. parties (which was registered as Misc. Case No. 68/85) praying for temporary injunction to restrain opp. parties 1 to 16 and 18 not to hold any meeting of the extraordinary or general body of the shareholders and not to participate in or to attend any such meeting if held in pursuance of the notice dated 18-7-1985 issued by Defendant no, 16 and notice dated 8-8-1985 issued by Defendants 1 and 17 at Hotel Prachi at Bhubaneswar or anywhere else until disposal of the suit. 2. The opp. parties in the said Misc. case, who had filed an application u/s 148-A of the Code of Civil Procedure, filed their show cause denying the plaint allegations as well as the allegations made by the Plaintiff-Petitioner in the aforesaid Misc. case. The Plaintiff-Petitioner had filed a large number of documents to prima facie establish the allegations made in the application praying for injunction whereas the opp. parties also appended some documents in support of their plea. case. The Plaintiff-Petitioner had filed a large number of documents to prima facie establish the allegations made in the application praying for injunction whereas the opp. parties also appended some documents in support of their plea. No party appears to have led any oral evidence in the case. The Subordinate Judge after hearing the arguments advanced on behalf of both parties allowed the Misc. case by issuing an order of injunction against opp. parties 1 to 16 and 18 not to hold any meeting of the extraordinary or general body of the shareholders and not to participate in or to attend any such meeting if held in pursuance of the letter dated 18-7-1985 issued by the Defendant-opp. party No. 16 and notice dated 8-8-1985 issued by the opp. parties 1 and 17 at Hotel prachi at Bhubaneswar on 9-9-1985 or anywhere else until disposal of the suit. The said order was passed on 6th September, 1985 and this appeal was filed on 9-9-1985 along with the Misc. Case No. 372/85 to take up the I matter of admission and stay without the certified copy of the impugned order as the matter was very urgent and certified copy could not be obtained during the intervening holidays. The said prayer was allowed. Notice of admission and hearing was issued. But since Respondent No. 1 had already entered appearance in Court, further notice to Respondent No. 1 was not issued. The Appellant filed another application registered as Misc. Case No. 371/85 for an order of stay of operation of the impugned order which was taken up for consideration that day. The learned Judge passed the following order: By order dated 6-9-1985 the Subordinate Judge has injuncted the holding of the Extraordinary General Body meeting of the shareholders which was scheduled to be held on 9-9-1985 at Hotel Prachi, Bhubaneswar. Mr. Patnaik contends that since the meeting was scheduled to be held at 11 a.m., no interim order can be passed in this miscellaneous appeal since it is already past 11 a.m. He further contends that notice of injunction has already been published in the newspaper and, therefore, the shareholders may not come to attend the said meeting. In my view, the legality of the meeting if held shall be considered at a later stage. In my view, the legality of the meeting if held shall be considered at a later stage. But in the interests of justice, I would stay the order of injunction granted by the Subordinate Judge, Dhenkanal on 6-9-1985. I would, therefore, direct that the meeting as scheduled should be held, but the decision taken therein shall not be given effect to without leave of this Court. It is open for the opposite parties to contend the legality of the decision which will be taken in the Extraordinary General Body meeting.... 3. In the Extraordinary general body meeting which was scheduled to be held on 9th September, 1985 at Hotel prachi, Bhubaneswar two resolutions were put to vote-one for the purpose of removing Respondent No. 1 from the office of the Managing Director of the Company and the other to remove the said Respondent No. 1 from the primary Directorship of the Board. In an application dated 7-10-1985 (registered as Misc. Case No. 424/85) the Appellant submitted that shareholders were present in person and 55 valid proxies were received by the Company for the said meeting. The number of shareholders represented totalled 79.28% approximately of the issued capital of the Company and when the aforesaid two resolutions were put to vote, the first resolution was passed by a majority of 17 against one and the second resolution was also passed without any opposition. The said decision of the shareholders could not be given effect to in view of the prohibition contained in the order dated 9-9-1985 passed by this Court (quoted above). The said application was filed with a prayer to pass appropriate orders allowing the Appellant-Company to implement the decision taken in the Extraordinary general body meeting of the shareholders held on 9-9-1985. In a reply to the said prayer made by the Appellant, Respondent No. 1 filed an application registered as Misc. Case No. 464/85 contending that the Extraordinarily general body meeting of the Appellant-Company was held at 4.10 p.m. on 9-9-1985 and the meeting held on that day suffers from various illegalities and irregularities and, therefore, the resolutions passed thereat are illegal, void and inoperative. He also prayed that the various facts mentioned in their application (Misc. Case No. 464/85) be taken into consideration while disposing of the miscellaneous appeal itself as the same are relevant to the issue. He also prayed that the various facts mentioned in their application (Misc. Case No. 464/85) be taken into consideration while disposing of the miscellaneous appeal itself as the same are relevant to the issue. In the order dated 9-9-1985 quoted above this Court had made it clear that it is open to the opp. parties (Respondents) to contend the legality of the decision which will be taken in the extraordinary general body meeting and in that view of the matter it becomes necessary to also decide as to the effect of the resolutions said to have been passed in the extraordinary general body meeting held on 9-9-1985. 4. The main questions which arise and have been urged for consideration in this appeal are: (1) whether the Plaintiff-Respondent No. 1 has made out a case for temporary injunction and if the impugned order suffers from any illegality; & (2) what would be the effect of the extraordinary general body meeting which was held on 9-9-1985 and if the resolutions passed therein should be given effect to as has been prayed for in Misc. Case No. 424/85. 5. In the context of what has been contended by the learned Counsel for both parties, I think it appropriate to deal with the second question as mentioned above before going into the first question as to whether the Plaintiff Respondent No. 1 is entitled to an order of injunction as prayed This is because the prayer made in the trial court to restrain the Defendant opp. parties (in Misc. Case No. 68/85) not to hold any extraordinary general body meeting of the shareholders and to injunct the shareholders not to participate and not to attend any such meeting scheduled to be held on 9-9-1985 was allowed by the trial court and the present Appellant even though presented this appeal and moved for an order of stay of operation of the impugned order, this Court by order of the same date granted stay of the impugned order saying that the meeting as scheduled should be held, but the decision taken therein shall not be given effect to without leave of this Court. Thus by the date of hearing of this appeal the meeting which the trial court restrained not to be held, had already been held on the scheduled date. Thus by the date of hearing of this appeal the meeting which the trial court restrained not to be held, had already been held on the scheduled date. But the resolutions passed therein were not given effect to by virtue of the aforesaid order of this Court. It was further clarified by this Court in the same order that it is open for the opp. parties to challenge the legality of the decision arrived at in the said meeting. In the aforesaid background it was contended on behalf of the Appellant that the meeting which was held on 9-9-1985 can be said to be meeting by the direction of the Court the legality of which can be challenged in a separate suit or in this wit by making appropriate amendments if permissible under law. But the said question cannot be gone into in this miscellaneous appeal inasmuch as the scope of the miscellaneous appeal is confined to the only point as to whether the trial court was justified in granting an injunction in the impugned order and appropriate order should be passed in this appeal permitting to give effect to the resolutions passed in the meeting. Stretching this argument a little further it would, in my opinion, mean that the appeal stands allowed at the stage of admission by permitting a meeting to be held on the scheduled date the prohibition of which was challenged in this appeal. In other words it would mean that the scheduled mention on 9-9-1985 having already been held the prayer for injunction made and allowed in the trial court is no more available to be sustained and the Respondent No. 1 should now be driven to take a separate action to challenge the resolution passed in such meeting in a different forum for which the resolutions passed in the said meeting should not await and rather should be implemented at once. This would have been so, but for the conditions laid in the order dated 9-9-1985 passed by this Court in presence of both parties. As already stated, this Court stayed the order of injunction to the extent that the meeting as scheduled should be held but the decision taken therein shall not be given effect to without leave of the Court. As already stated, this Court stayed the order of injunction to the extent that the meeting as scheduled should be held but the decision taken therein shall not be given effect to without leave of the Court. The aforesaid order appears to me to have been passed on the basis of a contention which stands reflected in the objection filed in the court below that the extraordinary general body meeting having already been scheduled to be held on 9-9-1985 at 11 a.m. at Bhubaneswar the process of movement of the shareholders must have started long before the order of injunction was passed by the trial court and the intending participants must have reached Bhubaneswar by the time the prayer for injunction was moved in this Court on 9-9-1985. By the stay order this Court specifically restrained the parties not to give effect to the decisions taken in the extraordinary general body meeting without the leave of the Court which means that the Court considering the urgency of the matter took a view which was befitting to the circumstances of the case. The said order cannot be interpreted to the prejudice of one of the parties. The order passed on 9-9-1985 in Misc. Case No. 371/85 was in nature, an interim order and the subsequent developments on account of the meeting being held on 9-9-1985 was postponed to be considered at a later stage by observing that it is open for the opp. parties to contend the legality of the decision which will be taken in the extraordinary general body meeting. I am, therefore, not prepared to accept the interpretation put by the learned Counsel appearing for the Appellant that the meeting which was held on 9-9-1985 by virtue of the stay order granted by this Court frustrates the purpose of the injunction and that it is no longer available to be dealt with in this appeal. Learned Counsel for the Appellant further urged that going into the question of validity of the meeting held on 9-9-1985 or the legality of the resolutions passed therein would amount to widening the scope of appeal which contention is not acceptable for the aforesaid reasons. Learned Counsel for the Appellant further urged that going into the question of validity of the meeting held on 9-9-1985 or the legality of the resolutions passed therein would amount to widening the scope of appeal which contention is not acceptable for the aforesaid reasons. It was then urged that the order dated 9-9-1985 of this Court is in effect an order directing a meeting to be held in which the subject-matter to be discussed was fixed by mentioning the words "as schedule" and, therefore, the meeting held in accordance with such order was for all purposes deemed to be a meeting of the Company duly called, held and conducted. In this connection a passage at page 168 from the Law of Meetings. Their conduct and procedure by Sir bebag Shaw and Judge E. Dennis Smith quoted below has been relied upon. The Companies Act also empowers the court to convene a meeting of a company in certain circumstances and for specific purposes. Thus Section 135(1) enacts that if, for any reason, it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in the manner prescribed by the articles or the Act, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting order a meeting of the company to be called, held and conducted in such manner as the court thinks fit. This power can be exercised even though it is opposed by some of the shareholders, Re El Sombrero Ltd. (1985) Ch. 900. Where any such order is made the court may give such ancillary or consequential directions as it thinks expedient. The section expressly declares that such directions may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. A meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be meeting of the company duly called, held and conducted (Section 135). A meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be meeting of the company duly called, held and conducted (Section 135). If, for example, it is impracticable to procure the attendance at a meeting of a sufficient number of members to constitute a quorum as fixed by the articles, the court may direct a meeting to be held at which fewer members will suffice to provide a quorum. At such a meeting an effective resolution may be passed altering the articles of association so as to reduce the quorum for subsequent meetings to a number more consistent with existing circumstances. The meeting convened by the court will thus enable the difficulty in procuring a duly constituted meeting to be removed for the future. The learned authors of the said book were evidently dealing with the provisions contained in Section 135 of the relevant stage and from the observations made it appears that the "court" appearing in the said section (Section 135) means the 'court having jurisdiction to wind up the company concerned'. In the present case the court which passed the order dated 9-9-85 was not the court having jurisdiction to wind up the company concerned nor did it arise in a proceeding for winding up. The order dated 9-9-85 cannot be taken as a direction of the court for holding the meeting as the injunction granted by the trial court was a prohibition against holding a meeting and the court while admitting the appeal and considering the application for stay merely granted stay of the said order subject to the limitation that the decision arrived at in the said meeting shall not be given effect to. The meeting was scheduled to be held by a notice from the company to its shareholders and not pursuant to the direction of the Court. It is, therefore, idle to contend that the meeting held on the said date shall be deemed to be a meeting duly called, held and conducted as would have been the case, if the court having jurisdiction to wind up the company directed a meeting of the shareholders and conduct the business in the manner as fixed by it. 6. Learned Counsel appearing for the Appellant vehemently urged that the irregularities or illegalities alleged to have been committed in the meeting held on 9-9-85 in Misc. 6. Learned Counsel appearing for the Appellant vehemently urged that the irregularities or illegalities alleged to have been committed in the meeting held on 9-9-85 in Misc. Case No. 464/85 involve various questions of fact which cannot be taken to have been proved by a mere affidavit appended to the said petition. He further urged that these aspects cannot be scrutinised in this miscellaneous appeal, as, to prove or disprove these allegations, parties must be given opportunities to adduce oral evidence. This contention in my consideration is not without merits. A party desiring to prove or to disprove a question of fact cannot be denied to adduce evidence both oral and documentary which if taken up for consideration in this appeal necessitates to afford opportunities to the parties in that behalf. No doubt a court of appeal may itself receive such evidence or even direct the original court for the purpose and utilise such evidence to come to a conclusion of its own. But in the peculiar facts and circumstances of this case, I do not think it appropriate to take either of the courses. In view of the development of the situation that the scheduled meeting which was sought to be injuncted both in the suit and in the misc. case before the trial court has already been held, the decision of which has not been given effect to the essential dispute now available to be adjudicated between the parties is as to whether the meeting which was held on 9-9-85 was valid and whether the resolutions passed in such meeting should be made operative. Recording evidence on this question in this misc. appeal would virtually dispose of the suit and it would, therefore, be appropriate to postpone the consideration thereof in the suit itself by giving liberty to the parties to incorporate essential facts relating thereto in their respective pleadings and decide the issue arising therefrom on the basis of evidence both oral and documentary adduced by the parties. Unless it is held that the Plaintiff-Respondent No. 1 was not entitled to an injunction at all, the impugned order is not liable to be quashed. 7. Unless it is held that the Plaintiff-Respondent No. 1 was not entitled to an injunction at all, the impugned order is not liable to be quashed. 7. Now coming to the question whether the Plaintiff is entitled to an order of injunction, it is too well settled that it is a discretionary relief and like other cases of discretion vested in courts it has to be exercised in accordance with the reasons and sound judicial principles. A person seeking an injunction has to establish that he has a prima facie case which means that there is a serious question to be tried in the suit and that on the facts before the court there is a probability of his being entitled to the relief asked for by him. He must further satisfy the court that in order to protect him from the apprehended injury which is irreparable in nature the interference of the court is necessary. He has also to establish that the comparative mischief or inconvenience which is likely to result from withholding the injunction will be greater than which is likely to arise from granting it. The learned trial court has discussed some of the circumstances and has come to hold that there is prima facie case in favour of the Plaintiff Respondent No. 1. I may further add that there is a controversy between the parties as to whether the meeting which was scheduled to be held on 9-9-85 was a requisitioned extraordinary general body meeting as contended by the Plaintiff Respondent No. 1 or it was called by the Board of Directors in exercise of their powers to call for an extraordinary general body meeting as and when required. Again some serious questions of fact have arisen for consideration on account of the developments during the pendency of this appeal, as it has been contended on behalf of the present Appellant that the meeting having already been held in pursuance to the order of stay passed by this Court, the same cannot be, called in question by the Respondents. The Respondent No. 1 has alleged that the said meeting which was held on 9-9-85 suffers from various illegalities and irregularities which should be annulled by orders of the Court. The Respondent No. 1 has alleged that the said meeting which was held on 9-9-85 suffers from various illegalities and irregularities which should be annulled by orders of the Court. It has been alleged that the meeting was not held at the scheduled time i.e.; 11.00 a.m. on 9-9-85 but the same was held at 4.10 p.m. that day which is illegal the notice of which was not given to Respondent No. 1 and to many other shareholders. The holding of the meeting at a different time than earlier notified, contravenes Sections 171 and 174 of the Companies Act and any business transacted in such meeting has no legal effect. The learned Counsel appearing for the Appellant in reply to the arguments in this behalf has strenuously urged that there has been no contravention of any of the provisions of the Companies Act by holding the meeting at 4.10 p.m. on that day and the deviation, if any, at best amounts to some irregularities which are curable in nature. The resolution passed in such a meeting being in the larger interest of the Company cannot be declared as void. According to him the Appellant should establish by evidence both oral and documentary justifying the actions taken both on facts and law for which I have already indicated that the matter should be adjudicated at the hearing of the suit by the trial court. I, therefore, consider it unnecessary to go into those questions of fact and law more so for the reason that expression of any opinion in the matter is likely to prejudice the interest of either parties at the hearing of the suit. I would, therefore, conclude that the Plaintiff-Respondent No. 1 has established a prima facie case. 8. There is no dispute between the parties that Respondent No. 1 is the co-prompter of the company and he was the Managing Director of the Company and his removal before the expiry of the term will cause an irreparable injury to him. There having been already a notice for extraordinary general body meeting of the shareholders of the company for the purposes of removing Respondent No. 1. from the office of the Managing Director and also from the Directorship of the Company the only way to prevent such an injury is by seeking a protection from the court. There having been already a notice for extraordinary general body meeting of the shareholders of the company for the purposes of removing Respondent No. 1. from the office of the Managing Director and also from the Directorship of the Company the only way to prevent such an injury is by seeking a protection from the court. The learned Counsel appearing for the Appellant has argued by placing reliance on some decided cases that the court should not interfere in the internal management of the company and the injury, if any suffered by the Plaintiff-Respondent No. 1 can be remedied by compensation if he chooses to approach the appropriate forum for the purpose. His contention, therefore, is that the court should not issue an order of injunction in such cases. In my opinion the principles relied on by the learned Counsel for the Appellant are too broadly stated. The Plaintiff-Respondent No. 1 may be entitled to damages if he is illegally removed from the Managing Directorship or Directorship of the Company. But that by itself would not disentitle him to prevent the injury which if he is going to suffer. Apart from the pecuniary loss the Plaintiff Respondent No. 1 may be subjected to other injuries- which in the circumstances of the case can be called irreparable. In my opinion the balance of convenience will also be in favour of granting an injunction inasmuch as the mischief would be more if the relief is refused. 9. The meeting had already been held in the circumstances narrated above. The ends of justice will be served to maintain the status quo as on date which amounts to saying that the resolutions passed in the meeting held on 9-9-85 shall not be implemented until final disposal of the suit. I would, however, direct that the suit should be disposed by the trial court by giving opportunities to the parties to amend their pleadings incorporating the subsequent developments as mentioned above. 10. In the result, the appeal stands dismissed subject to the observations made above. But in the facts and circumstances I would direct the parties to bear their respective costs. Final Result : Dismissed