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2015 DIGILAW 203 (GUJ)

Bharat J. Patel v. Jyoti Ltd.

2015-02-19

PARESH UPADHYAY

body2015
Judgment Paresh Upadhyay, J. 1. Challenge in this appeal from order (No. 548 of 2014) is made by the original plaintiffs to the order passed by the 2nd Additional Senior Civil Judge, Vadodara in Special Civil Suit No. 652 of 2014, dated December 26, 2014, dismissing application exhibit 5. Civil Application No. 14367 of 2014 was filed along with the appeal from order, praying for interim injunction which was refused by the trial court. 2. During the pendency of this appeal from order before this court, Civil Application No. 222 of 2015 is filed by the original plaintiffs praying for direction to the defendants to comply with the requirements of the Companies Act, 2013 and the Companies (Management and Administration) Rules, 2014 See [2014] 184 Comp Cas (St.) 250, so as to enable the plaintiffs to convene and hold extraordinary general meeting to consider the matters indicated/contained in the requisition notice dated December 18, 2014, more particularly, to comply with the requirement of rule 17(7) of the Companies (Management and Administration) Rules, 2014. 3. Mr. Sanjanwala, the learned senior advocate for the plaintiffs/appellants has submitted that the trial court has committed error by not granting the interim injunction as prayed for, and the interim relief as prayed for ought to have been granted. It is submitted that, not only the appellants were entitled to the reliefs as prayed for, but even the provisions of the Companies Act, 1956 and 2013 and the Rules made thereunder also obliges the respondent-company to do, what was prayed for by the plaintiffs by way of an interim order. It is further submitted that no written statement was filed by the defendants. It is submitted that, only a list of documents, along with copies of those documents, was placed on record, which according to plaintiffs was not legally acceptable material, to deny the relief as claimed for by the appellants. The learned advocate for the appellants has taken this court through the averments made in the plaint to contend that, the action of the plaintiffs to approach the trial court on the same day after giving notice, could not, in the facts of this case, termed as premature institution of litigation. The learned advocate for the appellants has taken this court through the averments made in the plaint to contend that, the action of the plaintiffs to approach the trial court on the same day after giving notice, could not, in the facts of this case, termed as premature institution of litigation. It is further submitted that during the pendency of the proceedings before the trial court, so also before this court, further developments have justified the action of the plaintiffs of moving the trial court, at the relevant time, which is treated to be premature by the trial court. It is submitted that, this appeal from the order be entertained and interim relief/injunction as prayed for, be granted. It is also submitted that the trial court has relied on a decision, which does not hold the field. The learned advocate for the appellants has relied on the following decisions in support of his submission: (1) CDS Financial Services (Mauritius) Ltd. v. BPL Communications Ltd. reported in [2004] 121 Comp Cas 374 (Bom) : [2004] 56 SCL 665 (Bom). (2) Avanthi Explosives P. Ltd. v. Principal Subordinate Judge reported in [1985] 3 APLJ 219 : [1987] 62 Comp Cas 301 (AP). (3) Ammonia Supplies Corporation P. Ltd. v. Modern Plastic Containers P. Ltd. reported in [1998] 94 Comp Cas 310 (SC) : [1998] 7 SCC 105. (4) M. Sampath v. A.K.M.N. Cylinders P. Ltd. reported in [1999] 98 Comp Cas 777 (CLB). (5) Tayabbhai M. Bagasarwalla v. Hind Rubber Industries P. Ltd. reported in [1997] 3 SCC 443. (6) YES Bank Ltd. v. Mrs. Madhu Ashok Kapur reported in [2014] 5 ABR 178 : [2015] 191 Comp Cas 312 (Bom). (7) B. Mohandas v. A.K.M.N. Cylinders P. Ltd. reported in [19981 93 Comp Cas 532 (CLB). 4. On the other hand Mr. Pahwa, the learned advocate for the respondents/defendants has vehemently contested this appeal from the order and these civil applications. It is submitted that the trial court has not committed any error by not granting any relief to the plaintiffs. It is submitted that, it is the case of the defendants that not only the plaintiffs do not have any case on merits, but the suit itself is not maintainable, since according to him, the plaintiffs were required to move the Company Law Board under section 186 of the Companies Act, 1956. It is submitted that, it is the case of the defendants that not only the plaintiffs do not have any case on merits, but the suit itself is not maintainable, since according to him, the plaintiffs were required to move the Company Law Board under section 186 of the Companies Act, 1956. Alternatively, it is submitted that, the plaintiffs could have invoked the arbitration clause, which they have not. It is submitted that, thus on more than one counts, the suit is not maintainable. 5. Without prejudice to the above, Mr. Pahwa, the learned advocate for the respondents has further submitted that the plaintiffs, with support of, and in collusion with other persons of their group, are taking out the proceedings against the defendants one after another. Reference is made to the proceedings before the Company Law Board initiated by one Mr. Vanraj Shah. Attention of the court is also invited to the proceedings initiated by one Mr. Atul Shah, and the civil suits filed by Mr. Bharat Patel being Special Civil Suit Nos. 578 of 2014 and 347 of 2014. It is submitted that, thus this is an abuse of process of law by the plaintiffs. It is contended that, this would also amount to suppression of material facts by the plaintiffs, and this is an additional ground which would disentitle them from claiming any relief. 6. Without prejudice to the above, it is further submitted that the impugned resolution of the board of directors dated November 10, 2014 inter alia, reads as under: "Resolved further that all the rights, entitlements and privileges, arising from shareholders' agreement dated September 14, 2010, stand terminated with immediate effect including all the right of nomination on the board of directors of the company and all the rights attached to the shares issued pursuant to the shareholders' agreement thereby consequently cessation of all the rights attached to such shares including the right to participate in the meetings of the shareholders of the company and the right to vote." 7. It is submitted that, in view of the above, the plaintiffs would not have any right to participate and vote in the meeting of the shareholders of the company on the strength of those shares, as claimed by them, and therefore no relief could be granted. It is submitted that, in view of the above, the plaintiffs would not have any right to participate and vote in the meeting of the shareholders of the company on the strength of those shares, as claimed by them, and therefore no relief could be granted. It is contended that, what could not be got directly could not be permitted to secure indirectly and therefore the trial court has rightly not granted any relief. It is further submitted that, if the prayer clause of the suit and exhibit 5 application are seen, in substance, what is prayed for finally, is prayed by way of interim relief as well, which is impermissible. It is submitted that this appeal from the order be dismissed. In support of his submissions, the learned advocate for the respondents has relied on the following decisions: (1) Amrita Bazar Patrika P. Ltd. v. Gyaneshwar Mishra, decided on July 29, 2009, recorded in G.A. No. 1467 of 2007 and C.S. No. 302 of 2006. (2) Dr. Ashok Mathew Zacharia v. Majestic Kuries and Loans P. Ltd. reported in [1987] 62 Comp Cas 865 (Ker). (3) Col. Kuldip Singh Dhillon v. Paragaon Utility Financiers P. Ltd. reported in [1986] 60 Comp Cas 1075 (P & H). (4) Wander Ltd. v. Antox India P. Ltd. reported in [1990] (Supp) SCC 727. (5) Ramjas Foundation v. Union of India reported in [2010] 14 SCC 38. (6) R. Rangachari v. S. Suppiah reported in [1975] 45 Comp Cas 641 (SC) : [1975] 2 SCC 605. (7) Krishnadevi Malchand Kamathia v. Bombay Environmental Action Group reported in [2011] 3 SCC 363. 8. Having heard the learned advocates for the respective parries, the first point which needs to be adjudicated is, as to whether the suit is not maintainable, as contended on behalf of the respondents. If that is so, the matter may not be required to be considered on merits. For this purpose, firstly it needs to be seen, the suit is for what, and what is prayed in exhibit 5 application, since the present appeal from the order arises in that regard. 9. The prayers made in the suit are as under: "29. If that is so, the matter may not be required to be considered on merits. For this purpose, firstly it needs to be seen, the suit is for what, and what is prayed in exhibit 5 application, since the present appeal from the order arises in that regard. 9. The prayers made in the suit are as under: "29. The plaintiffs, therefore pray: (a) that it may be, declared that the acts of the defendants of removing plaintiff No. 1 and S.N. Rajan is illegal and unauthorised, it may be further declared that the defendants had no right to reverse the decision of the shareholders, taken at the 70th general meeting held on September 22, 2014, to reappoint the first plaintiff and Mr. S.N. Rajan to appoint him as the director in the 69th general meeting in a board meeting; (b) that this hon'ble court be pleased to restrain defendants Nos. 2 to 9 by a permanent order and injunction from convening and/or holding and/or attending any meeting of the board of directors of the defendant-company, and/or from voting threat and/or pass any resolution by circulation, so as to frustrate and/or prevent the holding of the extraordinary general meeting requisition by the plaintiff pursuant to the notice dated December 18, 2014 (exhibits H and I); (c) that this hon'ble court be pleased to order and direct the defendants by themselves, their servant, agents, officers and subordinates by a mandatory order and injunction to take all steps and do all things necessary and required under the provision of the Companies Act, 2013, so as to ensure, effectuate and facilitate the holding of the extraordinary general meeting in accordance with law, and as envisaged under the provisions of the Companies Act, 2013, pursuant to the requisition of the plaintiffs dated December 18, 2014 (exhibits H and I)." 10. The prayers made in the application exhibit 5 reads as under: "29. The plaintiffs, therefore, pray that pending the hearing and final disposal of the suit, this hon'ble court be pleased to pass the following orders and injunctions against the defendants: (i) restraining defendants Nos. The prayers made in the application exhibit 5 reads as under: "29. The plaintiffs, therefore, pray that pending the hearing and final disposal of the suit, this hon'ble court be pleased to pass the following orders and injunctions against the defendants: (i) restraining defendants Nos. 2 to 9 by an order and injunction from convening and/or holding and/or attending any meeting of the board of directors of the defendant-company, and/or from voting threat and/or pass any resolution by circulation, so as to frustrate and/or prevent the holding of extraordinary general meeting requisition by the plaintiffs pursuant to the notice dated December 18, 2014 (exhibits H and I hereto); (ii) to order and direct the defendants by themselves, their servant, agents, officers and subordinates by an order and injunction to take all steps and do all things necessary and required under the provision of the Companies Act, 2013, including for furnishing list of shareholders as requested by the plaintiffs in their requisition notice dated December 18, 2014, so as to ensure, effectuate and facilitate the holding of extraordinary general meeting in accordance with law and as envisaged under the provisions of the Companies Act, 2013 pursuant to the requisition of the plaintiffs dated December 18, 2014 (exhibits H and I)." 11. The bone contention on behalf of the respondents is that in view of section 186 of the Companies Act, 1956, the plaintiffs should have moved the Company Law Board. The said section reads as under: "186. The bone contention on behalf of the respondents is that in view of section 186 of the Companies Act, 1956, the plaintiffs should have moved the Company Law Board. The said section reads as under: "186. Power of Tribunal 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 called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the Tribunal 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,-- (a) order a meeting of the company to be called, held and conducted in such manner as the Tribunal thinks fit; and (b) give such ancillary or consequential directions as the Tribunal 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." 12. While asking the plaintiffs to be relegated to the Company Law Board, the respondents also rely on the resolution dated November 10, 2014, passed by the board of directors, the relevant part of which is quoted in paragraph 3.3 above. It is not in dispute that the shares held by the plaintiffs, pursuant to the shareholders' agreement in question, answers the eligibility criteria stipulated under section 100 of the Companies Act, regarding holding of not less than one-tenth of paid-up share capital of the company. The said holding along with voting right attached thereto, but for the impugned decision of the company, entitles the plaintiffs to take recourse to section 100 of the Act, 2013. The said section reads as under: "100. Calling of extraordinary general meeting.--(1) The Board may, whenever it deems fit, call an extraordinary general meeting of the company. The said holding along with voting right attached thereto, but for the impugned decision of the company, entitles the plaintiffs to take recourse to section 100 of the Act, 2013. The said section reads as under: "100. Calling of extraordinary general meeting.--(1) The Board may, whenever it deems fit, call an extraordinary general meeting of the company. (2) The Board shall, at the requisition made by,-- (a) in the case of a, company having a share capital, such number of members who hold, on the date of the receipt of the requisition, not less than one-tenth of such of the paid-up share capital of the company as on that date carries the right of voting; (b) in the case of a company not having a share capital, such number of members who have, on the date of receipt of the requisition, not less than one-tenth of the total voting power of all the members having on the said date a right to vote, call an extraordinary general meeting of the company within the period specified in sub-section (4). (3) The requisition made under sub-section (2) shall set out the matters for the consideration of which the meeting is to be called and shall be signed by the requisitionists and sent to the registered office of the company. (4) If the Board does not, within twenty-one days from the date of receipt of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later than forty-five days from the date of receipt of such requisition, the meeting may be called and held by the requisitionists themselves within a period of three months from the date of the requisition. (5) A meeting under sub-section (4) by the requisitionists shall be called and held in the same manner in which the meeting is called and held by the Board. (6) Any reasonable expenses incurred by the requisitionists in calling a meeting under sub-section (4) shall be reimbursed to the requisitionists by the company and the sums so paid shall be deducted from any fee or other remuneration under section 197 payable to such of the directors who were in default in calling the meeting." 13. (6) Any reasonable expenses incurred by the requisitionists in calling a meeting under sub-section (4) shall be reimbursed to the requisitionists by the company and the sums so paid shall be deducted from any fee or other remuneration under section 197 payable to such of the directors who were in default in calling the meeting." 13. On a conjoint reading of the above quoted provisions of law and the objection taken by the respondents, including the one that the voting right is already suspended by the company qua the said shareholding, asking the plaintiffs to move the Company Law Board would be meaningless because their (plaintiffs') lack of voting right as contended by the respondents would make the proceedings before the Company Law Board as well, not maintainable. This is over and above an additional aspect that, the provision of section 186 of the Companies Act, prima facie cannot be read to be meant for the circumstances like the present one, however no final opinion needs to be expressed with regard to the scope and ambit of the said section, since that is not the controversy before this court. Suffice it to hold that, in the facts of this case, considering the material on record and the chequered history between the contesting parties, and the chronology of the actions taken by the respondents, as borne out from record, the suit in question cannot be termed to be not maintainable. The suit is therefore held to be maintainable. The contention of the respondents in this regard, is rejected. 14. Having held that the suit is maintainable, the next question would be whether the plaintiffs have prima facie case, where the balance of convenience lies and who would suffer irreparable loss, if the injunction as prayed for is not granted. 15. Considering the material on record and the chequered history between the contesting parties, and the chronology of the actions taken by the respondents, as borne out from record, this court finds that the plaintiffs have strong prima facie case in their favour. 16. 15. Considering the material on record and the chequered history between the contesting parties, and the chronology of the actions taken by the respondents, as borne out from record, this court finds that the plaintiffs have strong prima facie case in their favour. 16. Coming to the next question, where the balance of convenience lies, and who would suffer irreparable loss, if the injunction as prayed for is not granted, this court finds that, what is prayed for by the plaintiffs is within four corners of law, and even in absence of any direction from any judicial forum, the respondents were under legal obligation to act in accordance with law. Therefore, by giving direction to the respondents to act in accordance with law, no prejudice would be caused to them, but in the event it is not done, the plaintiffs would certainly suffer irreparable loss. By the impugned action taken at the board meeting dated November 10, 2014, the voting right is also claimed to have been taken of the plaintiffs/shareholders. Firstly whether this can be done by the directors is the moot question, and ultimately the plaintiffs want that, the said and such decisions be placed before the members of the company in the extraordinary general meeting, which the respondents are objecting. The respondents have also not supplied the copy of the list of the members of the company to the requisitionists (plaintiffs) pursuant to their requisition notice dated December 18, 2014, though the respondents are under legal obligation to do so under rule 17(7) of the Companies (Management and Administration) Rules, 2014. The said rule reads as under: "17. Calling of extraordinary general meeting by requisitionists.--(1) The members may requisition convening of an extraordinary general meeting in accordance with sub-section (4) of the section 100, by providing such requisition in writing or through electronic mode at least clear twenty-one days prior to the proposed date of such extraordinary general meeting. (2) The notice shall specify the place, date, day and hour of the meeting and shall contain the business to be transacted at the meeting. Explanation.--For the purposes of this sub-rule, it is here by clarified that requisitionists should convene meeting at registered office or in the same city or town where registered office is situated and such meeting should be convened on working day. Explanation.--For the purposes of this sub-rule, it is here by clarified that requisitionists should convene meeting at registered office or in the same city or town where registered office is situated and such meeting should be convened on working day. (3) If resolution is to be proposed as a special resolution, the notice shall be given as required by sub-section (2) of section 114. (4) The notice shall be signed by all the requisitionists or by a requisitionists duly authorised in writing by all other requisitionists on their behalf or by sending an electronic request attaching therewith a scanned copy of such duly signed requisition. (5) No explanatory statement as required under section 102 need be annexed to the notice of an extraordinary general meeting convened by the requisitionists and the requisitionists may disclose the reasons for the resolution(s) which they propose to move at the meeting. (6) The notice of the meeting shall be given to those members whose names appear in the register of members of the company within three days on which the requisitionists deposit with the company a valid requisition for calling an extraordinary general meeting. (7) Where the meeting is not convened, the requisitionists shall have a right to receive list of members together with their registered address and number of shares held and the company concerned is bound to give a list of members together with their registered address made as on twenty first day from the date of receipt of valid requisition together with such changes, if any, before the expiry of the forty-five days from the date of receipt of a valid requisition. (8) The notice of the meeting shall be given by speed post or registered post or through electronic mode. Any accidental omission to give notice to, or the non-receipt of such notice by, any member shall not invalidate the proceedings of the meeting." 17. Further, from the record it transpires that, even the articles of association of the company provides as under, in this regard: "Article 80. Any accidental omission to give notice to, or the non-receipt of such notice by, any member shall not invalidate the proceedings of the meeting." 17. Further, from the record it transpires that, even the articles of association of the company provides as under, in this regard: "Article 80. Calling of extraordinary general meeting on requisition.--(1) The board of directors shall, on the requisition in regard to any matter of such number of members of the company as hold at the date of deposit of the requisition, not less than one-tenth of such of the paid-up capital of the company as at that date carries the right of voting in regard to that matter, forth-with proceed duly to call an extraordinary general meeting of the company and the provisions of the Act in this regard (including the provisions below) shall be applicable. (2) The requisition shall set out the matters for the consideration of which the meeting is to be called, shall be signed by the requisitionist, and shall be deposited at the registered office of the company. (3) The requisition may consist of several documents in like form, each signed by one or more requirements. (4) Where two or more distinct matters are specified in the requisition, the provisions of clause 1 above shall apply separately in regard to each such matter; and the requisition shall accordingly be valid only in respect of those matters in regard to which the condition specified in that clause is fulfilled. (5) If the board of directors does not, within twenty-one days from the date of the deposit of a valid requisition in regard to any matters proceed duly to call a meeting for the consideration of those matters on a day not later than 45 days from the date of the deposit of the requisition, the meeting may be called by the requisitionists themselves or by such of the requisitionists as represent either a majority in value of the paid-up share capital held by all of them or not less than one-tenth of such of the paid-up share capital of the company as is referred to in clause 1 above whichever is less. (6) A meeting called under clause 5 above by the requisitionists or any of them shall be called in the same manner, as early as possible, as that in which meetings are to be called by the board, but shall not be held after the expiration of three months from the date of the deposit of the requisition. (7) Any reasonable expenses incurred by the requisitionists by reason of the failure of the board duly to call a meeting shall be repaid to the requisitionists by the company; and any sum so repaid shall be retained by the company out of any sums due or to become due from the company by way of fees or other remuneration for their services to such of the directors as were in default." 18. If the stand of the respondents is weighed keeping in view the above quoted provisions, this court finds that, refusal by this court to grant interim relief as prayed for by the plaintiffs, would not only make the civil suit infructuous but would have effect of giving premium to the respondents for the impugned actions/inactions, if ultimately it turns out to be unsustainable. Thus judging from any angle this court finds that, the balance of convenience is in favour of the plaintiffs and the grant of interim relief would not be against the respondents but refusal to do so, would result in irreparable loss to the plaintiffs. For this reason, the plaintiffs need to be protected by appropriate interim relief. 19. The argument of the learned advocate for the respondents with regard to arbitration clause would not help the respondents for the reason that even they had, unsuccessfully attempted so, once before this court. This court also does not find any substance in the argument canvassed on behalf of the respondents about suppression of material fact by the plaintiffs or that the proceedings are taken out one by one by the plaintiffs or persons of their group. This court has taken into consideration the cause of action and prayer clauses of those proceedings and after doing so, this contention is rejected. This court has taken into consideration the cause of action and prayer clauses of those proceedings and after doing so, this contention is rejected. Though the learned advocate for the respondents is right to the extent that, immediately after giving requisition notice dated December 18, 2014, the suit was filed and therefore even statutory period under section 100 of the Companies Act and rule 17(7) of the Rules referred above, had not expired, his contention that therefore the date on which the suit was filed it was not maintainable, needs to be rejected considering the actions taken by the respondents, prior to and subsequent to the requisition notice dated December 18, 2014, given by the plaintiffs. The judgments relied on behalf of the respondents would not take their case any further in the peculiarity of the facts noted above, and as it emerges from record. These objections of the respondents therefore needs to be and are rejected. 20. For the reasons recorded above, the following order is passed. 21. The appeal from Order No. 548 of 2014 is admitted. 22. The respondents/original defendants, more particularly the respondent-company (original defendant No. 1), are directed to consider the requisition notice in question dated December 18, 2014, given by the plaintiffs, and comply with the provisions of rule 17(7) of the Companies (Management and Administration) Rules, 2014, within a period of one week from today. On receipt of such list of members as per rules, from the company, it would be open to the appellants, to take further actions in accordance with law, to convene the extraordinary general meeting of the company, within the time stipulated under law. For this purpose, the time taken by the respondents in supplying the list of the members, as required under law, to the requisitionists (the plaintiffs) beyond what is permissible under rule 17(7) of the Rules shall not count against the plaintiffs. 23. It is directed that, any decision that may be taken, or the resolution that may be passed in the said extraordinary general meeting, shall not be given effect to, without prior permission of this court, and further that, any business transacted at the said meeting and/or any outcome thereof shall be subject to further orders that may be passed by this court. 24. 24. While issuing notice on December 31, 2014, on this appeal from the order, the learned Vacation Judge had ordered status quo of that date to be maintained, with regard to the composition of the board of directors of the respondent-company. This has continued from time to time. Confirmation or otherwise of the said status quo, shall be considered on the next date of hearing. For the time being, the same is ordered to be continued till the next date of hearing. 25. List for further consideration on March 16, 2015. At this stage, the learned advocate for the respondents has requested that, this order be stayed for some time, to enable the respondents to approach the higher forum, if so advised. Considering the statutory provisions with regard to convening the meeting in question, any stay as prayed for would further complicate the matter. For this reason, this request is rejected. Appeal Allowed.