Agm 21 Days Notice

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MANU/KA/0634/2001

Equivalent Citation: [2002]110CompCas371(Kar)IN THE HIGH COURT OF KARNATAKA

Civil Revision Petition No. 1865 of 2001

Decided On: 10.12.2001

Appellants: Somalingappa Shiva Putrappa Mugabasav

Vs.Respondent: Shree Renuka Sugars Ltd.

Hon'ble Judges/Coram

N. Kumar,J.Counsels:For Appellant/Petitioner/Plaintiff:Hollaand Holla

For Respondents/Defendant:Vivek Chandy,Adv.

Subject: Company

Catch WordsMentioned IN

Acts/Rules/Orders:

CompaniesAct, 1956 - Section171, CompaniesAct, 1956 - Section171(1), CompaniesAct1956 - Section 172(2), CompaniesAct, 1956 - Section 172(3), CompaniesAct, 1956 - Section 172Cases Referred

Shailesh Harilal Shah v. Matushree Textiles Ltd., [1995] 82 Comp. Cas. 5; Vice Chancellor, UtkaUniversity v. S.K. Ghosh, AIR 1954 SC 217; Parmeshwari Prasad Gupta v. Union of India, [1974] 44Comp. Cas. 1 (SC); Mahabir Prasad Jalan v. Bajrang Prasad Jalan, [2000] 102 Comp. Cas. 8

(Cal.); Musselwhite v. C.H. Musselwhite & Son Ltd., [1962] 32 Comp. Cas. 804 (Ch. D); Self Hel

Private Industrial Estate (P.) Ltd, In re [1974] 42 Comp. Cas. 605 (Mad.); N.V.R. Nagappa Chettiar vMadras Race Club, [1949] 19 Comp. Cas. 175 (Mad.); Asansol Electric Supply Co. v. Chunnilal DawAIR 1972 Cal. 19; Bharat Kumar Diwali v. Bharat Carbon & Ribbon Mfg. Co. Ltd., [1973] 43 Comp

Cas. 197 (Delhi); Col. Kuldip Singh Dhillon v. Paragaon Utility Financiers (P.) Ltd, [1988] 64 CompCas. 19 (Punj. & Har.); Maharaja Exports v. Apparels Exports Promotion Council, [1986] 60 CompCas. 353 (Delhi); Calcutta Chemical Co. Ltd v. Dhiresh Chandra Roy, [1985] 58 Comp. Cas. 27(Cal.); R. v. Ingall, [1877] 2 QBD 199; Hari Vishnu Kamath v. Ahmad Ishaque, AIR 1955 SC 233

245; Julius v. Bishop of Oxford, [1880] 5 AC 214(S); United Commercial Bank Ltd. v. CIT, [1957] 3ITR 688 (SC);Montreal Street Railway Company v. Normandin, AIR 1917 PC 142; Raza Buland SugaCo. Ltd. v. Municipal Board, Rampur AIR. 1965 SC 895; Scadding v. Lorant, [1851] 3 HLC 418; Loran

v. Scadding, [1849] 13 QB 706; Joshi Kalidas v. Dakar Town Municipality, ILR 7 Bom. 399

Citing Reference

Discussed

5

Mentioned

16

Case Note

Company - Injunction - Section 171(1) of the Companies Act, 1956 - Trial Court grantetemporary injunction restraining Defendant from implementing any resolution passed

inannual general meeting and held that Section 171(1) of Act was mandatory - Appellate
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Court set aside order of Trial Court - Hence, this Appeal - Whether, order of Appellate Courwas justified and Section 171(1) of Act was mandatory - Held, object of notice was to give afair opportunity to shareholders to prepare themselves to face meeting - No notice wa

issued or notices issued were defective in sense from date of notice till date of holding o

meeting twenty-one clear days was not given - However, notice was dispatched on6.12.2000 and notice was received on 19.12.2000 meeting held on 30-12-2000and Section 171(1) was not mandatory and in light of provisions of Section 172(2) of Act

Therefore, twenty-one clear days was mentioned between date of notice and date omeeting and notice had been duly served on Plaintiff - Thus, First Appellate Court was righin setting aside order of Trial judge - Petition dismissed

Ratio Decidend

"Twenty-one clear days was mandatory between date of notice and datof annual general meeting."

Disposition:Revision petition dismissed

JUDGMENT

N. Kumar, J.1. The petitioner has challenged in this revision petition the order of the Appellate Court dated 19-42001, in M.A. No. 13 of 2001 allowing the appeal and setting aside the order of temporary injunction

granted by the trial court.

2. The plaintiff has filed a suit for a declaration that the fifth annual report of the company intimatingthe fifth annual general body meeting on 30-12-2000, be declared as illegal, null and void and no

binding upon the plaintiff and for a decree of permanent injunction restraining the defendant from

conducting the fifth annualgeneralmeetingon 30-12-2000, in pursuance of the meeting noticreceived by the plaintiff on 19-12-2000. The plaintiff contends that he is one of the shareholders of thdefendant-company. The defendant had got created the resolution of the meeting alleged to have bee

held on 4-9-1999, by stating that Sri S.B. Sidnal is removed from the directorship. The said resolution

is illegal, arbitrary and a created one. The defendant has again called foan annualgeneralmeetingon 30-9-1999. Sri S.B. Sidnal Chairperson of the company addressed th

said meeting and after his representation the members voted against the resolution alleged to hav

been passed on 4-9-1999 and nullified the alleged false resolution of the removal of Sri S.B. Sidnal an

Shashikant Sidnal from the directorship and Sri Sidnal was requested to continue as director of thecompany. In view of the resolution dated 30-9-1999, Smt. Vidya Murakumbi cannot claim a

Chairperson of the company; as such the meeting notice issued by the defendant calling for the fift

meeting on 30-12-2000, is illegal. Smt. Murakumbi was not accepted as the Chairperson or presidenof the company, therefore, the contents of the notice are all false and any proceedings under theChairmanship of Smt. Vidya Murakumbi are all illegal.

3. It is further contended that the defendant had called for the meeting on 30-12-2000, at 9 a.m., and

notice of the meeting has been received or served on the plaintiff on 19-12-2000. As peSection165(2)of the CompaniesAct, 1956 ('the Act') the board of directors shall at least 21 day

before the day on which the meeting is held forward a report (statutory report) to every member o

the company. The statutory report has been served upon the plaintiff on 19-12-2000. The meeting ischeduled on 30-12-2000. There is no clear 21daysnoticeto the plaintiff and the same is the case o

other shareholders also. The non-forwarding of a report at least 21 days before the date on which thmeeting is held is illegal and in violation of the mandatory provisions of the Act. Moreover, no consen

is accorded by the shareholders to call for the general body meeting after giving shorter notice withi21 days, therefore, the meeting called on 30-12-2000, is illegal and against the provisions of law.

4. It is further contended that the meeting is scheduled at Millennium Garden, Shukrawarpeth

Tilakwadi, Belgaum. The company has got its members from different remote villages of SaundattBailhongal and Belgaum taluks. Due to non-availability of transportation all the shareholders may noattend the meeting. The defendant has purposely fixed the time of meeting at 9 a.m., in order to have

thin representation so as to get passed illegal resolutions. The company ought to have called for th

meeting within the business hours of the company. Normally, starting point of the business hours wibe 10.30 a.m., but in the instant case by calling the meeting at 9 a.m., at Belgaum which is at abou

150 kms., from some of the remote villages of Saundatti taluk and other towns, is totally inconvenien
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and non-accessible to reach the scheduled place of meeting and, therefore, the meeting called is illegaand against the provisions of law.

5. The plaintiff also made an application for an order of temporary injunction restraining the

defendants from conducting or holding the fifth annualgeneralmeetingat Shree Renuka SugarLtd., Belgaum, on 30-12-2001, at Millennium Garden, Shukrawarpeth, Tilakwadi, Belgaum.6. Notice of the said application was served on the defendant who entered appearance through hi

counsel. In the statement of objections filed, the defendant has denied that he has created a resolutio

in the meeting held on 4-9-1999, removing Sri S.B. Sidnal from the directorship of the company. The

defendant has stated that the suit filed by S.B. Sidnal seeking such declaration is still pending and theCourt has not granted stay of the resolutions. The defendant also denied the allegation that on 30-9

1999, the shareholders have passed resolutions and S.B. Sidnal was requested to continue as directo

of the company. The defendant has further stated that it is absolutely false that the Chairperson of thcompany Smt. Vidya N. Murkumbi was not accepted as Chairperson of the company. It was assertethat Smt. Vidya Murkumbi is the Chairperson of the defendant-company since last more than tw

years. It was contended that prior notice of 21 days is not required to hold a meeting and the saidprovision is not applicable to the annual general body meeting. The defendant denied the allegationthat notice of the annualgeneralmeetinghas been served upon the plaintiff on 19-12-2000. It wa

asserted that the plaintiff has received the notice before 21 days of the meeting. The allegation tha

the meeting called on 30-12-2000 is illegal and against the provisions of law, is denied. The allegationthat the defendant has purposely fixed the time of meeting at 9 a.m., in order to have thin

representation so as to get the resolutions passed, is denied. It is asserted that the well-settled fact ithat the meeting of the annualgeneralmeetingis called within the business hours of the compan

and on the working day of the company. Since the registered office of the defendant-company isituated in Belgaum, the annualgeneralmeetingwill have to be conducted in Belgaum as required

by the provisions of the Act. It is asserted that theannualgeneralmeetingon 30-9-2000, was hel

in furtherance of its statutory obligation imposed under the provisions of the Act, such meeting is beinheld as required by law by complying with all legal requirements of sending of noticeThe annualgeneralmeetingof the company is to be conducted within 15 months of time and it i

mandatory. It is further asserted that the plaintiff has received a notice prior to 21 days of conduct o

the meeting. In spite of the same only with instigation of some persons and in order to harass thedefendant-company and cause loss to it, he has filed the present suit dated 30-12-2000, which wa

the last day for the conduct of the annualgeneralmeetingby the defendant-company as per th

provisions of the Act. The relief sought for by the plaintiff cannot be granted. Therefore, he prayed fo

dismissal of the application filed by the plaintiff for an order of temporary injunction.7. At this juncture, it is relevant to point out that the annualgeneralmeetingwas fixed on 30-12

2000. The plaintiff has filed the suit on 27-12-2000, for an order of temporary injunction restrainin

holding of the said meeting. Therefore, for want of time after hearing both the parties, the Courpassed an order on 29-12-2000, making an interim arrangement before hearing the said application othe merits. The operative portion of the said order reads as under :

"The defendant is hereby directed not to implement any resolutions that would be passed

the meeting or to implement any decisions that would be taken in the meeting till disposal ofA. II on the merits. With this condition the defendant is permitted to hold general meeting

December 30-12-2000, at 9 a.m. as has already been fixed. Issue orders accordingly."

8. The said order was passed before the vacation court as the civil courts had been closed for wintevacation. In terms of the said order the meeting was held on 30-12-2000 and resolutions were passe

with reference to the agenda in the said notice. In order to understand the scope of the aforesai

interim order, it is necessary to have a look at the notice of the meeting. The said notice is dated 4-122000, which reads as under :

"Notice is hereby given that the fifth annualgeneralmeetingof Shree Renuka SugarsLtd., will be held on Saturday, 30-12-2000 at Millennium Garden, Shukrawarpeth,

Tilakwadi, Belgaum-590006 at 9 a.m., to transact the following business.

Ordinary Business:

1. To receive, consider and adopt the audited balance-sheet as at 30-9-2000 and

the profits and loss account for the year ended on that date and the reports of the


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directors and auditors thereon.

2. To appoint a director in place of Mrs. Vidya M. Murkumbi who retires by rotationand being eligible, offers herself for re-appointment.

3. To appoint a director in place of Mr. Jayant G. Herwadkar who retires by rotationand being eligible, offers himself for re-appointment.

4. To appoint auditors and fix their remuneration.

Special Business :

5. To consider and if thought fit to pass with or without modification the followingresolution as a special resolution.

Resolved that, pursuant to Sections16,94(1)(d)and all other applicable provisions, if any, othe CompaniesAct, 1956, 5,00,000 (five lakhs) 12 per cent cumulative redeemable preferenc

shares of the nominal value of Rs. 100 each be and are hereby subdivided into 50,00,000 (fifty lakhs

2 per cent cumulative redeemable preference shares of Rs. 10 each and that the existing Sub-claus(b) of Clause V of the memorandum of association of the company be deleted and the following newClause V(b) be substituted therefore.

(b) 50,00,000 (fifty lakhs) 2 per cent cumulative redeemable preference shares of Rs. 10 (rupees te

only) each.

6. To consider and if thought fit to pass with or without modification the following resolution as aspecial resolution.

Resolved that, pursuant to Section31and all other applicable provisions, if any, o

the CompaniesAct, 1956, the existing Sub-article (b) of Article 5 of the articles of association bdeleted and the following new Article 5(6) be substituted therefore.

(b) 50,00,000 (fifty lakhs) 2 per cent non-cumulative redeemable preference shares of Rs. 10 (rupeeten only) each.

Notes :--

1. A member entitled to attend and vote is entitled to appoint a proxy to attend and

vote instead of himself and proxy need not be a member of the company. The proxyform duly completed must reach the registered office of the company not less than 48

hours before the commencement of the meeting.

2. The explanatory statement pursuant to Section173of the CompaniesAct, 1956, in

respect of the business under items 5 to 8 set out is annexed hereto.3. Members are requested to quote folio numbers in all the correspondences with thecompany.

4. Members/public proxy holders are requested to bring the copy at annual report to themeeting and hand over attendance slip duly signed at the entrance of the meeting

venue."

9. The meeting was held on 30-12-2000 and all the resolutions have been passed. Thereafter

application was taken up for consideration by the trial court on its merits. The trial court after hearinboth the parties and after considering the documents placed on record and taking note of the legaposition as submitted on either side has granted an order of temporary injunction restraining thedefendant from implementing any resolution passed in the meeting or to implement any decisions tha

were taken in the meeting till the disposal of the suit. In coming to the said conclusion, the trial courhas held that Section171(1) of the Act is mandatory and there was no clear 21daysnoticeaftethe same was served on the plaintiffs and the defendant has not produced any documents to show how

many members were served notice before 21 days and notices were not served on the shareholders a

per mandatory requirement. Aggrieved by the said order, the defendant preferred miscellaneouappeal before the Principal Civil Judge, Belgaum, in M.A. No. 13 of 2001. The Appellate Judge held thathe trial court has basically erred in coming to the conclusion that Section171(1) is mandatory b
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overlooking the principles enunciated by the High Court of Bombay in Shailesh Harilal Shah vMatushree Textiles Ltd. [1995] 82 Comp. Cas. 5. The notice was served on the plaintiff on 19-12-2000he approached the Court on 27-12-2000, barely three days before the meeting and in the absence o

any explanation there is a delay on the part of the plaintiff in approaching the Court which disentitles

the plaintiff for the relief of injunction. Section171(1) is not mandatory and in the light of thprovisions of Section172(2)the plaintiff has not made out a prima facie case and that the ordepassed by the trial court is perverse and needs to be interfered with. Accordingly, he allowed th

appeal. It is against the said order, the plaintiff has preferred this revision.10. Sri Udaya Holla, the learned counsel appearing for the petitioner contended before me as under :

(a) Section171is mandatory. Twenty-one days clear notice is a must, the same is to

be calculated from the date of service of notice on the shareholder. The Legislature has

deliberately used the words 'not less than 21daysnotice in writing' making it clearthat the said provision is mandatory. In the instant case as 21 days clear notice was not

given to the plaintiff, the meeting held on 30-12-2000 and all the resolutions passed inthe said meeting are null and void and liable to be set aside.

(b) The annualgeneralmeeting is to be held during business hours of the companyas per Section156(2)of the Act. Deliberately the meeting was held at 9 a.m., thus,preventing the shareholders who are all living at remote corners of the villages reaching

the venue of the meeting in time. Therefore, the annualgeneralmeetingis void.

(c) The judgments of the Allahabad, Calcutta, Punjab and Haryana and Madras HighCourts cited on behalf of the plaintiff have taken a view that Section171is mandatoryand whereas the Bombay High Court has taken the view directory, and in the absence ofany decision of the Supreme Court on the point when the trial court has followed the

view of the majority of the High Courts, the Appellate Court should not have interferedwith the said finding only on the ground that the Bombay High Court judgment lays

down the correct law.(d) Lastly it was contended, it is well-settled that when the trial court in exercise of its

discretionary jurisdiction, on appreciation of all the materials placed on record, comes to

the conclusion that the plaintiff has made out a case for grant of injunction, even if thefirst Appellate Court can come to a different conclusion on the same set of facts, it is no

ground to interfere with the order passed by the trial court.

11. Per contra, Sri Vivek Chandy, the learned counsel appearing for the respondents contended thathe plaintiff has not produced any evidence to show that he was served notice less than 21 days befor

the meeting and moreover when admittedly he was served on 19-12-2000, with notice, he chose to

move the Court two days prior to the date of the meeting, namely, December 27 and, thereforebecause of delay and laches on his part in approaching the Court, he is not entitled to the discretionar

relief of temporary injunction. The plaintiff does not disclose in the plaint what is the prejudice cause

to him in attending the meeting and what are his objections to the proposed resolutions and what ithe valuable right of his which he has been deprived of by non-service of notice 21 days before thdate of the meeting. The trial court did not consider the effect of Section172(3)where it has bee

clearly stated that the accidental omission to give notice or non-receipt of notice by any member oother person to whom it should be given shall not invalidate proceedings at the meeting. In the instancase, notice has been served and the plaintiff had an opportunity to attend the meeting and espous

his cause and, therefore, Section171cannot be held to be mandatory in view of the languag

employed in Section172(3). In view of the postal strike which commenced on 5-12-2000, thecompany has despatched all the notices on 6-12-2000, through professional courier and except thplaintiff no other person had any grievance whatsoever regarding service of notice or want of 21 clea

days of notice and, therefore, at the instance of one shareholder the company cannot be restrained

from implementing the resolutions passed in the annualgeneralmeeting.12. Both the counsels in support of their respective contentions have relied on several judgments ovarious High Courts including the Supreme Court.

13. Having regard to these rival contentions, the undisputed facts which emerge are as under :

The plaintiff is a shareholder of the defendant-company. The previous annualgeneralmeetingof th


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company was held on 30-9-1999. In view of Section166(1)of the Act, the next general meeting hato be held on or before 30-12-2000. It is to call the said meeting, the statutory notice was prepared o4-12-2000. In view of the all India postal strike which commenced on 5-12-2000 the notice and

explanatory statement were sent by courier on 6-12-2000. The plaintiff was served on 19-12-2000. I

the date of service of notice is taken into consideration it is not in dispute from 19-12-2000, thpetitioner did not have 21 clear days of notice of the annualgeneralmeeting. Therefore, he filed thsuit on 27-12-2000. On 29-12-2000, as an interim arrangement the Court directed the company to

hold its meeting, but restrained the company from giving effect to any resolution passed in the saidmeeting. Accordingly, the meeting was held on 30-12-2000 and all the resolutions were passed in thesaid meeting. In view of the interim orders passed in the case from time to time till today none of theresolutions in the said meeting has been given effect to.

Now the only point that arises for my consideration is :

"Whether the annual general body meeting held on 30-12-2000 and the resolutions passedthe said meeting are invalidated for want of 21 days clear notice from the date of service

notice to the plaintiff ?"

14. The answer to this point depends upon the interpretation to be placed onSections171and172.Section171deals with the length of notice for calling the meeting. It reads as

under :

"Length of notice for calling meeting.--(1) A general meeting of a company may be

called by giving not less than twenty-one days notice in writing;(2) A general meeting may be called after giving shorter notice than that specified

in Sub-section (1), if consent is accorded thereto--

(i) in the case of an annualgeneralmeeting, by all the members entitled tovote thereat; and

(ii) in the case of any other meeting, by members of the company (a) holding,if the company has a share capital, not less than 95 per cent of such part ofthe paid-up share capital of the company as gives a right to vote at the

meeting, or (b) having, if the company has no share capital, not less than 95

per cent of the total voting power exercisable at that meeting:

Provided that where any members of a company are entitled to vote only on someresolution or resolutions to be moved at a meeting and not on the others, thosemembers shall be taken into account for the purposes of this sub-section in respect of

the former resolution or resolutions and not in respect of the latter."

15. The contents and manner of service of notice and persons on whom it is to be served is dealt with

under Section172which reads as under :

"Contents and manner of service of notice and persons on whom it is to be served.--(1)Every notice of a meeting of a company shall specify the place and the day and hour of

the meeting, and shall contain a statement of the business to be transacted thereat.

(2) Notice of every meeting of the company shall be given--

(i) to every member of the company, in any manner authorised by subsections (1)to (4) of Section53;

(ii) to the persons entitled to a share in consequence of the death or insolvency ofa member, by sending it through the post in a prepaid letter addressed to them byname, or by the title of representatives of the deceased, or assignees of the

insolvent, or by any like description, at the address, if any, in India supplied for the

purpose by the persons claiming to be so entitled, or until such an address has

been so supplied, by giving the notice in any manner in which it might have beengiven if the death or insolvency had not occurred; and

(iii) to the auditor or auditors for the time being of the company, in any manner
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authorised by Section53in the case of any member or members of the company:

Provided that where the notice of a meeting is given by advertising the same in anewspaper circulating in the neighbourhood of the registered office of the company

under Sub-section (3) of Section53, the statement of material facts referred to inSection173need not be annexed to the notice as required by that section but it shall be

mentioned in the advertisement that the statement has been forwarded to the membersof the company.

(3) The accidental omission to give notice to, or the non-receipt of notice by, anymember or other person to whom it should be given shall not invalidate the proceedingsat the meeting."

16. Service of documents on members by company is dealt with under Section53of the Act whic

reads as under :

"Service of documents on members by company.--(1) A document may be served by a

company on any member thereof either personally, or by sending it by post to him tohis registered address, or if he has no registered address in India, to the address, if any,

within India supplied by him to the company for the giving of notices to him.

(2) Where a document is sent by post,--

(a) service thereof shall be deemed to be effected by properly addressing,prepaying and posting a letter containing the document, provided that where amember has intimated to the company in advance that documents should be sent

to him under a certificate of posting or by registered post with or withoutacknowledgement due and has deposited with the company a sum sufficient to

defray the expenses of doing so, service of the document shall not be deemed to

be effected unless it is sent in the manner intimated by the member; and

(b) such service shall be deemed to have been effected--

(i) in the case of a notice of a meeting, at the expiration of forty-eight hours

after the letter containing the same is posted, and

(ii) in any other case at the time at which the letter would be delivered in theordinary course of post.

(3) A document advertised in a newspaper circulating in the neighbourhood of theregistered office of the company shall be deemed to be duly served on the day onwhich the advertisement appears, on every member of the company who has no

registered address in India and has not supplied to the company an address withinIndia for the giving of notices to him.

(4) A document may be served by the company on the joint holders of a share byserving it on the joint holder named first in the register in respect of the share.

(5) A document may be served by the company on the persons entitled to a sharein consequence of the death or insolvency of a member by sending it through thepost in a prepaid letter addressed to them by name, or by the title of

representatives of the deceased, or assignees of the insolvent, or by any likedescription, at the address, if any, in India supplied for the purpose by the persons

claiming to be so entitled, or until such an address has been so supplied, byserving the document in any manner in which it might have been served if thedeath or insolvency had not occurred."

17. The learned counsel appearing for the parties have relied on a catena of decisions in support otheir respective contentions. The said decisions can be broadly categorized under three heads. The firscategory of cases are those where Section171was held to be mandatory where no notice was issue


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under Section171and it has been held that omission to give notice invalidates the meeting and theresolutions passed in such meeting. Those decisions are :

(i) Vice Chancellor, Utkal University v.S.K. Ghosh MANU/SC/0012/1954: [1954]1SCR883 ;

(ii) Parmeshwari Prasad Gupta v.Union of India MANU/SC/0395/1973: [1974]1SCR304 ;

(iii) Mahabir Prasad Jalan v.Bajrang Prasad Jalan MANU/WB/0240/1998;(iv) Musselwhite v. C.H. Musselwhite & Son Ltd. [1962] 32 Comp. Cas. 804 (Ch. D).

18. The second category of cases are those cases wherein the notice issued for calling general meetin

of the company 21 clear days was not stipulated between the date of notice and the date of themeeting. Under those circumstances, the Courts have held that Section171is mandatory. If th

notice issued does not comply with this legal formality, the meeting held and the resolution passed insuch meeting are void However, it has also been held that the shareholders by consent can agree for lesser period even before the meeting is called or after the meeting is called. The same could be

waived by ratification in which event neither the meeting nor the resolutions passed in the said

meetings would be invalidated. Those cases are :

(i) Self Help Private Industrial Estate (P.) Ltd, In re [1974] 42 Comp. Cas. 605 (Mad.);

(ii) N.V.R. Nagappa Chettiar v. Madras Race Club [1949] 19 Comp. Cas.175 (Mad.);

(iii) Asansol Electric Supply Co. v.Chunnilal Daw MANU/WB/0004/1972: AIR1972Cal19 ;(iv) Bharat Kumar Diwali v.Bharat Carbon & Ribbon Mfg. Co. Ltd. MANU/DE/0118/1971;

(v) Col. Kuldip Singh Dhillon v. Paragaon Utility Financiers (P.) Ltd [1988] 64 Comp.Cas. 19 p&h.

19. The third category of cases are those cases where a notice was issued and the said notice gave 21

clear days and the same was served on the shareholders but there was no clear 21 days between theservice of such notice and the meeting. The cases relied on under this category, where it has been

held Section171is not mandatory but directory, are :

(i) Maharaja Exports v.Apparels Exports Promotion Council MANU/DE/0213/1985;(ii) Shailesh Harilal Shah's case (supra);

(iii) Calcutta Chemical Co. Ltd v. Dhiresh Chandra Roy [1985] 58 Comp. Cas. 275 (Cal.);

20. In the instant case, admittedly, the company has issued notice dated 4-12-2000, fixing the date o

the fifth annualgeneralmeetingon 30-12-2000. There is a clear 26 days gap between the date onotice and the date of the meeting. It is also demonstrated that the said notice is sent by the secretaron 6-12-2000, i.e., there is a gap of 24 days between the date of despatch and the date of themeeting. The plaintiff unequivocally admits that he received notice on 19-12-2000. His grievance is, h

did not have 21 clear days of notice of the meeting after he has been duly served with the notice of thmeeting. Therefore, the cases referred to in first and second category supra are of no assistance indeciding the controversies between the parties. As such those judgments are not referred to

Therefore, I have adverted only to those cases falling under the third category which are relevant fo

the purpose of this case.21. In the case of Maharaja Exports (supra), it has been held as under :

"Ordinary course of post' in a vast country like ours with many far-flung places at

inaccessible distance, where the time taken for delivery of letters varied from place to

place induced an element of uncertainty. In order to do away with this state of affairsand to import certainty to such an important matter as to the length of notice of generalmeetings of companies, legal fiction was pressed into service, by indicating in the 1950Act, that the notice shall be deemed to have been served 48 hours after posting. The

words '48 hours' are meant to make the service certain and to fix the date of service as

the date on which the said 48 hours expired. Under these circumstances, as already

observed earlier, the notice issued on 27-4-1984, will expire on 29-4-1984, which is wellwithin the phrase '14 days' clear notice'.

This aspect can also be looked into from another angle. Sub-section (3) ofSection172of the CompaniesActlays down that even the accidental omission to give
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notice to, or the non-receipt of the notice by, any member or other person shall notinvalidate the proceedings at the meeting. The 'accidental omission' means that theomission must be not only not designed but also not deliberate. This expression implies

absence of intention or deliberate design. The word 'or' appearing in this Sub-clause isof great significance. The company has only to prove on record that they have sent the

notice to its members on the addresses furnished by them. The non-receipt of thenotice, under no circumstances, shall invalidate the holding of the meeting or the

proceedings thereof. In this case, it is the admitted case of the parties that the

defendant-company did send the notice and it in fact was received by the plaintiff. Eventhe non-receipt, as observed earlier, would not have made any difference." (p. 365)

22. In the case of Shailesh Harilal Shah (supra), a Division Bench of the Hon'ble High Court of Bombahas held as under :

"It is, therefore, necessary to examine the object, purpose and scope of Section171of t

Act to determine whether the requirement is mandatory or directory. The recommendationsthe Company Law Committee in paragraphs 75(i) and 78 of the Report indicate that the peri

of 21 days was provided instead of 14 days as earlier fixed, to enable the shareholders

campaign and canvass the proxies if they so desired. The shareholders required reasonabtime to canvass opinion in favour or against the particular resolution proposed to be consider

at the meeting of the company. The object, therefore, is obviously to give proper areasonable opportunity to the shareholders for participating effectively in the meeting. Tlength of notice, the contents and the manner of service of notice have all been prescribed w

this end in view. The fact that Sub-section (2) of Section171of the Act enables tshareholders to consent for shorter duration of notice is an indication that the Legislature nev

thought the length of notice as sacrosanct. Sub-section (2) of Section171of the Act indicatthat it is for the shareholders to consider and decide whether they have got necessa

opportunity of properly participating in a meeting. Sub-section (3) of Section172of the Act

an indicator that the Legislature never desired that the proceedings of the meeting should invalidated merely because notice as prescribed under Sub-section (1) of Section171is

insufficient duration. Sub-section (3) of Section172of the Act provides that the accidenomission to give notice to, or the non-receipt of notice by, any member should not invalidathe proceedings and that clearly indicates the anxiety of the Legislature not to invalidate t

proceedings, even though no prejudice whatsoever is caused to the interest of tshareholders. To hold that the provisions of Section171(1) of the Act are mandatory wo

lead to very unusual results and making it difficult for large public companies to effectivefunction. A couple of shareholders cannot be permitted to defeat the interest of a large body

shareholders by raising contention that the duration of notice was not sufficient and ev

though such complaints do not indicate any prejudice by service of notice of shorter duratioIn our judgment, looking to the object, purpose and scope of provisions of Section171of t

Act, the conclusion is inescapable that the provision is merely directory and not mandator(p. 25)

23. In the case of Calcutta Chemical Co. Ltd. (supra), it has been held as under:

"The question, therefore, is whether Section171(1) which lays down that 'A generalmeeting of a company may be called by giving not less than 21days' noticein writing'

is mandatory or not. A shorter notice can be given in the circumstances set out in Sub-section (2) of Section171. Section172(3)provides: 'The accidental omission to give

notice to, or the non-receipt of notice by, any member or other person to whom it

should be given shall not invalidate the proceedings at the meeting.'Section172(3)makes it abundantly clear that it is not a condition precedent to the

holding of the annualgeneralmeetingof a company that a clear 21 days' notice mustbe given to each and every member of the company. The accidental omission to givenotice to any member or non-receipt of notice by any member shall not invalidate the


10/29

proceedings at the meeting. If we have to uphold the contention of the respondent, weshall have to hold that if the notice to a shareholder is not accidentally posted at all, theproceedings at the annualgeneralmeetingof a company will be valid. But if the

notices were posted accidentally less than 21 days before the meeting, the proceedingsat the meeting will be void even though the shareholder received the notice in good time

before the meeting was held and actually attended the meeting. If Mr. Dhiresh ChandraRoy did not receive the notice at all, the company could have invoked the protection of

the provisions of Section172(3)of the Act. In our opinion, such a construction would

lead to absurdity and should be avoided. We are aware of the dictum that law is notalways logic. But the court should be very slow to give a construction to a section which

would lead to absurdity and will cause injustice. We are unable to accept the contentionthat a short notice served on a member will invalidate a meeting altogether but non-receipt of the notice by a member will not have the same effect." (p. 279)

24. It is also useful to refer to a passage from Maxwell on the Interpretation of Statutes where it has

been stated as under :

"It has been said that no rule can be laid down for determining whether the command (of t

statute) is to be considered as a mere direction or instruction involving no invalidatconsequence in its disregard, or as imperative, with an implied nullification for disobedien

beyond the fundamental one that it depends on the scope and object of the enactment. It maperhaps, be found generally correct to say that nullification is the natural and usuconsequence of disobedience, but the question is in the main governed by considerations

convenience and justice, (R. v. Ingall [1877] 2 QBD 199 at page 208, per Lush, J.) and, whthat result would involve general inconvenience or injustice to innocent persons, or advanta

to those guilty of the neglect, without promoting the real aim and object of the enactmesuch an intention is not to be attributed to the Legislature. The whole scope and purpose of t

statute under consideration must be regarded. The general rule, is that an absolute enactme

must be obeyed or fulfilled exactly, but it is sufficient if a directory enactment be obeyed fulfilled substantially."

25. Similarly, the Supreme Court in the case of Hari Vishnu Kamath v. Ahmad Ishaqu

MANU/SC/0095/1954: [1955]1SCR1104 , has observed as under :"26. It is well established that an enactment in form mandatory might in substance

directory, and that the use of the word 'shall' does not conclude the matter. The question wexamined at length in Julius v. Bishop of Oxford [1880] 5 AC 214(S), and various rules welaid down for determining when a statute might be construed as mandatory and when

directory. They are well known, and there is no need to repeat them. But they are all of theonly aids for ascertaining the true intention of the Legislature which is the determining facto

and that must ultimately depend on the context...." (p. 245)

26. Following the quotations from Crawford on Statutory Construction--article 261 at page 516 ipertinent--United Commercial Bank Ltd. v.CIT MANU/SC/0060/1957: [1957]32ITR688(SC) :

"The question as to whether a statute is mandatory or directory depends upon the intent of t

Legislature and not upon the language in which the intent is clothed. The meaning aintention of the Legislature must govern, and these are to be ascertained, not only from t

phraseology of the provision, but also by considering its nature, its design, and tconsequences which would follow from construing it the one way or the other...."

27. The following observation of the Judicial Committee of the Privy Council in Montreal Street Railway

Company v. Normandin AIR 1917 PC 142, in Raza Buland Sugar Co. Ltd. v. Municipal Board, RampuMANU/SC/0226/1964: [1965]1SCR970 is as under :

"The question whether provisions in a statute are directory or imperative has very frequen

arisen in this country, but it has been said that no general rule can be laid down, and thatevery case the object of the statute must be looked at...When the provisions of a statute relato the performance of a public duty and the case is such that to hold null and void acts done
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neglect of this duty would work serious general inconvenience, or injustice to persons who hano control over those entrusted with the duty, and at the same time would not promote tmain object of the Legislature, it has been the practice to hold such provisions to be directo

only, the neglect of them, though punishable, not affecting the validity of the acts done." 899)

28. The Supreme Court in the case of Raza Buland Sugar Co. Ltd. (supra), has observed as under :

"7. The question whether a particular provision of a statute which on the face of it appe

mandatory--inasmuch as it uses the word 'shall' as in the present case--or is merely directocannot be resolved by laying down any general rule and depends upon the facts of each ca

and for that purpose the object of the statute in making the provision is the determining fact

The purpose for which the provision has been made an4 its nature, the intention of tLegislature in making the provision, the serious general inconvenience or injustice to persoresulting from whether the provision is read one way or the other, the relation of the particu

provision to other provisions dealing with the same subject and other considerations which marise on the facts of a particular case including the language of the provision, have all to

taken into account in arriving at the conclusion whether a particular provision is mandatorydirectory." (p. 899)

29. In the aforesaid judgment while dealing with the question whether a particular section could be

partly directory or partly mandatory, it is observed as under:

"... The crux of the problem before us is whether all the conditions are to be treated mandatory or all of them as directory or some of them as of one kind and some of the oth

kind? What is the test to apply and if a distinction is to be made, on what principle ? In mopinion, the way to look at the matter is this. A tax to be valid must be imposed in accordan

with the Municipalities Act. The Act lays down conditions some of which are devised for tprotection of the taxpayers and some others for ministerial operations connected with tmethod or system of imposing the tax or for promoting despatch, efficiency and publicity, e

All conditions of the first kind must of course, be regarded as mandatory, because they lie

the very root of the exercise of the power. Thus, preparation of assessment rolls, hearing

objections, framing of assessment rules are all mandatory. Similarly, conditions involving t

passing of resolutions by the necessary majority at special meetings after proper notice members are fundamental and cannot be overlooked. If a defect of a fundamental kind occu

it would (in the absence of curative provision) remain even if Government gave its sanctionSee Scadding v. Lorant [1851] 3 HLC 418, affirming Sub Nom, Lorant v. Scadding [1849]

QB 706 and Joshi Kalidas v. Dakar Town Municipality ILR 7 Bom. 399. Conditions whpromote despatch or provide for ministerial operations are usually directory and althoucompliance with them is also necessary it is sufficient if the compliance is substantial." (p. 90

30. In the background of the aforesaid legal principles, if we look into the provisions oSections171and172,it becomes clear that a general meeting of a company may be called by givin

not less than 21days' notice in writing. However, the Legislature provides for calling of a genera

meeting by giving shorter notice than specified under Sub-section (1) in the manner provided

under Section171(2), thereby meaning this 21daysnoticeis not sacrosanct. Thus, the Legislatureby insertion of Section171(2) made its intentions very clear that this requirement of Section171i

not mandatory if the conditions mentioned under Section171(2) are fulfilled. Section172deals wit

contents and manner of service of notice and the persons to whom it is to be served and it mandatethat the notice shall specify the place and the date, and hour of the meeting and shall contain astatement of the business to be transacted thereat. Section171 is silent about the consequence o

not complying with the requirements of the said section either on the general meeting held o

resolutions passed in such meeting. On the contrary, Sub-section (3) of Section172mandates that thaccidental omission to give notice to or the non-receipt of notice by any member or other person to

whom it should be given, shall not invalidate the proceedings at the meeting. When the Legislature ha

deliberately omitted to state that the non-compliance with Section171would invalidate thproceedings at the meeting and expressly declares that accidental omission to give notice or non


12/29

receipt of notice shall not invalidate the proceedings at the meeting, the said section cannot beinterpreted to mean contrary to the express intention expressed intention expressed by theLegislature.

31. In this context, it is useful to refer to the recommendations of the Company Law Committee in

paragraphs 75(i) and 78 of the report which indicates that the period of 21 days was provided insteadof 14 days as earlier fixed to enable the shareholders to campaign and canvass the proxies if they sodesired and also to canvass opinion in favour or against a particular resolution proposed to b

considered at the meeting of the company. The object, therefore, is obviously to give proper andreasonable opportunity to the shareholders for participating effectively in the meeting though from theoriginal period of 14 days it was enhanced to 21 days, by way of amendment this period is essentiallmeant to give a fair opportunity to the shareholders to prepare themselves to face the meeting- Agai

the Legislature has not specifically spelt out whether this 21 days notice should be computed from thedate of service of notice or from the date of notice itself. Under these circumstances, it is not open tthe courts to interpret the said section to mean that 21 days is to be calculated from the date of actuaservice of notice of the meeting. The giving of a notice, the contents of the notice as specified unde

Section172, furnishing a statement of the business to be transacted at the meeting, specifying 21days between the date of notice and the date of the meeting subject to Section171(2) and posting osuch notice are all within the reach of the company. Therefore, all these requirements are to be

complied with by the company and to that extent they are mandatory.32. Once the notice is posted through an agency, the company loses its control over such notice. Thcompany has to necessarily depend upon that third party agency for due service of notice and if tha

notice is not served on the shareholders in time, the company cannot be made to suffer. It is alsopossible that if the addressee is not available at the time of service even that agency to whom thiswork has been entrusted will be helpless in serving the notice on the shareholders. If the shareholdeintends disrupting the meeting and wants to invalidate the resolutions passed in the meeting, he could

cleverly avoid receiving the said notice within the stipulated period and he could choose to receive thenotice so as to make it appear that after service of notice, he or she had no clear 21 days noticeUnder these circumstances, if it is to be held that Section171is mandatory and that 21 days must bcalculated from the date of service of the notice on the shareholders, it would be humanly impossible

to conduct any meeting of the company by complying with the said requirement. Now-a-days there ia overwhelming participation by the public by subscribing to the shares of all companies. It is nowpossible for anyone to acquire a share of any company. The pattern of allotting shares has been

governed by the authorities and thereby the shareholders base with minimum number of shares ha

been expanded considerably. Therefore, the shareholders who are scattered all over the country haveto be reached necessarily by post. Under these circumstances, if 21 days notice contemplatedunder Section171is to be interpreted as mandatory and further it is to be interpreted that from the

date of service of notice to each shareholder the meeting is to be held 21 days thereafter, it would beimpossible to conduct any general meeting of any company. Such interpretation would result iabsurdity, especially when the Legislature consciously did not provide for invalidation of the meeting o

resolutions passed in the meeting for want of such 21 days of notice. Therefore, in my opinion, by

interpreting Section171as mandatory to include in its ambit 21 days' clear notice would bimproper. When the notice under Section171which otherwise would satisfy the requirements of tha

section is served on the shareholder and after service if he has reasonable time before the meeting, in

my opinion, it would be substantial compliance with the provisions of Section171. That portion of thprovisions regarding service of notice is directory and although compliance with them is alsnecessary, it is sufficient if the compliance is substantial.

33. The whole object of giving 21 days' notice is to give a reasonable opportunity to the shareholdersIf it is demonstrated that such reasonable opportunity has been denied deliberately with mala fideintention and such denial of reasonable opportunity has adversely affected the interest of theshareholders either preventing him from contesting the election or from voting in the election or from

campaigning and canvassing the proxies or canvassing the opinion in favour or against a particula

resolution, it is always open to the Court on proof of such prejudice to invalidate the proceedings omeetings notwithstanding the fact whether Section171is mandatory or not. In the absence of a casof such prejudice being made out, merely on the technical ground that there was no clear notice of 2

days from the date of service of the notice and the meeting neither the meeting nor the proceedings othe meeting could be invalidated. If such a thing is permitted one shareholder can virtually blackmathe company and prevent the company from holding its meeting or passing any resolution, thus

successfully obstructing the proper functioning of the company itself. Certainly that is not the intentio
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of the Legislature in enacting Section171.34. Coming to the case on hand, the company has issued a notice under Section171. Further thsaid notice contains all the particulars which are mentioned in Section172.The notice is dated 4-12

1999 and the date of the meeting is fixed on 30-12-1999, thereby giving 26 clear days between the

date of the meeting and the date of the notice. The said notice was posted through courier and thplaintiff, according to him, received the said notice on 19-12-2000. ThereforeSections171and172have been substantially complied with. His grievance is from 19-12-2000, he di

not have clear 21 days notice of the meeting and, therefore, the meeting is illegal and the resolutionspassed in such notice are illegal. It is not the case of the plaintiff that by such shorter notice he was iany way disabled either in campaigning or canvassing the proxies or in any manner he could nocanvass the opinion in favour or against any particular resolution proposed to be considered at the

meeting of the company. Absolutely no case of prejudice is either pleaded or demonstrated by theplaintiff. Therefore, it cannot be said that he has made out a prima facie case for grant of an order otemporary injunction in his favour.35. A reading of the plaint discloses that his grievance is that one S.B. Sidnal has been removed from

the directorship of the company illegally without following the procedure and, therefore, he iespousing the cause of removal of the said Sidnal and not himself. It is a proxy fight by the said S.BSidnal in the name of the plaintiff. The material on record discloses that the said S.B. Sidnal has filed

the suit seeking a declaration that he has been illegally removed from the directorship and he is noable to get any interim order in the said suit and, therefore, the present suit is filed in the name of thepetitioner. Therefore, it is clear the petitioner has not come to this Court with clean hands. He i

fighting the case of S.B. Sidnal in this suit. Though the meeting notice was served on him on 19-122000, he did not choose to file the suit immediately. He waited till 27-12-2000. Just three days prior tthe date of the meeting, in the vacation court, he moved for an interim order. Though in the normacircumstances, nine days would not amount to any delay, in the facts and circumstances of this case

and in the absence of any explanation for not moving the Court immediately and in the light of theallegations in the plaint, where the plaintiff is espousing cause of S.B. Sidnal, who, in fact, failed to geany interim order in his suit, this delay of nine days in moving the Court for an equitable relief oinjunction to prevent the holding of a meeting to be conducted on 30-12-2000, in my opinion, is

material and disentitles him for the grant of an order of temporary injunction.

36. The contention of the learned counsel for the petitioner that the meeting was held at 9 a.m., whic

was not the business hour of the company, and the said time was fixed to prevent the shareholders

who are living in remote villages from reaching the venue of the meeting has remained only as an

assertion without any material on record to substantiate the said contention. It is not the case of thepetitioner that because of the holding of the meeting at 9 a.m. he was in any way inconvenienced

Again he is pleading the case of those unknown shareholders who are inconvenienced by such fixing o

time. This is yet another circumstance which demonstrates that the petitioner's case is not of personal injury to him and he is pleading the case for and on behalf of others who are not before thiCourt. While the trial court granted permission to hold the meeting on 30-12-2000, no attempt wa

made to get this time changed. In any event that cannot have the effect of invalidating the meeting

and the resolutions passed in such meeting without any proof of inconvenience or mala fidesTherefore, I do not find any substance at this stage in the said contention.

37. It was further contended that the Allahabad, Calcutta, Punjab and Haryana and Madras High Court

have held that Section171is mandatory and following the said view the trial judge has granted anorder of injunction and the Appellate Court could not have interfered with the said discretionary orde

by relying on the judgment of the Bombay High Court as in the absence of the law declared by theSupreme Court or the judgment of this Court on the point the exercise of discretionary power by thtrial court in granting injunction should not have been interfered with by the Appellate Court. I do no

find any substance in this submission because as I have set out earlier the judgments of the AllahabadCalcutta, Punjab and Haryana and Madras High Courts, are not on the point. They are cases where

either no notice was issued or the notices issued were defective in the sense from the date of notice tithe date of holding of the meeting twenty-one clear days was not given. Therefore, those judgment

have no application to the facts of this case. Admittedly, in the instant case, notice is given. Twentyone clear days is mentioned between the date of the notice and the date of the meeting, notice ha

been duly served on the plaintiff on 19-12-2000. Therefore, the first Appellate Court was right i

setting aside the finding of the trial judge based on those aforesaid judgments and in relying on thlaw laid down by the Bombay High Court.
http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18720','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18720','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18720','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18720','1');http://fnopenglobalpopup%28%27/ba/disp.asp','18721','1');


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38. Lastly, it was contended that the order of injunction being discretionary when the trial court hasexercised its discretion one way or the other, it should not have been interfered with lightly by theAppellate Court even if the Appellate Court could come to a different conclusion on the same set o

facts. In the instant case, there is no dispute on facts. They are admitted. The dispute is with regard t

application of law. The trial court had wrongly applied the law laid down by the Allahabad, Calcutta anPunjab and Haryana High Courts to the facts of this case. What is applicable to the case on hand is thlaw of the Bombay High Court which has been rightly applied by the Appellate Court. Therefore, th

Appellate Court was duty-bound to interfere with such finding and has rightly set aside the order of thtrial judge and vacated the order of injunction granted by the trial court by applying the correct law othe point. Therefore, no fault could be found with the exercise of jurisdiction by the Appellate Court.

39. For the reasons aforesaid, I do not find any merit in this CRP and, accordingly, the CRP i

dismissed. The parties to bear their own costs.

Manupatra Information Solutions Pvt. Ltd.

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MANU/MH/0003/1994

Equivalent Citation: AIR1994Bom20, 1994(1)BomCR186, 1993(95)BOMLR205

IN THE HIGH COURT OF BOMBAYAppeal No. 1001 of 1991 in Notice of Motion No. 2132 of 1991 in Suit No. 3003 of 1991 with Appeal

No. 1002 of 1991 in N.O.M. No. 2131 of 1991 in Suit No. 3002 of 1991 and 1082 of 1991 in N.M.No.

2158 of 1981 in Suit No. 3139 of 1991

Decided On: 20.04.1993

Appellants:Shailesh Harilal Shah and Others, etc.

Vs.Respondent: Matushree Textiles Limited and Others etc.

Hon'ble Judges/CoramM.L. PendseandA.A. Cazi,JJ.

Counsels:

For Appellant/Petitioner/Plaintiff:R.A. Kapadia,Mrs. Zia ModiandN.H. Seervai,Advs., i/bM/s. Meht& Girdharlal,N.G. ThakkarandMilind Sathe,Advs., i/bM/s. Federal & Rashmikant

For Respondents/Defendant:K.S. CooperandR.C. Shah, Advs., i/bM/s. Bankim Desai &CompanyandT.N. Subramaniam,T.K. Cooper,B.N. VaishnavaandN.J. Devashrayee, Advs., i/bM/s

N.N. vaishnava & CompanySubject: Company

Catch Words

Mentioned IN

Acts/Rules/Orders:CompaniesAct, 1956 - Section 53(2), CompaniesAct, 1956 - Section 108, CompaniesAct, 1956 Section 166, CompaniesAct, 1956 - Section 171(1), CompaniesAct, 1956

Section172,CompaniesAct, 1956 - Section 173, CompaniesAct, 1956 - Sectio205, CompaniesAct, 1956 - Section 209, CompaniesAct, 1956 - Section 217, CompaniesAct

1956 - Section 252,CompaniesAct, 1956 - Section 255, CompaniesAct, 1956 - Sectio260, CompaniesAct, 1956 - Section 283(E), CompaniesAct, 1956 - Sectio

287(2), CompaniesAct, 1956 - Section 290,CompaniesAct, 1956 - Sectio300(1), CompaniesAct, 1956 - Section 301, CompaniesAct, 1956 - Section 370; Indian Penal Cod

1860, (IPC) - Section 409; Indian Contract Act, 1872;CompaniesAct, 1913 - Sectio

91B; Constitution of India - Article 75, Constitution of India - Article 81, Constitution of India - Articl88; Code of Civil Procedure (CPC) - Order I Rule 8

Cases ReferredR.K. Dalmia v. Delhi Administration, AIR 1962 SC 1821; Firestone Tyre and Rubber Co. v. Synthetics

and Chemicals Ltd., (1971) 41 Com Cas 377; Madras tube Company Ltd. v. Hari Kishon Soman(1985) 1 Com LJ 195; Foster v. Foster, (1916) 1 Ch. 532; Public Prosecutor v. Khaitan, ILR (1957

Mad 665, AIR 1957 Mad 4; Narayandas Shreeram Somani v. Sangli Bank Ltd., AIR 1966 SC

170;Boschoek Proprietary Company, Limited v. Fuke, (1906) 1 Ch. 148; Seth Mohan Lal v. GraiChambers Ltd., Muzaffarnagar, AIR 1968 SC 772; Sly, Spink & Co., (1911) 2 Ch 430; Ananthalakshm

Ammal v. Indian Trades and Investments Limited, AIR 1953 Mad 467; Fatesh Chand Kad v. Hindson(Patiala) Ltd., (1957) 27 com Cas 340, AIR 1956 Pepsu 89; Ketan Champaklal Bakshi v. Mrs. Sheell

Sidhdharth Balsi, Order No. 929 of 1990; Morris v. N. Kanseen, (1946) 1 All ER 586; R. v. Inga(1876) 2 QBD 199; Haro Vishnu Kamath v. Ahmad Ishaque, AIR 1955 SC 233; Julias v. Bishop o

Oxford, (1880) 5 AC 214; Mannalal Khetan v. Kedar Nath Khetan, AIR 1977 SC 536; Homi Cawasj
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16/29

Bharucha v. Arjun Prasad, (1957) 27 Com Cas 6, AIR 1956 Patna 364; Pearce, Duff & Co. Ltd., (19603 All ER 222; N.V.R. Nagappa Chettiar v. The Madras Race Club, ILR (1949) Mad 808, AIR 195Madras 831(2); Laljibhai C. Kapadia v. Lalji B. Desai, (1973) 43 Com Cas 17, AIR 1972 Bom

276; Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd., AIR 1965 Guj 96

Case Note

Company service of notice Sections 53 (2), 108, 166, 171 (1), 172, 173, 205, 209, 217252, 255, 260, 283 (E), 287 (2), 290, 300 (1), 301 and 370 of Companies Act, 1956plaintiffs sought a declaration that notice convening annual general meeting is ultra viresinvalid and illegal notice was short by one day challenge to business conducted i

meetings is without any substance there was no resolution passedat annual general meeting no prejudice caused to plaintiffs held, meeting was not ultravires, invalid and illegal.

ORDERPendse, J.1. Matushree Textiles Limited is a Public Limited Company incorporated under the CompaniesAct

1956 (hereinafter referred to as the 'Act') and the authorised share capital of the Company is Rs1,50,00,000/- only divided into 15,00,000 equity shares of face value of Rs. 10/- each. The subscribecapital is Rs. 89,00,000/- divided into 8.90 Lakhs shares. The shares of the Company are listed o

Bombay Stock Exchange and at the relevant lime, the value quoted was Rs. 40/- per share. The7th AnnualGeneralMeetingof the Company was held on September 30, 1989 for the year endinMarch 31, 1989 and consequently, the 8th AnnualGeneralMeetingwas statutorily required to bheld as per S.166of the Act latest by December 31, 1990. The meeting was not convened by the

Company within the stipulated time. The 8th AnnualGeneralMeetingfor the year ending March 311990 was convened on September 30, 1991 by notice dated September 5, 1991. The notices to theshareholders was sent by post on September 7, 1991 and under S.53(2)(b)(i)of the Act, the notice ideemed to have been effected at the expiration of forty eight hours alter the letter is posted an

accordingly, the notice is deemed to have been served on September 9, 1991.The plaintiffs instituted Suit No. 3002 of 1991 on September 21, 1991 for a declaration thadefendants Nos. 1 to 4 are not entitled to convene 8th AnnualGeneralMeetingon September 30

1991 or any other date as calling of the said meeting is ultra vires and null and void. The plaintiff

sought a declaration that notice dated September 2, 1991 convening the AnnualGeneralMeetingiultra vires, invalid and illegal. The plaintiffs sought a perpetual injunction restraining defendants fromholding and/or proceeding with the AnnualGeneralMeetingand from in any manner giving effect o

acting upon in furtherance of implementation of the resolutions to be passed at the meeting. Theplaintiffs are holders of 3110 equity shares and their holding is 0.3% of the total equity subscribedThe defendant No. 1 is the Company, while defendants Nos. 2 to 4 are the Directors. The notice o

8th AnnualGeneralMeetingsets out that the following subjects will be transacted at the meeting :

1. To receive and adopt Audited Profit & Loss Account and the Balance Sheet togetherwith reports of Directors and Auditors thereon.

2. To appoint a Director in place of Mr. Vimal Kumar Poddar who retires by rotation and

is eligible for re-appointment.

3. To appoint Auditors and to authorise the Board to fix their remuneration.4. To pass ordinary resolution appointing Mr. Santosh Kumar Poddar as a Director, and

5. to pass ordinary resolution appointing Rajnikant Mehta as Director.

2. The plaintiffs complained that the 8th AnnualGeneralMeetingconvened on September 30, 199was proposed to be held beyond the statutory period contemplated under S.166of the Act and

therefore, the Company is not entitled to call meeting unless appropriate orders are obtained fromappropriate forum seeking extension of time. The plaintiffs further claimed that notice date

September 2, 1991 and which was deemed to have been served on September 9, 1991 for conveningthe meeting on September 30, 1991 does not comply with the requirement of S. 171of the Act as th

duration of notice is less than 21 clear days. The plaintiffs further claimed that defendant No. 2


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Santoshkumar Poddar ceased to be the Director of the Company as from January 1, 1991 and hisappointment as Additional Director pursuant to the resolution of the Board of Directors was bad in lawThe plaintiffs claimed that on retirement of defendant No. 2, the Board was not properly constituted a

the minimum number of Directors required is 3 in number. The plaintiffs further claimed that th

quorum required was two and defendants Nos. 2 and 3 being real brothers and closely related, it wasnot open for defendant No. 3 to participate in the meeting for appointment of defendant No. 2. Thplaintiffs claimed that the resolution appointing defendant No. 2 as additional Director was vitiated as

there was no quorum required by the Act. The plaintiffs further claimed that if the appointment odefendant No. 2 was illegal and bad, the notice convening AnnualGeneralMeetingsigned bdefendant No. 2 is bad in law and inoperative. The plaintiffs further claimed that the Company haddeliberately circulated an abridged balance sheet so as to cover up the acts of misconduct

misfeasance and malfeasance indulged by defendants Nos. 2 to 4. The plaintiffs claimed that theperusal of the Auditor's report and Notes on accounts makes it very clear that the substratum odefendant No. 1 has disappeared and defendants Nos. 2 to 4 are mismanaging the Company.3. The plaintiffs instituted Suit No. 3003 of 1991 in respect of 9th AnnualGeneralMeetingfor th

year ending March 31, 1991 convened on September 30, 1991 by notice dated September 2, 1991The notices were issued by the Company to convene both 8th and 9th Annual General Meetings on thesame date and both the meetings were also to be held on the same date, i.e. September 30, 1991

Suit No. 3003 of 1991 challenges the right of the Company to hold 9th AnnualGeneralMeetingfoidentical reasons as set out in companion Suit No. 3002 of 1991. The notice for convenin9th AnnualGeneralMeetingsets out the following agenda :

1. To receive and adopt audited Profits and Loss Account for the year ended March 31,1991.

2. To declare a dividend.

3. To appoint a Director in place of Mr. Rajanikant Mehta, who retires by rotation andbeing eligible offers himself for re-appointment.

4. To appoint auditors and authorise the Board to fix their remuneration.

5. To consider whether authorised share capita! of the Company be increased from Rs.

1,50,00,000/- to Rs. 2,00,00,000/-, divided into 20,00,000/- shares of Rs. 10/- each.

6. To issue 8,90,000 Rights shares at the face value of Rs. 10/- to the existing shareholders, and

7. To authorise the Board of Directors to make loans to any body corporate from time totime and on such terms and conditions as the Directors may deem fit, provided that the

aggregate of the loans outstanding at any one time made to the Company shall notexceed 30% of the aggregate of the subscribed share capital of the Company.

4. Suit No. 3139 of 1991 was instituted on September 30, 1991 by Arunkumar Poddar and RajkumaBajaj and to whom the plaintiffs in other two suits are closely related and/or friends. ArunkumaPoddar is the real brother of defendants Nos. 2 and 3 --Santoshkumar and Vimalkumar Podda

respectively. Arunkumar Poddar and Rajkumar Bajaj claimed that initially, they were Directors of theCompany but defendants Nos. 2 to 4 illegally claimed that they had ceased to be Directors by virtue o

S. 283(E) of the Act by operation of law. It was claimed that the contention of defendants Nos. 2 to 4that Arunkumar Poddar and Rajkumar Bajaj failed to attend the meetings and, therefore, eased to b

Directors is not correct. Arunkumar Poddar and Rajkumar Bajaj, apart from seeking a declaration thathey continue to be the Directors of the Company and all meetings of the Board of Directors helwithout their presence were illegal and invalid and resolutions non est sought relief in respect of 8thand 9th Annual General Meetings convened on September 30, 1991. The relief in respect of these tw

meetings was based on same averments which were made in the two companion suits. It hardlrequires to be stated that the dispute between Arunkumar Poddar and his two brothers had led to theinstitution of three suits. It is required to be stated at this juncture that at one stage, the dispute

between the three brothers was referred to a spiritual leader in which the brothers had confidence, buthe decision of the spiritual leader was not accepted by Arunkumar Poddar and the parties decided to


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fight out the litigation in Court.

5. Two Notices of Motion being Notice of Motion No. 2131 of 1991 and Notice of Motion No. 2132 o

1991 were taken out by the plaintiffs in Suits Nos. 3002 and 3003 of 1991 respectively seeking interim

relief restraining the Company from holding and/or proceeding with 8th and 9th Animal GeneraMeetings convened on September 30, 1991. The plaintiffs also sought relief restraining the defendantsfrom implementation of the resolution and business proposed to be transacted at the said Annua

General Meetings. Notice of Motion No. 2158 of 1991 was taken out by Arunkumar Poddar in Suit No

3139 of 1991 for identical reliefs. The plaintiffs applied for grant of ad interim relief pending th

disposal of Notice of Motion, but the learned trial Judge declined to grant any ad interim relief. Thplaintiffs thereupon preferred appeals before Division Bench of this Court and the Division Benc

granted ad interim relief only in respect of prayer restraining

Documents

Agm 21 Days Notice