2010 (8) TMI 775 - HC - Companies Law

Court Invalidates 64th AGM Resolutions, Orders Timely AGMs

Sadhan Kumar Ghosh Versus Bengal Brick Field Owners´ Association

The court set aside the notice and resolutions related to the 64th AGM convened on 21-7-2008, directing the company to hold and complete its 64th AGM ... Meetings and proceedings - Annual general meeting - Held that:- The notice and the resolutions relating to the 64th annual general meeting of the first defendant-company convened and held on 21-7-2008, are set aside. The first defendant-company is directed to hold and complete its 64th annual general meeting for the year ended 31-3-2007, within ten weeks from date by complying with the provisions as to issuance of notice and laying of the balance-sheet and profit and loss account of the company for the relevant financial year. Since the first defendant-company is now also in default in holding its annual general meetings for the financial years ended 31-3-2008 and 31-3-2009 and since there would be no time to hold the annual general meeting for the financial year ended 31-3-2010, the company is directed to hold and complete the annual general meetings for the relevant financial years within eight weeks of the previous annual general meeting. The amended articles of association of the company would apply and the injunction sought in respect of the business transacted at the extraordinary general meeting of 18-8-2007, is declined. Issues Involved:1. Legality of the Extraordinary General Meeting (EGM) held on 18-8-2007.2. Validity of the Annual General Meeting (AGM) convened for 21-7-2008.3. Authority of the company to hold AGMs beyond the statutory period.4. Jurisdiction of the civil court to compel the company to hold AGMs.Issue-wise Detailed Analysis:1. Legality of the Extraordinary General Meeting (EGM) held on 18-8-2007:The plaintiff challenged the EGM held on 18-8-2007, alleging that they did not receive notice of the meeting, and the amendments made to the memorandum and articles of association were illegal. The contesting defendants argued that notices were duly issued to all members under certificate of posting, and the meeting was attended by a substantial number of members. The court found prima facie substance in the defendants' claims and noted that the plaintiff did not demonstrate deliberate omission of notice by those in control of the company. The court also observed that section 172(3) of the Companies Act provides that accidental omission to give notice does not invalidate the proceedings. Consequently, the interim orders sought by the plaintiff concerning the EGM were declined, and the amendments approved at the EGM were upheld as they had received subsequent approval from the Central Government.2. Validity of the Annual General Meeting (AGM) convened for 21-7-2008:The plaintiff contested the validity of the AGM scheduled for 21-7-2008, arguing that it was not held within the time frame prescribed by section 166 of the Companies Act. The contesting defendants admitted the delay but contended that the company has the authority to hold AGMs beyond the prescribed period, though they may be penalized for the delay. The court recognized the plaintiff's argument that the authority to hold an AGM must be rooted in the statute and noted that the delay in holding the AGM was contrary to the governing statute. The court emphasized that the illegality of an act cannot be wished away by the conduct of the plaintiff or those who set up the plaintiff. Therefore, the court assessed the legality of convening the 64th AGM beyond the statutory period.3. Authority of the company to hold AGMs beyond the statutory period:The court examined various precedents and statutory provisions, including sections 166, 167, and 168 of the Companies Act. It noted that the obligation to hold an AGM is a statutory duty, and the Registrar of Companies can extend the time for holding an AGM by a maximum of three months. The court observed that if the statutory time frame is not adhered to, the AGM cannot be considered valid. The court referred to binding precedents, including the unreported judgment in Bajarang Prasad Jalan v. Shree Hanuman Properties and Finance (P.) Ltd., which held that an AGM held beyond the prescribed period without extension is no meeting at all in the eye of law. The court concluded that a company does not have the authority to hold its AGM beyond the statutory period suo motu.4. Jurisdiction of the civil court to compel the company to hold AGMs:The court addressed whether a civil court can direct a company to hold its AGMs beyond the prescribed period. It noted that the obligation to hold an AGM is for the benefit of the members and that a solitary member can enforce this duty by approaching the Company Law Board under section 167. The court held that there is no express or implied bar on a civil court to compel a company to hold its AGM despite the statutory period having expired. The court emphasized that the civil court has the authority to direct a company to discharge its statutory obligation of holding AGMs, notwithstanding the expired period.Conclusion:The court set aside the notice and resolutions relating to the 64th AGM convened on 21-7-2008, directing the company to hold and complete its 64th AGM within ten weeks. The company was also directed to hold AGMs for subsequent financial years within eight weeks of the previous AGM. The amendments to the articles of association approved at the EGM were upheld, and the injunction sought by the plaintiff was declined. The applications G.A. No. 2281 of 2008 and G.A. No. 4009 of 2008 were disposed of with no order as to costs. The plaintiff's request for a stay on the direction to hold AGMs was declined.