Oppression in company meetings: unilateral withdrawal of a resolution was impermissible, but the right issue was allowed to stand.

A petition under sections 397 and 398 of the Companies Act, 1956 was treated as maintainable against a banking company because the Companies Act continued to apply except where inconsistent with banking law. The Board stated that a single act may amount to oppression if its effect is oppressive, and held that a chairman cannot withdraw a resolution already placed before members without their approval. On the facts, the unilateral withdrawal of the right issue resolution was oppressive, but the right issue itself was not quashed. For the requisitioned EGM, an observer was considered sufficient to ensure compliance with statutory procedure.

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Issues: (i) Whether a petition under sections 397 and 398 of the Companies Act, 1956 was maintainable against a banking company; (ii) Whether the unilateral withdrawal of the right issue resolution by the Chairman and the subsequent right issue decision constituted oppression and whether the members could validly continue the meeting; (iii) Whether the requisitioned extraordinary general meeting required appointment of an independent observer or chairman.

Issue (i): Whether a petition under sections 397 and 398 of the Companies Act, 1956 was maintainable against a banking company.

Analysis: Section 616 makes the Companies Act applicable to banking companies except where inconsistent with the Banking Companies (Regulation) Act, 1949. The statutory scheme did not exclude sections 397 and 398. Section 38 of the Banking Companies (Regulation) Act, 1949 dealt with winding up of banking companies in specified situations, but did not take away the general applicability of the Companies Act to banking companies for other purposes. The Company Law Board held that a petition for winding up on just and equitable grounds was not barred, and therefore the alternative remedy under sections 397 and 398 was also available.

Conclusion: The petition was maintainable against the banking company.

Issue (ii): Whether the unilateral withdrawal of the right issue resolution by the Chairman and the subsequent right issue decision constituted oppression and whether the members could validly continue the meeting.

Analysis: The Board held that a single act may, depending on its nature and effect, amount to oppression. It further held that the Chairman of a general meeting has no unfettered power to withdraw a resolution placed before the members; once a matter is validly included in the agenda, withdrawal requires the approval of the members. On the facts, the withdrawal was not shown to have been approved by the general body, and the manner of withdrawal disclosed oppressive conduct. The members were therefore entitled to continue the meeting with a new chairman after the business remained untransacted. At the same time, the Board found that the company was entitled to raise capital, that the right issue was not shown to be mala fide, and that the articles did not bar a right issue with renunciation. The Board therefore declined to invalidate the right issue itself, noting that cancelling it would also defeat the associated bonus issue and prejudice the general body of shareholders.

Conclusion: The Chairman's withdrawal of the resolution was oppressive, but the right issue itself was not quashed and was permitted to proceed.

Issue (iii): Whether the requisitioned extraordinary general meeting warranted appointment of an independent observer or chairman.

Analysis: In view of the earlier conduct surrounding the first meeting and the complaints regarding circulation of explanatory statements and use of the company's resources for proxies, the Board accepted that supervisory safeguards were justified. Instead of appointing an independent chairman, it considered appointment of an observer sufficient to monitor the requisitioned meeting and ensure compliance with the statutory procedure under section 169.

Conclusion: An observer was appointed and directions were issued for conduct of the requisitioned meeting.

Final Conclusion: The petition succeeded only to the limited extent of establishing oppressive conduct in the handling of the general meeting and securing procedural safeguards for the requisitioned meeting, while the proposed right issue was allowed to stand.

Ratio Decidendi: A petition under sections 397 and 398 can lie against a banking company, a single act may constitute oppression depending on its effect, and a chairman of a general meeting cannot withdraw a resolution placed before members without their approval.

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