2012 (6) TMI 496 - HC - Companies Law

Court upholds validity of Board Meetings and EGM, dismisses Plaintiff's objections, denies general injunction.

The court upheld the validity of the Board Meetings held on 6th August 2009 and 9th October 2009, as well as the EGM held on 31st August 2009. The ... Meetings - Quorum - plaintiff has contended that there was no quorum upon she having left the board meeting and, hence, no business could be transacted – Held that:- plaintiff did attend the board meeting on 6-8-2009. Having attended the board meeting, it was the plaintiff’s bounden duty as a director and consequently as an agent of the company to go through the businesses which were sought to be transacted thereat. The plaintiff would have then been entitled to vote against the resolution sought to be passed and the resolution could not have been passed by a unanimous vote as required by the Articles of Association of the company. The plaintiff has called upon the Court to do what she could have done but failed to do. business transacted cannot be challenged Alternative director - defendant No. 12 who was the other Director present at the meeting could not have remained present as director. He was an alternate to the defendant No. 2. He was appointed when defendant No. 2 was to leave India. Defendant No. 2 is stated to be carrying on business in Singapore. After his appointment, defendant No. 2 returned to India, but had not attended any board meetings thereafter – Held that:- provision in section 313 with regard to the absence of the director from the State in which the meetings of the board are ordinarily held until the director returns to the State in which the meetings of the Board are ordinarily held as set out in sub-sections (1) and (2) thereof respectively would show not only a temporary return, but an intention to stay in that State so as to able him to transact the business of the company in the State where board meetings are ordinarily held. If a director such as defendant No. 2 merely comes to the State and leaves India again he would not be able to transact business. Hence, the alternate director would require to continue until the director appointing him would have continued. In instant case it would be permanently or until defendant No. 2 resigns or is removed is as director or otherwise vacates office under section 283. even if defendant No. 2 came to India for a week on his holiday or to visit his family, the defendant No. 12 would ipso facto vacate his office is wholly unacceptable. Issues Involved:1. Validity of the Board Meeting held on 5th August 1993.2. Validity of the Board Meetings held on 6th August 2009 and 9th October 2009.3. Validity of the Extraordinary General Meeting (EGM) held on 31st August 2009.4. Appointment and attendance of Defendant No. 12 as an alternate Director.5. General injunction against the business operations of Defendant No. 1 Company.Detailed Analysis:1. Validity of the Board Meeting held on 5th August 1993:The Plaintiff challenged the proceedings of the Board Meeting held on 5th August 1993, claiming they were false, fabricated, and fraudulent. The Plaintiff sought a declaration that Defendant No. 6 had no right, title, or interest in the suit flat and was a trespasser. The court noted that the suit was filed in 1997, and an injunction in respect of the 1993 meeting could not be claimed in a Notice of Motion taken out in 2009.2. Validity of the Board Meetings held on 6th August 2009 and 9th October 2009:The Plaintiff attended the Board Meeting on 6th August 2009 but left before the resolutions were passed, claiming ridicule and jeering. The Plaintiff argued that the meeting lacked quorum after her departure. The court held that quorum must be present when the business is transacted, not just at the beginning. The Plaintiff's departure was seen as an attempt to derail the meeting, and the court concluded that the quorum was present, and the business transacted was valid. The court also addressed the attendance of Defendant No. 12 as an alternate Director, stating that his presence was valid despite the Plaintiff's objections.3. Validity of the Extraordinary General Meeting (EGM) held on 31st August 2009:The Plaintiff contended that the notice for the EGM was not received more than 7 days before the meeting. The court clarified that the requirement was for the notice to be sent more than 7 days in advance, not necessarily received. The notice was deemed to have been received on 23rd August 2009, satisfying the requirement. The court found no grounds to invalidate the EGM or the resolutions passed therein.4. Appointment and attendance of Defendant No. 12 as an alternate Director:The Plaintiff argued that Defendant No. 12's attendance was invalid as Defendant No. 2, who appointed him, had returned to the State. The court interpreted Section 313 of the Companies Act, 1956, stating that the alternate Director ceases to hold office only when the appointing Director returns with the intention of resuming business activities. Defendant No. 2's temporary return did not suffice, and Defendant No. 12's attendance was deemed valid.5. General injunction against the business operations of Defendant No. 1 Company:The Plaintiff sought to restrain all business activities of Defendant No. 1 Company, which would result in a complete deadlock. The court emphasized that such relief would be unjust and inequitable, effectively putting a premium on the Plaintiff's default and disrupting the company's operations. The court suggested that the parties seek a fair settlement but refused to grant an injunction that would perpetuate the deadlock.Conclusion:The court upheld the validity of the Board Meetings held on 6th August 2009 and 9th October 2009, as well as the EGM held on 31st August 2009. The Plaintiff's objections regarding quorum and the appointment of Defendant No. 12 were dismissed. The court denied the Plaintiff's request for a general injunction against the company's business operations, emphasizing the need for the company to function as a going concern.