2016 (3) TMI 1359 - HC - Companies Law

Court dismisses writ petition on Companies Act violations, emphasizes corporate democracy principles

The court dismissed the writ petition, emphasizing that detailed inquiries into Companies Act violations fall under authorities' purview, not writ ... Prohibition on respondent no. 1-Company from holding its Annual General Meeting - alleged non-disclosure to its investors/shareholders true and correct state of affairs in its Annual Report and Director's Report for the year 2014-15 - violation of Section 134 of the Companies Act, 2013 - Principle of corporate democracy - HELD THAT:- The principle of corporate democracy requires that meeting of shareholders should normally not be interdicted. Reliance can be placed in the case of LIFE INSURANCE CORPN. OF INDIA VERSUS ESCORTS LTD. [1985 (12) TMI 289 - SUPREME COURT] where it was held that The holder of the majority of the stock of a corporation have the power to appoint, by election, Directors of their choice and the power to regulate them by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another. Thus, keeping in view the fact that AGM has already been held, the petitioner is not entitled to any relief - petition dismissed. Issues:Violation of Section 134 of the Companies Act, 2013 in Annual Report, Corporate democracy principle, Relief entitlement, Jurisdiction of NCLT and Company Law Board.Violation of Section 134 of the Companies Act, 2013 in Annual Report:The petitioner sought to prohibit the respondent company from holding its AGM, alleging a violation of Section 134 by not disclosing the true state of affairs to shareholders. The respondent countered, highlighting the petitioner's minimal shareholding and past litigious behavior. The court noted the previous denial of relief by the Mumbai High Court and emphasized that detailed inquiries into such violations fall under the purview of authorities under the Companies Act, not the writ jurisdiction.Corporate democracy principle:The judgment referred to the principle of corporate democracy, emphasizing the importance of shareholder meetings and the limited interference allowed unless strictly necessary. Drawing parallels to constitutional law, the court highlighted the powers and control dynamics between shareholders and directors, indicating that shareholders' primary control is through electing directors or altering articles, not through injunctions against AGMs.Relief entitlement:Considering the AGM had already taken place and the legal mandate, the court concluded that the petitioner was not entitled to relief. The judgment stressed that even if there was a violation, the matter should be investigated by authorities under the Companies Act, which cannot be done in writ jurisdiction. The court also pointed out the availability of alternate remedies through the Company Law Board until the NCLT becomes functional.Jurisdiction of NCLT and Company Law Board:The petitioner argued the lack of an alternate efficacious remedy due to the non-constitution of NCLT. However, the court clarified that the Company Law Board could be approached until NCLT is operational. As the petitioner did not challenge the functionality of the Company Law Board or seek its intervention, the court dismissed the writ petition, granting liberty to the petitioner to pursue other available remedies without expressing any opinion on the case's merit, leaving all parties' rights and contentions open.