2016 (6) TMI 185 - Board - Companies Law

Court dismisses petition under Companies Act, emphasizing corporate democracy and limited application.

VIL Limited and Ors. Versus Raibareilly Allahabad Highway Pvt. Ltd. and Ors

VIL Limited and Ors. Versus Raibareilly Allahabad Highway Pvt. Ltd. and Ors - TMI Issues Involved:1. Impracticability of calling, holding, and conducting general meetings.2. Allegations of mismanagement and embezzlement.3. Requirement of quorum for meetings.4. Right to information and transparency in board meetings.5. Application of Section 186 of the Companies Act, 1956.Issue-wise Detailed Analysis:1. Impracticability of Calling, Holding, and Conducting General Meetings:The petitioners argued that due to the obstructive behavior of R-2, it was impracticable to call, hold, and conduct general meetings. They cited repeated instances where R-2 avoided attending meetings, causing a deadlock that prevented the company from functioning. The petitioners sought relief under Section 186 of the Companies Act, 1956, which allows the Company Law Board (CLB) to order a meeting if it is impracticable to call, hold, or conduct it in the prescribed manner. However, the respondents countered that they were always willing to attend meetings if provided with the necessary information and if the meetings were held at a convenient location.2. Allegations of Mismanagement and Embezzlement:The respondents accused P-2 of gross mismanagement and embezzlement, particularly in relation to the Raibareilly-Allahabad project. They alleged that P-2 made excess payments to the EPC contractor (P-1) amounting to Rs. 66 crores, which was questioned by the bankers and led to a mismatch of Rs. 28.29 crores in the funds utilized. The respondents argued that P-2's actions slowed down the company's business and that the petitioners were seeking to hold meetings to ratify their irregularities.3. Requirement of Quorum for Meetings:Article 23(2) of the company's Articles of Association (AoA) required a quorum of five members for any general meeting. The petitioners contended that the respondents' deliberate absence from meetings made it impossible to achieve the quorum, thereby stalling the company's operations. The respondents, however, maintained that they were willing to attend meetings if their legitimate requests for information were met.4. Right to Information and Transparency in Board Meetings:The respondents emphasized their right to receive detailed information related to the agenda items before attending meetings. They accused P-2 of withholding crucial information, such as the audited annual accounts, directors' report, and other financial documents. The respondents argued that without this information, it was impracticable for them to participate meaningfully in the meetings.5. Application of Section 186 of the Companies Act, 1956:The central issue was whether the CLB could invoke its discretion under Section 186 to order a meeting. The section permits the CLB to order a meeting if it is impracticable to call, hold, or conduct it. The petitioners relied on several precedents, including *In re El Sombrero Ltd* and *Pucci Dante vs Rafeeque Ahmed & Anr.*, to argue that the CLB should intervene due to the deadlock. However, the judgment emphasized that Section 186 could only be invoked if all three contingencies (calling, holding, and conducting) were impracticable. The respondents' willingness to attend meetings, provided they received the necessary information, indicated that it was not impracticable to call a meeting. The judgment also referenced *R. Rangachari vs. S. Suppiah and others* to support the interpretation that Section 186 should not be invoked liberally as it contradicts the ethos of corporate democracy.Conclusion:The judgment concluded that the petitioners failed to demonstrate that it was impracticable to call, hold, and conduct meetings. The respondents' willingness to attend meetings, contingent on receiving adequate information, negated the claim of impracticability. Consequently, the petition under Section 186 of the Companies Act, 1956, was dismissed without costs.