TaxTMI 
TaxTMI 
1992 (5) TMI 155
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....or short "the Act"), at the forthcoming annual general meeting : "Resolved that Messrs. Ram Pal Gupta and Associates, 6781, Beri Wala, Bagh Chowk, Azad Market, Delhi-6, chartered accountants be and are hereby appointed as auditors of the company in place of Messrs. Amod Agarwal Associates, Chartered Accountants". The vice-president of the company, vide his letter dated August 24, 1991, wrote to the plaintiff that the proposed resolution, which the latter intends to move at the annual general meeting for appointing Messrs. Rampal Gupta and Associates as auditors of the company in place of Amod Agarwal and Associates, chartered accountants, was not in accordance with the provisions of the Act and therefore, no action can be taken in regard to the proposed resolution. The refusal of the company to take action in regard to the proposed resolution implied that the defendant was neither circulating the proposed resolution to the members of the company nor was including the same in the agenda for the annual general meeting. Aggrieved by this refusal of the defendant, the plaintiff instituted the present suit in the court of the Senior Sub-Judge for a declaration that the notice dated Ju....
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....n and notice in respect thereof can be effective only if the requirement of section 188 is complied with, namely, the proposed resolution must be signed by members representing l/20th of the total voting power of all the members having a right to vote or by at least 100 members having the said right and holding shares of the value of more than Rs. 1 lakh. As the said condition was not complied with by the plaintiff, the company was not obliged to circulate the proposed resolution or to include the same in the agenda of the annual general meeting. Mr. Mahna, learned counsel for the plaintiff, contended that the order dated September 7, 1991, ought not to be varied or modified as the conditions contemplated under Order 39, rule 4 of the Code of Civil Procedure for varying or modifying the order have not been satisfied. According to learned counsel, the letters asking the defendant to pay the dividend are of no consequence as the same have been managed by the company from the shareholders. It is the contention of the learned counsel that no hardship or prejudice is being caused by the order dated September 7, 1991. On the merits of the controversy, it is submitted that a proposed res....
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....of 21 days be given for all resolutions. This was another reason for recommending the abolition of extraordinary resolutions. Section 189 of the Act gives effect to these recommendations of the Company Law Committee. Following the provisions of section 142 of the English Act of 1948 it was also suggested by the Company Law Committee that in certain cases special notices of proposed resolutions should be required to be given to the company which in turn must give it to the shareholders. Under the English Act, special notice is required in the case of a resolution to remove a director (section 184) or to dispense with a director's age limit (section 185) or to propose the appointment of an auditor other than the retiring auditor (section 160). Similar provisions have been incorporated in the present Act based on the recommendations of the Company Law Committee. These are sections 190, 225 and 284 of the Act. Section 190 of the Act corresponds to section 142 of the said English Act. This section reads as under : "S. 190. Resolutions requiring special notice. - (1) Where, by any provision contained in this Act or in the articles, special notice is required of any resolution, notice ....
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....said section reads as under : "188. (1) Subject to the provisions of this section, a company shall, on the requisition in writing of such number of members as is hereinafter specified and (unless the company otherwise resolves ) at the expense of the requisitionists, - (a)give to members of the company entitled to receive notice of the next annual general meeting, notice of any resolution which may properly be moved and is intended to be moved at that meeting ; (b)circulate to members entitled to have notice of any general meeting sent to them, any statement of not more than one thousand words with respect to the matter referred to in any proposed resolution, or any business to be dealt with at that meeting. (2) The number of members necessary for a requisition under sub-section (1) shall be - (a)such number of members as represent not less than one twentieth of the total voting power of all the members having at the date of the requisition a right to vote on the resolution or business to which the requisition relates ; or (b)not less than one hundred members having the right aforesaid and holding shares in the company on which there has been paid up an aggregate sum of not l....
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....e paid in whole or in part by the requisitionists, notwithstanding that they are not parties to the application. (6) A banking company shall not be bound to circulate any statement under this section, if, in the opinion of its board of directors, the circulation will injure the interests of the company. (7) Notwithstanding anything in the company's articles, the business which may be dealt with at an annual general meeting shall include any resolution of which notice is given in accordance with this section, and for the purposes of this sub-section, notice shall be deemed to have been so given, notwithstanding the accidental omission, in giving it, to one or more members. (8) If default is made in complying with the provisions of this section, every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees". Except sub-section (5), this section is a replica of section 140 of the English Act of 1948. The section has its roots in the following recommendations of the Company Law Committee :" "Section 78 of the Act of 1913 deals with the right of shareholders to requisition a general meeting. We consider that this section shoul....
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....move at the annual general meeting or at any other meeting. It is noteworthy that sub-section (7) of section 188 of the Act which starts with a non obstante clause specifically mandates the inclusion of a resolution of which notice has been given in accordance with the section in the agenda of the annual general meeting. Sub-section (8) ensures compliance with the provisions of this section by prescribing penal punishment for default by any officer of the company in this regard. Having analysed section 188, it is necessary to notice section 225 of the Act. This section deals with resolutions for appointment and removal of auditors. Section 225 of the Act provides as follows : "225. (1) Special notice shall be required for a resolution at an annual general meeting appointing as auditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be reappointed. (2) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor. (3) Where notice is given of such a resolution and the retiring auditor makes with respect thereto representations in writing to the company (not exceeding a reasonable....
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....ers to the proposed resolution. The company is also required to send a copy of the resolution to the auditor. Therefore, the basic function of the special notice is to focus the special attention of the shareholders about the importance of the resolution which is intended to be moved at the annual general meeting. The auditor has also been given a right to represent in writing to the company in respect of the said resolution. The company is then to ensure that the representation, if filed by the auditor, is circulated to the members. All this has been done to ensure that the shareholders have adequate opportunity to consider the matter and at the same time the auditor has the right to represent to the shareholders against the intended resolution. The object of sub-sections (2) and (3) is that the auditors will have an opportunity of making a representation and also to be heard orally at the annual general meeting. This satisfies the requirement of natural justice as well. It is not possible to impute to the Legislature an intention to confer on a single member the right to compel inclusion of a resolution for appointment or removal of an auditor in the agenda of the annual general....
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....he accounts maintained by the directors with a view to inform the shareholders of the true financial position of the company. The directors occupy a fiduciary position in relation to the shareholders and in auditing the accounts maintained by the directors the auditor acts in the interest of the shareholders who are in the position of the beneficiaries. In London Oil Storage Co. Ltd. v. Seear, Hasluck and Co., (Dicksee on Auditing, 17th edition, page 632 ), [1904] 30 Acct. LR 93, Lord Alverstone stated as follows : 'He must exercise such reasonable care as would satisfy a man that the accounts are genuine assuming that there is nothing to arouse his suspicion of honesty and if he does that he fulfils his duty ; if his suspicion is aroused, his duty is to probe the thing to the bottom and tell the directors of it and get what information he can.' "Vide also the observations in In re London General Bank (No. 2) [1895] 2 Ch 673, In re Kingston Cotton Mills Co. ( No. 2) [1896] 2 Ch 279 and In re City Equitable Fire Insurance Co. Ltd. [1925] Ch 407." Keeping in view the importance of the matter, the provisions for moving resolutions for appointment, removal or supersession of an audi....
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....of a company the right to receive notice, in the manner provided for by section 142, of any resolution of which special notice is required and has been duly given and which is to form part of the agenda to be dealt with at the relevant meeting ; or (b) as being intended to have two distinct consequences, namely, (i) to confer on any individual member of a company, on giving the necessary 28 days' notice to the company, the right to have any resolution of which special notice is required placed by the company on the agenda for the relevant meeting, that right being separate from and additional to the rights conferred on him by section 140 of the Act and any other similar rights conferred on him by the company's articles of association, and also (ii) to confer on all other members of such company rights of the nature referred to in (a) above. In my judgment, the narrower construction, (a) above, is clearly the correct one. First, there appears to me no sensible reason why the Legislature should have intended by section 142 to confer on an individual member rights to compel the inclusion of a resolution in the agenda for a company meeting, being rights much more extensive than those ....