TaxTMI 
TaxTMI 
2007 (9) TMI 413
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....ition ?" 2. By consent of both the sides, the main appeal itself is taken up for disposal. 3. The background facts leading to the above substantial question of law are as follows : Respondent Nos. 1 to 5 filed a company petition in C.P. No. 64 of 2006 under sections 397, 398, 402 and 403 read with sections 235, 237 and Schedule XI of the Companies Act. The first appellant is a private limited company. The second and third appellants are the director-cum-shareholders of the company. All the respondents are shareholders except the seventh respondent who was appointed as Commissioner by the Debts Recovery Tribunal ("DRT" in short), to manage the affairs of the company. The first appellant is a private limited company incorporated on 9-11-1979, under the Companies Act having its registered office at No. 3, Ashok Pillar Road, Ashok Nagar, Chennai-600 083. The main objects of the company are as under : "To carry on the business of proprietors and managers of theatres, cinemas, picture palaces, concert halls and studios and to provide for the distribution, production, representation, exhibition of cinematograph films, theatrical performances, dances, musical and other entertai....
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....ame family group, hailed from the native Udhayathur village, Tirunelveli district. The family consists of six brothers. One Narayana Pillai along with his fifth brother Sundaram Pillai came over to Chennai in search of establishing a business as at that time, there was no scope of any business activities in their native village. The first business they started was a food grains business. It flourished very well. They brought their other four brothers, namely, (1) Subramania Pillai, (2) S. Karuppasamy Pillai, (3) S. Paramasivam Pillai, and (4) S. Kalyanasundaram Pillai, also to Chennai and engaged them in the said business which grew monetarily very well giving scope for establishing more number of businesses. The first business was started in the name and style of "Asoka Traders", a wholesale business in food grains. The said business was started in a premises measuring 336 sq.ft. at door No. 15, Anna Pillai Street, Chennai-600 001. The six brothers started another wholesale food grains business called "Anantha Maligai" in a rented place at No. 139, Audiappa Naicken Street, Chennai-600 001. To manage the said two wholesale businesses, namely, "Asoka Traders" and "Anantha Maligai", ....
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....quests to the second and third appellants herein, as a director of the company, they have failed to send notices for the board meetings of the company. Then there was a misunderstanding between the appellants as well as the respondents and there were allegations and counter allegations against each other. Respondent Nos. 1 to 5 filed a company petition in C.P. No. 64 of 2006 under sections 397, 398, 402 and 403 read with sections 235, 237 and Schedule XI of the Companies Act and prayed as follows : "Relief sought.-( a) To direct respondent Nos. 2 to 4 to restore the money and property which has been retained and misapplied and to compensate such sum to the assets of the company towards guilty of misfeasance and breach of trust in relation to the company. (b) To appoint one or more competent persons to investigate into the affairs of the company for the period between 2000-2005 and submit a report before this Hon'ble Bench. (c) To dissolve the present board of directors and call an extraordinary general meeting of the company to constitute a new board of directors. (d) To declare all the resolutions passed at the board meetings since January, 2003, as null and void. (....
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....dinary general meeting called on 5-1-2007. The Company Law Board by its order dated 14-12-2006, passed the following order : "1.The impleading applications are allowed, permitting the applicants to be arrayed as parties to the company petition. Accordingly, the petitioners will file amended petition by 29-12-2006. 2.The company as and when convenes any extraordinary general meeting pursuant to the requisition given by the shareholders will not implement any of the resolutions which may be passed at such meeting, without leave of this Bench. 3.The company is at liberty to convene the board meeting with leave of this Bench." 7. From a reading of the above order, it is clear that the Company Law Board refused to grant stay of the extraordinary general meeting and therefore permitted the holding of the meeting with a condition not to implement the same except with the leave of the Company Law Board. The matter was also posted on 8-1-2007. Later one of the shareholders of the company even filed a Civil Suit No. 4 of 2007 along with O.A. No. 2 of 2007, before this Court seeking interim injunction restraining the requisitionists from holding the extraordinary general meeting o....
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....hich cannot be adjudicated at an interim stage in granting the interim relief. Hence granting interim relief is against the provision of law. It is also further submitted that the interim relief granted by the impugned order is identical to the final relief prayed for in the company petition and that interim relief was sought on the basis of an entirely new case neither pleaded nor proved in the company petition. It is also submitted when the receiver appointed by the Debts Recovery Tribunal was in charge of the day-to-day management and the affairs of the company, there was no necessity for the implementation of the resolutions. It is also submitted that the respondents had not established any prima facie acts of oppression and mismanagement committed by the appellants and the entire acts complained by the respondents are past and concluded acts and which do not fall within the ambit of sections 397 and 398 of the Companies Act. It is also further submitted that if the resolutions are implemented it would cause irreparable hardship and damage to the appellants. It is also further submitted that if the present resolutions are implemented, the board of directors will consist of six ....
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....ect to the outcome of the final order. Therefore, the Company Law Board is right in implementing the resolutions passed by the majority of the shareholders at the extraordinary general meeting of the company held on 5-1-2007. Hence the order passed by the Company Law Board granting interim stay with certain conditions, is in accordance with law. 10. Counsel appearing for respondent Nos. 8 and 9 vehemently contended that the Company Law Board ought not to have given effect to the resolutions passed in the extraordinary general meeting, when the issue is common for both the main petition as well as the interim application. It is also stated that the Commissioner appointed by the DRT, the seventh respondent herein should not be removed from managing the affairs of the company. He also made an alternative submission that the court may give suitable direction to the Company Law Board to dispose of the main petition and till that time, the directors should not take any major policy decision. 11. Counsel appearing for respondent Nos. 10 to 14 submitted the Company Law Board is right in granting permission to implement the resolutions passed in the extraordinary general meeting on 5-....
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....-2006, to call an extraordinary general meeting of the company on 5-1-2007, at the registered office of the company. It is also on record that, in the extraordinary general meeting convened and held on 5-1-2007, by the requisitionists/shareholders, as many as 36 members took part in the meeting, out of whom, members holding 5,359 shares voted for the resolutions for removal of appellant Nos. 2 and 3 and the sixth respondent as directors and appointment of respondent Nos. 2 to 5 as directors of the company. Members holding 1,459 shares voted against the resolutions as borne out by the scrutineer's report dated 5-1-2007. All the items in the agenda relating to removal and appointment of directors have been approved in terms of the proceedings of the extraordinary general meeting recorded by the chairman of the meeting. Also, there is no dispute that no procedural irregularities have been pointed out by any members in the conduct of the proceedings of the extraordinary general meeting. Calling for extraordinary general meeting satisfies the requirement of section 169 of the Act. It was found on a close scrutiny that as many as 34 shareholders controlling 70.59 per cent of shares have ....
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.... meeting to be held on 5-1-2007." 15. There is no dispute that the extraordinary general meeting was held on 5-1-2007 and resolutions were also passed. The said resolutions were passed by the majority of shareholders. The Apex Court in the case of LIC of India v. Escorts Ltd. [1986] 59 Comp. Cas. 548, considered the scope of passing resolution in the company extraordinary general meeting wherein it was held that the only effective way the members of a company in a general meeting can exercise their control over the directorate in a democratic manner is to alter the articles of association so as to restrict the powers of the directorate and appoint other directors in their place. It was also held that the holders 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. It was also held that an injunction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another. Applying the above principles, the Company Law Board correctly held that if the resolutions are not given effect to, it will cause great prejudice to the ma....
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....aking into consideration the various relevant factors as discussed above. The Company Law Board has given effect to the decision of the majority. It is only an interim measure and a temporary one. It is also subject to the outcome of the final order in the main petition. The findings given by the Company Law Board are based on valid materials and evidence on record. The Company Law Board has considered all the relevant materials, especially the extraordinary general meeting convened by the majority of shareholders and thereafter resolutions were passed by the majority of the shareholders. I do not find any error or illegality in the order of the Company Law Board so as to warrant interference. The order of the Company Law Board is in accordance with law and it is therefore confirmed. 17. Taking into consideration the facts and circumstances of the case, especially in the interest of justice, and also the allegations and the counter allegations made by both the sides and in view of the alternative submission made by the respondents, it would be more appropriate to give direction to the Company Law Board to dispose of the main petition pending before it. Therefore, the Company Law....