TaxTMI 
TaxTMI 
2007 (9) TMI 413
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 entertainment of all kinds, open air theatres and to provid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....blishing 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", the brothers purchased a property measuring 1½ grounds at No. 6, Davidson Street, Chennai-600 001, constructed own building and kept their office. The brothers thereafter started a concern called "Ananda Industries" ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. (e) To pass such other further orders in the interest of the first respondent-company and the shareholders. Interim relief.-( a) To appoint the receiver/administrator Hon'ble Justice Swamidurai as an independent chairman to manage th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 of the company on 5-1-2007. This Court, dismissed the application in O.A. No. 2 of 2007 recording the fact that the Company Law Board has seized of the issue and has already permitted the holding of the meeting with a condition that the resolutions shall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ef 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 directors, which amounts to violation of articles of association. Chinnammal cannot be said to be impliedly removed since the provisions of section 284 of the Companies Act has not been followed in respect of Chinnammal. It is also further submitted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompany 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 5-1-2007, subject to certain conditions. There is no dispute that the majority of the shareholders decided to remove appellant Nos. 2 and 3 and the sixth respondent from the office of directors. Also the members holding more than 70 per cent of the shares have ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers 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 individually filed affidavits with the Bench affirming support in favour of the newly constituted board of directors of the company. The Company Law Board has to recognise the collective wisdom of majority of the members and respect the corporate democracy of a compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rts 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 majority of the shareholders. After considering the facts and circumstances of the case, especially the allegations and the counter allegations made by each party, the Company Law Board passed the following order : "In view of my foregoing conclusions, it is hereby ordere....