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Case Number
Attorney(S)
  • Sri. Vasanth Pai, advocate, Madras for Sri. K.J Shetty for Appellant.
  • Sri. T. Krishna Rao and Sri. R.J Babu for Respondents.
Judges
  • Venkataswami
  • Venkataramiah, JJ.
Acts
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Citation Codes
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citation codes
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Attorney(S)
  • Sri. Vasanth Pai, advocate, Madras for Sri. K.J Shetty for Appellant.
  • Sri. T. Krishna Rao and Sri. R.J Babu for Respondents.
Judges
  • Venkataswami
  • Venkataramiah, JJ.
Acts
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Smart Summary

Judgment Summary — Venkataramiah, J.

Factual and Procedural Background

The appellant, a shareholder of Mysore Paper Mills Limited (the Company), petitioned under Section 186 of the Companies Act seeking two primary forms of relief: (a) appointment of an advocate as Chairman to conduct an Extraordinary General Meeting convened by requisitionists for 5th February, 1975; and (b) an order directing the Company to make available books and records necessary for the meeting. The petition arose after the Company's 39th Annual General Meeting on 30th September, 1974, at which elections and removals of directors occurred and which the appellant alleged was irregular.

The appellant and other shareholders had, on 23rd November, 1974, served a requisition under Section 169 of the Companies Act to convene an extraordinary general meeting to consider a list of specified resolutions challenging the validity of certain elections and removals and proposing alternate appointments. The Company responded that it could not convene the meeting because an order of temporary injunction from the Court of the Fifth Munsiff, Howrah (Civil Suit No. 146 of 1974) restrained the Company from holding any general meeting until further orders; that injunction had been served on the Company on 22nd November, 1974 and remained in force.

The requisitionists proceeded to call an Extraordinary General Meeting under Section 169(6) (after the Company refused to convene it), with notice published in newspapers because the Company would not provide the members' list. The requisitionists intended the meeting for 5th February, 1975. The appellant alleged that, because of factionalism among shareholders, the Company's chairman was prejudiced, and that the minutes book and other registers were with the Company, making the meeting "impracticable" without court intervention.

The Company filed objections denying irregularity of the September meeting, alleging mala fides and share accumulation attempts by certain petitioning shareholders, and reiterated that the injunction from Howrah prevented calling any general meeting. The learned single Judge dismissed the petition finding it not filed bona fide, and the appellant appealed under Section 4 of the Karnataka High Court Act, 1961. The appeal was heard by Venkataramiah, J.

Legal Issues Presented

  1. Whether the limited reliefs sought (appointment of an advocate as Chairman and production of company books) could be granted when the petition did not seek an order under Section 186 directing a meeting to be called and when a court injunction prevented calling or holding the meeting.
  2. Whether a court can grant relief that would have the effect of violating an order of another court which is in force (specifically, the injunction issued by the Fifth Munsiff, Howrah).
  3. Whether the petitioner should have prayed for an order under Section 186 to call, hold and conduct the meeting in a manner the court thinks fit, given the injunction.
  4. Whether the amendment by the Companies (Amendment) Act, 1974 (41 of 1974) — transferring power under Section 186 to the Company Law Board from 1st February, 1975 — affected the availability of relief from the High Court in the present matter.
  5. Preliminary questions raised by the Company (not decided by the Court): constitutionality of Section 4 of the Karnataka High Court Act, 1961, and whether an appeal lies against an order under Section 186 in absence of an express provision in the Companies Act.

Arguments of the Parties

Appellant's Arguments

  • The elections and removals at the Annual General Meeting held on 30th September, 1974 were irregular (various alleged non-compliances with Section 263 and Section 284 of the Companies Act) and certain elections and removals should be declared void.
  • Because an advocate had informed the Chairman and members at the September meeting that a Calcutta court injunction prevented proceeding, the meeting was void; notwithstanding that, the meeting proceeded.
  • After the Company refused to convene the Extraordinary General Meeting requested by requisitionists (citing pending litigation), the requisitionists validly called the meeting under Section 169(6); given alleged prejudice of the Company Chairman and unavailability of registers and minutes (kept by the Company), it was "impracticable" to hold the meeting unless the Court appointed an advocate as Chairman and directed production of books and records.
  • The appellant therefore sought only appointment of an Advocate-Chairman and access to company books to facilitate the meeting called by requisitionists.

Company's Arguments

  • The Company denied irregularity in the 30th September meeting and asserted the meeting was held regularly, as reflected in the minutes.
  • The Company stated it was served with an order from the Fifth Munsiff, Howrah (Civil Suit No. 146 of 1974) restraining the Company from holding any Annual General Meeting or any General Meeting until further orders; therefore it could not call the requisitioned meeting.
  • The Company alleged the petition was filed mala fide at the instance of certain shareholders (the Jalans) who had tried to corner shares to acquire control, and that the petition was motivated by those attempts.
  • The Company contended the Chairman (a State Government officer) was not disqualified from acting as Chairman of any general meeting, and otherwise traversed various allegations made by the appellant.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Writ Appeal No. 35 of 1973 (Full Bench of the Karnataka High Court) Upheld the constitutionality of Section 4 of the Karnataka High Court Act, 1961. The Court observed that the constitutionality of Section 4 had been upheld by that Full Bench and noted that an appeal against the Full Bench decision was pending before the Supreme Court; the Court did not decide the separate preliminary objection on constitutionality in this appeal.

Court's Reasoning and Analysis

The Court framed and analyzed the dispute primarily by reference to the precise reliefs sought by the appellant and the legal effect of an injunction issued by another court.

Step 1 — scope of the petition: The Court noted that the appellant's petition sought only two narrow reliefs: (i) appointment of an advocate as Chairman for the proposed meeting; and (ii) an order directing the Company to place books and registers at the disposal of that Advocate-Chairman. There was no prayer asking the Court to exercise the power under Section 186(1) to order a meeting of the company "to be called, held and conducted in such manner as the court thinks fit."

Step 2 — effect of the injunction from Howrah: The Court accepted, on the material before it, that a temporary injunction from the Fifth Munsiff, Howrah (Civil Suit No. 146 of 1974) restrained the Company from holding any general meeting and that this order was served on the Company and remained in force. The Court observed that Rule 5 of Order 39 of the Code of Civil Procedure renders such an injunction binding on members and officers of the Company, thereby preventing both the Board and requisitionists (who had knowledge of the injunction) from lawfully calling or holding a general meeting in contravention of that injunction.

Step 3 — impossibility of granting the precise reliefs without contravening the injunction: Given the injunction preventing any general meeting, the Court reasoned that the appellant should have sought an order under Section 186 directing the meeting to be called and providing ancillary directions. A meeting held pursuant to an order under Section 186(1) would not contravene the injunction which only prevented the Company from calling a general meeting; an order under Section 186 could lawfully permit calling or conducting the meeting despite the injunction on the Company itself.

Step 4 — limits on the Court's power: The Court emphasized that no court can grant relief which would effectively violate an order of another court that is in force unless that other order is annulled or modified by a competent authority. Because the appellant had not asked for an order under Section 186 (which could have been the appropriate mechanism to permit the meeting despite the injunction), the Court could not grant the narrow reliefs sought without resulting in a violation of the Howrah injunction.

Step 5 — effect of legislative amendment: The Court noted that from 1st February, 1975 the power under Section 186 became exercisable by the Company Law Board by virtue of the Companies (Amendment) Act, 1974 (41 of 1974). Thus, even if an order under Section 186 were appropriate, the High Court's power to exercise that remedy had been curtailed by amendment effective from that date. The appellant had not applied to this Court for an order to call a meeting, nor sought alternative appropriate relief in the light of the amendment.

Conclusion of analysis: Because the petitioner had not sought the appropriate form of relief which could lawfully permit the meeting to take place in the face of the injunction, and because granting the narrow reliefs asked for would effectively permit a meeting in contravention of the injunction, the Court concluded the appeal could not succeed on the facts and prayers before it.

The Court expressly refrained from expressing any view on the single Judge's finding that the petition lacked bona fides and also did not decide the preliminary objections regarding the maintainability of the appeal (including the constitutionality of Section 4 and whether an appeal lies from an order under Section 186).

Holding and Implications

Holding: The appeal is dismissed. The Court's core ruling can be stated as: DISMISSED.

Direct consequences for the parties:

  • The appellant's petition seeking appointment of an advocate as Chairman and directions for production of books and records was dismissed on the basis that those limited prayers could not be granted in circumstances where an injunction prevented any general meeting and no order under Section 186 had been sought.
  • The Court made no order as to costs.

Broader implications:

  • The Court declined to set any broader precedent on the bona fides of petitions or on the constitutionality or maintainability issues raised by the Company, expressly leaving those questions undecided in this appeal.
  • The opinion highlights the procedural necessity of seeking an order under Section 186 to permit a meeting where an injunction prevents the Company from calling or holding meetings — but also notes that, because of the Companies (Amendment) Act, 1974, the power under Section 186 was exercisable by the Company Law Board from 1st February, 1975.

Show full summary ...

    A.D Chaudhary v. Mysore Paper Mills Ltd. .

    Venkataramiah, J.:— This appeal is presented under Section 4 of the Karnataka High Court Act, 1961 against the order of the learned single Judge dated 3rd February, 1975 passed in Company Petition No. 1 of 1975 on the file of this Court, dismissing the petition. The appellant was the petitioner in that petition. He filed it under Section 186 of the Companies Act (hereinafter referred to as the Act) on the basis of the following allegation:—

    2. The appellant is a shareholder of the Mysore Paper Mills Limited (hereinafter referred to as the Company) which was incorporated in 1936 under the Mysore Companies Act, 1917 and is now governed by the Act. The authorised capital of the company is Rs. 1,50,00,000 divided ino 15,00,000 shares of Rs. 10 each. The subscribed capital is Rs. 1,23,62,120 of which shares of the value of Rs. 58,980 have been forfeited. The company was started with the object of establishing and running a paper mill. The company owns and is now running a paper mill at Bhadravathi in the State of Karnataka. The 39th Annual General Meeting of the Company was held on 30th September, 1974. On that day two directors had to be elected in the place of two retiring directors. The meeting also had to consider certain resolutions for removing some directors and for electing some others in their place and to elect three additional directors. According to the appellant, at the commencement of the meeting, an advocate of this Court brought to the notice of the Chairman and members present at the meeting that the meeting could not be proceeded with in view of an order of injunction issued by a Court at Calcutta, and ignoring the said order the meeting was held. It is alleged that there was disturbance in the meeting and that the election of the directors was irregular for various reasons. He, therefore, along with some other share-holders served on the company a notice under Section 169 of the Act on 23rd November, 1974 requesting the company to hold an extraordinary general meeting to consider the following subjects:—

    (1) Resolved to place on record that the election of Sri. V.T Velu purported to have been made at the ordinary General Meeting of the company held on 30th September, 1974 is void on account of non compliance with the provisions of Sections 263 of the Companies Act;

    (2) Resolved to place on record that the election of Sri. K. Subbarao Ramaswamy purported to have been made at the ordinary General Meeting of the Company held on 30th September, 1974 is void on account of non-compliance with the provisions of Section 263 of the Companies Act;

    (3) Resolved to place on record that the election of Sri B.P Ramakrishna purported to have been made at the ordinary General Meeting of the Company held on 30th September, 1974 is void on account of non-compliance with the provisions of Section 263 of the Companies Act;

    (4) Resolved to place on record that the election of Sri G. Ramarathnam purported to have been made at the ordinary General Meeting of the Company held on 30th September, 1974 is void on account of non-compliance with provisions of Section 263 of the Companies Act;

    (5) Resolved to place on record that the removal of Sri B.P Jalan as a Director of the Company is void under Section 263 of the Companies Act as it was not separately and individually voted upon;

    (6) Resolved to place on record that the removal of Sri L.S Venkaji Rao as a Director of the Company is void under Section 263 of the Companies Act as it was not separately and individually voted upon;

    (7) Resolved that Sri S.N Parthasarathy be removed from the Directorship of the company under Section 284 of the Companies Act by an Ordinary Resolution of which special notice has been given under Section 284(2) of the Act;

    (8) Resolved to appoint Sri H.B Datar by a separate resolution as a Director of the company in the place of Sri S.N Partasarathy after his removal under resolution No. 7 of which special notice has been given under Section 284(2) of the Act;

    (9) Resolved to appoint Sri T.R Jalan as a Director of the Company in the place wrongly declared on 30th September, 1974 to have been filled by Sri V.T Velu;

    (10) Resolved to appoint Sri M.R Morarka as a Director of the Company in the place wrongly declared to have been filled on 30th September, 1974 by Sri K. Subbarao Ramaswamy;

    (11) Resolved to increase the strength of the Board from the existing number of 9 to 12;

    (12) Resolved to appoint Sri S. Srinivasan as a Director of the Company in the vacancy caused by the increase in the strength of the Board;

    (13) Resolved to appoint Sri Ram S. Tarneja as a Director of the Company in the vacancy caused by the increase in the strength of the Board; and

    (14) Resolved to appoint Dr. S.I Keshwani as a Director of the Company in the vacancy caused by the increase in the strength of the Board.”

    3. In reply to the said notice, the appellant received from the Secretary of the Company a telegram dated 11th December, 1974 on 12th December, 1974 and a letter dated 12th December, 1974 stating that the meeting could not be convened in accordance with the notice of the appellant and others served on the Company on 23rd November, 1974 as the subjects to be discussed of which notice had been given, were subject matter of litigation in some courts. The appellant along with other requisitionists, therefore, convened an Extraordinary General Meeting under Section 169(6) of the Act, the notice of which was given through the medium of advertisements in newspapers as the appellant could not secure from the Company the list of members though a request was made in that behalf. The said meeting was to take place on 5th February, 1975 at 3 p.m at the Banquest Hall of Hotel Ashoka, Bangalore, to consider the subjects referred to above. As the appellant apprehended that the Chairman of the Company who was entitled to preside over the meeting under the Articles was prejudiced and as the minutes book, Register of members; the Share Register and the Register of Proxies were all with the Company, it was alleged that the holding of the meeting by the requisitionists on 5th February, 1975 had become ‘impracticable’. It was also alleged that there were factions amongst the share-holders and the Chairman was not a fit person to preside over the meeting. According to the appellant the circumstances were such that there was need for the Court appointing an advocate as Chairman of the proposed meeting to be held on 5th February, 1975 and for an order directing the Company to make available all the Books and Registers of the company necessary for holding the meeting. The appellant, therefore, field the petition on 8th January, 1975 out of which this appeal arises for the following principal reliefs:

    (a) an Advocate-Chairman be appointed to conduct the Extraordinary General Meeting of the Company convened by the appellant and other requisitionists on 5th February, 1975; and

    (b) that the Company be directed to place at the disposal of the Advocate—Chairman appointed by the Court all the books and records of the company necessary for holding the meeting.

    4. The petition was resisted by the company. In its statement of objections, the Company denied that the election of directors held on 30th September, 1974 was irregular. It was alleged that the petition had been filed at the instance of B.P Jalan, T.R Jalan and M.P Jalan of Calcutta who had tried to corner the shares of the company recently with a view to acquiring control over the affairs of the company and hence the petition had been made mala fide. It was denied that the Chairman was informed at the meeting held on 30th September, 1974 that there was an order of a Court at Calcutta restraining the holding of the meeting and that it was read out at the meeting. It was asserted that the said meeting had been held regularly as could be seen from the minutes of the meeting. The Company further alleged that it was served with an order of the Court of Munsiff at Howrah on 22nd November, 1974 restraining it from holding any Annual General Meeting or any other General Meeting until further orders from that Court, that the said proceedings and other proceedings in a Court at Bangalore had been filed by Jalans referred to above and their associate (including the appellant) as they failed to succeed in getting sufficient support for the candidates put up by them at the election held on 30th September, 1975. The company had informed the requisitionists of the extraordinary general meeting that it could not convene the meeting as desired by them because of the order of temporary injunction issued in a suit filed by Balakrishna Jalan, Civil Suit No. 146 of 1974 on the file of the Fifth Munsiff, Howrah restraining the Company from holding any general meeting. It was stated that the Chairman who was an officer of the State Government was not in any way disqualified from acting as Chairman of any general meeting. Several other allegations made by the appellant were also traversed in the course of the statement of objections.

    5. After hearing the parties, the learned single Judge who heard the petition came to the conclusion that the petition had not been filed bona fide and dismissed the petition Hence this appeal.

    6. In this appeal, in an affidavit filed on behalf of the appellant, it is stated that the meeting called on 5th February, 1975 had been adjourned to 29th March, 1975. The truth of the above statement and the validity of the adjournment of the meeting are disputed by the company.

    7. At this state it is necessary to refer to the relevant provisions of the Act. Section 169(1) provides that the Board of Directors of a Company shall on the requisition of such number of members of the company as is specified in sub-section (4) of Section 169, forthwith proceed duly to call an extra ordinary general meeting of the company. Section 169(6) provides that if the Board does not within twenty one days from the date of a valid requisition proceed duly to call a meeting for the consideration of the matters specified in the requisition, the meeting may be called by the requisitionists or others who satisfy the conditions in clauses (b) or (c) of Section 169(6) Clause (b) of Section 169(7) however says that the meeting to be called by the requisitionists under Section 169(6) shall not be held after the expiration of three months from the date of deposit of the requisition. Section 186 of the Act as it stood on the date of the petition read:—

    “186. Power of Court to order meeting to be called: (1) If for any reason it is impracticable to call a meeting of a company, other than an annal general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the Court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting,—

    (a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and

    (b) give such ancillary or consequential directions as the Court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the Company's articles.

    Explanation

    The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.

    (2) Any meeting called held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted.”

    8. The prayer made by the appellant in the petition filed by him is very restricted. He has only prayed for the appointment of an Advocate as the Chairman of the proposed meeting and for a direction to the company to make all the necessary books and records available to the advocate appointed as Chairman to facilitate the holding of the meeting. There is no prayer for ordering a meeting of the company to be called. The question is whether on the facts and in the circumstances of this case the reliefs prayed for can be granted in the absence of a prayer to order a meeting of the company to be called, in such manner as the Court thinks fit.

    9. It is not disputed that in Civil Suit No. T.S 146 of 1974 on the file of the Court of the Fifth Munsiff, Howrah, an order of temporary injunction has been passed restraining the Company from ‘holding the Annual General Meeting or any General Meeting on 30th September, 1974 or any other date’ until further orders from that Court and it was served on the company on 22nd November, 1974. The said order is still in force. The Board of Directors was therefore, right in stating that it could not call a General Meeting as per the requisition of the appellant and some others. It may be that as stated on behalf of the appellant a situation has arisen on account of the said order of temporary injunction making it ‘impracticable’ to call a meeting of the company, because neither the Board of Directors nor the requisitionists who have the knowledge of the order served on the company can call a general meeting as Rule 5 of Order 39 of the Code of Civil Procedure makes the said order binding on all members and officers of the company. In these circumstance's the appellant should have requested the Court to order a meeting of the company to be called and give such ancillary or consequential directions as may be necessary in the circumstances of the case because a meeting called in obedience to an order of this Court under Section 186(1) would not have contravened the order of temporary injunction which only prevented the Company from calling a general meeting. The appellant has not requested the Court to order a meeting to be called but has only prayed for the appointment of an advocate as Chairman of a meeting called by him and other requisitionists in contravention of the order of temporary injunction. In these circumstances, we think that no court can give any relief which would have the effect of violating an order of another court which is in force unless it has the power to annual or modify the said order. The appellant cannot also be permitted to amend his prayer suitably now because the power under Section 186 is exercisable after 1st February, 1975 by the Company Law Board and not by the Court by virtue of the amendment of the Act by the Companies (Amendment) Act, 1974 (41 of 1974). In fact, no application for such a relief has been filed before us either. As the requisitionists are prevented by an order of court from calling the meeting itself, the question of appointing a Chairman and securing the registers and records of the company for that purpose does not arise. We are, therefore, of the view that this appeal has to fail.

    10. In view of the foregoing, we do not propose to express any view on the correctness of the finding of the learned single Judge that the petition filed by the appellant lacks bona fides. For the same reason, we do not express any opinion on the preliminary objections raised on behalf of the company regarding the maintainability of the appeal, viz. (1) that Section 4 of the Karnataka High Court Act, 1961 is unconstitutional and (ii) that no appeal is maintainable against an order passed under Section 186 of the Act, in the absence of an express provision in the Act. We however observe that the constitutionality of Section 4 of the Karnataka High Court Act, 1961, has been upheld by a Full Bench of this Court in Writ Appeal No. 35 of 1973 and the appeal filed against the order of the Full Bench is still pending before the Supreme Court. We do not also consider it necessary to decide the question whether a meeting can be held in this case after the expiry of three months from the date of deposit of requisition in view of Section 169(7) of the Act.

    11. In the result, this appeal fails and is dismissed. There shall however be no order as to costs.

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    Comments

    A.D Chaudhary v. Mysore Paper Mills Ltd. .
    (Mar 25, 1975)