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High Court Of Delhi
AMAR NATH MALHETRA - Appellant
Versus
M.C.S.LIMITED - Respondent
Interim Application 323 of 1992
Decided On : 05/29/1992
Held:
Sections 190 and 225 of the Act do not mention the number of shareholders who can move a resolution for removal of an auditor. Section 190 merely lays down the procedure for circulating a resolution for which special notice is required. The object of giving special notice of a resolution is to invite special attention of the company and through the company of its members to the proposed resolution. The company is also required to send a copy of the resolution to the auditor. thereforee the basic function of the special notice is to focus special attention of the shareholders about the importance of the resolution which is intended to be moved at the AGM, The auditor has also been given a right to represent in writing to the company in respect of the said resolulion. 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 ensame. 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-section 2 and 3 is that the auditors will have an opportunity of making a representation and also to be heard orally at the AGM, 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 right to compel inclusion of a resolution for appointment or removal of an auditor in the agenda of the AGM. It does not stand to logic that in matters which are less important Section 188 of the Act is required to be complied with in so far as the requirement as to number of shareholders to make use of the administrative machinery of a company to introduce a resolution at the annual general meeting is concerned, and in the matters which concerns the appointment, removal and supersession of an auditor no such requirement is necessary to be satisfied. It is significant to mention that much importance has been attached by the Act to the independence of the auditors. Section 226 of the Act is proof enough. This provides for the qualifications and disqualifications of the auditors. In fact the auditor is to act as a watchdog for the protection of the shareholders and is required to examine the accounts with a view to give the shareholders true and fair picture of the same.
That the provisions relating to special notice do not dispense with the aforesaid requirement of Section 188. Resolutions which require special notice do not cease to be resolutions as contemplated by Section 188 of the Act. Section 190 read with Section 225 neither expressly nor by implication overrides the aforesaid requirement of Section 188 of the Act. If the interpretation which is sought to be placed by the plaintiff is correct a single member can also require the company to circulate a special resolution to the members for being taken up at the AGM. In case a single member happens to be wellding extensive influence in commercial circles, mere giving of a special notice for removal of all the directors of the company by him can stultify the functioning of the company and might even inflict a death blow to it. In such a situation, the share prices of the company can fall as the members not sure about the future of the company amy indulge in panic sale of shares. It is not difficult to imagine a situation where a large company may be faced by thousands of resolutions proposed by single members. It will be well high impossible for a company in that situation to handle and circulate the resolutions requiring special notice and equally difficult for the directors to file representations against them. In my view Sections 188, 190, 225 and 284 must be read together and if so read the intention of the legislature becomes manifest.
The plaintiff not having complied with the provisions of Section 188 of the Act is so far as it relates to the number of members required to sign the requisition, the defendant was not bound to cither circulate the proposed resolution to its members or to include the same in the agenda for the AGM. The learned Sub Judge misconstrued the provisions of Sections 188, 190 and 225 of the Act and erred in exercise of his discretion in granting interim relief by the order dated September 7, 1991.
( 1 ) THIS is plaintiff s application under Order 39 rule 4 read with Section 151 Civil Procedure Code for "setting aside the interim injunction" dated September 7,1991 granted by the learned Sub Judge. Delhi and for dismissal of plaintiff s application under Order 39 rules 1 and 2 CPC. The events leading to this application are as follows: The defendant company, which is a public limited company, fixed its Annual General Meeting (for short AGM ) on September 9,1991 and in this regard circulated a notice dated July 1, 1991 informing the plaintiff, who is a shareholder of the defendant company in turn informed the latter that he will be moving the following resolution under Section 225 (2) of the Companies Act, 1956 (for short the Act) at the forthcoming agm :
"resolved that M/s. Ram Pal Gupta and Associates 6781, Beri Wala Bagh Chowk, Azad Market, Delhi-6, Charatered Accountants be and is hereby appointed as Auditors of the Company in place of M/s. Amod Agarwal-Associates, Chartered Accountsnts". 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 agm for appointing M/s. 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 agm . Aggrieved by this refusal of the defendant, the plaintiff instituted the present suit in the court of the Senior Sub Judge fer declaration, that the notice dated July 1, 1991 for holding the agm of the defendant company is illegal and null and void, besides being violative of interests of the shareholders. In the suit a perpetual injunction is also claimed for restraining the defendant company from holding the agm on September 9,1991. Alongwith the plaint, an application under Order 39 rules 1 and 2 CPC, being IA. No. 323 of 1992, was also moved whereby the plaintiff prayed for an exparte interim injunction against the defendant company from holding the agm on the scheduled dale. On September 7,1991, the learned Sub Judge made certain directions with regard to the publication and circulation of the proposed resolution of the plaintiff. According to the directions of the learned subordinate Judge, the resolution was deemed to be properly filed with the company subject to the plaintiff depositing a sum of Rs. 2500. 00 with the company. It was also directed that the resolution shall be taken as item No. 4a in the ordinary business of the company in the agenda. Not satisfied with the order of the learned Sub Judge the defendant filed a petition under Clause 9 of the Letters Patent and under Article 227 of the Constitution before the High Court. On December 2. 1991 J. K. Mehra, J. transferred the suit pending before the learned Subordinate Judge to this court on the orignial side. This order was passed on the agreement of the parties and the defendant was given liberty to move such application or take such action as may be open to it under law for revocation, modification or alteration of the impugned order. Pursuant to the order the plaintiff has filed the present applicati on. This is how the matter is before me.
( 2 ) MR. P. N. Lekhi, learned counsel appearing on behalf of the defendant, submitted that the interim order dated September 7, 1991, was causing grave injustice, prejudice and hardship to the defendant. Accordinng to the learned counsel, since no agm has taken place it was not possible to declare the dividend payable to the shareholders for the year 1990-91, Learned counsel invited my attention to several letters of the shareholders dem
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