Calcutta High Court
Sikkim Bank Ltd. And Ors. vs R.S. Chowdhury And Ors. on 11 January, 2000
Equivalent citations: [2000]38CLA145(CAL), [2000]102COMPCAS387(CAL)
Author: Sengupta
Bench: Sengupta
JUDGMENT Sengupta, J.
1. In terms of the earlier order of this court the applications being G. A. Nos. 3000 of 1999, 3430 of 1999 and 4131 of 1999 in connection with Civil Suit No. 408 of 1999 and the applications being G. A. Nos. 3466 of 1999 and 3592 of 1999 in connection with Civil Suit No. 452 of 1999 are taken up for hearing inasmuch as the points involved in all the aforesaid applications are identically common and decision in any one of the aforesaid applications will some way or other have final effect on other applications.
2. Civil Suit being No. 408 of 1999 has been filed in the name of Sikkim Bank Limited and the other four persons, viz., S. N. Kundu, Dr. A. Sahoo, Timir Baran Ghosal and R. N. Bhattacharjee who are claiming to be the nominee directors appointed by the Reserve Bank of India of plaintiff No. 1 against other two defendants, viz., R. S. Chowdhury and K. L. Roy who are other directors challenging the legality and validity of the resolutions said to have been passed at the annual general meeting by the respondents on March 22, 1999, and other resolutions adopted at the meeting of the board of directors dated July 16, 1999. In connection with the aforesaid suit the plaintiffs have asked for interlocutory relief of injunction from giving any effect and further effect to the aforesaid resolution and for order of injunction restraining the respondents, their servants, agents or assigns from interfering in any manner with the management and administration of petitioner No. 1 and further an appropriate order of injunction restraining the respondents from instituting and/or defending any suit or proceeding in the name and/or on behalf of petitioner No. 1 and further order of injunction restraining the respondents from electing or co-opting or in any manner inducting" any director in the board of petitioner No. 1.
3. In connection with the aforesaid interlocutory application an order of status quo was passed by me amongst others from giving any effect or further effect to the aforesaid resolutions adopted in the annual general meeting, allegedly held on March 22, 1999, and also those of other board meetings dated June 27, 1999 and -July 16, 1999.
4. An application was made being G. A. No. 3430 of 1999 by the contesting defendants for vacating of the aforesaid interim orders and also for dismissal of the suit, and other applications and counter applications have been made by both the contesting parties for vacating and/or recalling of orders passed from time to time during the pendency of the aforesaid interlocutory application being No. 3000 of 1999.
5. Mr. Hirak Mitra, learned senior advocate, in support of this interlocutory application being G. A. No. 3000 of 1999 submits that the purported annual general meeting is bad and invalid and in fact there was no annual general meeting at all on the aforesaid date. So none of the so called additional directors could be appointed and it will appear from various admitted documents and circumstances.
6. The annual general meeting was postponed by subsequent public notice dated March 13, 1999, which was since ratified by another board meeting dated June 8, 1999. This ratification of postponement is permissible under law. Mr. Mitra places reliance on a decision of the Allahabad High Court in Rajpal Singh v. State of V. P. [19681 1 Comp LJ 21.
7. The aforesaid annual general meeting had to be postponed because of various reasons, viz., for not despatching the individual notices to the shareholders, balance-sheets and proxy forms for the annual general meeting were sent. It appears that subsequently the defendants are claiming that such annual general meeting was held on March 22, 1999, and thereby four additional directors were appointed illegally and statutory auditor was appointed. Even assuming the aforesaid purported annual general meeting was held, it was done at a place different from the one of which public notification was given. Therefore, without having any notice the purported meeting was held and resolution was adopted. At no point of time the story of appointment of additional directors was divulged until this suit was filed. Even the so called additional directors did not assert their right at any point of time. The resolution purported to have been adopted on June 27, 1999, by the board of directors without any notice at all upon the plaintiff directors. Plaintiff No. 3 was in Mumbai, plaintiffs Nos. 4 and 5 are not executive directors and as such they do not attend corporate office. Mr. Kundu, plaintiff No. 2, received notice by fax on June 28, 1999, in the morning. Unreasonably short notice however reached at 5.45 p.m. on June 26, 1999, viz., on Saturday after office hours. Even had it been noticed on Saturday itself by plaintiff No. 2 it was impossible for him to attend the aforesaid meeting from Calcutta to Gangtok on June 27, 1999. For this point reliance has been placed by Mr. Mitra on a decision of Supreme Court in Parameshwari Prasad Gupta v. Union of India, .
8. It is very unusual that such board meeting could be convened and held at a different place from the corporate office of plaintiff No. 1 at Calcutta. Records and resolution books were lying at Calcutta. Even no copy of the board meeting dated June 27, 1999, has been circulated nor produced. The alleged board meeting dated July 16, 1999, is vitiated because of unlawful prevention and obstruction of the defendants group of directors from participating and/or discussing and from transacting the business scheduled for discussion on the aforesaid date. There was criminal intimidation and total chaos and reign of terror was unleashed in the entire scene of the board meeting. So, no resolution could be validly adopted. Moreover, illegal appointee directors participated in the board meeting.
9. Mr. Mitra further submits in exercise of the power conferred by the Banking Regulation Act, 1949, the Reserve Bank of India has appointed plaintiffs Nos. 2 to 5 managing director, additional directors respectively as Reserve Bank nominees. Such appointment of the petitioners was challenged before the court of law in writ jurisdiction. Such challenge remains unsuccessful till today even right up to the Supreme Court where without having any order of stay a special leave petition is pending. Considering the precarious financial condition of plaintiff No. 1-bank a moratorium for three months for transaction has been declared and thereby the appointment of the additional directors has been strictly prohibited so also initiation of proceedings by defendants Nos. 1 and 2 in the name of the plaintiff. Defendants Nos. 1 and 2, however, are bent upon frustrating the protective steps taken by the Reserve Bank of India in the interest of depositors by thwarting all actions of plaintiff Nos. 2 to 5. Defendants Nos. 1 and 2 have illegally appointed four additional directors in order to reduce the plaintiff directors into minority so that the management and control of the bank in violation of the direction and stipulation of the Reserve Bank of India can be interfered with. The whole idea of defendants Nos. 1 and 2 is to perpetuate the financial irregularity, embezzlement and misappropriation of the bank's fund vis-a-vis the depositors' money. The Reserve Bank of India has taken lawful action in public interest and such action has already been upheld by the Division Bench of the Sikkim High Court. The Reserve Bank of India has discharged its statutory function in its discretion, its statutory function should not be allowed to be stalled by the order of the court nor any other person. Mr. Mitra draws my attention to the decisions reported in Bari Doab Bank Ltd. v. Union of India [1997] 89 Comp Cas 292 (Delhi) ; Bari Doab Bank Ltd. v. Union of India [1997] 89 Comp Cas 438 (Delhi) ; Bari Doab Bank Ltd. v. Union of India [1997] 89 Comp Cas 462 (SC).
10. Mr, Pratap Chatterjee, learned senior advocate, appearing on behalf of defendants Nos. 1 and 2 argues that plaintiffs Nos. 2 to 5 have no authority and/or locus standi to file the suit on behalf of plaintiff No. 1. Firstly, the nominee managing directors cannot question the legality and validity of the annual general meeting which was validly held on March 22, 1999. He argues members having 80 per cent, of the shareholding of the company duly attended the meeting. If there was any objection only a member could bring an action in the name of the company to seek redressal of any wrong done to it. In support of his submission reliance has been placed on the decision in Foss v. Harbottle [1843] 2 Hare 461 ; 67 ER 189.
11. The notice of postponement of the annual general meeting issued by plaintiff No. 2 is unauthorised and illegal as he had no authority to postpone it and only the board of directors under the articles of association of the bank concerned, is competent to take a decision for postponement of the annual general meeting. Subsequent post facto decision of postponement of the annual general meeting on June 8, 1999, is invalid since the annual general meeting had already taken place on March 22, 1999. In the said meeting four additional directors have been appointed by 80 per cent, of the shareholders.
12. Plaintiff No. 1-bank is registered under the Registration of Companies Act, Sikkim, 1961. The provisions of the Companies Act, 1956, have not been extended to the State of Sikkim, under Article 371F(n) of the Constitution of India. There was no corresponding provision of Section 2(26) of the Companies Act, 1956 in the Sikkim Act. In the Registration of Companies Act, Sikkim, 1961, there was no provision for appointment of managing director. Plaintiff No. 2 has no authority to act as a managing director as he has not taken oath required under Article 1 of the articles of association of plaintiff No. 1-bank.
13. He argues as regards the holding of the board meeting on June 27, 1999, that admittedly notice was served upon plaintiff No. 2 and they could have attended the meeting instead they have chosen not to do so. Despite full knowledge about the resolution and the meeting of the board adopted on June 27, 1999, the plaintiffs did not challenge the same and initiated belated action.
14. As regards the meeting of the board on July 16, 1999, is concerned the said meeting was duly held and all the plaintiff directors duly attended the said meeting. The normal business was transacted without any objection and all decisions were taken at the said meeting in their presence. Plaintiffs Nos. 2 to 5 having found themselves to be in the minority have resorted to this frivolous action. So the interim order which has already been passed should be vacated as the plaintiff has failed to make out a prima facie case for maintaining the suit. The balance of convenience and inconvenience overwhelmingly lies in favour of vacating the interim order as the defendants have every right to carry on banking business and this cannot be interfered with by the whimsical and capricious act and action of a group of persons who claim to be the nominee directors.
15. P. K. Mallick, learned senior advocate, appearing on behalf of one Kishore Jhunjhunwalla of 4, Lower Rowdan Street, Block-C, Flat No. 47, Calcutta-700 020, Partho Mukherjee, Khalbagan, Uttarpara, Hooghly, West Bengal, Raj Kishore Chawla of Tibbet Road, Gangtok and Ashok Dey of 121 Janata Road, New Barrackpore, 24-Parganas (North), West Bengal, seeks to intervene in this matter and submits that his clients were appointed as four additional directors of plaintiff No. 1-bank but plaintiffs Nos. 2 to 5 having knowledge of their interest being affected did not make them parties. Therefore, the suit is bad for non-joinder of necessary parties unless his clients are brought in the suit no order can be passed nor the suit can be proceeded with. He draws my attention to the provisions of Order 1, rule 9 of the Code of Civil Procedure and has placed reliance on a Supreme Court decision in Prabodh Verma v. State of Uttar Pradesh, .
16. In spite of the aforesaid facts being brought to the notice of the plaintiff no step has been taken to add his clients as a party herein. As such the suit should be dismissed and the interim order already passed should be vacated.
17. Having heard the respective submissions of learned counsel and considered the materials placed before me I feel it necessary to decide the question of locus standi of the plaintiffs to file the suit and to maintain this present action as has been raised by Mr. Pratap Chatterjee for challenge of the annual general meeting allegedly held on March 22, 1999.
18. It is an admitted position that plaintiffs Nos. 2 to 5 have been appointed managing director and the additional directors respectively on the strength of the power exercised by the Reserve Bank of India under the Banking Regulation Act. The aforesaid action of the Reserve Bank of India has not been upset by any court of law though challenge was made. Plaintiffs Nos. 2 to 5 thus are discharging their duties in terms of the Banking Regulation Act and their appointment was for protection of the interest of plaintiff No. 1-bank vis-a-vis depositors and the public at large. The provisions of the Companies Act, 1956, have no application in this case. The text of the resolution of the annual general meeting allegedly held on March 22, 1999, provides for appointment of four additional directors who shall have a substantial say and/or authority to participate and interfere with the administration and management of plaintiff No. 1-bank. Similar right and authority have been given to plaintiffs Nos. 2 to 5. The decision in the annual general meeting has a direct effect on administration of plaintiff No. 1-bank vis-a-vis the right and authority of plaintiffs Nos. 2 to 5. The locus of person or persons to bring an action is to be examined from the view point of the affectation of the legal right. Nobody is disputing the proposition of law submitted by Mr. Chatterjee but it has to be seen whether there is any affectation of right. Unlike other banking companies plaintiff No. 1 now stands in a different footing because of the interference of the Reserve Bank of India under the statute. Plaintiffs Nos. 2 to 5 are the nominees qua representatives of the Reserve Bank of India and they are not required to hold qualification shares under the provisions of Section 10C of the Banking Regulation Act, 1949. Moreover, in view of the provisions of Section 10D of the Banking Regulation Act, 1949, all provisions of other laws, contracts, etc. are overridden as rightly submitted by Mr. Mitra. So, any action taken by the Reserve Bank of India has got overriding' power over all provisions of law as rightly submitted by Mr. Hirak Mitra. The provision of Article 1 of the articles of association of plaintiff No. 1 is applicable in case of the other directors and/or officers who are not appointed under the provisions of the Banking Regulation Act. It is too late in the day to contend that plaintiffs Nos. 2 to 5 have no right and/or authority as they have hot taken any oath as such they are incompetent, they have assumed charge by operation of law that too without any fruitful and lawful objection as to their competency and authority until defendants Nos. 1 and 2 took this objection. In the premises I am unable to accept the argument of Mr. Chatterjee. So, I hold that plaintiffs Nos. 2 to 5 have locus standi to bring the action not only on behalf of plaintiff No. 1-bank but also in their own individual right as they are holding office under law and this is nothing short of a civil right to maintain a civil action.
19. Now coming to the question of holding the annual general meeting allegedly held on March 22, 1999. There are two aspects on this issue. One is whether the annual general meeting was factually held on March 22, 1999, or not, and further if it is held whether such meeting was valid under the law or not, or any decision taken therein is lawful and valid. Thus, necessarily the appointment of four additional directors, viz., the clients of Mr. Mallick need scrutiny under the law.
20. On the question of factual aspect of holding meeting admittedly initially notice was issued by plaintiff No. 2 for holding meeting in the newspaper. It is submitted by Mr. Chatterjee that the said notice was inserted pursuant to the decision of the board of directors. Factually notice of postponement was also issued by the managing director. The issuance of authority of such postponement is one aspect of the matter, but the fact remains that the same person who notified for holding meeting has also issued notice for postponement so the ordinary members and/or shareholders must have been notified by the same person for postponement. Therefore, it is quite reasonable that all the persons interested should act upon such notice of postponement without bothering at the first instance to ascertain authority or legality and in all likelihood they may abstain from attending such meeting. The legality and issuance of such notice is one thing and acting upon pursuant to such notice of postponement by the person interested is another thing, particularly when no counter notice was published to deny and dispute the validity of the notice of postponement. It is claimed that on the stipulated day the annual general meeting was duly held with attendance of members having 80 per cent, shareholding. In support of this allegation an alleged attendance sheet has been produced. It is significant to mention that in the application for vacating interim order it is stated one company, viz., North East Finance Corporation Limited is the 80 per cent, holder of the shares. It therefore is not clear to me how several persons could sign attendance sheets. I have serious doubt in the correctness, validity and legality of the said attendance sheet as a piece of evidence. Moreover the alleged meeting was held at a different place from the place mentioned in the notice. It further appears that individual notices were not sent nor any notice of change of venue was given. It is very unlikely without any notice of change of venue 80 per cent, shareholders would be attending the meeting. The normal human conduct would be on receipt of notice of postponement not to attend the meeting. It is significant to mention that none of these shareholders who were allegedly present in the alleged meeting has come forward to support by affidavit to corroborate the stand taken by defendants Nos. 1 and 2 but defendants Nos. 1 and 2 can substantiate this fact in issue at the time of the trial of the suit by calling them as witness. But prima facie I have reasonable doubt whether any meeting was at all held for the reasons as follows :
When the same person is issuing notice for postponement it is quite normal the interested person will not attend such meeting.
21. There was no notice for change of venue of holding meeting though it is sought to be explained that all the shareholders at first assembled at the notified venue but in view of cancellation of booking of the hotel the shareholders assembled at the adjoining premises. Such an explanation is not acceptable to me and it is very unusual that an annual general meeting of a bank could be held in an irregular and hasty manner. It is surprising in spite of issuance of notice for postponement of the annual general meeting no protest was lodged nor any counter notice was given that cancellation is unauthorised. It is an admitted position that 100 per cent. shareholders did not attend at least 20 per cent. minority failed to attend. I am of the view at least 20 per cent. shareholders did not have any notice of holding such annual general meeting on March 22, 1999, and the absence of notice is easily presumed from the fact of postponement of such meeting whether it is issued lawfully or unlawfully. In all fairness defendants Nos. 1 and 2 ought not to have held the meeting on that date at least should have issued a further notice if plaintiff No. 2 was not competent to postpone on a future date.
22. Thus, I prima facie hold that the annual general meeting allegedly held on March 22, 1999, is invalid and illegal. So, whatever decision having been taken in the said meeting is illegal and invalid. Consequently the appointment of the four additional directors is also prima facie illegal. Mr. Mullick could not prima facie establish the legality and validity of the appointment of their client.
23. As regards the board meeting held on June 27, 1999, is concerned it appears from the materials that the meeting was allegedly held on June 27, 1999. Notice of such meeting was sent by fax message in the afternoon on June 26, 1999, after office hours to plaintiff No. 2. Nothing has been produced before me prima facie that any notice was served upon plaintiff No. 3 and from the records it appears to me it is quite impossible to serve notice upon them as he was out of Calcutta. Even assuming that notice upon plaintiff No. 2 is served by fax message on June 26, 1999, in the afternoon it is very unlikely to attend such a meeting at a distant place like Siliguri. So far as service of notice upon defendants Nos. 4 and 5 is concerned it could not be proved. So, prima facie I hold that the aforesaid board meeting allegedly held on June 27, 1999, is bad and invalid as no notice and/or unreasonably short notice was served upon the directors. The decision taken therein therefore is invalid and it did not form necessary quorum. Moreover in the said board meeting defendants Nos. 2, 3, 4 and 5 being outsiders participated.
24. So far as the board meeting on July 16, 1999, is concerned the same is also bad in view of the participation of the four additional directors, viz., Mr. Mallick's clients who were not appointed by a valid annual general meeting or for that matter their appointment was not valid. There are allegations and counter allegations from the documents that the meeting was not held in a congenial atmosphere or with free will and mind. Any decision taken without fair and proper deliberation cannot be made binding. As such the decision taken at the board meeting on July 16, 1999, is prima facie invalid.
85. As far as the objection of Mr. Mallick's clients is concerned it appears to me if the suit is decreed or any interim order is passed Mr. Mallick's clients' right would be affected. Mr. Mallick's clients are necessary parties, provided it is established prima facie that Mr. Mallick's clients' appointment has been validly made. Mr. Mallick's clients have also chosen not to make any application but have simply tried to intervene in this matter. I have heard mr. Mallick's clients' point of view and I am of the prima facie view his clients' appointment is wholly illegal and irregular. Owing to lack of joinder of necessary party the suit cannot fail if they are joined subsequently. Since the right of Mr. Mallick's clients is in controversy so I add his clients as a party defendant in the suit. So necessary amendment should be carried out by the department within four weeks from the date of service of signed copy of this order.
26. For the aforesaid reasons I confirm the interim order passed by me on July 20, 1999. I vacate the interim order affecting the right of the Union of India since the Union of India is not a party. Moreover, action has been taken under the provision of the law or for that matter I do not find any mala fides in exercise of the Reserve Bank of India's action. Therefore there shall not be any embargo to be put by this court, at least, to take action in accordance with law in the matter of amalgamation. In view of the above no order is passed on the application being G. A. No. 3430 of 1999 and G. A. No. 4131 of 1999. Interim order if any subsists thereon shall stand vacated.
27. This order will not, however, prevent the persons and/or members from holding annual general meeting of plaintiff No. 1-company provided the same is permissible under the law as on today.
28. Costs of this application be cost in the cause.
29. As regards the application being G. A. No. 3592 of 1999 in connection with Suit No. 452 of 1999 is concerned I am of the view that plaintiff No. 2 has no right or authority to use the name of the Sikkim Bank, so I transpose plaintiff No. 1 in the category of the defendant. Upon prima facie enquiry I find the said suit requires trial so at this stage the said suit cannot be dismissed nor the plaint can be rejected. All points are kept open.
30. So far as the application being G. A. No. 3466 of 1999 in Civil Suit No. 452 of 1999 is concerned, in view of my findings in G. A. No. 3000 of 1999 in connection with Civil Suit No, 408 of 1999, I am of the view that no interim order is called for. Accordingly the same is dismissed.
31. Costs cost in the cause.