Calcutta High Court
Jaideep Halwasiya vs Rasoi Limited & Others on 19 February, 2009
Author: Dipankar Datta
Bench: Surinder Singh Nijjar, Dipankar Datta
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
ORIGINAL SIDE
Present :
The Hon'ble Justice Surinder Singh Nijjar, Chief Justice
And
The Hon'ble Justice Dipankar Datta
G.A. No. 2267 of 2008
A.P.O.T. No.266 of 2008
C.S. No.274 of 2006
With
G.A. No. 2268 of 2008
A.P.O.T. No.267 of 2008
C.S. No.274 of 2006
Jaideep Halwasiya
...Appellant
Versus
Rasoi Limited & others
...Respondents
And
G.A. No. 2317 of 2008
A.P.O.T. No.275 of 2008
C.S. No.274 of 2006
Teji Mandi Securities Pvt. Ltd.
...Appellant
Versus
Rasoi Limited & other
...Respondents
For the Appellant Mr. Pratap Chatterjee
in A.P.O.T. No.s 266 Mr. S.N. Mukherjee
and 267 of 2008 Mr. R.R. Sen
Mr. R. Chowdhury
Mr. P. Sarawgi
For the Appellant Mr. Reetobrato Mitra
in A.P.O.T. Ms. Aruna Ghosh
No. 275 of 2008
For the Respondents Mr. Anindya Kumar Mitra
in A.P.O.T. No.s 266 Mr. Abhrajit Mitra
and 267 of 2008 Mr. Anirban Roy
Mr. A.K. Jhunjhunwala
For the Respondents Mr. Ratnanko Baneree
in A.P.O.T.
No.275 of 2008
Heard on : 28.7.2008, 25.8.2008, 27.8.2008 and 28.8.2008
Judgment on : 19.2.2009
Dipankar Datta, J.
All the three appeals being directed against the judgment and order dated 4th July, 2008 passed by a learned Single Judge of this Court, they were heard together and shall be governed by this common judgment.
The appellant in APOT Nos. 266 and 267 of 2008 (hereafter the plaintiff) instituted C.S. No.274 of 2006. The cause of action giving rise to the suit, in brief, is that the plaintiff is a shareholder of the company holding 1,29,677 shares representing more than 7% of the total share holding; that from the notice of the Annual General Meeting, he noticed that the company as a special business was proposing to pass a resolution under Section 81(1A) of the Companies Act, 1956 (hereafter the Act) for issue and allotment of 1,32,000 equity shares of Rs.10 each on a preferential basis to the promoters, viz. Hindusthan Composites Limited (defendant no.2) and M/s. J.L. Morrison (India) Limited (defendant no.3) out of un-issued authorized share capital; that the explanatory statement attached to the notice of the Annual General Meeting under Section 173 of the Act revealed the object of issuing the said shares on preferential basis to the defendants 2 and 3 which, purportedly, was to augment the capital of the company and retire certain debts, to improve its Debt Equity Ratio; that from the explanatory statement it was also evident that the Debt Equity Ratio of the company was not favourable to obtain additional financial assistance from banks as it had huge borrowings; that the notice of the Annual General Meeting of the company and the explanatory statement under Section 173 of the Act are tricky inasmuch as sub-section 3 of Section 173 thereof had not been complied with; that on 18th September, 2006, the plaintiff had a meeting, inter alia, with the Vice-chairperson of the company (defendant no.5) where he had duly explained that the company was not in need of funds and in any event there is no justification for issue and allotment of shares on a preferential basis in favour of the defendants 2 and 3 for various reasons; the defendant no.5 and her son apparently seemed to be convinced with his reasoning, whereupon a commitment was made to the plaintiff by the defendant no.5 on behalf of the Board of Directors of the company that the concerned resolution would not be pressed at the Annual General Meeting and necessary steps would be taken for withdrawal thereof; that an explanation had been given to the plaintiff in course of the said meeting that the purpose of issue and allotment of shares on preferential basis was that loans of Rs.5,68,25,000/- and Rs.75,00,000/- had been taken by the company from the defendants 2 and 3 respectively and the said issue and allotment of shares on preferential basis in their favour was intended to repay the loans; that according to the plaintiff, the reason for issue and allotment of shares on a preferential basis in favour of the defendants 2 and 3, as mentioned in the Explanatory Statement, is intended to deceive and perpetrate fraud upon the plaintiff and other shareholders of the company except those who are defendants in the suit; that surprisingly on 25th September, 2006, when the plaintiff attended the Annual General Meeting with an expectation that resolution no.6 would not be pressed and considered in view of decision arrived at in the meeting as aforesaid between the plaintiff, defendant no.5 and representatives of defendant no.3, the resolution for issue and allotment of 1,32,000 shares of the company in favour of respondents 2 and 3 on a preferential basis was proposed at the said meeting which was opposed by him; that other shareholders present in the said meeting were neither given opportunity to debate nor were the representatives of shareholders present thereat intending to speak against the said resolution allowed to speak on the ground that they did not have proper authority; that the plaintiff demanded a poll but without there being good and sufficient reason, the Chairman of the meeting wrongfully and illegally fixed 26th September, 2006 as the date of poll at the registered office of the company between 11.00 a.m. and 12.00 noon; that the plaintiff had protested against such high-handed action on the part of the Chairman in postponing the poll without adjourning the meeting but to no avail; and that on the following day, the plaintiff attended the poll at the registered office of the company when, however, the resolution was passed although gross irregularities in conducting the polling on 26th September, 2006 were noticed. According to him, some of the shareholders of the company had not been allowed to cast their votes by the management of the company being respondent nos.4 to 11 on one pretext or the other while a number of votes cast against the resolution were rejected on flimsy grounds.
Feeling aggrieved by the resolution adopted by the company under Agenda Item No.6 of notice of Annual General Meeting dated 24th July, 2006 for allotment of 1,32,000 equity shares in favour of respondents 2 and 3 on a preferential basis purportedly approved at the Annual General Meeting of the company held on 25th September, 2006, the plaintiff instituted the suit on 11th October, 2006 before this Court upon obtaining leave from Court under Order 1 Rule 8 of the Code of Civil Procedure. He prayed for a declaration that such agenda item together with the resolution adopted are illegal, null and void and for a perpetual injunction restraining the defendants in the suit from giving any effect or further effect to the purported agenda item as well as the resolution. A prayer was also made for appointment of Special Officer/Receiver to take charge of ballot papers utilized at the said Annual General Meeting of the company and also for ascertaining which of the share holders of the company had cast their votes in relation to the said resolution for issuing allotment of 1,32,000 equity shares in favour of defendant nos. 2 and 3 on a preferential basis.
In connection with the said suit, the plaintiff took out an interlocutory application being G.A. No.3253 of 2006 praying for temporary injunction. The same was heard by the Trial Court during vacation on 11th October, 2006. It was directed that any step taken by the company in pursuance of the special resolution purportedly passed at the Annual General Meeting held on 25th September, 2006 would abide by the result of the application.
The company had intimated the Bombay Stock Exchange that a meeting of its Board of Directors was scheduled to be held on 7th November, 2006 to allot the said 1,32,000 shares to the promoters of the company in terms of the special resolution passed at the Annual General Meeting held on 25th September, 2006. A second interlocutory application being G.A. No.3509 of 2006 was then taken out by the plaintiff on which the Trial Court by its order dated 6th November, 2006 directed that in the event any step is taken for allotment of shares in pursuance of the resolution, or allotment is effected, the allottee shall not be entitled to exercise any right in respect of such shares until further order of the Court. In a meeting of the Board of Directors of the company held on 7th November, 2006, allotment of 1,32,000 equity shares to its promoters being defendants 2 and 3 was approved and a corporate announcement to this effect was posted on the website of the Bombay Stock Exchange.
A third interlocutory application being G.A.No.2973 of 2007 was taken out by the plaintiff wherein it was prayed that the Annual General Meeting scheduled to be held on 28th September, 2007 in terms of notice dated 30th May, 2007 be conducted under the Chairmanship of an officer of this Court. By an order dated 20th September, 2007, the Trial Court granted the prayer of the plaintiff in part and a learned Senior Advocate of this Court was appointed Special Officer with the rider that he would not act as the Chairperson but would be in charge of overall supervision of the Annual General Meeting, as and when held. Appeal preferred against such order was disposed of on 26th September, 2007 with a slight modification, reference to which is considered unnecessary at this stage.
After an advertisement was published by the plaintiff upon obtaining leave from the Trial Court, applications praying leave for being added as parties to the suit had been taken out by various share holders on or about 17th November, 2006. By an order dated 26th June, 2008, the Trial Court allowed the applications of four share holders who were added as parties to the suit.
The interlocutory applications being G.A. No.3253 of 2006, G.A. No. 3509 of 2006 and G.A. No. 2973 of 2007 were then heard on contest. By reason of the impugned judgment and order, G.A. No. 2973 of 2008 was held to have worked itself out and disposed of as such while the applications of the plaintiff being G.A. No.3253 of 2006 and G.A. No.3509 of 2006 were dismissed. The Trial Court, however, stayed the order for two weeks.
On hearing the applications for stay filed in connection with the three appeals, the order of stay was continued till disposal of the appeals.
Mr. Pratap Chatterjee, learned Senior Counsel appearing for the plaintiff contended that the Trial Court erred in dismissing the interlocutory applications filed by the plaintiff and having failed to exercise discretion in favour of grant of injunction despite recording in unequivocal terms that the defendants had not conducted the Annual General Meeting fairly and that explanation furnished by the company in justification of postponing the poll was unconvincing, occasioned grave miscarriage of justice. He raised the following points in support of the appeal:
(i) The explanatory statement attached to the notice of the Annual General Meeting was misleading and tricky. There was absolutely no need to raise funds having regard to the disclosures made by the plaintiff in course of the meeting he had with the defendants on 18th September, 2006, as averred in the first interlocutory application. Money did not matter at all and by devising the scheme the defendants intended to increase their stranglehold over the company.
Material facts which had a bearing on the proposal of allotment of preferential shares to the group of promoters were not set out thereby disabling the shareholders to form their judgment. Failure to comply with Section 172 of the Act could make a meeting invalid and in this connection reliance was placed on the decision of this Court reported in AIR 1962 Cal 127 : Maharani Lalita Rajyalakshmi M.P. vs. Indian Motor Co. (Hazaribagh) Ltd. & ors. Additionally, the Trial Court had not considered the contradiction between the explanatory statement and the Director's report and, therefore, had failed to dispense justice.
(ii) In course of the Annual General Meeting held on 25th September, 2006, polling demanded by the plaintiff was unlawfully postponed by the Chairman of the meeting till the following day between 11.00 a.m. and 12.00 noon. By shifting the venue of such meeting to the registered office of the company which was unequipped to accommodate 365 members who were present on date of the original meeting, the Chairman failed to discharge his fundamental common law duty to regulate proceedings in such manner so as to enable those entitled to be present for voting, to hear, to be heard and to vote. The Chairman ought to have known that such adjournment would have resulted in innumerable members being unable to attend the adjourned Annual General Meeting and no reason had been cited by him to conduct the poll on the next day. The intention was clear, - overwhelming majority of share holders who were present on 25th September, 2006 were sought to be kept away from taking part in the meeting either by way of debate or by way of vote. While at the Annual General Meeting 365 shareholders were either present or represented, only 46 shareholders were represented at the adjourned Annual General Meeting which represents a reduction in attendance by 87%. A meeting could be adjourned by the Chairman for the purpose of giving the shareholders a reasonable opportunity to debate or vote on a resolution but the Chairman in the present case had not exercised his power to adjourn a meeting validly and hence proceedings purportedly conducted at the adjourned Annual General Meeting are invalid and of no effect. Reliance in this connection was placed on the decision reported in (1989)1 All ER 560 : Byng vs. London Life Association Ltd. & anr. Adjournment of the Annual General Meeting on 25th September, 2006 was thus illegal because it deprived a vast majority of shareholders to cast vote.
(iii) The polling that was conducted on 26th September, 2006 was a farce. While on the one hand valid votes had been unlawfully rejected, on the other representatives of some of the shareholders were prevented from voting on flimsy grounds. Four corporate shareholders of the company whose total share holding is 2.1% duly executed instruments of appointment and thereby appointed persons as their respective proxies to attend the Annual General Meeting and to vote. However, defects were found in such instruments of appointment, although non-existing, and thereby ballot papers of all these four corporate shareholders were unlawfully rejected. Though the Trial Court accepted the fact that the votes of these four corporate shareholders were wrongly rejected by the company, even then it proceeded to dismiss the plaintiff's applications rendering the impugned judgment and order vitiated.
Two other corporate shareholders namely Teji Mandi Securities Pvt. Ltd. (appellant in A.P.O.T.No. 275 of 2008) (hereafter Teji Mandi) and Jemco Vanijya Pvt. Ltd. (hereafter Jemco) by resolutions of their respective Board of Directors had appointed representatives to attend the Annual General Meeting and to vote. The total share holding of Teji Mandi and Jemco is 2.7%. However, the respective representatives of the said two corporate shareholders had been prevented unlawfully from exercising right to vote. Though Teji Mandi and Jemco had made two separate, though identical, applications to be added as parties to the suit wherein they had averred that their respective representatives had attended the Annual General Meeting and the adjourned Annual General Meeting armed with two separate resolutions dated 25th September, 2006 and 26th September, 2006 of the Board of Directors of the respective companies authorizing them to attend the Annual General Meeting and to vote, the Trial Court disbelieved the version of Teji Mandi and came to an erroneous finding that there was no averment of the second resolution of the Board of Directors.
Had the votes of the aforesaid six corporate shareholders been taken into account, the proposed resolution would have been defeated.
(iv) The adjourned Annual General Meeting had been conducted illegally and in violation of the Articles of Association of the company. The Chairman of the Annual General Meeting illegally nominated another person as Chairman in his place and stead to preside over the adjourned Annual General Meeting and such action is contrary to Article 65 of the Articles of Association of the Company and, therefore, void. The Chairman of the Annual General Meeting could not have nominated another person to chair the adjourned Annual General Meeting. By referring to the decision of the Apex Court reported in (2005) 11 SCC 314 :
Sangramsinh P. Gaekwad and ors. vs. Shantadevi P. Gaekwad (dead) through LRs. & ors., it was contended that any action in violation of the Articles of Association ought to be declared void.
(v) By unlawful issuance of preference shares there has been a breach of fiduciary duties. The power to issue shares was exercised for the purpose of strengthening and consolidating the power of the group of promoters of the company, viz. the defendants 2 and 3. This was an improper purpose and necessitates setting aside of the issue. Power to issue shares is a fiduciary power to be exercised for the proper purpose of enabling capital to be raised when required. Such power is to be exercised bonafide for the benefit of the company when it is in need of further capital. However, such power may not be exercised by a group of promoters or Board of Directors merely for the purpose of maintaining control over the affairs of the company. If the issue of shares is in breach of fiduciary powers, the allotment is invalid and ought to be declared as such. Reference in this connection was made to the decision reported in (1920) 1 Ch. 77 : (Piercy vs. S. Mills & Company Limited).
Based on the aforesaid submissions, he appealed to the Court to set aside the impugned judgment and order and to continue the injunction granted by the Trial Court on 6th November, 2006 till the disposal of the suit.
Mr. Reetobrata Mitra, learned Counsel appearing for Teji Mandi being the appellant in A.P.O.T.No.275 of 2008 adopted the arguments of Mr. Chatterjee and also prayed that the impugned judgment and order be set aside.
The appeals were opposed by Mr. Anindya Kumar Mitra, learned Senior Counsel appearing for the company. Referring to the contents of paragraphs 11 and 12 of the interlocutory application being G.A. No.3253 of 2006, he submitted that the same contains vague allegations which cannot be decided at the interim stage. He contended that while the plaintiff holds 1,29,677 shares in the company representing approximately 7.2% of the total issued share capital, the promoting group then held 50.69% and by reason of the proposed issues, share holding of the promoting group would be increased to 54.06% of the issued share capital thereby reducing the plaintiff's share holding to 6.71%. Question of strengthening control over the company as a result of proposed issues, therefore, is thoroughly misconceived. According to him since the resolution was passed and action taken thereon has resulted in receipt of money from the defendants 2 and 3 and shares have been allotted in their favour, continuing the injunction granted earlier would work out immense prejudice to the company for it would not be in a position to utilize the money received and thereby pay off its debts.
Regarding the proceedings of the Annual General Meeting conducted on 25th September, 2006, he argued that the Chairman has the authority to defer the poll and in his discretion deferred it. In fact, neither the plaintiff nor any other shareholder objected to deferring the polling to the following day since it was necessitated due to unavoidable reasons and also because no one suffered material prejudice, and hence the plaintiff could have no cause for grievance once the resolution has been passed.
Answering the contention raised on behalf of the plaintiff that the Chairman of the Annual General Meeting could not have nominated a Chairman for conducting the poll and that there has been breach of Article 65 of the Articles of Association of the company, he firstly submitted that this is a point which has neither been averred in the pleadings before the Trial Court nor was it argued before it and, therefore, ought not to be considered and secondly, the terms of the said Article would have no application on facts of the case. Quite apart, if any objection had been raised on the floor the Chairman may not have nominated somebody else. The action of the Chairman, in the circumstances, cannot thus be branded unfair.
The point that Teji Mandi and Jemco were unlawfully prevented from casting votes was sought to be countered by him by referring to the relevant discussion in the Trial Court's judgment. He submitted that nowhere had the Trial Court accepted that the four corporate shareholders' valid votes had been wrongfully rejected, as urged on behalf of the plaintiff. On the contrary, the issue was not finally decided and a contention has been raised on incorrect appreciation of the Trial Court's judgment. According to him, the Trial Court was right in holding against Teji Mandi and Jemco and that the judgment and order did not call for any interference.
He further contended that there has been no breach of fiduciary duties. The Directors of the company stand in a fiduciary capacity vis-à-vis the company and fiduciary duty of Directors to the company cannot be equated with a duty to shareholders. Law permits raising of capital up to a limit and that is what has been followed, and the plaintiff ought not to advise the Directors as to whether the company should have resorted to a rights issue instead of the proposed action. In any event, the plaintiff squarely failed to show that the company suffered any prejudice and the Trial Court rightly declined him relief.
According to him, to grant or not to grant interim order being discretionary, the Court of Appeal may not interfere with non-exercise of discretion in favour of the plaintiff unless such non-exercise can be demonstrated to be perverse. Since the plaintiff had utterly failed on this count, he urged that the appeals were without merit and deserves outright dismissal.
Mr. Ratnanko Bannerjee, learned Counsel for the respondents 2 and 3 echoed the submissions of Mr. Mitra. According to him, no case for injunction has been made out as to why his clients should be restrained from exercising rights in respect of shares held by them. He referred to the first interlocutory application filed by the plaintiff and contended that an impression was sought to be created, as a consequence of resolution No.6 being passed, that the plaintiff has been converted into a hopeless and insignificant minority having very little say in the affairs of the company. According to him, the plaintiff even before the resolution in dispute being passed belonged to the minority and, thus, cannot have any reason to feel aggrieved. He relied on the decision reported in AIR 1993 SC 276 : Dalpat Kumar & ano. Vs. Prahlad Singh & ors. for the proposition that satisfaction regarding existence of a prima facie case by itself is not sufficient to grant injunction and that the Court must further be satisfied that non- interference would result in irreparable injury and the applicant needs protection from the consequences of apprehended injury. In the present case, according to him, the plaintiff would not suffer irreparable injury if the injunction granted earlier is discontinued. He, accordingly, prayed for dismissal of the appeals.
We have heard learned Counsel for the parties and perused the materials on record. We have also examined the judgment and order under appeal.
The suit is founded on a grievance that power to issue and allot 1,32,000 equity shares in favour of the defendants 2 and 3 on a preferential basis has been exercised by the Directors of the company not for its benefit but to benefit the promoters group. It is also the grievance of the plaintiff that such issue and allotment of shares on a preferential basis in favour of the defendants 2 and 3 is wrongful and illegal being the consequence of unfair conduct and dealings. Serious objection has been raised in respect of postponing the poll on the date the Annual General Meeting was fixed and the manner in which polling was conducted on the following day. The grounds based whereon the impugned action has been branded wrongful and illegal have been noticed above. It would thus be our endeavour to examine the points raised and to determine whether the plaintiff is entitled to have the injunction continued on the basis of the materials placed before the Trial Court or whether the Trial Court was justified in rejecting the applications for injunction. In the process we shall deal with the contentions raised by the plaintiff in the sequence the same have been dealt with by the Trial Court.
It would be worthwhile to take note of the result of the poll conducted on 26th September, 2006 which reads as follows:
No. of No. of Shares Percentage of
Shareholders Shares
Ballots Cast 46 N.A. N.A.
Invalid Ballots 9 N.A. N.A.
Valid Votes 37 1180201 100%
Votes Cast in 25 924925 78.37%
favour
Votes Cast 12 255276 21.63%
against
It has been contended on behalf of the plaintiff and Teji Mandi that Teji Mandi and Jemco had wrongly been prevented to cast vote in the poll and had their votes being counted, the resolution would have been defeated. The latter position has been noticed and accepted by the Trial Court. However, the Trial Court on consideration of the materials on record before it disbelieved the version of Teji Mandi and in our opinion rightly. From paragraph 8 of the application filed by Teji Mandi seeking leave to intervene, it appears that it had authorized one Mr. K.K. Bhartia as authorized representative and Mr. Raj Kumar More (Director) to act as its representatives and to attend the Annual General Meeting of the company to be held on 25th September, 2006. Although Bhartia attended on 25th September, 2006, he was unable to attend the meeting on the following day. More attended the meeting on the following day. However, he was not permitted to cast vote on the ground that he was not authorized to represent Bhartia. The Trial Court was sought to be impressed for and on behalf of Teji Mandi that there was a second board resolution whereby More was authorized to represent it on the date of poll. The Trial Court disbelieved the stand of Teji Mandi on primarily two grounds, viz. (i) the second authorization does not find place in the bunch of documents relating to the voting that had been made over by the company in course of interlocutory proceedings before it; and (ii) the application filed by it does not speak of any second resolution. In respect of the first ground assigned by the Trial Court, it has not been urged that the finding is clearly wrong and therefore we ought to find out the correct position on facts from the papers called for by the Trial Court and retained with the records. In view thereof, we have no other option but to hold that the finding arrived at by the Trial Court that the second authorization does not find place in the bunch of documents relating to the voting does not call for any interference.
This finding of the Trial Court also finds support from two documents to which we shall presently refer. In response to a letter of Teji Mandi dated 26th September, 2006, letter dated 12th October, 2006 was issued on behalf of the company by its Advocate, being part of Annexure-C to the application filed by Teji Mandi. Therein, it was specifically mentioned that "no authority in respect of Mr. Raj Kumar More to act on behalf of Teji Mandi ......has been lodged with our client". In its reply letter dated 16th October, 2006 although Teji Mandi referred to an authorization given to More to represent it, no specific case has been made out therein that the same was duly lodged by him prior to exercise of the right to vote. All that has been said therein is that More was not allowed to exercise voting rights on behalf of Teji Mandi. In paragraph 8 of its application for being added as a party in the suit, it was claimed that "More attended the balloting equipped with the necessary authorizations and a copy of the resolution of the Board of Directors" but was "prevented from casting his vote, on the purported ground that he was not authorized to represent Mr. K.K. Bhartia" and he having failed to persuade defendants 4 to 11 regarding the authorization made in his favour "resigned himself reluctantly to being prevented from exercising his right to vote and did not, in fact, cast his vote." A new case appears to have been made out in the stay application filed before us (G.A.No.2317 of 2008) wherein it is the claim of Teji Mandi that More "was denied entry into the balloting arena." If indeed Teji Mandi by a resolution had authorized More to represent it at the polling scheduled on 26th September, 2006, it is incomprehensible as to why such resolution was neither pleaded in the petition nor annexed thereto. Evidence of the second resolution was not considered good and sufficient on its face by the Trial Court. The Trial Court having found on examination of records that there was no second authorization in favour of More, an altogether different case appears to have been made out in the stay application to overcome the finding of the Trial Court. We do not find any reason to differ and thus hold that in preventing More to vote for Teji Mandi, no illegality was committed warranting our interference.
So far as Jemco is concerned, it was not argued alike Teji Mandi that there was a second authorization in favour of Mr. Ravi Agarwal though the contents of the application filed by Teji Mandi and Jemco in substance appears to be similar with the exception of the person authorized to represent the company on 26th September, 2006. The Trial Court held that Jemco did not assert that in addition to Bhartia it had authorized Agarwal to represent it and vote on 26th September, 2006. Not allowing Agarwal to vote on the ground of lack of authority thus cannot be faulted. Significantly, Jemco has not appealed against the judgment and order dated 4th July, 2008 and seems to have accepted it. There could thus be no good reason for us to interfere with the finding reached by the Trial Court so far as alleged infringement of its right is concerned.
Teji Mandi and Jemco together made up for 2.7% of the share holders present and expressing interest to vote. Deducting 2.7% out of 4.8% which the plaintiff contended should be added to the number of votes against the resolution was rightly excluded and, therefore, any defect in excluding the votes of the other four share holders comprising 2.2% of the share holders would not have made any difference in the ultimate analysis.
Prima facie, we find no reason to hold that by not allowing Teji Mandi and Jemco to vote, they have been deprived of something which they were entitled to in law.
Next, we proceed to consider the point raised by the plaintiff that the explanatory statement was tricky and misleading. It appears from the judgment under appeal that the Trial Court, prima facie, did not find the contention having any merit. We too have perused the explanatory statement. It records that the Vanaspati Industry has been going through a difficult phase due to dumping of Vanaspati from the neighbouring countries; that in order to overcome the situation, production levels have to be increased for which the company is in need of fresh funds; the Debt Equity Ratio of the company is not favourable to obtain additional financial assistance from banks since the company has huge borrowings; and that the company intends to augment its capital and retire certain debts to improve its Debt Equity Ratio. It is for these reasons that the company had proposed to issue and allot equity shares to the promoters of the company on a preferential basis. Apart from the plaintiff, no other shareholder contemporaneously raised any grievance in respect of the explanatory statement and, therefore, an inference could reasonably be drawn that they were not handicapped in forming their judgment. That the explanatory statement falls short of the requirement of Section 173(2) of the Act and thus is invalid has not been demonstrated before us.
With a view to find out as to whether there is any contradiction between the explanatory statement and the Director's report urged on behalf of the plaintiff, we have perused the Director's report also. It is clear that such report does not present a rosy picture and no apparent contradiction is discernible.
Having considered the point raised, we share the view expressed by the Trial Court that "as of now it does not appear that there was anything untoward or sinister that was attempted by the explanatory statement."
The contention raised by Mr. Chatterjee that polling was postponed illegally and improperly to 26th September, 2006 to preclude a large number of members from taking part in the polling is now taken up for consideration. According to the Trial Court, this was the core issue. Mr. Chatterjee invited our attention to the judgment of the Trial Court wherein it had observed that there was "an element of unfairness in how the company went about adjourning the voting on the contentious resolution to the following day" and that "the company's off-the-cuff response that it may not have been prepared with ballot papers is unconvincing". On the other hand, it was the contention of Mr. Mitra that the plaintiff or any other share holder present on 25th September, 2006 had not objected to postponement of polling to the following date and the resolution having been passed by more than 75% of the value of the shareholding present and voting, the Trial Court was correct in holding that even if postponement of voting was undesirable, that by itself would not "visit the company with a consequence of the resolution being annulled in the absence of positive material to show that the resolution would have failed if it had been voted upon on the earlier day".
In our opinion, it is the fundamental duty of the Chairman of the meeting to regulate the proceedings so as to give all persons entitled to vote a reasonable opportunity. While it requires no argument to establish that the Chairman of a meeting has the discretion to either adjourn a meeting or to postpone voting, such power has to be exercised on the existence of reasonable grounds and on being satisfied that prevailing circumstances do warrant exercising the power to postpone. When discretion is wide enough, it is imperative that discretion is exercised in such manner that it may not give an impression of arbitrariness or being moved by ulterior criteria, and when exercised, a discernible principle satisfying the test of reasonableness and fairness must emerge from the action impugned. The person/authority exercising discretion is accountable for his action. When challenged, the impugned action has to be tested on the anvil of fairness or justice particularly when competing interests of members of society are involved. Exercise of discretion thus would be vitiated if the action were bereft of rationality, lacks objective and purposive approach. It must be exercised within the limit to which an honest man competent to the discharge of his office, ought to confine himself. Since it imposes a heavy responsibility, the decision must be reached bonafide. As has been held in Byng (supra), the power to adjourn is only validly exercised if no injurious effect were produced. We cannot agree more that the impact of the proposed adjournment on those seeking to attend the original meeting and the other members must be the central factor in considering validity of the Chairman's decision to adjourn. Undoubtedly, the Chairman's decision to adjourn must be taken reasonably with a view to facilitating the purpose for which the power exists. Keeping these well settled principles in mind, we shall proceed to decide the contentious issue.
A decision on this point would require reference to the pleadings of the parties. From the counter-affidavit filed on behalf of the company in response to G.A. 3256 of 2006 it appears that the plaintiff had informed the Vice-chairperson of the company, when he met her on 18th September, 2006, that he was controlling over 21% shares in the company and unless his entire share holding was bought over by the promoters of the company for about Rs.800 per share, he would use his voting power to defeat resolution no.6 for proposed preferential allotment of shares to the promoters group of the company. The said affidavit is, however, silent regarding the reaction of the Vice-chairperson on hearing the plaintiff. But it appears to be an admitted position that the plaintiff had openly threatened to the knowledge of some of those at the helm of the company to defeat resolution no.6 by using his voting power unless his entire shareholding is bought over.
That the plaintiff may demand a poll if preferential allotment of shares to the promoter group of the company is pressed at the Annual General Meeting was not unknown to the Vice Chairperson and others present in the meeting held on 18th September, 2006. This being the position, the defence that the poll was postponed on the ground that it requires various prior arrangements to be made has not impressed us. Why prior arrangements had not been made for conducting poll, if demanded, has not been explained. That the company had a poll by ballot the last time in 1993 is no ground not to make arrangements for poll when the plaintiff's demand to have a poll if resolution no.6 was pressed was imminent. That the Annual General Meeting on 25th September, 2006 was attended by 365 shareholders is not in dispute. In sharp contrast, only 46 were present on the date polling was actually held. Out of 9 votes that had been rejected, 6 had voted against the resolution. The contention of the plaintiff that had a poll been conducted on 25th September, 2006 itself, the resolution would have been defeated and that to avoid the resolution being defeated polling was postponed till the following day, in our prima facie opinion, has substantial merit. The minutes of the proceedings of the Annual General Meeting in question does not record the reason as to why the Chairman decided to conduct polling on the resolution on the following day. It appears to us that the reason cited in the counter affidavit (of prior arrangements for polling not having been made) is nothing but a subterfuge to anyhow justify postponement of polling. In our view, the conduct of the Chairman in postponing the poll to the following day does not pass the test of fairness and reasonableness. That the original meeting was conducted unfairly is writ large. The plaintiff himself having threatened to demand a poll a week before holding of the Annual General Meeting if resolution no.6 was pressed coupled with the fact that 365 shareholders were present on the original date while there was a drastic fall in attendance on the postponed date and the reason for postponing the poll being wholly unsatisfactory are factors which are considered by us to be sufficient, at this stage, for holding that the plaintiff had provided material worthy for the Trial Court to draw a presumption that the likely event of the resolution failing if poll had been conducted on 25th September, 2006 was the only reason for not holding poll on that date. The plaintiff had laid a claim a week before the Annual General Meeting that he had control over 21% shareholding. Whether this 21% included the shares of the six corporate shareholders referred to above need not be ascertained at this stage but fact remains, more than 21% had voted against the resolution even on 26th September, 2006 and had the votes of these six corporate shareholders been counted the resolution would have been defeated. None has disputed that these corporate shareholders were duly represented on the day of original meeting. Turning a blind eye to these facts would result in miscarriage of injustice.
Having accepted that there was an element of unfairness in conducting the meeting in so far as Item No.6 is concerned, that the company's off-the-cuff response was unconvincing and that the conduct of postponing the voting was undesirable, in our opinion, the Trial Court erred in not continuing the injunction granted by it earlier on the premise that positive material had not been placed by the plaintiff to show that the resolution would have failed if poll had been conducted on the date originally fixed. Grant or refusal to grant injunction must be based on exercise of sound judicial discretion. We wonder what more was required of the plaintiff to have the injunction continued.
We, therefore, find merit in the contention of the plaintiff that the share holders who might have been present in the meeting held on 25th September, 2006 to defeat resolution no.6 were given a raw deal and we are of the considered view that the Trial Court erred in failing to exercise discretion by continuing the injunction already granted in his favour. The decision in Dalpat Kumar (supra) does not persuade us to refuse injunction since we are convinced that the plaintiff has succeeded in satisfying the recognised factors based whereon an injunction ought to follow.
In view of our above finding we do not consider it necessary to deal with the remaining points urged by the plaintiff lest it may prejudice adjudication of the issues that would arise in the suit.
While allowing the appeals preferred by the plaintiff and dismissing the appeal filed by Teji Mandi, we direct that the order passed by the Trial Court on 6th November, 2006 shall continue till disposal of the suit. In the result, the judgment and order under appeal stands set aside insofar as the plaintiff is concerned but is upheld as against Teji Mandi. Connected applications shall stand disposed of.
Parties shall, however, bear their own costs.
Observations made in this judgment are tentative and shall not, in any manner, influence adjudication of the suit on merits.
Certified photocopy of this judgment shall be made available to the parties, if applied for, on urgent basis.
Photocopy of this judgement, duly countersigned by the Assistant Registrar (Court), shall be retained with the records of APOT Nos. 267 of 2008 and 275 of 2008.
I agree. (SURINDER SINGH NIJJAR, C.J.)
(DIPANKAR DATTA, J.)