Karnataka High Court
Karnataka Bank Ltd. vs A.B. Datar And Others on 22 April, 1993
Equivalent citations: [1994]79COMPCAS417(KAR), 1993(2)KARLJ230
JUDGMENT A.B. Murgod, J.
1. Miscellaneous First Appeal No. 2385 of 1992 is filed by the first defendant under Order 43, rule 1(r) of the Civil Procedure Code against the order dated November 11, 1992, passed in Original Suit No. 6835 of 1992, by the 15th Addition City Civil Judge, Bangalore, allowing the prayer for temporary injunction in I.A.I. under Order 39, rule 1 and 2 read with section 151 of the Code of Civil Procedure.
2. Miscellaneous First Appeal No. 2386 of 1992 is filed by the first defendant under Order 45, rule 1(r) of the Civil Procedure Code against the order dated November 16, 1992, in Original Suit No. 6843 of 1992, on the file of the 15th Additional City Civil Judge, Bangalore, partly allowing the prayer for temporary injunction in I.A.I. under Order 39, rule 1 and 2 read with section 151 of the Civil Procedure Code.
3. Since the appeals involve common questions of facts and law, they are disposed of by the following common judgment.
4. The facts giving rise to these appeals are as under :
The Karnataka Bank Ltd. is a well know banking institution and it is registered under the Companies Act, 1956. The board of directors in its meeting on September 16, 1992, decided to hold the sixty-eighth annual general meeting of the Karnataka Bank Ltd. on October 29, 1992, and accordingly issued notices to all the shareholders. The appellant has despatched the annual report for 1991-92 and notice convening the sixty-eight annual general meeting to be held on October 29, 1992, to the shareholders between September 25, and October 3, 1992. On October 3, 1992, one of the shareholders, Sri B. Narayana Somayaji, gave notice to the secretary, the Karnataka Bank Ltd. (hereinafter referred to as "the bank"), under section 190 of the Companies Act, 1956, of the intention to move three resolutions as ordinary resolutions under section 284 of the Companies Act, 1956 (hereinafter referred to as "the Act of 1956"), at the sixty-either annual general meeting of the bank to be held on October 29, 1992.
"Resolutions :
(1) Resolved that Sri A. B. Datar, who was appointed as a director of the Karnataka Bank Ltd. at the sixty-seventh annual general meeting of the bank be and is hereby removed from the office of director of the Karnataka Bank Ltd.
(2) Resolved that Sri Ravishankar Adiga, who was last appointed as a director of the Karnataka Bank Ltd. at the sixty-sixth annual general meeting of the bank be and is hereby removed from the office of director of the Karnataka Bank Ltd.
(3) Resolved that Sri, H. N. Rao, who was last appointed as a director of the Karnataka Bank Ltd. at the sixty-seventh annual general meeting, be and is hereby removed from the office of director of the Karnataka Bank Ltd."
5. Sri K. Krishna Holla, another shareholder, gave similar notice dated October 13, 1992, notifying his intention to move similar resolutions under section 284 of the Companies Act, 1956, at the sixty-eighth annual general meeting of the bank for the removal of the directors (1) Sri A. B. Datar, (2) Sri H. N. Rao and (3) Dr. Ravishankar Adiga. The bank notified the concerned directors of the notices received from Sri. B. Narayana Somayaji and Sri K. Krishna Holla of their intention to move the resolutions in the sixty-eighth annual general meeting to be held on October 29, 1992, for removal of the named directors in compliance with section 284(3) of the Act of 1956. Since the notices calling the annual general meeting had already been issued by the bank between September 25, 1992, and October 3, 1992, the bank issued notice dated October 21, 1992, in the English daily newspaper Indian Express pursuant to sub-section (2) of section 190 of the Companies Act, 1956, about the notice in writing under section 190 of the Companies Act from Sri B. Narayana Somayaji and Sri Krishna Holla of their intention to move the resolutions for removal of the directors, Sri A. B. Datar, Sri Ravishankar Adiga and Sri H. N. Rao. A similar publication was issued in the Kannada daily Udayavani dated October 19, 1992. After these notices were issued, there suits came to be filed against the bank. Original suit No. 6835 of 1992 has been filed by Sri A. B. Datar against the Karnataka Bank Ltd., and two shareholders, Sri B. Narayana Somayaji and Sri Krishna Holla, who had issued notices of their intention to move the resolutions for the removal of Sri Datar and two other directors for the reliefs of (1) declaration that the general meeting notice dated September 16, 1992, of the first defendant-company and the special notice under section 284 issued by the second defendant on October 3, 1992, and the special notice issued by the third defendant under section 284 served on October 19, 1992, are bad in law and void ab initio, (2) permanent injunction restraining the first defendant from conducting the annual general meeting on October 29, 1992, in pursuance of the notices for general meeting dated September 16, 1992, and (3) restraining the first defendant from allowing to move the resolutions proposed to be moved by the special notices of defendants Nos. 2 and 3, and (4) permanent injunction against defendants Nos. 2 and 3 from moving the resolutions as per the special notices issued by them dated October 3, 1992, and another notice received on October 19, 1992, as published in the Udayavani on October 19, 1992, respectively.
6. Original Suit No. 6843 of 1992 is a suit filed by Dr. K. Ravishankar Adiga, another director of the bank, for reliefs in terms identical to those found in the suit filed by Sri A. B. Datar, Another suit filed in this behalf is by one of the shareholders, namely, Sri B. R. Shetty, in Original Suit No. 6840 of 1992, for the reliefs of permanent injunction restraining the defendants from conducting the annual general meeting by virtue of notice dated September 16, 1992, and also restraining defendants Nos. 2 and 3 from moving the resolution and restraining the first defendant from passing the resolution by virtue of the special notices dated October 3, 1992, issued by the second defendant and October 13, 1992, issued by the third defendant for removing the directors, Sri A. B. Datar, Dr. Ravishankar Adiga, and H. N. Rao from the directorship. The allegations in all these suits are similar and identical. The material averments found in the plaint in Original Suit No. 6835 of 1992 by Sri A. B. Datar, the plaintiff, are as under :
The chairman-cum-managing director of the bank at the instigation of some other shareholders has been working detrimental to the interest of the bank and the shareholders at large. The bank has advanced loans of over crores of rupees to Fair Growth Company without taking proper security. The plaintiff and other directors objected in the board of directors meeting and one of the directors intimated the same to the Reserve Bank as well. Certain powers of the chairman-cum-managing director were removed by the board of directors. Subsequently, those powers were restored on the advice of the Reserve Bank. Thus, being aggrieved, the chairman-cum-managing director has set up defendants Nos. 2 and 3 to issue notices to move the resolutions for removing the plaintiff and two others from the directorship. The plaintiff and others are working in the best interests of the institution. The board of directors met on September 16, 1992, and in the meeting at item No. 64, a resolution was moved to increase the number of directors by taking three more directors. This resolution required to be confirmed in the next meeting of the board of directors and only after confirmation it would become a resolution. In the next meeting of the board directors held on October 3, 1992, three directors dissented from the resolution and only two directors agreed for its confirmation. But the chairman-cum managing director made it appear that the resolution was confirmed. Thus, the resolution though not confirmed was made to appear that it was confirmed. As the resolution is not confirmed by the board of directors, the bank has no right to incorporate the same in the general meeting and the notice issued is illegal and not in accordance with company law and the first defendant-company has no right to hold a general meeting on October 29, 1992. The special notices issued by defendants Nos. 2 and 3 under section 284 were not moved before issuing notices for general meeting to enable the bank to incorporate the same in the notice of the general meeting. After collecting the proxies from various shareholders giving them various hopes including sanctioning of loans to them through the branch managers, the chairman-cum-managing director set up defendants Nos. 2 and 3 to issue notices to move the resolutions stated above. The first defendant purposely and did not send the notices to the individual shareholders and only published the notice in Udayavani newspaper even though there was sufficient time to sent the notice to all the share holders as contemplated under section 190(2) of the Act of 1956. The special notice itself is not in accordance with law and there is no notice of 14 clear days as contemplated under section 190 of the Companies Act. The notice is, therefore, invalid. The publication of notices in Udayavani is not sufficient publication and it is not proper. The circulation of Udayavani is limited to Udupi and some parts of Mangalore only and the shareholders are scattered all over India and abroad. The publication in Udayavani newspaper is made in bad faith with dishonest intention. Section 188 of the Companies Act lays down that a resolution cannot be moved by an individual. On the contrary, a resolution should be moved by the members with representation of not less than one-twentieth of the total voting power and not less than 100 members having the right aforesaid and holding shares of company on which there has been paid-up an aggregate sum of not less than one crore of rupees in all. Admittedly both the notices were issued by one of the shareholders and there is no compliance with section 188 of the Companies Act. Under section 190 of the Companies Act, notice to move the resolution cannot be given by one individual and it must be given as contemplated under section 188. The notice is, therefore, illegal. Under section 284 of the Companies Act, when a special notice is issued the reasons for removing the directors should be mentioned and an opportunity should be given to the directors to explain. Admittedly, in the notice, no explanation is given and no reasons are assigned. The notice is defective and, therefore, no resolution can be passed. Notice of the general meeting is not issued as contemplated under section 165 and 166 of the Companies Act. Hence, the general meeting cannot be held as the provision is mandatory.
7. The averments in the plaints in the two other suits are identical to those referred to above. With similar ground, applications for interim injunction under Order 39, rule 1 and 2 read with section 151 of the Code of Civil Procedure were made in each of the suits. In those applications it is contended that the balance of convenience is in favour of the plaintiff-applicant and that irreparable injury would be caused in the event of refusal to grant injunction. These applications are opposed by filing the objections and counter-affidavits on behalf of the bank.
8. One Sri. N. Ranganath, the Assistant General Manager, Bangalore Region of the first defendant bank, filed the affidavit by way of objections to I.A.I. filed by the plaintiff-applicant. He has stated in the affidavit as follows :
The relief sought in the application is misconceived and the application is vexatious, groundless, untenable and is liable to be rejected. There is inordinate delay in approaching the court. The applicant was notified on October 3, 1992, that the first defendant had received a special notice from defendant No. 2 to the effect that a resolution would be moved at the annual general meeting to be held on October 29, 1992, to remove him from the office of director of the bank under section 284 of the Companies Act. A similar notice was received by the bank on October 13, 1992, and it was communicated to the plaintiff by registered post on October 15, 1992. The applicant has filed the suit on October 27, 1992, after a delay of 23 days without any proper explanation. The allegations have been levelled against the chairman of the first defendant-bank without making him a party to the suit and these allegations are untenable and false and are meant to prejudice the mind of the court. The proposal of the two members to move the resolutions to remove the directors is legal. The well-settled principle of corporate management is the existence of corporate democracy, vesting in the members of the company, the power to appoint or remove a director from his office. The plaintiff by his proposed action is attempting to subvert the process recognised by law by seeking the relief of injunction. Section 188 of the Companies Act does not apply to cases of removal of directors under section 284 of the Companies Act, Section 284 does not refer to section 188. The object of section 284 is to enable the exercise of the right by any member to move a resolution for the removal of any director and such a right is not circumscribe by the provisions of section 188 of the Companies Act.
9. There is no provision in the articles of association of the first defendant bank or in the Companies Act requiring the minutes to be confirmed before they are acted upon. Implementation of the decisions of the board of directors cannot be deferred till the minutes are confirmed at a subsequent meeting. Confirmation of minutes is only to ensure correctness of the recording of the minutes. The notice of the meeting for the annual general meeting has been issued in accordance with the decision of the board of directors and there is no illegality in the same. At the board meeting held on September 16, 1992, the board of directors approved all the items on the agenda including the proposal to increase the strength of the board of directors. The only dissent at the meeting was recorded by the plaintiff. According to the provisions of section 195 of the Companies Act, the minutes of the meeting of the board of directors shall be presumed valid and that the meeting was to be duly called and held and all decisions taken shall be deemed to be valid. Therefore, the inclusion of item 8 in the agenda of the meeting notice dated September 16, 1992, is legal and valid. The allegation that the chairman had manipulated the documents and made false statement in the notice of the meeting is false.
10. Under section 190(2) of the Companies Act immediately after the company receives a notice of the intention to move a resolution, it shall give notice of the resolution to the members of the company in the manner notice of meeting is normally given or if that is not practicable, notice shall be given by advertisement in a newspaper having appropriate circulation not less than seven days before the meeting. It was impracticable to give individual notices of the special notice to all the members in the instant case and, therefore, the first defendant bank got published an advertisement in Udayavani, a Kannada daily of Municipal, dated October 19, 1992, and one issue of Indian Express dated October 21, 1992. The Udayavani newspaper has a wide circulation in the whole of Karnataka and particularly in Dakshina Kannada where the registered office of the first defendant-bank is situated. Therefore, the contentions relating to the legality of the same have no substance. On the question of balance of convenience, the order of injunction will seriously and prejudicially affect the first defendant bank. The first defendant-bank has over 26,000 share-holders and for convening a general body meeting, it has to spend over Rs. 1 lakh. The shareholders come from different places and all the preparations for holding the meeting on October 29, 1992, have been completed. The plaintiff-applicant, though notified of the resolution as long ago as October 3, 1992, took no action till October 27, 1992. The balance of convenience lies in favour of the defendants as the delay has not been explained properly in filing the suit. The plaintiff will not suffer any irreparable injury and the decision to remove or not to remove ultimately rests with the members of the bank and the status of the applicant-plaintiff has no relevance so far as the position of the director of the company is concerned. The allegations made against the chairman-cum-managing director with regard to lending of Rs. 1 crore without proper security is denied as false. A substantial portion of the amount advanced to Fairgrowth with the approval of the board of directions is stated to have been already recovered. The grant of credit facility to FFSL was approved by the board of directors of the bank on April 9, 1992, with the plaintiff concurring in the decision. It is, therefore, submitted that he cannot object to that decision. The allegation with regard to setting up of defendants Nos. 2 and 3 by the chairman is denied as false. It is also contended that in law, it is not necessary for a member to disclose any reasons for the removal of a director and, therefore, the notices are contended to be in accordance with law. The allegation of manipulation of documents by the chairman is stated to be false. The applicant has not stated that irreparable injury would be caused to him and he is, therefore, not entitled to the relief of injunction.
11. Subsequently, the chairman-cum-managing director of the appellant, Sri H. M. Ramarao, has filed his affidavit stating that on his instruction Sri R. Ranganath, Assistant General Manager, Bangalore Region of the bank, had filed his objections and counter-affidavit. Sri Rama Rao denied the allegations of instigation to shareholders to give notices under section 284 of the Companies Act for removal of the three directors, namely, Sri A. B. Datar, Dr. K. Ravishankar Adiga and Sri H. N. Rao. He also denied the allegations of advancing large sums of money to Fairgrowth Financial Services Ltd. Without taking proper security. He asserted that the plaintiff had participated in the board meeting unanimously resolving to continue the existing limit of Rs. 250 lakhs granted to M/s. Fairgrowth Financial Service Ltd. He asserted that a substantial portion of the amount advanced had been recovered. He denied the manipulation of records and the minutes of the meeting alleged against him. He contended that he had no animosity against any of the directors and refused the allegations of misuse of funds, etc., levelled against him.
12. As per the documents placed on record, it is to be noticed that Sri B. Narayana Somayaji, the second respondent in these appeals, has filed O.S. No. 212 of 1992 against the appellant-back in the Court of the Civil Judge, Mangalore, and had obtained an interim injunction to consider the notice dated October 3, 1992, issued by him and to allow him to move the resolutions mentioned in the said notice at the sixty-eighth annual general meeting to be held on October 29, 1992, or consider the same in the adjourned meeting if the annual general meeting to be held on October 29, 1992, or consider the same in the adjourned meeting if the annual general meeting is not held on October 29, 1992. This order is passed on October 22, 1992.
13. The third respondent, Sri Krishna Holla, filed O.S. No. 1309 of 1992, on the filed of the Principal Munsiff, Mangalore, against the present appellant and obtained an interim order directing it to transact the entire business of the sixty-eighth annual general meeting scheduled to be held on October 29, 1992, as published in the notice under section 190 of the Companies Act and the authorities concerned in strict adherence to the rules and procedure in conducting the meeting as envisaged.
14. One Sri M. Iyanna filed O.S. No. 204 of 1992 in the court of the Munsiff and J.M.F.C., Holenarasipur, for a permanent injunction restraining the appellant-bank from holding the sixty-eighth annual general meeting on October 29, 1992, and moved for an interim injunction. On October 28, 1992, the court observed that a notice of 21 days had not been given to the plaintiff for holding the annual general meeting on October 29, 1992, and, therefore, the learned Munsiff issued a temporary injunction preventing the appellant-bank from holding the meeting on October 29, 1992, as prayed for.
15. The lower court took up for consideration I.A.I. filed in Original Suit No. 6840 of 1992 filed by Sri B. R. Shetty and by the order dated October 29, 1992, held that the plaintiff therein had failed to make out a prima facie case and he had failed to prove that irreparable injury would be caused if injunction prayed for by him was refused. The balance of convenience was also not found in his favour. Accordingly the lower court dismissed the application for temporary injunction. In doing so, the lower court held that it was of the opinion that section 188 of the Companies Act did not apply to the case of removal of the directors under section 284 of the Companies Act by placing reliance on the decision in Gopal Vyas v. Sinclair Hotels and Transportation Ltd. . It also rejected other contentions raised by the plaintiff in the plaint and the application for temporary injunction. However, in the order passed on I.A.I. in O.S. No. 6835 of 1992, filed by Sri A. B. Datar, the lower court accepted all the contentions of the plaintiff (first respondent in M.F.A. No. 2385 of 1992) and found that he was able to make out a prima facie case and that he had come with clean hands and that the appellant had not come with clean hands and that irreparable injury would be caused to the plaintiff if injunction was not issued and the balance of convenience was in favour of the plaintiff. On these findings and in view of the meeting having taken place on October 29, 1992, in which resolution removing Sri A. B. Datar from the directorship had been passed, the lower court directed not to give effect to the resolution of the general body meeting held on October 29, 1992, only in respect of the removal of Sri A. B. Datar from the director and appointing any other director in his place pending disposal of the suit. This order was passed on November 11, 1992. In respect of the interim application arising out of Dr. Ravishankar Adiga's suit in O.S. No. 6843 of 1992 out of which M.F.A. No. 2386 of 1992 arises, the lower court hold on all the contentions raised by the plaintiff in his favour and went a step further in awarding relief to him by ordering that the appellant bank shall not give effect to the resolutions of the general body meeting held on October 29, 1992, in respect of removal of Dr. Ravishankar Adiga from the office of directorship and appointing any other director in his place and further ordering that all the directors who were on the board before October 29, 1992, should be continued as directors of the appellant-bank and preventing the bank from giving effect to the resolutions passed in the general body meeting in respect of items 8 and 9 in the agenda of the sixty-eighth annual general meeting. In passing these impugned orders in the suits filed by Sri A. B. Datar and Dr. Ravishankar Adiga, the lower court held that the provisions of section 188 of the Companies Act were applicable to the special notice in respect of the resolution for removal of the director under section 284 of the Companies Act and that Sri Narayana Somayaji and Sri Krishna Holla had not given the notices of their intention to move the resolution before issuing the notice of the annual general meeting and that the chairman-cum-managing director had, though the branch managers, managed to secure proxies from the shareholders and there was considerable force in the allegations of mala filed levelled against the managing director and, therefore, all was not well in the case and there were serious disputes to be considered at the time of trial. The lower court also held that the appellant-bank had failed to issued individual notices to the shareholders about the proposed resolutions to remove the directors as required under section 190 of the Companies Act. The lower court opined that both Sri A. B. Datar and Dr. Ravishankar Adiga were efficient and honest directors and no reasons were given for their removal in the notices and their reputation would be affected in the event of their removal from the directorship and, therefore, the court passed the impugned orders.
16. On the basis of the above, learned counsel for the appellant in the two appeals submitted that the trial court was in error in passing three different orders in three different suits when the grounds made out in the plaints and the applications for interim orders in all the suits were identical and similar; that the court heard no further arguments and there was no justification for the court to change its views from those expressed in the order dated October 29, 1992, passed in the suit filed by Sri B. R. Shetty. The orders passed by the trial are contended to be perverse as the court failed to consider the affidavit of the chairman. The opinion of the trial court in regard to the collection of the proxies is contended to be perverse and not warranted from the material on record. It is further contended that section 284 of the Companies Act is a complete code and is not subject to the provisions of section 188 of the Companies Act and having regard to large number of shareholders numbering 26,000 and above it was not practicable to issue individual notice to all the shareholders under section 190 of the Companies Act and, therefore, the appellant rightly issued notice by publication in the newspaper under section 190(2) of the Companies Act and the observations and findings of the trial court in that behalf are stated to be incorrect. With regard to the minutes of the meeting, it is submitted that the board of directors of the appellant resolved on September 16, 1992, to increase the strength of the board from 8 to 11 and an extract of the minutes of that meeting duly signed by the chairman is maintained in accordance with the provisions of the Companies Act and there is not need to ratify those minutes in the next meeting as contended and the contention of the respondents that the decision of the board dated September 16, 1992, is not confirmed, and, therefore, the inclusion of the item in the agenda is illegal is untenable. It is also contended that the findings with regard to prima facie case, balance of convenience and the resultant irreparable injury are all unsustainable. The appellant also submitted that the trial court was not right in granting the relief by restoring status quo ante as on October 29, 1992, in respect of all the members that constituted the board of directors. It was submitted that the court exceeded its jurisdiction in granting the relief in those terms as it affected persons who were not parties before it. Learned counsel for the appellant submitted that in the special notice for removal of the directors, there was no need to give reasons. Learned counsel for the appellant also submitted that for grant of an interim injunction the arguments put forth by the bank have not been properly considered by the trial court and Sri A. B. Datar and Dr. Ravishankar Adiga had failed to make out the alleged grounds and had not shown how they would sustain injury much less irreparable injury. It was submitted that corporate management is based on the democratic system and it is open to the shareholders to entrust the management of the company to the person in whom they have confidence and it is equally open to them to remove such of the directors in whom they have no confidence. It is also submitted that a person had no right to be a director as such and Sri A. B. Datar and Dr. Ravishankar Adiga had no right to make any grievance when they were sought to be removed from the office of the directorship as per the provisions available in the Companies Act.
17. As Against the above, it was submitted on behalf of the respondents plaintiffs that their reputation was affected and special notice for removal of a director under section 284 of the Companies Act was subject to the provisions of section 188 of the Companies Act and, therefore, a single shareholder, without complying with the provisions of section 188 of the Companies Act, could not have issued a notice for moving a resolution to remove them. It was contended that the appellant company had committed contempt of court by holding a meeting on October 29, 1992, in breach of the injunction issued by the learned Munsiff, Holenarasipur, in the suit instituted by one Iyanna and unless that contempt was purged by the appellant-bank, there was no question of hearing the appellant and the appellant had no right of audience and right to prosecute the appeals. It was submitted that since the appellant-bank had conducted the meeting in defiance of the order of the court, it was open to the trial court to pass orders restoring the positions held by Sri A. B. Datar and Dr. Ravishankar Adiga and in such cases it is open to pass orders of mandatory injunction to restore statue quo ante as on the date of the breach of the order in conducting the meeting. Further, it was contended that notice for removal of a director required reasons to be given and such reasons had not been admittedly mentioned and that the appellant's notice for holding the annual general meeting on October 29, 1992, was based on the board of directors meeting hold on September 16, 1992, and the minutes of that meeting had not been confirmed in the subsequent meeting and, therefore, the meeting called without such confirmation was contended to be illegal and learned counsel for the respondent-plaintiff submitted that the lower court had power to correct its own mistake and in the instant case the trial court had chosen to set right the mistake committed by it in the order passed in B. R. Shetty's suit.
18. Referring to the articles of association, learned counsel submitted that under article 23 the bank had to comply with the provisions of sections 165 to 167, 169, 171 to 191 and 193 of the Act in the calling and conduct of meetings and under article 28 subject to the provisions of section 188 of the Companies Act, members' resolutions shall be circulated to the members of the bank entitled to receive notice of the next annual general meeting and in view of the express provisions contained in the Companies Act in sections 188 and 190, it was contended that the special notice of the resolution for removing the directors, Sri A. B. Datar, Dr. Ravishankar Adiga, and another was not according to law and that the annual general meeting called on October 29, 1992, was also legal and, therefore, the interim orders passed and impugned in the appeals were contended to be correct and no interference was called for by this court. It is also contended by the respondents-plaintiffs that the appellant-bank is not an aggrieved party and, therefore, it has no right of appeal and the order impugned is one passed under section 151 of the Civil Procedure Code, and, therefore, also the appeals filed by the appellant are not maintainable.
19. The questions for consideration are :
(1) Whether the appellant is not the aggrieved party and whether the appeals filed by it are not maintainable as contended ?
(2) Whether the notice of the annual general meeting to be held on October 29, 1992, issued on the basis of the decision of the board's meeting arrived at ton September 16, 1992, is illegal for went of confirmation of the meeting on October 3, 1992, as contended ?
(3) Whether the special notice issued by respondents Nos. 2 and 3 for moving the resolutions for removal of the directors, Sri A. B. Datar, Dr. Ravishankar Adiga and Sri H. N. Rao, are bad in law for non-compliance with section 188 and 190 of the Companies Act as contended ?
(4) Whether the finding of the lower court that the chairman-cum managing director was motivated by mala fides in collecting the proxies is sustainable ?
(5) Whether there was any contempt committed by the appellant-bank by holding the meeting on October 29, 1992, in breach of the injunction issued by the learned Munsiff, Holenarasipur, as contended ? If so, is not the appellant to be heard unless the appellant purges itself of the contempt as contended ?
(6) Whether the impugned orders are illegal, perverse and unsustainable as contended ?
(7) What relief the appellant is entitled to ?
20. Point No. 1. - It is contended on behalf of the respondents that the appellant-bank is managed by the board of directors and the bank is not concerned as to who are the members of the board of directors and, therefore, by the impugned order if Sri A. B. Datar, Dr. Ravishankar Adiga and some others are continued by that decision and, therefore, it has no right of appeal. It is also contended that the impugned order is one passed under section 151 of the Civil Procedure Code, and, therefore, there is no right of appeal to the appellant-bank. No doubt the respondents-plaintiffs filed the suit and sought the interim order for preventing the bank from holding the sixty-eighth annual general meeting scheduled for October 29, 1992, and for preventing the respondents, Sri Narayana Somayaji and Sri Krishna Holla, from moving the resolutions for removing the directors. Since the meeting had been held and Sri Datar and Dr. Ravishankar Adiga had been removed from the directorship, the court had passed the orders restoring them to their positions of directorship and, therefore, these orders are stated to be not appealable and the bank not being an aggrieved party is not competent to maintain the appeals. The board of directors is the executive body of the bank and the bank which consists of a large number of shareholders elects the executive body of the board of directors. The board of directors being the executive organ of the company acts on behalf of each and every shareholder constituting the corporate entity and this corporate entity as the legal person chooses such of the persons who in its wisdom deserve to carry on the management of the institution. The company is required to carry out the collective decisions of the shareholders through its chief executive who is the chairman-cum-managing director. The appeals filed by the bank through its chairman-cum-managing director to effectively bring into execution the resolutions passed by the company in its annual general meeting are maintainable. The orders impugned are passed on the applications filed under Order 39, rules 1 and 2 of the Civil Procedure Code, and such orders are appealable as per the provisions contained in Order 43, rule 1(r) of the Civil Procedure Code. There is no scope for splitting the orders passed on the applications under Order 39, rules 1 and 2 of the Civil Procedure Code, filed in the suits of Sri A. B. Datar and Sri Ravishankar Adiga. The impugned orders are to be read as integral orders and the remedy sought for by preferring the appeal under the provisions of Orders 43, rule 1(r) of the Civil Procedure Code, cannot be said to be unavailable as contended. The appellant-bank is aggrieved in the sense that it is not being allowed to give effect to the resolutions passed by the whole body of the shareholders constituting it. It is undisputed that the general body is the supreme authority in the company and the company is democratic in its set up and the will of the majority of the members will have to prevail. It is for these reasons that the company is an aggrieved party and the appeals filed by it are maintainable.
21. Point No. 2 - The first foremost contention put forth on behalf of the respondents is that the minutes of the meeting of the board of directors hold on September 16, 1992, had not been confirmed in the meeting held on October 3, 1992, and that, therefore, the notice calling the annual general meeting to be held on October 29, 1992, issued on the basis of unconfirmed minutes is illegal. Section 166 of the Companies Act provides for holding an annual general meeting. Section 172(1) of the Companies Act states that every notice of a meeting of a company shall specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transaction thereat. Under section 171(1) of the Companies Act a general meeting of a company may be called by giving not less than twenty-one day's notice in writing. Section 173(1)(a) states that for the purposes of that section in the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exception of business relating to (i) the consideration of the accounts, balance-sheet and the reports of the board of directors and auditors, (ii) the declaration of a dividend, (iii) the appointment of directors in the place of those retiring, and (iv) the appointment of and the fixing of the remuneration of the auditors. Section 190(1) of the Companies Act states that where, by any provision contained in the Companies Act or in the articles, special notice is required of any resolution, notice of the intention to move the resolution shall be given to the company not less than 14 days before the meeting at which it is to be moved, exclusive of the day on which the notice is served or deemed to be served and the day of the meeting. Section 188 deals with circulation of members' resolutions. No provision of the Companies Act requiring confirmation of the decisions of the previous meeting is brought to the notice of the court. In the instant case, according to the decision of the board of directors held on September 16, 1992, the annual general meeting of the company was sought to be called on October 29, 1992, and in that meeting item No. 8 for raising the strength of the directors from 8 to 11 in pursuance of section 258 of the Companies Act was proposed to be moved as an ordinary resolution. The notice calling the annual general meeting issued to the members is dated September 16, 1992, and it is the contention of the respondents-plaintiffs that this resolution was not confirmed in the meeting of the directors hold on October 3, 1992. The affidavit of the chairman-cum-managing director discloses that there was such confirmation. This has been lost sight of by the trial court. According to the affidavit of Sri Rama Rao, the chairman at the meeting held on October 3, 1992, the only director who dissented for the confirmation of the minutes was Sri A. B. Datar and all the remaining directors who attended the meeting voted in favour of the confirmation of the minutes. Section 193, 194 and 195 of the Companies Act deal with the minutes of meetings. Section 193 requires that every company shall cause minutes of all proceedings of every general meeting and of all proceedings of every meeting of its board of directors or of every committee of the board, to be kept by making within 30 days of the conclusion of every such meeting concerned, entire thereof in books kept for that purpose with their pages consecutively numbered. Section 194 states that minutes of meetings kept in accordance with the provisions of section 193 shall be evidence of the proceedings recorded therein. Section 195 deals with the presumptions available in respect of the minutes duly drawn. Nowhere do these provisions require confirmation of the proceedings of the earlier meeting in subsequent meeting. On page 83 in Shackleton on the Law and Practice of Meeting, 7th Edition, by Ian Shearman, it is noted as under :
"Decision once arrived at do not need confirmation. - At a vestry meeting it was the usual procedure to read over at the next meeting the resolutions of the preceding one. At the second of two meetings there was considerable diversity of opinion as to the votes admitted at the first meeting, but judgment was to the effect that there was no necessity for the confirmation by the second vestry of what was legally done at the first. If the first was a legal vestry the election thereat was legal.
However, confirmation of the minutes as an accurate record of the decisions made at the previous meeting is usually obtained by submitting them to the chairman of the next meeting for signature. If they have not been previously circulated he will ask the secretary to read them, and if the meeting confirms (usually on a show of hands) that they are a correct record, he will sign them. If they have previously been circulated, he will sign them without their being read out if the meeting so agrees.
The chairman who signs the minutes at the next meeting need not necessarily have been present at the meeting of which the minutes are a record of the business transacted."
22. It is, therefore, apparent that the confirmation of the minutes reflects an accurate record of the decisions made at the previous meeting and there is no law requiring confirmation of the same in the subsequent meeting. In that view the contention of the respondents that the notice issued without confirmation of the minutes of the meeting held on September 16, 1992, is bad in law is not sustainable.
23. Point No. 3. - Another contention raised on behalf of respondents Nos. 2 and 3 is that the notice of the intention to move the resolution for removing Sri A. B. Datar and others from directorship was issued by Sri B. Narayana Somayaji on October 3, 1992, and on the same day notice thereof was given to Sri A. B. Datar but the appellant-company did not issue notice of the said resolution to all the shareholders even though there was considerable time available to the company. Similar notice dated October 13, 1992, proposing resolution for the removal of Sri A. B. Datar and others dated October 13, 1992, issued by Sri Krishna Holla was received by the bank and the notice thereof was given to Sri A. B. Datar and Dr. Ravishankar Adiga and another intimating them about the notice under section 284 of the Companies Act, 1956. It is the contention of the plaintiffs-respondents that the appellant-bank should have issued individual notices giving intimation of the special notices under section 284 of the Companies Act, 1956, and the appellant was waiting for the second notice from Sri Krishna Holla and without assigning any reasons, it issued paper publication to show compliance with section 190(2) of the Companies Act. It is contended that reasons are not given for issuing the paper publication of the special notices by the shareholders, Sri B. Narayana Somayaji and Sri Krishna Holla. It is contended that these notices issued under section 284 of the Companies Act are not in compliance with section 188 of the Companies Act and, therefore, the proposed resolutions are bad in law. It is also contended that the reasons for removal of the directors which are required to be mentioned in the notice are not mentioned and, therefore, the notices issued in that behalf are stated to be bad. In this behalf, learned counsel for the respondents has relied on Balwant Singh Sethi v. Sardar Zorawarsingh Hushnak Singh Anand [1988] 63 Comp Cas 310 (Bom) and Jawahar Mills Ltd. v. Sha Mulchand and Co. Ltd. , to contended that shortness of notice vitiates the notice. In Jawahar Mills' case [1949] 19 Comp Cas 138 (Mad) the irregularity of the shortness of notice under article 25 was held to result in making the forfeiture voidable at the instance of the shareholder. In Balwant Singh's case [1988] 63 Comp Cas 310 (Bom), the Court considered section 53(2)(b)(i) of the Companies Act in respect of notice of a meeting deemed to be served at the expiration of forty-eight hours after the posting of the letter of notice and held that where notices for a meeting to be held on September 21, 1987, were posted on August 31, 1987, and September 1, 1987, they could be deemed to have been received on September 2, and 3, 1987, respectively, and the members, therefore, could not be held to have had twenty-one days' clear notice of the meeting. In the instant case special notices issued by Sri B. Narayana Somayaji and Sri Krishna Holla were published in Udayavani, a Kannada newspaper, dated October 19, 1992, and the Indian Express issue, dated October 21, 1992. Under section 190(2) of the Companies Act, the company shall, immediately after the notice of the intention to move any such resolution as referred to in section 190(1) has been received by it, give its members notice of the resolution in the same manner as it gives notice of the meeting or if that is not practicable, shall give them notice thereof either by advertisement in a newspaper having an appropriate circulation or in any other mode allowed by the articles, not less than seven days before the meeting. Under this provision, seven days' notice is necessary. The meeting was to be held on October 29, 1992. Notice published in the newspaper dated October 19, 1992, or October 21, 1992, clearly gives notice of more than seven days when the meeting is to be held on October 29, 1992. In that view, it cannot be said that the notice given by an advertisement in a newspaper was short notice.
24. The contention of the plaintiffs-respondents is that no explanation is given as to how it was not possible to give notice by sending individual notices in the manner notices of annual general meeting dated September 16, 1992, were issued. The explanation is available in the counter-affidavit filed on behalf of the appellant-bank. Therein it is stated that the number of shareholders of the appellant-bank is more than 26,000 and notices of the sixty-eighth annual general meeting to be held on October 29, 1992, to the shareholders had been despatched between September 25, 1992, and October 3, 1992 (both days inclusive). It is also stated in the affidavit that for sending such notices expenditure would exceed rupees one taken and above. It is further to be remembered that when a special notice under section 284 is issued under sub-section (3) thereof, on receipt of notice of a resolution to remove a director, the company shall forthwith send a copy thereof to the director concerned and the director shall be entitled to be heard on the resolution at the meeting. Under sub-section (4) of section 284 where notice is given of a resolution to remove a director and the director concerned makes with respect thereto representations in writing to the company and requests their notification to members of the company, the company shall send a copy of the representations to every member of the company to whom notice of the meeting is sent. Therefore, under this provision after issuing notice to concerned director, the company shall have to wait for a reasonable time awaiting his representation if any under sub-section (4) and if he makes such a representation, the same will have to be circulated to all the members. Therefore, the conclusion of the lower court that it had more than 23 days after receipt of notice dated October 3, 1992, from Sri B. Narayana Somayaji to issue notices individually to members and had kept quiet without taking any action and that it was awaiting a second notice from Sri Krishna Holla is without any basis. The inference drawn in this behalf prima facie foes not appear to be justifiable. These are the practical difficulties obvious from the affidavit filed on behalf of the appellant-bank to justify circulation by advertisement in the newspaper of the notices of respondents Nos. 2 and 3 for removal of the directors under section 284 of the Companies Act.
25. The appellant contended that section 284 of the Companies Act, 1956, is a self-contained code and an individual shareholder can issue a notice thereunder intimating his intention to move a resolution for removal of a director and it is open to shareholder to take advantage of the provisions in section 284 in a meeting called by the company itself and as such the resolution to be moved for the removal of directors under section 284 of the Companies Act is not subject to the provisions of section 188 of the Companies Act. In this behalf the lower court in the order passed in Sri B. R. Shetty's suit in O.S. No. 6840 of 1992 held that section 284 of the Companies Act is not subject to sections 188 and 190 of the Act whereas in the other two suits out of which the present appeals have come up before this court it held that section 188 applied to notices issued under section 284 of the Companies Act and accordingly held that the notices issued in the present appeals were not valid. Learned counsel for the respondents justified this finding by referring to the articles of association and the decision in Pedley v. Inland Waterways Association Limited [1977] 1 All ER 209 (Ch D). No doubt this decision supports the contention of the respondents-plaintiffs. The procedure for removal of a director has been specially provided in the Companies Act, 1956, in section 284. In Gopal Vyas v. Sinclair Hotels and Transportation Ltd. , a Division Bench of the Calcutta High Court has held as under (at page 524 of 68 Comp Cas) :
"The procedure for removal of a director has been specially provided in our Companies Act."
26. Dealing with the decision of Pedley's case [1977] 1 All ER 209 (Ch D), the learned editors in the twenty-forth edition at page 841 in paragraph under "Special notice" in Palmer's Company Law observed as under :
"Special notice. - The decision in Pedley v. Indian Waterways Association Ltd. [1977] 1 All ER 209 (Ch D) presents some practical problems. The most widely encountered of the resolutions requiring special notice is a resolution for the reappointment of an over-age director (section 293(5)). Special notice of the resolution is invariably given by another director in his capacity as a member and the resolution is included in the notice of meeting, although the director giving the notice may derive no right from the articles or section 376 to have his resolution included in the agenda of the meeting. If special notice of the resolution had been given by another member (not being a director) and the proposed reappointment was not supported by the directors, they might refuse, on the basis of the decision, to include the resolution in the agenda, thereby depriving the company in general meeting from voting on the resolution. Similar considerations could apply in relation to other resolutions requiring special notice."
27. In Guide to the Companies Act by A. Ramaiya, 12th Edition, 1992, at page 835, it is observed as under :
"Scope of section. - The section deals with members' resolutions intended to the moved at an annual general meeting or at any other meeting after circulation to members in each case, of the text of the proposed resolution with explanatory statement, if any, not exceeding one thousand words, in respect of the resolution or other business. It may be noted that it does not in any way affect the right of members to move any resolutions at an annual general meeting or other meeting which can properly be moved at such meeting.
The object of section is to confer on shareholders an important right to give, through the company machinery, publicity among all the members of the company for resolutions which they intend to propose or for statements which they want to make at the annual general meeting.
Unless one or more shareholders satisfy the requirement of sub-section (2) they have no right to move any resolution, ordinary or special at an annual general meeting or at any extraordinary general meeting or insist on the company including such resolution in the agenda for the meeting, Pedley v. Inland Waterways Association Ltd. [1977] 1 All ER 209; [1978] Tax LR 2218 (Ch D). According to this decision, resolutions requiring special notice under section 190 (English section 142) must also comply with the requirements of section 188 (English section 140). But it has been held distinguishing this case in Gopal Vyas v. Sinclair Hotels and Transportation Ltd. , that in view of the clear cut provision in section 257 and 284 enabling a shareholder to inform the company by special notice of his intention to propose a candidate for appointment to directorship or removal of a director from office, these enabling provisions cannot be whittled down by the requirements of section 188 about the circulation of members' resolutions."
28. Having regard to the opinion of the learned authors of Palmer's Company Law, 24th Edition, subjecting special notice under section 284 of the Companies Act for removal of a director to the provisions of section 188 would result in great hardships. Section 284 which provides for removal of a director contains nothing to indicate that it is subject to section 188 of the Companies Act.
29. Section 188 provides for circulation of members' resolution and it reads as under :
"188(1) Subject to the provisions of this section, a company shall, on the requisition in writing of such number of members as is hereinafter specified and (unless the company otherwise resolves) at the expense of the b1 requisitionists, -
(a) give to members of the company entitled to receive notice of the next annual general meeting, notice of any resolution which may properly be move at that meeting;
(b) circulate to members entitled to have notice of any general meeting sent to them, any statement of not more than one thousand words with respect to the matter referred to in any proposed resolution, or any business to be dealt with at that meeting.
(2) The number of members necessary for a requisition under sub-section (1) shall be -
(a) such member of members as represent not less than one-twentieth of the total voting power of all the members having at the date of the requisition a right to vote on the resolution or business to which the requisitions relates; or
(b) not less than one hundred members having the right aforesaid and holding shares in the company on which there has been paid up an aggregate sum of not less than one lakh of rupees in all.
(3) Notice of any such resolution shall be given, and any such statement shall be circulated to members of the company entitled to have notice of the meeting sent to them, by serving a copy of the resolution or statement on each member in any manner permitted for service of notice of notice of the meeting; and notice of any such resolution shall be given to any other member of the company by giving notice of the general effect of the resolution in any manner permitted for giving him notice of meetings of the company :
Provided that the copy shall be served, or notice of the effect of the resolution shall be given, as the case may be, in the same manner and, so far as practicable, at the same time as notice of the meeting, and where it is not practicable for it to be served or given at that time, it shall be served or given as soon as practicable thereafter.
(4) A company shall not be bound under this section to give notice of any resolution or to circulate any statement unless -
(a) a copy of the requisition signed by the requisitionist (or two or more copies which between them contain the signatures of all the requisitions) is deposited at the registered office of the company -
(i) in the case of a requisition requiring notice of a resolution, not less than six weeks before the meeting;
(ii) in the case of any other requisition, not less than two weeks before the meeting; and
(b) there is deposited or tendered with the requisition a sum reasonably sufficient to meet the company's expenses in giving effect thereto :
Provided that if, after a copy of a requisition requiring notice of a resolution has been deposited at the registered office of the company, an annual general meeting is called for a date six weeks or less after the copy has been deposited, the copy, although not deposited within the time required by this sub-section, shall be deemed to have been properly deposited for the purposes thereof.
(5) The company shall also not be bound under this section to circulate any statement if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied the rights conferred by this section are being abused to secure needless publicity for defamatory matter; and the court may order the company's cost on an application under this section to be paid in whole or in part by the requisitionist, notwithstanding that they are not parties to the application.
(6) A banking company shall not be bound to circular any statement under this section, if, in the opinion of its board of directors, the circulation will injure the interests of the company.
(7) Notwithstanding anything in the company's articles, the business which may be dealt with at an annual general meeting shall include any resolution of which notice is given in accordance with this section, and for the purposes of this sub-section, notice shall be deemed to have been so given, notwithstanding the accidental omission, in giving it, of one or more members.
(8) If default is made in complying with the provisions of this section, every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.
30. Section 284 which deals with removal of directors reads as under :
"284(1) A company may, by ordinary resolution, remove a director (not being a director appointed by the Central Government in pursuance of section 408) before the expiry of his period of office :
Provided that this sub-section shall not, in the case of a private company, authorise the removal of a director holding office for life on the 1st day of April, 1952, whether or not he is subject to retirement under an age limit by virtue of the articles or otherwise :
Provided further that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 265 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.
(2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed.
(3) On receipt of a notice of resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.
(4) Where notice is given to a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so, -
(a) in any notice of the resolution given to members of the company state the fact of the representations having been made; and
(b) send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company) :
and if a copy of the representations is not sent as aforesaid because they were received too late or because of the company's default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting :
Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the court may order the company's costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
(5) A vacancy created by the remove of a director under this section may, if he had been appointed by the company in general meeting or by the board in pursuance of section 262, be filled by the appointment of another director in his stead by the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).
A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed as aforesaid.
(6) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions, so far as they may be applicable, of section 262, and all the provisions of that section shall apply accordingly :
Provided that the director who was removed from office shall not be reappointed as a director by the board of directors.
(7) Nothing in this section shall be taken -
(a) as depriving a person removed thereunder of any compensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director; or
(b) as derogating from any power to remove a director which may exist apart from this section."
31. A comparative view of the two sections shows that section 284 is an independent provision providing for removal of directors and it is available for any shareholder for moving a resolution for removal of a director in meetings called by the company and there is nothing to insist on compliance with the provisions in section 188(2) to call a meeting to move a resolution as urged. Therefore, prima facie the view of the law to be taken having regard to the provisions of the two sections would be to hold that section 284 of the Companies Act is not subject to section 188 of the Companies Act and it is independent of that section. The same view is also taken in Gopal Vyas' case . Section 9 of the Companies Act provides that the provisions of the Act shall have an overriding effect on the memorandum or articles of a company. Therefore, despite the submission that the article of the appellant-company make section 188 of the Companies Act applicable to circulation of members' resolutions prima facie, the finding recorded by the trial court with regard to non-applicability of section 188 to the special notice under section 284 of the Companies Act in B. R. Shetty's case appears to be the proper view to be taken in these cases.
32. In Life Insurance Corporation of India v. Escorts Ltd. , the Supreme Court has observed as under (at pages 631, 635) :
"A company is, in some respects, an institution like a State functioning under its 'basic Constitution' constituting of the Companies Act and memorandum of association. Carrying the analogy of constitutional law a little further, Gower describes 'the members in general meeting' and the directorate as the two primary organs of a company and compares them with the legislative and the executive organs of a Parliamentary democracy where legislative sovereignty rests with Parliament while administration is left to the Executive Government, subject to a measure of control by Parliament through its power to force a change of Government. Like the Government, the directors will be answerable to 'Parliament' constituted by the general meeting. But in practice (again like the Government) they will exercise as much control over the Parliament as that exercise over them. Although it would be constitutionally possible for the company in general meeting to exercise all the powers of the company, it clearly would not be practicable (except in the case of one or two-man companies) for day to day administration to be undertaken by such a cumbersome piece of machinery. So the modern practice is to confer on the directors the right to exercise all the company's powers except such as the general law expressly provides must be exercised in general meeting. (Gower's Principles of Modern Company Law). Of course, powers which are strictly legislative are nor affected by the conferment of powers on the directors as section 31 of the Companies Act provides that an alteration of an article would require a special resolution of the company in general meeting. But a perusal of the provisions of the Companies Act itself makes it clear that in many ways the position of the directorate vis-a-vis the company is more power powerful than that of the Government vis-a-vis Parliament. The strict theory of Parliamentary sovereignty would not apply by analogy to a company since under the Companies Act, there are many powers exercisable by the directors with which the members in general meeting cannot interfere. The most they can do is to dismiss the directorate and appoint others in their place, or alter the articles so as to restrict the powers of the directors for the further. Gower himself recognises that the analogy of the Legislature and the executive in relation to the members in general meeting and the directors of a company is an over-simplification and states 'to some extent a more exact analogy would be the division of powers between the Federal and the State Legislature under a Federal Constitution.' As already noticed, the only effective way the members in general meeting can exercise their control over the Directorate in a domestic manner is to alter the articles so as to restrict the powers of the directors for the further or to dismiss the Directorate and appoint others in their place. The holders of the majority of the stock of a corporation have the power to appoint, by election, directors of their choice and the power to regulate then by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another.
Again in Bentley-Stevens v. Jones [1974] 2 All ER 653 (HL), it was held that a shareholder had a statutory right to move a resolution to remove a director and that the court was not entitled to grant an injunction restraining him from calling a meeting to consider such a resolution. A proper remedy of the director was to apply for a winding-up order on the ground that it was 'just and equitable' for the court to make such an order. The case of Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL) was explained as a case where a winding-up order was sought. In the case of Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL), the absolute right of the general meeting to remove the directors was recognised and it was pointed out that it would be open to the director sought to be removed to ask the company court for an order for winging-up on the ground that it would be 'just and equitable' to do so. The House of Lords and (at page 500 of 1972 2 All ER) :
'My Lords, this is an expulsion case, and I must briefly justify the application in such case of the just and equitable clause .... The law of companies recognises the right in may ways, to remove a director from the board. Section 194 of the Companies Act 1948, confers this right on the company in general meeting whatever the articles may say. Some articles may prescribe other methods, for example, a governing director may have the power to remove (cf Wondoflex Textiles Pty. Ltd., In re [1951] VLR 758). And quite apart from removal powers, there are normally provisions for retirement of directors by rotation so that their re-election can be opposed and defeated by a majority, or even by a casting vote. In all these ways a particular director-member, may find himself no longer a director, through removal, or non-re-election : this situation he must normally accept, unless he undertakes the burden of proving fraud or mala fides. The just and equitable provision nevertheless comes to his assistance if can point to, and prove, some special underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continues he shall be entitled to management participation, an obligation so basic that if broken, the conclusion must be that the association must be dissolved.' Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirement, to call an extraordinary general meeting in accordance with the provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reason for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every director, the managing agent if any, the secretaries and treasures if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting. The Life Insurance Corporation of India, as a shareholder of Escorts Limited, has the same right as ever shareholder to call an extraordinary general meeting of the company for the purpose of moving a resolution to remove some directors and appoint others in their place. The Life Insurance Corporation of India cannot be restrained from doing so nor is it bound to disclose its reasons for moving the resolutions."
33. Learned counsel for the respondents relied on the decision in Ruttonjee and Co. Ltd., In re, , and submitted that the director sought to be removed should be given reasonable opportunity to make reports against the proposal for his removal and that the director should be notified of the reasons for removal. The contention is answered effectively by the observations of the Supreme Court in Escorts' case [1986] 59 Comp Cas 586 extracted above and the law stated therein makes it clear that the law of companies recognises the right in many ways to remove a director from the board and there is no need to give reasons in the resolutions proposed for removal of director. The shareholder or any person has no right to be a director. If the majority of the shareholders elects to entrust the directorship to a person, he may accept and execute that office. But one cannot claim such an office as of right and therefore it is not open to any person to prevent the company holding a meeting and passing a resolution for removal of a director.
34. Point No. 4. - The next ground make out by the respondents-plaintiffs was that after the notice dated September 16, 1992, calling the annual general meeting on October 29, 1992, was issued, the chairman-cum-managing director set up present respondents Nos. 2 and 3 to issue special notices dated October 3, 1992, and October 13, 1992, proposing to move the resolutions as ordinary resolutions under section 284 of the Companies Act, 1956, for removal of the directors, Sri A. B. Datar, Dr. Ravishankar Adiga and Sri H. N. Rao. It is contended that the chairman-cum-managing director through the branch managers made promises of granting loans and collected proxies from shareholders and thereafter got these respondents Nos. 2 and 3 to issue such special notices for removal of the directors and if the shareholders had knowledge of such resolutions to be moved in the annual general meeting for removal of the honest and efficient directors, they would not have issued proxies and therefore the action of the chairman-cum-managing director suffers from mala fides and bad faith. The trail court on the basis of these allegations has proceeded to hold that there is great force in this submission and observed that if the shareholders had been informed of such resolutions earlier in the notice of the annual general meeting, they would not have issued proxies and, therefore, the trial court has proceeded to find against the chairman-cum-managing director of the appellant-bank on the basis of the contentions so raised. In the first place, it is to be seen that the chairman-cum-managing director, Sri Rama Rao, in his counter-affidavit has denied his alleged complicity in collecting proxies through branch managers by promising loans to shareholders. This part of the material has been wholly lost sight of by the lower court. On page 184 of Shackleton on the Law and Practice of Meetings, 7th Edition, it is observed as under :
"A proxy can be revoked. The most sure way in which a member may revoke a proxy is to attend and vote in person :
It was held that there was nothing in the articles of a company to deprive a shareholder who was present at a meeting of the right to vote in person, even though he had given a proxy to some other person to vote for him at the same meeting; the fact that the proxy was not revoked in the manner laid down in the articles did not prevent the member recording his vote in person to the exclusion of the proxy holder.
Revocation can also be effected by a determination of the authority by the donor himself prior to the meeting (a verbal) instruction by the appointed to the chairman would suffice, although in view of the difficulty of proof, this is not a satisfactory method) or by deposit of another instrument in substitution of the former instrument."
35. From the above it is clear that it is always open to the donor of the proxy to revoke the same before its exercise and the donor himself may personally attend the meeting and exercise his right of voting in the meeting before the proxy exercises that right. The above position of law has not been properly realised by the trial court and its observation that there is great force in the contentions put forth on behalf of the plaintiffs, is not correct. Factually also the lower court is not correct as it has overlooked the affidavit of the chairman-cum-managing director, Sri Ramarao, in that behalf. Further, in paragraph 11 of Purna Investments Ltd. v. Southern Steelmet and Alloys Limited [1977] 47 Comp Cas 752; ILR 1977 2 Kar 1365, it is stated as under (at page 785 of 47 Comp Cas) :
"In the present case, we are at the stage of interlocutory orders and trial is yet to commence. Findings on matters such as mala fides, fraud and had faith cannot, generally, be arrived at on mere affidavits. The matters has to go for trial and I am, therefore, reluctant to take into account the merits of the case at this stage to come to a conclusion which detracts from what an assessment of the balance of convenience in the case suggests."
36. Therefore, it is not safe at the interlocutory stage to arrive at a finding on the allegations of mala fides. Therefore, the observations made by the trial court do not survive and the resultant order is certainly perverse as submitted on behalf of the appellants.
37. Point No. 5. - Learned counsel for the respondents submitted that the appellant is guilty of disobeying the order passed by the Munsiff, Holenarasipur by holding the annual general meeting on October 29, 1992, even though there was an injunction restraining the appellant-bank from holding such meeting. Therefore, it is urged that unless the appellant makes amends for contempt committed by it, it should not be heard to prosecute the appeals and it should be asked to make amends for the same. In this behalf, the respondents cited the decision in Hadkinson v. Hadkinson [1952] 2 All ER 567. In this decision, the headnote reads as under :
"On a petition by a wife for the dissolution of her marriage, a decree nisi was granted, and it was directed that the child of the marriage should remain in the custody of its mother, but that he should not be removed out of the jurisdiction without the sanction of the court. On the decree being made absolute, the mother remarried, and without the sanction of the court she removed the child to Australia. On a summons by the father an order was made directing the mother to return the child within the jurisdiction. On an appeal by the mother against the order, the father objected that, as she was in contempt, she was not entitled to be heard.
Held, it was the plain and unqualified obligation of every person against, or in respect of, whom an order was made by a court of competent jurisdiction to obey it unless and until it was discharged, and disobedience of such an order would, as a general rule, result in the person disobeying it being in contempt and punishable by committal or attachment and in an application to the court by him not being entertained until he had purged his contempt; where an order related to a child the court would be adamant on its due observance for such an order was made in the interests of the welfare of the child, and the court would not tolerate any interference with or disregard of its decisions on those matter, and least of all would permit disobedience of an order that a child should not be removed outside its jurisdiction; in the present case the mother was not entitled to prosecute or be heard in support of her appeal until she had taken the first and essential step towards purging her contempt of returning the child within the jurisdiction."
38. But the opinion of Denning Lord Justice is summarised in the headnote which clearly brings out the limitations to the rule that the contemnor has to purge the contempt before being heard as under :
"The court would only refuse to hear a party to a cause when the contempt impeded the course of justice by making it more difficult for the court to ascertain the truth or to enforce its orders and there were no other effective means of securing his compliance. The court might then in its discretion refuse to bear his until the impediment was removed or good reason was shown why it should not be removed."
39. Extraction of the above discloses per Denning L.J., that the court would only refuse to hear a party to a cause when the contempt impeded the course of justice by making it more difficult for the court to ascertain the trust or to enforce its orders. In paragraph 106 on page 64 of the ninth volume of Halsbury's Laws of England, forth edition, it is stated as under :
"106. Position of party in contempt. - The general rule is that a party in contempt, that is a party against whom an order for committal has been made, cannot be heard or take proceedings in the same cause until he has purged his contempt; nor while he is in contempt can be heard to appeal from any order made in the cause, but this is subject to exceptions. Thus, a party in contempt may apply to purge the contempt, he may appeal with a view to setting aside the order in which his contempt is founded, and in some cases he may be entitled to defend himself when some application is subsequently made against him. A plaintiff in contempt has been allowed to prosecute his action when the defendant had not applied to stay the proceedings.
Even in cases where the rule is prima facie applicable, the court appears to retain a discretion whether or not to hear the party in contempt, and may in its discretion refuse to hear a party only on those occasions when his contempt impedes the course of justice and there is no other effective way of enforcing his obedience."
40. The contention on behalf of the respondent-plaintiffs is that the appellant-bank has disobeyed the order of the court. The respondents contend that the appellant-bank held that annual general meeting in contravention of the order of the Munsiff's Court at Holenarasipur. It is, therefore, obvious that the contempt complained is of the order of the Court of the Munsiff at Holenarasipur. The suit filed by Iyanna in Original Suit No. 204 of 1992, on the file of the Munsiff's Court at Holenarasipur is a separate suit and the question of consideration of contempt of the order of that court does not arise in the appeals before this court, as there is no allegation of disobedience of any order made in the two suits out of which the two appeals arise. Moreover, as per the certified copy of the order passed in Civil Petitions Nos. 619 to 626 of 1992 by this court, further proceedings in Original Suit No. 204 of 1992 on the file of the Court of Munsiff, Holenarasipur are stayed until further orders by the order dated November 25, 1992. The alleged disobedience of the order passed in Original Suit 204 of 1992, on the file of Munsiff, Holenarasipur is no ground to stop the proceedings in the two appeals before this court. As per the statement of law extracted from Halsbury's Laws of England, 9th Volume above, the rule is that a party in contempt, against whom an order for committal has been made cannot be heard or take proceedings in the same cause until he has purged his contempt. The "case" as explained in Ramanatha Aiyar's The Law Lexicon, 1987 Edition, means "in a legal sense 'a suit' or litigation; an action at law; prosecution; a judicial proceeding; and question, civil or criminal, contested before a court of justice; the origin or foundation of a thing as of a suit or action; a ground of action; the subject of difference between the parties, as settled by the pleadings, whether oral or written." Therefore, the contempt proceedings must have been taken in the same cause of action. The cause of action for the present appeals which arise out of suit O.S. No. 6835 of 1992 and O.S. No. 6843 of 1992 is different from the case of action alleged in the suit O.S. No. 204 of 1992 before the learned Munsiff, Holenarasipur. Therefore, if at all there is any breach of the order of the Court of the Munsiff, Holenarasipur, and proceedings are to be taken in contempt, it is to be done only before that court and it is only in respect of the breach of the order of the Munsiff and the argument is, therefore, not available to learned counsel for the respondents to contend that the appellant should not be heard in the present appeals or to contend that the appellant has no right to prosecute the present appeals. The decision cited by learned counsel for the respondents-plaintiffs in support of passing a mandatory injunction to restore state quo ante as on the date of commission of the impugned breach are not necessary to be referred to and gone into. Therefore it is obvious that the appellant cannot be prevented from prosecuting the appeals and there is no merit in the argument that the appellant is guilty of contempt of court. If there is any breach of the order committed by the appellant as alleged, the remedy is available to the respondents-plaintiffs to invoke the provisions under Order 39, rule 2A of the Civil Procedure Code, that too before the court in which the alleged breach of the order has take place and not before this court. With this breach of the order has taken place and not before this court. With this observation the contention that the appellant is guilty of contempt and that it should be prevent from prosecuting the appeals is rejected.
41. Points Nos. 6 and 7. - The trial court is aware of its order dated November 13, 1992, that it cannot pass orders in respect of persons who are nor parties before it. Despite knowing this position in law, the trial court, by passing the impugned order in the suit filed by Dr. Ravishankar Adiga, has restored all the directors working on the board as constitution on October 29, 1992, on which date the annual general meeting took place, to the position held by them on that day. By so doing, it has negatived the intention of the appellant-company as to the person to whom its management should be entrusted. It is stated that some of the directors who were retiring and who were not eligible for re-election and who had not signified their intention to be re-elected have been restored to the board as directors. In such an event the order works great injustice. By restoring ineligible directors to work on the board of directors, the provisions of the Companies Act are violated. By reinstating the directors who retired and who were removed, the democratic process of the company is set at naught. A person who has no right to be elected as a director cannot complain of any injury or loss by his removal. If at all a person is removed from the board of management he loses the power of making decisions and such loss is not the loss of any legitimate right. By removal from the board of directors and by not attending the meetings of the board of directors, a person ceasing to be a director may lose sitting fees and that is not an irreparable loss or injury entitled him to seek the relief of injunction. As held in Life Insurance Corporation of India v. Escorts Ltd. , no injunction can be issued to restrain the holding of a general meeting to remove a director and appoint another.
42. On the other hand, by issuing an injunction, damaged and loss would be caused to an institution and a large section of the public and such a step cannot be restored to, to assuage the feelings of a couple of directors who claim to have been hurt or injured by the alleged removal. Damage to the institution and loss to the shareholders is far greater than the loss or injury complained of by the plaintiffs-respondent. It was submitted on behalf of the plaintiffs-respondents that their reputation and honour were at stake and learned counsel recalled the following from the Bhagavad Gita in Chapter II verse 34 :
43. "Sambhavitasya Chakeertir Maranadatirichyate" (infamy brought on a man enjoying popular esteem is worse than death.)
44. It was stated that the respondents-plaintiffs were fighting for their reputation for whom dishonour was worse than death. However, in the instant case as already pointed out on one has got a right to become a director of the bank as such and if one were to lose such directorship on account of the shareholders choosing to remove them, one cannot make that an issue involving one's reputation or prestige and the ground urged does not help in tilting the balance in one's favour. Therefore the findings recorded with regard to prima facie case and the balance of convenience and irreparable injury by the trial court are not at all sustainable and they need to be set aside and are accordingly set aside. The observations made in this order are for the disposal of the appeals. It is made clear that these observations shall not influence the trial court in disposing of the suits on merits.
45. For the reasons stated above, the impugned orders are the result of an improper and illegal approach to the facts and circumstances of the case by the trial court and the findings are wholly perverse and opposed to material on record. Therefore, the appeals deserve to be allowed and the following order is passed :
ORDER
46. The Miscellaneous First Appeals Nos. 2685 of 1992 and 2386 of 1992 are allowed. The impugned orders passed on November 11, 1992, and November 16, 1992, by the trial court in Original Suits Nos. 6835 of 1992 and 6843 of 1992 respectively are set aside and the applications for the interim injunction filed under Order 39, rules 1 and 2 of the Civil Procedure Code, stand dismissed.