Kerala High Court
Queens Kuries And Loans (P.) Ltd. vs Sheena Jose And Ors. on 5 August, 1992
Equivalent citations: [1993]76COMPCAS821(KER)
JUDGMENT G.H. Guttal, J.
1. The Queens' Kuries and Loans (P.) Ltd. has filed this application for a declaration that the requisition dated April 6, 1992 (exhibit P-1), made by respondents Nos. 1 to 8, and the extraordinary meeting of the company held by them on May 26, 1992, pursuant thereto and the resolutions passed therein are illegal. The respondents are members of the company. P. A. Francis, also a member, filed C. A. No. 188 of 1992 for impleading himself as a respondent. The application was allowed and P. A. Francis has been impleaded as respondent No. 9.
2. The facts giving rise to this application are as under :
On April 6, 1992, respondents Nos. 1 to 8 addressed the requisition (exhibit P-1) to the chairman, calling upon him to convene an extraordinary general meeting of the company. The requisition set out two resolutions proposed to be moved at the meeting. Resolution No. 1 was for immediate removal of the existing directors and resolution No. 2 was in respect of recovery from the chairman, of money lost to the company by reason of the illegal increase in the number of members. The explanatory statement attached to the resolutions is exhibit P-1(a). The requisition was deposited with the chairman on April 8, 1992. Upon the failure of the board of directors to call a meeting, respondents Nos. 1 to 8 issued notices of meeting on May 14, 1992 (exhibit R-2). The shareholders including the directors received the notices. The requisitioned meeting was held on May 26, 1992. At this meeting both the resolutions were passed.
3. The authorised share capital of the company is Rs. 5 lakhs divided into 50 shares of Rs. 10,000 each. Each share has paid-up value of Rs. 8,000. The total paid-up capital is (8,000 x 50) = 40,000.
4. Although the notices of the meeting were served on the members, the directors were not served with notices of the resolutions proposed to be moved at the meeting.
5. The requisition of the extraordinary general meeting and the resolutions passed therein have been challenged on various grounds. I will deal with them in the following paragraphs.
6. The first point is whether the eight requisitionists hold the qualifying number of shares as prescribed by Sub-section (4) of Section 169 of the Companies Act, 1956. In order to be entitled to requisition a meeting, the requisitionists must, on the date of the deposit of the requisition, hold "not less than one-tenth of such of the paid up capital of the company, as at that date carries the right of voting in regard to that matter." The company's authorised share capital is Rs. 5 lakhs divided into 50 equity shares of Rs. 10,000 each. But the paid-up value of each share is only 8,000. This makes the total paid-up share capital Rs. 4 lakhs. Ten per cent, of this value is Rs. 40,000. No doubt the company had increased the number of members to 52 by allotting two additional shares. This was done without raising the share capital of the company. The issue of two more shares thereby increasing the share capital was held illegal by this court in C. A. No. 64 of 1992. Therefore, the authorised share capital of the company remains at Rs. 5 lakhs and the paid-up share capital at Rs. 4 lakhs. The eight requisitionists together held share capital worth Rs. 64,000 (8,000 x 8 = 64,000) which exceeds 10 per cent, of Rs. 4,00,000. Therefore, they were qualified to requisition the meeting.
7. The next submission of counsel for the appellant is this. The requisitionists proposed to pass two resolutions which they set out in the notices of the meeting. These two resolutions constitute "two ... distinct matters" within the meaning of Sub-section (5) of Section 169 of the Companies Act, 1956. Therefore, the provision of Sub-section (4) of Section 169 of the Companies Act which requires that the requisition should be backed up by shareholding of not less than one-tenth of the paid-up capital must be satisfied with reference to each of the two resolutions.
8. In my opinion, the argument that the requirement of Sub-section (4) has not been fulfilled in regard to each of the resolutions is not sound. Sub-section (5) of Section 169 incorporates Sub-section (4) of that section and lays down how the validity of the requisition in respect of two or more "distinct matters" shall be judged. The substance of Sub-section (5) of Section 169 is that each of such distinct matters must have the support of the shareholders holding one-tenth of the paid-up share capital. If each of the distinct matters specified in the requisition commands the support of one-tenth members, the requisition in respect of each of the matters is valid. The requisition in respect of matters which do not have the support of the qualifying shareholders, is not valid. The validity of the requisition has to be determined separately in respect of each of the two matters, viz., the two resolutions. The test is whether each of the matters is supported by the qualifying shareholding. Sub Section (5) of Section 169 stipulates application of the qualifying test laid down in Sub-section (4) " separately" in regard to "each such matter".
9. In this case, the requisitionists who hold the qualifying paid up share capital have consented to the calling of the meeting to consider each of the two matters.
10. The most important question, however, is whether the proceedings of the meeting and the resolution passed therein are valid. It is necessary to understand what happens when the provisions of Section 169 are set into motion. If the board does not, within 21 days from the date of the deposit of a valid requisition, proceed to call a meeting for the consideration of those matters, the requisitionists themselves may call such a meeting of the company. The meeting called by the requisitionists under sub Section (6) of Section 169 of the Companies Act, is a meeting of the company. The meeting shall be called in the same manner, as nearly as possible as that in which meetings are to be called by the board. The meeting held in pursuance of a valid requisition is an extraordinary general meeting of the company. At the meeting, the requisitionists may proceed to dispose of the business on the agenda. The company at such meeting is bound to follow the procedure prescribed by law for removing the directors. The manner in which the directors may be removed is laid down in Section 284 of the Act. A director may be removed by ordinary resolution. But special notice shall be required of any resolution to remove a director or to appoint somebody instead of a director so removed at the meeting at which he is removed. Special notice of the resolution to remove directors required by Section 284 of the Act shall be given to the company, not less than 14 days before the meeting at which it is to be moved (section 190 of the Companies Act). The notice must disclose the ground on which the director is proposed to be removed. The disclosure of the ground for removal is a matter of substance and not of form because the directors concerned are entitled to make representations in writing at the meeting. The company is bound to send a copy of the representation to every member of the company to whom the notice of the meeting has been sent. It is only after these steps are taken that the resolution can be passed.
11. The special notice of the resolution was not given to the company as required by law. The omission to serve the special notice is a serious error in the conduct of the proceedings. The directors have been denied their statutory right to the notices, to make representations and persuade the members to reject the resolution. The resolution removing the directors is vitiated by failure to fulfil the fundamental requirements of law. The resolution removing the directors is, therefore, invalid.
12. Resolution No. 2 censures the chairman for increasing the number of members, in violation of law, and resolves that the amount of expenses incurred therefor be recovered from him. The evidence does not show that the chairman was personally called upon to answer as to why he was personally liable to pay the expenses incurred for raising the number of members. It is not clear whether the decision to increase the number of shares was taken by the chairman. The basis of his liability is not discernible. What is important is that resolution No. 2 appears as if it is a part of resolution No. 1 to remove the directors. The last sentence of the explanatory note (resolution No. 2) reads "... the shareholders have lost confidence in the present director board who are trying to keep the company in their control by such illegal acts. Hence, the director board has no right to continue. (emphasis supplied)
13. Although resolution No. 2 bears a separate serial number, it flows from the "lack of confidence" in the board of directors. This lack of confidence is the foundation of resolution No. 1. Both the resolutions are aimed at the board of directors. Resolution No. 2 is an extension of resolution No. 1. I cannot see them as independent transactions capable of standing apart from each other. They are part of the same transaction. Their basis is the " lack of confidence " in the board of directors. They are aimed at the board of directors. They are part of the same transaction. Resolution No. 1 is invalid in every part of it. It takes with it resolution No. 2 also. Both are, therefore, invalid.
14. For the reasons stated in the foregoing paragraphs, I hold that the meeting was validly requisitioned. However, the resolutions passed at the meeting held on May 26, 1992, are illegal and invalid. Subject to this, the application is allowed and the judge's summons is made absolute. Respondents Nos. 1 to 8 shall pay costs of this application to the applicant.