T.M. Menon vs Universal Film (India) Private Ltd. and Others

Sathiadev, J.—This application is filed under rr. 9 and 11(b) of the Companies (Court) Rules, 1959, for the appointment of an independent

chairman of court''s choice to conduct the proceedings of the extraordinary general meeting of the shareholders of the company named Universal

Film (India) Private Ltd. proposed to be held at 11 a.m. on November 26, 1980, at No. 300, Mowbrays Road, Madras.

In the supporting affidavit, the applicant states that himself and his wife are the promoters of the company and it was incorporated on 11th July,

1979, and each of them had subscribed for 50 shares. The registered office is situate at No. 95, Mount Road, Madras, and its authorised capital is

Rs. 14 lakhs divided into 14,000 equity shares of Rs. 100 each. In August, 1979, the company allotted further shares to the extent of Rs.

2,95,000 among the persons mentioned in para. 6 in the affidavit. The persons set out in (c) to (f) therein have not paid the balance of 65% of the

share value and hence they are no longer shareholders of the company. Under art. 20 of the articles of association of the company, the applicant is

the managing director for life and as such he is still functioning. Reference has been made to certain debts to certain parties mentioned in para. 13.

In para. 14, it is stated that the size of the board of directors of the company was enlarged by the addition of four persons but subsequently, the

company has also allotted further shares to the persons mentioned therein. According to the applicant, when he was out of Madras on 19th

September, 1980, and by the time he could return, certain movables belonging to the company had been removed to premises No. 300,

Mowbrays Road, which result in the filing of certain police complaints and action is being taken against respondents Nos. 2 and 3 for what has

been done.

On October 28, 1980, the communication signed by the second respondent, convening an extraordinary general body meeting to be held on

November 26, 1980, had been received to consider two resolutions, one of which is for the removal of himself and his wife as directors of the

company. The two respondents having no right to convene the meeting at a place other than the registered office of the company which is situate at

No. 95, Mount Road, Madras, and of the invalidity of the actions taken by them, would be challenged by the applicant at the appropriate time and

place and the right to take such an action has been reserved by the applicant. In conclusion, he states that in view of the strained relationship which

existed between the respondents Nos. 2 and 3 on the one hand and himself on the other, the meeting to be held in the business premises of the

third respondent, which is illegal, he apprehends both physical intimidation and manipulations of the records. Two of the shareholders are abroad

and, out of the balance, admittedly 5 of them are against him. He would state ""from the rest I hold proxies and, therefore, matters will be certainly

against respondents Nos. 2 and 3"". The present application is taken out for the holding of a meeting in which the decision should be taken without

any intimidation from any quarters and furthermore the applicant apprehended danger to his person and, therefore, the relief as prayed for requires

to be granted.

In the counter-affidavit, it is stated that the application is not maintainable and misconceived. The extraordinary general meeting is to be held on

November 26, 1980, and has been duly convened by issue of notice as early as October 28, 1980, and notices had been sent to the then

shareholders of the company and the place where it has to be held is mentioned as No. 300, Mowbrays Road, Madras, and hence it is not as if,

without a proper notice, the meeting is being convened. The decision to shift the registered office at No. 300, Mowbrays Road, was resolved in

the meeting of the board of directors held on October 27, 1980. The claim regarding non-payment of share amount by some of the director is not

correct and the so-called investments made in production of certain films adverted to by the applicant, are highly exaggerated and under art. 28,

only the board of directors are authorised to borrow monies and hence the applicant, as managing director, had no authority to encumber the

company by any such borrowals and the alleged expenses incurred in respect of certain pictures, are not true and intended to syphone off the funds

of the company to benefit the applicant, and after the allotment of 2,900 shares, no further allotment of shares in the capital of the company had

been effected. The applicant does not hold 2,000 shares as claimed and he has only paid a sum of Rs. 5,000 for the 50 shares. As for the 950

shares allotted to him in August, 1979, he had not paid any amounts and these are matters on record found in the minutes of the board which

would show that no allotment was made after August, 1979, as claimed by the applicant. Equally, Damodaran Nambudiripad had also not been

allotted any shares. When once the company has chosen to convene an annual general body meeting with proper notice, pursuant to the decision

of the board, taken as early as October 27, 1980, there can be no interdict to the holding of such a meeting at the instance of the applicant by

invoking r. 9 of the Rules. The apprehension expressed of physical intimidation is without any substance and the applicant is not prevented from

participating in the meeting. Though he claims of holding of proxies, so far no proxy had been lodged by him with the company and the registered

office.

Mr. Harikrishnan, counsel for the applicant, would contend that the admission made in the counter-affidavit about the registered office having

been shifted to the business premises of the third respondent, is a positive proof of the high-handed manner in which the requisitioned meeting is

proposed to be held, and hence the court on being moved, cannot allow such an illegal meeting to be held. Admittedly, when the applicant is the

managing director, the steps being taken for holding a meeting at a place different from the registered office is unauthorised and, therefore, the

applicant is entitled to move this court for securing ends of justice. The objection that the application itself is not maintainable is without any

substance in view of the decision rendered by this court in Selvaraj v. Mylapore Hindu Permanent Fund [1968] 38. Comp Cas 153, wherein this

court has held that there is ample inherent power in the court to give directions for a commissioner to be appointed as chairman to decide as to

how the meeting is to be held, and he can, for the purpose of avoiding impracticable situation, hold the meeting in the interests of the company and

for reporting to the court as to what has actually transpired.

Mr. Raghavan by relying upon the decision in R. Rangachari v. S. Suppiah [1975] 45 Comps Cas 641 (SC) contends that when the meeting

had been already called by the company to be held, the court would thereafter be not competent to appoint either a chairman or even an observer

to be present in the meeting.

The main point to be considered is whether this application is maintainable or not.

Except r. 9 and r. 11(b) of the Companies (Court) Rules, 1959, no other substantial provision of the Companies Act has been invoked. The

applicant himself would state in para. 21 of the respondents Nos. 2 and 3 at the appropriate time and place. The application is sought for the

appointment of a chairman to preside over the meeting, which has been already called by the company, to be held. During the course of arguments,

Mr. Harikrishnan, pleaded that if not a chairman, an advocate-observer, may be directed to be present at the meeting to know the truth of what

actually happens at the meeting. The applicant had stated that he apprehends physical danger and of intimidation and of manipulation of

proceedings of the meetings. Whether in the context of such an apprehension expressed, the court by exercising powers under r. 9, can direct

outsiders to be observers, is that aspect on which Mr. Raghavan would contend that in a similar situation, when a Divisions Bench of this court

directed an observer to be present, the Supreme Court had held that when a meeting has been already called for by the company, an application

under s. 186 of the Act was not maintainable and the relief granted by this court deserved to be set aside. It was a case in which the respondents

therein lodged a requisition under s. 169 of the Act calling for the extraordinary general body meeting of the company for the removal of one of the

two managing directors. Certain other shareholders similarly lodged a requisition for the removal of the other managing directors also. The meeting

was directed to be held at the residence of one of the shareholders of the company instead of its registered office, because the shareholders were

divided into two factions belonging to the two groups of managing directors. Apprehension was expressed that there would be difficulty and

trouble in the conduct of the meeting and hence a prayer was made for the appointment of an advocate-commissioner as chairman of the meeting

to be held on the date already fixed and convened by the company.

When the application was heard by the company court, it was held that no relief can be granted and thereafter the matter was taken up in

appeal, and the court stayed the convening of the meeting, but in spite of the service of the order, the meeting was held as scheduled which resulted

in a petition being filed under r. 9 of the Rules to declare the meeting held as void and the resolutions passed as illegal and inoperative. Ultimately,

the appeal was allowed and it was declared that the resolutions were not valid. An advocate of the court was appointed as advocate-chairman to

hold and conduct the meeting. It was under such circumstances, after dealing with the scope of s. 186 of the Companies Act, it was, by the

Supreme Court, held that in the company petition no prayer had been made for an order for calling a general body meeting; nor any such order

had been made by the appellate court in appeal, and hence the application itself was not maintainable. When the shareholders of a company had

applied to the court only for the appointment of a chairman for a meeting already called by the directors, then the court was not competent to make

the orders as prayed for.

The decision relied upon by counsel for the applicant was also referred to by the Division Bench of this court, which was reversed by the

Supreme Court in the aforesaid decision (See 45 Comp Cas 641). Hence, in this case, when the meeting has been already called by the company,

there is no scope for this court to appoint a chairman for the meeting, and such an application is not maintainable.

Mr. Harikrishnan would then contend that though the application is filed for the appointment of a chairman, he is presently asking only for the

appointment of an advocate-observer who would be an independent person and who can take note of the manner in which the meeting is

conducted, so as to safeguard the interests of the applicant particularly when he apprehends physical danger to himself. He would state that r. 9 is

of the widest amplitude, and it in such cases, relief cannot be granted by invoking the rule alone, it deserves to be scrapped rather than being not

available for persons like the applicant. Mr. Raghavan, on this aspect, contends that if the mere surmise or an expression of apprehension in an

affidavit is to be a valid ground for inducting an outsider to be present in company meetings, it would take away the right of corporate bodies to

decide their affairs in the manner in which they may choose to do. If, at the instance of one of the directors or a shareholder, an outsider is to come

in, may be an advocate-commissioner or an auditor or any other party as may be appointed by the court, it would prevent a free and frank

discussion when the shareholders have a right to do that without any watchful eye over their affairs.

When the Supreme Court has held, by reference to s. 186 of the Act, that once a meeting is called by the company, there can be no question

of appointment of a chairman to be present for other purpose in a meeting, it is indicative of the approach to be made when an application is filed

by a party merely invoking r. 9 of the Rules. It was also a case where the meeting was held in the residence of one of the shareholders of the

company and an apprehension was expressed, but still ultimately it was held that the application itself was not maintainable in law, and no relief

could be granted. Merely because the expressions ""ends of justice"" is found in r. 9 of the Rules, and the court has the inherent powers, it cannot be

invoked for destroying the corporate functions of companies. Apprehension expressed by a shareholder by itself cannot be a ground for inducting

an outsider in an annual general body meeting of the company. The fate of the company is to be decided by the shareholders. They may ruin

themselves or decide for their prosperity. If in the meeting there is no proper procedure followed, or if the resolutions passed are against the

provisions of the Companies Act, the applicant has the right to challenge those proceedings by instituting appropriate proceedings. It is not as if,

this applicant is not conscious of such a remedy being available, since he has reserved that right in para. 21 of his affidavit. Before ever the court is

to exercise its inherent powers and induct an outsider in a company meeting that has been already convened duly, it cannot extend beyond what

could not be done even under s. 186 of the Act.

Even otherwise, the inherent power, if at all to be exercised could be only to further the ends of justice on taking into account the totality of

circumstances. It is the claim of Mr. Harikrishnan, during the course of arguments, that the applicant has got a majority and if only there is no

intimidation the resolutions can be defeated. Therefore, if there is any physical intimidation, the observer appointed by court cannot give him

protection but can only take note of what has happened. It is for him to seek police assistance if his right of entrance is being prevented.

It is also possible for him in the proceedings taken at appropriate stage to examine such witnesses who had participated in the meeting along

with him to establish as to what had happened, and if what is claimed, is found acceptance of by the court, the resolutions passed would be

certainly set aside. It is not as if he is not having remedies if intimidation, as apprehended, takes place. At least if it is a meeting to be convened by

the court, then by appointing a chairman, as held in [1968] 38 Company Cases 153 the chairman takes a decision at the meeting as to the manner

in which the election of the directors should take place, to hold whether is would be by ballot or by show of hands and for him also to decide as to

how and in what manner proxy votes should be received and rejected.

This is a case where the applicant only wants an observer to be present. He cannot take any decision as to how the proceedings are to be

conducted. He cannot participate in the meeting nor can he issue directions to any of the persons present in the meeting either to do a particular

thing or not to do in a particular manner. He can at best be only an observers so that later on in court the advocate-observer may be examined to

speak as to what has happened. Here again it was pointed out to Mr. Harikrishnan that it is not as if the evidence of the advocate-observer may be

accepted in toto, and no other evidence could be received to contradict what he may say. It would put the advocate-observer in a great

predicament, if what is claimed or observed by him is ultimately found to be not correct, or that himself being not very much conversant with the

affairs of the company he had not properly understood the situation, etc., it would result in the court having appointed a person who could be of no

assistance either to the court or to the company or even to the applicant. When such are the possibilities, a court would not come forward to

exercise its inherent powers to bring about such a piquant situation for an observer to be appointed by it and who would have no right to be

present in a company meeting convened by the company.

When the applicant has got remedies available to him under the companies Act is improprieties or illegalities are committed in the said meeting,

the invocation of r. 9 to satisfy his requirements cannot be acceded to, and the purport of r. 9 is not for subserving such interests. Hence, this

application is dismissed as not maintainable.