Sanjib Banerjee, J.@mdashThe suit is in the form of a derivative action complaining of alleged illegalities perpetrated on the first defendant company by those at present in control thereof. In the classical derivative action, the plaintiff does not seek any personal relief save the indirect consequence as a member of the company after the company is rid of the illegality complained of. In such form of action, the eo nomine plaintiff sues for and on behalf of all shareholders of the company except the recalcitrant defendants and the benefit of the relief, when granted, is enjoyed by the company and, through it, by all its members.
2. The plaintiff has instituted the action with leave under Clause 12 of the Letters Patent and has sought the following reliefs for the ultimate benefit of the company:
a) A scheme be framed for the management and administration of Bengal Brick Field Owners'' Association having its registered office at 23A, Netaji Subhas Road, 3rd Floor, Kolkata - 700001;
b) Declaration that the amendments to the Memorandum of Association and the Articles of Association of the Bengal Brick Field Owners'' Association carried out on 18th August, 2007 are illegal, null and void;
c) Declaration that all resolutions passed in the meeting of 18th August, 2007 with regard to the amendment of the Memorandum of Association and the Articles of Association of Bengal Brick Field Owners'' Association are illegal and null and void;
d) Declaration that the notice dated 18th June, 2008 is illegal, null and void;
e) Decree for perpetual injunction restraining the defendants and their servants and agents from holding the 64th Annual General Meeting of the Association on 21st July, 2008 in terms of the notice dated 18th June, 2008;
f) Decree for perpetual injunction restraining the defendants and their servants and agents from taking any steps or any further steps on the basis of the notice dated 18th June, 2008 for holding of the 64th Annual General Meeting on 21st July, 2008;
g) Decree for perpetual injunction restraining the defendant Nos. 2 to 13 from representing themselves or holding themselves out as Office Bearers of the Association;
h) Declaration that the defendant Nos. 2 to 13 are not Office Bearers of the Association;
i) Decree for perpetual injunction restraining the defendant Nos. 2 to 13 from interfering with in any manner in the management and administration of the Association;
j) Receiver;
k) Injunction;
l) Attachment before judgment;
m) Costs;
n) Further or other reliefs.
3. The principal challenge in the suit and in the plaintiff''s interlocutory application is to an extraordinary general meeting of the company held on August 18, 2007 and an annual general meeting of the company which, at the time of the institution of the suit, had been convened to be held on July 21, 2008.
4. The company is an existing company within the meaning of the Companies Act, 1956 and was registered under the previous statutory equivalent of what is now Section 25 of the 1956 Act. The company was established to promote, protect and safeguard the interests of persons engaged in or concerned with the brick business and trade in the State of West Bengal. The articles of association of the company that were in place immediately prior to the extraordinary general meeting of August 18, 2007 envisaged the members of the company electing an executive committee and also electing office-bearers of the company each year. The executive committee would consist of a minimum of 60 and a maximum of 150 members. Prior to the amendment, the members would directly elect both the executive committee members and the office-bearers of the company every year. The procedure has been somewhat changed upon amendment. Post-amendment, the executive committee members are to be elected by the general members and the executive committee members are to elect office-bearers from among themselves.
5. By a notice of July 23, 2007 an extraordinary general meeting (EGM) of the company was convened to be held on August 18, 2007 for amending the memorandum and articles of association of the company. The primary grievance of the plaintiff is that the plaintiff received no notice of the EGM. The larger grievance of the plaintiff is that the amendments allowed at the EGM eroded the fundamental authority of the members of the company to choose office-bearers and extended the tenure of office of both executive committee members and office-bearers to two years.
6. The second challenge of the plaintiff as to the validity of the annual general meeting for the year ended March 31, 2007, then convened to be held on July 21, 2008 at the time of institution of the suit, is on the premise that an annual general meeting (AGM) of a company may only be held in accordance with Section 166 of the Companies Act or not at all. The plaintiff says that the company obtained an extension from the Registrar of Companies for holding its AGM for the year ended March 31, 2007 by December 31, 2007 but no such AGM was held within such extended time. The plaintiff contends that the company has no authority to hold an AGM other than in accordance with the provisions of Section 166 of the Act.
7. The contesting defendants furnish an answer to the first limb of the challenge, on facts. The second challenge gives rise to a pure question of law upon admitted facts.
8. The contesting defendants say that the plaintiff and some other similarly minded members of the company have always acted in concert. The contesting defendants suggest that Kamal Krishna Ghosh, Bhaiya Surendra Singh and Subhendu Goswami have set up the plaintiff. The company and those at present in control thereof insinuate that the said Ghosh, Singh and Goswami chose the plaintiff from among the members of the company who did not attend the EGM to espouse their personal cause. The contesting defendants say that notices for the EGM were duly issued to all members and the EGM was attended by a substantial number of the general members of the company. They say that the notices were sent under certificate of posting and produce a document to show due despatch of the notices. They submit that even if it is accepted that the plaintiff did not receive the notice accidentally, it would not vitiate the EGM or the business transacted thereat.
9. The contesting defendants urge that if the plaintiff was diligent, he would have known of the EGM and the amendments passed thereat long before the present suit was instituted. They suggest that the present action has been brought a few days before the AGM for the year ended March 31, 2007 had been convened to be held on July 21, 2008 with a false charge of the plaintiff having been kept in the dark in the matter of the EGM and the amendments proposed and passed thereat. The contesting defendants submit that within a few days of the institution of the suit, the said Ghosh and three other supporters applied to be added as parties following advertisements having been published pursuant to the leave granted under Order I Rule 8 of the Code of Civil Procedure. They insist that the suit has been instituted with improper motive and for the personal benefit of the said Ghosh and Goswami who crave to have a say in the affairs of the company despite the overwhelming number of general members of the company not supporting them.
10. Prima facie, there is substance in what the contesting defendants show. No case for an immediate order is made out by the plaintiff in respect of the EGM of the company that had been held nearly a year prior to the institution of the suit. On the ground of delay in approaching court without any plausible grounds therefore, the interim orders sought in respect of the EGM held on August 18, 2007 are declined. Further, there is substantial nexus established between the plaintiff and the said Ghosh and Goswami. In any event, Section 172(3) of the Act provides that the accidental omission to give notice to, or the non-receipt of notice by, any member who was entitled to notice shall not invalidate the proceedings at a general meeting of a company. The plaintiff here has not been able to demonstrate that those in control of the company had deliberately failed to issue notice of the EGM to the plaintiff. The document produced by the company relating to the service of notice carries a stamp of the postal authorities, prima facie, establishing despatch. The amendments approved by the general members of the company at the said EGM have subsequently been approved by the Central Government as is required in case of companies governed by Section 25 of the Companies Act. The Central Government approval was accorded by a letter dated December 28, 2007 by the regional director of the Ministry of Corporate Affairs.
11. Upon the plaintiff''s application, GA No. 2281 of 2008, being moved an order was made on July 17, 2008 permitting the delayed AGM to be held but directing, on a concession by the company, that no effect be given to any of the resolutions passed thereat. The order also required the members attending the meeting to be informed of the present proceedings and the said order.
12. GA No. 4009 of 2008 is an application by the defendant Nos. 1 to 13 for leave to apply before the Company Law Board, if necessary, for obtaining appropriate orders relating to the convening of the 64th AGM of the company for the financial year ended March 31, 2007 and the next AGM. The contesting defendants, however, say that a company has the authority to hold its AGM beyond the period or the extended period as envisaged by Section 166 of the Act, though the company and its directors may be liable to be penalised for the delay. The contesting defendants also suggest that the court would have authority to condone the delay in convening the AGM and pass directions for convening the further AGMs which have, by now, been delayed.
13. The charge relating to the convening of the 64th AGM is a pure legal issue. The plaintiff says that the decision to convene the AGM beyond December 31, 2007 was not only ultra vires the company''s charter but is contrary to the governing statute. He submits that since the Companies Act, 1956 is an Act to consolidate and amend the law relating to companies and certain other associations, the authority to hold an AGM must necessarily be rooted to the statute.
14. There is considerable force in such submission. In any event, a charge of illegality against those in control of a company brought by way of a civil suit cannot, ordinarily, be resisted on grounds of prejudice or the conduct of the plaintiff. If an act is illegal or is contrary to the governing statute, no misdemeanour or acquiescence on the part of the plaintiff, or those who may have set up the plaintiff, may wish away the challenge. If the company and its directors had no legal right to do something, the conduct of the complaining party or the weather outside would be of no relevance. It is thus that the challenge as to the legality of the company having convened the 64th AGM of the company for the year ended March 31, 2007 on July 21, 2008, has to be assessed.
15. The parties have brought several authorities to bear on such legal issue. The plaintiff relies on an unreported judgment of this Court in Suit No. 137 of 1994 (Bajarang Prasad Jalan v. Shree Hanuman Properties & Finance (P) Ltd.) delivered on July 11, 1994. On an interlocutory application in that suit, the authority of the defendant company and its directors to hold an AGM of such company beyond the period prescribed u/s 166 of the Act was questioned. The Interlocutory Court recorded the submission on behalf of the company and its directors that despite their best efforts they could not hold the AGM within the time as extended by the Registrar. They claimed that they had sought a further extension from the Registrar but the official did not respond to the subsequent request. On such facts and after noticing two previous judgments on the aspect, the court held as follows:
In my prima facie view, Section 168 of the Act would underline the mandatory nature of the requirements u/s 166 of the Act to hold the Annual General meeting within the time prescribed. The decision of P.B. Mukherji, J., as His Lordship then was, in the case of "
16. The plaintiff next relies on a Division Bench judgment of this Court reported at 58 Comp Cas 293 (Bejoy Kumar Karnani v. Assistant Registrar of Companies, West Bengal). The decision was rendered on a criminal revisional application u/s 482 of the Code of Criminal Procedure, 1973. In the complaint filed by the office of the Registrar of the Companies against two directors of a company, it was alleged that though such directors were under a statutory obligation to lay the annual accounts of the company at its AGM which should have been held by the end of September in pursuance of Section 166 of the Act, they had failed to discharge such obligation. The two directors came to this Court to quash the criminal proceedings. It was in such circumstances that the Division Bench held that if a statute enjoins that a meeting be held within a specified period it follows by necessary implication that it must be completed within such period. What follows from the judgment is that the company may have no authority to hold or complete a general meeting after the period prescribed by statute unless an extension therefore is obtained in accordance with the statute.
17. It is necessary that the relevant provisions of the Act be noticed to better appreciate the legal position:
166. Annual general meeting. - (1) Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next:
Provided that a company may hold its first annual general meeting within a period of not more than eighteen months from the date of its incorporation; and if such general meeting is held within that period, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation or in the following year:
Provided further that the Registrar may, for any special reason, extend the time within which any annual general meeting (not being the first annual general meeting) shall be held, by a period not exceeding three months.
(2) Every annual general meeting shall be called for a time during business hours, on a day that is not a public holiday, and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate:
Provided that the Central Government may exempt any class of companies from the provisions of this sub-section subject to such conditions as it may impose:
Provided further that:
(a) a public company or a private company which is a subsidiary of a public company, may by its articles fix the time for its annual general meetings and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings; and
(b) a private company which is not a subsidiary of a public company, may in like manner and also by a resolution agreed to by all the numbers thereof, fix the times as well as the place for its annual general meeting.
167. Power of Company Law Board to call annual general meeting. - (1) If default is made in holding an annual general meeting in accordance with Section 166, the Company Law Board may, notwithstanding anything in this Act or in the articles of the company, on the application of any member of the company, call, or direct the calling of, a general meeting of the company and give such ancillary or consequential directions as the Company Law Board thinks expedient in relation to the calling, holding and conducting of the meeting.
Explanation.-The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) A general meeting held in pursuance of Sub-section (1) shall, subject to any directions of the Company Law Board, be deemed to be an annual general meeting of the company.
168. Penalty for default in complying with Section 166 or 167. - If default is made in holding a meeting of the company in accordance with Section 166, or in complying with any directions of the Central Government under Sub-section (1) of Section 167, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees and in the case of a continuing default, with a further fine which may extend to two thousand five hundred rupees for every day after the first during which such default continues.
18. The contesting defendants say that since Section 168 of the Act includes the expressions "continuing default" and "during which such default continues," it would imply that the intention of the statute is not to prevent the holding of an AGM after the statutory period but only to ensure that the statutory timeframe is adhered to or, after such period, the AGM is held at the earliest and without unnecessary delay. They suggest that the company and its officers in default remain liable to be penalised u/s 168 for the transgression, but the provisions of the Act would not stand in the way of the company being left with no authority to hold the AGM once the hold-by date is passed. The contesting defendants refer to Section 167 of the Act and submit that the right to apply thereunder has been specifically conferred on members of the defaulting company but not on the company itself. They contend that there can be a situation where, despite the best diligence on the part of the company and its officers, the meeting is not possible to be held or completed due to some supervening circumstances or acts beyond the control of the company and its directors. They submit that in such a situation the company would be helpless as it would have neither any authority to convene the meeting nor any right to approach the Company Law Board for an extension beyond three months and wait for a member to apply to the Company Law Board for a direction on the company to hold the AGM.
19. The plaintiff says that it would be evident from Section 167(2) of the Act that an AGM held pursuant to a direction by the Company Law Board at the behest of the member is, by a legal fiction in such sub-section, to be regarded as an AGM of the company. He contends that if the law requires a thing to be done in a particular manner, it is to be done in such manner or not at all.
20. The contesting defendants have referred to the two previous judgments relied upon in the unreported judgment of Shree Hanuman Properties & Finance (P) Ltd. They seek to demonstrate that nothing in the two previous judgments can be construed to imply that a company in default of completing its AGM within time would not have the authority to hold or complete the AGM.
21. Another Division Bench of this Court in a judgment reported at (1988) 1 Cal LT 61 (Ambari Tea Company Ltd. v. Manjushree Saha), on a construction of Sections 166 and 167 of the Act, acceded to the plaintiffs'' interlocutory prayer in a suit to restrain the defendant company and its management to hold an AGM beyond the prescribed period. The judgment referred to several previous authorities and concluded at paragraph 41 of the report as follows:
41. The other point to be considered is whether the defendants Nos. 2 to 8 as directors are entitled to call an Annual General Meeting of the company when the time for calling such meetings have expired and it is not even possible for the Registrar of Companies to extend such time. We have noted the provisions of Sections 166 and 167 of the Companies Act, 1956 earlier. In view of the clear language of the said sections, it appears to us that, prima facie, the plaintiffs are entitled to restrain the company and its management from holding an Annual General Meeting beyond a period of 18 months from the date prescribed by the said sections.
22. The other previous judgment noticed in Shree Hanuman Properties & Finance (P) Ltd. was the one reported at
23. The opposing defendants rely on a judgment reported at ILR 1972 (1) Cal 286 (Hungerford Investment Trust Ltd. v. Turner Morrison & Co. Ltd.) and adopt as part of their submission, the following discussion at paragraphs 220 and 221 of the report:
220. The question then arises: What is the appropriate and proper interpretation to be put upon this time limit u/s 166 of the Companies Act, 1956? Is it to be interpreted by saying that if the meeting is held in violation of the time specified u/s 166, then it is invalid or void or illegal for all purposes? Or, whether this prohibition of time limit only makes the Directors who commit default liable only to fine or penalty under provisions like Section 168? Section 168 of the Act provides for the penalty but does not make the meeting illegal. To make the meeting illegal would be, in such circumstances, to perpetuate an endless deadlock with endless penalty without remedy. That is a construction which should be avoided unless the Court is compelled to adopt that construction by reason of the language of the relevant sections of the Companies Act. But, I do not think that the Court is so compelled. I have already described the situation that the Court under the Companies Act, 1956, has no power to extend or grant time for Annual General Meeting. If the Central Government does not sanction u/s 210 of the Companies Act, 1956, such meeting, then the default is without remedy and continuing default, having regard to the provisions in Section 168, would throw open the company''s Directors to continuing penalties with fines without remedy. Therefore, I come to this construction that the default regarding time in holding Annual General Meeting is penalisable as by statute and according to the terms thereof. But, the meeting can nevertheless be held and such meeting would not be void. The statutory provisions for fine, which I have quoted above, also show that the meeting is not void. Otherwise, the situation would be impossible in law. Section 168 of the Companies Act, 1956, speaks of continuing default. If the default is to be discontinued, the fine has to be paid under the terms of that section. Payment of the fine under the penalty should cure the default or else the payment of the fine and the penalty would not resolve the difficulty because the company could not hold its meeting by itself. I have already contrasted sections of the Companies Act which say when breach of a section makes the act void, but it does not do so under Sections 166, 167 and 168 of the Companies Act regulating the holding of the Annual General Meeting, its default and the penalty thereof. Sections 166, 167 and 168 do not say that a meeting held by the company itself beyond the time indicated would be void or voidable but they only provide the penalty payable. From my analysis of the sections of the Companies Act it is plain that the statute draws the distinction between the void, voidability and penalisability of the acts of omission or commission of the company.
221. I, therefore, hold that the consequence of default in holding Annual General Meeting, even where there is such a default is only liability for penalty and for payment of fine as prescribed by the statute and the further consequence is that the meeting, if held by the company beyond time, cannot be said to be void or illegal. This Court will not read more consequences than the specific penalty specifically provided by the specific terms of Sections 166, 167 and 168 of the Companies Act....
24. The judgment in Hungerford Investment Trust Ltd, rendered in proceedings under Sections 397 and 398 of the Act, was reversed in appeal in the unreported decision in Appeal Nos. 251, 251, 252, 253, 259 and 255 of 1970 (Hungerford Investment Trust Ltd. v. Turner Morrison & Co. Ltd.) delivered on May 21, 1981. These defendants refer to the appellate order to show that the view on a company''s authority to hold its AGM beyond the period prescribed by statute in the trial court order was not specifically reversed. The contesting defendants rely on a judgment reported at
25. The act of holding an AGM by the company is an obligation or a duty cast on the company by the governing statute and not a right. Section 166 prescribes the statutory time therefore and also provides for the Registrar of Companies to extend the time by a maximum period of three months. The Registrar has no authority to extend the time any further. A general meeting of a company will not be an annual general meeting unless the business that is statutorily required to be transacted thereat is gone through. Section 210 of the Act enjoins upon the board of directors of a company to lay before the company its balance sheet and profit and loss account for the relevant financial year at every AGM of such company. In addition, directors are generally appointed or re-appointed at AGMs of companies, though directors may also be appointed or re-appointed at other general meetings. The requirement of holding an AGM is for the benefit of the members of the company and not for the benefit of the company itself or those in management thereof.
26. If the requirement to hold an AGM is an obligation of a company and if such duty can be enforced by a solitary member complaining of default and carrying an application to the Company Law Board u/s 167 of the Act, it is difficult to comprehend as to how such obligation can remain suspended indefinitely upon the mere passing of the statutory hold-by date. Though there is considerable force in the view expressed by the trial court in Hungerford Investment Trust Ltd., since the judgment was set aside in its entirety, it no longer has any more value than persuasive submission. In any event, the Division Bench view in Ambari Tea Company Ltd, although prima facie since it was at an interlocutory stage, is unqualified in its interpretation of law that a company and its directors were precluded from holding an AGM beyond the period prescribed by statute. It is the same view that is expressed in the unreported judgment of Shree Hanuman Properties & Finance (P) Ltd. and in the Division Bench judgment in Bejoy Kumar Karnani.
27. In view of the binding precedents, it is not open to hold at this stage that a company has the suo motu authority to hold its AGM beyond the time prescribed by statute. The legal question may require to be revisited, but at a different level.
28. The next question that arises is at to whether a civil court is precluded from permitting or directing a company to hold its AGM beyond the prescribed date. If the requirement of a company to hold its AGM is seen as a duty cast on the company by the governing statute, as is evident from the provisions of the said Act, then it is necessary that such obligation be required to be discharged at the earliest. A puny member in a large company has been conferred a right by Section 167 of the Act to approach the Company Law Board for a direction on the company to hold its AGM. That would demonstrate that there is a duty on the company''s part to hold its AGM and even a solitary shareholder may enforce the same. For a civil court''s jurisdiction, both as to receiving actions and passing orders, to be curbed, there has to be an express provision in a statute or one that can necessarily be implied. The object of Sections 166, 167 and 168 of the Act is to ensure that a company holds its AGMs and holds the same within time. The default is on account of the time. But the provisions do not contemplate that the obligation of a company to hold its AGM remains suspended upon the period prescribed therefore expiring, unless a member seeks a direction from the Company Law Board for the AGM to be held. Even though it has now to be accepted, in view of the binding authorities on the aspect, that a company may not suo motu convene and hold the AGM beyond the period prescribed by statute, there is no express or implied bar on a civil court, in an appropriate action, to compel the company to discharge the statutory obligation of holding its AGM, notwithstanding the period prescribed therefore having expired. In Coal Marketing Co. India Private Ltd. the Company Court opined that it had no authority to extend the time for a company to hold its AGM beyond the prescribed period. That was in the context of the jurisdiction of the Company Court u/s 633(2) of the Act and the dictum cannot be extended to imply that a civil court in an appropriate action would not have the authority to direct a company to hold its AGM despite the period prescribed by statute having expired.
29. The present suit has been instituted by a member, in effect, for the benefit of the company and, consequently, for the benefit of all members of the company. Advertisements under Order I Rule 8 of the Code have been published. Any order passed in the present proceedings will not only bind the company but will also bind all its members. There is no impediment that is apparent to the issuance of a direction to compel this company to hold the AGMs for which it is in default. However, the 64th AGM of the company that had been convened by the company itself beyond the period prescribed by statute cannot, in the light of the binding precedents, be regarded as validly convened.
30. Accordingly, the notice and the resolutions relating to the 64th AGM of the first defendant company convened and held on July 21, 2008 are set aside. The first defendant company is directed to hold and complete its 64th AGM for the year ended March 31, 2007 within ten weeks from date by complying with the provisions as to issuance of notice and laying of the balance sheet and profit and loss account of the company for the relevant financial year. Since the first defendant company is now also in default in holding its AGMs for the financial years ended March 31, 2008 and March 31, 2009 and since there would be no time to hold the AGM for the financial year ended March 31, 2010, the company is directed to hold and complete the AGMs for the relevant financial years within eight weeks of the previous AGM. The amended articles of association of the company would apply and the injunction sought in respect of the business transacted at the EGM of August 18, 2007 is declined.
31. GA No. 2281 of 2008 and GA No. 4009 of 2008 are disposed of. There will be no order as to costs.
32. Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
Later
33. The plaintiff seeks a stay of operation of the direction on the company to hold its AGMs for which it is in default. Such prayer is declined.
