A company cannot be restrained from holding and convening an EOGM where shareholders have right to exercise their vote in a democratic manner Whether it is right of shareholder, who fulfills share qualification, to issue a notice for requisitioning an EOGM and a company cannot be restrained from holding and convening an EOGM where shareholders have right to exercise their vote in a democratic manner – Held, yes – Applicant sought direction of CLB to restrain respondent-company from holding proposed EOGM on pretext that shareholders may take decision to support resolution to remove applicant from directorship of respondent-company – Whether CLB cannot interfere in democratic wisdom of company unless and until there is any statutory violation – Held, yes – Whether further from mere calling and convening proposed EOGM it could not presumed that applicant would be removed in proposed EOGM and application of applicant being premature was to be dismissed – Held, yes FACTS:

• The applicant along with his wife constituting 20 per cent or 1/5th of the equity shareholding of the first respondent company had filed company petition under section 397 read with section 398 seeking various reliefs.
• The applicant filed instant application contending that he being a 20 per cent shareholder along with his wife had a legitimate expectation to be a part of the management of the company in relation to its day-to-day affairs with other family members but respondent Nos. 2 to 5, in defiance of the proceedings pending before the CLB, had sought to convene an Extraordinary General Meeting (EGM) seeking to remove the applicant from the board of the first respondent company which, in itself, was per se perverse and in negation of the corporate principles as applicable to a family company like the first respondent company. He, accordingly, prayed the CLB inter alia to restrain the company from convening, holding and conducting of the proposed extraordinary general meeting and to order status quo in relation to the management of the company till the disposal of the main company petition.
• In the counter, respondents submitted that the company had received a requisition notice from a shareholder, for an EGM under section 169 and a special notice under section 284 read with section 190 and in furtherance of the said requisition notice, the company was necessarily obligated to call for an EOGM. It was submitted that it was the prerogative of the shareholders to consider whether the applicant should be removed or not from his position as a director of the company and this was required to be decided by the shareholders of the company at the proposed EGM

HELD:

• The contention of the applicant is that he has a legitimate expectation and he should be a part of the day-to-day management of the company. However, the fact remains that he has not taken part in several board meetings or annual general meetings for the last several years in spite of receipt of notices of such meetings and now conveniently chooses to falsely allege that he was sidelined from the affairs of the company. It is seen from the records that a shareholder of the company issued notice to the board of directors seeking requisition of EOGM under section 169 and special notice under section 284 read with section 190. In this regard a question arises as to whether a shareholder of the company has a right to requisition an EOGM and whether he has a right to move the resolution removing a director of the company in the said EOGM in accordance with section 284.
• The requisitionist clearly stated that he is a shareholder of the company and holds 7,000 fully paid-up equity shares of Rs. 10 each and his shareholding in the R-1 company constitutes 1/10th of the paid-up capital of the company as on the date. There is no dispute that the said requisitionist does not qualify to issue a notice calling for EOGM. As per sub-section (2) of section 169, the requisition shall set out the matters for the consideration of which the meeting is to be called, shall be signed by the requsitionist and shall be deposited at the registered office of the company. The requisitionist, in his notice, has stated that the applicant, a director of the company, has been continuously acting against the interests of the company for over five years, inter alia, by making several untenable complaints in a mala fide manner to instigate various authorities in relation to the affairs of the company by reason of which several investigation, enquiries, inspection have taken place over the years under the different statutes. The requisitionist has given details of the e-mails and other communications. Further it is stated in the requisition that the requisitionist intends to move the resolution removing the applicant from his position as a director of the company in accordance with the articles of association of the company and subject to the provisions of section 284. The requisitionist signed the notice and deposited it with the registered office of the company. Thus, the requisitionist has complied with the above provision of law in relation to the notice as contemplated under section 169 and the requisitionist has a right to move the resolution even under section 284. The company, after receipt of notice from the requisitionist, addressed a letter to the applicant informing him that the company received a notice from a shareholder of the company holding 7,000 equity shares, informing the company of his intention to move a proposal to remove the applicant. It is also seen that the company convened a meeting of the board of directors on 30-3-2013 at 4:00PM, amongst other agenda, to convene an EOGM of the company to transact the business as stated in that notice. The company issued notice dated 30-3-2013 to all the shareholders including the applicant stating that an EOGM of the company will be held on the 26-4-2013 at 10.00 AM at the registered office of the company.
• From the documents, it is clear that the requisitionist, who issued notice calling for EOGM, has the right to issue notice and the applicant received the notice for the board meeting and the proposed EOGM, Thus, the company has followed the laid down procedure as contemplated under the law and there is no violation in this regard as such.
• Further, the respondents have emphasized and detailed out the event that led to convening of the EOGM proposed to be held on 26-4-2013. Mere calling and convening the proposed EOGM dated 26-4-2013 it cannot be presumed that the applicant would be removed in the proposed EOGM. It is the right of the shareholder who fulfils the share qualification to issue a notice for requisitioning an EOGM. In the instant case, the shareholder is qualified to issue a notice and the company has followed the due procedure of law. The CLB cannot interfere in the democratic wisdom of the company, unless and until there is any statutory violation. The applicant, preemptory, cannot seek the injunction restraining the company from holding and convening an EOGM where the shareholders have the right to exercise their vote in a democratic manner. Insofar as the contention of the applicant that the R 1 company is a family company and he has legitimate expectation that he should be a part of the management is concerned, the applicant, even though may be a family member, cannot claim as a matter of right to continue as a director of the company. It is important to note that there is no relief sought by the applicant in this application to the extent that the CLB should decide the issue that R 1 company is a family company and the principles of quasi-partnership are applicable to it. The applicant has no right to scuttle the democratic process of the shareholders of the company who alone have the right to elect/remove the directors to/from the board in the best interests of the company.
• The applicant by way of this application seeking direction to restrain the company from holding the proposed EOGM to be held on 26-4-2013 on the pretext that the shareholders may take a decision to support the resolution to remove the applicant from the post of directorship is premature. The decision of the Apex Court in the matter of Life Insurance Corpn. of India v. Escorts Ltd. AIR 1986 (SC) 1370 that every shareholder has a right subject to statutorily prescribed procedure and numerical requirements to call an EOGM in accordance with the provisions of the Companies Act and he cannot be restrained from calling a meeting is applicable. Following the Apex Court’s decision, the EOGM proposed to be held on 26-4-2013 cannot be stayed and the resolutions, if any, passed therein cannot be interfered with. The applicant stressed upon this Bench to take note of the findings given by the Assistant Commissioner of Central Excise, dated 14-11-2012 to show that the respondents have committed irregularities in the affairs of the company, more particularly that the respondent-company was not accounting their goods properly and discrepancies having been found in their accounts and having been found guilty, the authority imposed a penalty on the respondent company. On the other hand, the respondents submitted that they preferred an appeal against the order dated 14-11-2012 of the Assistant Commissioner, Central Excise before the Commissioner of Central Excise (Appeals) under section 35 of the Central Excise Act, 1944. In view of the appeal preferred by the company against the order of the Assistant Commissioner, Central Excise, the order of the Assistant Commissioner, Central Excise has not attained finality. Therefore, no adverse inference can be drawn in this regard. Overall, the applicant has failed to make out any case even for the other reliefs. Hence, the application filed by the applicant is to be dismissed.

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