VIJAY M PORWAL Vs. PENTOKEY ORGANY INDIA LTD
LAWS(CL)-1995-5-2
COMPANY LAW BOARD
Decided on May 31,1995

Appellant
VERSUS
Respondents

JUDGEMENT

- (1.) IN this order we are considering Applications Nos. 59 of 1995 and 71 of 1995 of the petitioners in Company Petition No. 23 of 1994, filed under Section 397/398 of the Companies Act, 1956, in the matter of Pentokey Organy (INdia) Ltd. The prayers made in Company Application No. 59 of 1995, are that the respondent-company should be restrained from implementing the resolution passed at the extraordinary general meeting of the company held on June 20, 1994, removing the petitioners as directors of the company, on the ground that the explanatory statement annexed with the notice of the meeting did not fulfil the requirements of Section 173 of the Companies Act and that the company be directed to offer inspection of documents. Company Application No. 71 of 1995 relates to amendments to the main petition.
(2.) It is essential to record, in brief, the events which led to the filing of Company Application No. 59 of 1995. The petitioners filed the main petition Company Petition No. 23 of 1994 and the chairman of the Company Law Board sitting as a single member passed an interim order on June 15, 1994, restraining the company from transacting the business relating to the removal of the petitioners as directors of the company at the extraordinary general meeting convened June 20, 1994. This order was challenged in the High Court of Bombay and a single judge set aside the order of the Company Law Board on the ground that the constitution of a Bench for considering a Section 397/398 petition with a single member was not in accordance with the Company Law Board Regulations. However, he also passed an interim order that the decision of the extraordinary general meeting will not be implemented and that the petitioners would be permitted to participate in the board meeting but they will not represent themselves as directors on the board to conduct any work. The order of the single judge was appealed against and the Division Bench of the Bombay High Court upheld the decision of the single judge but it continued the interim order for a further period of two weeks. Since the period of two weeks was to expire, this instant application has been made with the prayer to either restrain the company from implementing the resolution or in the alternative stay the implementation of the resolution till the disposal of the main petition. In a hearing on April 3, 1995, we ordered the continuation of the interim order of the single judge. Shri Devitre, advocate for the petitioner, commencing his arguments stated that while the interim order passed by the Company Law Board on June 15, 1994, has been set aside by the High Court of Bombay, the Division Bench has also recorded that the petitioner is at liberty to approach the Company Law Board to seek appropriate orders relating to the subject matter of the interim order and it has also been observed that the Company Law Board need not take into consideration any observation of the single judge on the merits of the case and as such the Company Law Board can pass any orders relating to the extraordinary general meeting held on June 20, 1,994. According to him, the proceedings of the extraordinary general meeting which was convened for the sole purpose of removing the petitioners as directors was vitiated by non-compliance with the provisions of Section 173 of the Companies Act. This section provides, in Sub-section (2), that a statement setting out all material facts concerning each item of business should be annexed to the notice convening the meeting. In the present case, the company failed to annex with the notice such a statement setting out all material facts. The idea of giving material facts is to ensure that the members of the company are appraised of the facts to enable them to take a decision on the resolutions to be moved. Shri Devitre contended that the main ground for removal of the petitioners as directors as per the requisition given by the shareholders, was that, these petitioners-directors had addressed a letter on April 25, 1994, to the company's bankers, the State Bank of India, alleging that the company was not appropriately functioning in relation to the credit facilities granted to the company and also signifying their wish to get themselves disassociated with the company. In the explanatory statement, the company has simply reproduced the same without giving any additional very pertinent information that the petitioner, in the board meeting held on May 6, 1994, had stated that he was prepared to withdraw the said letter. His statement has been recorded in the minutes also. Secondly, according to Shri Devitre, a proper reading of the letter of April 25, 1994, would show that the purpose of writing the letter was only to give notice of withdrawing personal guarantees because the petitioners were against the company's financial mismanagement. He further stated that even though they had indicated that they desired to withdraw the personal guarantee to the tune of Rs. 1.51 crores, still personal guarantee to other financial institutions to the tune of Rs. 7.5 crores is still in force and this matter was not indicated in the explanatory statement. Further in the explanatory note, a statement has been made that this requisition was considered in the board meeting held on May 16, 1994, but the fact that the petitioners expressed their protest was not indicated in the explanatory note.
(3.) SHRI Devitre narrated the sequences which culminated in the requisi-tionists giving the requisition for convening an extraordinary general meeting for removing the petitioners as directors. The company gave a notice on May 4, 1994, for convening a board meeting on May 16, 1994, to consider the item regarding removal of the petitioners as directors. This agenda item was contested in the Bombay City Civil Court and the court held that the board of directors shall not consider this item or any resolution to be pursued with that item. It also made an observation that, in case the company received any requisition as contemplated in Section 169 from the Shareholders, in this regard, the board may consider the same. This order was passed on May 13, 1994, by a message dated May 14, 1994, which was a Saturday and received by the petitioners on 15th (Sunday) the company intimated the petitioners that a requisition for removal of the petitioners as directors had been received and the same would be placed before the board meeting to be held on May 16, 1994. He further stated that four directors have issued the requisition and they all belong to the family of respondent No. 2 who is the managing director of the company. This requisition was discussed on May 16, 1994, at the board meeting and petitioner No. 1 stated that the matter might be adjourned to a later date for proper discussion but the same was not agreed to and the board decided to call for the extraordinary general meeting. He also mentioned that another important particular which should have been included in the explanatory statement was that even before the petitioner had sent a letter to the State Bank of India, the petitioners had already been relieved of their personal guarantee with effect from May 25, 1994, as per the letter of the State Bank of India, dated April 27, 1994 (exhibit R-88L).;


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