Chhaya Devi & Anr vs Rukmini Devi & Ors
2017 Latest Caselaw 4911 Del

$~54
*        IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                        Judgment delivered on: 11.09.2017
+        CS(OS) 285/2017

CHHAYA DEVI & ANR                                                       ..... Plaintiff

                             versus

RUKMINI DEVI & ORS                                                  ..... Defendants

                             Through

Advocates who appeared in this case:

For the Plaintiff        :   Mr. Parag Tripathi and Mr. Anil Sapra, Sr. Advocates with
                             Mr. Ankur Goel, Mr. Jaideep Singh and Mr. Piyush Singh,
                             Advocates

For the Defendant        :   Mr. Vidit Gupta, Advocate with Ms. Harleen Singh and Mr.
                             Prakash Pandey, Advocates for D-1, 11, 12, 14, 16 & 17
                             Mr. Avinash Trivedi and Ms. Ritika Trivedi, Advocates for D-
                             2 to D-10

CORAM:
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
                                JUDGMENT

11.09.2017

SANJEEV SACHDEVA, J. (ORAL)

I.A. 7854/2017 (filed by plaintiffs under Order VI Rule 17 CPC)

Issue notice.

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Notice is accepted by the learned counsel for the defendants who prays for time to file reply.

Let reply be filed within two weeks. Rejoinder, if any, be filed within one week thereafter.

I.A. No.9618/2017 (under Order 39 Rules 1 & 2 CPC)

1. Plaintiff no.1 by this application seeks a restraint on the defendants from acting upon notice dated 08.07.2017 and 08.08.2017.

2. By notice dated 08.07.2017 some of the share-holders of plaintiff no.2 company have issued notice under Section 115 of the Companies Act, 2013 (hereinafter referred to as 'the Act') to the Directors of the said company giving notice pursuant to the provisions of Section 169 (2) read with Section 115 of the Act of their intention to move an ordinary resolution, at the Extraordinary General Meeting (to be convened), seeking removal of the plaintiff no.1 from the Office of Director of the Plaintiff No. 2/Company.

3. By notice dated 08.08.2017, 6 (six) out of (9) nine Directors of plaintiff no.2 company had proposed to convene an Extraordinary General Meeting of the Board of Directors on 26.08.2017.

4. The plaintiffs have impugned the said notices dated 08.07.2017 and 08.08.2017, inter alia, on the ground that the same are in contravention to the provisions of Section 169 of the Act. ==========================================================

5. It is contended that under Section 169 of the Act, if a Director is sought to be removed from the Board of Directors, then reasonable opportunity of hearing is to be granted to such Director and the said Director is also entitled to submit a representation and make a representation before the Board of Directors opposing his or her removal.

6. It is further contended that the notice dated 08.07.2017 is bereft of any reasons as to why plaintiff no.1 is sought to be removed from the office of Director. It is contended that the notice merely states that plaintiff no.1 has been acting against the company's interests. Whereas, no instances, details or clarifications are mentioned in the said notice as to what actions of the plaintiff no.1 are against the company's interests.

7. It is further contended that since the letter/notice dated 08.07.2017 was bereft of any reasons or grounds, the 6 (six) Directors of the company who have issued the consequent notice dated 08.08.2017 have acted mechanically and issued the said notice without application of mind.

8. It is further contended that though the letter dated 08.08.2017 talks of the notice dated 08.07.2017 as a requisition, however, a reading of the notice shows that it is not a requisition but a mere statement of fact.

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9. It is contended that since the notice dated 08.07.2017 did not satisfy the requirements of Section 100(2) of the Act the Members of the Board of the company could not have acted upon it and requisitioned a meeting by notice dated 08.08.2017.

10. It is further contended that the defendants have contravened the secretarial standards; in particular secretarial standard numbers 1.1.1 and 1.3.8 which mandate that any Meeting of the Board of Directors has to be called in consultation with the Managing Director of such company.

11. Per Contra, learned counsel for the defendants submits that the plaintiff no.1 is not entitled to any relief inasmuch as applicant/plaintiff no.1 has concealed material facts and has not disclosed that the plaintiff was served with the notice dated 08.08.2017 by speed post.

12. Further, it is contended that the plaintiff was served on 11.08.2017 and chose to wait till 24.08.2017 when the Extraordinary General Meeting of the Board of Directors was scheduled to be held on 26.08.2017.

13. Further it is contended by the learned counsel for the defendants that under Section 100(1) of the Act, a Board can convene an Extraordinary General Meeting even without any requisition as contemplated by Section 100(2) of the Act. ==========================================================

14. It is further contended that the notice dated 08.07.2017 was a special notice as contemplated under Section 115 of the Act issued by the share-holders of the plaintiff no.2 company and since the requisite number of share-holders had signed the said notice, the Board of Directors were obliged to convene an Extraordinary General Meeting to consider the proposed resolution.

15. This it is contended is independent of the right and power of the Board under Section 100(1) to convene an Extraordinary General Meeting independent of any requisition under Section 100(2) of the Act.

16. It is further contended that the notice complies with the requirements of Section 169(3) of the Act inasmuch as the notice dated 08.07.2017 gives the ground of removal i.e. that the actions of the plaintiff no.1 are against the company's interests.

17. Learned counsel further contends that the details would be contained in the explanatory note to be circulated for the proposed Extraordinary General Meeting.

18. Learned counsel further submits that since the Board has an independent right to convene an Extraordinary General Meeting there will be no requirement of consulting the Chairman or the Managing Director in terms of secretarial standard 1.1.1.

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19. Learned counsel for the defendants further contends that the defendants do not accept and admit plaintiff no.1 as the Managing Director or the Chairman and as such also there is no requirement of consulting plaintiff no.1.

20. Learned counsel further relies on the decision of the Supreme Court in LIFE INSURANCE CORPORATION VS. ESCORTS LIMITED & ORS., (1986) 1 SCC 264 to contend that every shareholder of the company has the right, subject to the statutorily prescribed procedural and numerical requirements to call an Extraordinary General Meeting in accordance with the provisions of the Companies Act, 1956. Further it is contended that the share-holder is not bound to disclose the reasons for the resolution, to the members, to be moved at the meeting nor are the reasons for the resolution subject to judicial review.

21. Further it is contended that the plaintiffs have not even taken a ground that reasons are not communicated.

22. Learned senior counsel for the plaintiffs, in addition, contends that the defendants have always admitted the plaintiff no.1 as the Managing Director of the company and they cannot be permitted to deny the same. Reliance is placed on two notices dated 24.04.2017 and 02.06.2017 issued by the defendants which notices are the subject matter of this suit and by which notices the defendants had earlier

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sought to convene an Extraordinary General Meeting to seek removal of plaintiff no.1 as a Managing Director of the company.

23. It is contended that the notices specifically state that the plaintiff no.1 is sought to be removed as a Managing Director or a Director on the Board of the company. Learned counsel further submits that the same amounts to an acknowledgment and as such the consultation of the Managing Director of the company under secretarial standard 1.1.1 is mandatory.

24. Notice dated 08.07.2017 issued by the defendants reads as under:-

"Date: 08.07.2017

To

The Directors of PRABHAT ZARDA FACTORY (INDIA) PRIVATE LIMITED Registered office: New Area Sikahdarpur, PC Muzaffarpur Bihar-842001 India

Dear Sir/Madam, Subject: Special notice u/s 115 of the Companies Act, 2013 for removal of Mrs. Chhaya Devi from the office of Director.

We, Rukmini Devi (6000 shares), Jyoti Kumar Arya (5850 shares), Jyoti Kumar Arya ==========================================================

HUF (1500 shares), Malti Devi (1500 shares), Jai Kumar Arya (1000 shares), Ujjwal Arya (1000 shares), Gaurav Kumar Arya (1000 shares), Manju Devi (8250 shares), Purshottam Kumar Arya (2000 shares), the undersigned, member of Prabhat Zarda Factory (India) Private Limited, hereby give notice pursuant to the provisions of Section 169(2) read with Section 115 of the Companies Act, 2013 that I intend to move at the extraordinary general meeting (to be convened) of the Company following ordinary resolution that Mrs. Chhaya Devi be removed from the office of director of the Company:

ORDINARY RESOLUTION:

"RESOLVED THAT Mrs. Chhaya Devi, having the Director Identification number 02354785, be and is hereby removed from the office of Director of the Company with immediate effect."

GROUNDS OF REMOVAL The Actions of the Director, under proposed removal, are against the companies interest.

The Company is requested that this special notice be circulated to all the directors and shareholders and auditors of the company and a copy be also served on Mrs. Chhaya Devi, the director under proposed removal, with a request to make her representation, if she desires, in accordance with a provisions of the Companies Act.

Yours faithfully

1. Rukmini Devi

2. Jyoti Kumar Arya

3. Jyoti, Kumar Arya HUF ==========================================================

4. Malti Devi

5. Jai Kumar Arya

6. Ujjwal Arya

7. Gaurav Kumar Arya

8. Manju Devi

9. Purshottam Kumar Arya

Place: Noida Dated: 08.07.2017"

25. A perusal of the said notice shows that the notice has been issued under Section 115 of the Act by some of the share-holders of the plaintiff no.2 company. It is not in dispute that the number of share-holders satisfy the statutory requirement for issuance of such a notice.

26. It may be noticed that the notice does not require the Directors of the company to convene an Extraordinary General Meeting. All it states that there is an intention of the said share-holders to move an ordinary resolution at the Extraordinary General Meeting to be convened of the plaintiff no.2 company.

27. The grounds for removal mentioned in the said notice states that the actions of the Director are against the company's interests. No further clarification, explanation or reasons are stated as to what actions of the plaintiff no.1 are against the interest of the company.

28. The notice dated 08.08.2017 issued by the 6 (six) of the 9 (nine) ==========================================================

Directors of the plaintiff no.2 company reads as under:-

"Ref. No.: P.Z.F.-226/2017-2018

Dated: 08.08.2017

To,

Mrs. Chhaya Devi J-16, Sector-11, Noida (U.P.) B-193, Sector-44, Noida (U.P.) E-37, Sector-08, Noida (U.P.) E-64, Sector-08, Noida (U.P.) Rajpati Bhawan, Behind G.D. Mother School, Muzaffarpur- (Bihar) The Directors M/S Prabhat Zarda Factory India Pvt. Ltd.

              Subject:     Notice for convening of Board
              Meeting on 26.08.2017
              Sir,

1. The Company is in receipt of requisition dated 08.07.2017 from the shareholders of the Company seeking removal of Smt. Chhaya Devi from the office of Director of the Company.

2. Sh. Shankar Prasad, one of the directors, had issued the notice dated 10.07.2017 for convening of the board meeting on 18.07.2017 which was challenged by Smt. Chhaya Devi in the Hon'ble High Court of Delhi by filing an application in CS(OS) No. 285 of 2017 on the ground that either the Company Secretary of a ==========================================================

Director of the Company who has been so duly authorized, can issue the notice to convene the board meeting and that Sh. Shankar Prasad had issued the notice dated 10.07.2017 without any authority. The notice dated 10.07.2017 was subsequently withdrawn on the statement of the counsel appearing for Sh. Shankar Prasad.

3. However, without prejudice and disputing the proposition that only a Company Secretary can issue a notice to convene a board meeting, Sh. Shankar Prasad, vide letter dated 28.07.2017 requested Sh. Ajay Kumar, a practicing Company Secretary to convene the board meeting pursuant to the requisition received from the shareholders.

4. However, Sh Ajay Kumar, Company Secretary refused to comply with the said request and gave a written reply dated 31.07.2017, stating that he is not employed with the Company and therefore, neither empowered as per law nor authorized to issue the notice for convening the Board Meeting and that any Director of the Company can or will have to Issue the notice to convene/summon the Board Meeting.

5. Therefore, in view of the aforesaid, we, the undersigned being six out of total nine directors of the Company, do hereby jointly issue this notice for convening of the Board Meeting at the Date, Time and Place mentioned hereunder.

Day & Date: Saturday, 26th August.

Time: 11.00 A.M.

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Venue: J-18, Sector-11, Noida-201301, Uttar Pradesh The Agenda papers of the Meeting are attached herewith

6. You are requested to make it convenient to attend the meeting in person. Please submit leave of absence in case you are not in a position to attend the meeting.

Kindly acknowledge receipt of this notice. For PRABHAT ZARDA FACTORY (INDIA) PRIVATE LIMITED

1. RUKMINI DEVI

2. SHANKAR PRASAD

3. RATNA DEVI

4. AMIT KUMAR

5. RAJESH KUMAR

6. PRITAM KUMAR (DIRECTORS) Encl:

              (1) Requisition      dated  08.07.2017 from
              shareholders
              (2) Order dated 26.07.2017 in CS(OS) No.
              285/2017

(3) Letter dated 28.07.2017 by Sh. Shankar Prasad addressed to Sh. Ajay Kumar, Company Secretary (4) Reply to Sh. Ajay Kumar, Company Secretary dated 31.07.2017"

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29. By the impugned notice dated 08.08.2017, the Directors signatory to the said notice record that they are receipt of a requisition dated 08.07.2017. Not only does the notice refer to the letter dated 08.07.2017 as a requisition in paragraph (1), it also refers to it in the enclosures to the said notice dated 08.08.2017 at serial no.1 as "Requisition dated 08.07.2017 from the share-holders".

30. Learned counsel for the defendants very candidly submits that the Directors of their own cannot seek to remove another Director and they can only act on a special notice being received.

31. It is contended that the notice dated 08.07.2017 is a special notice. It is further contended that Section 100(2) of the Act comes into operation only on receipt of a requisition. He submits that since the letter dated 08.07.2017 was not a requisition but merely a notice under Section 115 of the Act, accordingly notice dated 08.08.2017 was not a requisition in terms of Section 100(2) of the Act. He submits that the notice dated 08.08.2017 has been issued in terms of powers conferred under Section 100(1) of the Act.

32. The arguments of learned counsel for the defendants are self- contradictory. On the one hand, learned counsel submits that the Board cannot on its own convene an Extraordinary General Meeting for removal of another Member of the Board and such an Extraordinary General Meeting can only be called on a requisition.

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On the other hand, it is contended that the letter dated 08.07.2017 is not a requisition.

33. If the Board had not treated the letter dated 08.07.2017 as a requisition, then it is not clear as to on what basis the Board of the plaintiff no.2 company exercised the power to call and convene an Extraordinary General Meeting under Section 100(1) of the Act, if independent of such a requisition, the Board could not convene an Extraordinary General Meeting to remove a Director.

34. Even if assuming the Board was to act on the requisition of the share-holders, the Board would still have to apply its mind to consider whether the requisition was appropriate and in accordance with law.

35. Assuming that the requisite number of share-holders requisition a meeting of the Board and the Board decides not to convene a meeting then under Section 100(4) of the Act the said share-holders have the right to convene an Extraordinary General Meeting on their own.

36. Notice dated 08.07.2017 is clearly bereft of any reasons or grounds and merely contends that plaintiff no.1 is acting against the company's interests. Mere bald averment, that plaintiff no.1 is acting against the company's interests, is not sufficient to communicate to plaintiff no.1 the grounds and circumstances which are to be held against plaintiff no.1 who is a Director on the Board, whose removal ==========================================================

is being sought and who is entitled to make a representation and defend herself against such an action.

37. Being a Director of the Board gives certain rights to an individual though it is coupled with certain responsibilities. The scheme of the Companies Act is such that a right of the Director cannot be very easily interfered with unless there are such circumstances which warrant interdiction of such right.

38. It is the case of the defendants that plaintiff no.1 was appointed as a whole time Director for a period of ten (10) years in the year 2008.

39. If the rights of the plaintiff no.1 to act as a Director are to be curtailed then the statutory requirements of Section 169 of the Act have to be complied with. Section 169 of the Act contemplates a reasonable opportunity to the Director who is sought to be removed to be heard on the resolution at the Meeting and also to make a representation in writing to the company.

40. However, all that the impugned notice dated 08.07.2017 says is that the actions of the plaintiff no. 1 are against the companies interest. The said notice is bereft of any reasons. Since the notice dated 08.07.2017 is bereft of any reasons, how can the directors who have issued the consequent notice dated 08.08.2017 be deemed to have applied their minds to the said requisition notice. ==========================================================

41. Since letter dated 08.07.2017 of the share-holders is bereft of any reasons, it is clear that the members of the Board who have issued the notice dated 08.08.2017 have mechanically issued the said notice without applying their minds to the facts and circumstances which led to the notice dated 08.07.2017 being issued by the share holders.

42. Section 169 of the Act serves a salutary purpose of ensuring independence of a Director. The rights and powers of a Directors cannot be interfered with except in accordance with Section 169 of the Act.

43. The judgment of the Supreme Court in LIFE INSURANCE CORPORATION (supra) relied on by the learned counsel for the defendants, in my view, is not applicable in the facts of the present case. The Supreme Court in the said judgment was not considering a provision like Section 169 which specifically confers an opportunity of being heard.

44. An opportunity of a hearing and a right to representation would entail that the person who is being given such an opportunity should be informed of the reasons and circumstances leading to the proposed action so that an effective defence can be placed, which in the present case has clearly not been made available.

45. Further the contention that the reasons would be supplied alongwith the explanatory note for the meeting, also does not help the ==========================================================

defendants. The Defendants in notice dated 08.08.2017 claim have acted upon the requisition dated 08.07.2017 which as noticed above is bereft of any reason. No other material is referred to. The explanatory note is to be prepared by the Directors who have convened the meeting and not by the shareholders who have requisition the same. If there is no material available on record with the Directors who have convened the meeting, how can such material be supplied in the explanatory note to the meeting.

46. Since the notice, prima facie, is in violation of Section 169 of the Act and does not afford a reasonable opportunity of being heard to the plaintiff no.1, the contention of the plaintiff that the same is in violation of secretarial standards, is not being examined, more particularly, in view of the disputes raised by the defendants that they do not accept plaintiff no.1 to be the Managing Director of the plaintiff no.2 company.

47. In view of the above, I am of the prima facie view that the plaintiff no.1 has shown a strong prima facie case for grant of an ad- interim injunction as in case the defendants are permitted to convene any Board meeting or an Extra Ordinary General Meeting and pass the resolution as proposed, it would cause irreparable loss and injury to the plaintiff no.1 who may then be removed from the Board of Directors of the plaintiff no.2 company. The balance of convenience is in favour of the plaintiffs, accordingly, it is directed that the ==========================================================

defendants are restrained from acting upon the notice dated 08.08.2017 and the resolutions passed in the consequential meeting dated 26.08.2017, which was permitted to be held by this Court by order dated 25.08.2017.

48. The application is accordingly allowed in the above terms.

49. Order Dasti under the signatures of Court Master.

SANJEEV SACHDEVA, J SEPTEMBER 11, 2017 nn

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