Bhankerpur Simbhaoli Beverages (P) Ltd. v. Sarabhjit (1996) 86 CompCas 842 (P & H)

The case discusses the provisions in regard to the extra ordinary general meeting of the company and the provisions for the appointment and removal of the directors. The intimation about the extra ordinary general meeting should be given by issuing prior notice of about 21 days. If any decisions need to be taken in the context of Board of Directors, then all the directors should be present in that meeting.
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Introduction

The Bhankerpur Simbhaoli case came into the picture in order to resolve the conflict whether the extraordinary general meeting was held and if it was held, it is valid or not. In order to reach a valid conclusion, the honorable Court made a reference to two important provisions of the Companies Act, 1956, i.e. Section 169 and Section 284. The former discusses the procedure to be followed for calling upon the extraordinary general meeting stating that any Board of director has the right to call upon the extraordinary general meeting and these meetings can be called upon anytime by giving a prior notice of 21 days to take any appropriate decision in the favor of the company. The latter discusses the provision for the removal of the Board of Directors, which can be done by passing an ordinary resolution, and a special notice need to be issued in their favor of the director who is being removed and the new director being appointed to intimate them about the same.

Facts of the case

The Bhankerpur Simbhaoli case has been filed by Bhankerpur Simbhaoli Beverages Pvt. Ltd. (B.S.B. in short), the objects of the company is to carry on the business of distillers, bottlers, wine manufacturer and buying and selling of all kind of liquors, beers, etc. The present petition is filed in regard to the extraordinary general meeting that as per notice dated January 3, 1994, or January 27, 1994, the meeting was not held at the registered office and the resolutions alleged to have been passed at the said extraordinary general meeting on February 22, 1994, as claimed by defendants are non-existent, fictitious and are inefficient. Even if the extraordinary general meeting of B.S.B. actually held on February 22, 1994, the resolutions purported to be passed are illegal and void and are of no effect. B.S.B. was earlier owned by Simbhaoli Industries Pvt. Ltd, (S.I.L. in short). After the takeover of the company the major share of the company is held by Budgam Finance and Investment Co. Budgam are also the directors of the company. As per Section 169 of the Companies Act, 1956, the directors have the right to call the extraordinary general meeting. It is alleged by the Budgam that they issued a notice calling all the Board of Directors to the extraordinary general meeting that took place on 22nd February 1994. The decision taken by them is regarding the reconstitution of the Board of Directors in which they removed the existing directors and appointed new directors without complying with the provisions mentioned in Section 284 of the Companies Act. Therefore, the present petition has been filed to seek whether the decision taken for removing the directors is appropriate or not.

Issues

  • Whether the extra ordinary general meeting was held on 22nd February, 1994, if held was valid or not.
  • Whether the removal and reconstitution of the Board of Directors was a valid decision and was done in accordance to the provisions laid down.

Contentions from both the sides

Petitioner

  • The learned Counsel for petitioner contended that no extra ordinary general meeting was held on 22nd February, 1994.
  • He further submitted that even if the meeting was held, it will not be considered valid because the meeting cannot take place at any other venue other than the registered office of the company.

Respondent

  • The learned Counsel for respondents contended that they had issued a notice in favour of all the shareholders and Board of Directors intimating them about the extra ordinary general meeting.
  • They further submitted that the meeting was held and the Board of Directors were removed by intimating the existing members and by taking their consent.

Summary of the Judgement

The honorable Court in Bhankerpur Simbhaoli case is of the view that the notice issued by defendants had not been addressed to any other persons except the shareholders of the company. The decision to be taken in the extra ordinary general meeting is regarding the removal of the Board of Directors and the appointment of the New Board members. The provision for removal of Board of Directors has been laid down under Section 284 of the Companies Act, 1956  according to which a director can be removed through a special resolution but the notice of special resolution should be issued in favor of the old and new directors. Thus, other important conditions must be met to dismiss a director under Section 284 of the Companies Act, 1956. The director concerned must be granted a fair opportunity of representation against the request for his removal and shareholders should also have ample opportunities to become acquainted with the representation before submitting to the resolution for removal. The court further opined that in order to know whether the proceedings of the meeting and the resolution passed were valid or not it is necessary to take into consideration Section 169 of the Companies Act, 1956. The Board of Directors of the Company shall have the responsibility to call forthwith the Extraordinary General Meeting of the Company upon the invitation of the number of shareholders of the Company as stated in sub-section (4). If the board does not proceed to call the meeting for consideration of the matter set out in the request within 21 days from the date of the valid request, the requesters themselves are empowered to call the company’s meeting. Therefore, in the present case, the record reveals that Budgam addressed to B.S.B. and to the directors, called upon the company to convene the extraordinary general meeting; however, the notice was not served to all the Board of Directors and they were not able to attend the meeting. Hence, the meeting if taken place and the resolution was passed, it is invalid.

Analysis

The decision of the court in Bhankerpur Simbhaoli case makes the ambit of extra-ordinary meetings very clear in the eyes of law. As defined under section 169 of the Companies Act, 1956, Extra-ordinary meetings empower all the board members to conduct a meeting as and when it deems necessary. It depends on the conduct of the business of the company. Although companies conduct Annual General Meetings wherein all the important business affairs are dealt with but some urgent matters cannot be put on hold until a year and that’s when the Extra-ordinary meetings are held. It is called by the Board of Directors at the discretion of the Board Resolution. All the important designatories of the companies are required to be present and the absence of any single such member can hold the meeting insignificant. A well-drafted official notice needs to be given in writing or electronic form 21 days prior to the meeting.

Conclusion

Thus the decision of the court is ambiguous and needs to be paid special heed to, for extra-ordinary meetings hold a significant part in managing affairs of the company. It cannot be disregarded and the rules of holding such meetings shouldn’t be tampered. Every member should equally adhere to and follow the norms of the company to make such meetings effective.

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