J 2017 SCC OnLine Del 10290 Jeevanthikam Kgpianiitkgpacin 20240317 144221 1 7

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CS(OS) 285/2017
Chhaya Devi v. Rukmini Devi
2017 SCC OnLine Del 10290
In the High Court of Delhi at New Delhi

(BEFORE SANJEEV SACHDEVA, J.)
Chhaya Devi & Anr. .…. Plaintiffs

v.
Rukmini Devi & Ors. .…. Defendants
CS(OS) 285/2017
Decided on September 11, 2017
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
The Judgment of the Court was delivered by
SANJEEV SACHDEVA, J. (ORAL)
I.A. 7854/2017 (filed by plaintiffs under Order VI Rule 17 CPC)
1. Issue notice.
2. Notice is accepted by the learned counsel for the defendants who prays for time
to file reply.
3. 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)
4. Plaintiff no. 1 by this application seeks a restraint on the defendants from acting
upon notice dated 08.07.2017 and 08.08.2017.
5. 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.
6. 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.
7. 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.
8. 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.
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9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. Learned counsel further contends that the details would be contained in the
explanatory note to be circulated for the proposed Extraordinary General Meeting.
21. 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.
22. 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.
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23. Learned counsel further relies on the decision of the Supreme Court in LIFE
INSURANCE CORPORATION v. ESCORTS LIMITED, (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.
24. Further it is contended that the plaintiffs have not even taken a ground that
reasons are not communicated.
25. 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 sought
to convene an Extraordinary General Meeting to seek removal of plaintiff no. 1 as a
Managing Director of the company.
26. 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.
27. 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
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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”
28. 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.
29. 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.
30. 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.
31. 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
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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.
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”
32. 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”.
33. 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.
34. 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
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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.
35. 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. On the other
hand, it is contended that the letter dated 08.07.2017 is not a requisition.
36. 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.
37. 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.
38. 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.
39. 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.
40. 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.
41. 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.
42. 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.
43. 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.
44. 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.
45. 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
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accordance with Section 169 of the Act.

46. 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.
47. 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.
48. 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.
49. 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.
50. 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.
51. The application is accordingly allowed in the above terms.
52. Order Dasti under the signatures of Court Master.
———
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SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 1 Sunday, March 17, 2024

Chhaya Devi v. Rukmini Devi

2017 SCC OnLine Del 10290

In the High Court of Delhi at New Delhi

Chhaya Devi & Anr. .…. Plaintiffs

accordance with Section 169 of the Act.

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