Faruk (Md) Vs. Abdul Hamid and others

Faruk (Md) (Petitioner)

Vs.

Abdul Hamid and others (Respondents)

 

Supreme Court

Appellate Division

(Civil)

Present:

ATM Afzal CJ                                                                        

Mustafa Kamal J

Latifur Rahman J                                                                            

Judgment

April 30, 1998.

The Companies Act 1994  (XVIII of 1994) Sections 210(7) & 233

The provisions of appointing auditors in the annual general meeting is for prospective auditing of a company. When the minority shareholders apply under section 233 of the Companies Act, the Court has inherent power to make alternative arrangements for appointment of Auditors for past years if no auditing has taken place……….(10)

Lawyers Involved:

Dr. Kamal Hossain, Senior Advocate, instructed by Kazi Shahabuddin Ahmed, Advocate-on-Record— For the Petitioner.

Maudud Ahmed, Senior Advocate, instructed by Md. Aftab Hossain, Advocate-on-Record — For the Respondent Nos.)1 -2.

Not represented—Respondent Nos. 3—9.

Civil Petition For Leave To Appeal No. 378 of 1998

Judgment

      Mustafa Kamal J.- This petition for leave to appeal by respondent No.2 petitioner is from the judgment and order dated 25-3-98 passed by the learned Company Judge of the High Court Division rejecting the petitioner’s application for direction and clarification and/or modification of the learned predecessor Company Judge’s order dated 21-8-97 in Company Matter No.52 of 1995.

2. Respondent Nos.1 and 2 as petitioners filed an application under section 233 of the Companies Act, 1994, Matter No. 52 of 1995. While describing the contents of the said application the words “petitioner” and “respondent” will be used in the manner described in the said application. They alleged that the petitioners and respondent Nos. 2-6 formed a private limited company under the name and style of Madina Vegetable and Oil Refinery Industries (Pvt) Ltd. taking over the business, assets and liabilities of Madina Vegetable, & Oil Refinery Industries, a proprietary concern, solely owned by respondent No.2. The petitioners and the respondents are all permanent directors under the Articles of Association of the company. All the directors/shareholders are close relations. The petitioners and respondent Nos 2-5 are full brothers. Respondent Nos. 3 and 4 are the son and wife respectively of respondent No.2 and respondent No.6 is the wife of respondent No.5. Out of 11,000 total shares of the company the petitioners were holding 1,000 shares each and the rest 9,000 shares are held by the remaining five directors. At a Board Meeting held on 26-5-92 respondent No.2 (the present petitioner), the Managing Director of the company, was authorised to purchase a complete set of imported machineries in packed condition from the aforesaid proprietorship concern and was further authorised to sign and execute the agreement for sale on behalf of the company. The Managing Director-respondent No.2 (the present petitioner) purchased the assets and liabilities of the proprietorship concern under a vendor’s agreement dated 1-6-92 at a consideration of Taka 68,24,992,20, but respondent No 2 allegedly made another false vendor’s agreement on 1-7-92 showing Taka 3,43,31,638.87 as the consideration, and also stating that in future the company would allot 22.000 shares to three persons including himself. Respondent No.2 made the false vendor’s agreement for his personal benefit. He continued to treat the private limited company as his own absolute property and ignored the interest of the petitioners and other shareholders. The company made a huge profit of Taka 4,61,86,98 1.00 by selling soyabean oil but it was not shown in the company’s account. No dividend was declared by respondent No.2. He defalcated the company’s fund and committed various other irregularities sometimes by forging the signatures of other directors. He failed to hold Board Meetings and so the petitioner and k respondent Nos. 5 and 6 held a requisitioned meeting of the Board of Directors on 28-2-95 and in the said meeting petitioner No.1 was authorised to call a meeting of the Board on 30-3-95. The members were duly notified on 16-3-95. Respondent No.2 failed to turn up. Again notices were issued on 15-4-95 fixing 30-4-95 for Board Meeting but respondent No.2 again failed to attend. Thereafter the petitioners and respondent Nos.5 and 6 called an extraordinary general meeting on 16-5-95 by issuing notices on 2-5-95 and in the said meeting it was resolved inter alia that since the tenure of respondent No.2 as Chairman and Managing Director of the company was going to expire on 20-5-95 on the expiry of 3 years it was decided to appoint respondent No 5 as the new Managing Director of the company. The petitioners made quite a few GD Entries at the Lalbagh Police Station against respondent No.2 and a criminal case filed by the new Managing Director against respondent No. 2 is still pending. The petitioners prayed for three reliefs, namely, to endorse the removal of respondent No.2 as the Managing Director of the company, to endorse the appointment of respondent No. 5 as the Managing Director of the company and to appoint an independent auditor to audit the accounts of the company and give such other directions as the Court may deem fit.

3. The present petitioner as respondent No.2 filed one affidavit-in-opposition and two supplementary affidavits denying the averments in the application and stating that the second vendor’s agreement was a modified version of the earlier vendor’s agreement containing assets, raw materials etc. and the allotment of 22,000 shares was made towards partial adjustment of the consideration of the second vendor’s agreement. The defalcation of the company’s fund was denied. The allegation of misappropriation of over Taka 4 crore was also denied. It was denied that respondent No. 2 was removed and respondent No. 5 was appointed the Managing Director as the meeting was not convened or held legally. The Refinery is closed for the last 2 years owing to the intervention of respondent No. 5.

4. After hearing the parties the learned Company Judge by an order dated 21-8-97 held that the allegations and counter allegations of the parties cannot be decided without a detailed examination of witnesses. The learned Judge noted that the impasse in the matter of appointment of Managing Director has to be resolved for the benefit of the shareholders and an independent auditor is also to be appointed preferably acceptable to both sides. The next Board Meeting should be held under the Chairmanship of a person appointed by the Court and in the said meeting a qualified Chartered Accountant should be appointed for auditing the accounts of the company. Then the learned Company Judge observed as follows:

“Both sides have agreed that Mr. AF Hasan Arif, the learned Advocate of the Supreme Court may be appointed as the Chairman. And both sides have suggested that any one of the following companies namely, Rahman, Rahman & Haque, Joinal Abedin & Co. and Huda Vashi & Co. may be appointed as auditor of the company to audit the accounts of the company and to prepare the audited reports of the company for the years 1993-1994 and onwards.”

5. Respondent No .2 as petitioner then filed an application for directions and clarification and/or modification of the said order dated 21-8-97 submitting that the appointment of an auditor at a Board Meeting would be ultra vires the provisions of the Companies Act, 1994 since an auditor can only be appointed in an annual general meeting of a company.

6. By the impugned order dated 25-3-98 the learned company Judge held that no appeal, has been preferred by the present petitioner against the order of his learned predecessor dated 21-8-97 which was passed with the consent of the parties including the present petitioner and the learned Company Judge will not sit over the said judgment as a Court of Appeal to modify the impugned order. The learned Company Judge justified the appointment of Auditor in the Board Meeting under section 210(7) of the Companies Act, 1994. With these observations, the application was rejected.

7. Dr. Kamal Hossain, learned Counsel for respondent No 2 petitioner, has assailed the original order dated 21-8-97 on submission that the said order cannot be termed as a consent Order at all and if any consent was given it may have been given by the learned Advocate for the petitioner but not by the petitioner himself, as such a consent amounts to committing a suicide. Only 10% shareholders cannot ride roughshod over the rights of the majority 90% shareholders.

8. In the absence of an appeal against the Order dated 22-8-97 and in the absence of any allegation of such nature in the application for directions filed before the learned successor Company Judge we are not prepared to entertain objections against the said order.

9. Dr. Kamal Hossain next submits that an appointment of an Auditor can only take place in an annual general meeting, and as such, the original direction to appoint an Auditor in the Board Meeting ought to have been modified by the learned successor Company Judge.

10. The provisions of appointing auditors in the annual general meeting is for prospective auditing of a company. When the minority shareholders apply under section 233 of the Companies Act, the Court has inherent power to make alternative arrangements for appointment of Auditors for past years if no auditing has taken place.

11. Hence we do not find any ground for interference.

12. Dr. Kamal Hossain submits that he will prefer a review petition against the instant judgment of this Division and till then the present order of this Division may be stayed.

13. Mr. Moudud Ahmed, learned Counsel entering Caveat for respondent Nos. 1 and 2 submits that the Board Meeting under the chairmanship of Mr Hasan Arif has already been held and an auditor has been selected from among the panel in the Board Meeting and it is only because of an order of stay from this Court that Mr Arif has restrained himself from submitting his report to the learned Company Judge.

14. In that view of the matter the oral prayer for stay of the present order is refused.

The petition is dismissed.

Ed.

Source: 51 DLR (AD) (1999) 48.

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