Ghyasuddin Ahmed vs. Q.N. Faruque and others, 38 DLR (AD) (1986) 296

Case No: Civil Appeal No. 17 of 1986

Judge: F.K.M.A. Munim,

Court: Appellate Division ,,

Advocate: Mr. Rafique-ul-Huq,Dr. M. Zahir,,

Citation: 38 DLR (AD) (1986) 296

Case Year: 1986

Appellant: Ghyasuddin Ahmed

Respondent: Q.N. Faruque

Subject: Company Matter,

Delivery Date: 1986-3-24

 
Supreme Court
Appellate Division
(Civil)
 
Present:
F.K.M.A. Munim CJ
Badrul Haider Chowdhury J
Shahabuddin Ahmed J
M.H. Rah­man J
A.T.M. Afzal J
 
Ghyasuddin Ahmed
………...Appellant
Vs.
Q.N. Faruque & others
...............Respondents
 
Judgment
March 24, 1986.
 
The Companies Act, 1913 (VII of 1913),
Sections 79(3) and 76(3)
Having regard to the powers conferred under sections 76 (d) and 79 (d), the Court may order a meeting of the company only under the conditions provided under those provisions. Before exercising the powers conferred under section 79 (3), the Court must be satisfied that it has been impracticable to call a meeting in a manner in which such a meeting is ordinarily to be called……………….. (18)
 
The learned counsels of the parties having expressed their agreement on the terms placed before the Court with certain modifications of the orders passed by the learned Company Judge for resolving the matter, such terms of agreement are accepted and order of the learned Company Judge is modified accordingly. ………………………. (21)
 
Cases Referred to-
Bengal and Assam Investors Ltd vs. J. K. Eastern Industries Private Ltd., AIR 1956 Cal. 658 at paras 7 & 17; In re Ruttonjee & Co. vs Ltd. AIR 1969 Cal. 550 at para 2 and 85; R. Rangachari vs. S. Suppaiah, AIR I976, S.C 73 at para 6; Pasari Flour Mills, AIR 1961 Madaya Pradesh 340; Satish Chandra Banik vs. Dacca Jute Miils Ltd., PLD 1968 Dae 610. Mrs. A. Ananthalakshmi Ammal vs. Tijjin's Barytes, Asbestos and Paints Limited, AIR 1952 Mad 60 at para 3; The Indian Spinning Mills Ltd. vs. His Excellency Lt. General Madan Sharnsher Jang Bahadur Rana, AIR 1953 Cal 355 at para 21; Bal. Krishna Maheshwari Vs. Uma Shahker Mehrotra, AIR 1947 Alia 362 ; Bengal and Assam Inventors Ltd. vs. J.K. Eastern Indus­tries Private Ltd., AIR 1956 Cal. 658 ; Re EL Sombero Ltd., (1958) 3 All ER P. 1, Captain John Johnston vs. G B. Potts & Co. Ltd. PLD 1967 Kar 496 ; Satish Chandra Banik vs. Dacca Jute Miils Ltd., PLD 1968 Dac 610 at p. 641.
 
Lawyers Involved:
Raifique-Ul-Huq, Senior Advocate, (Md. Fazlul Haque, Advocate with him) instructed by Md. Ssjjadul Huq, Advocate-on-Record-For the Appellant.
M. Zahir, Senior Advocate (Mahbubey Alam, Advocate with him instructed by Ahmed Nurur Reza, Advocate-on-Record-For the Respondents.
 
Civil Appeal No. 17 of 1986.
(From the Judgment & Order dated 20.11.85 passed by the High Court Division, Dhaka in Matter No. 13 of 1986.)
 
JUDGMENT

Fazle Muim CJ.
 
1.         This appeal arises from, Matter No. 13 of 1985 and was de­cided by the Company Judge of the High Court Division, Dhaka (Mr. Justice Sultan Hossain Khan) on 20th November 1985.
 
2. On 17th April 1985 respondents filled an application under section 79(3) read with section 76 (3) of the Companies Act, 1913 praying, inter alia, for the following reliefs.
 
...C. Condoning the delay if any in hol­ding the First Annual General Meeting of the Company and directing the Com­pany to hold the same;
 
...D. Conducting the First Annual General Meeting of the Company, under, the Chairmanship of a neutral person in a neutral place with a directive to have the accounts audited by M/s. S.F. Ahmed & Co as resolved by the Board of Directors on 3.9.84 and the acco­unts and balance sheet placed in the said general meeting upto 31.12. 84.
 
3. The Company was incorporated on 17th November 1983. Appellant is the permanent Managing Director of the Company. Respondents and another, namely, Farhad Ahmed Rafiq are the Mem­bers/Directors of the said Company. According to law, the first Annual General Meeting of the Company was to be held within 18 months from the date of incorporation, that is, within 16th May 1985. Respondents asked appellant to hold a meeting of the Board of Directors to discuss the affairs and business of the Company and its accounts who, how­ever, refused to comply with this request. A meeting of the Board of Directors was called by appellant on 2nd September 1984. No appropriate agenda of the meeting was given Respondents, however gave a notice calling the meeting of Board of Directors on 30th Sep­tember 1984. They however, went to the venue of the meeting at Aurangzeb Road, Dhaka on 2nd September 1984, but left the place as some outsiders were seen present there to partici­pate in the meeting. According to respondents no meeting could, therefore, beheld that day. On the next day, that is, 3rd September 1984, the Board meeting called by respondents was held in which resolutions were passed curbing the powers of the Managing Director and appointing M/S. S.F. Ahmed & Co., Chartered Accountants as auditors of the Company. This meeting was not attended by the appellant. Litigations ensued between the two groups of share-holders.
 
4. On 17th April 1985 respondents moved the application under section 79(3) read with section 76(3) of the Companies Act for a dire­ction to hold the first Annual General Meeting of the Company under the Chairmanship of a neutral person and for placing its balance-sheet, profits and loss accounts of the Company before the meeting after having the said audit report: by M/S. S.F. Ahmed & Co., it was alleged that after the application was admit­ted on 18th April 985, appellant issued a notice convening Annual General Meeting of the Company to be held on 5th May 1985. Respondents did not attend the meeting as the accounts were not audited by M/S. S. F. Ahmed & Co which was appointed by the respondents. In the adjourned meeting of the Board of Directors held on 22nd May 1985 appellant passed the accounts audited by the auditor appointed by appel­lant, namely Irshadullah Patwary & Co. Appel­lant who appeared by filing affidavit conten­ded that since the Annual General Meeting was convened within time the Company Judge had no jurisdiction to re-open the issue and/or to decide upon the validity of the balance-sheet produced before the Annual General Meeting on 15th and 22nd May 1985.
 
5. The learned Company Judge held that the Managing Director of the Company was not empowered to appoint the first auditors of the Company, as there was nothing to show that the audited balance-sheet and profit and loss account were ever considered by the and that the mandatory provision of section 131A regarding Director's report were ignored and even if the first Annual General Meeting was held validly, the placing of the balance-sheet under section 131(1) of the Companies Act was not done validly and a default in hol­ding the first Annual General Meeting in terms of section 76(1) read with section 131(1) of the Companies Act was made. The Court had power while disposing of an application under section 76(3) and 79(3) of the Act to decide and determine the leg­ality of placing and adopting the balance- sheet and profit and loss accounts of the Company and where these have not been passed and placed in accordance with law, the Court may cure the lapse and set at right the incongruous situation. Accordingly, a General Meeting was ordered to be held under the Chairmanship of a neutral person with audits done by another auditor placed in that meeting.
 
6. Mr. Rafique-Ul-Haque, Counsel for the appellant, submitted that upon a wrong interpretation of the provisions of section 79(3) read with section 76(3) of the Companies Act, the Company Judge passed the orders as above-mentioned. The Company had its first Annual General Meeting which was; it was claimed, held within the statutory period. The Company Judge had no jurisdiction to call the meeting or give any direction for holding the meeting once again. It is also beyond the jurisdiction of the Company Judge to direct that the, Company's account which was already audited and approved in it's Annual General Meeting be examined over again by another auditor. The learned Counsel mentioned that since the Company in a Board meeting which was attended by the respondents appointed the auditor of the Company and the Compa­ny's account was audited by it, the Company Judge by wrongly invoking the provisions of section 79(3) of the' Companies Act ordered that the Company's account be audited once again by another auditor. He also submitted that the provisions of section 144(7) of the said Act are not applicable to a private limited Company. In short, the Company Judge traveled beyond his power and jurisdiction to call, hold and conduct the Annual General Meeting of a private limited Company after it had already called, held and conducted such meeting within the statutory period. Se­condly, the Company Judge cannot order that the Company's account be audited by another auditor nor can he appoint an auditor in place of the auditor already appointed by the Company.
 
7. Dr. M. Zahir, Counsel for the respon­dents, submitted that according to the pro­visions of section 131(1) of the Companies Act the balance-sheet and profit and loss account of the Company must be placed before it in a general meeting. If it be found that the balance-sheet and the account were not prepared according to law and Companies Articles, there has been no compliance with the provisions of this section. In such an eventuality the Company Judge is authorised under section 79(3) to order that a proper balance-sheet and accounts be prepared and placed in a General Meeting. He submitted that as the balance-sheet and profit and loss account were not considered by the Directors and there was no Director's report, there was no compliance with the provisions of section 131(1). The learned Counsel submitted that no Director's report or copy of the balance-sheet was sent to the respondents prior to holding the Annual General Meeting and the placing of the balance-sheet in the meeting held on 15th and 22nd May 1985 was, there­fore, illegal, Also, in view of Articles 7,9,82,86 and 87 of the Articles of Association of the Company which delegated the power to make the balance-sheet and profit and loss account ready for submission to the Directors, the respondents appointed M/S. S. F. Ahmed & Co. as auditors, which appointment was, there­fore, legal but the appellant who is the Mana­ging Director of the Company appointed Irshadullah Patwary & Co. as auditor in violation of the aforesaid provisions. His ap­pointment was, therefore, illegal. The Com­pany Judge, therefore, rightly exercised the ancillary powers conferred by section 79(3) in ordering that the Company's accounts be au­dited by the auditor appointed by him.
 
8. Respondents have filed the application under section 76(3) read with section 79(3) of the Companies Act on 9th April 1985. It was moved before the Company Judge on 17th April 1985 and the notice was served on 21st April 1985. According to respondents, since the Company was incorporated on 17th Nov­ember 1983, 18 months period available for calling the Annual General Meeting starting from the date of incorporation of the Company was to expire on 15th May 1985. Since no notice of such meeting was received by them yet, they while anticipating that there was hardly any time for calling the Annual General Meeting filed the aforesaid applica­tion for ordering the holding of Annual General Meeting of the Company. Their grievances which are alleged to have definite factual basis are stated in paragraphs 13 to 17.
 
9. Respondents, in their application, prayed for granting necessary directions for advertisement and notices, condoning the delay, if any, in holding the Annual General Meeting of the Company and directing the Company to hold the same and conducting the Annual General Meeting of the Comp­any under the Chairmanship of a neutral person in a neutral place with a directive to have the accounts audited by M/S. S.F. Ahmed & Co. as resolved by the Board of Directors on 3.9.84 and the accounts and balance sheet placed in the said General Meeting made upto 31.12.84.
In their Affidavit-in-Opposition the ap­pellant attempted to controvert the facts stated by the respondents as contained in their application.
 
10. The position as emerged from the respective cases of the parties in that while the appellant seeks to maintain that the Annual General Meeting of the Company has been held within the statutory period there being no irregularity in calling and holding such meeting of the Company, the Company Judge had no jurisdiction to call such meeting and give the directions purpor­ting to act under the provisions of section 79 (3) of the Act.
 
11. On the contrary, respondents' Counsel contended that it was not just enough to call and hold the meeting at or on the expiry of the statutory period when evidently acts which were required to be done by the ap­pellant, who appeared to be in control of the Company, previous to holding such meeting, were not done by him. Apart from such facts, even those which were immediately necessary to be done before holding the An­nual General Meeting were not performed by the appellant. He mentioned that no notice of the Annual General Meeting was served upon respondent No. 3 Mrs. Rehana Mannan. There was no quorum on 15th May 1985 whi­ch was alleged to be the first day of the Annual General Meeting; on 22nd May 1985 also respondents were not present. Further, the learned Counsel mentioned that the other respondents, who receive notice did not get balance-sheet, etc. which, according to him, were to be sent along with the notice for consideration of the share-holders before atte­nding the Annual General Meeting. In this connection he cited the provisions of Articles 84 and 85 of the Articles of Association of the Company. These Articles are:
 
"84. A balance sheet shall be made out in every year and laid before the Company in general meeting made upto a date not more than six months before such meeting. The balance sheet shall be accompanied by a report of the Dir­ectors as to the state of the Company's affairs, and the amount which they rec­ommend to be paid by way of dividend, and the amount (if any) which they propose to carry to reserve funds.

85. A copy of the balance sheet and report shall, fourteen days previously to the meeting, be sent to the persons entitled to receive notices of general meeting in the manner in which notices are to be given hereunder."
 
12. As to what matters will be discussed and considered in the Annual General Meet­ing, no indication was given in the notice. It did not give the agenda for the meeting. Dr. Zahir, Counsel for the respondents, then referred to the requirements of law laid down in sections 76, 77 and 78 of the Com­panies Act. The learned Counsel also men­tioned the provisions of sees. 131 and 131-A of the Act and submitted that these provisions complement those contained in section 76. As to what should be the agenda in the Annual General Meeting is specifically men­tioned in Articles 39, 40 and 41 of the Ar­ticles of Associations. Coming to the provi­sions of section 79(3) of the Companies Act the learned Counsel emphasized that without con­forming to these requirements as evidenced in the Articles of Association mentioned above and the aforesaid provisions of law in the sections quoted above by merely holding the Annual General Meeting does not tantamount to properly holding the meeting within the meaning of section 76(3) of the Companies Act. Fulfillment of the aforesaid requirements is a sine qua non to holding the Annual General Meeting within the meaning of sec­tion 79 (3) read with section 76 (3) of the Companies Act. In addition to the non-fulfillments of the aforesaid requirements as laid down in the Articles of Association and the provisions of the Companies Act the other factors which show that it was not practicable to hold the Annual General Me­eting within the statutory period were the acrimonious relationship between the appel­lant and respondents. In addition, the in­transigence of the appellant in refusing to act in compliance with the request of the respondents to hold the Annual General Me­eting within time and the lack of preparation of a Director's report previous to holding the Annual General Meeting which was to be considered by the share-holders at a meeting to be held previously to the Annual General Meeting also show the impracticability of holding such meeting. Fur­ther, Dr. Zahir mentioned that the respond­ents at a meeting of the Board of Directors (which was not attended by the appellant) on 3rd September 1984 M/S. S.F. Ahmed & Co. was appointed as auditors who had prepared the balance-sheet. Notice was served upon the appellant on 27th March 1985 in the matter of appointment of auditors stating that M/S. S.F. Ahmed & Co. was appoin­ted as auditors of the Company. No reply to this notice was received from the appellant. On the other hand, appellant claimed to have appointed M/S. Irshadullah Patwary & Co. as the auditor of the Company.
 
13. As to the circumstances which justify the exercise of jurisdiction to call an Annual General Meeting reliance was first placed in sections 76(3) and 79 (3) of the Companies Act. These sections are:
 
"76 (3). If default is made as aforesaid, the Court may, on the application of any member of the company, call or direct the calling of a general meeting of the company."

"79 (3). If for any reason it is im­practicable to call a meeting of a comp­any in any manner in which meetings of that company may be called or to conduct the meeting of the company in manner prescribed by the articles or this Act, the Court may, either of its own motion or on the application to any director of the company or of any member of the company who would be 'entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is given may give such ancillary or consequential directions as it thinks expedient, and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted."
 
The learned Counsels then cited decisions of various Courts of this sub-continent in support of their respective contentions as to the proper extent and scope of the powers conferred upon the Company court to order such meeting,
 
14. Mr. Rafique-Ul-Haque, Counsel for the appellant, cited the following decisions:
Bengal and Assam Investors Ltd. Vs. J. K. Eastern Industries Private Ltd. AIR 1956 Cal 658 at para 7&17; In re Ruttonjee & Co Ltd. AIR 1969 Cal 550 at para 2 and 85: R. Rangachari vs. S. Suppaiah, AIR 1976 SC 73 at para: 6; Pasari Flour Mills, AIR 1961 Madaya Pradesh 340 ; Satish Cha­ndra Banik Vs. Dacca Jute Mills Ltd. PLD 1968 Dac 610.
 
15. Dr. Zahir, Counsel for the respon­dent, placed reliance on the following decisions; Mrs. A Ananthalakshmi Ammal Vs. Tijjin's Barytes, Asbestos and Paints Limited, AIR 1952 Mad 60 at para 3; The Indian Spinning Mills Ltd. Vs. His Excellency Ltd. General Madan Shamsher Jang Bahadur Rana, AIR 1953 Cal 355 at para 21: Bal Krishna Maheshwari Vs. Uma Shanker Mehrotra, AIR 1947 Alia 361: Bengal and Assam Investors Ltd. Vs. J.K. Eastern Industries Private Ltd. AIR 1956 Cal 658; Re EL Sombrero Ltd., (1958) 3 All ER p.1, Captain John Johnston Vs. G.B. Potts & Co. Ltd., PLD 1967 Kar 496; Satish Chandra Banik Vs. Dacca Jute Mills Ltd. PLD 1968 Dae 61O at p. 641.
 
16. On going through the affidavits and after hearing the submissions made by the parties' learned Counsels, both on facts and law, it appears that the essence of the controversy appears to be whether the Annual General Meeting of the Company ordered by the Company Judge imposing certain conditions as mentioned above is permissible. There is no dispute that powers conferred under sections 79 (3) read with section 76 (3) of the Companies Act to call such a meeting, are exercisable by the Court in the circumstan­ces stated therein.
 
17. Decisions cited by the learned Coun­sels have considered a few principles as to the extent of such powers which may be referred to. In exercising such powers the Court has to regard what is pro­vided in the Articles of the Company. The other constraint on the exercise of powers under the aforesaid provisions of law is that the Court should not ordinarily inter­fere with internal management of the Com­pany. The provisions contained in the afore­said sections are not mutually exclusive, but supplement each other. It is only when the court in the particular circumstances of the case is of the view that it is impracticable to call a meet­ing, it could intervene and order such meeting to be held. Reasons why the powers so conferred should be used sparingly and with caution are that the court’s neutrality may be seen to have become involved in the process and trying to participate in the mana­gement of the internal affairs of the Company either as a share-holder or director of the company. If necessary the Court may, in exercise of the powers conferred by sec­tion 79(3), appoint an independent person to preside over such meeting. This may not be viewed as interference with the internal management of the Company. Impractica­bility of calling a meeting may not be equa­ted with impossibility of calling such a meeting
 
18. Having regard to the powers con­ferred under section 79(3), the Court may order a meting of the Company in any of the circumstances mentioned therein, namely,
 
A) If for any reason it is impracti­cable to call a meeting of the company;
B) If for any reason it is impracticable to hold a meeting;
C) If for any reason it is impracticable to conduct the meeting.
 
19. On the happening of any or all of the circumstances as above the Court may order such meeting. Above all, before exer­cising powers conferred under section 79(3), the Court must be satisfied that it has been impracticable to call a meeting in the man­ner in which such a meeting is to be called.
 
20. In view of these principles enuncia­ted in the decisions cited by the learned Counsels of the appellant and respondents, there remains no doubt about the powers of the Court to call a meeting of the Com­pany when invoked by a share-holder or director of the Company under section 79(3) of the Act.
 
21. Without, however, entering into the dispute as to whether it has been impracti­cable to hold" and conduct the Annual Gene­ral Meeting of the Company, on queries by the Court, the learned Counsels expressed their agreement on the following steps, if allowed by this court, in modification of the orders passed by the Company Judge, namely,

1. To hold a meeting within 2 months beginning from 31st May, 1986.
2. Meeting will be, held under the chairmanship of a neutral person.
3. The balance sheet and profit and loss account will be considered in the meeting.
4. The meeting may accept or reject the balance sheet.
5 The meeting may ratify the appointment of the auditor made by the respon­dents, namely, M/S. S. F. Ahmed & Co, or appoint a new auditor.
6. This meeting will fix the date of the Annual General Meeting of the Company.
 
In view of the agreement reached between the parties’ Counsels as above, orders of the learned Company Judge are modified ac­cordingly. The appeal is allowed is part. There will, however, be no order as to costs.
 
Ed.