M. A. Gafur Vs. Registrar of Joint Stock and others, 4 LNJ (2015) 661

Case No: Company Matter No. 95 of 2012

Judge: Md. Rezaul Hasan,

Court: High Court Division,,

Advocate: Mr. Raisuddin Ahmed,Mr. A. K. M. Badrudduza,,

Citation: 4 LNJ (2015) 661

Case Year: 2015

Appellant: M. A. Gafur

Respondent: Registrar of Joint Stock and others

Subject: Company Matter, Protection of Minority Shareholders,

Delivery Date: 2012-07-3


HIGH COURT DIVISION
(STATUTORY ORIGINAL JURISDICTION)
 
Md. Rezaul Hasan, J.


Judgment on
31.07.2012
  M. A. Gafur
…Petitioner
Versus
The Registrar of Joint Stock Companies and Firms, TCB Bhaban (6th floor) 1, Kawran Bazar Dhaka-1215 and others.
. . . Respondents
 
Companies Act (XVIII of 1994)
Section 233
The jurisdiction under section 233 of the Act is regulatory and preventive in nature and this jurisdiction is to be exercised to protect interest of the minority shareholders from being prejudiced by the majority shareholders as well as to prevent mismanagement as regards the affairs of the company, either by majority of the members or by the directors of the company. This jurisdiction, conferred by section 233 of the Act, thus practically negotiates the rule founded in Foss vs. Harbottle: (1843) 2 Hare 461. . . . (8)

Companies Act (XVIII of 1994)
Section 233
Existing Article 14 and 16 of the Article of Association keeping provisions for 4 members to remain personally present to form the quorum for holding General Meetings and the Board Meetings, respectively, can also create stalemate in the business and functioning of the company. Even if the 4 members do adopt an unanimous resolution that can also be prejudicial to the interest of the company in its transaction of business with the 3rd parties or even in doing or ratifying an ultra-vires act. In such circumstances section 233 has invested this court with wide powers to pass appropriate orders as permitted by the clauses (a) (b) and (c) to sub-section (3) of section 233 of the Act. . . .(9)

Mr. A.K.M. Badrudduza, Advocate
. . . For the petitioner

Mr. Raisuddin Ahmed, Advocate
. . .For the Respondent Nos.2 and 5.

Company Matter No. 95 of 2012
 
JUDGMENT
Md. Rezaul Hasan, J.
 
This is an application under section 233 of the Companies Act, 1994 (the Act).

It appears from the statements made in the petition that the Company has been incorporated on 11.5.1997, vide Certificate of Incorporation dated 11.5.1997, under the Companies Act with 4 subscribers, subscribing for total 2000 numbers shares of Tk.100 each. These 4 subscribers each has subscribed for 5,000 shares equally. Article 14 and Article 26 of the Articles of Associations contains provisions to from quorum requiring presence of all 4 Members, for holding the General Meetings as well as for holding the meetings of the Board of Directors. It further appears that on 23.04.2012 a notice was issued by the Respondent No.2 (Chairman of the Respondent Company) convening an Extraordinary General Meeting (EGM) fixing 15.5.2012, to alter the provisions of article 14 and article 26 regarding the quorum for holding general meetings and board meetings. Hence this application, alleging that the respondent No. 2 and the respondent No.3, who were ex-colleagues in PWD, intends to bring the company under the control of an axis and that the resolution is likely to be passed, since the respondent No. 2 has a casting vote. It is also apprehended that, interest of the petitioner is likely to be prejudiced by discriminatory treatment to be done to him.

Learned Advocate Mr. A. K. M. Badrudduza, appearing for the petitioner, having placed the application, submits that the aforesaid notice was issued for calling an EGM although the Board of directors has not taken any decision to call any EGM for amendment of article 14 and Article 26 and as such the said notice was called without any lawful authority and with ulterior motive to grab 100% controlling power by the respondents. He next submits that the Respondent No.2 is trying to form exits of 2 directors and if they are allowed to form a quorum then the resolution to be passed is likely to discriminate the interest of the petitioner. He finally submits the proposed resolution is most likely to be adopted as because the Respondent No. 2 has casting vote. Therefore he has prayed that the notice dated 23.4.2012 convening the EGM on 15.5.2012 proposing to reduce the quorum required to hold the General Meetings and Board Meetings by altering Articles 14 and 16 of the Articles of Association is liable to be cancelled and that direction may be given upon Respondent No.2, 3 and 4 not to hold the EGM on 15.05.2012 or on any other date to amend the aforesaid articles in the manner as proposed.

The learned Advocate Mr. Rais Uddin Ahmed, appearing for the Respondent Nos. 2 and 5, on the other hand submits that the petitioner has not come in clean hands before this court. He further submits that the company will run into stalemate if the provisions regarding quorum is kept as it is, presently requiring the personal presence of all 4 members, in person, for holding the General Meetings as well as for holding the Board Meetings. The meeting was called in the interest of the Company and if the meeting decides to alter Article 14 and 26, as proposed, it will in no way prejudice the interest of the petitioner. He has accordingly prayed for dismissal of this matter.
Heard the learned Advocates and perused the application, the affidavit-in-opposition along with the annexures.

It appears that the company is formed in the year 1997, vide the Certificate Incorporation No. C32898 (2019)/97 dated 11.05.1997, and that the petitioner was one of the 4 subscribers, each subscriber having subscribed for 5000 shares of Taka 100 each. The company has been formed with authorized capital of Tk. 1,00,00,000/- ( Taka one crore) divided into 1,00,000/- (Taka one lac) shares of Tk. 100 each. It further appears from article 14 and article 16 of the Article of Association (AOA) of the company that personal presence of all 4 members is required to hold any General Meeting as well as for holding the Board Meetings. Article 14 and 16 reads as follows: “১৪ সাধারণ সভায় কোম্পানীর সমস¹ কার্য বিবরণী ও প্রনালী গ্রহণ করতে ৪(চার) জন সদস্য উপসিহত থাকতে হবে সাধারণ সভায় কোন কার্যত্র্রম শুর্র হবার সময় সদস্যদের কোরাম না হইলে ঐ সাধারণ সভায় কোন কার্যত্র্রম গ্রহণ করা যাবে নাzঞ্জ ঞ্ছ২৬z পরিচালকমন্ডলীর সভায় কোম্পানীর সমস¹ কার্যবিবরনী ও প্রণালী গ্রহণ করতে ৪ জন পরিচালক উপসিহত থাকতে হবে এবং ৪ জন পরিচালক উপসিহত হলে কোরাম পূর্তি সংখ্যা হয়েছে ধরতে হবে ”.

It further appears from the record that the cause of action for filing the application has arisen following notice dated 10.5.2012 (Annexure-B), proposing to change the quorum required for holding the general meetings and the board meetings, by altering Article 14 and Article 26, respectively. The proposal was to reduce the presence of the members/directors from 4 to 2 for making the quorum. The petitioner apprehends that the resolution is likely to be adopted pursuant to the aforesaid notice dated 10.5.2012, particularly when the Respondent No.2 has a casting vote as per Article 15 of the AOA and that if resolution is allowed to be passed then his interest is likely to be discriminated, albeit he is one o the original subscribers.

It is to be noted here that the jurisdiction under section 233 of the Act is regulatory and preventive in nature and this jurisdiction is to be exercised to protect interest of the minority shareholders from being prejudiced by the majority shareholders as well as to prevent mismanagement as regards the affairs of the company, either by majority of the members or by the directors of the company. This jurisdiction, conferred by section 233 of the Act, thus practically negotiates the rule founded in Foss vs. Harbottle: (1843) 2 Hare 461. This rule, which has two strands, firstly, precludes a shareholder from bringing an action to pursue wrongs which has been done to the company. Secondly, where there are irregularities in the way the company is run, and also in many cases where directors are in breach of their duties, the majority shareholder in general meetings may, by ordinary resolution, ratify what has been done. In those circumstances the court will not allow a minority shareholder to bring an action perusing a matter which it is competent for the majority to approve on behalf of the company.

Existing Article 14 and 16 keeping provisions for 4 members to remain personally present to form the quorum for holding General Meetings and the Board Meetings, respectively, can also create stalemate in the business and functioning of the company. Even if the 4 members do adopt an unanimous resolution that can also be prejudicial to the interest of the company in its transaction of business with the 3rd parties or even in doing or ratifying an ultravires act. In such circumst-ances section 233 has invested this court with wide powers to pass appropriate orders as permitted by the clauses (a) (b) and (c) to sub-section (3) of section 233 of the Act.

In view of the deliberation recorded above this petition merits to be allowed in part with necessary direction.

In the result i) the impugned notice dated 23.04.2015 (Annexure-B), convening an EGM (fixing 15.5.2012) proposing to alter the provisions of Articles 14 and 16 regarding the quorum for holding the General Meetings and the Board Meetings, by reducing presence of 2 members instead of 4 members, is hereby cancelled, ii) the petitioner and other respondents, who are directors of the Company is hereby directed to call a board meeting for holding an EGM and to hold an EGM  accordingly to adopt a special resolution reducing presence of 4 members to 3 for constituting a quorum for holding the general meetings and the meetings of the board of directors and to alter the provisions of Article 14 and 16, respectively, of the Articles of Association of the respondent 5 company, by following proper procedure to be followed for effecting such alteration as per law. They shall also file copies of the resolution in the office of the Registrar of the Joint Stock Companies and Firms, as required by law. iii) The direction shall be complied with within 6 weeks from the date of the receipt of the copy of this order.

The petitioner and 3 other respondent i.e. all 4 directors should submit an affidavit of compliance within 1(one) week after effecting the alterations as per direction made above.

This court records its appreciation of the commendable assistance rendered by the learned advocates appearing for both sides.

         This matter shall stand disposed off upon receiving and accepting the affidavit of compliance as mentioned above.

         Ed.