EXTRA ORDINARY GENERAL MEETING & SHAREHOLDER RIGHTS

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Can shareholders force the board of director to call an EGM even when proposed resolutions may lead to violation of companies act?


Shubham Budhiraja[1]

Zee v. Invesco[2]

Invesco holds 18% equity in the company and it sent a Notice under section 100 to call for an EGM but such a request was refused by Board of Directors. The Invesco contention is that it should be shareholder decision in their general body meeting to adopt or refuse the proposed resolution and Board of director are under obligation to call an EGM in all situations. In short, board has no power under section 100 when qualified shareholder move a valid requisitioned. The board is duty bound. The Invesco has filed petition before NCLT under section 98 which is pending. Meanwhile, the Company filed Injunction suit against Invesco to stop them from proceeding any further under section 100. The Bombay HC ruled in favor of Zee and against the Invesco for following reasons:

(I)            Section 100 of the Companies Act lies at the heart of this controversy. The Board of Directors may call an EGM at any time. But shareholders who hold the qualifying equity (at least 10%) of a company that has a share capital may also requisition an EGM. The section says the Board ‘shall’ call an EGM within the specified time, 45 days from the date of receipt of the requisition. The requisition must set out the matters to be considered at the EGM. The requisition must be signed by the requisitionists, and it must be sent to the registered office of the company. The Board has 21 days to call the requisitioned EGM. Time runs from the date a ‘valid’ requisition is received.

 

(II)          Zee contends that an Independent director is appointed as per Section 149 and MD is appointed as per Section 203. An Investor cannot call and suggest the company as who should become an ID. The Investor cannot suggest any random 6 people to suggest company as they should be replaced with existing ID. This is not permissible by the CA 2013

 

(III)         Group of qualified shareholder through requisitioned EGM cannot call for any resolution regardless of its legality. It is already stated by the Zee to Invesco that calling EGM on such resolutions would be contrary to section 203, section 149 and SEBI Regulations. If the nature of resolution are not legal then what is the use to put them in EGM and call for vote

 

(IV)        The source of origin of resolution is immaterial whether called by company or through requisitions

 

(V)          If the extraordinary general meeting called pursuant to the requisitions could only be for the purposes of passing ineffective resolutions, then, as a matter of commercial common sense, the directors need not call such an extraordinary general meeting

 

(VI)        Shareholder primacy or dominion does not extend to permitting shareholder-driven illegality. A perfectly legal resolution, if carried, may well result in the diminution of the company’s profits or business. That is not a court’s concern. But the resolution must be legal.

 

(VII)       Section 430 of the Companies Act bars any civil court from entertaining any suit or proceeding in respect of any matter which the NCLT or the NCLAT is empowered to determine. But the NCLT Rules that set out the list of provisions over which the NCLT/NCLAT have jurisdiction does not include Sections 100, 149, 150 or 168


[1] Advocate, Delhi High Court, Associate Company Secretary, Member- ICSI-NIRC Research Committee 2021, Secretary, NGO Shaurya ek Samman, Member- Delhi High Court Bar Association, 9654055315, shubhambudhiraja02@gmail.com

[2] INTERIM APPLICATION (L) NO. 22525 OF 2021 IN SUIT (L) NO. 22522 OF 2021




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