OD-11 GA No.2899 of 2013 CS No.324 of 2013 IN THE HIGH COURT AT CALCUTTA Ordinary Original Civil Jurisdiction ORIGINAL SIDE SMT.
PERSIS A.
KHAMBATTA & ANR.
Versus INDUSTRIAL INVESTMENT BANK OF INDIA LTD.(IN VOLUNTARY LIQN) BEFORE: The Hon'ble JUSTICE SANJIB BANERJEE Date : 21st November, 2016.
Appearance: Mr.Ratnanako Banerji, Sr.Adv.Mr.Sakya Sen, Adv.Mr.Kuldeep Mullick, Adv.Mr.Aasish Chowdhury, Adv.Mr.Jayanti Ghoshal, Adv.Ms.Priyanka Lahiri, Adv..for the plaintiffs Mr.Abhrajit Mitra, Sr.Adv.Mr.Chayan Gupta, Adv.Mr.S.Pal Choudhuri, Adv.Ms.S.Das, Adv.Ms.P.Das, Adv..for the defendant The Court : The present suit is of limited import and the more substantial claim of the plaintiffs is pending before a Court in Ahmedabad.
The plaintiffs invested in preference shares offered by the defendant in 1998.
The terms of the offer, in respect of the preference shares invested in by the plaintiffs, were that such redeemable cumulative non-convertible preference shares would be redeemed on the expiry of 61 months from the date of allotment and the same would carry dividend at the rate of 10.70 per cent per annum.
The plaintiffs claim that the shares were not redeemed on the appointed date or on any reasonable date thereafter.
The defendant company purported to claim that the plaintiffs’ rights in respect of such preference shares stood modified in accordance with Section 106 of the Companies Act, 1956.
The plaintiffs, probably claiming the status of creditors qua the defendant, have made a money claim in an Ahmedabad Court.
The present action is limited to a challenge to a notice dated October 26, 2010 issued by the defendant to the plaintiffs and the resolution concerning the said preference issue apparently passed at the 13th Annual General Meeting of the defendant company held on September 20, 2010.
Section 106 of the said Act permits the rights attached to the shares of a particular class of shareholders to be varied, provided such variation is either with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of such class.
The further condition is that there ought to be a provision in the memorandum or articles of association of the company; or, even if such provision is not there in the memorandum or articles, the same should not be prohibited by the terms of issue of the shares of the relevant class.
In this case, the plaintiffs have not been able to demonstrate that the terms of the relevant issue prohibited the alteration of the rights of shareholders who had subscribed to the preference issue.
However, the defendant could have altered the rights of the plaintiffs qua the preference shares held by the plaintiffs or the rights of any other preference shareholder who had subscribed to the C-series preference shares in the issue of 1998 only if preference shareholders holding three-fourths of such shares consented to the alteration in writing; or, at a meeting of such class of preference shareholdeRs.a special resolution was passed approving the alteration.
The plaintiffs’ challenge in the suit is on the ground that neither condition for alteration of the rights of such preference shareholders has been complied with by the defendant.
It has been asserted in the affidavit filed by the defendant that it has obtained the consent of more than 75% of the preference shareholders in the relevant class.
At paragraph 6(vii) of such affidavit the defendant has claimed that it has “received” the consent from preference shareholders holding 99.1% shares in the relevant class making up a total amount in excess of Rs.219 crore.
The relevant preference shareholders appear to be public sector banks, save a solitary private citizen and his wife.
The defendant has also asserted that at its 13th AGM held on September 20, 2010, a special resolution for the alteration of the rights of the shareholders who subscribed to the C-series preference shares issued in 1998 had been adopted.
But the adoption of the relevant resolution appears to be by all the shareholders of the company as would be evident from the minutes of the relevant AGM, a copy whereof has been appended to the defendant’s opposition.
To begin with, the notice for the relevant AGM dated August 23, 2010 set out the proposed special resolution by which the rights of the preference shareholders were proposed to be altered, but such notice did not contain any explanatory statement.
It is elementary that every proposed special resolution should be accompanied by an explanatory statement and, possibly, the view of the management or the promoters in respect thereof.
Even if such error in the relevant notice is ignored, it appears from the minutes of the said AGM that the special resolution altering the rights of the relevant preference shareholders was adopted by all the shareholdeRs.Section 106 of the Act of 1956 has two limbs in its fiRs.part : “consent in writing of the holders of not less than three-fourths of the issued shares”; and, “with the consent of a special resolution passed at a separate meeting of the holders of the issued shares of that class”.
In other words, a company may vary the rights of the shareholders of a particular class if the holders of 75% shares in such class consent in writing to the proposed alteration.
In such an event, it would not be necessary to hold any meeting or obtain any special resolution in such regard.
The alternative route for a company to make its proposed alteration of the rights of a class of shareholders binding on all in such class is by convening a meeting of the relevant class of shareholders and causing a special resolution to be passed at such meeting.
Quite astoundingly and despite the defendant being a government company, it made a childish misinterpretation of the second limb of the opening part of Section 106 of the Act and, instead of convening a meeting of the relevant class of shareholders whose rights were proposed to be altered, the company convened a meeting of its entire body of shareholders where such body of shareholders passed a resolution.
The special resolution that was passed at the 13th AGM of the defendant company held on September 20, 2010 cannot, in any manner, affect the rights of any class of shareholders or the C-series preferential shareholders of 1998 to which class the plaintiffs herein belong.
A challenge has been squarely made in the present suit and the instant petition to the validity of the resolution or the legality of the decision that the company sought to impose on the plaintiffs and the class of preference shareholders to which the plaintiffs belong.
In the light of such challenge, it was incumbent on the defendant company to demonstrate that the decision to alter the rights of the relevant class of shareholders was binding on the plaintiffs.
Towards such end, assertions have been made in the defendant’s affidavit that it obtained the consent of holders representing more than 75% of the issued shares in the relevant class; but there is no evidence of such consent in writing having been obtained.
It is not necessary to repeat that the second limb of the opening part of Section 106 was not complied with by the defendant company and, as such, the completely flawed special resolution passed at the 13th AGM of the company held on September 20, 2010 is not a special resolution recognised by Section 106 of the Act of 1956.
Since the money claim of the plaintiffs in respect of the preference shares held by the plaintiffs is pending elsewhere, nothing further need be said as to when a preference shareholder is entitled to receive either the premium or the principal invested in a company.
The present suit is of limited purpose and, prima facie, it appears that the defendant company has not taken appropriate steps to alter the rights of the relevant class of preference shareholders to which the plaintiffs belong.
As a consequence, the subsisting interim order stands confirmed and GA No.2899 of 2013 is allowed with costs assessed at 3000 GM to be paid by the defendant to the plaintiffs.
It is also put on record that the company did not attempt to demonstrate at the final hearing that it had complied with the conditions enumerated in Section 106 of the Act of 1956 to sustain its decision to alter the rights of the class of preference shareholders to which the plaintiffs belong.
Urgent certified website copies of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(SANJIB BANERJEE, J.) bp./kc.