This is Part 2 of a 2-part series blog that will cover the Key Disputes, procedural issues with related precedents, and case studies as implemented by the court as per the Companies Act, 2013, surrounding the Annual General Meeting (AGM) of a Company.
An annual general meeting (AGM) is a yearly gathering of interested shareholders of a firm. At an AGM, the company's directors deliver an annual report to shareholders that include information on the company's performance and strategy. The company's directors report the company's financial performance, and shareholders vote on the topics at hand. Shareholders who are unable to attend the meeting in person may normally vote by proxy, which they can do online or by mail. As discussed on Part 1 of this 2-Part blog series, AGM is a mandate and is a must to be performed every year in the manner prescribed by law. However, it's not free of dispute or conflict sparked by varied interests of promoters/ shareholders/investors. Hence, this article shall discuss the key disputes and issues faced during the commencement of AGMs in India.
Failure to hold AGM at the right time
It is one of those problems which rarely occurs, as most AGMs take place before September and most default-prone companies are the newly incorporated Pvt. Ltd. companies that are in the 2nd or 3rd year after incorporation. However, even if the company fails to hold its AGM within the prescribed time, the Tribunal is empowered under Section 97 of the Act of 2013 to call or direct the calling of such company's AGM on the application of any member of the company and a further order for any consequential or ancillary measures or directions as it deems fit or appropriate under the Act. However, if the AGM cannot be held due to certain circumstances, an extension can be taken to hold the AGM. Recently, Future Lifestyle Fashions Ltd. received a letter from the Registrar of Companies ("RoC") Mumbai, granting an extension for a period of three months for holding an AGM.1
Similarly, SpiceJet also obtained an extension of up to three months from the Registrar of Companies (NCT of Delhi & Haryana) for conducting the AGM for the financial year ending March 31, 2022. This delay was caused due to delay in the publication of financial results for the year ended March 31, 2022, on account of a ransomware attack on IT system(s) which affected the completion of the audit process within the stipulated time. Hence, even big organizations are prone to such problems hence, extensions can be sought by directors as a safe measure unless shareholders have a conflicting interest.
Vinod Rai sacked as a Director : case study
Fortunately, or unfortunately, AGM is also the ground to hire and fire directors. Shareholders of IDFC rejected the proposal to reappoint the former comptroller and auditor general of India Vinod Rai as a director, who had sought to guide the destiny of Indian cricket and had landed the UPA government in a soup after his audit reports on the 2G and coal auctions.2 Even a person of such high qualifications was not allowed to continue as he failed to satisfy shareholders of IDFC Ltd in his capacity as a non-executive, non-independent director. Hence, the dissatisfaction with his innings led to Rai's removal as the non-executive director. As many as 62.3% of votes went against the proposal for Vinod Rai's re-appointment as a non-executive director.3 Vinod rai's removal was a great power posturing by the shareholders, through the annual general meeting.
Scrutiny by shareholders of Tata Motors
In an AGM, there is usually a period set aside for shareholders to question the company's directors, this ensures credibility and makes the directors more accountable, a prime example was when Shareholders of Tata Motors lashed out at the company's leadership at the annual general meeting on for denying them dividends and questioned the deterioration in investors' wealth.4 Such incidents are not common but do a great job at keeping the directors on their toes.
The Division Bench of High Court in Tej Prakash S. Dangi and others vs. Coramandal Pharmaceuticals Limited [MANU/AP/1696/2001] discussed several cases and affirmed that decision of the learned single Judge and held specifying in para 8 that:
"8. Pressing for the opposite view, Mr. Sastry has placed reliance on a decision of a Single Judge of this court in Nizamabad Corn Products (P) Ltd. V. Vasudev Walia. The court in that case was considering the maintainability of a suit in the civil court to declare a resolution passed in the annual general meeting and the meeting of the Board of Directors removing a Director of a Company as illegal and void and for a permanent injunction. The learned Judge held that the view that the civil court's jurisdiction has not been taken away merely because Section 10 confers jurisdiction on the High Court, cannot be correct in view of the specific direction contained in Section 10(1)(a), viz., 'except to the extent to which jurisdiction has been conferred on any District Court, in pursuance of Sub-section (3)'. The learned Judge proceeded on the footing that the civil court has jurisdiction only in matters in respect of which specific jurisdiction has been conferred upon it and that otherwise, the High Court has the exclusive jurisdiction in all matters. Since the learned Judge was deciding contrary to the view taken in the earlier decision of the court in Avanthi Explosives P. Ltd. v. Principal Subordinate Judge MANU/AP/0002/1987MANU/AP/0002/1987 : (1997) 5 Com LJ 345 (AP)-it was necessary to have referred the case to a larger Bench. A judgment of a co-ordinate Bench is binding unless it is overruled by a larger Bench. Besides, the view was also not legally correct. The civil court would have jurisdiction in all matters unless its jurisdiction is either expressly or by implication ousted. We hence overrule the decision."5
Compounding of Offences
This section is the go-to section for defaulters. The provisions pertaining to the compounding of offenses under the Act are set forth under Section 441 of the Companies Act, 2013. Section 441 of the Act provides for compounding of the following offenses:
- Offence punishable with fine only, or
- Offence punishable with fine or imprisonment or both.
The following offenses cannot be compounded under the Act:
- Offence punishable with imprisonment only.
- Offence punishable with both imprisonment and fine.
The Act specifies that the compounding authority shall be either the Regional Director or the National Company Law Tribunal. The Regional Director shall compound an infraction if the maximum penalties are imposed, and it shall not exceed INR 25,00,000. All offenses for which the maximum fine that may be imposed above INR 25,00,000 will be compounded by the National Company Law Tribunal and that will be final. As in the case of APC Credit Rating Private Limited Vs. Registrar of Companies, NCT of Delhi and Haryana,  [143 CLA 166 (NCLAT)] NCLAT held that "it is clear that there is no inherent power to review, as is under Order 47 Rule 11 of the Code of Civil Procedure, 1980 but the Tribunal has the power conferred by sub-section (2) of Section 420 of the Act, 2013 to rectify any mistake apparent from the record and to amend the order accordingly."
The above-mentioned cases and situations were only some of the issues which arise in an annual general meeting. Directors are very cautious about annual general meetings as their jobs are at stake, hence, non-compliance is hardly ever found. Considering all the procedures and laws involved in AGMs there can be unlimited disputes based on the commercial intent and interest of promoters/shareholders/directors. However, fact non the less, the fact which remains true is that AGM is still the most powerful tool which keeps a check on the actions of directors and keeps the rights of shareholders vested and protected in the company, justifying its mandate, as imposed by the Companies Act, 2013. There is no one-size-fits-all solution for disputes arising out of commercial interest hence, appropriate legal advice is needed for the same from well-reputed professionals.
1. Future Lifestyle Fashions gets three-month extension for holding AGM by Press Trust of India | New Delhi
Last Updated at September 9, 2022 00:16 IST [First Published: Thu, September 08 2022. 20:55 IST] ; Business Standard : https://www.business-standard.com/article/companies/future-lifestyle-fashions-gets-three-month-extension-for-holding-agm-122090801153_1.html
2. IDFC shareholders deny board seat to Vinod Rai, Sep 23, 2021, 04:00 IST, The Time of India : https://timesofindia.indiatimes.com/business/india-business/idfc-shareholders-deny-board-seat-to-vinod-rai/articleshow/86438467.cms
3. Former CAG Vinod Rai sacked as IDFC director, Tribune News Service, New Delhi, September 22, Updated At: Sep 23, 2021 08:25 AM (IST) : https://www.tribuneindia.com/news/business/former-cag-vinod-rai-sacked-as-idfc-director-315022
4. Shareholders slam Tata Motors for investor wealth crash by Reeba Zachariah / TNN / Updated: August 26,2020, The Times of India : http://timesofindia.indiatimes.com/articleshow/77750348.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
5. Crystal Dwellings Private Limited vs. Surat Singh Malhotra and Ors. (04.08.2022 - TLHC): [MANU/TL/1351/2022]
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