Thursday, June 21, 2012

WHETHER 21 DAYS CLEAR NOTICE IS MANDATORY FOR AN AGM OR EGM ?

WHETHER 21 DAYS CLEAR NOTICE IS MANDATORY FOR AN AGM OR EGM


Somalingappa Shiva Putrappa Mugabasav

vs

Shree Renuka Sugars Ltd {2002} 110 Comp Cases  ?


The Karnataka High Court has in a recent case of Somalingappa Shiva Putrappa Mugabasav vs Shree Renuka Sugars Ltd {2002} 110 Comp Cases thrown out a petition challenging the proceedings of an Annual General Meeting (AGM) on mere technical grounds.

The facts of this particular case in a nutshell are given hereunder :-

i) The AGM of a company ‘A’ was required to be held on or before the 30th December 2000. To convene the AGM a notice was prepared on the 4th December 2000. In view of the all India postal strike which commenced on the 5th December 2000, the notice and the explanatory statement for the AGM were sent by courier on the 6th December 2000;
ii) The petitioner recieved the notice on the 19th Dec 2000. The petitioner then filed a suit on the 27th Dec 2000 praying for a permananent injunction against holding the AGM on the 30th Dec 2000 and for striking off as null and void the annual report circulated along with the notice. The petitioner’s plea was that he was not given 21 days clear notice by the company.

However, the HIgh Court did not concur with the petioner’s view. The High Court threw out the petition of the petitioner on the following grounds :- i) The company had issued the notice on the 6th December 2000, thus there was a gap of 24 days between the date of despatch and the date of the meeting;

ii) When the legislature has deliberately ommitted to state that non compliance with section 171 would invalidate the proceedings at the meeting and section 171 of the Companies Act expressely declares that accidental ommission to give notice or non reciept of the notice shall not invalidate the proceedings at the meeting , the said section cannot be interpreted to mean contrary to the express intention expressed by the legislature;

ii) The legislature has not specifically spelt out whether this 21 days notice shoud be computed from the date of service of notice or from the date of notice itself. Under these circumstances it is not open to the courts to interpret the said section to mean that 21 days is to be calculated from the date of actual service of notice of the meeting. The shareholders are scatterred all over the country and if it interpreted that from the date of service of the notice to each shareholder , the meeting is to be held 21 days thereafter then it would be impossible to conduct a meeting. Thus there cannot be an interpretattion that for convening a General meeting 21 days clear notice is mandated;

iv) The whole object of giving 21 days notice is to give a reasonable opportunity to the shareholders and if it is demonstrated that such reasonable opportunity has been denied deliberately with malafide intention and such denial has adversely affected the interests of the shareholders then the court on proof being submitted can invalidate the proceedings of such a meeting. However, in absence of such prejudice being made out the meeting cannot be invalidated on mere technical ground that 21 days clear notice was not given. A shareholder cannot be allowed to blackmail the company on such grounds.

The above decision has made one thing very clear and that is 21 days clear notice is not required to convene an AGM . This in effect would mean that the notice convening a AGM cannot be treated as invalid just because the time gap between the day it is recieved by the shareholder and the date of the AGM is less than 21 days . We can also refer to section 53(2)(b) of the Companies Act 1956 as per which the notice of a general meeting is deemed to have been served on a member on the expiration of 48 hours after the notice is posted. Thus it will be sufficient compliance for a company to post a notice convening an AGM atleast 23 days prior to the date of the meeting. In the above cited case of the Karnataka High Court the company ‘A’ had posted the notice 24 days prior to the date of the AGM and this doubtlessly cannot be challenged on mere technical grounds

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