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IFCI Ltd v. TFCI Ltd [Delhi High Court]

July 2, 2011

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1    CLB cannot order to defer the holding of Extra-Ordinary General Meeting on the requisition made by a shareholder (Company  – IFCI) on the ground that specific authorization/board resolution is not enclosed to file such requisition by the Company  Secretary

Case Law : IFCI LTD v. TFCI LTD [DELHI HIGH COURT]                              (Sections 169,398, 402 of Companies Act, 1956)

Decided on : 16/05/2011

The appellant company (hereinafter referred to as 'IFCI') holding 37.85% of shares of respondent company (hereinafter referred to as ‘’TFCI’’) made a requisition duly signed by Company Secretary to TFCI to convene an Extra Ordinary General Meeting (EOGM). However, TFCI questioned the validity of the requisition saying that specific authorization/board resolution to file such requisition had not been annexed. So, TFCI requested IFCI to send the said board resolution within a period of one week but did not receive the same. So, TFCI decided not to convene its EOGM.

IFCI initiated the process under Section 169(6) of the Act for convening an EOGM and filed Company Petition under Sections 398 and 402 of the Companies Act, 1956 before the CLB. The CLB ordered to defer the holding of the EOGM. This order of the CLB was impugned before the High Court. The High Court set aside the CLB Order and has allowed to convene the EOGM as scheduled on the following grounds:

•  The mere fact that IFCI did not reply to TFCI’s letter does not mean that the requisition was not authorized by the Board and/or the Company Secretary of IFCI did not have the authority to requisition the EOGM.

• The fact is that the Board of IFCI has vide its resolution dated 29th November, 2001 given specific authority to its Company Secretary

Further, High Court has stated that the decisions taken by EOGM would not be given effect to, till the CLB decides the petition finally.

2)   Non-disclosure of facts of Inspection made under Section 209(A) of the Companies Act, 1956 in Explanatory Statement of EGM Notice will not affect the approved scheme of Amalgamation, if the scheme drafted is bonafide and in goodfaith and is not prejudicial to the interest of the minority or public at large.

Case Law : Sesa Industries Ltd. Vs. Krishna H. Bajaj and others (Respondent 1), Supreme Court( Section 209A  of Companies Act, 1956)

Decided on : 7th February, 2011

Sesa Goa Ltd (SGL) is the holding company of the appellant Sesa Industries Ltd (SIL).Both  decided to amalgamate and the Bombay High court gave approval to hold General Body Meeting inspite of the objection by the Respondent No. 1 holder of 0.29% of the shares in SIL stating that investigations are pending against the companies. Accordingly meeting was held and proposal for amalgamation was approved with 99% majority. Later, SIL & SGL filed petitions in the High Court for approval of the Amalgamation Scheme and they have obtained the same on 18th December, 2008. Aggrieved, respondent No.1 preferred an intra-court appeal before a Division Bench of the Court to revoke the sanction of scheme of amalgamation and consequently the division bench set aside the order of the High Court stating the reasons for the same. Consequently, SIL appealed to the Supreme Court to restore the order of the Company Judge i.e., High Court.

The Supreme Court has allowed the appeal made by SIL stating the following:

• The Court should before according sanction to scheme of amalgamation see that the provisions of the Act have been duly complied with, the statutory majority has been acting bonafide and in good faith and are not coercing the minority in order to promote any interest adverse to that of the latter.

• Further, in the present case, the Affidavit of the Registrar is absolutely noncommittal. In the affidavit of the Official Liquidator, he has mentioned that the affairs of the company are not being conducted in a manner prejudicial to the interests of its members or to public interest.

• However, it is made clear that the scheme of amalgamation will not come in the way of any civil or criminal proceedings which may arise pursuant to the action initiated under section 209A or 235 of the Act, or any criminal proceedings filed by Respondent No. 1

3)  Professional Misconduct doesnt arise when statutory auditor is a director of a holding company

Case Law : Yogeshwari Kumari Vs. Institute Of Chartered Accountants Of India & Anr. Sections 226(3)(B), 397, 398 Of Companies Act, 1956 read with Section 21of The Chartered Accountants Act, 1949

Decided on : 13.09.2010

The appellant (Yogeshwari Kumari) is a shareholder in Lake Palace Hotels and Motels Pvt. Ltd. (LPHM, a subsidiary of LSPH) and Lake Shore Palace Hotels Pvt. Ltd. (LSPH) and claims to be interested in the affairs and management of both the companies.

The appellant filed a complaint under  Section 21 of the Chartered Accountants Act, 1949 and vide circular No.14/51/62-PR to the Department of Company Affairs against the respondent no. 2, a Chartered Accountant, auditor of the LPHM before the Council of ICAI on the contention that a professional misconduct has taken place because a partnership firm of respondent no. 2 was the statutory  auditor of LPHM and respondent no.2 acted as a director of LSPH, which is a holding company of LPHM.

The ICAI invited comments from the respondent no.2 for the complaint filed and in its meeting the institute has expressed the prima facie opinion that the respondent no.2 was not guilty of professional or other misconduct.

The appellant appealed to the Division bench under Letters Patent and the same was dismissed due to the following reasons:

(i)    The above referred circular clearly express that a practicing Chartered Accountant who is connected with the management of a particular company or acts as an auditor of the company should not be employed as a tax or financial advisor of a company in the same group.

(ii)   Further, the same matter of controversy is pending for adjudication before the High Court of  Rajasthan, hence disqualification in terms of Sections 226(3) and 226(4) of the 1956 Act  would depend upon the decision of the Rajasthan High Court.

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