Separate Meeting of Sub-Class Shareholders Not Required to Alter Preference Share Terms When Same Terms Apply to Entire Class: Calcutta HC [Read Order]

In a recent ruling, the Calcutta High Court held that a separate meeting of a sub-class of shareholders is not required to alter preference share terms when the same terms apply to the entire class of preference shareholders. The court explained that when identical terms are offered to all members of a class, the decision can be taken by that class without holding a separate meeting for a sub-class.

Industrial Investment Bank of India Limited (in voluntary liquidation) filed an appeal challenging an order passed by a Single Judge. The Single Judge had confirmed an earlier interim direction asking the bank to set apart properties worth Rs. 2 crore to secure the claim of the respondents if they succeeded in the application.

The dispute started after the respondents invested Rs. 1 crore in 1998 by purchasing C-series redeemable cumulative preference shares of the bank. The shares were supposed to be redeemed after 61 months from the date of allotment.

Later the bank informed the respondents that because of financial problems it could not redeem the shares on the maturity date and proposed to extend the investment for 20 years with cumulative dividend, which the respondents refused.

In May 2010, the bank proposed redeeming the preference shares by paying 20% of the principal amount as full and final settlement. The respondents rejected this proposal. Later they received a letter saying that the proposal had been approved by a special resolution in the 13th Annual General Meeting held. The respondents questioned the legality of this resolution.

The respondents then filed a civil suit claiming that the resolution was illegal under Sections 80 and 106 of the Companies Act, 1956. They also sought an order directing redemption of the shares at full value with dividend. During the case, the Single Judge ordered the bank to keep aside Rs. 2 crore worth of assets to secure the claim of the respondents. The bank challenged this order in appeal.

The bank argued that the resolution was valid because more than 75% of the preference shareholders had already given written consent. They argued that the AGM notice contained explanatory notes and that the Single Judge did not give them proper chance to produce documents like consent letters and meeting minutes.

The respondents argued that they were C-class preference shareholders and their rights could not be changed without holding a separate meeting of that class. They said the decision was wrongly taken in a general meeting of all preference shareholders.

The Division Bench of Justice Debangsu Basak and Justice Md. Shabbar Rashidi examined the records of the meeting. The court observed that the notice of the AGM contained explanatory details and that written consent of more than 75% preference shareholders had been obtained. The court explained that when the same terms are offered to all preference shareholders, a separate meeting of a sub-class is not required.

The court also observed that interim relief should normally support the final relief sought in the suit, which was not the case here. The court set aside the impugned order of the Single Judge and allowed the appeal filed by the bank. The connected applications were also disposed of.

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