Calcutta High Court Rules No Separate Class Meeting Required When Uniform Terms Apply to All Preference Shareholders

Industrial Investment Bank of India Limited Vs Smt. Persis A. Khambatta & Another (Calcutta High Court)

Background and Context

The Calcutta High Court recently adjudicated a significant appeal arising from a dispute between Industrial Investment Bank of India Limited (IIBI) and certain holders of C-class preference shares. The core question before the Division Bench was whether an order passed by a learned Single Judge — which had confirmed an interim direction compelling the appellant bank to set aside properties worth ₹2 crore as security against the claims of the preference shareholders — could be legally sustained.

The genesis of the controversy lay in a resolution adopted at the 13th Annual General Meeting (AGM) held on September 20, 2010, through which the appellant bank resolved to redeem its preference shares at 20% of the principal amount as complete and final settlement of all shareholder claims.

Background Facts

Investment and Initial Representations

The respondents had invested ₹1 crore on December 3, 1998, acquiring 1 lakh redeemable cumulative non-convertible C-series preference shares of the appellant bank. The investment was made on the basis of representations in the bank's prospectus, which assured attractive returns upon redemption at the end of 61 months from the deemed date of allotment, irrespective of whether the company generated profits. The respondents were also promised an upfront incentive of 0.4% of the subscribed amount. It was further represented that the investment carried no risk whatsoever.

Subsequent Disputes and Correspondence

Over the following years, a series of communications were exchanged between the parties:

  • By a letter dated June 28, 2002, the bank informed the respondents of a decision taken at an Extraordinary General Meeting to redeem preference shares prior to maturity. The respondents, being abroad at the time, objected to premature redemption by their letter dated July 3, 2002, and subsequently reiterated their disapproval on August 10, 2002.

  • By letter dated December 11, 2003, the bank communicated its inability to redeem the shares on the due date of January 3, 2004, citing unfavourable financial conditions, and instead proposed a roll-over of investment for a further period of 20 years with cumulative dividend — a proposal firmly rejected by the respondents.

  • In March 2003, the bank forwarded a cheque of ₹9,57,650/- towards interim dividend for the year ending March 31, 2003, out of their investment of ₹1 crore.

  • By letter dated May 17, 2010, the bank proposed to redeem all preference shares at 20% of the principal amount in full and final settlement, with no dividend payable. The respondents were given 15 days to consent, failing which acceptance would be presumed. This proposal was categorically rejected by the respondents on June 3, 2010.

  • Subsequently, by a letter dated October 26, 2010, the bank informed the respondents that the 13th AGM held on September 20, 2010 had passed a Special Resolution — later approved by the Ministry of Finance, Government of India — mandating redemption at 20% of the principal amount in full and final settlement, and requested the respondents to surrender their share certificates.

Civil Suit and Interim Relief

The respondents also learnt through a newspaper advertisement that an Extraordinary General Meeting had been held on September 5, 2012, at which voluntary winding up of the bank was decided — allegedly without the knowledge of the respondents.

These developments led the respondents to file CS No. 324 of 2013 before the Calcutta High Court, seeking:

  1. A declaration that the 13th AGM was void ab initio for violating Section 80 and Section 106 of the Companies Act, 1956
  2. A permanent injunction against enforcement of the Special Resolution
  3. A mandatory injunction for redemption at full value along with arrears of dividend
  4. Appointment of a Receiver and attachment of assets

In the accompanying application GA No. 2899 of 2013, the respondents sought, among other reliefs, a direction to set aside ₹1 crore in a separate account and injunctions against alienation of bank assets.

By an order dated December 11, 2013, an interim direction was granted requiring the bank to set apart properties worth ₹2 crores to satisfy the respondents' claims, in the event they succeeded. This interim order was ultimately confirmed by the learned Single Judge in the impugned order, prompting the present appeal.

Issue 1: Validity of the AGM Notice and Explanatory Statement

The learned Single Judge had concluded that the AGM notice was devoid of any explanatory notes, thereby rendering the meeting illegal. The appellant challenged this finding, submitting that: