For a period of 2 years from the date of purchase of the preference shares by Hillcrest Realty, no dividend was declared or paid by the Hotel Queen Road Pvt.Ltd . Therefore Hillcrest Realty served a notice on Hotel Queen asking the Company to convene an Extraordinary General Meeting (EGM) to remove two of their directors and to appoint the nominees of Hillcrest Realty in their place. Inasmuch as, Hotel Queen declined to hold such a meeting, Hillcrest Realty issued another notice for holding an EGM for the same purpose. Hotel Queen thereupon filed Suit for an injunction to restrain Hillcrest Realty from going ahead with the proposed meeting and from exercising voting rights therein. Holding that the requisition for an EGM by Hillcrest Realty was illegal, the learned Single Judge, held that any Resolution passed in the said meeting was ineffective and that Hotel Queen being a private company, Hillcrest Realty had no voting rights which it could have exercised in the EGM. Hillcrest Realty then filed a Suit for a declaration that by virtue of certain resolutions passed by Hotel Queen, the Company had converted itself from a private company to a public company.
The learned Single Judge, now held that Hotel Queen had fraudulently concealed the fact that it had acquired the status of a public company and had obtained order of injunction by virtue of such concealment. Hence, the single judge permitted Hillcrest Realty to vote in the meeting. The matter went to the Division Bench of the Delhi High Court now.
The Division Bench held that as a cumulative preference shareholder in Hotel Queen, Hillcrest Realty was entitled to vote at any EGM of its shareholders. The Division Bench took into consideration that since Hillcrest had not been paid dividend on its preference shares for over two years, it became entitled to exercise voting rights on every resolution placed before the Company at any meeting, in accordance with the provisions of Section 87(2) of the Companies Act. The Division Bench decided the question on the assumption that Hotel Queen Road Pvt. Ltd. was a public company. Two SLPs were filed subsequent to this.
Whether Hotel Queen Road Pvt. Ltd was a private company or a public company. If it was a private company and not a subsidiary of any public company, Hillcrest Realty would not have any voting rights.
By the said resolutions, a final decision had been taken by Hotel Queen to convert itself into a public company with immediate effect without having to wait for any decision to be rendered by the Registrar of Companies who, in any event, had no authority to make any decision in that regard. The very fact that Form 23 was filed along with the resolutions coupled with the fact that a Statement in lieu of Prospectus, which is required to be filed by a private company when it converts itself into a public company, was filed on behalf of Hotel Queen Road, is sufficient for the purpose of arriving at a prima facie conclusion that Hotel Queen Road had altered its status and had become a public company even though the necessary alterations had not been effected in the records of the Registrar of Companies. It is not the records of the Registrar of Companies which determines the status of a company but whether it falls within the definition of a “private company” or “public company” as defined in Section 3(1)(iii) and 3(1)(iv) of the Companies Act. The moment the resolutions were passed by the company, Hotel Queen ceased to be a private limited company. A natural consequence is that in the event dividend had not been declared or paid for a period of two years as far as Hillcrest is concerned, the Explanation to Section 87(2)(b) would come into play thereby giving Hillcrest Realty, as a cumulative preference shareholder, the right to vote on every resolution placed before the Company, at any meeting, in keeping with Clause (i) of Section 87(2)(b) of the aforesaid Act.