Kamal
Kumar Dutta & Anr Vs. Ruby General Hospital Ltd. & Ors [2006] Insc 488 (11 August 2006)
H.K.Sema
& A.K.Mathur
[Arising
out of S.L.P.(c) Nos.11017-11018 of 2005] A.K. MATHUR, J.
Leave
granted.
These
appeals are directed against the order dated 31.3.2005 passed by learned
Company Judge, Calcutta High Court in APO No.746 of 1999 and APO No.759 of 1999
whereby learned Single Judge has disposed of the appeal and the cross-appeal
arising out of the order dated 29.10.1999 passed by the Company Law Board (hereinafter
to be referred to as CLB ).
Brief
facts which are necessary for disposal of these appeals are that an application
under Sections 397 & 398 of the Companies Act, 1956 (hereinafter to be
referred to as the Act ) was filed by Dr.Kamal Kumar Dutta and Dr. Binod Prasad
Sinha alleging various acts and oppression and mis-management in the affairs of
the company before the CLB. Ruby General Hospital Limited, a company was
incorporated in the year 1991 by two non-resident Indian Doctors i.e. Dr.Kamal
Kumar Dutta and Dr.Binod Prasad Sinha along with Indian enterprenuor, Shri Sajal
Kumar Dutta, who is the younger brother of Dr.Kamal Kumar Dutta. The Company
took up the project to establish a Hospital-cum-Advance Diagnostic facility at Calcutta. The cost of the project was about
Rs.11 crore out of which the share capital would be Rs.9 crore and Rs.8 crore
out of the said share capital would be by way of NRI participation. Therefore,
88.88% of the project was NRI shares and the balance by resident Indians. In
the year 1991, the Department of Industrial Development, Government of India,
Secretariat of Industrial Approval, (for short SIA) approved the NRI
investments in the said company.
Dr.Kamal
Kumar Dutta was one of the first Directors of the said company and with Dr.Binod
Prasad Sinha held 52.74 % of the equity shares in the said company. Apart from
that Dr. Kumar Kumar Dutta contributed Rs.3 crore for the purpose of importing
second-hand medical equipments and the shares towards the said investments,
being the value of the equipments, should be allotted to Dr.Dutta. A loan was
granted for a sum of Rs.4.6 crore by the Industrial Development Bank of India for the said project.
The
Hospital was inaugurated by the Chief Minister of West Bengal on 25.4.1995. Dr.Kamal Kumar Dutta
contributed Rs.4.26 crore out of which equipments worth Rs.3.5 crore were
brought from USA and Rs.1.23 crore was contributed
by Sajal Kumar Dutta. The grievance of Dr.Kamal Kumar Dutta was that he was
denied shares of the company for the equipments brought by him by his younger
brother Sajal Kumar Dutta. Though the Reserve Bank of India granted permission to allot shares
in favour of Dr.Dutta on 22.3.1997 but the same was withdrawn on 20.5.1998 at
the instance of the company. The company filed a writ petition challenging the
said approval by the Reserve Bank of India before the High Court of Calcutta. The High Court directed to give
personal hearing to the parties and the Reserve Bank of India once again granted approval for
allotment of shares in favour of Dr.Kamal Kumar Dutta. The said approval was
again challenged by the company by filing a writ petition before the High
Court. Then again some directions were not properly followed and another writ
petition was filed by the company.
In compliance
to the directions issued by the High Court, the Reserve Bank of India after hearing the parties passed an
order granting permission to allot shares to Dr.Dutta against supply of second
hand medical equipment as capital contribution. Subsequently, a writ petition
was filed by the company in 2004 before the High Court of Calcutta and the same
is said to be still pending.
In
fact, this Ruby General Hospital Limited was established in memory of late wife
of Dr.Kamal Kumar Dutta. Since Dr.Dutta and Dr.Binod Prasad Sinha were both NRIs,
the company was being looked after by Sajal Kumar Dutta. No problem arose for
some time till the hospital was in a struggling stage. But it appears that soon
after the hospital started showing the sign of prosperity, the chord of discord
grew between the brothers and attempt was made by the younger brother to oust
the elder brother by denying him his shares for the medical equipment worth
Rs.3.5 crore supplied by him from USA.
Thus, ultimately the appellants filed a petition under Sections 397 & 398
of the Act before the CLB. The stand of the company was that Dr.Kamal Kumar Dutta
and Dr.Binod Prasad Sinha who alleged to have had 88.88% shares in the company
discontinued themselves as Directors and refusal of the company to allot shares
to them worth the value of second hand equipments was justified. The CLB heard
the parties at length and passed a detailed order giving certain directions
which will be referred to hereinafter. Aggrieved against that direction issued
by the CLB on 29.10.1999 both the parties approached the High Court of
Calcutta. The appeal filed by Sajal Dutta and the cross-appeal filed by Dr.K.K.Dutta
were clubbed together and taken together by learned Company Judge for disposal.
The
main grievance of Dr.Dutta was denial of his shares for supply of medical
equipments worth Rs.3.5 crore and consequential ousting from the chairman and
directorship of the company which led to filing of a petition before the CLB in
1997.The appellants prayed before the CLB that necessary directions may be
given to relieve the company from the mis-management of the respondents and to
relieve the oppressive, harsh and unreasonable conduct of the respondents on
the appellants and other members of the company and to stop such acts or conducts
of the respondents which are prejudicial to the interest of the shareholders of
the company and the public at large; to direct the respondents to comply with
the statutory provisions of the Act to serve the notice of the Board of
Directors meetings of the company and the meetings of the shareholders of the
company on the appellants and other shareholders; the appellants should be
involved in the effective management of the affairs of the company; to remove
the Managing Director (Sajal Dutta) from the company and to prohibit him from
interfering with the effective management of the company; to quash the
allotment and issue of the shares of the value of Rs.42,10,000/- allotted
illegally and unlawfully by the respondents to corporate shareholders, to direct
the respondents to restore the shares of the appellants which are shown as
share application money by illegal and unlawful entries to direct the
respondents for allotment of shares for the sum of Rs.3,05,53,290/- to the
appellant No.1 being the value of the goods already supplied as the proposal
has been duly approved by the Reserve Bank of India and to appoint an
independent observer to attend the meetings of the Board of Directors and the
meetings of the shareholders of the company. This was contested by the
respondents by filing counter affidavit and the allegations were denied. It was
alleged that all the notices of the meetings were given to the Board of
Directors and the meetings were conducted whenever required according to law.
It was alleged that in the meeting dated 19.4.1995 the appellant No.1 was
present when the resolution was passed to raise the funds as he declined to
give any fresh funds.
This
was denied by the appellant No.1 in the rejoinder filed before the CLB and it
was pointed out that the minutes of the meeting dated 19.4.1995 were fabricated
and manipulated to the advantage of the respondent for being appointed as
Managing Director of the company so that he can succeed in his design of
usurping the company. It was also alleged that the allotment of shares was bad.
It was also pointed out that the resolution dated 19.4.1995 in which the
appellant No.1 was alleged to be present, would indicate that the decision to
convene the extraordinary general meeting and to pass a resolution under
Section 81(1A) was considered and approved. But no details were furnished of
such a decision. It was also alleged that the respondent No.2 using the old
minutes to gain illegal and unlawful majority by hiding the contents of the
resolution tried to justify his action. It was alleged that the answering
respondent deliberately and knowingly did not annex the copies of such minutes
of resolutions. It was specifically asserted that the respondents have withheld
the copies of the resolutions passed on 12.3.1996, 17.2.1996, 19.4.1995,
9.2.1996 and 16.2.1996. In fact from the records it transpires that the main
issue is with regard to the resolution passed on 19.4.1995, though according to
Dr. Kamal Kumar Dutta, copies of the resolution were not supplied along with
the counter affidavit. It was only the records were placed before the CLB
during the course of proceedings. The main crux of the problem arose on account
of the resolution passed by the Board of Directors on 19.4.1995. That
resolution is crucial because in that resolution it was passed to raise funds
and to issue and allot not exceeding 40 lacs equity share for Rs.10/- each at
par to such persons or corporate bodies, banks, mutual funds or other financial
institutions whether or not they are the existing shareholders of the company,
and in such manner as may be decided by the Board. This resolution, according
to the appellants, was totally fabricated though no such allegation was made
before the CLB. But the core issue is whether this resolution was at all passed
in that meeting or not because the whole trouble seems to have started from
this and thereafter further resolutions have been passed in order to reduce the
shareholding of the appellants and the whole design was to reduce the appellant
No.1 to minority. In fact, the Reserve Bank of India has already granted
permission to allot share to the appellant No.1 for the equipments supplied by
him to the extent of Rs.3.5 crore and that permission was challenged by one way
or the other so that the permission is not granted and the share to the extent
of Rs.3.5 crore is denied to the appellant Dr.Kamal Kumar Dutta and he looses
the majority thereby the younger brother Sajal Dutta who has made total
investment of Rs.1.3 crore will get majority and oust the appellant No.1 from
the chairmanship and reduce him to nothing. This was the core issue. The CLB
after considering the matter found various omissions and commissions in conduct
of the Board meetings and in a detailed order discussed the whole issue. The
CLB discussed the memorandum and articles of association of the company to
which the appellants and Sajal Kumar Dutta are the signatories. This document
is of 1991. It was resolved that the hospital was to be established with the
participation of the appellants and that imported equipments worth Rs.420 lakhs
would be purchased from the foreign exchange provided by the NRI doctor. The
cost of the project was indicated as Rs.1100 lakhs with Rs.900 lakhs as the
authorized capital out of which Rs.800 lakhs would be by NRI participation.
Under the heading 'foreign investment- financial collaborator', the name of the
appellant is mentioned. It was mentioned that the appellant was the principal
promoter and the other promoter being the respondent No.2- a resident Indian.
Under 'Means of Finance' it is mentioned that NRI investment would be Rs.800 lakhs
comprising of Rs.400 lakhs as equity and Rs.400 lakhs as preference shares. It
was mentioned that from various records of the company and approval given by
the SIA, it is apparently clear that the appellant is the chief principal
promoter of the company. In this connection CLB discussed the notices of the
Board of Directors meetings because all the issues arose from the resolutions
passed by the Board of Directors. The CLB recorded that the notices issued at
the local address in India cannot be considered to meet with
the provisions of Article 121(b) of the Memorandum and Articles of Association.
It was also observed that the notices in respect of appellant No.2 the address
shown was "P.O.Hirapur, District Dhanbad, Bihar" and in respect of most of the meetings, the time gap
of alleged date of posting and the meeting did not exceed 3 days excluding the
dates of posting and the dates of the meetings. In respect of the appellant No.1
the notices were addressed to a local address notwithstanding the fact that the
company itself has attached various documents indicating that the appellant
No.1 used to stay in some hotel or guest house during his visit to Calcutta. It was observed that adequate time
was not given and notices were not sent at the correct address. The CLB
observed that the action of the company to have posted notices for the meetings
to the local addresses of the NRI directors lacked in probity and fair play as
the appellants being not only the first directors of the company but also
substantial holders of the shares, they should have been given notices to their
address in the USA. Accordingly, the CLB held that notices for the Board
meetings cannot be deemed to have been given to the appellants. Ultimately the
CLB held as follows :
"In
view of our finding that no notices should be deemed to have been served on the
petitioner directors for the Board Meetings, the decisions taken in these Board
Meetings, granting that they had taken place, should be declared to be null and
void, as the general proposition of law is that proceedings of Board meetings
without notices With regard to the letter received by Dr.Dutta that the matter
has been amicably settled, the CLB recorded as follows:
"Even
assuming that the petitioner had authorized this advocate to send that letter
(which is disputed by the petitioner), the circumstances have been changed
afterwards. Further additional shares were issued, the petitioner directors
were declared to have vacated their offices and allotment of shares against the
cost of imported equipments denied. In the changed circumstances, by which the
petitioners have been completely ousted from the company, which was not the
position when the letter from the advocate of the petitioner was written, we do
not think that it would be right to bind the petitioner to the terms of the
said letter." Similarly, with regard to the second appellant, Dr.Binod
Prasad Sinha, it was also held that no proper notices were given.
Therefore,
he cannot be deemed to have vacated the Office of Director. The notice for the
AGM convened on 30.12.1996 was issued wherein re-election of this appellant was
an item in the agenda, wherein it was stated "to appoint directors in
place of Dr.Binod Sinha and Dr.S.K.Ghosal who retire by rotation and being
eligible offer themselves for re-appointment. The resolution passed in that
meeting was that Dr.Binod Sinha retired by rotation is not being reappointed
because of lack of active interest and the CLB recorded that such resolution
was very doubtful and whether such a resolution was at all passed. The CLB also
pointed out certain impropriety in recording the minutes.
So far
as the vacation of the office by the appellant No.1 is concerned, it is
mentioned that the appellant No.1 vacated the office on 24.2.1997. For that
purpose, the provisions of Section 283 (1) (g) were invoked. The CLB after
going through the records observed that the convening of the Board meeting on
3.3.1997 at 11 A.M. is very doubtful. It was on
3.3.1997 a letter was issued indicating that the appellant No.1 has vacated his
office. The CLB after appreciating the evidence observed that the resolution
dated 3.3.1997 cannot be sustained.
So far
as the allotment of shares was concerned, the CLB after assessing all the
materials on record came to the conclusion that the allotment of shares was not
completely bona fide and thus deserved to be set aside. Instead of setting
aside the same, the CLB issued certain directions to which we would advert
hereinafter.
The
next question was with regard to the allotment of shares against the value of
imported equipments. It was alleged on behalf of the respondents that this was
not approved by the SIA nor the RBI covered the allotment of shares against the
imported equipments and it was also pointed out that the company had no
knowledge that those were second hand equipments. This aspect was also examined
by the CLB at length but the CLB did not make any observation since the matter
was pending before the Calcutta High Court.
After
examining the evidence led by both the sides the CLB recorded that they were
not in a position to convince themselves that all the equipments should have
become non-functional. It appears that the whole controversy originated
somewhere in March, 1997.
Prior
to that all the equipments were functioning properly. However, no finding was
given because the matter was already pending before the Calcutta High Court.
The CLB also adversely observed with regard to the Board meeting dated 7.2.1996
and far reaching decisions were taken by the company when the appellant No.1
was not present in the said meeting and especially the respondent No.2 as
Managing Director indirectly outstripping the appellant No.1 of all his powers.
This meeting was held a week before the appellant No.1 was scheduled to arrive
from USA on 14.2.1996. In fact, such a final
decision was taken in the absence of the main promoter of the company and
therefore, the CLB concluded that this reflects complete lack of probity on the
part of the Directors in passing such a resolution.
So far
as the meeting of 16.2.1996, the minutes were not properly recorded and it was
pointed out by the IDBI nominee that draft minutes of the meeting dated
7.2.1996 placed before the meeting should correctly reflect the appointment of
respondent No.2 as the Managing Director but such an important item was not
included in the draft minutes and whether this item was at all discussed in the
meeting dated 7.2.1996 becomes highly doubtful. It was also pointed out that
the minutes of the meeting dated 16.2.1996 was signed by the respondent No.2
though it was presided over by the appellant No.1 and such minutes are required
to be signed by the chairman as required under section 193 of the Act.
Therefore, the recording of both the minutes cannot be accepted as correct one.
Consequently,
the CLB also adversely commented on another meeting dated 13.4.1996. It also
held that after receipt of the letter dated 4.4.1996 from the IDBI that it
cannot fund the second hand equipments and the Board decided not to import any
second hand equipment for allotment of shares to the appellants, a resolution
was passed despite the fact that the company had earlier applied to the Reserve
Bank of India for allotment of shares. In the meeting dated 3.3.1997 there was
a complete chaos. The finding is that the meeting was not properly conducted.
The letter from the IDBI was not brought to the notice of the appellant.
Thereafter
the following relief was granted by the CLB which can be summed up as follows.
That vacation of Office by the Directors cannot be sustained. It was directed
that in future the issue of notices for the Board meetings should be made by
registered post before 21 days to the addressees of the NRI Directors at their
usual address in USA. It was further stipulated that NRI
directors will have the right to appoint alternative Directors and if the right
is exercised, then the alternative directors will also be given notices as
stipulated.
The
shares allotted in the Board Meetings on 12.3.1996 and 24.7.1996 will not have
any voting rights till the outcome of the proceedings before the Calcutta High
Court. No further shares will be allotted against the share application money
with the company either in the names of the NRI investors or in the names of
the respondents.
Both
the parties were permitted to make further investments but the same will be
kept as share application money till the disposal of the proceedings before the
Calcutta High Court. It was further directed that status quo shall be
maintained till the matter is disposed of by the Calcutta High Court. There
will be no change in the composition of the Board other than that the appellants
directors will function as Directors in addition to the Executive Directors.
This
order was challenged by filing appeal before learned Single Judge of the
Calcutta High Court. Learned Single Judge instead of going into minute details,
examined the question with regard to the maintainability of the petition under
Sections 397 & 398 of the Act before the CLB. Learned Single Judge after
examining all aspects came to the conclusion that the appellants have failed to
make out a case under Section 397 of the Act for winding up of the company on
the ground of just and equitable. But the learned Single Judge recorded that Dr.Dutta
acted prejudicial to the interest of the company and further held that the
preconditions to have an order under Section 397/398 of the Act have not been
made out and this aspect was not dealt with by the CLB at all. Therefore,
learned Single Judge set aside the order of the CLB relying on a decision in
the case of Hanuman Prasad Bagri & Ors vs. Bagree Cereals Pvt. Ltd. &
Ors. reported in 115 Company Cases 493 and left the appellants to any appropriate
remedy by way of company suit which can give the terminated director every
relief. It was also observed that he can file a suit for injunction and
declaration and get himself reinstated as a director or if he has been removed
from a directorship, he could have filed a suit for declaration. Learned Single
Judge accordingly set aside the order of the CLB.
Aggrieved
against this order passed by the learned Single Judge on 31.3.2005 the present
Special Leave Petitions were filed by the appellants. We have given all
necessary details about the whole affairs of the company from the order of the
CLB to which we shall hereinafter refer to.
At the
outset learned senior counsel, Mr.F.S.Nariman, appearing for the respondents
has raised a preliminary objection that the appellants have alternative remedy
of approaching the Division Bench of the Calcutta High Court under Clause 15 of
the Letters Patent. Therefore, this Court should not entertain these appeals
and the same should be dismissed as the appellants have alternative remedy
under clause 15 of the Letters Patent before the Calcutta High Court. We shall
first dispose of the preliminary objection raised by Mr. Nariman with regard to
the maintainability of the appeal against the order passed by learned Single Judge
of the High Court of Calcutta.
Appeal
lies under Letters Patent from the judgment of the learned Single Judge of the
High Court to the Division Bench. In this connection, learned counsel placed
reliance on a decision of this Court in the case of Garikapatti Veeraya vs. N.Subbiah
Choudhury reported in 1957 SCR 488 and submitted that the appeal is vested
right and it cannot be taken away. Alternative submission was if clause 15 does
not apply, appeal lies under Section 483 of the Act.
In
this connection reliance was placed on decisions of this Court in the case of Arati
Dutta vs. M/s. Eastern Tea Estate (P) Ltd. reported in (1988) 1 SCC 523 and in
the case of Maharashtra Power Development Corporation Limited vs. Dabhol Power
Company & Ors. reported in [2003] 117 Company Cases 651. As against this,
learned senior counsel for the appellants submitted that Section 10F of the Act
came into being with effect from 31.5.1991. Prior to that application under
Sections 397 & 398 of the Act was being filed with the Company Judge in the
High Court. But after the amendment of the Act by Act 31 of 1988, this power
under Sections 397 & 398 of the Act has been given to the CLB. Under
Section 10E of the Act, the Company Law Board was created. It deals with
applications under Sections 397 & 398 of the Act. Therefore, learned Single
Judge has not exercised original jurisdiction and as such the appeal
contemplated under clause 15 of the Letters Patent is not maintainable. Learned
senior counsel invited our attention to Section 100A of the Code of Civil
Procedure which came into being with effect from 1.7.2002. This section starts
with non-obstante clause that notwithstanding anything contained in any Letters
Patent for any High Court or in any other instrument having the force of law or
in any other law for the time being in force, where any appeal from an original
or appellate decree or order is heard and decided by a single Judge of a High
Court, no further appeal shall lie from the judgment and decree of such single
Judge. Therefore, it was pointed out that in view of the latest amendment in
the Code of Civil Procedure, Letters Patent or intra court appeal will not lie
when the learned Single Judge has exercised appellate jurisdiction. In fact,
this amendment seems to have been brought about on the recommendations of the Malimath
Committee report that right to appeal should be curtailed and only one
appellate forum should be available. Therefore, in view of this recommendations,
this amendment was brought about. In support of this contention learned senior
counsel invited our attention to the following decisions.
-
(2004)11 SCC 672
Ltd. & Ors.]
-
(2003) 10 SCC
361 [Subal Paul vs. Malina Paul & Anr.]
-
AIR 2003 AP 458 [
Gandla Pannala Bhulaxmi vs. Managing Director, APSRTC & Anr.]
-
(1987) 62
Company Cases 504.
-
AIR 2004 Ker.
111 [ Kesava Pillai Sreedharan Pillai & etc. vs. State of Kerala &
Ors.] We have considered the rival submissions of the parties.
The
first question that we have to examine is whether the appeal against the order
of the learned Single Judge lies before the Division Bench under Letters Patent
or not. It may be relevant to mention here that prior to the amendment of the
Act, the power under Sections 397 & 398 used to be exercised by the Company
Judge of the High Court. Appeal against that order of the learned Single Judge
lies under Section 483 of the Act before the Division Bench of the High Court.
Section 483 of the Act reads as under :
483.
"Appeals
from orders.-
Appeals
from any order made or decision given before the commencement of the Companies(Second
Amendment) Act, 2002, in the matter of the winding up of a company by the Court
shall lie to the same Court to which, in the same manner in which, and subject
to the same conditions under which, appeals lie from any order or decision of
the Court in cases within its ordinary jurisdiction.
But
after the amendment the power which was being exercised under Sections 397
& 398 of the Act by learned Single Judge of the High Court is being
exercised by the CLB under Section 10E of the Act.
Appeal
against the order passed by the CLB, lies to the High Court under Section 10F
of the Act. Therefore, the position which was obtaining prior to the amendment
in 1991 was that any order passed by the Single Judge exercising the power
under Sections 397 & 398 of the Act, the appeal used to lie before the
Division Bench of the High Court. But after the amendment the power has been
given to the CLB and appeal has been provided under Section 10F of the Act.
Thus,
Part 1A was inserted by the amendment with effect from 1.1.1964. But the
constitution of the Company Law Board and the power to decide application under
Sections 397 & 398 of the Act was given to the CLB with effect from
31.5.1991 and appeal was provided under Section 10F of the Act with effect from
31.5.1991. Therefore, on reading of Sections 10E, 10F, 397 & 398 of the
Act, it becomes clear that it is a complete code that applications under
sections 397 & 398 of the Act shall be dealt with by the CLB and the order
of the CLB is appealable under Section 10F of the Act before the High Court. No
further appeal has been provided against the order of the learned Single Judge.
Mr.Nariman, learned senior counsel for the respondents submitted that an appeal
is a vested right and therefore, under clause 15 of the Letters Patent of the
Calcutta High Court, the appellants have a statutory right to prefer appeal
irrespective of the fact that no appeal has been provided against the order of
the learned Single Judge under the Act. In this connection, learned counsel
invited our attention to a decision of this Court in the case of Garikapatti Veeraya
vs. N.Subbiah Choudhury reported in [1957] SCR 488 and in that it has been
pointed out that the appeal is a vested right. The majority took the view that
the appeal is a vested right. It was held as follows:
"
that the contention of the applicant was well-founded, that he had a vested
right of appeal to the Federal Court on and from the date of the suit and the
application for special leave should be allowed.
The
vested right of appeal was a substantive right and, although it could be
exercised only in case of an adverse decision, it was governed by the law
prevailing at the time of commencement of the suit and comprised all successive
rights of appeal from court to court, which really constituted one proceeding.
Such a right could be taken away only by a subsequent enactment either
expressly or by necessary intendment." So far as the general proposition
of law is concerned that the appeal is a vested right there is no quarrel with
the proposition but it is clarified that such right can be taken away by a
subsequent enactment either expressly or by necessary intendment. The
Parliament while amending section 100A of the Code of Civil Procedure, by amending
Act 22 of 2002 with effect from 1.7.2002, took away the Letters Patent power of
the High Court in the matter of appeal against an order of learned single Judge
to the Division Bench. Section 100A of the Code of Civil Procedure reads as
follows:
100A.
"No further
appeal in certain cases.-
Notwithstanding
anything contained in any Letters Patent for any High Court or in any other
instrument having the force of law or in any other law for the time being in
force, where any appeal from an original or appellate decree or order is heard
and decided by a single Judge of a High Court, no further appeal shall lie from
the judgment and decree of such single Judge." Therefore, where appeal has
been decided from an original order by a single Judge, no further appeal has
been provided and that power which used to be there under the Letters Patent of
the High Court has been subsequently withdrawn. The present order which has
been passed by the CLB and against that appeal has been provided before the
High Court under Section 10F of the Act, that is an appeal from the original
order. Then in that case no further Letters patent appeal shall lie to the
Division Bench of the same High Court. This amendment has taken away the power
of the Letters Patent in the matter where learned single Judge hears an appeal
from the original order. Original order in the present case was passed by the
CLB exercising the power under Sections 397 and 398 of the Act and appeal has
been preferred under section 10F of the Act before the High Court. Learned
single Judge having passed an order, no further appeal will lie as the
Parliament in its wisdom has taken away its power. Learned counsel for the
respondents invited our attention to a letter from the then Law Minister. That
letter cannot override the statutory provision. When the statute is very clear,
whatever statement by the Law Minister made in the floor of the House, cannot
change the words and intendment which is borne out from the words.
The
letter of the Law Minister cannot be read to interpret the provisions of
Section 100A. The intendment of the Legislature is more than clear in the words
and the same has to be given its natural meaning and cannot be subject to any
statement made by the Law Minister in any communication. The words speak for itself.
It does not require any further interpretation by any statement made in any
manner. Therefore, the power of the High Court in exercising Letters patent in
a matter where a single Judge has decided the appeal from original order, has
been taken away and it cannot be invoked in the present context. There is no
two opinion in the matter that when the CLB exercises its power under Section
397 & 398 of the Act, it exercised its quasi-judicial power as original
authority. It may not be a court but it has all the trapping of a court.
Therefore, the CLB while exercising its original jurisdiction under Sections
397 & 398 of the Act passed the order and against that order appeal lies to
the learned single Judge of the High Court and thereafter no further appeal
could be filed.
In
this connection, our attention was invited to a decision in the case of Arati Dutta
vs. M/s. Eastern Tea Estate (P) Ltd. reported in (1988) 1 SCC 523. This was a
case in which the power was exercised by learned single Judge under Sections
397 & 398 of the Act and against that order appeal lay to the Division
Bench of the High Court under Section 483 of the Act. In that context, their
Lordships observed that mere absence of procedural rules would not deprive the
litigant's of substantive right conferred by the statute. We have already
explained above that earlier the power under Sections 397 & 398 of the Act
was being exercised by learned Company Judge in the High Court and therefore,
appeal lay to the Division Bench under Section 483 of the Act. If the power has
been exercised by the Company Judge in the High Court, then one appeal shall
lie before the Division Bench of the High Court under Section 483 of the Act.
But that is not the situation in the present case.
Therefore,
this decision cannot be of any help to respondents.
In
this connection, our attention was invited to a decision of the Bombay High
Court in the case of Maharashtra Power Development Corporation Limited vs. Dabhol
Power Company & Ors. reported in [2003] 117 Company Cases 651. In that
case, the High Court took the view that despite the amendment in Section 100A
of the Code of Civil Procedure, order passed by the single Judge in appeal
arising out of the order passed by the CLB under Sections 397 & 398 of the
Act, appeal lay to the Division Bench and in that connection, the Division
Bench invoked Section 4(1) of the Code of Civil Procedure which says that in
the absence of any specific provision to the contrary, nothing in this Code
shall be deemed to limit or otherwise affect any special or local law now in
force or any special jurisdiction or power conferred, or any special form of
procedure prescribed, by or under any other law for the time being in force and
therefore, the Division Bench concluded that the Letters Patent appeal is a
statutory appeal and special enactment. Therefore, appeal shall lie to the
Division Bench. We regret to say that this is not the correct position of law.
We have already explained the facts above and we have explained Section 100A of
the Code of Civil Procedure to indicate that the power was specifically taken
away by the Legislature. Therefore, the view taken by the Bombay High Court in
the case of Maharashtra Power Development Corporation (supra) cannot be said to
be the correct proposition of law.
In
this connection, our attention was invited to a Constitution Bench decision in
the case of P.S.Sathappan (Dead) By this case, the Constitution Bench observed
as follows:
"From
Section 100-A CPC, as inserted in 1976, it can be seen that when the
legislature wanted to exclude a letters patent appeal it specifically did so.
Again from Section 100-A, as amended in 2002, it can be seen that the
legislature has provided for a specific exclusion. It must be stated that now
by virtue of Section 100-A, no letters patent appeal would be maintainable in
the facts of the present case. However, it is an admitted position that the law
which would prevail would be the law at the relevant time. At the relevant time
neither Section 100-A nor Section 104(2) barred a letters patent appeal. The
words used in Section 100-A are not by way of abundant caution. By the
Amendment Acts of 1976 and 2002 a specific exclusion is provided as the
legislature knew that in the absence of such words a letters patent appeal would
not be barred. The legislature was aware that it had incorporated the saving
clause in Section 104(1) and incorporated Section 4 CPC. Thus now a specific
exclusion was provided." Similarly in the case of Subal Paul vs. Malina
Paul & Anr. reported in (2003) 10 SCC 361, their Lordships observed as
follows :
"Whenever
the statute provides such a bar, it is so expressly stated, as would appear
from Section 100-A of the Code of Civil Procedure." In the case of Gandla Pannala
Bhulaxmi vs. Managing Director, APSRTC & Anr. reported in AIR 2003 AP 458,
the Full Bench of the Andhra Pradesh High Court has taken a similar view in the
matter.
Same
is the view taken by the Full Bench of the Kerala High Court in the case of Kesava
Pillai Sreedharan Pillai and etc. vs. State of Kerala & Ors. reported in
AIR 2004 Kerala 111. Therefore, in this view of the matter, we are of opinion
that the preliminary objection raised by Mr.Nariman cannot be sustained and the
same is overruled.
Now,
coming to the merits of the case, learned counsel for the appellants submitted
that learned Single Judge of the High Court has gone wrong in holding that no
case is made out under Sections 397 & 398 of the Act as necessary
ingredients of the said sections are not present in this case. In order to
appreciate the contention of learned counsel for the appellants, we have to
first examine the scope of Sections 397 & 398 of the Act. Sections 397
& 398 of the Act read as under :
-
"
Application to Tribunal for relief in cases of oppression.-
-
Any member of a
company who complain that the affairs of the company are being conducted in a
manner prejudicial to public interest or in a manner oppressive to any member
or members (including any one or more of themselves) may apply to the Tribunal
for an order under this section, provided such members have a right so to apply
in virtue of section 399.
-
If, on any
application under sub-section (1), the Court is of opinion-
-
that the
company's affairs are being conducted in a manner prejudicial to public interest
or in a manner oppressive to any member or members; and
-
that to wind up
the company would unfairly prejudice such member or members, but that otherwise
the facts would justify the making of a winding-up order on the ground that it
was just and equitable that the company should be wound up, the Tribunal may,
with a view to bringing to an end the matters complained of, make such order as
it thinks fit.
-
Application
to Tribunal for relief in cases of mismanagement.-
-
Any members of a
company who complain
-
that the affairs
of the company are being conducted in a manner prejudicial to public interest
or in a manner prejudicial to the interests of the company; or
-
that a material
change not being a change brought about by, or in the interests of, any
creditors including debenture holders, or any class of shareholders, of the
company has taken place in the management or control of the company, whether by
an alteration in its Board of directors, or manager, or in the ownership of the
company's shares, or if it has no share capital, in its membership, or in any
other manner whatsoever, and that by reason of such change, it is likely that
the affairs of the company will be conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interests of the company, may apply
to the Tribunal for an order under this section, provided such members have a
right so to apply in virtue of section 399.
-
If, on any
application under sub-section (1), the Tribunal is of opinion that the affairs
of the company are being conducted as aforesaid or that by reason of any
material change as aforesaid in the management or control of the company, it is
likely that the affairs of the company will be conducted as aforesaid, the
Tribunal may, with a view to bringing to an end or preventing the matters
complained of or apprehended, make such order as it thinks fit.
"As
per Section 397, any person who is eligible to apply under Section 399, can
apply before the CLB that the affairs of the company are being conducted in a manner
prejudicial to public interest or in a manner oppressive to any member or
members and that to wind up the company would unfairly prejudice such member or
members, but that otherwise the facts would justify the making of a winding-up
order on the ground that it was just and equitable that the company should be
wound up. If the Tribunal is satisfied that there exists a situation where the
business of the company is being conducted in a manner prejudicial to the
interest or in a manner oppressive to any member or members and that winding up
of the company would unfairly prejudice such member or members but that
otherwise the facts would justify the making of a winding-up order on the
ground that it was just and equitable that the company should be wound up, it
may with a view to bringing to an end the matters complained of, make such
order as it deems fit. Therefore, what it transpires in the present context is,
we have to examine whether the acts of the company were oppressive to any
member or members justifying the winding up as just and equitable. It is not
necessary that in every case, the relief of winding-up should be made. It is an
option with the Tribunal if it considers that in order to bring to an end the
matters complained of, it can pass orders for winding-up if it is just and
equitable or it can pass such order as it thinks fit. It does not necessarily
mean that in every case such winding-up order need be passed. Similarly, under
section 398 also, if the affairs of the company are being conducted in a manner
prejudicial to public interest or in a manner prejudicial to the interests of
the company or that a material change not being a change brought about by, or
in the interests of any creditors including debenture holders, or any class of
shareholders, of the company has taken place in the management or control of
the company whether by an alteration in its Board of directors, or manager or
in the ownership of the company's shares, or if it has no share capital, in its
membership, or in any other manner whatsoever and that by reason of such
change, it is likely that the affairs of the company will be conducted in a
manner prejudicial to public interest or in a manner prejudicial to the
interests of the company, the Tribunal can order winding-up of the company in
order to bring to an end of all these mismanagement or make such order as it
thinks fit. The condition of section 399 of the Act is also equally applicable
in the present case. In fact, section 398 talks much about the mismanagement,
or apprehension of mismanagement in the affairs of the company. As against
this, section 397 deals with oppression of the members. Therefore, both
sections 397 & 398 to some extent have commonality for the purpose like,
prejudicial to public interest and application for winding-up can be made by
members as per Section 399. Apart from this commonality, for the purpose of
Section 397, if the company acts in a manner oppressive to any member or
members and if it otherwise justifies on the ground of just and equitable, then
Tribunal can wind up the company or pass such order as it thinks fit. Whereas
in Section 398 the basic features are that the management is working in a
manner prejudicial to the interest of the company by bringing about the
material changes in the management or by alteration in its Board of Directors,
then in that case, if it is found by the Tribunal that in order to bring to an
end or preventing further mismanagement, it can pass such order as it deems fit
including that of winding-up.
Therefore,
the parameters in both the Sections i.e. Sections 397 & 398 are very clear.
It will depend upon case to case. No hard and fast rule can be laid down. In
the case of oppression to the interest of member or members, if the Tribunal is
satisfied that the winding-up is just and equitable then it can do so or pass
any order as it thinks fit.
Likewise
in Section 398 if the management wants to bring any material change in the
management and control of the company prejudicial to the interest of the
company, then in that case, appropriate order can be passed by the Tribunal.
The acts which would amount to oppression to the members or mismanagement or
material alteration in the control of the company or prejudice to the interest
of the company would depend upon facts of each case.
In
this connection, our attention was invited to a decision of this Court in the
case of S.P.Jain vs. Kalinga Tubes Ltd. reported in (1965) 2 SCR 720. In this
case, their Lordships after examining the scope of Section 397 vis-`-vis
Section 210 of the English Act vis- `-vis the English procedure on the subject
observed as under :
"It
gives a right to members of a company who comply with the conditions of s.399
to apply to the court for relief under s.402 of the Act or such other reliefs
as may be suitable in the circumstances of the case, if the affairs of a
company are being conducted in a manner oppressive to any member or members
including any one or more of those applying. The court then has power to make
such orders under s. 397 read with s.402 as it thinks fit, if it comes to the
conclusion that the affairs of the company are being conducted in a manner
oppressive to any member or members and that wind up the company would unfairly
prejudice such member or members, but that otherwise the facts might justify
the making of a winding up order on the ground that it was just and equitable
that the company should be wound up. The law however has not defined what is
oppression for purposes of this section, and it is left to courts to decide on
the facts of each case whether there is such oppression as calls for action
under this section." Following the English cases referred to in Kalinga
Tubes Ltd. (supra), Needle Industries Newey (India) Holding Ltd. & Ors. reported in (1981) 3 SCC 333,
their Lordships concluded as follows :
"The
utmost good faith is due from every member of a partnership towards every other
member; and if any dispute arises between partners touching any transaction by
which one seeks to benefit himself at the expense of the firm, he will be
required to show, not only that he has the law on his side, but that his
conduct will bear to be tried by the highest standard of honour." In the
case of Kilpest Pvt. Ltd & Ors. vs. Shekhar Mehra reported in (1996) 10 SCC
696, it was held as follows :
"The
promoters of a company, whether or not they were hitherto partners, elect to
avail of the advantages of forming a limited company. They voluntarily and
knowingly bind themselves by the provisions of the Companies Act. The
submission that a limited company should be treated as a quasi- partnership
should, therefore, not be easily accepted. Having regard to the wide powers
under Section 402, very rarely would it be necessary to wind up any company in
a petition filed under Sections 397 and 398." In the case of Hanuman
Prasad Bagri & Ors. vs. Bagress Cereals Pvt. Ltd. & Ors. reported in
(2001) 4 SCC 420, their Lordships held that in order to grant relief under
section 397, the petitioner should make out a case for winding up of the
company on just and equitable ground and in that case, their Lordships held
that illegal termination of the directorship of the petitioner was not such a
ground to justify winding up of the company.
In the
case of M/s. Madhusoodhanan & Anr. vs. Kerala Kaumudi (P) Ltd . & Ors.
reported in (2004) 9 SCC 204, it was found that notice not less than 21 days
was not given by personal service or service by post and on facts it was found
that requirement of Section 189 of the Act was not complied with. Under Section
53 of the Act, service of notice of the Board's meeting by post and by
certificate of posting were not found to be reliable when the relationship
between the parties was already bitter. In this case, on evidence it was found
that the entries in the register were not sufficient to establish the service
of notice on the Director. So far as service by certificate of posting, it
raises a rebuttable presumption and the onus is on the addressee to show that
the document under certificate of posting was not received by him, In the case
of Dale & Carrington Investment (P) Ltd. vs. P.K.Parthapan & Ors.
reported in (2005) 1 SCC 212, their Lordships with regard to oppression held if
a member who holds the majority of shares in a company is being reduced to the
position of minority shareholder in the company by mala fide act of the company
or by its Board of Directors, such act must ordinarily be considered to be an
act of oppression against the said shareholder and what relief should be
granted would depend on the facts of the case. The facts of the present case at
hand are almost akin to the case referred to above.
Allotment
of additional shares to the Managing Director was found to be sole objective to
gain control by becoming majority shareholder.
That
allotment was found to be mala fide and not in the interest of the company and
no legal procedure prescribed in Articles of Association was followed and it
was found to be a clear case of an act of oppression on the part of R towards
P, the majority shareholder.
In the
case of Sangramsinh P.Gaekwad & Ors. vs. Shantadevi P.Gaekwad (Dead)
through LRs & Ors. reported in (2005) 11 SCC 314 their Lordships approved
the decision in the case of Dale & Carrington Investment (P) Ltd (supra)
and observed that the director if acts in oppressive, capricious or corrupt
manner or in a mala fide way then such act would be construed to be oppressive
but if the director acts bonafidely in the interest of the company then such
act cannot be said to be oppressive. It was observed that the Director acts in
a fiduciary capacity vis-`-vis the company. It was also observed that the court
is bound to look at the business realities of the situation and not to confine
to a narrow legalistic view. The interest of the company should be paramount
and isolated incident may not be enough but it should be continuous oppressive
conduct.
It was
also observed as follows:
"The
jurisdiction of the court to grant appropriate relief under Section 397 of the Companies
Act indisputably is of wide amplitude.
The
court while exercising its discretion is not bound by the terms contained in
Section 402 of the Companies Act if in a particular fact situation a further
relief or reliefs, as the court may deem fit and proper, are warranted.
Moreover, in a given case the court despite holding that no case of oppression
has been made out may grant such relief so as to do substantial justice between
the parties." Our attention was invited to a decision In the case of Tea
Brokers (P) Ltd. & Ors. v. Hemendra Prosad Barooah reported in (1998) 5
Comp.
LJ
463(Cal.). In this case, after examination
of facts, the winding up order was found to be justified, though the effect of
such order meant loss to the respondent as one of his concern which was
otherwise flourishing one and advantageous to him. However, the net result was
that allotting additional shares to minority shareholders on the facts of the
case was set aside.
In the
light of the cases bearing on the subject we have to examine whether the
petition filed by Dr.Kamal Kumar Dutta would justify the order passed by the
CLB or not. Therefore, in order to find out whether a case of oppression in the
interest of the members is made out or not. As already pointed out, oppression
depends on the facts of each case.
In Halsbury's
Laws of England, 4th Edn., Vol.7, para 1011, it is stated :
-
"Conduct amounting to
oppression.-
In
this context, 'oppressive' means burdensome, harsh and wrongful. It does not
include conduct which is merely inefficient or careless. Nor does it include an
isolated incident; there must be a continuing course of oppressive conduct,
which must be continuing at the date of the hearing of the petition. Further,
the conduct must be such as to be oppressive to the petitioner in his capacity
as a member; whatever remedies he may have in respect of exclusion from the
company's business by being dismissed as an employee or a director, he will
have none under the provisions relating to oppression.
On the
other hand, these provisions are not confined merely to conduct designed to
secure pecuniary advantage to the oppressors; they cover the case of wrongful
usurpation of authority, even though the affairs of the company prosper in
consequence." (Emphasis added) In Palmer's Company Law, 23rd Edn.,p.848 it
is stated :
-
"Relationship
is with company: the fiduciary relationship of a Director exists with the
company; the Director is not usually a trustee for individual shareholders.
Thus, a Director may accept a shareholder's offer to sell shares in the company
although he may have information which is not available to that other, and the
contract cannot be upset even if the Director knew of some fact which made the
offer an attractive proposition. So in Percival v. Wright a person who had
approached a Director and sold him shares in the company, afterwards, upon
discovering that the Director had known at the time of the contract that
negotiations were on foot for the purchase by an outsider of all the shares in
the company at a higher figure, could not impeach the contract. In his judgment
Swinfen- Eady,J. said' there is no question of unfair dealing in this case. The
Directors did not approach the shareholders with the view of obtaining their
shares.
The
shareholders approached the Directors and named the price at which they were
desirous of selling'." In Pennington's Company Law, 6th Edn. At pp.608-09,
it is stated " " Directors owe no fiduciary or other duties to
individual members of their company in directing and managing the company's
affairs, acquiring or disposing of assets on the company's behalf, entering
into transactions on its behalf, or in recommending the adoption by members of
proposals made to them collectively. If the Directors mismanage the company's
affairs, they incur liability to pay damages or compensation to the company or
to make restitution to it, but individual members cannot recover compensation
for the loss they have respectively suffered by the consequential fall in value
of their shares, and they cannot achieve this indirectly by suing the Directors
for conspiracy to breach the duties which they owed the company.
However,
there may be certain situations where Directors do owe a fiduciary duty and a
duty to exercise reasonable skill and care in advising members in connection
with a transaction or situation which involves the company or its business
undertaking and also the individual holdings of its members." Therefore,
the upshot of the above discussions is that the Directors are in a position of
a trust. They must confirm to the probity and their conduct should be above
suspicion.
Now,
adverting to the facts of the present case, we will examine whether there was
any case of oppression of the member or attempt to materially change in the
management or control over the company to the detriment of the company. We may
recapitulate that this hospital was floated by Dr.Kamal Kumar Dutta with his
brother, Sajal Kumar Dutta and a total investment of Dr.K.K.Dutta was Rs.4.26 crore
which includes Rs.3.5 crore of equipment and Sajal Dutta made a contribution of
Rs.1.23 crore and there was another investment of Dr.Binod Prasad Sinha also.
If the share of equipment i.e. Rs.3.5 crore is not taken into consideration,
then the share of Dr.K.K.Dutta is 46.378 % and the share of Dr.B.P.Sinha being
6.365% the total share of both of them comes to 52.74% and the share of Sajal Dutta
is 46.26%. Thus, the company was floated by Dr.K.K.Dutta along with his brother
for establishing a hospital in the name of his wife, Ruby Dutta. Dr.Dutta and Dr.Sinha
both are NRIs.
All
the equipments worth Rs.3.5 crore were supplied by Dr.Dutta which were
installed in the said hospital, though the equipments were second hand and this
is how the hospital started functioning in 1995.
It
seems that it started running well but when it turned the leaf and showing some
profitability then the trouble started brewing which led Dr.Dutta and Dr.Sinha
to file the petition before the CLB under Sections 397 & 398 of the Act, in
1997. The seed of discord started with the resolution dated 19.4.1995 when a
resolution was passed for infusing some more money in the company and it
appears that the said resolution was passed in which Dr.K.K.Dutta, Mr.Sajal Dutta,
Wing Cdr.(Retd.) T.Chaudhuri as Director were present along with special
invitee, Dr.Ashok K.Maulik as Director and Mr.M.K.Datta was the Financial
Controller and Secretary. Dr.Kamal Kumar Dutta took the chair as the chairman
of the meeting. Other resolutions were passed for inauguration of the Hospital
on 25.4.1995 at 11.0
A.M. by the Chief
Minister of West Bengal, maintenance of books of accounts
at a place other than the registered office, progress of project accounts and
date of holding the annual general meeting etc. But the crucial resolution
which was passed that gave rise to strained relationship between two brothers
was to issue and allot not exceeding 40,00,000 (forty lacs ) equity shares of
Rs.10/- each at par to such persons, corporate bodies, banks, mutual funds or
other financial institutions whether or not they are the existing shareholders
of the company and in such manner as may be decided by the Board. This
resolution was alleged to have been fabricated and not passed on the date
though it is alleged that Dr.K.K.Dutta was present. According to Dr.K.K.Dutta
this resolution was subsequently inserted and he was not made known about such
resolution and he came to know about it only on a later date when he was said
to be thrown out from the Managing Directorship. Though this aspect according
to Mr.Nariman was not specifically challenged before the CLB but the answer of
learned counsel for the appellants was that in fact these resolutions were not
made known to the appellants and they only came to know about it at a late
stage when all these resolutions were placed by Respondent No.2, Sajal Dutta.
It is alleged that objection to this was taken in a rejoinder filed by the
appellants before the CLB. Though specific challenge was not made but in the
rejoinder it was only mentioned as follows:
"
It is evident from the fact that 81(1A) resolution by Company shareholders was
passed pursuant to some authorization purportedly obtained at the meeting held
on 19th April 1995 in which petitioner No.1 was present and the decision to
convene the Extra Ordinary General Meeting and to pass a resolution under
section 81(1A) was considered and approved. However no details are furnished of
such a decision and the petitioners are more than confident that the old
minutes and the resolution was used by the answering respondent to gain illegal
and unlawful majority and the action is being justified by hiding the contents
of these resolutions. The answering respondent has deliberately and knowingly
not annexed the copies of such minutes whereas the answering respondent has
given all other resolutions, he has purposely and intentionally not given the
copies of the resolution passed on 12.3.1996, 17.2.1996, 19th April 1995,
9.2.1996 and 16.2.1996." Though this omnibus objection was taken in a
rejoinder but specifically not challenged before the CLB except the argument
that the appellant No.1 had no copies of these resolutions and therefore he
came to know at a later stage and he has seriously doubted such resolution was
ever passed. Mr.Nariman is right to this extent that the allegation of
fabrication of the resolution was not specifically raised before the CLB. In
fact the ill-feeling started by this resolution because this facilitated
further bad blood between the two brothers.
This
aspect was noticed by the CLB and it was observed that the appellant No.1 had
refuted that he ever agreed to the passing of the resolution under section
81(1A) on 19.4.1995. According to him the minutes were fabricated since the
appellant was the chief promoter of the company having 88.88% shares in the
company. But there is no specific finding with regarding to the fabrication of
the resolution by the CLB. Be that as it may, but the fact remains that on the
basis of this resolution an attempt was made to oust the person who held the
majority of shares to be reduced to minority.
The
CLB has in minute detail discussed with regard to all the resolutions which we
have already adverted to. No proper notice was served on the appellant No.1 who
is a major shareholder of the company or to appellant No.2. If the Board
meeting had been convened without proper service of notice on the appellants by
the respondent No.2 then such Board meeting cannot be said to be valid.
Mr.Nariman
however tried to explain various meetings and their subsequent confirmation by
next board meeting to show that once the resolution of the subsequent meeting
has confirmed the resolution of earlier meetings then those minutes stand
confirmed irrespective of the fact that the appellants had been served or not.
We shall highlight some of the instances. We would show that how subtle attempt
was made to show that several notices were given to the major shareholders of
the company at their local address in India knowing fully well that both the appellants are NRIs. The outstanding
feature is that the appellant No.2, Dr.Binod Prasad Sinha has been shown as an
NRI but notice to him was sent at the address P.O. Hirapur, District. Dhanbad, Bihar and those notices have even been sent with very
short interval. The meeting was convened on 13.4.1996 and the notice was sent
on 8.4.1996. Likewise, another meeting was scheduled to be held on 5.9.1996 and
the notice was sent on the very same day i.e. 5.9.1996, the date of meeting was
2.12.1996 and the notice was sent on 28.11.1996; the date of meeting was
12.3.1996 and the notice was sent on 8.3.1996. The meeting was to be held on
27.3.1996 but the notice was sent on 22.3.1996. Apart from this, it was known
to the respondent- Sajal Dutta who is the brother of appellant No.1 that
whenever his brother comes to Calcutta he does not stay in his house yet the
notices were sent to Jodhpur Park, Calcutta. This shows lack of probity on the
part of Respondent No.2 to somehow or the other oust his brother from the
majority shareholding. Similarly, on the basis of such resolution, Dr.Binod
Prasad Sinha, the appellant No.2 was ousted from the directorship under section
283 (1) (g) of the Act on the ground that he has not attended the meeting and
he has no interest whatsoever.
Similarly,
the appellant No.1 was also ousted in the meeting which was held on 7.2.1996
when another meeting scheduled to be held on 16.2.1996 and it was within the
knowledge of Sajal Dutta that his brother was likely to attend the meeting to
be held on 16.2.1996. But suddenly the meeting was held on 7.2.1996 and the
appellant No.1 was stripped off his chair as the Managing Director of the
company.
Hence,
Sajal Dutta became the Managing Director in place of Dr.Kamal Kumar Dutta and
the minutes of the said meeting dated 7.2.1996 were not brought forward in the
meeting of 16.2.1996 in which Dr.K.K.Dutta was present. The IDBI nominee
reported to have advised that the draft minutes of the meeting dated 7.2.1996
to be placed before the meeting dated 16.2.1996 which would correctly reflect Sajal
Dutta as the Managing Director but it was not included in the meeting of 16.2.1996.
However, Mr.Nariman tried to persuade us to show that there was some defect in
drafting of minutes of the resolution and therefore, it was not reflected in
the meeting dated 16.2.1996. It does not appeal to us. Be that as it may, when
such an important decision was taken in the absence of the main promoter of the
company to oust him from the Managing Directorship and to install Sajal Dutta
in his place, it is the grossest act of oppression by the Board of Directors.
Sometime after dispatching Dr.Dutta from the Managing Directorship most of the
shares were cornered by the subsidiary companies of Sajal Dutta so as to
acquire the management of the company and to alter material change in the
management of the company. What can be more unfortunate than this ? When a
material change is brought about in the management to the detriment of the
interest of the main promoter it is squarely covered under section 398 (1)(b)
of the Act. The company which is floated by the elder brother and which has
been run by the younger brother in the absence of the elder brother the younger
brother manages the whole company and that the Managing Director is totally
ousted and shares are being cornered substantially so as to have full control
of the company, is oppression being squarely covered by section 397 (1) (b) of
the Act.
Apart
from this, one of the most important features which has weighed with us is that
Dr.Kamal Kumar Dutta brought second hand equipments, those were cleared by the
Customs and permission was granted by the RBI. The hospital started with those
second hand equipments and for almost one year no grievance was made and the
hospital was running successfully with these equipments. On 22.3.1997 the RBI
granted permission for allotment of 30,55,329 equity shares of Rs.10/- each to
the appellant No.1 against supply of second hand medical equipments on
repatriation basis. But Respondent No.2 without permission of the Board of
Directors filed an application with the RBI seeking withdrawal of the
permission granted for allotment of 30,55,329 equity shares to appellant No.1.
The
RBI on 2.6.1997 withdrew the permission granted for allotment of 30,55,329
equity shares to the appellant No.1. The respondent No.2 presented Directors
report in the Annual General Meeting along with audited balance sheet for the
year ended 31.3.1997 wherein capitalization of second hand medical equipments
supplied by the appellant No.1 was reversed. Then the appellants filed
application under sections 397 & 398 of the Act before the CLB. The CLB
directed the respondent company to amend audited balance sheet as at 31.3.1998
and restore capitalization of second hand medical equipments supplied by the
appellant No.1 which was reversed by the respondent No.2. The RBI restored the
approval for allotment of 30,55,329 equity shares to the appellant No.1 on
6.3.1999 and directed the company to issue 30,55,329 equity shares of Rs.10/-
each under section 19 (1) (d) of FERA, 1973 on non-repatriation basis against
import of second hand medical equipments. This was not enough. This matter was
taken up by the respondent No.1/2 by filing a writ petition being W.P.No.525 of
1999 challenging the order of the RBI dated 6.3.1999 in Calcutta High Court.
The Calcutta High Court directed the General Manager, RBI to hear the parties
afresh and pass appropriate order. In compliance with that order, the Executive
Director, RBI, Mumbai heard the matter and passed an order on 10.8.1999
confirming their earlier order. Then too the respondent No.1/2 did not feel
satisfied and again respondent company filed a second writ petition being WP
No.1977 of 1999 on 30.8.1999 before the Calcutta High Court. Pursuant to the
direction given by the High Court in the aforesaid writ petition, the General
Manager, RBI Calcutta heard both the parties and passed an order reaffirming
the earlier order of the RBI. Then too the respondents did not feel satisfied
and filed a third writ petition on 7.5.2004. No stay order was passed by the
High Court. The subtle attempt on the part of the respondent No.2 was only to
somehow oust the appellant No.1 of his majority by nullifying the order passed
by the RBI so that the shareholding of the appellant is reduced otherwise
against the equipments supplied by the appellant No.1 to the tune of Rs.3.5 crore,
he will have the majority in the shareholding of the company.
Therefore,
this persistent effort was made by the respondents by filing one after another
writ petition before the High Court to somehow reduce the shareholding of the
appellant No.1. These attempts speak volumes in the subtle design on the part
of the respondent No.2 to somehow see that the holding of the appellant No.1 is
reduced and the management is passed on to his hands by outstripping the
appellant No.1 from the office of the Managing Director by purchasing majority
of shareholding pursuant to the resolution passed on 19.4.1995, he wanted to
control the entire company. The filing of repeated writ petitions in Calcutta High Court at the expense of the
company adversely affected the interest of the company. If this is not the
oppression of the member under section 397 and bringing material change in the
management under section 398 then what could be the better case than this. We
fail to understand the view taken by the learned Single Judge of the High Court
directing the appellants to file suit for redressal of all grievances, we
cannot sustain this order. We are of opinion that the view taken by the
Calcutta High Court cannot be sustained. We are satisfied that this is the case
of oppression of the member as well as would amount to bringing about material
change in the management of the company.
Since
the issue of granting of equity shares against the medical equipments supplied
by the appellant No.1 to the tune of Rs.3.5 crore is pending before the
Calcutta High Court in a writ petition, therefore the CLB has not passed any
final order but passed a limited order as mentioned above. However, we have
examined the matter in detail and we are satisfied that there is full proof
case of oppression. But at the same time we do not feel inclined to pass an
order for winding up of the company because it will not be in the interest of
the company nor to the interest of the parties. Therefore, we allow the appeals
and set aside the impugned order dated 31.3.2005 passed by the learned Single
Judge of the High Court and pass limited direction that all the resolutions
which have been passed by the Board of Directors, or in the Annual General
Meeting or Extraordinary General Meeting with regard to the raising of funds of
Rs.40 lakhs in the meeting of 19.4.1995 and the meeting dated 16.2.1996 whereby
the appellant No.1 was stripped off of his powers as Managing Director, the
resolution by which Dr.Binod Prasad Sinha was removed from the office of
Director and other resolutions by which the shares were allotted to the
subsidiary company of Sajal Dutta or other persons are bad and we restore the
position ante 19.4.1995 and direct that let a fresh meeting be convened and
proper decision be taken in the matter in the interest of the company. We
confirm the order and direction of the CLB.
Let a
Board meeting be convened with 21 days notice to all the Directors by
registered post at their NRI address in India as well as USA. The meeting shall be chaired by
Dr. Kamal Kumar Dutta, Managing Director. In case any of the NRI Directors is
unable to attend the meeting, he will have a right to make nomination. We again
make it clear that all the resolutions are set aside with regard to raising of
funds dated 19.4.1995, removal of Dr. Binod Prasad Sinha from Board of
Director, outstripping of Dr.Kamal Kumar Dutta from the Managing Directorship,
allotment of shares to Sajal Dutta's companies & to others and all other
resolutions which adversely affect Dr.Kamal Kumar Dutta and Dr. Binod Prasad Sinha.
Let a fresh meeting of the Board of Directors be convened with Dr. K.K. Dutta
as Managing Director and proper resolution be passed in the interest of the
company in accordance with law. No order as to costs.
Back
