2006 (8) TMI 313 - SC - Companies Law

Prima facie oppression found but winding up denied; disputed 1995 and 1996 resolutions void, company restored, fresh meeting ordered

SC found a prima facie case of oppression but declined to order winding up. The SC set aside the Single Judge's HC order and upheld the CLB's limited ... Oppression and Mismanagement - Allotment of Shares and RBI Approval - Whether the petition filed by Dr. Kamal Kumar Dutta would justify the order passed by the CLB or not? - Whether a case of oppression in the interest of the members is made out or not? Held that:- 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, as 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. Issues Involved:1. Oppression and Mismanagement under Sections 397 and 398 of the Companies Act, 1956.2. Validity of Board Meetings and Notices.3. Allotment of Shares and RBI Approval.4. Maintainability of Appeal under Letters Patent.5. Reliefs granted by the Company Law Board (CLB).Detailed Analysis:1. Oppression and Mismanagement under Sections 397 and 398 of the Companies Act, 1956:The appellants filed a petition under sections 397 and 398 alleging various acts of oppression and mismanagement in the affairs of the company. The main grievance was the denial of shares for medical equipment worth Rs. 3.5 crore supplied by Dr. Kamal Kumar Dutta and his consequential ousting from the company's management. The CLB found that the actions of the company, particularly those of Sajal Kumar Dutta, were oppressive and prejudicial to the interests of the appellants. It was observed that the resolutions passed by the Board of Directors, particularly the one on 19-4-1995, were aimed at reducing the appellants' shareholding and control over the company.2. Validity of Board Meetings and Notices:The CLB found that the notices for Board meetings were not properly served to the appellants, who were NRIs. Notices were sent to local addresses in India, which was against the provisions of the Articles of Association. The CLB held that the decisions taken in these Board meetings were null and void due to the lack of proper notice. The CLB emphasized that the appellants, being substantial shareholders and first directors, should have been given notices at their addresses in the USA.3. Allotment of Shares and RBI Approval:The CLB examined the issue of allotment of shares against the value of imported medical equipment. Despite the Reserve Bank of India (RBI) granting permission for the allotment of shares to Dr. Kamal Kumar Dutta, the company challenged this approval multiple times through writ petitions. The CLB noted that these actions were part of a deliberate attempt by Sajal Kumar Dutta to deny the appellants their rightful shares and control over the company.4. Maintainability of Appeal under Letters Patent:The respondents raised a preliminary objection regarding the maintainability of the appeal under clause 15 of the Letters Patent. The Supreme Court held that after the amendment of the Companies Act, the power under sections 397 and 398 was given to the CLB, and appeals against CLB orders lie to the High Court under section 10F. The Supreme Court clarified that no further appeal lies against the order of the learned Single Judge of the High Court due to the non obstante clause in section 100A of the Code of Civil Procedure, which bars intra-court appeals in such cases.5. Reliefs Granted by the Company Law Board (CLB):The CLB issued several directions, including:- Declaring the vacation of office by the directors as unsustainable.- Directing future notices for Board meetings to be sent by registered post to the NRI directors' addresses in the USA.- Suspending the voting rights of shares allotted in Board meetings on 12-3-1996 and 24-7-1996 until the outcome of proceedings before the Calcutta High Court.- Maintaining the status quo regarding the composition of the Board and the share application money until the High Court's decision.The Supreme Court upheld the CLB's findings and directions, setting aside the order of the learned Single Judge of the Calcutta High Court, which had dismissed the petition under sections 397 and 398. The Supreme Court restored the position ante 19-4-1995 and directed the convening of a fresh Board meeting with proper notices to all directors. The meeting was to be chaired by Dr. Kamal Kumar Dutta, and all resolutions adversely affecting the appellants were set aside. The Court emphasized the need for decisions to be made in the interest of the company and in accordance with the law.