TaxTMI 
TaxTMI 
2006 (8) TMI 313
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....d 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 entrepreneur, 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 per cent 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 ('SIA') approved the NRI investments in the said company. 4. Dr. Kamal Kumar Dutta was one of the first Directors of the said company and with Dr. Binod Prasad Sinha held 52.74 per cent of the equity shares in the said company. Apart from that Dr. Kamal Kumar Dutta contributed Rs. 3 crore for the purpose of importi....
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....petition under sections 397 and 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 per cent 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. 7. 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 unreasonab....
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....s 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 lakhs equity shares of Rs. 10 each at par to such persons or corpor....
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....roval 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 post....
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....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. 9. 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. 10. 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....
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....he 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. 13. 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 ma....
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....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. 16. 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 v. N. Subbiah Choudhury AIR 1957 SC 540 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 v. Eastern Tea Estate (P.) Ltd. [1988] 1 SCC 523 and in the case of Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co. [2003] 117 Comp. Cas. 6511 (Bom.). As against this, learned senior counsel for the appellants submitted that section 10F of the Act came into being with effect from 31-5-1....
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....ed 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 and 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 and 398 of the Act, the appeal used to lie before the Division Bench of the High Court. But after....
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....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 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 thereunder 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 Divi....
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....igant's of substantive right conferred by the statute. We have already explained above that earlier the power under sections 397 and 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 433 of the Act. But that is not the situation in the present case. Therefore, this decision cannot be of any help to respondents. 19. In this connection, our attention was invited to a decision of the Bombay High Court in the case of Maharashtra Power Development Corpn. Ltd. (supra). 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 and 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 sha....
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....ull Bench of the Kerala High Court in the case of Kesava Pillai Sreedharan Pillai (supra). 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. 21. 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 and 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 and 398 of the Act. Sections 397 and 398 of the Act read as under : "397. Application to Tribunal for relief in cases of oppression.-(1) 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. (2) If, on any application und....
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.... 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 ....
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.... 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. 22. In this connection, our attention was invited to a decision of this Court in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351. In this case, their Lordships after examining the scope of section 397 vis-a-vis section 210 of the English Act vis-a-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 section 399 to apply to the court for relief under section 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 man....
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....ase of M.S. Madhusoodhanan v. Kerala Kaumudi (P.) Ltd. [2003] 46 SCL 695 (SC), 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. 24. In the case of Dale & Carrington Investment (P.) Ltd. v. P.K. Parthapan [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 opp....
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....o him. However, the net result was that allotting additional shares to minority shareholders on the facts of the case was set aside. 26. 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. 27. In Halsbury's Laws of England, 4th Edn., Vol. 7, para 1011, it is stated: "1011. 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 op....
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....ituation 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. 29. 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 per cent and the share of Dr. B.P. Sinha being 6.365 per cent the total share of both of them comes to 52.74 per cent and the share of Sajal Dutta is 46.26 per cent. Thus, the company was floated by Dr. K.K. Dutta alon....
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....lutions 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 Extraordinary 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, 19-4-1995, 9-2-1996 and 16-2-1996." T....
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.... 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....
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....anted permis- sion 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 secondhand medical equipments supplied by the appellant No. 1 was reversed. Then the appellants filed application under sections 397 and 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....
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.... 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. 32. 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 ....