TaxTMI 
TaxTMI 
TaxTMI 
2008 (2) TMI 624
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....on No. 63 of 2005 before the Company Law Board, Additional Principal Bench, Chennai under sections 397 and 398 read with sections 402, 403 and Schedule XI of the Companies Act, 1956 are the appellants [Petitioners in SLP (C) No. 19882 of 2006]. For convenience, we shall refer the parties as arrayed in Company Petition No. 63/2005 on the file of the Company Law Board (in short 'CLB'). 4. According to the petitioners, they were collectively holding in excess of 1/10th of the issued share capital of M/s. Westfort Hi-Tech Hospital Limited (hereinafter referred to as 'the Company'). Aggrieved on account of a series of purported acts of oppression and mismanagement in the affairs of the Company, namely, illegal (a) convening of the eleventh annual general meeting; (b) issuances of further shares on right basis; (c) exclusion of the petitioners from the office of directors; (d) election of respondents 16 to 24 as Directors; (e) transfer of shares; (f) breach of fiduciary duties by respondent Nos. 2 & 3 towards the Company as Directors; (g) manipulation of minutes of the meetings and other records; (h) statutory violations; (i) irregularities in relation to the Investigation Centre in the....
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....ound up, the Company and its shareholders would seriously be prejudiced. There are no charges of financial irregularities in the affairs of the Company levelled against the respondents. The petitioners and respondent No. 14 though continued to be Directors since the year 1998 hardly attended the Board meetings from time to time. When the petitioners were not elected by the members at the eleventh annual general meeting, they have come out with the petition with untenable allegations. Every Director other than respondent Nos. 2 and 3 is bound to retire one day or the other. Any grievance in the capacity as Director cannot be remedied under section 397 of the Act. No relief under section 397 would arise if the conduct complained of by the petitioner does not relate to his status as a shareholder. In addition, respondent Nos. 2 and 3 also furnished various details in support of their stand and pleaded for dismissal of the Company Petition. 7. With the above pleadings and after elaborate arguments and framing the main issue namely, 'whether the petitioners have made out a case under sections 397 and 398 and are entitled for the reliefs claimed in the Company Petition', the CLB, on 5-7....
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....ry. (VII)The Chairman of the meeting will forward a report on the proceedings of the twelfth annual general meeting within a week from the conclusion of the twelfth annual general meeting of the company. With the above directions, the company petition stands disposed of. No order as to costs." Aggrieved by the above order, respondents 1 and 2 i.e., M/s. Westfort Hi-Tech Hospital Ltd. and its Chairman, K. Mohandas filed Company Appeal No. 14 of 2006 before the High Court of Kerala. By the impugned judgment, the Division Bench of the High Court, after taking note of pleadings of both the parties, rival contentions and materials placed before it, partially allowed the appeals and partially set aside the order of the Company Law Board. The operative portion of the impugned order of the High Court reads as follows :- ". . . . We hold that the general body meeting was held with valid notice. Issuance of right shares needs no interference and Company Law Board went wrong in setting aside the issue of duplicate shares to Purushothaman and subsequent transfer of his shares. We also hold that re-appointment of the retired directors after the date fixed for annual general body meeting is ....
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....e a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Court is of opinion- (a)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 (b)that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would be justified 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. 398. Application to Tribunal for relief in cases of mismanagement.-(1) Any members of a company who complain- (a)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 (b)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 man....
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....ssive under sections 397 and 398, the discretionary power given to the Company Law Board under section 402 to set right, remedy or put an end to such oppression is very wide. (f)As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact. 11. Before going into the claims of both parties, it is useful to refer the scope of section 10F of the Companies Act which provides appeal against the order of the Company Law Board. Section 10F reads as under : "10F. Appeals against the order of the Company Law Board. - Any person aggrieved by any decision or order of the Company Law Board made before the commencement of the Companies (Second Amendment) Act, 2002 may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order : Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not e....
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....ffer directorship to such contributors. It is the grievance of the petitioners that the second respon-dent in spite of getting substantial money towards share capital did not fulfil the promise made by him as per his letter dated 4-12-2001 addressed to the petitioners. On this aspect, the CLB while accepting the stand of the petitioners has concluded that there is a 'legitimate expectation' in favour of the petitioners 1-4 for their continuance in the Board of Directors of the Company. 14. The issue of re-appointment of retired directors on the theory of 'legitimate expectation' was considered by the High Court in detail. It is the stand of the second respondent (Chairman of the Company), that there was no specific promise that these petitioners would be given directorship permanently. The materials placed and discussed before the CLB show that there was full disclosure of retirement of one-third directors and election to that place are in accordance with the Act and Articles of Association and theory of 'legitimate expectation' has no application. It was also highlighted before the CLB as well as the High Court that out of eight directors elected, six were not related to Chairman....
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....at even though the CLB has noticed respondent No. 14 who was acting in association with the petitioner Nos. 1-4 in the affairs of the company and respondent Nos. 6-9 other directors participated in the AGM held on 29-9-2005 raised an apprehension that whether mere knowledge of the meeting would tantamount to serving notice in terms of section 172. Section 172 of the Act speaks about the contents and manner of service of notice and persons on whom the same is to be served. Sub-section (1) mandates that every notice of a meeting of a company shall specify the place, the day, hour of meeting and shall contain a statement of business to be transacted thereat. Sub-section (2) mandates that notice of every meeting of the company shall be given to (i) every member of the company, in any manner authorized by sub-sections (1) to (4) of section 53; (ii) persons entitled to a share in consequence of the death or insolvency of a member, by sending it through post in a pre-paid letter addressed to them by name in India supplied for the purpose by the persons claiming to be so entitled or until such address has been so supplied (iii) the auditor of the company, in any manner authorized by sectio....
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....e given under certificate of posting as provided under section 53 (1) and (2) and evidence for the same were also produced. As pointed out earlier, the first petitioner, being a party to the Board Meeting wherein date, place and agenda of the AGM were fixed, cannot make a complaint along with his supporters that they did not receive notice of the meeting. The materials placed clearly show that NRI directors participated in the meeting and respondent No. 14 who was acting along with the appellants had also participated. Section 172 as well as section 53 emphasized 'giving notice'. We have already adverted to how notice should be given for AGM as per section 172 (2) and section 53 (1) and (2) of the Act. In view of the fact that the company has placed materials to substantiate that notices, in terms of the above provisions, were given, as rightly pointed out by learned senior counsel for the contesting respondents, statutory presumption under section 53 will apply though the said act is rebuttable. In view of the fact that there are materials to show that notices were sent, the burden is on the addressee to rebut the statutory presumption. The High Court, on verification of those mat....
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....subsequently mentioned. It was also demonstrated before the CLB and the High Court that proper advertisement in the Indian Express and Deepika were given in terms of section 157(1A) of the Act. Though the CLB has not accepted the same, the High Court has rightly found that the same was in compliance with the statutory provisions. There is no error or illegality in the said finding of the High Court. 20. The next issue relates to re-appointment of retired directors on the theory of legitimate expectation which we have already discussed in the earlier paragraphs. However, the High Court found that appointment of 8 directors without a 'specific agenda' is irregular due to technical reason and that as per the agenda only 6 directors can be elected. We agree with the said conclusion. 21. Now coming to the next issue, namely, allotment of 'right shares' to the public, the CLB has concluded that without a 'special resolution' by 2/3rd majority shareholders cannot be offered to outsiders. Inasmuch as the abovesaid conclusion is in terms of the statutory provisions, the High Court has rightly approved the same and we are also in agreement with the said conclusion. In this respect, it is u....