TaxTMI 
TaxTMI 
2005 (3) TMI 797
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....to establish a hospital-cum-advanced diagnostic facility at Calcutta. The cost of the project would be about Rs. 11 crores out of which the share capital would be Rs. 9 crores and Rs. 8 crores out of the said share capital would be by way of NRI participation. Therefore, 88.88 per cent, cost of the project were NRI investments in shares and balance by resident Indians. 5. Dr. Kamal Kumar Dutta was one of the first directors of the said company and Dr. Binod Prasad Sinha held 52. 74 per cent, of the equity shares in the said company. Apart from that Dr. Dutta contributed Rs. 3 crores for the purpose of importing medical equipment and the shares towards the said investments, being the value of the equipment, should be allotted to Dr. Dutta. A loan was granted for a sum of Rs. 4.6 crores by the IDBI for the said project. The grievance of Dr. Dutta the said allotment was denied by one of the appellants herein Sajal Kumar Dutta, who is the younger brother of Dr. Dutta and he was brought in the company by Dr. Dutta. Shares were not allotted to Dr. Dutta on the ground that the equipment was second hand. Subsequently, shares were allotted to others denying the rights of Dr. Dutta. Dr. Dut....
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....er 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 respondent's group. 3. The petitioner/respondent is at liberty to invest more funds in cash in the company towards share capital but the same will be kept as share application money till the disposal of the High Court proceedings and subject to other approvals as may be necessary. 4. Since our object is to maintain the status quo till the disposal of the matter in the Calcutta High Court, there will be no change in the composition of board other than that the two petitioner directors will function as directors in addition to the existing directors. 10. The learned Company Law Board also expressed their views on behalf of role of the IDBI nominee in the board which are as follows (page 346 of 108 Comp Cas) : Thus, his role, instead of being constructive, led to the widening of the differences between the parties. Further, he also seems to have allowed allotment of shares without specific approval from the IDBI as is evident from the letter of IDBI at annexure K. Further, when the board decided to take action to regularise the impo....
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....19,1995, the board meeting was held in which the resolution was passed to convene an extraordinary general meeting (hereinafter referred to as "EOGM") to pass resolution under Section 81(1A) of the said Act to issue and allot 40 lakhs equity shares of Rs. 10 each at par on the basis of private placement. Dr. Kamal Kumar Dutta was present at the said board meeting (minutes appearing at volume III, pages 1411-1415 of the paper book). He did not raise any dispute with regard to such meeting or such resolution. 16. He further contended that on February 16, 1996, the board meeting of the company was held (minutes appearing at volume I, pages 647-649) and Dr. Kamal Kumar Dutta and the nominee director of IDBI were also present. Admittedly, Dr. Dutta informed the board of directors that it was not possible for him to invest any further amounts in the company in the near future and as far as payment to the IDBI and meeting other financial commitments of the company were concerned and necessary funds were to be arranged by Sajal Kumar Dutta. 17. He further submitted that there is no contemporaneous complaint with regard to such minutes, though it is in the affidavit. Mr. Sen submitted tha....
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....akhs out of the sanctioned loan amount of Rs. 460 lakhs. Bonus to the workers were paid, municipal taxes, TDS, PF payments were due on that date. On February 16, 1996, the bank balance of the company was 2.21 lakhs. On February 16, 1996, the board mewing was held and the IDBI nominee wanted to know the repayment schedule for the outstanding dues to the IDBI. Dr. Dutta refused to invest further funds and on March 12, 1996, again the board meeting was held and the nominee of the IDBI was present and Sajal Kumar Dutta stated that due to inadequate generation of funds the company was unable to clear the dues of the IDBI since October, 1995. On March 14, 1996, the IDBI issued letter recording default of payment of interest and asked for payment. On March 26, 1996, Rs. 21 lakhs was paid to the IDBI by the company and in fact Rs. 22 lakhs were brought in by Sajal Kumar Dutta. Dr. Dutta never disputed the said fact. On March 31, 1996, it would show from the annual accounts that there was a loss of Rs. 115 lakhs. A huge outstanding to the suppliers over six months and the turnover of the company was Rs. 102 lakhs whereas the projected turnover as per the IDBI appraisal was Rs. 352 lakhs. 2....
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....th v. Smt. Meena Devi, AIR1976All64 ; Hamida Bi v. Abdul Gaffar [1933] AIR 1933 Rangoon 147 and Salil Dutta v. T. M. and M. C. Private Ltd. [1993]1SCR794 . 27. He further contended that before the said letter dated April 30, 1996, was issued by reason of the allotment of shares on March, 12, 1996, Sajal Kumar Dutta and his group became a majority. Therefore, the finding of the Company Law Board that everything happened after the letter dated April 30, 1996, is not correct (internal page 21, para. 23 of the Company Law Board's judgment). 28. He further submitted that all the complaints made by Dr. Kamal Kumar Dutta in respect of fabrication, manipulation, ouster of Dr. Dutta are with regard to acts which have occurred in July/August, 1996. Therefore, there cannot be any complaint with regard to issue and allotment of shares on March 12, 1996. 29. According to him in any event issue and allotment of shares were made for the benefit of the company. There is no finding of the Company Law Board that there was no illegality for such issue and allotment of shares. In any event Dr. Dutta having asked for setting aside of the allotment cannot ask for transfer of shares. The petitione....
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..... Pari Dutta 2,180 0.222 5. Mr. Sajal Dutta 60 0.006 6. XL Enterprises Pvt. Ltd. 75,000 7.634 (company owned by Mr. Sajal Dutta) 3,87,030 39.394 7. XL Fashions Pvt. Ltd. (company owned by Mr. Sajal Dutta) Total 9,82,470 100.00 32. Therefore, it would be evident from the admitted position of Dr. Dutta in their first petition before the Company Law Board dated November 22, 1997, stated that Sajal Kumar Dutta and his group companies are the single largest shareholder group in the company. He further submitted that Dr. Binod Prasad Sinha never took any active interest and never participated in the management of the said company. He has neither signed the loan agreement with the IDBI on behalf of the company nor given any personal guarantee in respect of the loan. He never attended any board meeting or any general meeting nor gave any proxies which would show admittedly that he is a dormant shareholder. 33. Therefore, according to Mr. Sen, admitted position at the material time when the petition was presented before the Company Law Board, there were only two groups of contesting shareholders--Dr. Dutta holding 46.38 per cent, and Sajal Kumar Dutta holding 47.03 per cent. According to ....
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....the said sum of Rs. 1 crore. Hence, the question of further investment by him and his group did not and could not arise. The Company Law Board dealt with the matter and has observed as follows (page 336 of 108 Comp Cas) : It is to be noted that by the time when the further allotments were made, the NRI cash contribution with the company was about Rs. 1 crore including shares and share application money ... (appearing at volume III, page 1543 of the paper book) 36. He further submitted that the admitted case of Dr. Dutta is that as on August 5, 1997, the total remittance received from NRIs was Rs. 100,63,730 (Rs. 1 crore). Shares already issued were Rs. 51,81,900 (Rs. 51 lakhs) and balance in share application account was Rs. 48,81,830 (Rs. 49 lakhs). Dr. Dutta by filing an application before the Company Law Board held that the said application would be heard along with the main matter and in the said final order the Company Law Board passed an order restraining any further allotment. After 1996, there has been no remittance from the NRIs. 37. Mr. Sen further submitted that since the Reserve Bank of India's permission was required before allotment of shares for each and ev....
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....The allegation of Dr. Dutta is that the minutes of the board meeting dated February 16, 1996, was fabricated and manipulated cannot be accepted since there is no specific denial of the fact that Dr. Dutta was present and the Company Law Board finding that "petitioner admits that he attended the meeting". No challenge to this finding by Dr. Dutta : There is no specific denial that he had refused to invest further funds ; there is no contemporaneous letter/allegation by Dr. Dutta that the minutes of the meeting dated February 16, 1996, were fabricated ; subsequent to February 16, 1996, Dr. Dutta never corresponded with the company on any matter including the investment of further amounts ; Dr. Dutta has not indicated what according to them is the true version of what transpired at the said board meeting. 41. Mr. Sen further drew my attention to the pleadings of Dr. Dutta filed before the Company Law Board and it has been alleged that fabrication took place from July/August, 1996 (volume I, page 12, para. 8 of the paper book). Therefore, Dr. Dutta cannot make allegation regarding the minutes of February 16, 1996. So far the board meeting of March 12, 1996, Mr. Sen submitted that the ....
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....He attended the board meeting on February 16, 1996. He did not take any steps to comply with the statutory requirements of holding the board meetings of the company every quarter nor even appointed an alternate director and the board meeting held on March 3, 1997, has not been recognised by the IDBI which would be evident from the document dated March 3, 1997, addressed by the IDBI (appearing at page 237 of volume I of the paper book). The board meeting of the company held on April 23, 1997 (appearing at page 240, volume I of the paper book) would be evident from the records. 44. Mr. Sen further submitted that although Dr. Dutta has disputed his cessation of office since April 4, 1997, but he took no steps to redress his grievances by legal proceedings contemporaneously. Form No. 32 was also filed regarding cessation of office by Dr. Dutta as a director under Section 283(1)(g) of the said Act on March 14,1997 (volume IV, pages 1870-1874 of the paper book). 45. He further contended that Section 397 of the said Act itself makes it clear that the oppression is to be qua shareholder. The directorial complaints cannot constitute shareholders oppression, and he relied upon the decision....
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....nagement has been made out by Dr. Dutta nor is there any finding by the Company Law Board in this regard. According to him, Section 398(1)(b) of the said Act can only be applicable when any material change has taken place in management and by reason of such a change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or the interest of the company. The said condition has to be satisfied before Section 398(1)(b) of the said Act is applicable and accordingly, Mr. Sen submitted that during the control of Dr. Dutta the company was making a loss of Rs. 9.50 lakhs per month and loss for the year 1995-96 was Rs. 115 lakhs and the turnover was only Rs. 102 lakhs and subsequently after Sajal Kumar Dutta took over as managing director, the company was benefited and the company wiped out its losses incurred during the tenure of Dr. Dutta and started paying Income Tax and the DRT case was withdrawn by the IDBI in view of regular payments made by the company towards repayment of loan of IDBI. He also drew my attention to the petition filed by Dr. Dutta before the Company Law Board and the statements made by him where it has been started as f....
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.... certification. Dr. Dutta complained to the Department of Company Affairs behind the back of the company and other appellant with the intention to harass the company as to why board meetings are not held when he was fully aware of the High Court order dated April 7, 2000, that the company cannot hold board meetings. Dr. Dutta's statement before the DRT asking the IDBI to proceed against the borrower and dispose of the assets of the company worth Rs. 10 crores would show that he has acted to prejudice the interest of the company. 50. Mr. Sen further submitted that notice of the meeting dated March 3, 1997, including an agenda would show that Dr. Dutta took a joint effort with Arun Saini, Mr. Surendra Joshi, Brig. R. K. Rakshit and others to oust Sajal Kumar Dutta and to take control of the company. Hence, Mr. Sen submitted that the court will also take note of all the conduct of Dr. Dutta to decide the matter. 51. He further contended that the object of Section 397 of the said Act is to provide an alternative way for winding up a company so that the company can function properly for the interest of shareholders as also for the interest of the public. Section 402 of the said Ac....
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....ar Dutta ; (b) Dr. Dutta and Dr. Sinha were shown to have vacated their office of directorship under Section 283(1)(g) of the said Act; (c) refusal of the company to allot shares towards the value of the imported second hand equipment supplied by Dr. Kamal Dutta, the petitioner. 56. According to Mr. Sarkar, Section 81(1)(a) of the said Act stipulates offer to existing shareholders as condition precedent for increase of subscribed capital with exception by passing special resolution in general meeting. According to Sajal Kumar Dutta and others, a special resolution was passed in extraordinary general meeting held on February 17,1996, in pursuance of a notice dated January 24, 1996. According to Mr. Sarkar, no extraordinary general meeting was ever held and records were fabricated and/or manipulated for the purpose to suit Sajal Kumar Dutta's group. He drew my attention to notice for extraordinary general meeting dated January 24, 1996. As per Form No. 23 filed with the Registrar of Companies, date of despatch of notice is stated to be January 22, 1996, but under certificate of posting filed in support of service of notice dated January 24, 1996. Therefore, according to him,....
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....efore this hon'ble court. He further submitted that there was no embargo by reason of the pendency of the proceedings for the Company Law Board to pass final reliefs that were commensurate with the findings contained in the order. 60. Once it had been established that the petitioners have been wrongfully reduced from the majority position to minority, the petitioners were entitled to relief. He further contended that the board meetings convened purportedly to be shown in the absence of the petitioners, such board meetings have been found to be invalid. Once such a finding was reached, the consequential relief ought to have followed. All transactions at such invalid board meetings were required to be held null and void. The issuance of additional shares were required to be declared null and void. This would have resulted in the petitioners being restored to their majority status. In any event, he submitted that the conduct of the Sajal Dutta group having been found to be oppressive and wrongful, they should not be permitted to remain in control by an ineffective order. According to him, there is no infirmity in the order in so far as the pre-condition to be exercised in the lig....
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.... a decision reported in Gluco Series P. Ltd., In re MANU/WB/0093/1984) he also submitted that for the proposition that allotment of shares to convert the majority shareholders into minority is per se oppression. In such a case the impugned allotment can be cancelled. The Board put in place by the oppressor group can be superseded and a general meeting can be called after the cancellation of the impugned shares for the purpose of electing new directors. He also relied upon a decision reported in Tea Brokers P. Ltd. v. Hemendra Prasad Barooah [1998] 5 Comp LJ 463 (Cal) and contended that for the proposition that the original majority shareholders should generally be given the right to buy out the minority shareholders with a view to bring to an end the matters complained of and so the two worrying groups are not left fighting in the company. In another case reported in Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri MANU/WB/0256/2000) and contended that it is not always necessary to expressly record a finding that the facts warrant a just and equitable winding up of the company. In certain cases it is so obvious that it need not be specifically recorded. However, he submitted that in ....
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....le ground for winding up the company. Section 398 of the said Act does not contemplate. Further, it would be evident from Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri MANU/WB/0256/2000) that it is not always necessary to take express finding that it was just and equitable for the company to wind up. In any event, there has been substantial compliance with such requirement of Section 397 of the said Act by the Company Law Board and the grievance of Dr. Kamal Kumar Dutta was that material changes have been brought about in the company which was prejudicial to the company's interest and prejudicial to the shareholders of the company. It has been found as a matter of fact, that by virtue of the allotment of shares, material changes had been brought about. As a result of the finding that the allotment of shares was behind the back of the petitioners, such allotment is liable to be cancelled and the petitioners' majority in the company is liable to be restored. Both the decisions relied upon by Mr. Sen being Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; MANU/SC/0050/1981 : [1981]3SCR698 and Nanalal Zaver v. Bombay Life A....
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....de by the petitioner before the Company Law Board and the oppression as has been stated by the petitioner before the Board which are (a) removal of the petitioners from the directorship ; (b) by allotment of shares to the Sajal Kumar Dutta's group and thereby making the said group as majority shareholders of the company; (c) further that no notice to hold meetings were served on Dr. Kamal Kumar Dutta and Dr. Sinha and the resolution passed in the extraordinary general meeting held on February 17, 1996, and board meetings held on March 12, 1996, and July 24, 1996, and the resolutions passed in the said meetings of the board were bad ; and (d) no notice for the board meetings were received by the petitioners as directors. 69. Further grievance has been made that even assuming that notices were issued, these notices had been issued to the addresses of the petitioners in India while the respondents (Sajal Kumar Dutta and others) were fully aware that the petitioners (before the Company Law Board) resided in USA and the other allegations have been made that the minutes of the meetings were fabricated and further grievances that the allotment of shares in lieu of the equipment impor....
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....d after taking into consideration all the aspects the Company Law Board passed an order in the matter. But it appears to me after carefully scrutinising the judgment of the Company Law Board that there is no finding at all that a just and equitable winding up would unfairly prejudice Dr. Dutta or his group. I feel that it was the duty of the Company Law Board in dealing with a matter under Section 397/398 of the Companies Act to see that a petitioner has to become successful under Section 397 he has to make out a case for winding up of the company on just and equitable ground and further if any order for winding up is made by the court it will prejudice the petitioner and in that case an order under Section 397/398 can be passed. If the said case could not be made out by the petitioner, in that event no relief can be had by the petitioners in regard to Section 397 of the Companies Act. Section 397 of Sub-section (2) of the said Act is set out hereunder : (2) If, on any application under Sub-section (1), the Company Law Board is of the opinion : (a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any memb....
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....operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 : [1959] 29 Comp Cas 1 (HL), the court came to the conclusion that on the facts aggrieved petitioners were substantial shareholders who were reduced to a position of worthlessness because of the misdeeds of the holding company and those who control it. A winding up of a subsidiary would serve no purpose, as upon winding up, the aggrieved shareholders would get a mere nothing. 77. In the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. MANU/SC/0050/1981 : [1981]3SCR698 , where the hon'ble Supreme Court has held that before granting a relief under Section 397 the court has to satisfy itself that to wind up the company will unfairly prejudice the members from complaining of oppression, but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. 78. In a Division Bench decision of our High Court reported in Maharani Lalita Rajya Lakshmi (M. P.) v. Indian Motor Co. (Hazaribagh) Ltd. MANU/WB/0037/1962 : AIR1962Cal127 , the court observed as follows : It is also necessary to emphasise that....
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....pany Law Board did not deal with the matter at all, I do not have any hesitation to set aside the order passed by the Company Law Board. I also express my opinion following the decision of the Division Bench of our High Court in Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri MANU/WB/0256/2000) that the termination of the directorship, even by suppression of notice, or termination of directorship by a show of majority, would not entitle the terminated person to petition for just and equitable winding up is, that there is an appropriate remedy by way of a company suit, which can give the terminated director every relief. If notice has been suppressed, 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. The facts as pleaded by Dr. Dutta, a suit would give him a remedial measure and cannot ordinarily find a petition for just and equitable winding up and I feel that he could obtain each and every adequate relief in the suit court. 82. I am of the opinion that Section 397 contained the essential requirement of the finding of a just and equitable winding up. I....