SUPREME COURT OF INDIA
Kamal Kumar Dutta and Another
Vs
Ruby General Hospital Limited and Others
Appeal (Civil) 3471 of 2006 (Arising Out of S.L.P.(c) Nos.11017-11018 of 2005)
(H. K. Sema and A. K. Mathur, JJ)
11.08.2006
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 and in the case
of Maharashtra Power Development Corporation Limited vs. Dabhol Power Company
& Ors. reported in 2003 Indlaw MUM 316.
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.
(i) [P.S.Sathappan (dead) by LRs. Vs. Andhra Bank Ltd. & Ors.]
(ii) 2003 (10) SCC 361 [Subal Paul vs. Malina Paul & Anr.]
(iii) 2003 Indlaw AP 108 [ Gandla Pannala
Bhulaxmi vs. Managing Director, APSRTC & Anr.]
(iv) 1986 Indlaw KER 108. [Rev. C.S.Joseph
& Ors. Vs. T.J.Thomas & Ors.]
(v) 2003 Indlaw KER 203 [ 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 . 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
Indlaw MUM 316. 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 LRs. Vs. Andhra Bank Ltd. & Ors.
reported in . In 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 2003 Indlaw AP 108, 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 2003 Indlaw KER 203. 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:
“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 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 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.
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 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. (2) 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 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),
similarly in the case of Needle Industries (India) Ltd. & Ors. Vs. Needle
Industries Newey (India) Holding Ltd. & Ors. reported in , 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 0, 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 56, 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 , 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 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 :
“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 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 :
“64-02. 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.