TMI Blog2006 (8) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - CIVIL APPEAL NO. 3471 OF 2006 - - - Dated:- 11-8-2006 - H.K. SEMA AND A.K. MATHUR, JJ. Dr. A.M. Singhvi, M.L. Lahoty, Amit Bhandari, Yogesh Jagia, Paban K. Sharma, Ms. Hetu Arora and Ms. Poonam Lahoty for the Appellant. F.S. Nariman (N.P.), T.R. Andhyarujina, S.N. Mookherjee, Pallav Sishodia, Tarun Aich, Raj Rattan Sen, Ms. Meghalee Barthakur, Ms. Nupur Singh, Ms. Kanika Gomber and Rajan Narain for the Respondent. JUDGMENT A.K. Mathur, J. - Leave granted. 2. These appeals are di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Dutta on 22-3-1997 but the same was withdrawn on 20-5-1998 at the instance of the company.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. 6. In fact, this Ruby General Hospital Limited was established in memory of late wife of Dr. Kamal Kumar Dutta. Since Dr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmission 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 Kumar 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll and void, as the general proposition of law is that proceedings of Board meetings without notices to a director cannot be recognized." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 12. 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 appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petition under sections 397 and 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 pre-conditions 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 v. Bagress Cereals (P.) Ltd. [2001] 105 Comp. Cas. 493 1 (SC) 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. 14. Aggrieved against this order passed by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 recommendation 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 recommendation, this amendment was brought about. In support of this contention learned senior counsel invited our attention to the following decisions : ( i ) P.S. Sathappan v. Andhra Bank Ltd. [2004] 11 SCC 672. ( ii ) Subal Paul v. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 397 and 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 v. N. Subbiah Choudhury AIR 1957 SC 540 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 exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 sections 397 and 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode 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 Corpn. Ltd. ( supra ) cannot be said to be the correct proposition of law. 20. In this connection, our attention was invited to a Constitution Bench decision in the case of P.S. Sathappan ( supra ). In this case, the Constitution Bench observed as follows : "From section 100A 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 100A , 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 100A, 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 100A nor section 104(2) barred a letters patent appeal. The words used in section 100A are not by way of abundant caution. By the Amendment Acts of 1976 and 2002 a specific exclusion is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained of, make such order as it thinks fit. 398. Application to Tribunal for relief in cases of mismanagement. (1) Any member 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 and 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 Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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." (p. 364) Following the English cases referred to in Kalinga Tubes Ltd. ( supra ), similarly in the case of Needle Industries (India) Ltd. v. Needle Industries Newly (India) Holding Ltd. [1981] 3 SCC 333, 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." (p. 367) In the case of Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 10 SCC 696, 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 knowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed 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. 25. In the case of Sangramsingh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 57 SCL 476 (SC) 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 bona fidely 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-a-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. If is also beyond any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionship 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 ." 28. 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and 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 11.00 A.M. by the Chief Minister of West Bengal, maintenance of books of account 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, mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 per cent 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. 30. 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 vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. 33. 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 and 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 prope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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