TMI Blog2012 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... er preventing holding meetings as mentioned in the above notices. It ought to have permitted them to be held - A.P.O.T. NO. 319 OF 2008, ACO NO. 64 OF 2008 - - - Dated:- 28-3-2012 - I.P. MUKERJI, J. JUDGMENT 1. The Background Facts: Dr. Kamal Kumar Dutta and Mr. Sajal Dutta are two brothers. Kamal is a medical practitioner and permanently resident in the U.S.A. Dr. Binod Prasad Sinha is another doctor permanently resident in the U.S.A. and known to Kamal. These three at one point of time which now seems quite distant, got together and promoted a hospital in Kolkata by incorporating a public company. Its name is Ruby General Hospital Limited. The hospital was named Ruby General Hospital in remembrance of the deceased wife of Kamal. It got started in 1995. The then Chief Minister of West Bengal inaugurated it. This amity did not last long. The brothers fell apart. Proceedings were undertaken before the Company Law Board by Kamal and Binod, in 1997. They had filed an application under Section 397-399 of the Companies Act, 1956 complaining of oppression and mismanagement by Sajal. The order of the Company Law Board dated 29th October, 1999 was to a great extent favoura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same kind of an order was passed and resulted in the same kind of consideration by the Reserve Bank of India. Therefore, the third writ. This dispute was taken to the Company Law Board where the order dated 29th October, 1999 was passed which was challenged in this Court, as stated before. The Supreme Court by its judgment and order delivered on 11th August, 2006, inter alia , opined the following: "48. Since the issue of granting of equity shares against the medical equipments supplied by Appellant 1 to the tune of Rs. 3.5 crores is pending before the Calcutta high Court in a writ petition, therefore, 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 in 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 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta is 46.378% and the share of Dr. B.P. Sinha being 6.3650/o, 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 crores 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 showed some profitability then the trouble started brewing which led Dr. Dutta and Dr. Sinha to file the petition before CLB under Sections 397 and 398 of the Act in 1997. The seed of discord started with the meeting 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 Directors 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the answering respondent has given all other resolutions, he has purposely and intentionally not given the copies of the resolution passed on 12-3-1996, 17-2-1996, 19-4-1995, 9-2-1996 and 16-2-1996." 46. CLB has in minute detail discussed with regard to all the resolutions which we have already adverted to. No proper notice was served on Appellant 1 who is a major shareholder of the Company or on Appellant 2. If the Board meeting had been convened without proper service of notice on the appellants by Respondent 2 then such Board meeting cannot be said to be valid. Mr Nariman however tried to explain various meetings and their subsequent confirmation by the 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 a subtle attempt was made to show that several notices were given to the major shareholders of the Company at their local addresses in India knowing fully well that both the appellants are NRIs. The outstanding feature is that Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, to oust him from the Managing Directorship and to instal 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. 47. Apart from this, one of the most important feature which has weighed with us is that Dr. Kamal Kumar Dutta brought second-hand equipments, those were cleared by the Customs and permission was g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s passed by the High Court. The subtle attempt on the part of Respondent 2 was only to somehow oust Appellant 1 of his majority by nullifying the order passed by RBI so that the shareholding of the appellant is reduced otherwise against the equipments supplied by Appellant 1 to the tune of Rs. 3.5 crores, 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 Appellant 1. These attempts speak volumes in the subtle design on the part of Respondent 2 to somehow see that the holding of Appellant I is reduced and the management is passed on to his hands by outstripping Appellant 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 the Calcutta High Court at the expense of the Company adversely affected the interest of the Company. It this is not the oppression of the member under Section 397 and bringing material change in the management under Section 398 then w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting. The minutes of the board meeting were signed by him. The company took steps to complete the accounts. Financial annual accounts of the company for the period between 1997-98 and 2002-03 were approved by the Board on 23rd June, 2007 and forwarded to the statutory auditors for audit. After receiving the audited accounts the directors' report for the concerned years were also prepared. Board meetings were held on 22nd March, 2008, 29th March and 5th April, 2008. In these meetings the representations made by Sajal were noted. The board wanted to issue separate notices for convening the 7th to 12th annual general meetings. Such notices were issued on 28th May, 2008. Meanwhile Sajal had filed new proceedings under Section 397/398 of the Companies Act being C.P. No. 53 of 2007. The company was in default in holding Annual General Meetings of the appellant company for the period of 1997-98 to 2002-03. Sajal was in management during this period of time. The first order of injunction restraining holding of annual general meetings was passed on 14th December, 1999. It was continued till it was discharged on 11th August, 2006. The notices proposed by the new board contained th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are purporting to treat such investment as a "disputed liability". The Supreme Court has described its directions as limited directions. It has confirmed the order of the Company Law Board. What was contemplated by the Supreme Court was a Board Meeting after restoration of status quo ante 19th April, 1995. The Company Law Board also requires status quo with regard to the Board of Directors to be maintained till disposal of the writ proceedings in the Calcutta High Court being W.P. No. 1157 of 2004. Therefore, Sajal Dutta cannot be retired or removed as a director. The Supreme Court did not remove the respondent no. 1 as a director. The Company Law Board by its order dated 29th March, 2010 had restrained holding of an extraordinary general meeting on 3rd April, 2010 further to a notice dated 12th March, 2010, which the appellants have suppressed. The impugned order of the Company Law Board is a discretionary order. No grounds have been made to interfere with such discretion. The following accounting entries are challenged: ( a ) Treating medical equipment supplied by the appellant no. 2 as a fixed asset. I.T. Returns filed after the appellant no. 2 took over the affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time appointed by the Companies Act. It was on an application, under Section 633 (2) of the Companies Act, by the directors of a company seeking permission of the Court to hold the annual general meetings beyond time. The learned Judge held the following in paragraph 19 of the judgment: "19. The annual general meeting therefore, in case of default, can only be called by either the directions of the Registrar within the exemption under section 166 (1) of the Companies Act or by the Central Government under section 167 of the Act. I am, therefore, disinclined to so interpret section 633 of the Companies Act and sub-section (2) thereof as to whittle down the clear prohibition upon the Court to grant any extension of time with regard to calling, holding and conducting of an annual general meeting. I wish to emphasise again that the language of section 633 of the Companies Act is confined to relieve an "officer" of the company, and not intended to relieve the company from holding its annual general meetings and suspend the operation of the relevant mandatory provisions of the Companies Act and extend time to hold Annual General meetings. The analogy of the English law is mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod prescribed therefor having expired. In Coal Marketing Co. of India P. Ltd. , In re [1967] 37 Comp Cas 720; AIR 1968 Cal 119, the company court opined that it had no authority to extend the time for a company to hold its annual general meeting beyond the prescribed period. That was in the context of the jurisdiction of the company court under section 633(2) of the Act and the dictum cannot be extended to imply that a civil court in an appropriate action would not have the authority to direct a company to hold its annual general meeting despite the period prescribed by statute having expired. 29. The present suit has been instituted by a member, in effect, for the benefit of the company and, consequently, for the benefit of all members of the company. Advertisements under Order 1, rule 8 of the Code of Civil Procedure, 1908, have been published. Any order passed in the present proceedings will not only bind the company but will also bind all its members. There is no impediment that is apparent to the issuance of a direction to compel this company to hold the annual general meetings for which it is in default. However, the 64th annual general meeting of the company that had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to approach the Company Law Board even if they propose to rectify their mistake and by giving penalty prescribed under section 168 of the Act for the default already committed, decide to call a meeting of the AGM beyond the time prescribed by law. The object of the said provision, in our view, is to give right to a member of the company to approach the Company Law Board if the existing management of the company avoids facing the share holders by not calling any AGM and a the same time, retains the office. But by that provision, the right of the Directors of the company to call AGM beyond the date prescribed under section 166 of the Act is not taken away. 14. As we intend to take a view which is in conflict with the one taken in the past by another Division Bench of this Court, we propose to refer the matter before the Hon'ble Chief Justice for constituting a larger Bench for deciding the following questions of law before proceeding further: (1) whether after the expiry of the period mentioned in section 166 of the Act, the Directors of the company become incapable of calling an AGM except by taking recourse to section 167 of the Act on the basis of the order passed by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y would lose its power to convene the general meeting. The registrar would lose it after three months. Nobody in the company would have the power to convene it. It would indeed be a very unsatisfactory state of affairs. Therefore, I feel reasonably free from doubt that a company can convene an annual general meeting beyond time but subject to payment of penalty. Furthermore the civil court has, also ample power to extend the time for holding the annual general meeting by a company. In my further opinion, this Court while exercising jurisdiction as a Court of Appeal from a decision of the Company Law Board has the same powers of the Company Law Board under section 402(a). The Company Law Board has the power to regulate the conduct of the company's affairs which may include setting terms for convening and holding annual general meetings. The High Court enjoys the same power. It is the submission of the respondents that the Supreme Court directed immediate convening and holding of meetings. The notices for holding the annual general meetings were issued on 28th May, 2008. Since there was this delay the Board of Directors had lost the power given to them by the order of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt had no hesitation in holding that there was a "full proof case of oppression". Yet it was not inclined to pass an order of winding up of the company as it was neither in the interests of the company nor in the interests of the parties. The appeals were allowed and the judgment and order of this Court made on 31st March, 2005 was set aside. The Supreme Court said that it was passing a limited direction that the resolution which had been passed by the Board of Directors or in the Annual General Meeting or Extraordinary Meeting recording raising funds of Rs. 40,00,000/-, on 19th April 1995 was set aside. The resolution taken in the meeting held on 16th February, 1996 where Kamal Dutta was removed as managing director and where Dr. Binod Prasad Sinha was removed as Director was also set aside. The other resolutions where shares were allowed to the subsidiary companies of Sajal Dutta were also set aside. The Supreme Court restored the position ante 19th April, 1995. It directed that a fresh meeting be convened and a proper decision be taken in the "in the matter and in the interests of the company". The order of the Company Law Board was confirmed. The Supreme Court direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esses of the NRIs directors at their usual addresses in USA/other countries and to the Indian directors at their addresses in India. WE also stipulate that NRI directors will have the right to appoint alternate directors and if the right is exercised, then, the alternative directors will also be given notices as stipulated above. 2. The shares allotted in the Board meetings on 12.3.90 and 24.7.96 will not have any voting rights till the outcome of the proceedings in Calcutta High Court is known. 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 respondent's group. 3. The petitioner/respondent are at liberty to invest more funds in cash in the company towards share capital but the same will be kept as share application money till the disposal of the High Court proceedings and subject to other approvals as may be necessary. 4. Since our object is to maintain the status quo till the date of the matter in the Calcutta High Court, there will be no change in the composition of Board other than that the two petitioner directors will function as directors in addition to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board decided to take action to regularise the import of second hand equipment in its meeting on 16.2.1996, he did not seem to have followed upon this decision. Being the nominee of the Institution which had lent a substantial amount of money, his objective should have been to ensure proper functioning of the management which would enable the company to refund the loans but the facts reveal otherwise. We dispose of this petition with the above directions and observations. NO order as to costs." CONCLUSIONS Now let us see what is the combined effect of the Supreme Court order read with the Company Law Board order. Leaving aside the dispute about allotment of shares of the alleged value of equipments imported by Kamal claimed to be Rs. 3.5 crores, it has been held that the percentage of paid up share capital held by Dr. K.K. Dutta and Dr. B.P. Sinha were 46.378% and 6.365% respectively aggregating to 52.74% and of Mr. Sajal Dutta 46.26%. Now, the Board of Directors of the company immediately ante 19th April, 1995 has first to be reconstituted. Dr. K.K. Dutta and Dr. B.P. Sinha cannot be said to have vacated their offices under Section 283 (1) (b) of the Companies Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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