Companies Act Case Law Kamal Kumar Dutta & Anr Vs Ruby General Hospital Ltd. & Ors

CASE NO.:
Appeal (civil) 3471 of 2006

PETITIONER:
Kamal Kumar Dutta & Anr.

RESPONDENT:
Ruby General Hospital Ltd. & Ors.

DATE OF JUDGMENT: 11/08/2006

BENCH:
H.K.SEMA & A.K.MATHUR

JUDGMENT:
J U D G M E N T
[Arising out of S.L.P.(c) Nos.11017-11018 of 2005]
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 (1988) 1 SCC 523 and in the case of Maharashtra Power
Development Corporation Limited vs. Dabhol Power Company & Ors.
reported in [2003] 117 Company Cases 651. 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) (2004)11 SCC 672
[P.S.Sathappan (dead) by LRs. Vs. Andhra Bank
Ltd. & Ors.]

(ii) (2003) 10 SCC 361
[Subal Paul vs. Malina Paul & Anr.]

(iii) AIR 2003 AP 458
[ Gandla Pannala Bhulaxmi vs. Managing
Director, APSRTC & Anr.]

(iv) (1987) 62 Company Cases 504.
[Rev. C.S.Joseph & Ors. Vs. T.J.Thomas & Ors.]

(v) AIR 2004 Ker. 111
[ 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 (1988) 1 SCC 523. 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] 117 Company Cases 651. 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 (2004) 11 SCC 672. 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 AIR 2003 AP 458, 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 AIR 2004 Kerala 111. 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 (1965) 2 SCR 720. 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
(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.”

In the case of Kilpest Pvt. Ltd & Ors. vs. Shekhar Mehra reported in
(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 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 (2001) 4 SCC 420, 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 (2004) 9 SCC 204, 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 (2005)
11 SCC 314 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.

Leave a Comment