Companies Act Case Law Shri V.S. Krishnan & Ors Vs M/s Westfort Hi-tech Hospital Ltd. & Ors

CASE NO.:
Appeal (civil) 1473 of 2008

PETITIONER:
Shri V.S. Krishnan & Ors

RESPONDENT:
M/s Westfort Hi-tech Hospital Ltd. & Ors

DATE OF JUDGMENT: 21/02/2008

BENCH:
Tarun Chatterjee & P. Sathasivam

JUDGMENT:
JUDGMENT
CIVIL APPEAL NO. 1473 OF 2008
(Arising out of SLP (C) No.19882 OF 2006)
WITH
CIVIL APPEAL NO. 1474 OF 2008
(Arising out of S.L.P. (C) No. 20367/2006)
Dr. P.P. Mohanan & Ors. …. Appellant (s)
Versus
M/s Westfort Hi-tech Hospital Ltd. & Ors. …. Respondent(s)
AND
CIVIL APPEAL NO. 1475 OF 2008
(Arising out of S.L.P.(C) No. 4673/2006)
Shri V.S. Krishnan & Ors. …. Appellant (s)
Versus
M/s Westfort Hi-tech Hospital Ltd. & Ors. …. Respondent(s)
AND
CIVIL APPEAL NO. 1476 OF 2008
(Arising out of S.L.P. (C) No. 6688/2007)
Shri V.S. Krishnan & Ors. …. Appellant (s)
Versus
M/s Westfort Hi-tech Hospital Ltd. & Ors. …. Respondent(s)
P. Sathasivam, J.

1) Leave granted.
2) These appeals are directed against the judgment and
order of the High Court of Kerala at Ernakulam dated
14.11.2006 in Company Appeal Nos. 14/2006, 15/2006,
17/2006 and 18/2006 which were filed against the order
dated 5.7.2006 in Company Petition No.63 of 2005 of the
Company Law Board, Additional Principal Bench, Chennai
and order dated 1.3.2006 in Company Appeal No.5 of 2006
which was filed against the order dated 13.2.2006 in Company
Appeal No. 145 of 2005 in Company Petition No.63/2005 of
the Company Law Board.
3) The facts in S.L.P. (C) No. 19882 of 2006 are sufficient to
dispose of all these appeals.
Shri V.S. Krishnan and five others, who filed Company
Petition No. 63 of 2005 before the Company Law Board,
Additional Principal Bench, Chennai under Sections 397 and
398 read with Sections 402, 403 and Schedule XI of the
Companies Act, 1956 are the appellants (Petitioners in SLP (C)
No. 19882 of 2006). For convenience, we shall refer the
parties as arrayed in Company Petition No. 63/2005 on the
file of the Company Law Board (in short “CLB”).
4) According to the petitioners, they were collectively
holding in excess of 1/10th of the issued share capital of M/s
Westfort Hi-Tech Hospital Limited (hereinafter referred to as
“the Company”). Aggrieved on account of a series of purported
acts of oppression and mismanagement in the affairs of the
Company, namely, illegal (a) convening of the eleventh annual
general meeting; (b) issuances of further shares on right basis;
(c) exclusion of the petitioners from the office of directors; (d)
election of respondents 16 to 24 as Directors; (e) transfer of
shares; (f) breach of fiduciary duties by respondent Nos. 2 & 3
towards the Company as Directors; (g) manipulation of
minutes of the meetings and other records; (h) statutory
violations; (i) irregularities in relation to the Investigation
Centre in the Hospital premises of the Company etc. invoked
the provisions of Sections 397 and 398 of the Companies Act,
1956 (hereinafter referred to as “the Act”) praying for the
following reliefs:
(i) to appoint an administrator for 
(a) regulating the future affairs of the company;
(b) leasing/licensing the area earmarked for the
Investigation Centre; and
(c) realizing the outstanding amounts due from
respondent Nos. 2-4, 22 and 23 in respect of the
Investigation Centre;
(ii) to declare that the annual general meeting held on
29.09.2005 and the resolutions passed thereon are
invalid;
(iii) to declare that respondent Nos. 2-4 vacated the office
as Directors under Section 283 of the Act;
(iv) to declare that the further issue of shares is illegal and
void;
(v) to declare that the election of respondent Nos. 16-23
as Directors is invalid; and
(vi) to declare that petitioner Nos. 1-4 and respondent
No.14 shall be deemed to have been re-elected as
Directors.
In support of their above claims, they placed relevant
materials and cited various instances alleged to have been
committed by the second respondent, who is the Chairman of
the first respondent-Company.
5) Respondent Nos. 6-9 before the CLB supported the stand
taken by the petitioners. Respondent No.14 also adopted the
stand of the petitioners and further informed that he has
already withdrawn the civil suit challenging the issue of shares
and election of Directors at the eleventh annual general
meeting of the Company.
6) The case of respondent Nos. 1 & 2 are – Westfort Hi-Tech
Hospital Ltd. constituted by the second respondent and his
family members have been running the Hospital since 1989
independently, while the Company has been promoted in the
year 1994 establishing a high speciality hospital by
respondent Nos. 2 & 3 who are the promoter Directors. These
respondents are permanent Directors and are not liable for
retirement and cannot be removed from the Board as
envisaged in Article 87. At each annual general meeting, one
third of the remaining Directors are liable to retire by rotation.
The alleged acts complained of in the petition do not, in any
way, constitute oppression. It was pointed out that past and
concluded acts complained of by the petitioners, do not fall
within the purview of Section 397 of the Act. The Company,
running a high speciality hospital, is making profits and if
ordered to be wound up, the Company and its shareholders
would seriously be prejudiced. There are no charges of
financial irregularities in the affairs of the Company leveled
against the respondents. The petitioners and respondent
No.14 though continued to be Directors since the year 1998
hardly attended the Board meetings from time to time. When
the petitioners were not elected by the members at the
eleventh annual general meeting, they have come out with the
petition with untenable allegations. Every Director other than
respondent Nos. 2 & 3 is bound to retire one day or the other.
Any grievance in the capacity as Director cannot be remedied
under Section 397 of the Act. No relief under Section 397
would arise if the conduct complained of by the petitioner does
not relate to his status as a shareholder. In addition,
respondent Nos. 2 & 3 also furnished various details in
support of their stand and pleaded for dismissal of the
Company Petition.
8) With the above pleadings and after elaborate arguments
and framing the main issue namely, “whether the petitioners
have made out a case under Sections 397 and 398 and are
entitled for the reliefs claimed in the Company Petition”, the
CLB, on 5.7.2006 passed the following order:
“I) It is hereby declared that 
(a) further issue of shares impugned in the
Company petition is illegal and void;
(b) the election of respondent Nos. 16 to 23 as
Directors is set aside;
(c) the retiring directors namely, petitioner Nos. 1-4
and the respondent Nos. 5 & 14 shall be deemed
to have been automatically re-appointed as
Directors at the eleventh annual general meeting
and shall continue till the date of the twelfth
annual general meeting for the year 2006; and
(d) the transfer of shares by Purushottaman in
favour of respondent Nos. 16 to 21 and others is
invalid. However, Purushottaman is free to
transfer his shares in accordance with the law.
(II) The Company will convene and hold the twelfth
annual general meeting in accordance with law
to transact, inter alia, the following business:
(a) consideration of accounts, balance sheet and
the reports of the board of directors and
auditors for the year 2005-2006;
(b) appointment of directors in the place of those
retiring and in the existing vacancies;
(c) appointment of and the fixing of the
remuneration of, the auditors; and
(d) further issue of shares.
(III) The petitioners as well as the respondent Nos. 2
to 15 are at liberty with a view to meet the
financial requirements, if any, for running the
hospital, to contribute any amount by way of
unsecured loans carrying interest at the
prevailing bank rate to be repaid from and out of
the future share application money which may
be subscribed by the members, on approving the
resolution for further issue of shares at the
twelfth annual general meeting.
(IV) Hon’ble Mr. Justice K. John Mathew (Retd.)
Ernakulam will preside over the twelfth annual
general meeting of the Company, in terms of this
order. He is at liberty to take the services of any
practicing Company Secretary of his choice, in
discharge of this present assignment. The
remuneration of the Chairman and the
Practicing Company Secretary fixed in
consultation with the Company shall be borne
by the latter.
(V) The Chairman will decide the entire modalities of
convening holding and conducting of the twelfth
annual general meeting in consultation with the
company.
(VI) The Board of Directors of the Company shall
carry on its business strictly in accordance with
the articles and initiate such action in respect of
the Investigation Centre, as may be deemed
necessary.
(VII) The Chairman of the meeting will forward a
report on the proceedings of the twelfth annual
general meeting within a week from the
conclusion of the twelfth annual general meeting
of the company.
With the above directions, the company petition
stands disposed of. No order as to costs.”

Aggrieved by the above order, respondents 1 & 2 i.e., M/s
Westfort Hi-Tech Hospital Ltd. and its Chairman, K.
Mohandas filed Company Appeal No. 14 of 2006 before the
High Court of Kerala. By the impugned judgment, the Division
Bench of the High Court, after taking note of pleadings of both
the parties, rival contentions and materials placed before it,
partially allowed the appeals and partially set aside the order
of the Company Law Board. The operative portion of the
impugned order of the High Court reads as follows:
“..We hold that the general body meeting was held with
valid notice. Issuance of right shares needs no interference
and Company Law Board went wrong in setting aside the
issue of duplicate shares to Purushothaman and subsequent
transfer of his shares. We also hold that re-appointment of
the retired directors after the date fixed for annual general
body meeting is not correct and that part of the decision is
set aside. But, we hold that CLB is right in setting aside the
election of eight directors (though for other reasons  mainly
for technical irregularity) and special resolution under
Section 81(1A) to issue shares to the public. We order that
Petitioners and other NRI shareholders shall be given one
month’s time from today to accept the rights shares offered
and it is for them to accept the offer or not. As offered by the
counsel appearing for the Company and Chairman, NRI
Directors also will be re-appointed to the Board in proportion
to their share holdings as on the date of next annual general
meting to be conducted after the expiry of 30 days from
today. Company Law Board directed that next annual
general body meeting shall be held on 30.9.2006. It is stated
that it was not conducted due to pendency of the case.
Therefore, it shall be positively conducted on or before
30.12.2006. In conducting the 12th annual general body
meeting, procedure suggested by the Company Law Board
shall be complied with and directions in paragraph 7 II, IV,
V, VI and VII are not interfered with. Till next general body
meeting is held, no policy decision shall be taken by the
Board.”

Questioning the above order of the High Court, these appeals
have been filed before this Court by way of special leave.
9) We heard Mr. C.A. Sundaram and Mr. Shyam Divan,
learned senior counsel for the appellants and Mr. R.F.
Nariman, learned senior counsel for the contesting
respondents.
10) In order to find out whether the petitioners were
successful in making out a case for interference by the CLB by
invoking Sections 397 and 398 of the Companies Act, it is but
proper to refer those provisions, ultimate decision of the CLB
and the High Court. Chapter VI of the Companies Act deals
with prevention of oppression and mismanagement. Section
397 deals with relief in cases of oppression and Section 398
deals with relief in cases of mismanagement. Sections 397 &
398 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 justified 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.”
11) In a number of judgments, this Court considered in
extenso the scope of Sections 397 and 398. The following
judgments could be usefully referred to:
(a) Needle Industries (India) Ltd. and Others vs.
Needle Industries Newey (India) Holding Ltd.
and Others, (1981) 3 SCC 333.
(b) M.S. Madhusoodhanan & Anr. vs. Kerala
Kaumudi (P) Ltd. & Ors., (2004) 9 SCC 204.
(c) Dale and Carrington Investment (P) Ltd. &
Anr. vs. P.K. Prathapan & Ors., (2005) 1
SCC 212.
(d) Sangramsinh P. Gaekwad & Ors. Vs.
Shantadevi P. Gaekwad (Dead) Through
L.Rs. & Ors. (2005) 11 SCC 314
(e) Kamal Kumar Dutta & Anr. vs. Ruby
General Hospital Ltd. & Ors. (2006) 7 SCC
613.
From the above decisions, it is clear that oppression would be
made out:
(a) Where the conduct is harsh, burdensome and wrong.
(b) Where the conduct is mala fide and is for a collateral
purpose where although the ultimate objective may be in
the interest of the company, the immediate purpose
would result in an advantage for some shareholders vis-
`-vis the others.
(c) The action is against probity and good conduct.
(d) The oppressive act complained of may be fully permissible
under law but may yet be oppressive and, therefore, the
test as to whether an action is oppressive or not is not
based on whether it is legally permissible or not since
even if legally permissible, if the action is otherwise
against probity, good conduct or is burdensome, harsh or
wrong or is mala fide or for a collateral purpose, it would
amount to oppression under Sections 397 and 398.
(e) Once conduct is found to be oppressive under Sections
397 and 398, the discretionary power given to the
Company Law Board under Section 402 to set right,
remedy or put an end to such oppression is very wide.
(f) As to what are facts which would give rise to or constitute
oppression is basically a question of fact and, therefore,
whether an act is oppressive or not is
fundamentally/basically a question of fact.
12) Before going into the claims of both parties, it is useful to
refer the scope of Section 10F of the Companies Act which
provides appeal against the order of the Company Law Board.
Section 10F reads as under:
“10F. Appeals against the order of the Company Law
Board – Any person aggrieved by any decision or order of
the Company Law Board made before the commencement of
the Companies (Second Amendment) Act, 2002 may file an
appeal to the High Court within sixty days from the date of
communication of the decision or order of the Company Law
Board to him on any question of law arising out of such
order:
Provided that the High Court may, if it is satisfied that
the appellant was prevented by sufficient cause from filing
the appeal within the said period, allow it to be filed within a
further period not exceeding sixty days.”
It is clear that Section 10F permits an appeal to the High
Court from an order of the Company Law Board only on a
question of law i.e., the Company Law Board is the final
authority on facts unless such findings are perverse based on
no evidence or are otherwise arbitrary. Therefore, the
jurisdiction of the appellate Court under Section 10F is
restricted to the question as to whether on the facts as noticed
by the Company Law Board and has placed before it, an
inference could reasonably be arrived at that such conduct
was against probity and good conduct or was mala fide or for a
collateral purpose or was burdensome, harsh or wrongful.
The only other basis on which the appellate Court would
interfere under Section 10F was if such conclusion was (a)
against law or (b) arose from consideration of irrelevant
material or (c) omission to construe relevant materials.
13) With this statutory background, let us find out whether
the conduct of respondents 1 and 2 (M/s Westfort Hi-Tech
Hospital Ltd. & Mr. K.M. Mohandas, Chairman) has been
harsh, burdensome and wrong or mala fide or for collateral
purposes or against probity and good conduct. In addition, we
have to find out whether such conduct was prejudicial to the
interest of the petitioners/appellants and the conclusion
arrived at by the CLB or the High Court is acceptable in the
facts and circumstances of the case.
14) According to the petitioners, they are native of Thrissur,
Kerala State but settled abroad and contributed to the tune of
1.28 crores by way of share capital. It is also their case that
respondent No.2 (the Chairman of the Company) is heavily
depending on the financial assistance provided by these
petitioners (NRIs), on the understanding that they would be
offered directorship permanently. Article 77 provides that the
Directors are required to hold 2500 equity shares in the
Company as qualification shares. By pointing out the
contents of letter dated 04.12.2001 of the second respondent,
petitioners have claimed that because of his assurance that
they would be made Directors they contributed more to the
share capital of the Company which eased the financial
crunch and also helped to develop facilities in the Hospital. In
other words, according to them, the second respondent has
been heavily dependent upon the financial backup provided by
NRIs and the understanding to offer directorship to such
contributors. It is the grievance of the petitioners that the
second respondent in spite of getting substantial money
towards share capital did not fulfill the promise made by him
as per his letter dated 04.12.2001 addressed to the
petitioners. On this aspect, the CLB while accepting the stand
of the petitioners has concluded that there is a ‘legitimate
expectation’ in favour of the petitioners 1-4 for their
continuance in the Board of Directors of the Company.
15) The issue of re-appointment of retired directors on the
theory of ‘legitimate expectation’ was considered by the High
Court in detail. It is the stand of the second respondent
(Chairman of the Company), that there was no specific
promise that these petitioners would be given directorship
permanently. The materials placed and discussed before the
CLB show that there was full disclosure of retirement of one-
third directors and election to that place are in accordance
with the Act and Articles of Association and theory of
‘legitimate expectation’ has no application. It was also
highlighted before the CLB as well as the High Court that out
of eight directors elected, six were not related to Chairman. It
was asserted that Chairman and his family stood personal
guarantee to Rs.21.99 crores whereas NRI directors have not
stood personal guarantee for any loan. Though CLB has
observed that the principle of ‘legitimate expectation’ is
applicable in the case of the petitioners, in the light of the
materials placed and the stand taken by the contesting
respondents, we are of the view that the claim ‘legitimate
expectation’ cannot be extended to and there is no specific
promise that the petitioners would be given directorship
permanently. Even otherwise, the same cannot be accepted in
view of the mandate of the statute that 1/3rd of the directors
have to retire in a year by rotation. Accordingly, we accept the
conclusion arrived at by the High Court and reject the decision
of the CLB on this aspect.
16) Now let us consider another important issue i.e., validity
of the Annual General Meeting which held on 29.09.2005.
According to the petitioners, there was no proper notice in
terms of Section 172 read with Section 53(1) and (2) of the
Companies Act, hence, they had no knowledge about the said
meeting and in view of the same, the decisions taken in the
said meeting are null and void and not enforceable. The pith
and substance of the ground of attack relating to oppression
and mismanagement is the convening of XIth Annual General
Body Meeting without proper notice. In such circumstances,
we have to find out whether the Annual General Body Meeting,
convened on 29.09.2005, was in violation of the statutory
requirements or not. According to the second respondent,
XIth Annual General Body Meeting was convened on
29.09.2005 at 11.00 a.m. at Casino Hotels Limited, Trichur.
In fact, in the Board meeting, held on 24.08.2005, a reference
was made to the next Annual General Meeting which states
that the Board decided to hold the meeting on Thursday, the
29th September, 2005 at 11.00 a.m. at Casino Hotels Limited,
Trichur. It further states that the particulars as to the date,
place and time for the meeting was incorporated in the draft
notice and thereafter it was approved and Sri K. M. Mohandas,
CMD was authorized to sign the same. It is relevant to
mention that the above Board meeting was attended by the
first petitioner. In such circumstances, it cannot be claimed
that the first petitioner and his supporters were not aware of
the meeting.
17) It is relevant to mention that even though the CLB has
noticed respondent No.14 who was acting in association with
the petitioner Nos. 1-4 in the affairs of the company and
respondent Nos. 6-9 other directors participated in the AGM
held on 29.09.2005 raised an apprehension that whether mere
knowledge of the meeting would tantamount to serving notice
in terms of Section 172. Section 172 of the Act speaks about
the contents and manner of service of notice and persons on
whom the same is to be served. Sub-section (1) mandates that
every notice of a meeting of a company shall specify the place,
the day, hour of meeting and shall contain a statement of
business to be transacted thereat. Sub-section (2) mandates
that notice of every meeting of the company shall be given to (i)
every member of the company, in any manner authorized by
sub-sections (1) to (4) of Section 53; (ii) persons entitled to a
share in consequence of the death or insolvency of a member,
by sending it through post in a pre-paid letter addressed to
them by name in India supplied for the purpose by the
persons claiming to be so entitled or until such address has
been so supplied (iii) the auditor of the company, in any
manner authorized by Section 53. Sub-section (3) makes it
clear that the accidental omission to give notice to, or the non-
receipt of notice by, any member or other person to whom it
should be given shall not invalidate the proceedings at the
meeting. Apart from the above procedure, while sending
notice for any meeting, the procedure prescribed in Section 53
(1) and (2) of the Act has to be followed. It is the case of
respondent Nos. 1 and 2 that proper notices in terms of
Section 172 read with Section 53 (1) and (2) have duly been
sent to all the share holders including the petitioners in
respect of the AGM dated 29.09.2005. It was contended on
the side of the petitioners that in the absence of any other
corroborative evidence, it is not safe to accept the notices sent
through ‘certificate of posting’ and it cannot be presumed that
the addressee had the knowledge of the meeting.
18) The High Court has noticed that in the Board Meeting
held on 24.08.2005, it was decided to hold a next AGM on
29.09.2005 at 11.00 AM. Item No. 4 reads as follows:-
“NOTICE OF THE NEXT ANNUAL GENERAL MEETING:
The draft notice for the next Annual General Meeting
was read. The Board then decided to hold the meeting on
Thursday, the 29th September, 2005 at 11.00 AM at Casino
Hotels Limited, Trichur. The particulars as to date, place
and time for the meeting was incorporated in the draft
notice, and then it was approved, and Sri K.M. Mohandas,
CMD was authorized to sign the same.”
It is clear from the materials placed, the said Board Meeting
was attended by the first petitioner. Though on the basis of
the said information/knowledge it cannot be construed that
the same would satisfy the mandate of Section 172 read with
Section 53 (1) and (2) of the Act, the fact that a decision was
taken in the Board Meeting held on 24.08.2005 that next AGM
is to be held on 29.09.2005 at 11.00 AM at Casino Hotel,
Trichur cannot be ignored. In addition to the same, as said
earlier, respondent No.14 and 6 to 9 who are supposed to be
netrual directors participated in the AGM held on 29.09.2005.
It is not the case of the respondent Nos. 1 and 2 or even the
petitioners that notice was dispensed with in respect of the
AGM held on 29.09.2005. On the other hand, the respondents
have produced certificates of posting to establish the service of
notice on the directors and other shareholders. It is also
demonstrated that those notices were given under certificate of
posting as provided under Section 53 (1) and (2) and evidence
for the same were also produced. As pointed out earlier, the
first petitioner, being a party to the Board Meeting wherein
date, place and agenda of the AGM were fixed, cannot make a
complaint along with his supporters that they did not receive
notice of the meeting. The materials placed clearly show that
NRI directors participated in the meeting and respondent
No.14 who was acting along with the appellants had also
participated. Section 172 as well as Section 53 emphasized
“giving notice”. We have already adverted to how notice
should be given for AGM as per Section 172 (2) and Section 53
(1) and (2) of the Act. In view of the fact that the company has
placed materials to substantiate that notices, in terms of the
above provisions, were given, as rightly pointed out by learned
senior counsel for the contesting respondents, statutory
presumption under Section 53 will apply though the said act
is rebuttable. In view of the fact that there are materials to
show that notices were sent, the burden is on the addressee to
rebut the statutory presumption. The High Court, on
verification of those materials, has concluded that “postal
receipt with post office seal was produced to show that notice
was sent to all shareholders by certificate of posting in the
correct address as per the report”. Sub-section (2) of Section
53 makes it clear that after expiry of 48 hours a notice duly
addressed and stamped and sent under certificate of posting is
deemed to have been duly served. In M.S. Madhusoodhanan
vs. Kerala Kaumudi (P) Ltd. (supra), this Court held that the
fact of posting has to be proved by the sender and that
statutory presumption is only a rebuttable presumption. In
the case on hand, dispatch of notice in time by certificate of
posting was proved. In addition to the same, the High Court
has very much relied on the fact that first appellant was party
to the Board Meeting which decided the convening of AGM on
29.09.2005. The above information pressed into service by
respondent Nos. 1 and 2 cannot, lightly be ignored.
19) It is true that the CLB has found that only 40 out of 300
shareholders attended the meeting. Based on the same, the
CLB accepted the case of the petitioners and found that the
AGM held on 29.09.2005 was defective. Before the CLB as
well as the High Court, it was demonstrated by the contesting
respondents that in previous AGM also number of attendance
was below 35. In the 9th AGM, the persons attended were 32
and 10th AGM, it was 35. In this regard, it is relevant to refer
in the order in I.A. 4727 of 2005 in O.S. 942 of 2005 which is
a suit filed by respondent No.14. The Civil Court, based on
the documents produced, has concluded that proper notice
was served on the shareholders with regard to AGM held on
29.09.2005. The person who filed the said suit had prayed for
injunction against conducting AGM, participated in the AGM
and in fact he applied for re-election. Though the
shareholders voted against him and other NRI directors, the
information support stand of the respondents 1 and 2. The
High Court has rightly concluded that AGM held on
29.09.2005 was legal and acceptable and we agree with the
same.
20) It is pointed out that the CLB set aside the election of
respondent Nos. 16 to 23 as directors only on the ground that
there is no valid notice. The discussion in the earlier
paragraphs proves that this finding is not acceptable. The
High Court verified the notice dated 24.08.2005 sent for AGM
dated 29.09.2005 wherein the names of the retiring directors
were subsequently mentioned. It was also demonstrated
before the CLB and the High Court that proper advertisement
in the Indian Express and Deepika were given in terms of
Section 157(1)A of the Act. Though the CLB has not accepted
the same, the High Court has rightly found that the same was
in compliance with the statutory provisions. There is no error
or illegality in the said finding of the High Court.
21) The next issue relates to re-appointment of retired
directors on the theory of legitimate expectation which we have
already discussed in the earlier paragraphs. However, the
High Court found that appointment of 8 directors without a
“specific agenda” is irregular due to technical reason and that
as per the agenda only 6 directors can be elected. We agree
with the said conclusion.
22) Now coming to the next issue, namely, allotment of “right
shares” to the public, the CLB has concluded that without a
“special resolution” by 2/3rd majority shareholders cannot be
offered to outsiders. Inasmuch as the above said conclusion is
in terms of the statutory provisions, the High Court has rightly
approved the same and we are also in agreement with the said
conclusion. In this respect, it is useful to refer to the decision
of this Court in Needle Industries (India) Ltd. vs. Needle
Industries Newey (India) Holding Ltd. (supra). It was held
that directors have absolute powers to issue right share
provided they are acting under good faith.
23) The other issue relates to issuance of duplicate shares of
Purshottaman. It is relevant to mention that the same Board
approved the said action when the first petitioner also
attended the meeting. On the other hand, the CLB set aside
the issue of duplicate shares to Purshottaman. It was pointed
out before the High Court that the said decision was not
challenged in the petition by any of the petitioners and the
decision was taken by the Board of Directors to issue
duplicate shares in place of lost shares. As said earlier,
transferring the shares of Purshottaman was approved in the
same Board Meeting wherein the first petitioner attended. It is
also brought to the notice of the Court that duplicate shares
were issued on receipt of indemnity bond as provided under
Section 84(2). In those circumstances, the High Court has
concluded that indemnity bond and documents produced
would show that share transfer was also effected validly.
Further the decision to issue duplicate shares to
Purshottaman and transfer of the same were not challenged in
the company petition. In view of the same, we agree with the
ultimate decision arrived by the High Court.
24) Coming to the allegation as to acts of mis-management
particularly regarding the arrangement with special
investigating centre, it was proved that the agreement with the
special investigating centre was made when the petitioners
1 to 4 as well as their supporting NRI directors were in the
Board and in active management. However, the High Court
has directed the company auditor to go through the agreement
with the special investigating centre and also the accounts and
submit a report and thereafter, the same should be placed
before the Board for appropriate action. The said direction is
reasonable and acceptable.
25) As rightly pointed out that CLB missed a most basic
principle of Section 397, namely, that mere unfairness does
not constitute oppression. When the petitioners were given
the right to subscribe to the ‘rights issue’ along with all others
in the same proportion, no prejudice, whatsoever, could have
been caused to them. It is not in dispute even by the
petitioners that the need for more funds was an admitted
position. In Needle Industries (supra) this Court has pointed
out if there is a need for funds the fact that the directors have
incidentally enriched themselves would not entail a court to
set aside the issue of shares. In fact, no unfair prejudice has
been caused to the petitioners. The CLB failed to take note of
all these vital aspects and relied on irrelevant materials. Apart
from these, it is pointed out that the company having turned
the corner and doing well, it would be fair exercise of
discretion by this Court not to interfere with the High Court
judgment.
26) In the light of the above discussion, we are of the view
that the impugned judgment of the High Court is fair to both
sides and safeguards the interest of the directors and
shareholders; hence there is no valid ground to interfere under
Article 136 of the Constitution of India. Consequently, the
main appeal filed by V.S. Krishnan and Others fails and the
same is dismissed. In view of the said conclusion, other
appeals are also dismissed. No costs.

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