2008 (2) TMI 624 - SC - Companies Law

Meetings and proceedings - Contents and manner of service of notice and person on whom it is to be served Oppression and mismanagement

Summary

Issues Involved:
1. Alleged acts of oppression and mismanagement.
2. Validity of the Annual General Meeting held on 29-9-2005.
3. Re-appointment of retired directors based on the theory of "legitimate expectation."
4. Issuance of right shares and duplicate shares.
5. Allegations of mismanagement regarding the special investigating center.

Detailed Analysis:

1. Alleged Acts of Oppression and Mismanagement:
The petitioners, holding over 1/10th of the issued share capital of M/s. Westfort Hi-Tech Hospital Limited, alleged several acts of oppression and mismanagement, invoking sections 397 and 398 of the Companies Act, 1956. These acts included illegal convening of the AGM, issuance of further shares, exclusion of petitioners from directorship, election of new directors, transfer of shares, breach of fiduciary duties, manipulation of records, statutory violations, and irregularities in the hospital's Investigation Centre.

2. Validity of the Annual General Meeting Held on 29-9-2005:
The petitioners contended that the AGM held on 29-9-2005 was convened without proper notice, violating sections 172 and 53 of the Companies Act. The High Court, however, found that the notice was validly served, supported by certificates of posting and the attendance of neutral directors. The statutory presumption under section 53 was applied, and the High Court concluded that the AGM was legal and valid.

3. Re-appointment of Retired Directors Based on the Theory of "Legitimate Expectation":
The petitioners claimed a "legitimate expectation" of being re-appointed as directors due to their financial contributions and assurances from the Chairman. The CLB initially accepted this claim, but the High Court rejected it, stating that there was no specific promise of permanent directorship and that the statutory mandate required one-third of the directors to retire annually by rotation.

4. Issuance of Right Shares and Duplicate Shares:
The CLB declared the further issue of shares as illegal and void, but the High Court partially set aside this finding, allowing the issuance of right shares while ensuring compliance with statutory provisions. The issuance of duplicate shares to Purushottaman was also upheld by the High Court, noting that the decision was taken in a Board meeting attended by the first petitioner and that proper procedures, including an indemnity bond, were followed.

5. Allegations of Mismanagement Regarding the Special Investigating Center:
The petitioners alleged mismanagement concerning the Investigation Centre. The High Court directed the company auditor to review the agreement and accounts related to the Investigation Centre and submit a report to the Board for appropriate action, ensuring transparency and accountability.

Conclusion:
The Supreme Court upheld the High Court's judgment, which balanced the interests of directors and shareholders and adhered to statutory requirements. The appeal by the petitioners was dismissed, affirming the legality of the AGM, the issuance of right shares, and the procedural correctness in handling directorship and share transfers. The High Court's directions for auditing the Investigation Centre's agreement were also deemed reasonable and acceptable.