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TMI Blog2012 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ajal. The order of the Company Law Board dated 29th October, 1999 was to a great extent favourable for Kamal and Binod, who were together. But both sides, i.e., Kamal and Binod on one side and Sajal on the other side felt aggrieved by the order. An Appeal was filed in this Court against it by each of the sides. Both these appeals were admitted on 14th December, 1999. At the time of admitting the appeals, this Court passed an order that no board meeting of the company should be held. However, in the appeal Kamal and Binod lost. The appeal of Sajal was allowed by this High Court on 31st March, 2005. Kamal filed a Special Leave Petition before the Supreme Court. The Court admitted it on 13th May, 2005. It was heard as an appeal. Now, the interim order granted by this Court on 14th December, 1999 was continued by the High Court and according to the records was not disturbed by the Supreme Court. On 11th August, 2006 the Supreme Court allowed the appeal. This case is reported in 2006 (7) SCC 613. FACTS IN DETAIL The disputes between the parties in this appeal cannot be understood unless their starting point or genesis is understood. I have taken great guidance from judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh 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 Appellant 1 was stripped off 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 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 CLB. 49. Let a Board meeting be convened with 21 days' notice to all the Directors by registered post at their NRI addresses 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr M.K. Datta was the Financial Controller and Secretary. Dr. Kamal Kumar Dutta took the chair as the Chairman of the meeting. Other resolutions were passed for inauguration of the Hospital on 25-4-1995 at 11.00 a.m. by the Chief Minister of West Bengal, maintenance of books of 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 the two brothers was to issue and allot not exceeding 40,00,000 (forty lakhs) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well that both the appellants are NRIs. The outstanding feature is that Appellant 2, Dr. Binod Prasad Sinha has been shown as an NRI but notice to him was sent at the address P0 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 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 2 to somehow or the other oust his brother from the majority shareholding. Similarly, on the basis of such resolution, Dr. Binod Prasad Sinha, Appellant 2 was ousted from the Directorship under Section 283(1)(g) of the Act on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd-hand equipments, those were cleared by the Customs and permission was granted by 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 RBI granted permission for allotment of 30,55,329 equity shares of Rs. 10 each to Appellant 1 against supply of second-hand medical equipments on repatriation basis. But Respondent 2 without permission of the Board of Directors filed an application with RBI seeking withdrawal of the permission granted for allotment of 30,55,329 equity shares to Appellant 1. RBI on 2-6-1997 withdrew the permission granted for allotment of 30,55,329 equity shares to Appellant 1. Respondent 2 presented the Directors' report in the annual general meeting along with audited balance sheet for the year ended 31-3-1997 wherein capitalisation of second-hand medical equipments supplied by Appellant 1 was reversed. Then the appellants filed application under Sections 397 and 398 of the Act before CLB. CLB directed the respondent Company, to amend audited balance sheet as on 31-3-1998 and restore capitalisation of secondhand medical equipments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 397 and bringing material change in the management under Section 398 then what could be the better case than this. As 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 the 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." In 2007 Sajal had filed another application before the Company Law Board inter alia, under Section 397 and 398 of the Companies Act, 1956 complaining of oppression. Now, it appears that because of these disputes between the two brothers and the prolonged litigation, the 7th to 12th annual general meetings of the company could not be held. On 28th May, 2008 the company issued notices for holding these annual general meetings on 27th and 28th June, 2008 at diverse timings specified in the notices. Sajal was aggrieved by issuance of these notices and approached the Company Law Board by filing an application to restrain holding these meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The notices proposed by the new board contained the agenda for the items of general business contemplated under Section 173 of the Companies Act, 1956: (a) Approval of audited accounts; (b) Retirement of directors by rotation in accordance with Section 255 of the Companies Act, 1956 and Article 117 of the Articles of Association and appointment of directors in their place; (c) Appointment of statutory auditors. The convening of the meetings was in accordance with the Supreme Court order and ought to be held to give effect to it. Other arguments and cases are discussed in the Chapter 'Discussion and Findings'. RESPONDENTS: No question of law arises from the impugned order of the Company Law Board. The appellants could not ask this court to convene the 7th to 12th annual general meetings of the company. No such prayer was made before the Company Law Board. The Company Law Board has not prevented any party from applying to the Company Law Board for convening the annual general meetings but has merely restrained convening all these meetings on the basis of the impugned notices. The Company cannot suo motto hold these annual general meetings beyond the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant no. 2 took over the affairs of the company do not show the same as fixed assets. Several equipments are not being used by the company. (b) Share application money provided by the respondents is being shown as disputed liability. The same cannot be shown as disputed liability. This is contrary to the Supreme Court order which recognised that the respondents had brought Rs. 1.23/1.30 crores. This is inclusive of the sum of Rs. 39.60/- lacs which is attempted to be shown as disputed liability. (c) The appellant no. 2 is trying to treat the value of the equipments supplied by him as share application money. The dispute regarding the value and quality of the equipments is not only the subject matter of C.P. No. 53 of 2007 before the Company Law Board but also of a writ application before this Court. Other arguments and cases are discussed in the Chapter 'Discussion and Findings'. DISCUSSION AND FINDINGS: Under Section 166 of the Companies Act, 1956 a company is supposed to hold its annual general meeting once in a year. Not more than 15 months should elapse between the date of one annual general meeting and the next. The first annual general meeting is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etings. The analogy of the English law is misleading on this point." A Division Bench of our Court comprising of Dipak Kumar Sen and Suhas Kumar Sen, JJ in the case of Ambari Tea Company Limited & Ors. v. Manjushree Saha & Ors. reported in Cal LT 1988 (1) HC 61 held that the company through its Board of Directors could not call an annual general meeting of the company beyond the period of 18 months from the date prescribed by the said sections. Their Lordships stated the following in paragraph 41: "The other point to be considered is whether the defendants Nos. 2 to 8 as directors are entitled to call an Annual general Meeting of the company when the time for calling such meetings have expired and it is not even possible for the Registrar of Companies to extend such time. We have noted the provisions of Sections 166 and 167 of the Companies Act, 1956 earlier. In view of the clear language of the said sections, it appears to us that, prima facie, the plaintiffs are entitled to restrain the company and its management from holding an Annual General Meeting beyond a period of 18 months from the date prescribed by the said sections." This was followed in an unreported judgment of Rum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting of the company that had been convened by the company itself beyond the period prescribed by statute cannot, in the light of the binding precedents, be regarded as validly convened. 30. Accordingly, the notice and the resolutions relating to the 64th annual general meeting of the first defendant-company convened and held on July 21, 2008, are set aside. The first defendant-company is directed to hold and complete its 64th annual general meeting for the year ended March 32, 2007, within ten weeks from date by complying with the provisions as to issuance of notice and laying of the balance-sheet and profit and loss account of the company for the relevant financial year. Since the first defendant-company is now also in default in holding its annual general meetings for the financial years ended March 31, 2008 and March 31, 2009 and since there would be no time to hold the annual general meeting for the financial year ended March 31, 2010, the company is directed to hold and complete the annual general meetings for the relevant financial years within eight weeks of the previous annual general meeting. The amended articles of association of the company would apply and the injuncti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed by the Company Law Board. (2) Whether the provisions contained in section 167 of the Act is merely enabling one and does not take away the rights of the defaulting Directors to call an AGM of its own without approaching the Company Law Board under section 167 of the Act without however avoiding their penal liability for the default already committed in terms of section 168 thereof." By detailed reasons in paragraph 10, 11, 12 and 13 of that judgment the Division Bench has departed from the earlier Division Bench judgment but did not put a stamp of finality on its own judgment, by referring it to a larger bench. Nevertheless, it was not a plain and simple reference to a larger bench. The judgment contained reasons why this Court thought Amabri was not correctly decided. Those reasons, being a later decision, are in my opinion binding on me, till the larger bench decides the issue. The Division Bench decision threw considerable cloud on the correctness of Ambari Tea (Supra). Thus, the effect of Ambari Tea is substantially diluted. So are the decisions in In Re Coal Marketing Co. India Private Ltd. and Bajrang Prasad Jalan (Supra). In interpreting the above group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court to convene the annual general meeting. Such a notice would only be issued after obtaining a specific order from the Company Law Board. Hence, the notices were bad and no meeting could be held further to those notices. There can be no dispute that the Supreme Court had directed the company to convene a board meeting and a general meeting for the purpose of taking proper decisions for administration of the company. This board and general meetings were to be held after reverting back to the position prior to 19th April 1995. In my opinion if there is the authority of the Supreme Court to convene and hold board and general meetings, nothing can come in the way of the company convening and holding it pursuant to such directions. But what has happened in this case is that these meetings were convened after substantial passage of time. Even thereafter could the company go ahead convening and holding those meetings? Some facts have to be noticed. The Supreme Court order was made on 11th August, 2006. A Board meeting was held on 16th September, 2006. Sajal was present in this board meeting. The minutes were signed by him. Accounts for the year 1997-1998 to 2002-2003 were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a board meeting to be convened with 21 days' notice to all the directors by registered post at their NRIs addresses in India as well as U.S.A. The meeting was to be chaired by Dr. Kamal Kumar Dutta. Any NRI director, unable to attend, could make a nomination. The Supreme Court went on to reiterate what it said before: "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 Prasia Sinha from Board of Directors, outstripping of Dr. Kamal Kumar Dutta from the Managing Directorship, allotment of shares to Sajal Dutta's companies and to others and all other resolutions which adversely effect 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." In my opinion, a reading of paragraphs 48 and 49 of the Supreme Court judgment makes it explicit with all actions taken by Mr. Sajal Kumar Dutta and his associates on and after 19th April, 1995 were adjudged void by the Supreme Court. It has done so by reiterating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction as directors in addition to the existing directors. 41. Before we part with this order, we feel that we should say few words about the role of IDBI and its nominee director on the Board of the company. Even though we are conscious that neither the IDBI nor the nominee director is a party to the proceedings, yet, since we feel that their positive role could have avoided the disputes, we are mentioning about the same. As far as IDBI is concerned, its stand in the entire controversy seems to be unclear. By a letter dated 4.4.1996, the IDBI indicated its unwillingness to fund second hand equipments even though we find that there is no stipulation in the loan agreement that only new equipments were to be brought. Having expressed its unwillingness to fund second hand equipments, in 1999, the IDBI asked the company to carry out an inspection of the second hand equipments by an authorised second hand equipments. If it is so, it would have been prudent on the part of the IDBI to have carried out the inspection much earlier so that the real condition of the equipments could have been found out. Likewise, the IDBI objected to the issue of allotments made by the company in 1996, but l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) (b) of the Companies Act, 1956 and would be deemed to be members of the board. There would be no change in the composition of the board other than induction of these two persons, as held by the Company Law Board order dated 29th October, 1999 at Vol. 2 pages 1107 to 1109 of the Paper Book. This Board of Directors will be have to call annual general meetings of the shareholders ante 19th April, 1995 in which the shareholding of Dr. K.K. Dutta, Dr. B.P. Sinha and Mr. Sajal Dutta would have the above percentage of paid up share capital. Composition of the board meetings and of the general body in the annual general meeting has to be as above. Irrespective of the composition of the Board of Directors, Dr. K.K. Dutta and Dr. B.P. Sinha would have a decisive say whilst Sajal Dutta would be entitled to participate in the board meeting, without interfering with the decision making process. In my opinion, in view of the Supreme Court order read with the Company Law Board order and the Companies Act, 1956 Mr. Sajal Dutta would retire by rotation but would be deemed to be re-elected at the general meeting. With regard to the submission of the respondents that the 7th to 12th Annual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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