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TMI Blog2005 (3) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... re fighting to take control over the company. It have not been able to find out any fact nor has been shown by Dr. Dutta before the Company Law Board which would prejudice the petitioners Dr. Kamal Kumar Dutta and Dr. Binod Prasad Sinha if the company in question were to be wound up. There is no pronouncement in the decision of the Company Law Board as to whether a just and equitable winding up would unjustly prejudice Dr. Dutta and his group or not. It further appears from the facts placed before me by the parties that it would be apparent that Dr. Dutta by way of relief asked a control over the company and if I try to find out an answer, the answer would automatically that none of the parties wants a winding up. Two groups are fighting for company and not for its winding up. I do not have any hesitation to come to a conclusion that the Company Law Board in the instant case did not deal with the said aspect of the matter and not even investigate on those facts and failed to make a conclusion that whether the facts are such that a just and equitable winding up of the company is called for, yet such order of winding up would unfairly prejudice the petitioners and when passed the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication was filed under Sections 397 and 398 of the said Act alleging various acts and oppression and mismanagement in the affairs of the company before the learned Company Law Board by Dr. Kamal Kumar Dutta and one Dr. Binod Prasad Sinha on the facts summarised hereunder. 4. On application of the company, which was incorporated in 1991, the Department of Industrial Development, Government of India (SIA) approved NRI investment in the said company. The company took a project to establish a hospital-cum-advanced diagnostic facility at Calcutta. The cost of the project would be about ₹ 11 crores out of which the share capital would be ₹ 9 crores and ₹ 8 crores out of the said share capital would be by way of NRI participation. Therefore, 88.88 per cent, cost of the project were NRI investments in shares and balance by resident Indians. 5. Dr. Kamal Kumar Dutta was one of the first directors of the said company and Dr. Binod Prasad Sinha held 52. 74 per cent, of the equity shares in the said company. Apart from that Dr. Dutta contributed ₹ 3 crores for the purpose of importing medical equipment and the shares towards the said investments, being the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors at their usual addresses in USA/other countries and to the Indian directors at their addresses in India. We also stipulate that NRI directors will have the right to appoint alternate directors and if the right is exercised, then, the alternative directors will also be given notices as stipulated above. 2. The shares allotted in the board meetings on March 12, 1996, and July 24, 1996, will not have any voting rights till the outcome of the proceedings in Calcutta High Court is known. No further shares will be allotted against the share application money with the company either in the names of the NRI investors or in the names of the respondent's group. 3. The petitioner/respondent is at liberty to invest more funds in cash in the company towards share capital but the same will be kept as share application money till the disposal of the High Court proceedings and subject to other approvals as may be necessary. 4. Since our object is to maintain the status quo till the disposal of the matter in the Calcutta High Court, there will be no change in the composition of board other than that the two petitioner directors will function as directors in addition to the existing di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Cal) and Hanuman Prasad Bagri v. Bagress Cereals P. Ltd. MANU/SC/0204/2001) in support of such contention. 14. He further drew my attention to the said order submitted that the very basis of the case of oppression filed by the petitioners before the Company Law Board is based on two principal grounds : (a) further issue and allotment of shares ; (b) cessation of directorship of the NRI directors, being Dr. Kamal Kumar Dutta and Dr. Binod Prasad Sinha. 15. He further submitted that on April 19,1995, the board meeting was held in which the resolution was passed to convene an extraordinary general meeting (hereinafter referred to as "EOGM") to pass resolution under Section 81(1A) of the said Act to issue and allot 40 lakhs equity shares of ₹ 10 each at par on the basis of private placement. Dr. Kamal Kumar Dutta was present at the said board meeting (minutes appearing at volume III, pages 1411-1415 of the paper book). He did not raise any dispute with regard to such meeting or such resolution. 16. He further contended that on February 16, 1996, the board meeting of the company was held (minutes appearing at volume I, pages 647-649) and Dr. Kamal Kumar Dutta and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs. He further drew my attention to the affidavit affirmed on June 2, 2004, filed by the company at page 34 and submitted that as it has been mentioned as ₹ 19 lakhs by the Company Law Board, the said fact is not correct and in fact only ₹ 16 lakhs was sent by Dr. Dutta. 21. On February 9, 1996, Sajal Kumar Dutta was appointed as managing director at the instance of the IDBI. On the same date, funds available with the company were only ₹ 4.65 lakhs. On February 9, 1996, the IDBI had already disbursed ₹ 455 lakhs out of the sanctioned loan amount of ₹ 460 lakhs. Bonus to the workers were paid, municipal taxes, TDS, PF payments were due on that date. On February 16, 1996, the bank balance of the company was 2.21 lakhs. On February 16, 1996, the board mewing was held and the IDBI nominee wanted to know the repayment schedule for the outstanding dues to the IDBI. Dr. Dutta refused to invest further funds and on March 12, 1996, again the board meeting was held and the nominee of the IDBI was present and Sajal Kumar Dutta stated that due to inadequate generation of funds the company was unable to clear the dues of the IDBI since October, 1995. On March 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s produced to substantiate such charge. It is not the case of Dr. Dutta that the advocate was not engaged. There is no further denial of receiving the said letter dated April 30, 1996, by him, and there is no challenge of the contents of the said letter and there is no finding of the Company Law Board that the said letter was without authority. Therefore, Mr. Sen submitted that Dr. Dutta cannot have any grievance with regard to the said first allotment and further he is estopped from questioning it in any manner whatsoever and placed reliance on the decisions reported in Mahadeo Nath v. Smt. Meena Devi, AIR1976All64 ; Hamida Bi v. Abdul Gaffar [1933] AIR 1933 Rangoon 147 and Salil Dutta v. T. M. and M. C. Private Ltd. [1993]1SCR794 . 27. He further contended that before the said letter dated April 30, 1996, was issued by reason of the allotment of shares on March, 12, 1996, Sajal Kumar Dutta and his group became a majority. Therefore, the finding of the Company Law Board that everything happened after the letter dated April 30, 1996, is not correct (internal page 21, para. 23 of the Company Law Board's judgment). 28. He further submitted that all the complaints made by Dr. Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Law Board on November 22, 1997, the position of the shareholding whose names appeared in the share register of the company admittedly was Dr. Dutta holding 46.38 per cent, and Dr. Binod Prasad Sinha holding 6.38 per cent, belonging to the group of Dr. Kamal Kumar Dutta. On the same date 47.03 per cent, belonged to Sajal Kumar Dutta. He further submitted that the shareholding composition of shareholders as on March 31, 1995, was as follows : Sl. No. Name No. of shares Percentage 1. Dr. K. K. Dutta 4,55,650 46.378 2. Dr. Binod Sinha 62,540 6.365 3. Dr. A. K. Maulik 10 0.001 4. Mrs. Pari Dutta 2,180 0.222 5. Mr. Sajal Dutta 60 0.006 6. XL Enterprises Pvt. Ltd. 75,000 7.634 (company owned by Mr. Sajal Dutta) 3,87,030 39.394 7. XL Fashions Pvt. Ltd. (company owned by Mr. Sajal Dutta) Total 9,82,470 100.00 32. Therefore, it would be evident from the admitted position of Dr. Dutta in their first petition before the Company Law Board dated November 22, 1997, stated that Sajal Kumar Dutta and his group companies are the single largest shareholder group in the company. He further submitted that Dr. Binod Prasad Sinha never took any active interest and never participated in the manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. 35. He further drew my attention to the memorandum and the articles of association of the company and submitted that authorised capital did not include for preference shares. No preference shares have been issued till date. The authorised share capital of the company is ₹ 5 crores as on date in the same structure. Therefore, the question of holding 88.88 per cent, shares in the capital of the company by Dr. Dutta and his associate does not and cannot arise at all. According to Dr. Dutta, ₹ 1 crore was invested in the company by him and his associate and no shares have been issued in respect of the said sum of ₹ 1 crore. Hence, the question of further investment by him and his group did not and could not arise. The Company Law Board dealt with the matter and has observed as follows (page 336 of 108 Comp Cas) : It is to be noted that by the time when the further allotments were made, the NRI cash contribution with the company was about ₹ 1 crore including shares and share application money ... (appearing at volume III, page 1543 of the paper book) 36. He further submitted that the admitted case of Dr. Dutta is that as on August 5, 1997, the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve chairman have to be included in the last minute (February 9, 1996) and after such correction it will be signed after next board meeting". Hence, he submitted that it is clear that the minutes of the meeting could not be signed on February 16, 1996. It is also clear that it is at the instance of the IDBI, Dr. Dutta became non-executive chairman. IDBI wanted to know about clearing of its outstanding dues and the board discussed that further funds are required. Thereafter, Dr. Dutta stated that he will not be able to invest any further funds in the company and Sajal Kumar Dutta, as managing director has to make necessary investments. 40. The allegation of Dr. Dutta is that the minutes of the board meeting dated February 16, 1996, was fabricated and manipulated cannot be accepted since there is no specific denial of the fact that Dr. Dutta was present and the Company Law Board finding that "petitioner admits that he attended the meeting". No challenge to this finding by Dr. Dutta : There is no specific denial that he had refused to invest further funds ; there is no contemporaneous letter/allegation by Dr. Dutta that the minutes of the meeting dated February 16, 1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convening or conducting any board meeting of the company nor bothered to appoint any alternative director though a board meeting of the company is required to be held every quarter and has also had no correspondence with the company with regard to convening and conducting of board meetings since incorporation and/or in respect of its management and affairs. At the board meeting held on April 23,1997, vacation of office of Dr. Dutta and Dr. Sinha were noted. 43. He further contended that the cessation of office of Dr. Kamal Kumar Dutta as a director, Dr. Dutta contended that he has attended some board meetings of the company even after February 9, 1996. He attended the board meeting on February 16, 1996. He did not take any steps to comply with the statutory requirements of holding the board meetings of the company every quarter nor even appointed an alternate director and the board meeting held on March 3, 1997, has not been recognised by the IDBI which would be evident from the document dated March 3, 1997, addressed by the IDBI (appearing at page 237 of volume I of the paper book). The board meeting of the company held on April 23, 1997 (appearing at page 240, volume I of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty shareholders being Dr. Dutta's group holding 88.88 per cent. shareholding in the company. The admitted position by Dr. Dutta in his petition before the Company Law Board is that Sajal Kumar Dutta and his group companies are the single largest shareholders groups. The admitted position by Dr. Dutta that Sajal Kumar Dutta and his group companies have 47.03 per cent, and Dr. Dutta has 46.38 per cent, who are very close to each other in terms of shareholding in the company and therefore, taken up a case of majority being converted into minority cannot be accepted and further submitted that in any event no case of mismanagement and/or apprehended mismanagement has been made out by Dr. Dutta nor is there any finding by the Company Law Board in this regard. According to him, Section 398(1)(b) of the said Act can only be applicable when any material change has taken place in management and by reason of such a change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or the interest of the company. The said condition has to be satisfied before Section 398(1)(b) of the said Act is applicable and accordingly, Mr. Sen submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en statement filed before the DRT, Dr. Dutta admitted that Sajal Kumar Dutta was appointed as the managing director by him. He further admitted that he had his professional commitments in the United States and could not be physically present in Calcutta, for carrying on the day-to-day management and administration of the said hospital. He further requested his brother Sajal Kumar Dutta to assist in the administration of the hospital. Further, Dr. Dutta submitted before the Company Law Board "that the company is liable to be wound up". Further, Dr. Dutta wrote to KPMG behind the back of the company and other appellants with the express purpose that the company does not get ISO certification. Dr. Dutta complained to the Department of Company Affairs behind the back of the company and other appellant with the intention to harass the company as to why board meetings are not held when he was fully aware of the High Court order dated April 7, 2000, that the company cannot hold board meetings. Dr. Dutta's statement before the DRT asking the IDBI to proceed against the borrower and dispose of the assets of the company worth ₹ 10 crores would show that he has acted to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd., MANU/WB/0104/1966 : AIR1966Cal512 and Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 ; [1959] 29 Comp Cas 1 (HL) in support of his contention. 54. Mr. Sarkar, learned senior advocate appearing on behalf of Dr. Kamal Kumar Dutta and Dr. Binod Prasad Sinha in A. P. O. No. 759 of 1999 contended that an appeal under Section 10F of the said Act is restricted only to questions of law inasmuch as the substantial findings in the Company Law Board order are findings of fact, such findings cannot be questioned in the appeal. 55. Therefore, he submitted that the scope of this appeal is restricted to the followings : (a) allotment of shares by company to Sajal Kumar Dutta ; (b) Dr. Dutta and Dr. Sinha were shown to have vacated their office of directorship under Section 283(1)(g) of the said Act; (c) refusal of the company to allot shares towards the value of the imported second hand equipment supplied by Dr. Kamal Dutta, the petitioner. 56. According to Mr. Sarkar, Section 81(1)(a) of the said Act stipulates offer to existing shareholders as condition precedent for increase of subscribed capital with exception by passing special resolution in general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dutta : 605, Old Forge Lane, Franklin Lakes, New Jersey, U.S.A. 07417 Dr. Binod Prasad Sinha : 19, Hanson Drive, Edison, New Jersey, U.S.A. 08820 Mr. Sajal Kumar Dutta : 260, Jodhpur Park, Second Floor, Calcutta-700 068 whereas the alleged notice for the extraordinary general meeting to Dr. Dutta and Dr. Sinha and Mr. Sajal Kumar Dutta have been sent to the Calcutta address which was also admitted by them. The said notice was issued only to Dr. Dutta and excluding other directors of the company. 59. He further submitted that all the findings of facts by the Company Law Board are in favour of the petitioners, but the final relief has been denied only inasmuch as a writ petition was pending before this hon'ble court. He further submitted that there was no embargo by reason of the pendency of the proceedings for the Company Law Board to pass final reliefs that were commensurate with the findings contained in the order. 60. Once it had been established that the petitioners have been wrongfully reduced from the majority position to minority, the petitioners were entitled to relief. He further contended that the board meetings convened purportedly to be shown in the absence of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committed contemptuous act by creating charge on all the movables and immovable properties of the company in favour of Bank of Baroda. 61. Mr. Sarkar also relied upon a decision reported in M. S. Madhusoodhanan v. Kerala Kaumudi Pvt. Ltd. MANU/SC/0553/2003) and he submitted that despatch of notice under UPC does not conclusively prove that notice was despatched to or received by the addressee. He further relied upon a decision reported in Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., AIR1966Cal512 , and contended that for the proposition that it is inconceivable that a person would commit harakiri by agreeing to be reduced to minority upon allotment of shares to a rival group. Relying on a decision reported in Gluco Series P. Ltd., In re MANU/WB/0093/1984) he also submitted that for the proposition that allotment of shares to convert the majority shareholders into minority is per se oppression. In such a case the impugned allotment can be cancelled. The Board put in place by the oppressor group can be superseded and a general meeting can be called after the cancellation of the impugned shares for the purpose of electing new directors. He also relied upon a decision reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es might tilt the balance of the shareholdings and might transform the major bulk of the shareholders into a minority group of shareholders, the particulars of the allottees or the manner of their allotment should also be indicated necessarily. Certain procedural safeguard is necessary to ensure fairplay in corporate management. 64. Mr. Sarkar further submitted that without there being a finding that a case had been made for just and equitable winding up of the company, the matter could not be proceeded with further, nor could orders be passed in Section 397/398 proceedings. This cannot be accepted at this stage since only Section 397 of the said Act contemplates a finding of just and equitable ground for winding up the company. Section 398 of the said Act does not contemplate. Further, it would be evident from Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri MANU/WB/0256/2000) that it is not always necessary to take express finding that it was just and equitable for the company to wind up. In any event, there has been substantial compliance with such requirement of Section 397 of the said Act by the Company Law Board and the grievance of Dr. Kamal Kumar Dutta was that material chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting should be directed to be convened after the petitioners have been restored to their majority status and such general meeting would be held for the purpose of electing directors in the company. He further submitted that it is imperative that the present impasse be resolved so that the hospital of the company does not suffer any further prejudice. It is also submitted that the petitioners being doctors are better equipped to run the hospital of the company. 68. I have considered the facts and circumstances of this case. I have also analysed the decisions cited by learned Counsel for the parties. After scanning the facts of this case it appears to me that the Company Law Board dealt with the grievance made by the petitioner before the Company Law Board and the oppression as has been stated by the petitioner before the Board which are (a) removal of the petitioners from the directorship ; (b) by allotment of shares to the Sajal Kumar Dutta's group and thereby making the said group as majority shareholders of the company; (c) further that no notice to hold meetings were served on Dr. Kamal Kumar Dutta and Dr. Sinha and the resolution passed in the extraordinary general meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have been issued to the petitioner directors for the board meetings cannot be considered to be valid notices and as such the stand of the respondent that the petitioner directors had vacated the office of director under Section 283(1)(g) cannot be sustained, that the various decisions in the board meetings including that of allotment of shares in the absence of valid notice to the petitioner directors could not be considered as valid and binding and that there is substantial evidence to show that at least up to March, 1996, most of the imported equipment was in working condition and that the conduct of the respondent/directors had been unfair to and biased against the petitioner and exhibits lack of probity. and after taking into consideration all the aspects the Company Law Board passed an order in the matter. But it appears to me after carefully scrutinising the judgment of the Company Law Board that there is no finding at all that a just and equitable winding up would unfairly prejudice Dr. Dutta or his group. I feel that it was the duty of the Company Law Board in dealing with a matter under Section 397/398 of the Companies Act to see that a petitioner has to become succe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be apparent that Dr. Dutta by way of relief asked a control over the company and if I try to find out an answer, the answer would automatically that none of the parties wants a winding up. Two groups are fighting for company and not for its winding up. 75. In Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., MANU/WB/0104/1966 : AIR1966Cal512 , where the court came to the conclusion that there was chance of the company being run normally by the directors appointed by shareholders in the ordinary course of things and further the court came to the conclusion that the company would have been wound up under just and equitable clause and in such circumstances, court passed an order in that matter. 76. In Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 : [1959] 29 Comp Cas 1 (HL), the court came to the conclusion that on the facts aggrieved petitioners were substantial shareholders who were reduced to a position of worthlessness because of the misdeeds of the holding company and those who control it. A winding up of a subsidiary would serve no purpose, as upon winding up, the aggrieved shareholders would get a mere nothing. 77. In the case of Needle Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited by Mr. Sarkar would help him to come across the said hurdle. 81. I am also of the opinion that Dr. Dutta has failed to make out a case under Section 397 that if any order of winding up is made on the ground of just and equitable, that would prejudice Dr. Dutta. On the contrary, from the facts it appears to me that Dr. Dutta before the Debts Recovery Tribunal and further behind the back of the company acted in such a manner which would show and would be evident that Dr. Dutta acted prejudicial to the interest of the company. The court cannot shut its eyes even on those facts. Since I am of the opinion that the petitioner has failed to fulfil the pre-conditions to have an order under Section 397/398 and the Company Law Board did not deal with the matter at all, I do not have any hesitation to set aside the order passed by the Company Law Board. I also express my opinion following the decision of the Division Bench of our High Court in Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri MANU/WB/0256/2000) that the termination of the directorship, even by suppression of notice, or termination of directorship by a show of majority, would not entitle the terminated person to petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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