Calcutta High Court
Ruby General Hospital Limited And Ors. vs Dr. Kamal Kumar Dutta And Anr. on 31 March, 2005
Equivalent citations: [2006]129COMPCAS1(CAL), (2006)5COMPLJ546(CAL)
Author: Pinaki Chandra Ghose
Bench: Pinaki Chandra Ghose
JUDGMENT Pinaki Chandra Ghose, J.
1. This appeal and the cross-appeal arising out of an order dated October 29, 1999, passed by the Company Law Board (hereinafter referred to as "the CLB").
2. By consent of the parties both appeal and cross-appeal are taken up and are disposed of by this common judgment.
3. An application 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 Rs. 11 crores out of which the share capital would be Rs. 9 crores and Rs. 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 Rs. 3 crores for the purpose of importing medical equipment and the shares towards the said investments, being the value of the equipment, should be allotted to Dr. Dutta. A loan was granted for a sum of Rs. 4.6 crores by the IDBI for the said project. The grievance of Dr. Dutta the said allotment was denied by one of the appellants herein Sajal Kumar Dutta, who is the younger brother of Dr. Dutta and he was brought in the company by Dr. Dutta. Shares were not allotted to Dr. Dutta on the ground that the equipment was second hand. Subsequently, shares were allotted to others denying the rights of Dr. Dutta. Dr. Dutta and Dr. Sinha were also informed that they have vacated office in terms of Section 283(1)(g) of the said Act.
6. Permission was granted by the RBI to allot shares in favour of Dr. Dutta on March 22, 1997, but the same was withdrawn on May 20, 1998, at the instance of the company. On representation such permission was restored.
7. The company filed a writ petition challenging the said approval. The court directed to give a personal hearing to the parties and subsequently the Reserve Bank of India once again approved the allotment of shares in favour of Dr. Kamal Kumar Dutta. The said approval was again challenged by the company by filing an application under Article 226 of the Constitution of India in this hon'ble court.
8. The petitioners filed an application under Section 397 and Section 398 of the said Act before the Company Law Board and challenged the allotment of shares made by the company, and further the stand of the company that Dr. Kamal Kumar Dutta and Dr. Binod Prasad Sinha had vacated their office as directors and further refusal of the company to allot shares to the petitioner Dr. Kamal Kumar Dutta towards the value of the imported second hand equipments.
9. The learned Company Law Board after hearing the parties and after considering the facts placed before the learned Company Law Board, expressed their views as follows (page 345 of 108 Comp Cas) :
1. Since we have held that the stand of the company that the petitioner directors had vacated office under Section 283(1)(g) cannot be sustained for various reasons, we declare that these petitioner directors will continue as directors of the company. To avoid any future controversy relating to issue of notices for the board meetings, we also stipulate that notices for all board meetings will be issued to all the directors by registered post with 21 days notice to the addresses of the NRI directors 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 directors.
10. The learned Company Law Board also expressed their views on behalf of role of the IDBI nominee in the board which are as follows (page 346 of 108 Comp Cas) :
Thus, his role, instead of being constructive, led to the widening of the differences between the parties. Further, he also seems to have allowed allotment of shares without specific approval from the IDBI as is evident from the letter of IDBI at annexure K. Further, when the board decided to take action to regularise the import of second hand equipment in its meeting on February 16, 1996, he did not seem to have followed up this decision. Being the nominee of the institution which had lent a substantial amount of money, his objective should have been to ensure proper functioning of the management which would enable the company to refund the loans but the facts reveal otherwise.
11. But I have found from the said decision of the Company Law Board, the Company Law Board did not even dealt with the aspect that whether the case has been made out by the petitioners that it is just and equitable to wind up the company but if such order is made that would prejudice the petitioners before the Company Law Board. Not a single sentence has been found place in the decision.
12. Mr. P. C. Sen, learned senior advocate appearing on behalf of the appellant-company submitted that for exercise of powers under Section 397 of the said Act, some of the conditions precedent have to be satisfied and there must be a formation of opinion by the Company Law Board :
(a) that it is just and equitable to wind up the company concerned, and
(b) that to wind up, such company will unfairly prejudice the petitioner in the application under Section 397 of the said Act.
13. According to Mr. Sen, there is neither any discussion nor any finding in the impugned order on any one of these conditions precedent. Therefore, on this ground alone the appeal should be allowed and the cross-appeal filed by Dr. Kamal Kumar Dutta and Dr. Binod Prasad Sinha, who are respondents in the appeal in A. P. O. No. 746 of 1999, should be dismissed. He further relied upon the decisions reported in Maharani Lalita Rajya Lakshmi (M. P.) v. Indian Motor Co. (Hazaribagh) Ltd. [1962] 32 Comp Cas 207 ; , Shanti Prasad Jain v. Kalinga Tubes Ltd. , Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal) and Hanuman Prasad Bagri v. Bagress Cereals P. Ltd. [2001] 105 Comp Cas 493 (SC) 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 Rs. 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 the nominee director of IDBI were also present. Admittedly, Dr. Dutta informed the board of directors that it was not possible for him to invest any further amounts in the company in the near future and as far as payment to the IDBI and meeting other financial commitments of the company were concerned and necessary funds were to be arranged by Sajal Kumar Dutta.
17. He further submitted that there is no contemporaneous complaint with regard to such minutes, though it is in the affidavit. Mr. Sen submitted that there is no finding of the Company Law Board that any part of these minutes is fabricated or illegal and nor has the Company Law Board set aside the said minutes. Dr. Kamal Kumar Dutta has also not indicated as to what according to him would be the true version of what transpired at the meeting.
18. He also contended that on February 17,1996, a resolution was passed at the extraordinary general meeting after due notice to the shareholders authorising preferential allotment of shares. Dr. Dutta admits of such extraordinary general meeting, but stated that the extraordinary general meeting was illegal and wrongful. There is no reason has been given by him. On March 12, 1996, 2,21,000 shares of Rs. 10 each were issued and allotted at the board meeting of the company, due notice whereof, was given to Dr. Dutta at their usual addresses in India. At this meeting, the nominee director of IDBI was present. Such steps were taken since the company was in need of funds for the purpose of this issue and no case has been made out that at the relevant time the company was not in need of funds. Therefore, he submitted that the issue and allotment of shares on March 12, 1996, was made in accordance with law and in any event Dr. Dutta could not make any complaint in this regard.
19. He further drew my attention to the following facts and according to him, the said facts would show that funds were required to be invested in the company when Sajal Kumar Dutta took over as managing director on February 9, 1996 and the condition of the company in that period would further show that induction of funds against the allotment of shares was justified.
20. During 1996-97 Dr. Kamal Kumar Dutta was admittedly in control of the company. On January 18, 1996, the bank balance of the company was negatived by one lakh. On January 19, 1996, Dr. Dutta sent a fund of Rs. 16 lakhs. 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 Rs. 19 lakhs by the Company Law Board, the said fact is not correct and in fact only Rs. 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 Rs. 4.65 lakhs. On February 9, 1996, the IDBI had already disbursed Rs. 455 lakhs out of the sanctioned loan amount of Rs. 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, 1996, the IDBI issued letter recording default of payment of interest and asked for payment. On March 26, 1996, Rs. 21 lakhs was paid to the IDBI by the company and in fact Rs. 22 lakhs were brought in by Sajal Kumar Dutta. Dr. Dutta never disputed the said fact. On March 31, 1996, it would show from the annual accounts that there was a loss of Rs. 115 lakhs. A huge outstanding to the suppliers over six months and the turnover of the company was Rs. 102 lakhs whereas the projected turnover as per the IDBI appraisal was Rs. 352 lakhs.
22. He further drew my attention to the judgment of the Company Law Board and pointed out that the Company Law Board had acknowledged that the company was in need of funds when allotments were made as it has held that cancellation of allotment would adversely affect the financial position of the company. He also contended that on March 18, 1996, Form No. 23 was filed with the authority relating to the extraordinary general meeting held on February 17, 1996. On March 26, 1996, the company paid a sum of Rs. 21 lakhs to the IDBI out of the funds realised by the company from the issue and allotment of shares. The said fact has not been disputed by Dr. Kamal Kumar Dutta or by Dr. Binod Prasad Sinha.
23. He further contended that on April 4,1996, Form No. 2 and Form No. 32 were filed in relation to issue and allotment of shares on March 12, 1996, and appointment of Sajal Kumar Dutta as managing director of the company on February 9, 1996. The above facts show that the allotment of shares on March 12, 1996, was for the benefit of the company and all legal requirements were complied with.
24. He further drew my attention to a letter dated March 25, 1996, addressed by an advocate representing Dr. Dutta addressed to the company and Sajal Kumar Dutta stating inter alia that "material change . . . interest to the company".
25. He further drew my attention to the reply by the company to the said letter dated March 25, 1996, on April 30, 1996, Dr. Dutta's lawyer stated that "disputes have been amicably settled . . . Requested not to make any further correspondence".
26. He further drew my attention to the averment made by Dr. Dutta and submitted that the contents of the said letter were not denied, but stated that the advocate had no authority and acted without instruction. No document was 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, ; Hamida Bi v. Abdul Gaffar [1933] AIR 1933 Rangoon 147 and Salil Dutta v. T. M. and M. C. Private Ltd. .
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. Kamal Kumar Dutta in respect of fabrication, manipulation, ouster of Dr. Dutta are with regard to acts which have occurred in July/August, 1996. Therefore, there cannot be any complaint with regard to issue and allotment of shares on March 12, 1996.
29. According to him in any event issue and allotment of shares were made for the benefit of the company. There is no finding of the Company Law Board that there was no illegality for such issue and allotment of shares. In any event Dr. Dutta having asked for setting aside of the allotment cannot ask for transfer of shares. The petitioners were aware of the fact that the company was in need of funds. Therefore, according to him, shares were issued in the larger interest of the company and the decision to issue shares cannot be struck down on the ground that it has incidentally benefited the directors in the capacity of a shareholder. He relied upon the decisions reported in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. and Nanalal Zaver v. Bombay Life Assurance Co. Ltd. . According to him, without coming to any illegality the Company Law Board could not have found such allotment to be an act of oppression. Such finding of the Company Law Board is perverse and liable to be set aside.
30. He further submitted that the second issue made on July 24, 1996, for an amount of Rs. 20 lakhs. The number of shares are two lakhs. The nominee director of the IDBI was not present in the said meeting, but the observer was present and he did not raise any objection. At that point of time, the company needed funds to pay creditors and make investment to complete the project (which would be found from 1996-97 balance-sheet, auditors report appearing at page 847, volume II of the paper book) and further he drew my attention to supplementary affidavit of the company affirmed on December 17, 2003, and according to him, in any event by this allotment no new majority was created. Dr. Dutta was also allotted shares on July 24, 1996.
31. He further contended that an impression has been given by Dr. Dutta before the Company Law Board that the company is a NRI company and he and his supporters held 88.88 per cent, of the share capital of the company whereas Sajal Kumar Dutta's group held minority shareholding of 11.12 per cent. On the date of filing of the petition at Company 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 management of the said company. He has neither signed the loan agreement with the IDBI on behalf of the company nor given any personal guarantee in respect of the loan. He never attended any board meeting or any general meeting nor gave any proxies which would show admittedly that he is a dormant shareholder.
33. Therefore, according to Mr. Sen, admitted position at the material time when the petition was presented before the Company Law Board, there were only two groups of contesting shareholders--Dr. Dutta holding 46.38 per cent, and Sajal Kumar Dutta holding 47.03 per cent. According to him, submissions made before the Company Law Board that the question of majority being converted into a minority group cannot be accepted. The Company Law Board also admitted in their decision (para. 21 of the judgment of the Company Law Board) that there were only two large shareholders of the said company. He further submitted that the memorandum and articles of association of the company no where state that the company is a NRI company or NRI project or NRI investment or the word "NRI" has ever been used in the memorandum and articles of association. It would be evident from the memorandum and articles of association from the list of subscribers, Dr. Kamal Kumar Dutta and Sajal Kumar Dutta had 60 shares each. Sajal's name was appearing in No. 1 position. All addresses mentioned the said memorandum and articles of association are Indian addresses. Therefore, according to him, it is nothing but a representation to the public that it is not a NRI company, but an Indian company.
34. He further drew my attention to the letter of SLA approving NRI shareholding of 88.88 per cent, being dated August 6, 1993, and submitted that SIA cannot put ceiling on resident Indian investment. It is only an approval to the extent that it is NRI investment and nothing else. On October 12, 1993, amendment took place at the instance of Dr. Kamal Kumar Dutta that even under SIA approval Dr. Dutta and Dr. Sinha were to be allowed a maximum of Rs. 400 lakhs (44.44 per cent.) equity shares and a maximum of Rs. 400 lakhs as preference shares in the paid up capital of the company. Such amendment has not been disputed by Dr. Dutta. Therefore, NRI investment would not exceed 44.44 per cent, of the equity share capital of the company. The authorised capital of the company is Rs. 5 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 Rs. 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, Rs. 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 Rs. 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 Rs. 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 remittance received from NRIs was Rs. 100,63,730 (Rs. 1 crore). Shares already issued were Rs. 51,81,900 (Rs. 51 lakhs) and balance in share application account was Rs. 48,81,830 (Rs. 49 lakhs). Dr. Dutta by filing an application before the Company Law Board held that the said application would be heard along with the main matter and in the said final order the Company Law Board passed an order restraining any further allotment. After 1996, there has been no remittance from the NRIs.
37. Mr. Sen further submitted that since the Reserve Bank of India's permission was required before allotment of shares for each and every inward remittance of Dr. Dutta and other NRIs, the company had to apply to the Reserve Bank of India with necessary documents including authentication by the receiving banker that the cash has been received by the bank, called foreign inward remittance certificate. Once the permission is received from the Reserve Bank of India, the company has always allotted shares at the next board meeting to Dr. Dutta and other NRIs. The balance shares could not be allotted to Dr. Dutta in view of the fact that the Reserve Bank of India's permission was awaited. Ultimately approvals were received only from April 29, 1998, onwards when the petition was pending before the Company Law Board and since the Company Law Board did not allow any allotment, that is the reason for such non-allotment.
38. He further submitted that the board meeting held on February 9, 1996. Dr. Dutta cannot argue at this stage that the said board meeting was fabricated as it would be contrary to the pleadings filed by him. Admittedly, he did not object Sajal Kumar Dutta to become the managing director of the company. It is admitted that Dr. Dutta could not be physically present in Calcutta for day-to-day management of the company (Mr. Sen relied upon written statement filed by Dr. Dutta before the Debts Recovery Tribunal and annexed to reply of the company to the supplementary affidavit filed by Dr. Dutta dated June, 2004).
39. Mr. Sen submitted with regard to the board meeting held on February 16, 1996, that the minutes of the board meeting dated February 9, 1996, could not be signed on February 16, 1996, since the IDBI nominee director advised that "the withdrawal of resignation of Dr. A. K. Moulik and the appointment of Dr. Kamal K. Dutta as non-executive 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, were fabricated ; subsequent to February 16, 1996, Dr. Dutta never corresponded with the company on any matter including the investment of further amounts ; Dr. Dutta has not indicated what according to them is the true version of what transpired at the said board meeting.
41. Mr. Sen further drew my attention to the pleadings of Dr. Dutta filed before the Company Law Board and it has been alleged that fabrication took place from July/August, 1996 (volume I, page 12, para. 8 of the paper book). Therefore, Dr. Dutta cannot make allegation regarding the minutes of February 16, 1996. So far the board meeting of March 12, 1996, Mr. Sen submitted that the minutes of the board meetings held on February 9, 1996, and February 16, 1996, were signed by Sajal Kumar Dutta, managing director who was the chairman of the meeting and this was done in accordance with Section 193 of the said Act where it has been provided that the chairman of the successive meeting can sign the minutes of the previous board meeting. In any event Dr. Dutta has complained of fabrication subsequent to July/August, 1996, and more particularly after the correspondence exchanged between the advocates, Dr. Dutta cannot make any grievance at all.
42. He further contended that the allegation of Dr. Dutta that Dr. Sinha was removed from office as director as his appointment on retirement was not approved by the shareholders at the annual general meeting (hereinafter referred to as AGM). According to Dr. Dutta, as per fabricated records, the shareholders present at the AGM did not vote for Dr. Sinha. According to Dutta, majority shareholders were not given notice of the AGM ; Records of the AGM held on December 30,1996, were mala fide ; No notice of any board meeting was given to Dr. Dutta ; The minutes dated December 30, 1996, were fabricated as the annual return of the company made up to December 30,1996, shows Dr. Sinha as a director. Such contention cannot be accepted on the ground that Dr. Sinha has admittedly not attended any board meeting after incorporation of the company. He was never granted leave of absence for any board meeting held after February 9, 1996. Therefore, Dr. Sinha has automatically vacated office as a director by reason of the provisions contained in Section 283(1)(g) of the said Act. Dr. Sinha has never shown any interest towards the company. He has not taken any steps for 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 paper book) would be evident from the records.
44. Mr. Sen further submitted that although Dr. Dutta has disputed his cessation of office since April 4, 1997, but he took no steps to redress his grievances by legal proceedings contemporaneously. Form No. 32 was also filed regarding cessation of office by Dr. Dutta as a director under Section 283(1)(g) of the said Act on March 14,1997 (volume IV, pages 1870-1874 of the paper book).
45. He further contended that Section 397 of the said Act itself makes it clear that the oppression is to be qua shareholder. The directorial complaints cannot constitute shareholders oppression, and he relied upon the decisions reported in Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal), Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and Hanuman Prasad Bagri v. Bagress Cereals P. Ltd. [2001] 105 Comp Cas 493 (SC).
46. He further submitted that directorial complaints are no longer relevant or applicable in the instant case. He further drew my attention to Article 121(a) and (b) of the articles of association of the company and submitted that the said articles are void to the extent those are inconsistent with Section 283 of the Companies Act. He further drew my attention to Section 9 of the said Act and submitted that both in the articles of association and the memorandum of association of the company, the address of Dr. Dutta is shown as BH 113, Salt Lake City, Calcutta, and Dr. Sinha as P. O. Hirapur, District Dhanbad. All the notices were sent to the said addresses, as mentioned in the articles of association of the company. The plea that Dr. Dutta and Dr. Sinha were NRIs and were not residing in India, cannot be a ground, therefore, the notices have to be served at their foreign addresses is wholly unacceptable and the Company Law Board has committed an error, both in law and in fact. He further submitted that Dr. Dutta by his letter dated March 7, 1997, informed the company that his Indian address is at New Delhi.
47. He further contended that before the Company Law Board Dr. Dutta has contended that Section 398(1)(b) of the said Act is applicable in this case because there has been a material change in the control of the company, in view of the fact that minority shareholders being Sajal Kumar Dutta's group holding 11.12 per cent. in the capital of the company has ousted the majority 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 during the control of Dr. Dutta the company was making a loss of Rs. 9.50 lakhs per month and loss for the year 1995-96 was Rs. 115 lakhs and the turnover was only Rs. 102 lakhs and subsequently after Sajal Kumar Dutta took over as managing director, the company was benefited and the company wiped out its losses incurred during the tenure of Dr. Dutta and started paying income-tax and the DRT case was withdrawn by the IDBI in view of regular payments made by the company towards repayment of loan of IDBI. He also drew my attention to the petition filed by Dr. Dutta before the Company Law Board and the statements made by him where it has been started as follows :
Present condition of the hospital was deplorable due to incompetent and inefficient managing director...
(appearing at volume I, page 21 of the paper book) and in the appeal on December 2, 1999, Dr. Dutta stated that "Ruby General Hospital has become extremely popular . . . large number of doctors refer patients to the said hospital. . .". (Dr. Dutta's cross-appeal under Section 10F dated December 2,1999, page 19, para. 11). Therefore, Mr. Sen submitted that even if at all any change of management had taken place, it was not prejudicial to the interest of the company and even according to the petitioners, the hospital is popular, it is not prejudicial to the public interest. Accordingly, he submitted that in such circumstances, Section 398(1)(b) cannot be applicable in this case and more so, the Company Law Board has not found Section 398 to be attracted here.
48. He further submitted that issue of shares against second hand equipment the Company Law Board has categorically stated that the issue with regard to allotment of shares to Dr. Dutta in lieu of second hand equipment is pending in a writ proceeding before the Calcutta High Court and therefore, there is no need to go in the said issue in Section 397 petition.
49. He further submitted that the observation made by the Company Law Board in respect of the said allotment is totally uncalled for and further the matter is pending before the Calcutta High Court. It is further submitted that the said second hand medical equipment was outdated, over invoiced not in good working order and condition and the equipments are obsolete. Mr. Sen further drew my attention to the conduct of Dr. Dutta and submitted that in the written 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 Rs. 10 crores would show that he has acted to prejudice the interest of the company.
50. Mr. Sen further submitted that notice of the meeting dated March 3, 1997, including an agenda would show that Dr. Dutta took a joint effort with Arun Saini, Mr. Surendra Joshi, Brig. R. K. Rakshit and others to oust Sajal Kumar Dutta and to take control of the company. Hence, Mr. Sen submitted that the court will also take note of all the conduct of Dr. Dutta to decide the matter.
51. He further contended that the object of Section 397 of the said Act is to provide an alternative way for winding up a company so that the company can function properly for the interest of shareholders as also for the interest of the public. Section 402 of the said Act confers wide powers on the court to make appropriate orders in the facts and circumstances of the case for the purpose of continuance of the company and its affairs in a smooth and orderly fashion so that it is beneficial both to the general body of shareholders as also to the general interest of the public. He further submitted that Section 402 of the said Act specifically provides for purchase of the shares or interest by any member of the company or by other members thereof or by the company itself. In a case if there are two principal groups holding shares and the possibility of the disputes between them is not likely to come to a reasonable solution, such dispute generally resolved by an order for sale and purchase of shares. According to him, the first choice should be given to the principal consideration of the company and under whose control the company has been functioning for the last few years.
52. He further submitted that from the facts it would appear that Dr. Dutta cannot be entrusted with the management of the company and therefore, option should be given to Sajal Kumar Dutta and his group to buy the shares of Dr. Kamal Kumar Dutta and his group at a price to be arrived at by a valuer appointed by this Court as on the date of filing of the petition.
53. He further submitted that such order to be passed giving a first chance to Sajal Kumar Dutta since the principal lender and/or financier of the company has and still continues to be IDBI. The said bank is still giving financial support to the present management. He relied upon the decisions reported in Bajrang Prasad Jalan v. Mahabir Prasad Jalan, , Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., 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 meeting. According to Sajal Kumar Dutta and others, a special resolution was passed in extraordinary general meeting held on February 17,1996, in pursuance of a notice dated January 24, 1996. According to Mr. Sarkar, no extraordinary general meeting was ever held and records were fabricated and/or manipulated for the purpose to suit Sajal Kumar Dutta's group. He drew my attention to notice for extraordinary general meeting dated January 24, 1996. As per Form No. 23 filed with the Registrar of Companies, date of despatch of notice is stated to be January 22, 1996, but under certificate of posting filed in support of service of notice dated January 24, 1996. Therefore, according to him, this is nothing but a manipulation. He further submitted that Sajal Kumar Dutta and his group contended that in the board meeting of April 19, 1995, it was decided to hold the extraordinary general meeting. The minutes of board meeting of April 19, 1995, have been fabricated as it would be demonstrated from the following facts :
(a) At agenda No. 6, it was decided to maintain books of account at a place other than the registered office, where as per Form 23AA filed with the Registrar of Companies the date of the board meeting in which this agenda was passed is dated June 15, 1995.
(b) Meeting was chaired by Dr. Kamal Dutta but the minutes were signed by Mr. Sajal Kumar Dutta, the appellant in the appeal.
(c) At agenda No. 7 it was decided to apply before the Registrar of Companies for extension of the annual general meeting and to hold the same on November 11, 1995, which seems to be a premature decision.
57. He further contended that the director's report dated January 24, 1996, ! of the year ended March 31, 1995, as well as board meetings dated February 9, 1996, February 16, 1996, are silent about the requirement of funds. In January, 1996, Dr. Dutta remitted Rs. 19 lakhs.
58. He further contended that these facts would show the manipulation by ! Sajal Kumar Dutta and his group. According to him, no notice has been issued to Dr. Dutta for the extraordinary general meeting or other board meetings. According to him, Section 53 of the said Act stipulates the service at the registered address of members. As per the annual return dated December 30, 1996, the registered address of Dr. Dutta and Dr. Sinha and Mr. Sajal Kumar Dutta are as under :
Dr. Kamal Kumar 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 the petitioners, such board meetings have been found to be invalid. Once such a finding was reached, the consequential relief ought to have followed. All transactions at such invalid board meetings were required to be held null and void. The issuance of additional shares were required to be declared null and void. This would have resulted in the petitioners being restored to their majority status. In any event, he submitted that the conduct of the Sajal Dutta group having been found to be oppressive and wrongful, they should not be permitted to remain in control by an ineffective order. According to him, there is no infirmity in the order in so far as the pre-condition to be exercised in the light of Section 397 of the said Act is concerned. It is submitted that the order has to be read as a whole and it will be evident from the order that the Company Law Board was satisfied that a case for just and equitable winding up has been made out. In any event, it is not always necessary to record that a case for just and equitable winding up had been made out, particularly in a case, where the majority shareholders were ousted from their majority position and converted into minority. Section 398 of the said Act does not require such recording of satisfaction that a case for just and equitable winding up had been made out. There is no doubt that material changes had taken place in the company, which had been brought about by Mr. Sajal Kumar Dutta and his group. The argument that the company has done well under Sajal Kumar Dutta should not be countenanced as it is not correct on the facts and in any event, would amount to putting a premium on dishonestly and oppressive conduct. Further, the subsequent events regarding the alleged prosperity of the company are matters which could not be taken into account in an appeal restricted to questions of law. He further submitted that ordinarily the majority shareholders are not directed to go out of the company. In the instant case, the majority shareholders were the promoters of the company and the persons who conceived idea of setting up the company. It is also to be considered as to whether the petitioners being qualified doctors would be more suitable for controlling the company having a hospital as the only project. He further submitted that the respondents in continuation of their illegal activities for their wrongful gain 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. [2003] 117 Comp Cas 19 (SC) 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., , 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 [1987] 61 Comp Cas 227 (Cal) 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 in Tea Brokers P. Ltd. v. Hemendra Prasad Barooah [1998] 5 Comp LJ 463 (Cal) and contended that for the proposition that the original majority shareholders should generally be given the right to buy out the minority shareholders with a view to bring to an end the matters complained of and so the two worrying groups are not left fighting in the company. In another case reported in Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal) and contended that it is not always necessary to expressly record a finding that the facts warrant a just and equitable winding up of the company. In certain cases it is so obvious that it need not be specifically recorded. However, he submitted that in the present case, there was substantial compliance with the requirement of Section 397 of the said Act as would be evident from the judgment of the Company Law Board.
62. He further relied upon another decision reported in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. and contended that in the present case there is an express finding of facts that the conduct of other group was oppressive and accordingly, the said group should be directed to sell out their shares to Dr. Kamal Kumar Dutta and other. According to Mr. Sarkar, in Bajrang Prasad Jalan v. Mahabir Prasad Jalan, , the court held that the minority who should be directed to sell out their shares to the majority shareholders. He also relied upon the decision reported in P. K. Prathapan v. Dale and Carrington Investments P. Ltd. [2002] 111 Comp Cas 425 (Ker) and contended oppression was a finding of fact when there was a finding of oppression and it was conducted in a manner oppressive to the members of the company, the Company Law Board has power to pass such order with a view to bring to an end to the matters complained of and can make such orders as it thinks fit. But such order should be reasonable, rendering justice to the parties.
63. He further submitted that the Kerala High Court set aside the allotment of shares made at the back of the appellant. Hence, he submitted that the allotment made by the company in favour of Sajal Kumar Dutta and his group should be set aside. He further relied upon a decision reported in Jadabpore Tea Co. Ltd. v. Bengal Dooars National Tea Co. Ltd. [1984] 55 Comp Cas 160 (Cal) and submitted that where allotment of shares 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 [2001] 105 Comp Cas 465 (Cal) 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 changes have been brought about in the company which was prejudicial to the company's interest and prejudicial to the shareholders of the company. It has been found as a matter of fact, that by virtue of the allotment of shares, material changes had been brought about. As a result of the finding that the allotment of shares was behind the back of the petitioners, such allotment is liable to be cancelled and the petitioners' majority in the company is liable to be restored. Both the decisions relied upon by Mr. Sen being Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; and Nanalal Zaver v. Bombay Life Assurance Co. Ltd. , should be looked into in the light that as a matter of fact the company was not in need of funds. It is difficult to believe that in January, 1996, the petitioner remitted Rs. 19 lakhs, but in February, 1996, the petitioner refused to invest further funds and permitted to issue shares to third party to reduce themselves in minority. Further, there were substantial money lying in the hands of the company. The amount, by way of share application money of the petitioners already lying with the company and there was no reason why shares were not allotted against such share application money to the petitioner, Dr. Dutta.
65. He further submitted that the decision reported in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66; [1959] 29 Comp Cas 1 (HL), in the facts and circumstances of this case, has no application.
66. Mr. Sarkar further pointed out that the balance-sheet of the company as on March 31, 1995, coupled with the director's report thereon and the balance-sheet as on March 31, 1996, acknowledged that second hand equipment was being used and depreciation claimed. Therefore, the same is "outdated" cannot be accepted.
67. Mr. Sarkar submitted that although the judgment in favour of the petitioner and despite a case of oppression having been found to have been made out, the petitioners were not granted adequate reliefs by cancelling the impugned shares and by restoring the petitioners to majority shareholder in the company. He also submitted that the allotments of shares that have been found by the Company Law Board to be oppressive, should be cancelled and a general meeting 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 held on February 17, 1996, and board meetings held on March 12, 1996, and July 24, 1996, and the resolutions passed in the said meetings of the board were bad ; and (d) no notice for the board meetings were received by the petitioners as directors.
69. Further grievance has been made that even assuming that notices were issued, these notices had been issued to the addresses of the petitioners in India while the respondents (Sajal Kumar Dutta and others) were fully aware that the petitioners (before the Company Law Board) resided in USA and the other allegations have been made that the minutes of the meetings were fabricated and further grievances that the allotment of shares in lieu of the equipment imported by Dr. Kamal Kumar Dutta were not allotted in favour of Dr. Dutta and even after the permission from the Reserve Bank of India, the company and Sajal Kumar Dutta's group stand in the way to have the benefit thereof by Dr. Dutta. I have also found that all these grievances of the petitioners before the Company Law Board have been dealt with by the Company Law Board and the Company Law Board came to he conclusion that the allotment of shares was not completely bona fide and as such deserves to be set aside. The Company Law Board further came to the conclusion in respect of vacation of office by the petitioners and expressed in the following words : ". . . that the petitioner was shown to vacate his office on February 29, 1997, only with a view to nullify the proceedings on March 3, 1997". The Company Law Board also came to the conclusion as follows (page 333 of 108 Comp Cas) :
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 the 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 to a director cannot be recognised. If so, then, the alleged vacation of office by the petitioner directors as well as the allotment of shares as also the decision taken in the board meetings for not applying to the RBI for allotment of shares, which are the main allegations in the petition, would also become null and void.
70. It appears that the summing up their findings are as follows (page 344 of 108 Comp Cas) :
The notices alleged 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 successful under Section 397 he has to make out a case for winding up of the company on just and equitable ground and further if any order for winding up is made by the court it will prejudice the petitioner and in that case an order under Section 397/398 can be passed. If the said case could not be made out by the petitioner, in that event no relief can be had by the petitioners in regard to Section 397 of the Companies Act. Section 397 of Sub-section (2) of the said Act is set out hereunder :
(2) If, on any application under Sub-section (1), the Company Law Board is of the 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 Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
71. It would appear from the said Section that a petitioner who files an application under Section 397, he has to satisfy two ingredients to make out a case under Section 397(a) that to wind up the company would unfairly prejudice the member or members who have the grievance and are the applicants before the court; and (b) 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.
72. The said principles have been laid down in Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal) by our Division Bench, which is also approved by the hon'ble Supreme Court.
73. After analysing the facts of this case it appears to me that two groups are 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.
74. 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.
75. In Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., , 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 Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. , where the hon'ble Supreme Court has held that before granting a relief under Section 397 the court has to satisfy itself that to wind up the company will unfairly prejudice the members from complaining of oppression, but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up.
78. In a Division Bench decision of our High Court reported in Maharani Lalita Rajya Lakshmi (M. P.) v. Indian Motor Co. (Hazaribagh) Ltd. , the court observed as follows :
It is also necessary to emphasise that the court has to form an opinion on two essential points, that are set out in Section 397(2) of the Act. These two points are, first, the one that I have already stated, namely, that the company's affairs are being conducted in a manner oppressive to any member or members of the company and, secondly, 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. It is imperative that the court's opinion on both these points must be formed in the affirmative before any order could be made under Section 397 of the Companies Act.
79. After analysing all the decisions on this point I have been able to find out that where a petitioner in Section 397/398 matter has not shown that a winding up order would unjustly prejudice them or made out a ground therefor, in those cases, the application under Section 397 is liable to be dismissed.
80. Therefore, 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 said order. Then I could have been hesitant to interfere with the order so passed by the Company Law Board. But as has been pointed out by Mr. Sen and I do accept the contention of Mr. Sen since I do not find that the decisions 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 [2001] 105 Comp Cas 465 (Cal) 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 for just and equitable winding up is, that there is an appropriate remedy by way of a company suit, which can give the terminated director every relief. If notice has been suppressed, 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. The facts as pleaded by Dr. Dutta, a suit would give him a remedial measure and cannot ordinarily find a petition for just and equitable winding up and I feel that he could obtain each and every adequate relief in the suit court.
82. I am of the opinion that Section 397 contained the essential requirement of the finding of a just and equitable winding up. It appears that the finding of the jurisdictional issue should contain a legal patent error. Granting of relief under Section 398 does not require to make out a case that it is just and equitable to wind up the company. Therefore, I do not have any hesitation to set aside the order passed by the Company Law Board.
83. For the reasons stated hereinabove, the appeal is allowed.
84. After the judgment has been pronounced by me, Mr. Mukherjee, learned Counsel, appearing on behalf of Dr. Kamal Kumar Dutta (petition in Section 397/398) submitted that his client had filed an application before this Court on the ground that some steps are being taken by the appellant-company and Sajal Kumar Dutta's group (the respondents before the Company Law Board) which are also to be adjudicated upon ; since the appeal is being disposed of by me, I feel that this Court is not in seisin over the matter at all. Hence, the matter may be placed before the appropriate forum and leave is also granted to take steps accordingly.
85. There will be a stay of the operation of this order for a period of six weeks so that the parties can take steps in the matter. I also make it clear that the decision will not stand in the way if the parties want to take steps to arrive at any settlement of their choice.