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S. Balasubramanian, Vice-Chairman

1. The first petitioner (hereinafter referred to as the petitioner), Dr. Kamal K. Dutta, a medical doctor by profession and a nonresident Indian ('the NRI'), claiming himself as the chief promoter of Ruby General Hospital, Calcutta, has filed this petition under Section 397/398 of the Companies Act, 1956 ('the Act'), alleging various acts of oppression and mismanagement in the affairs of the company. This company was incorporated in 1991 for establishment of a hospital-cum-advanced diagnostic facility at Calcutta. The company made an application to the Department of Industrial Development, Government of India (SIA) for approval of NRI investment for establishment of the hospital indicating therein that the cost of the project would be about Rs. 11 crore out of which the share capital would be Rs. 9 crore and that Rs. 8 crore of the share capital would be by way of NRI participation. The Department of Industrial Development approved the NRI investment by Dr. Kamal K. Dutta and his other NRI associates of Rs. 8 crore of which Rs. 4 crore was to be by way of equity and other Rs. 4 crore by way of preference shares. Thus, the project envisaged 88.88% NRI investment in shares and balance by residents. The petitioner was named as one of the first directors of the company in the articles. As on 31.3.1995, the petitioners held 52.74% of the equity shares in the company. The company was sanctioned a loan of Rs. 4.6 crore by the Industrial Development Bank of India ('the IDBI') towards the project. The second respondent is the younger brother of the petitioner. In addition to the investment in the shares allotted to him, the petitioner had also contributed about Rs. one crore in cash as share application money and had also financed about Rs. 3 crore for import of medical equipments (hereinafter referred to as 'equipments') for the hospital. The hospital was inaugurated by the Chief Minister of West Bengal on 25.4.1995. The petitioner claims that shares towards the value of equipments should be allotted to him, while the respondent contends that the same could not be done for various reasons including that they were second hand equipments. In the meanwhile, certain number of shares were allotted to certain companies under the control of the respondents and that both the petitioner-directors were informed that they had vacated the office of directors in terms of Section 283(1)(g) of the Act. The Reserve Bank of India ('RBI') gave its permission to allot shares to the petitioner against the cost of imported second hand equipments vide its letter dated 22.3.1997. On a representation made by the company, the RBI withdrew its approval on 20.5.1998. Again, on a representation made by the petitioner, the RBI restored its approval on 6.3.1999. On this, the company filed a writ petition before the Calcutta High Court which directed the RBI to give personal hearing to the company and the petitioner and decide the issue. After the hearing was concluded in the proceedings before us, the respondents have filed a set of documents from which we find that after hearing the parties, the RBI has once again approved allotment of shares to the petitioner and the company has again challenged the same before the Calcutta High Court. Thus, the issue relating to allotment of shares to the petitioner against the cost of second hand imported equipment is before the Calcutta High Court.

6. He further pointed out that after having increased his shareholding by allotment of shares to his associate companies, the respondent ensured the removal of both the petitioner-directors from the Board by which now the control of the management of the company is with the respondent. In the AGM on 30.12.1996, the second petitioner was purportedly shown to have vacated the office of director in terms of the provisions of Section 283(1)(g) of the Act. In the case of this petitioner also, no notices for any of the Board meetings were given, even though, according to the company, notices for the meetings were sent to him at his address in India. The learned counsel pointed out that the second petitioner is an NRI shareholder residing in USA, the fact of which was known to the company and, therefore, notices should have been sent to him in the address in USA. Even the notice for the EGM was not received by him. He also pointed out that from the copy of the notice for the AGM produced during the hearing, that there was a proposal for the reappointment of the second petitioner as a director. However, without considering the proposal, a different resolution was proposed indicating that for non-attendance of Board meetings and consequent vacation of office under Section 283(1)(g), this petitioner was not re-appointed. According to learned counsel, such a resolution means removal of the director for which provisions of Section 284 of the Act should have been complied with, according to which, a special notice in terms of Section 190 of the Act should have been given. Therefore, the resolution itself was defective and should not have been carried through. He submitted that a positive resolution was converted into a negative resolution, which is not permitted in law. He pointed out that, in that meeting, only the respondents and his associate companies were present and they had done whatever they wanted to do. He also questioned the need to include a resolution in the notice for re-election of the second petitioner as a director, if according to the company, he had already vacated the office by operation of law. He also pointed out that in the annual return up to 30.12.1996, filed on 13.3.1997, the second petitioner was shown as a director even though, according to the company, he has ceased to be a director on that day. Therefore, Shri Chaudhary contended that, minutes of the ACM had been fabricated after receipt of the approval letter, dated 27.12.1996 from the RBI (Annexure A-14) for allotment of shares to the petitioner against import of equipments. He also pointed out that on that day, there were only three directors and with the removal of the second petitioner as a director, the company had only two directors, which is against the provisions of law. He also contended that the removal of the second petitioner who was one of the promoter investors as well as first director, is an act of oppression. Accordingly, he prayed that the removal of the second petitioner as director should be declared as null and void.

16. In regard to the vacation of office by the petitioner, the learned counsel submitted that the petitioner did not attend Board meetings held on 12.3.1996, 27.3.1996, 13.4.1996, 25.4.1996, 24.7.1996, 5.9.1996 and 2.12.1996 even though notices for these meetings were sent by UPCs to his address at Calcutta. In view of this, in terms of Section 283(1)(g), he vacated his office. He further submitted that all the arguments that had been advanced in regard to vacation of office by the second petitioner are applicable in the case of petitioner also. He also pointed out that the vacation of office by the petitioner was communicated to him by a letter, dated 3.3.1997 and Form No. 32 was filed on 14.3.1997. Summing up his arguments on this issue, Shri Mookherjee submitted that directorial complaints cannot be agitated in a petition under Section 397/398 and that the petitioner, even though, knew about his vacation of office did not choose to initiate any legal proceedings in this regard till the petition was filed. Since vacation of office is by operation of law, it cannot be considered to be an act of oppression.

24. Regarding vacation of office by the second petitioner, the company has applied the provisions of Section 283(1)(g) on the ground that this petitioner had never attended any Board meeting right from incorporation of the company in spite of notice. We have already held that neither in law nor in equity, could it be considered that due notices had been issued to this petitioner to invoke the provisions of Section 283(1)(g). Even otherwise, we find that the company had not taken the stand that he had vacated the office when notices for the AGM convened on 30.12.1996 was issued wherein re-election of this petitioner was an item in the agenda, wherein it was stated --To appoint directors in place of Dr. Binod Sinha and Dr. S.K. Ghoshal who retire by rotation and being eligible, offer themselves for re-appointment'. The resolution passed in that meeting reads :