2006 Supreme(SC) 722

2006(6) Supreme 258
SUPREME COURT OF INDIA
(From Calcutta High Court)
H.K. Sema and A.K. Mathur, JJ.
Kamal Kumar Dutta & Anr. — Appellants
versus
Ruby General Hospitals Ltd. & Ors. — Respondents
Civil Appeal No. 3471 of 2006
(Arising out of S.L.P. (C) Nos. 11017-11018) of 2005)
Decided on 11-8-2006
Counsel for the Parties :
For the Appellants : Dr. A.M. Singhvi, Sr. Advocate, M.L. Lahoty, Amit Bhandari, Yogesh Jagia, Paban K. Sharma, Ms. Hetu Arora and Ms. Poonam Lahoty, Advocates.
For the Respondents : F.S. Nariman (N.P.), T.R. Andhyarujina, S.N. Mookherjee, Sr. Advocates, Pallav Sishodia, Tarun Aich, Raj Rattan Sen, Ms. Meghalee Barthakur, Ms. Nupur Singh, Ms. Kanika Gomber and Rajan Narain, Advocates.

IMPORTANT POINTS
1. It is not necessary that in every case, the relief of winding up should be made. It is an option with the Tribunal if it considers that in order to bring to an end the matters complained of, it can pass orders for winding up if it is just and equitable or it can pass such order as it thinks fit.
2. When a material change is brought about in the management of the company to the detriment of the interest of the main promoter it is squarely covered u/s 398(1)(b) of the Companies Act. The company which is floated by the elder brother and which has been run by the younger brother in the absence of the elder brother and the Managing Director is totally ousted and shares are being cornered substantially so as to have full control of the company, it is oppression being squarely covered by Section 397(1)(b) of the Act.

Headnote:(i) Companies Act, 1956 — Sections 397 and 398 — Winding up petition — Oppression and mismanagement in affairs of company — A company was incorporated in year 1991 by two non-resident Indian Doctors along with respondent 2, younger brother of appellant — Company took up the project to establish a Hospital-cum-Advance Diagnostic facility at Calcutta — Cost of project was about Rs. 11 crore out of which share capital would be Rs. 9 crore and Rs. 8 crore out of that would be by way of NRI participation — Appellant, NRI brother of respondent 2 who was one of the first Directors of the company contributed Rs. 4.26 crore out of which equipments worth Rs. 3.5 crore were brought from USA — However, he was denied shares of the company for the equipments brought by him by his younger brother, respondent 2 — Though the Reserve Bank of India granted permission to allot shares in favour of appellant but it was withdrawn at the instance of the company — Company was being looked after by respondent 2 since appellant and Dr. ‘S’ were both NRIs — Soon after the hospital started showing progress, discard grew between the brothers — Attempt made by respondent 2 to oust the elder brother by passing fabricated company resolution — Whether it amounted to oppression covered by Section 397(1)(b) of the Act — (Yes) — Whether passing order of winding up of the company will be in the interest of the company or of the parties — (No).

       Held : When a material change is brought about in the management to the detriment of the interest of the main promoter it is squarely covered under section 398 (1)(b) of the Act. The company which is floated by the elder brother and which has been run by the younger brother in the absence of the elder brother the younger brother manages the whole company and that the Managing Director is totally ousted and shares are being cornered substantially so as to have full control of the company, is oppression being squarely covered by section 397 (1) (b) of the Act.(Para 32)

       Apart from this, one of the most important features which has weighed with us is that Dr. Kamal Kumar Dutta brought second hand equipments, those were cleared by the Customs and permission was granted by the RBI. The hospital started with those second hand equipments and for almost one year no grievance was made and the hospital was running successfully with these equipments. On 22.3.1997 the RBI granted permission for allotment of 30,55,329 equity shares of Rs.10/- each to the appellant No.1 against supply of second hand medical equipments on repatriation basis. But Respondent No.2 without permission of the Board of Directors filed an application with the RBI seeking withdrawal of the permission granted for allotment of 30,55,329 equity shares to appellant No.1. The RBI on 2.6.1997 withdrew the permission granted for allotment of 30,55,329 equity shares to the appellant No.1. The respondent No.2 presented Directors report in the Annual General Meeting along with audited balance sheet for the year ended 31.3.1997 wherein capitalization of second hand medical equipments supplied by the appellant No.1 was reversed.(Para 33)

       The subtle attempt on the part of the respondent No.2 was only to somehow oust the appellant No.1 of his majority by nullifying the order passed by the RBI so that the shareholding of the appellant is reduced otherwise against the equipments supplied by the appellant No.1 to the tune of Rs.3.5 crore, he will have the majority in the shareholding of the company. Therefore, this persistent effort was made by the respondents by filing one after another writ petition before the High Court to somehow reduce the shareholding of the appellant No.1. These attempts speak volumes in the subtle design on the part of the respondent No.2 to somehow see that the holding of the appellant No.1 is reduced and the management is passed on to his hands by outstripping the appellant No.1 from the office of the Managing Director by purchasing majority of shareholding pursuant to the resolution passed on 19.4.1995 , he wanted to control the entire company. The filing of repeated writ petitions in Calcutta High Court at the expense of the company adversely affected the interest of the company. If this is not the oppression of the member under section 397 and bringing material change in the management under section 398 then what could be the better case than this. We fail to understand the view taken by the learned Single Judge of the High Court directing the appellants to file suit for redressal of all grievances, we cannot sustain this order. We are of opinion that the view taken by the Calcutta High Court cannot be sustained. We are satisfied that this is the case of oppression of the member as well as would amount to bringing about material change in the management of the company. (Para 33)

       Since the issue of granting of equity shares against the medical equipments supplied by the appellant No.1 to the tune of Rs.3.5 crore is pending before the Calcutta High Court in a writ petition, therefore the CLB has not passed any final order but passed a limited order as mentioned above. However, we have examined the matter in detail and we are satisfied that there is full proof case of oppression. But at the same time we do not feel inclined to pass an order for winding up of the company because it will not be in the interest of the company nor to the interest of the parties. Therefore, we allow the appeals and set aside the impugned order dated 31.3.2005 passed by the learned Single Judge of the High Court and pass limited direction that all the resolutions which have been passed by the Board of Directors, or in the Annual General Meeting or Extraordinary General Meeting with regard to the raising of funds of Rs.40 lakhs in the meeting of 19.4.1995 and the meeting dated 16.2.1996 whereby the appellant No.1 was stripped off of his powers as Managing Director, the resolution by which Dr. Binod Prasad Sinha was removed from the office of Director and other resolutions by which the shares were allotted to the subsidiary company of Sajal Dutta or other persons are bad and we restore the position ante 19.4.1995 and direct that let a fresh meeting be convened and proper decision be taken in the matter in the interest of the company. We confirm the order and direction of the CLB.(Para 34)

       Let a Board meeting be convened with 21 days notice to all the Directors by registered post at their NRI address in India as well as USA. The meeting shall be chaired by Dr. Kamal Kumar Dutta, Managing Director. In case any of the NRI Directors is unable to attend the meeting, he will have a right to make nomination. We again make it clear that all the resolutions are set aside with regard to raising of funds dated 19.4.1995, removal of Dr. Binod Prasad Sinha from Board of Director, outstripping of Dr. Kamal Kumar Dutta from the Managing Directorship, allotment of shares to Sajal Duttas companies & to others and all other resolutions which adversely affect Dr. Kamal Kumar Dutta and Dr. Binod Prasad Sinha. (Para 35)

       (ii) Companies Act, 1956 — Sections 10E, 10F, 397, 398 and 483 — Clause 15 of the Letters Patent — Civil Procedure Code, 1908 — Section 100A w.e.f. 1-7-2002 — Letters Patent or intra court appeal — Maintainability when the Single Judge has exercised appellate jurisdiction — Winding up petition u/s 397 and 398 of the Act — Power given to Company Law Board w.e.f. 31-5-1991 — Order of CLB is appealable u/s 10F of the Act before the High Court — No further appeal has been provided against the order of Single Judge — Parliament while amending Section 100A of the Code of Civil Procedure, by amending Act 22 of 2002 w.e.f. 1-7-2002 took away the Letter Patent power of the High Court in the matter of appeal against order of the Single Judge to the Division Bench — No further appeal maintainable against an order passed by Single Judge in appeal u/s 10F of the Act.

       Held : So far as the general proposition of law is concerned that the appeal is a vested right there is no quarrel with the proposition but it is clarified that such right can be taken away by a subsequent enactment either expressly or by necessary intendment. The Parliament while amending section 100A of the Code of Civil Procedure, by amending Act 22 of 2002 with effect from 1.7.2002, took away the Letters Patent power of the High Court in the matter of appeal against an order of learned single Judge to the Division Bench.(Para 18)

       Therefore, where appeal has been decided from an original order by a single Judge, no further appeal has been provided and that power which used to be there under the Letters Patent of the High Court has been subsequently withdrawn. The present order which has been passed by the CLB and against that appeal has been provided before the High Court under Section 10F of the Act, that is an appeal from the original order. Then in that case no further Letters patent appeal shall lie to the Division Bench of the same High Court. This amendment has taken away the power of the Letters Patent in the matter where learned single Judge hears an appeal from the original order. Original order in the present case was passed by the CLB exercising the power under Sections 397 and 398 of the Act and appeal has been preferred under section 10F of the Act before the High Court. Learned single Judge having passed an order, no further appeal will lie as the Parliament in its wisdom has taken away its power.(Para 18)

       There is no two opinion in the matter that when the CLB exercises its power under Section 397 & 398 of the Act, it exercised its quasi-judicial power as original authority. It may not be a court but it has all the trapping of a court. Therefore, the CLB while exercising its original jurisdiction under Sections 397 & 398 of the Act passed the order and against that order appeal lies to the learned single Judge of the High Court and thereafter no further appeal could be filed.(Para 18)

       (iii) Companies Act, 1956 — Sections 397 and 398 — Winding up petition — Conduct amounting to oppression — It is not necessary that in every case, relief of winding up should be made — It is an option with the Tribunal — Acts which would amount to oppression to the members or mismanagement or material alteration in the control of the company or prejudice to the interest of the company would depend upon facts of each case.

       Held : Both sections 397 & 398 to some extent have commonality for the purpose like, prejudicial to public interest and application for winding-up can be made by members as per Section 399. Apart from this commonality, for the purpose of Section 397, if the company acts in a manner oppressive to any member or members and if it otherwise justifies on the ground of just and equitable, then Tribunal can wind up the company or pass such order as it thinks fit. Whereas in Section 398 the basic features are that the management is working in a manner prejudicial to the interest of the company by bringing about the material changes in the management or by alteration in its Board of Directors, then in that case, if it is found by the Tribunal that in order to bring to an end or preventing further mismanagement, it can pass such order as it deems fit including that of winding-up. Therefore, the parameters in both the Sections i.e. Sections 397 & 398 are very clear. It will depend upon case to case. No hard and fast rule can be laid down. In the case of oppression to the interest of member or members, if the Tribunal is satisfied that the winding-up is just and equitable then it can do so or pass any order as it thinks fit. Likewise in Section 398 if the management wants to bring any material change in the management and control of the company prejudicial to the interest of the company, then in that case, appropriate order can be passed by the Tribunal. The acts which would amount to oppression to the members or mismanagement or material alteration in the control of the company or prejudice to the interest of the company would depend upon facts of each case.(Para 22)