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High Court Of Calcutta
PINAKI CHANDRA GHOSH
RUBY GENERAL HOSPITAL LIMITED - Appellant
Versus
KAMAL KUMAR DUTTA - Respondent
A. P. O 759 Of 1999
Decided On : 03/31/2005
The Calcutta High Court found that the Company Law Board (CLB) erred in failing to determine whether the facts warranted a just and equitable winding up of the company, as required by Section 397(2) of the Companies Act, before passing an order under Section 397/398. The court held that the petitioners failed to establish that a winding-up order would unfairly prejudice them and that the CLB did not investigate or conclude whether a just and equitable winding up was called for. The court also opined that the termination of directorship, even by suppression of notice or by a show of majority, would not entitle the terminated person to petition for just and equitable winding up, as there is an appropriate remedy by way of a company suit.
Fact of the Case:
Dr. Kamal Kumar Dutta and Dr. Binod Prasad Sinha, directors of a company incorporated in 1991, filed an application under Sections 397 and 398 of the Companies Act, alleging oppression and mismanagement in the affairs of the company. The CLB, after considering the facts and submissions, expressed its views on the role of the IDBI nominee in the board and the vacation of office by the petitioners. However, the CLB did not address whether a case had been made out that it is just and equitable to wind up the company, which would unfairly prejudice the petitioners.
Finding of the Court:
The court found that the CLB erred in failing to determine whether the facts warranted a just and equitable winding up of the company, as required by Section 397(2) of the Companies Act, before passing an order under Section 397/398. The court also opined that the termination of directorship, even by suppression of notice or by a show of majority, would not entitle the terminated person to petition for just and equitable winding up, as there is an appropriate remedy by way of a company suit.
Issues: 1. Whether the CLB erred in failing to determine whether the facts warranted a just and equitable winding up of the company before passing an order under Section 397/398 of the Companies Act. 2. Whether the petitioners established that a winding-up order would unfairly prejudice them.
Ratio Decidendi: 1. The court held that a petitioner who files an application under Section 397 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. 2. The court opined that the termination of directorship, even by suppression of notice or by a show of majority, would not entitle the terminated person to petition for just and equitable winding up, as there is an appropriate remedy by way of a company suit.
Final Decision: The court allowed the appeal and set aside the order passed by the CLB. The court also granted leave to the parties to take steps for an appropriate settlement of their choice.
( 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 :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
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