Importent Point:
Mere unfairness does not constitute oppression

Headnote:Constitution of India, 1950 - Article 136 - Companies Act, 1956 - Sections 397, 398 r\w 401,403 and Schedule XI - Company petition u\s 397 and 398 of companies Act by petitioner on account of a series of purported acts of Oppression and mismanagements in affairs of company West fort Hi-tech Hospital Ltd. of which they were collectively holding in excess of 1\10th of issued share capital - CLB disposed of petition holding that retiring directors petitioners 1-4 and respondents 5 & 14 were deemed to have been automatically reappointed as directors at Eleventh annual general meeting and election of respondents 16 To 23 was set aside - Company Appeal - Partly allowed by High Court holding that re-appointments of retired directors after date fixed for annual general body meeting was not correct and that part of decisions was set aside - Appeal there against - CLB while accepting stand of petitioners had concluded that there was a legitimate expectation in favour of petitioners 1 to 4 for their issue of re-appointment of retired directors on theory of legitimate expectation - Stand of Respondent2, that there was no specific promise that petitioners would be given directorship permanently - Materials placed before CLB showed that there was full disclosure of retirement of one-third directors and election to that place were in accordance with Act and Articles of Association and theory of legitimate expectation had no application - Out of eight directors elected, six were not related to Chairman - Chairman and his family stood personal guarantee to Rs.21.99 crores whereas NRI directors had not stood personal guarantee for any loan - In light of materials on record held that claim legitimate expectation could not be extended to petitioner - No specific promise that petitioners would be given directorship permanently - Conclusion arrived at by CLB held to be unacceptable - CLB missed a most basic principle of Section 397, namely, that mere unfairness not constituted oppression - When petitioners were given right to subscribe to rights issue along with all others in same proportion, no prejudice, whatsoever, could have been caused to them - CLB failed to take note of all said vital aspects and relied on irrelevant materials - Impugned judgment of High Court held fair to both sides - No valid ground to interfere under Article 136 - Appeal dismissed. Paras 15 to 18, 22 to 26)

       Companies Act, 1956 - Sections 397, 398 - Prevention of oppression and Mismanagement - Oppression would be made out where conduct is harsh, burdensome and wrong, where conduct is mala fide and is for a collateral purpose, where although ultimate objective may be in interest of company, immediate purpose would result in an advantage for some shareholders vis-`-vis others - The action is against probity and good conduct - The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and 398 - Once conduct is found to be oppressive under Sections 397 and 398, discretionary power given to the Company Law Board under Section 402 to set right, remedy or put an end to such oppression is very wide - As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact (Para 11)
       (1981) 3 SCC 333, (2004) 9 SCC 204, (2005) 1 SCC 212, (2005) 11 SCC 314,(2006) 7 SCC 613. relied upon
       Companies Act, 1956 - Section 10F - Appeals against order of company law Board - Jurisdiction of Appellate court - Section 10F permits an appeal to High Court from an order of Company Law Board only on a question of law i.e., Company Law Board is final authority on facts unless such findings are perverse based on no evidence or are otherwise arbitrary - Hence, jurisdiction of appellate Court under Section 10F is restricted to question as to whether on facts as noticed by Company Law Board and has placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful - Only other basis on which appellate Court would interfere under Section 10F was if such conclusion was (a) against law or (b) arose from consideration of irrelevant material or (c) omission to construe relevant materials.(Para 12)
       Facts of the case:-
       1. A Company petition was filed herein in the instant case u\s 397 and 398 of companies Act by petitioner on account of a series of purported acts of Oppression and mismanagements in affairs of company West fort Hi-tech Hospital Ltd. of which they were collectively holding in excess of 1\10th of issued share capital. CLB disposed of petition holding that retiring directors petitioners 1-4 and respondents 5 & 14 were deemed to have been automatically reappointed as directors at Eleventh annual general meeting and election of respondents 16 To 23 was set aside. Company Appeal there against was partly allowed by High Court holding that re-appointments of retired directors after date fixed for annual general body meeting was not correct and that part of decision was set aside.
       2. Present Appeal has been filed against said order of High Court.
       3. Findings of the cases:- The Court held that CLB while accepting stand of petitioners had concluded that there was a legitimate expectation in favour of petitioners 1 to 4 for their issue of re-appointment of retired directors on theory of legitimate expectation . Stand of Respondent2, that there was no specific promise that petitioners would be given directorship permanently. Materials placed before CLB showed that there was full disclosure of retirement of one-third directors and election to that place were in accordance with Act and Articles of Association and theory of legitimate expectation had no application. Out of eight directors elected, six were not related to Chairman. Chairman and his family stood personal guarantee to Rs.21.99 crores whereas NRI directors had not stood personal guarantee for any loan. In light of materials on record held that claim legitimate expectation could not be extended to petitioner. No specific promise that petitioners would be given directorship permanently. Conclusion arrived at by CLB held to be unacceptable. CLB missed a most basic principle of Section 397, namely, that mere unfairness not constituted oppression. When petitioners were given right to subscribe to rights issue along with all others in same proportion, no prejudice, whatsoever, could have been caused to them. CLB failed to take note of all said vital aspects and relied on irrelevant materials. Impugned judgment of High Court held fair to both sides. No valid ground to interfere under Article 136.
       Result: Appeal dismissed

JUDGMENT:

P. Sathasivam, J.

1 Leave granted.

2 These appeals are directed against the judgment and order of the High Court of Kerala at Ernakulam dated 14.11.2006 in Company Appeal Nos. 14/2006, 15/2006, 17/2006 and 18/2006 which were filed against the order dated 5.7.2006 in Company Petition No.63 of 2005 of the Company Law Board, Additional Principal Bench, Chennai and order dated 1.3.2006 in Company Appeal No.5 of 2006 which was filed against the order dated 13.2.2006 in Company Appeal No. 145 of 2005 in Company Petition No.63/2005 of the Company Law Board.

3 The facts in S.L.P. (C) No. 19882 of 2006 are sufficient to dispose of all these appeals.

4 Shri V.S. Krishnan and five others, who filed Company Petition No. 63 of 2005 before the Company Law Board, Additional Principal Bench, Chennai under Sections 397 and 398 read with Sections 402, 403 and Schedule XI of the Companies Act, 1956 are the appellants (Petitioners in SLP (C) No. 19882 of 2006). For convenience, we shall refer the parties as arrayed in Company Petition No. 63/2005 on the file of the Company Law Board (in short "CLB").

5. According to the petitioners, they were collectively holding in excess of 1/10th of the issued share capital of M/s Westfort Hi-Tech Hospital Limited (hereinafter referred to as "the Company"). Aggrieved on account of a series of purported acts of oppression and mismanagement in the affairs of the Company, namely, illegal (a) convening of the eleventh annual general meeting; (b) issuances of further shares on right basis; (c) exclusion of the petitioners from the office of directors; (d) election of respondents 16 to 24 as Directors; (e) transfer of shares; (f) breach of fiduciary duties by respondent Nos. 2 & 3 towards the Company as Directors; (g) manipulation of minutes of the meetings and other records; (h) statutory violations; (i) irregularities in relation to the Investigation Centre in the Hospital premises of the Company etc. invoked the provisions of Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act") praying for the following reliefs: (i) to appoint an administrator for (a) regulating the future affairs of the company; (b) leasing/licensing the area earmarked for the Investigation Centre; and (c) realizing the outstanding amounts due from respondent Nos. 2-4, 22 and 23 in respect of the Investigation Centre; (ii) to declare that the annual general meeting held on 29.09.2005 and the resolutions passed thereon are invalid; (iii) to declare that respondent Nos. 2-4 vacated the office as Directors under Section 283 of the Act; (iv) to declare that the further issue of shares is illegal and void; (v) to declare that the election of respondent Nos. 16-23 as Directors is invalid; and (vi) to declare that petitioner Nos. 1-4 and respondent No.14 shall be deemed to have been re-elected as Directors. In support of their above claims, they placed relevant materials and cited various instances alleged to have been committed by the second respondent, who is the Chairman of the first respondent-Company.

6. Respondent Nos. 6-9 before the CLB supported the stand taken by the petitioners. Respondent No.14 also adopted the stand of the petitioners and further informed that he has already withdrawn the civil suit challenging the issue of shares and election of Directors at the eleventh annual general meeting of the Company.

7. The case of respondent Nos. 1 & 2 are - Westfort Hi-Tech Hospital Ltd. constituted by the second respondent and his family members have been running the Hospital since 1989 independently, while the Company has been promoted in the year 1994 establishing a high speciality hospital by respondent Nos. 2 & 3 who are the promoter Directors. These respondents are permanent Directors and are not liable for retirement and cannot be rem