Shri V.S. Krishnan & Ors vs M/S Westfort Hi-Tech Hospital
Shri V.S. Krishnan & Ors vs M/S Westfort Hi-Tech Hospital (2008)
FACTS:
Appellants Shri V.S. Krishnan and five others filed Company Petition before CLB under Sections 397 and 398 read with Sections 402, 403 and Schedule XI. According to the petitioners, they were collectively holding in excess of 1/10th of the issued share capital of M/s Westfort. 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 praying for the appropriate reliefs.
ISSUES:
- Whether the Annual General Body Meeting was in violation of the statutory requirements or not. Whether mere knowledge of the meeting would tantamount to serving notice in terms of Section 172.
- Whether the petitioners have made out a case under Sections 397 and 398 and are entitled for the reliefs.
HELD:
On Issue 1:
In the Board meeting, a reference was made to the next Annual General Meeting stating that the Board decided to hold the meeting. It further also stated the particulars as to the date, place and time for the meeting and was incorporated in the draft notice and thereafter duly approved and signed. The above Board meeting was attended by the first petitioner. In such circumstances, it cannot be claimed that the first petitioner and his supporters were not aware of the meeting.
Section 172 of the Act speaks about the contents and manner of service of notice and persons on whom the same is to be served. Sub-section (1) mandates that every notice of a meeting of a company shall specify the place, the day, hour of meeting and shall contain a statement of business to be transacted thereat. Sub-section (2) mandates that notice of every meeting of the company shall be given to (i) every member of the company, in any manner authorized by sub-sections (1) to (4) of Section 53; (ii) persons entitled to a share in consequence of the death or insolvency of a member, by sending it through post in a pre-paid letter addressed to them by name in India supplied for the purpose by the persons claiming to be so entitled or until such address has been so supplied (iii) the auditor of the company, in any manner authorized by Section 53. Sub-section (3) makes it clear that the accidental omission to give notice to, or the non- receipt of notice by, any member or other person to whom it should be given shall not invalidate the proceedings at the meeting. Apart from the above procedure, while sending notice for any meeting, the procedure prescribed in Section 53 (1) and (2) of the Act has to be followed. Section 172 as well as Section 53 emphasized “giving notice”. It has already been explained how notice should be given for AGM as per Section 172 (2) and Section 53 (1) and (2) of the Act.
In view of the fact that the company has placed materials to substantiate that notices, in terms of the above provisions, were given, statutory presumption under Section 53 will apply though the said act is rebuttable and the burden is on the addressee to rebut the statutory presumption.
AGM held was legal and acceptable.
On Issue 2: Rights Issue, appropriate or not?
With regard to the allotment of “right shares” to the public, without a “special resolution” by 2/3rd majority shareholders cannot be offered to outsiders. The most basic principle of Section 397 is that mere unfairness does not constitute oppression. When the petitioners were given the right to subscribe to the ‘rights issue’ along with all others in the same proportion, no prejudice, whatsoever, could have been caused to them. In Needle Industries Case, this Court has pointed out if there is a need for funds, then the fact that the directors have incidentally enriched themselves would not compel a court to set aside the issue of shares. In fact, no unfair prejudice has been caused to the petitioners. Directors have absolute powers to issue right share provided they are acting under good faith.
