Case: V.S. Krishnan  Vs. M/S Westfort Hi-Tech Hosp. Ltd.

same, the CLB accepted the case of the petitioners and found that the AGM held on 29.09.2005 was defective. Before the CLB as well as the High Court, it was demonstrated by the contesting respondents that in previous AGM also number of attendance was below 35. In the 9th AGM, the persons attended were 32 and 10th AGM, it was 35. In this regard, it is relevant to refer in the order in I.A. 4727 of 2005 in O.S. 942 of 2005 which is a suit filed by respondent No.14. The Civil Court, based on the documents produced, has concluded that proper notice was served on the shareholders with regard to AGM held on 29.09.2005. The person who filed the said suit had prayed for injunction against conducting AGM, participated in the AGM and in fact he applied for re-election. Though the shareholders voted against him and other NRI directors, the information support stand of the respondents 1 and 2. The High Court has rightly concluded that AGM held on 29.09.2005 was legal and acceptable and we agree with the same.20) It is pointed out that the CLB set aside the election of respondent Nos. 16 to 23 as directors only on the ground that there is no valid notice. The discussion in the earlier paragraphs proves that this finding is not acceptable. The High Court verified the notice dated 24.08.2005 sent for AGM dated 29.09.2005 wherein the names of the retiring directors were subsequently mentioned. It was also demonstrated before the CLB and the High Court that proper advertisement in the Indian Express and Deepika were given in terms of Section 157(1)A of the Act. Though the CLB has not accepted the same, the High Court has rightly found that the same was in compliance with the statutory provisions. There is no error or illegality in the said finding of the High Court. 21) The next issue relates to re-appointment of retired directors on the theory of legitimate expectation which we have already discussed in the earlier paragraphs. However, the High Court found that appointment of 8 directors without a "specific agenda" is irregular due to technical reason and that as per the agenda only 6 directors can be elected. We agree with the said conclusion. 22) Now coming to the next issue, namely, allotment of "right shares" to the public, the CLB has concluded that without a "special resolution" by 2/3rd majority shareholders cannot be offered to outsiders. Inasmuch as the above said conclusion is in terms of the statutory provisions, the High Court has rightly approved the same and we are also in agreement with the said conclusion. In this respect, it is useful to refer to the decision of this Court in Needle Industries (India) Ltd. vs. Needle Industries Newey (India) Holding Ltd. (supra). It was held that directors have absolute powers to issue right share provided they are acting under good faith. 23) The other issue relates to issuance of duplicate shares of Purshottaman. It is relevant to mention that the same Board approved the said action when the first petitioner also attended the meeting. On the other hand, the CLB set aside the issue of duplicate shares to Purshottaman. It was pointed out before the High Court that the said decision was not challenged in the petition by any of the petitioners and the decision was taken by the Board of Directors to issue duplicate shares in place of lost shares. As said earlier, transferring the shares of Purshottaman was approved in the same Board Meeting wherein the first petitioner attended. It is also brought to the notice of the Court that duplicate shares were issued on receipt of indemnity bond as provided under Section 84(2). In those circumstances, the High Court has concluded that indemnity bond and documents produced would show that share transfer was also effected validly. Further the decision to issue duplicate shares to Purshottaman and transfer of the same were not challenged in the company petition. In view of the same, we agree with the ultimate decision arrived by the High Court.24) Coming to the allegation as to acts of mis-management particularly regarding the arrangement with special investigating centre, it was proved that the agreement with the special investigating centre was made when the petitioners 1 to 4 as well as their supporting NRI directors were in the Board and in active management. However, the High Court has directed the company auditor to go through the agreement with the special investigating centre and also the accounts and submit a report and thereafter, the same should be placed before the Board for appropriate action. The said direction is reasonable and acceptable.25) As rightly pointed out that CLB missed a most basic principle of Section 397, namely, 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. It is not in dispute even by the petitioners that the need for more funds was an admitted position. In Needle Industries (supra) this Court has pointed out if there is a need for funds the fact that the directors have incidentally enriched themselves would not entail a court to set aside the issue of shares. In fact, no unfair prejudice has been caused to the petitioners. The CLB failed to take note of all these vital aspects and relied on irrelevant materials. Apart from these, it is pointed out that the company having turned the corner and doing well, it would be fair exercise of discretion by this Court not to interfere with the High Court judgment.26) In the light of the above discussion, we are of the view that the impugned judgment of the High Court is fair to both sides and safeguards the interest of the directors and shareholders; hence there is no valid ground to interfere under Article 136 of the Constitution of India.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]From the above decisions, it is clear that oppression would be made out:(a) Where the conduct is harsh, burdensome and wrong.(b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-à-vis the others.(c) The action is against probity and good conduct.(d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the 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.(e) Once conduct is found to be oppressive under Sections 397 and 398, the 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.(f) 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 ofmaterials placed and discussed before the CLB show that there was full disclosure of retirement of one-third directors and election to that place are in accordance with the Act and Articles of Association and theory of legitimate expectation has no application. It was also highlighted before the CLB as well as the High Court that out of eight directors elected, six were not related to Chairman. It was asserted that Chairman and his family stood personal guarantee to Rs.21.99 crores whereas NRI directors have not stood personal guarantee for any loan. Though CLB has observed that the principle of legitimate expectation is applicable in the case of the petitioners, in the light of the materials placed and the stand taken by the contesting respondents, we are of the view that the claim legitimate expectation cannot be extended to and there is no specific promise that the petitioners would be given directorship permanently. Even otherwise, the same cannot be accepted in view of the mandate of the statute that 1/3rd of the directors have to retire in a year by rotation. Accordingly, we accept the conclusion arrived at by the High Court and reject the decision of the CLB on thisis clear from the materials placed, the said Board Meeting was attended by the first petitioner. Though on the basis of the said information/knowledge it cannot be construed that the same would satisfy the mandate of Section 172 read with Section 53 (1) and (2) of the Act, the fact that a decision was taken in the Board Meeting held on 24.08.2005 that next AGM is to be held on 29.09.2005 at 11.00 AM at Casino Hotel, Trichur cannot be ignored. In addition to the same, as said earlier, respondent No.14 and 6 to 9 who are supposed to be netrual directors participated in the AGM held on 29.09.2005. It is not the case of the respondent Nos. 1 and 2 or even the petitioners that notice was dispensed with in respect of the AGM held on 29.09.2005. On the other hand, the respondents have produced certificates of posting to establish the service of notice on the directors and other shareholders. It is also demonstrated that those notices were given under certificate of posting as provided under Section 53 (1) and (2) and evidence for the same were also produced. As pointed out earlier, the first petitioner, being a party to the Board Meeting wherein date, place and agenda of the AGM were fixed, cannot make a complaint along with his supporters that they did not receive notice of the meeting. The materials placed clearly show that NRI directors participated in the meeting and respondent No.14 who was acting along with the appellants had also participated. Section 172 as well as Section 53 emphasized "giving notice". We have already adverted to 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, as rightly pointed out by learned senior counsel for the contesting respondents, statutory presumption under Section 53 will apply though the said act is rebuttable. In view of the fact that there are materials to show that notices were sent, the burden is on the addressee to rebut the statutory presumption. The High Court, on verification of those materials, has concluded that "postal receipt with post office seal was produced to show that notice was sent to all shareholders by certificate of posting in the correct address as per the report". Sub-section (2) of Section 53 makes it clear that after expiry of 48 hours a notice duly addressed and stamped and sent under certificate of posting is deemed to have been dulyIt is true that the CLB has found that only 40 out of 300 shareholders attended the meeting. Based on the same, the CLB accepted the case of the petitioners and found that the AGM held on 29.09.2005 was defective. Before the CLB as well as the High Court, it was demonstrated by the contesting respondents that in previous AGM also number of attendance was below 35. In the 9th AGM, the persons attended were 32 and 10th AGM, it was 35. In this regard, it is relevant to refer in the order in I.A. 4727 of 2005 in O.S. 942 of 2005 which is a suit filed by respondent No.14. The Civil Court, based on the documents produced, has concluded that proper notice was served on the shareholders with regard to AGM held on 29.09.2005. The person who filed the said suit had prayed for injunction against conducting AGM, participated in the AGM and in fact he applied for re-election. Though the shareholders voted against him and other NRI directors, the information support stand of the respondents 1 and 2. The High Court has rightly concluded that AGM held on 29.09.2005 was legal and acceptable and we agree with the same.20) It is pointed out that the CLB set aside the election of respondent Nos. 16 to 23 as directors only on the ground that there is no valid notice. The discussion in the earlier paragraphs proves that this finding is not acceptable. The High Court verified the notice dated 24.08.2005 sent for AGM dated 29.09.2005 wherein the names of the retiring directors were subsequently mentioned. It was also demonstrated before the CLB and the High Court that proper advertisement in the Indian Express and Deepika were given in terms of Section 157(1)A of the Act. Though the CLB has not accepted the same, the High Court has rightly found that the same was in compliance with the statutory provisions. There is no error or illegality in the said finding of the Highthe High Court found that appointment of 8 directors without a "specific agenda" is irregular due to technical reason and that as per the agenda only 6 directors can be elected. We agree with the saidCLB has concluded that without a "special resolution" by 2/3rd majority shareholders cannot be offered to outsiders. Inasmuch as the above said conclusion is in terms of the statutory provisions, the High Court has rightly approved the same and we are also in agreement with the said conclusion. In this respect, it is useful to refer to the decision of this Court in Needle Industries (India) Ltd. vs. Needle Industries Newey (India) Holding Ltd. (supra). It was held that directors have absolute powers to issue right share provided they are acting under goodis relevant to mention that the same Board approved the said action when the first petitioner also attended the meeting. On the other hand, the CLB set aside the issue of duplicate shares to Purshottaman. It was pointed out before the High Court that the said decision was not challenged in the petition by any of the petitioners and the decision was taken by the Board of Directors to issue duplicate shares in place of lost shares. As said earlier, transferring the shares of Purshottaman was approved in the same Board Meeting wherein the first petitioner attended. It is also brought to the notice of the Court that duplicate shares were issued on receipt of indemnity bond as provided under Section 84(2). In those circumstances, the High Court has concluded that indemnity bond and documents produced would show that share transfer was also effected validly. Further the decision to issue duplicate shares to Purshottaman and transfer of the same were not challenged in the company petition. In view of the same, we agree with the ultimate decision arrived by the High Court.24) Coming to the allegation as to acts of mis-management particularly regarding the arrangement with special investigating centre, it was proved that the agreement with the special investigating centre was made when the petitioners 1 to 4 as well as their supporting NRI directors were in the Board and in active management. However, the High Court has directed the company auditor to go through the agreement with the special investigating centre and also the accounts and submit a report and thereafter, the same should be placed before the Board for appropriate action. The said direction is reasonable and acceptable.25) As rightly pointed out that CLB missed a most basic principle of Section 397, namely, 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. It is not in dispute even by the petitioners that the need for more funds was an admitted position. In Needle Industries (supra) this Court has pointed out if there is a need for funds the fact that the directors have incidentally enriched themselves would not entail a court to set aside the issue of shares. In fact, no unfair prejudice has been caused to the petitioners. The CLB failed to take note of all these vital aspects and relied on irrelevant materials. Apart from these, it is pointed out that the company having turned the corner and doing well, it would be fair exercise of discretion by this Court not to interfere with the High Court judgment.26) In the light of the above discussion, we are of the view that the impugned judgment of the High Court is fair to both sides and safeguards the interest of the directors and shareholders; hence there is no valid ground to interfere under Article 136 of the Constitution of