Shri V.S. Krishnan & Ors vs M/S Westfort Hi-Tech Hospital Ltd. & Ors

JUDGMENT CIVIL APPEAL NO. 1473 OF 2008 (Arising out of SLP (C) No.19882 OF 2006) WITH CIVIL APPEAL NO. 1474 OF 2008 (Arising out of S.L.P. (C) No. 20367/2006) Dr. P.P. Mohanan & Ors. .... Appellant (s) Versus M/s Westfort Hi-tech Hospital Ltd. & Ors. .... Respondent(s) AND CIVIL APPEAL NO. 1475 OF 2008 (Arising out of S.L.P.(C) No. 4673/2006) Shri V.S. Krishnan & Ors. .... Appellant (s) Versus M/s Westfort Hi-tech Hospital Ltd. & Ors. .... Respondent(s) AND CIVIL APPEAL NO. 1476 OF 2008 (Arising out of S.L.P. (C) No. 6688/2007) Shri V.S. Krishnan & Ors. .... Appellant (s) Versus M/s Westfort Hi-tech Hospital Ltd. & Ors. .... Respondent(s) P. Sathasivam, J.

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

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").

4) 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;

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) 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 removed from the Board as envisaged in Article 87. At each annual general meeting, one third of the remaining Directors are liable to retire by rotation. The alleged acts complained of in the petition do not, in any way, constitute oppression. It was pointed out that past and concluded acts complained of by the petitioners, do not fall within the purview of Section 397 of the Act. The Company, running a high speciality hospital, is making profits and if ordered to be wound up, the Company and its shareholders would seriously be prejudiced. There are no charges of financial irregularities in the affairs of the Company leveled against the respondents. The petitioners and respondent No.14 though continued to be Directors since the year 1998 hardly attended the Board meetings from time to time. When the petitioners were not elected by the members at the eleventh annual general meeting, they have come out with the petition with untenable allegations. Every Director other than respondent Nos. 2 & 3 is bound to retire one day or the other. Any grievance in the capacity as Director cannot be remedied under Section 397 of the Act. No relief under Section 397 would arise if the conduct complained of by the petitioner does not relate to his status as a shareholder. In addition, respondent Nos. 2 & 3 also furnished various details in support of their stand and pleaded for dismissal of the Company Petition.

Aggrieved by the above order, respondents 1 & 2 i.e., M/s Westfort Hi-Tech Hospital Ltd. and its Chairman, K. Mohandas filed Company Appeal No. 14 of 2006 before the High Court of Kerala. By the impugned judgment, the Division Bench of the High Court, after taking note of pleadings of both the parties, rival contentions and materials placed before it, partially allowed the appeals and partially set aside the order of the Company Law Board. The operative portion of the impugned order of the High Court reads as follows:

With the above directions, the company petition stands disposed of. No order as to costs."

(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 of fact.

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.

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. Consequently, the main appeal filed by V.S. Krishnan and Others fails and the same is dismissed. In view of the said conclusion, other appeals are also dismissed. No costs.