Holding

The Supreme Court upheld the High Court's finding that the AGM notice was valid, no oppression or mismanagement occurred, the doctrine of legitimate expectation does not apply, right shares require a special resolution, and the issuance of duplicate shares was lawful, thereby dismissing the appeal.

Summary

The appellants, directors and shareholders of Westfort Hi‑Tech Hospital Ltd., claimed that they were denied proper notice of the eleventh Annual General Meeting (AGM), were illegally removed from directorships despite a promise of permanent appointment, and that the issuance of right shares and duplicate shares was unlawful, invoking oppression and mismanagement provisions of the Companies Act, 1956. The Company Law Board (CLB) had set aside several resolutions, including the election of certain directors and the right‑share issue, and the High Court of Kerala upheld the validity of the AGM notice, the right‑share issuance (subject to a special resolution), and the duplicate share issuance, rejecting the oppression claim. On appeal, the Supreme Court examined whether the conduct amounted to oppression under s.397/398, whether the notice was valid under s.172 and s.53, and whether the doctrine of legitimate expectation applied. It held that the notice was duly served, the removal of directors was in accordance with statutory rotation, no oppression existed, the right‑share issue required a special resolution, and the duplicate share issuance was valid. Consequently, the Court dismissed the appeal, affirming the High Court's decision.

Issues considered

The validity of notice of the eleventh AGM under s.172 and s.53 of the Companies Act, 1956.
Whether the removal of the appellants from directorships constitutes oppression or mismanagement under s.397 and s.398.
The applicability of the doctrine of legitimate expectation to the appellants' claim of permanent directorship.
The legality of issuing right shares to outsiders without a special resolution under the Companies Act.
The validity of issuing duplicate shares to a shareholder under s.84(2).
The appropriateness of the CLB's findings and the scope of appellate review under s.1OF and Article 136 of the Constitution.
The necessity of a special resolution for certain corporate actions under s.81(1A) and related provisions.

Legislation cited

Companies Act, 1956s. 157(1)A, s. 172, s. 1OF, s. 397, s. 398, s. 402, s. 53, s. 81(1A), s. 84(2)

Subjects

Companies Act 1956OppressionMismanagementAGM noticeLegitimate expectationRight sharesDuplicate sharesCompany Law BoardSection 397Section 398Special resolution

Judgment

(2008] 3 S.C.R. 184 ....

"
A SHRI V.S. KRISHNAN AND ORS.
V.
M/S. WESTFORT HI-TECH HOSPITAL LTD. AND ORS.
(Civil Appeal No. 1473 of 2008)
FEBRUARY 21, 2008
B ~

[TARUN CHATTERJEE AND P. SATHASIVAM, JJ.]
~

Company Law:

Companies Act, 1956 - s. 172 rlw s. 53 -- Meeting --
c Annual General Meeting (AGM) - Service of notice -
Complaint by Appellant Director that he did not receive notice
of the AGM - Tenability of - Held: Not tenable - Appellant
was party to Board meeting, wherein date, place and agenda
of AGM was fixed -Also, Respondents produced "Certificates
D of Posting" to establish service of notice of AGM on Directors
and other shareholders.
...
Companies Act, 1956 - s.397 rlw s.398 - Oppression
and mismanagement -Plea of Appellants that they invested
huge sum in Respondent-company on promise that they would
E be made permanent directors of company but they were
illegally removed from Directorship in AGM - Whether
removal of Appellants from directorship was an act of
oppression - Held, No - Material on record revealed that there
was no specific promise that Appellants would be given
F Directorship permanently - Provision for retirement of one-
third directors in a year by rotation had been also disclosed -
Theory of 'legitimate expectation' had no application.
"
-
Companies Act, 1956 -- s.397 - Oppression -- Mere
unfairness does not constitute oppression - On facts,
G
Appellants were given right to subscribe to 'right issue' along
with all others in same proportion - Hence, no prejudice had
been caused to them on account of issue of "right shares".
Share capital-Allotment of "right shares" to public - Held:
H 184
SHRI V.S. KRISHNAN & ORS. v. MIS. WESTFORT 185
,{ f HI-TECH HOSPITAL LTD. & ORS.

Right shares cannot be offered to outsiders without special A
resolution by 2/3rd majority shareholders.
Appellants filed Company Petition before the
Company Law Board (CLB) under ss.397 and 398 r/w ss.
402, 403 and Schedule XI of the Companies Act, 1956
alleging various acts of oppression and mismanagement 8
in the affairs of Respondent No.1 company. It was alleged
that the Appellants invested 'huge sum of money in
Respondent No.1 -company on the promise of
Respondent No. 2, the Chairman of said company, that
they would continue in the company as permanent C
directors but that promise was not kept and the Appellants
were removed from directorship in a Annual General
Meeting held without any notice to them. Besides, the
Appellants also challenged issuance of "right shares".
D
The question which arose for consideration in the
present appeal is whether the conduct of Respondent
Nos.1 and 2 was harsh, burdensome and wrong or ma/a
fide or for collateral purposes or against probity and good
conduct and prejudicial to the interest of the Appellants E
and hence the Appellants were entitled for reliefs claimed
in the Company Petition.
Dismissing the appeal, the Court
HELD: 1.1. Chapter VI of the Companies Act, 1956
deals with prevention of oppression and mismanagement. F
s.397 deals with relief in cases of oppression and s.398
deals with relief in cases of mismanagement. [Para 10)
[197-F]
1.2. The oppression would be made out: (a) where G
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-a-vis H
186 SUPREME COURT REPORTS [2008] 3 S.C.R.

A 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
B 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
ss.397 and 398; (e) once conduct is found to be
C oppressive under ss. 397 and 398, the discretionary power
given to the CLB under s.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
D of fact. [Para 11] [199-G-H; 200-A-E]
1.3. It was the stand of Respondent No.2 that there
was no specific promise that the Appellants would be
given directorship permanently. It was also highlighted
E 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 had given personal
guarantee of Rs.21.99 crores, whereas Appellants had not
given personal guarantee for any loan. The materials
placed and discussed before the CLB showed that there
F was full disclosure of retirement of one-third directors and
election to that place was in accordance with the Act and
articles of association and theory of 'legitimate
expectation' has no application. Though CLB observed
that the principle of 'legitimate expectation' was applicable
G in the case of the Appellants, in the light of the materials
placed and the stand taken by the contesting
respondents, the claim of 'legitimate expectation' could
not be extended to and there was no specific promise that
the Appellants would be given directorship permanently.
H Even otherwise, the same cannot be accepted in view of
SHRI VS. KRISHNAN & ORS. v. MIS. WESTFORT 187
f HI-TECH HOSPITAL LTD. & ORS.
"' the mandate of the statute that 1/3rd of the directors had A
to retire in a year by rotation. [Para 15] [202-E-H; 203·A·B]
1.4. According to Respondent No. 2, Annual General
Body Meeting was convened on 29-9-2005 and, in fact, in
the board meeting, held on 24-8-2005, a reference was
made to the next Annual General Meeting which stated B
• ... that the board decided to hold the meeting on 29-9-2005 .
It was further stated that the particulars as to the date,
place and time for the meeting were incorporated in the
draft notice and thereafter it was approved and
Respondent No.2 was authorized to sign the same. The c
said board meeting was attended by the Appellant No.1.
In such circumstances, it could not be claimed that he
and his supporters were not aware of the meeting.
[Para 16] [203-C-G]
. ..... 1.5. The fact that a decision was taken in the Board
D
Meeting held on 24-8-2005 that next AGM was to be held
on 29-9-2005 cannot be ignored. In addition to the same,
Respondent Nos. 14 and 6 to 9, who were supposed to
be neutral directors, participated in the AGM held on 29-9-
2005. It was not the case of the Respondents or even the ,E
Appellants that notice was dispensed with in respect of
the AGM held on 29-9-2005. On the other hand, the
Respondents had produced certificates of posting to
' ~ establish the service of notice on the directors and other
shareholders. It was also demonstrated that those notices F
were given under certificate of posting as provided under
ss.53 (1) and (2) and evidence for the same were also
produced. Appellant No.1, being a party to the board
meeting, wherein date, place and agenda of the AGM were
fixed, could not make a complaint along with his G
supporters that they did not receive notice of the meeting.
The materials placed clearly showed that the Appellants
participated in the meeting and Respondent No.14, who
was acting along with the Appellants, had also
participated. s.172 as well as s.53 emphasize 'giving H
188 SUPREME COURT REPORTS [2008] 3 S.C.R.

A notice'. In view of the fact that the company had placed
materials to substantiate that notices in terms of the above
provisions were given, statutory presumption under s.53
would apply though the said act was rebuttable. In view
of the fact that there were materials to show that notices
B were sent, the burden was on the addressee to rebut the
statutory presumption. The High Court, on verification of •
those materials, had 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
C correct address as per the report". s.53(2) 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 duly served. In the case on hand, dispatch
of notice in time by certificate of posting was proved. In
addition to the same, the High Court had very much relied
D on the fact that Appellant No.1 was party to the Board
Meeting which decided the convening of AGM on 29-9-
2005. The above information pressed into service by
respondents could not be ignored. [Para 18] [205-D-H;
206-A-E]
E
1.6. The CLB had found that only 40 out of 300
shareholders attended the meeting. Based on the same,
the CLB accepted the case of the Appellants and found
that the AGM held on 29-9-2005 was defective. Before the
CLB as well as the High Court, it was demonstrated by
F the contesting respondents that in previous AGM also,
number of attendance was below 35. In that regard, it is
relevant to refer to the order in I.A in a suit filed by
Respondent No. 14. The Civil Court, based on the
documents produced, had concluded that proper notice
G was served on the shareholders with regard to AGM held
on 29-9-2005. 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
H other NRI directors, ttie information supported stand of
SHRI V.S. KRISHNAN & ORS. v. MIS. WESTFORT 189
HI-TECH HOSPITAL LTD. & ORS.
'f
" the respondents. The High Court had rightly concluded A
that AGM held on 29-9-2005 was legal and acceptable.
[Para 19] [206-F-H; 207-A]
1. 7. The CLB set aside the election of respondent
Nos. 16 to 23 as directors only on the ground that there
was no valid notice. The High Court verified the notice B
• -... dated 24-8-2005 sent for AGM dated 29-9-2005 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
newspapers were given in terms of s.257(1A) of the Act. c
Though the CLB had not accepted the same, the High
Court had rightly found that the same was in compliance
with the statutory provisions. [Para 20] [207-8-D]
1.8. As regards the issue of re-appointment of
D
)-· )L
retired directors on the theory of legitimate expectation,
the High Court found that appointment of 8 directors
without a 'specific agenda' was irregular due to technical
reason and that as per the agenda only 6 directors could
be elected. The said conclusion is to be accepted.
[Para 21] [207-E] E

1.9. As regards the issue of allotment of "right shares"
to the public, the CLB had concluded that without a
}
'special resolution' by 2/3rd majority shareholders right
-t
shares cannot be offered to outsiders. Inasmuch as the F
above said conclusion was in terms of the statutory
provisions, the High Court had rightly approved the same.
[Para 22] [207-F-G]
1.10. On the issue relating to issuance of duplicate
shares to one 'P', it is relevant to mention that the same G
Board approved the said action when Appellant No.1 also
attended the meeting. Duplicate shares were issued on
~ receipt of indemnity bond as provided under s.84(2). In
those circumstances, the High Court had concluded that
indemnity bond and documents produced would show H
190 SUPREME COURT REPORTS [2008] 3 S.C.R.

" ..
A that share transfer was also effected validly. Further the
decision to issue duplicate shares to 'P' and transfer of
the same were not challenged in the company petition.
Therefore, the ultimate decision arrived by the High Court
has to be accepted. [Para 23] [208-8-D]
B 1.11. 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 Appellants as well as their supporting NRI
c directors were in the Board and in active management.
However, the High Court had 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
D the Board for appropriate action. The said direction is
reasonable and acceptable .. [Para 24] [208-E-G]
.,
1.12. The CLB missed a most basic principle of s.397,
namely, that mere unfairness does not constitute
oppression. When the Appellants were given the right to
E subscribe to the 'rights issue' along with all others in the
same proportion, no prejudice, whatsoever, could have
been caused to them. In fact, no unfair prejudice had been
caused to the Appellants. [Para 25] [208-H; 209-A]
._ ;

F 1.13. 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 therewith under Article 136 of the
Constitution. [Para 26] [209-D]
G Needle Industries (India) Ltd. and Ors. v. Needle
Industries Newey (India) Holding Ltd. and Ors. (1981) 3 SCC
333; MS. Madhusoodhanan & Anr. v. Kera/a Kaumudi (P)
Ltd. & Ors. (2004) 9 SCC 204; Dale and Carrington Investment
(P) Ltd. & Anr. v. PK. Prathapan & Ors., (2005) 1 SCC 212;
H Sangramsinh P Gaekwad & Ors. v. Shantadevi P Gaekwad
SHRI V.S. KRISHNAN & ORS. v. M/S. WESTFORT 191
HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]
~·

..I
(Dead) Through L.Rs. & Ors. (2005) 11 SCC 314 and Kamal A
Kumar Dutta & Anr. v Ruby General Hospital Ltd. & Ors. (2006)
7 sec 613 - referred to.
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1473
of 2008.
B
t From the final Judgment and Order dated 14/11/2006 of
I the High Court of Kerala at Ernakulam in C.A. No. 14/2006 (A).
WITH
Civil Appeal Nos. 1474, 1475 and 1476 of 2008. c
C.A. Sundaram, Shyam Divan, K.V. Mohan, K.V.
Balakrishnan and Rohini Musa for the Appellants.
R.F. Narimao, E.M.S. Anam and Fazlin Anam for the
Respondents. D
t .A. The Judgment of the Court was delivered by
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 E
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
t _.
in Company Appeal No.5 of 2006 which was filed against the F
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.
G
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
t-" 398 read with Sections 402, 403 and Schedule XI of the
Companies Act, 1956 are the appellants (Petitioners in SLP
H
192 SUPREME COURT REPORTS [2008] 3 S.C.R.

A (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 1/1 oth of the issued share capital of Mis
8 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 (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)
D 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 -
E
(a) regulating the future affairs of the company;
(b) leasing/licensing the area earmarked for the
Investigation Centre; and
1

F (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
G 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
H and void;
SHRI V.S. KRISHNAN & ORS. v. MIS. WESTFORT 193
HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]
f

(v) to declare that the election of respondent Nos. 16- A
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.
B
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.
5) Respondent Nos. 6-9 before the CLB supported the c
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. D
"" 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 E
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 F
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 G
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
t-·
petitioners and respondent No.14 though continued to be
Directors since the year 1998 hardly attended the Board H
194. SUPREME COURT REPORTS [2008] 3 S.C.R.

A 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
B 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
c Company Petition.
8) With the above pleadings and after elaborate
arguments and framing the main issue namely, "whether the
-
petitioners have made out a case under Sections 397 and 398
and are entitled for the reliefs claimed in the Company Petition",
D the CLB, on 5.7.2006 passed the following order:
... '
"I) It is hereby declared that -
(a) further issue of shares impugned in the
Company petition is illegal and void;
E (b) the election of respondent Nos. 16 to 23 as
Directors is set aside;
(c) the retiring directors namely, petitioner Nos. 1-
4 and the respondent Nos. 5 & 14 shall be
F deemed to have been automatically re- " ;
appointed as Directors at the eleventh annual
general meeting and shall continue till the date
of the twelfth annual general meeting for the
year 2006; and
G (d) the transfer of shares by Purushottaman in
favour of respondent Nos. 16 to 21 and others
is invalid. However, Purushottaman is free to
transfer his shares in accordance with the
law.
H
SHRI V.S. KRISHNAN & ORS. v. M/S. WESTFORT 195
f
HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]

(II) The Company will convene and hold the twelfth annual A
general meeting in accordance with law to transact,
inter alia, the following business:
(a) consideration of accounts, balance sheet and
the reports of the board of directors and auditors
for the year 2005-2006; B

(b) appointment of directors in the place of those
retiring and in the existing vacancies;
(c) appointment of and the fixing of the
. remuneration of, the auditors; and C

(d) further issue of shares.
(Ill) The petitioners as well as the respondent Nos. 2 to
15 are at liberty with a view to meet the financial
requirements, if any, for running the hospital, to D
contribute any amount by way of unsecured loans
carrying interest at the prevailing bank rate to be·
repaid from and out of the future share application
money which may be subscribed by the members,
on approving the resolution for further issue of shares E
at the twelfth annual general meeting.
(IV) Hon'ble Mr. Justice K. John Mathew (Retd.)
Ernakulam will preside over the twelfth annual general
• "" meeting of the Company, in terms of this order. He
is at liberty to take the services of any practicing F
Company Secretary of his choice, in discharge of
this present assignment. The remuneration of the
Chairman and the Practicing Company Secretary
fixed in consultation with the Company shall be borne
by the latter. G
(V) The Chairman will decide the entire modalities of
convening holding and conducting of the twelfth
annual general meeting in consultation with the
company.
H
196 SUPREME COURT REPORTS [2008) 3 S.C.R.
)
'<'
A (VI) The Board of Directors of the Company shall carry
on its business strictly in accordance with the articles
and initiate such action in respect of the Investigation
Centre, as may be deemed necessary.
(VII) The Chairman of the meeting will forward a report on
B the proceedings of the twelfth annual general meeting
'\
within a week from the conclusion of the twelfth annual
general meeting of the company. "'
With the above directions, the company petition stands
c disposed of. No order as to costs."
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
D 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:
E "..... We hold that the general body meeting was held with
valid notice. Issuance of right shares needs no interference
and Company Law Board went wrong in setting aside the
issue of duplicate shares to Purushothaman and
subsequent transfer of his shares. We also hold that re-
F appointment of the retired directors after the date fixed for
annual general body meeting is not correct and that part
of the decision is set aside. But, we hold that CLB is right
in setting aside the election of eight directors (though for
other reasons - mainly for technical irregularity) and special
G resolution under Section 81 (1A) to issue shares to the
public. We order that Petitioners and other NRI
shareholders shall be given one month's time from today
to accept the rights shares offered and it is for them to
accept the offer or not. As offered by the counsel appearing
H for the Company and Chairman. NRI Directors also will be
SHRI V.S. KRISHNAN & ORS. v. MIS. WESTFORT 197
.;
~ HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]

re-appointed to the Board in proportion to their share A
holdings as on the date of next annual general meting to
be conducted after the expiry of 30 days from today.
Company Law Board directed that next annual general
body meeting shall be held on 30.9.2006. It is stated that
it was not conducted due to pendency of the case. B
~
Therefore, it shall be positively conducted on or before
"' 30.12.2006. In conducting the 12th annual general body
meeting, procedure suggested by the Company Law Board
shall be complied with and directions in paragraph 711, IV,
V, VI and VII are not interfered with. Till next general body c
meeting is held, no policy decision shall be taken by the
Board."
Questioning the above order of the High Court, these
appeals have been filed before this Court by way of special
~ ,-=A. leave. D
9) We heard Mr. C.A. Sundaram and Mr. Shyam Divan,
learned senior counsel for the appellants and Mr. R. F. Nariman,
learned senior counsel for the contesting respondents.
10) In order to find out whether the petitioners were E
successful in making out a case for interference by the CLB by
invoking Sections 397 and 398 of the Companies Act, it is but
proper to refer those provisions, ultimate decision of the CLB
• .... and the High Court. Chapter VI of the Companies Act deals
with prevention of oppression and mismanagement. Section F
397 deals with relief in cases of oppression and Section 398
deals with relief in cases of mismanagement. Sections 397 &
398 read as under:
"397. Application to Tribunal for relief in cases of
oppression - (1) Any member of a company who G
complain that the affairs of the company are being
... conducted in a manner prejudicial to public interest or in
a manner oppressive to any member or members
(including any one or more of themselves) may apply to
the Tribunal for an order under this section, provided such H
198 SUPREME COURT REPORTS [2008] 3 S.C.R.
'l

A members have a right so to apply in virtue of section 399.
"
(2) If, on any application under sub-section (1), the Court
is of opinion -
(a) that the company's affairs are being conducted
B in a manner prejudicial to public interest or in a
manner oppressive to any member or members; and
,,
(b) that to wind up the company would unfairly
prejudice such member or members, but that
otherwise the facts would justified the making of a
c winding-up order on the ground that it was just and
equitable that the company should be wound up,
The Tribunal may, with a view to bringing to an end
the matters complained of, make such order as it
thinks fit."
D
398. Application to Tribunal for relief in cases of
mismanagement - (1) Any members of a company who
complain -
(a) that the affairs of the company are being
E conducted in a manner prejudicial to public interest
or in a manner prejudicial to the interests of the
company; or
(b) that a material change not being a change )..
,
F brought about by, or in the interests of, any creditors
including debenture holders, or any class of
shareholders, of the company has taken place in the
management or control of the company, whether by
an alteration in its Board of directors, or manager, or
in the ownership of the company's shares, or if it has
G
no share capital, in its membership, or in any other
manner whatsoever, and that by reason of such
change, it is likely that the affairs of the company will ...
be conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interests of
H
SHRI V.S. KRISHNAN & ORS. v. MIS. WESTFORT 199
,,..;
,;
HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]

the company, A
may apply to the Tribunal for an order under this section,
. provided such members have a right so to apply in virtue
of section 399.

.' ~
(2) If, on any application under sub-section (1 ), the Tribunal
is of opinion that the affairs of the company are being
B
'f
conducted as aforesaid or that by reason of any material
change as aforesaid in the management or control of the
company, it is likely that the affairs of the company will be
conducted as aforesaid, the Tribunal may, with a view to c
bringing to an end or preventing the matters complained
of or apprehended, make such order as it thinks fit."
11) In a number of judgments, this Court considered in
extenso the scope of Sections 397 and 398. The following
-. . judgments could be usefully referred to: D
(a) Needle Industries (India) Ltd. and Others vs.
Needle Industries Newey (India) Holding Ltd. and
Others, (1981) 3 sec 333.
(b) M.S. Madhusoodhanan & Anr. vs. Kera/a E
Kaumudi (P) Ltd. & Ors., (2004) 9 SCC 204.
(c) Dale and Carrington Investment (P) Ltd. & Anr.
vs. P.K. Prathapan & Ors., (2005) 1 SCC 212 .
• ~

... (d) Sangramsinh P. Gaekwad & Ors. Vs. Shantadevi F
P. Gaekwad (Dead) Through L.Rs. & Ors. (2005)
11 sec 314
(e) Kamal Kumar Dutta & Anr. vs. Ruby General
Hospital ltd. & Ors. (2006) 7 SCC 613.
G
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 ma/a fide and is for a collateral
H
200 SUPREME COURT REPORTS (2008] 3 S.C.R.
..,

A
"'
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-a-vis the others.
(c) The action is against probity and good conduct.
B i
(d) The oppressive act complained of may be fully 1'
permissible under Jaw 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
c 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 ma/a
fide or for a collateral purpose, it would amount to
oppression under Sections 397 and 398.
D (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.
E (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. ~

F 12) Before going into the claims of both parties, it is useful
to refer the scope of Section 1OF of the Companies Act which
provides appeal against the order of the Company Law Board.
Section 1OF reads as under:
"1 OF. Appeals against the order of the Company Law
G Board - Any person aggrieved by any decision or order
of the Company Law Board made before the
commencement of the Companies (Second Amendment)
Act, 2002 may file an appeal to the High Court within sixty
days from the date of communication of the decision or
H order of the Company Law Board to him on any question
SHRI VS. KRISHNAN & ORS. v MIS. WESTFORT 201
r
HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]

of law arising out of such order: A
Provided that the High Court may, if it is satisfied that
the appellant was prevented by sufficient cause from filing
the appeal within the said period, allow it to be filed within
a further period not exceeding sixty days."
B
It is clear that Section 1OF permits an appeal to the High
Court from an order of the Company Law Board only on a
question of law i.e., the Company Law Board is the final authority
on facts unless such findings are perverse based on no evidence
or are otherwise arbitrary. Therefore, the jurisdiction of the· c
appellate Court under Section 1OF is restricted to the question
as to whether on the facts as noticed by the 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 ma/a fide or for a collateral purpose or was
D
• ~ burdensome, harsh or wrongful. The only other basis on which
the appellate Court would interfere under Section 1OF was if
such conclusion was, (a) against law or (b) arose from
consideration of irrelevant material or (c) omission to construe
relevant materials.
E
13) With this statutory background, let us find out whether
the conduct of respondents 1 and 2 (M/s Westfort Hi-Tech
Hospital Ltd. & Mr. K.M. Mohandas, Chairman) has been harsh,
burdensome and wrong or ma/a fide or for collateral purposes
or against probity and good conduct. In addition, we have to F
find out whether such conduct was prejudicial to the interest of
the petitioners/appellants and the conclusion arrived at by the
CLB or the High Court is acceptable in the facts and
circumstances of the case.
14) According to the petitioners, they are native of Thrissur, G
Kerala State but settled abroad and contributed to the tune of
,., 1.28 crores by way of share capital. It is also their case that
respondent No.2 (the Chairman of the Company) is heavily
depending on the financial assistance provided by these
petitioners (NRls}, on the understanding .that they would be H
202 SUPREME COURT REPORTS [2008] 3 S.C.R.
'
"'
A offered directorship permanently. Article 77 provides that the
Directors are required to hold 2500 equity shares in the
Company as qualification shares. By pointing out the contents
of letter dated 04.12.2001 of the second respondent, petitioners
have claimed that because of his assurance that they would be
B made Directors they contributed more to the share capital of
~
the Company which eased the financial crunch and also helped
~
to develop facilith~s in the Hospital. In other words, according to
them, the second respondent has been heavily dependent
upon the financial backup provided by NRls and the
c understanding to offer directorship to such contributors. It is
the grievance of the petitioners that the second respondent
in spite of getting substantial money towards share capital did
not fulfill the promise made by him as per his letter dated
04.12.2001 addressed to the petitioners. On this aspect, the
CLB while accepting the stand of the petitioners has concluded
D
that there is a 'legitimate expectation' in favour of the petitioners ' '
1-4 fo~ their continuance in the Board of Directors of the
Company.
15) The issue of re-appointment of retired directors on the
E theory of 'legitimate expectation' was considered by the High
Court in detail. It is the stand of the second respondent
(Chairman of the Company), that there was no specific promise
that these petitioners would be given directorship permanently.
The materials placed and discussed before the CLB show that ~ •
F 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 wai:; 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
G
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
H
SHRI .V.S. KRISHNAN & ORS. v. MIS. WESTFORT 203
.,; '
HI-TECH HOSPITAL LTD. & ORS. [P. SATHA~IVAM, J.]
contesting respondents, we are of the view that the claim A
'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 113rd of the directors have
,. to retire in a year by rotation. Accordingly, we accept the B
'! conclusion arrived at by the High Court and reject the decision
of the CLB on this aspect.
16) Now let us consider another important issue i.e., validity
of the Annual General Meeting which held on 29.09.2005.
According to the petitioners, there was no proper notice in terms c
of Section 172 read with Section 53(1) and (2) of the Companies
Act, hence, they had no knowledge about the said meeting and
in view of the same, the decisions taken in the said meeting are
null and void and not enforceable. The pith and substance of ,
• " the ground of attack relating to oppression and mismanagement 0
is the convening of Xlth Annual General Body Meeting without
proper notice. In such circumstances, we have to find out whether
the Annual General Body Meeting, convened on 29.09.2005,
was in violation of the statutory requirements or not. According
to the .second respondent, Xlth Annual General Body Meeting E
was convened on 29.09.2005 at 11.00 a.m. at Casino Hotels
Limited, Trichur. In fact, in the Board meeting, held on 24.08.2005,
a reference was made to the next Annual General Meeting which
" ~
states that the Board decided to hold the meeting on Thursday,
the 29th September, 2005 at 11.00 a.m. at Casino Hotels F
Limited, Trichur. It further states that the particulars as to the
date, place and time for the meeting was incorporated in the
draft notice and thereafter it was approved and Sri K. M.
Mohandas, CMD was authorized to sign the same. It is relevant
to mention that the above Board meeting was attended by the
G
first petitioner. In such circumstances, it cannot be claimed that
the first petitioner and his 9Upporters were not aware of the
meeting.
17) It is relevant to mention that even though the CLB has
noticed respondent No.14 who was acting in association with H
204 SUPREME COURT REPORTS [2008] 3 S.C.R. ~
I,.

A the petitioner Nos. 1-4 in the affairs of the company and
respondent Nos. 6-9 other directors participated in the AGM
held on 29.09.2005 raised an apprehension that whether mere
knowledge of the meeting would tantamount to serving notice
in terms of Section 172. Section 172 of the Act speaks about
'f
B 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
c 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
D
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
E 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. It is the case of respondent Nos. 1 and 2 ~

that proper notices in terms of Section 172 read with Section
F 53 (1) and (2) have duly been sent to all the share holders
including the petitioners in respect of the AGM dated 29.09.2005.
It was contended on the side of the petitioners that in the
absence of any other corroborative evidence, it is not safe to
accept the notices sent through 'certificate of posting' and it
G cannot be presumed that the addressee had the knowledge of
the meeting.
18) The High Court has noticed that in the Board Meeting
held on 24.08.2005, it was decided to hold a next AGM on
29.09.2005 at 11.00 AM. Item No. 4 reads as follows:-
H
SHRI V.S. KRISf!INAN & ORS. v. M/S. WESTFORT 205
HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]

...I
,. "NOTICE OF THE NEXT ANNUAL GENERAL MEETING: A

The draft notice for the next Annual General Meeting was
read. The Board then decided to hold the meeting on
Thursday, the 29th September, 2005 af11.00AM at Casino
Hotels Limited, Trichur. The particulars as to date, place
and time for the meeting was incorporated in the draft B
notice, and then it was approved, and Sri K.M. Mohandas,
~
.,._ CMD was authorized to sign the same."

It is clear from the materi~ls placed, the said Board
Meeting was attended by the first petitioner. Though on the basis c
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
D
cannot be ignored. In addition to the same, as said earlier,
y 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 E
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 F
a party to the Board Meeting wherein date, place and agenda
oftheAGM 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 G
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
.'I" 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 H
206 SUPREMj: COURT REPORTS [2008] 3 S.C.R.

A notices, in terms of the above provisions, were given, as rightly
point~d 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
8 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
c 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 duly served. In M.S. Madhusoodhanan vs. Kera/a
Kaumudi (P) Ltd. (supra), this Court held that the fact of posting
has to be proved by the sender and that statutory presumption
is only a rebuttable presumption. In the case on hand, dispatch
0
of notice in time by certificate of posting was proved. In addition
to the same, the High Court has very much relied on the fact that
first appellant was party to the Board Meeting which decided
the convening of AGM on 29.09.2005. The above information
pressed into service by respondent Nos. 1 and 2 cannot, lightly
E be ignored.
19) It 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
F 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
G 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
H
SHRI V.S. KRISHNAN & ORS. v. MIS. WESTFORT 207
HI-TECH HOSPITAL LTD. &ORS. [P. SATHASIVAM, J.]
,
in fact he applied for re-election. Though the shareholders voted A
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 B
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 c
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 D
' t .,, 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 E
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.
F
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 213rd 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
G
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
H
208 SUPREME COURT REPORTS [2008] 3 S.C.R.
"I

A 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
B 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
c 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
D 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.
E 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
F 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 reasonab.le and
G 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
H
SHRI V.S. KRISHNAN & ORS. v. M/S. WESTFORT 209
HI-TECH HOSPITAL LTD. & ORS. [P. SATHASIVAM, J.]
r
proportion, no prejudice, whatsoever, could have been caused A
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 ifthere 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, 8
no unfair prejudice has been caused to the petitioners. The CL8
failed to take note of all these vital aspects and relie.d 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 c
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 D
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.

8.8.8. Appeal dismissed . E

...