NCLT Cuttack Holds Exclusion Of Minority Shareholders Is Oppression, Restores Sparsh Hospital Directors

The Cuttack National Company Law Tribunal (NCLT) on 13 July held that the management of Sparsh Multispeciality Hospital Pvt. Ltd. oppressed minority shareholders by excluding them from the company's affairs and restored their directorships on the board.

A Bench comprising Judicial Member Cheekati Radha Krishna and Technical Member Banwari Lal Meena allowed a petition filed under Sections 241 and 242 of the Companies Act, 2013 (provisions that provide relief against oppression and mismanagement in a company), after finding that the respondents failed to properly deny allegations of mismanagement. It observed:

“...Respondents have not specifically denied the allegations of oppressions and mismanagement in the affairs of R-1 Company and, on the contrary, continuously attempted to shift the responsibility on the petitioners, without any cogent material support, which itself resembles that the R1 company had suffered oppressions and mis-management"

Petitioners had approached the NCLT alleging oppression and mismanagement in the affairs of Sparsh Multispeciality Hospital, a Chhattisgarh-based hospital established by a group of doctors. The company later expanded under the leadership of Respondent Nos. 2 and 3, Dr. Deepak Verma (Managing Director) and Dr. Sanjay Goel (Medical Superintendent). Petitioners Ajay Somani and Pradeep Pal, Chartered Accountants, held 16.9% shareholding in the company and became directors after providing consultancy services through their firms PSAC & Associates and Proethic Consultants Pvt. Ltd.

The petitioners alleged that the respondents mismanaged the hospital's affairs, misused government health schemes and prevented minority shareholders from participating in the company's management. They also alleged billing irregularities under the Ayushman Bharat Scheme, including collection of cash beyond permissible limits.

Further, they argued that the respondents diverted company funds through cash transactions outside the books of accounts and made referral payments to outside doctors without recording them in the accounts. They also submitted that the respondents prevented them from attending board meetings, intimidated them and illegally declared their directorial offices vacant under Section 167(1)(b) of the Companies Act, 2013 (which provides for vacation of office if a director fails to attend board meetings for 12 months).

Respondents denied the allegations and claimed that the petitioners controlled the company's finance, accounting, treasury, banking and statutory compliance functions through consultancy agreements. They alleged that the petitioners themselves committed acts of mismanagement and breached their responsibilities. Also that the petitioners failed to convene board meetings, delayed statutory filings and issued inflated invoices. Lastly, they claimed that the petitioners vacated their offices under Section 167(1)(b) by failing to attend board meetings.

The Tribunal rejected the respondents' defence and held that the consultancy agreements with PSAC and Proethic only covered professional services and did not give the petitioners control over the company's management. It noted that the respondents continued to control the company's affairs. It also observed that the alleged irregularities continued even after the company terminated the consultancy agreements on 22 November 2022, indicating that the respondents were responsible for the company's affairs.

The Bench noted that orders passed by the Collector and the Directorate of Health Services supported the allegations of violations under the Ayushman Bharat Scheme, which eventually resulted in the hospital's de-empanelment. It also found serious allegations of siphoning of company funds through cash collections from patients that were not reflected in the books of accounts. It observed:

“The maintenance of parallel cash transactions outside the books obviously deprives shareholders about the true and fair picture of the financial affairs of R1 company”

Further, the Tribunal held that manipulation of share valuation without board resolutions showed a failure to follow corporate governance requirements. It concluded that the respondents' actions amounted to continuous and systematic mismanagement that oppressed minority shareholders.

On the issue of directorship, it held that although Section 167(1)(b) requires a director to vacate office for failing to attend board meetings for 12 months, the petitioners' absence resulted from threats and hostile conduct by the respondents. It also noted that the petitioners had sought police protection to attend annual general meetings, which showed that they faced genuine apprehension. The Bench found that the respondents did not follow any lawful process or pass a board resolution before declaring the offices vacant. It added:

“It is quite obvious that after having filed such petition against the Respondents the Respondents would not prefer the petitioners to participate in the affairs of R1 company for the obvious reasons. Thus, the intention of the Respondents is quite manifest to keep the petitioners aloof from such meetings of R1 company obviously for the underlying reasons..”

Accordingly, the NCLT held that the declaration of the petitioners' offices as vacant was illegal and restored their directorships. It appointed Deep Chandra Joshi, Former Acting President of NCLT Delhi, as administrator for three months to manage the affairs of Sparsh Multispeciality Hospital.

For Appellants: Advocates Abhinav Kardekar and Ayushi Singh Solanki

For Respondents: Advocates Saswat Kumar Acharya and Dhiren Chaudhury