1.

Whether there is an agency problem and lack of corporate governance

There is no case of any agency problem or lack of corporate governance. The agency problem is
a conflict of interest inherent in any relationship where one party is expected to act in another's
best interests. Munich Health Care has clearly acted in the interest of Mr. and Mrs. Aashish.
Respondent 2 took absolute care of the entire finances of the Company and its hospitals, the
administration and relieved Mr.Aashish of all administrative responsibilities for enabling him to
concentrate on his career as a Doctor, in the hospitals run by the Company. First of all there is no
Shareholder and Management relationship in this case and in case proved contrary the owners in
this case are the respondents and not the petitioners as by virtue of capital invested by Munich
Health Care, 75% of the total paid up capital were allotted to Munich Health Care, and it was
agreed that the shareholding of Promoters would not go below 25%; therefore there is no prima
facie case of any agency issue or inefficient governance of the company by the respondents.
Moreover it is respondent 2 that is paying the remuneration of Rs. 2, 50,000 would be paid to Dr.
Aashish, and Rs. 1, 00,000 to Mrs. Aashish, and Rs. 45,000 to daughter of Dr. Aashish thus they
are the majority shareholders/ owners of the company and Mr. and Mrs. Aashish are mere
employees of the company and are not a part of the Board of directors or Management as Mrs.
Aashish has already been removed from the board due to her unruly and misconduct.

Respondents supervising the management did act in the overall interest of the company and took
decisions that were not self-centered and prejudicial to the company but for the overall growth
and benefit of the company and the stake holders. Respondent 2 also agreed for the mutual and
overall benefit that in case of the turnover exceeding the milestones agreed upon, further
commission at an agreed rate would be paid to Dr. Aashish. The agency problem usually refers to
a conflict of interest between a company's management and the company's stockholders. There is
no conflict of interest here as Munich Health Care agreed that Dr. Aashish shall be in charge of
arranging for other consultants and shall be in charge of rendering services in the Hospitals
belonging to the Company. Transparency in corporate governance is essential for the growth,
profitability and stability of any business and the respondents took all the decisions after
consulting all the stake holders and did everything transparently as opposed to the allegations
leveled against them by the petitioners.
Munich Health Care, availed loans from the financial institutions for the purposes of purchasing
state of the art, medical equipments and increasing the number of beds in the hospitals and for
other additional features in the Hospitals in good faith for the upliftment of the company. Even
though Respondent 2 was a majority shareholder it did not suppress the minority rights and did
everything and took every decision to increase the overall shareholders wealth. Munich was
totally accountable for the responsibility bestowed on it towards the other minority shareholder,
which is commendable and appreciable. All measures and decisions taken by the respondent
were to attain organizational objectives as it was focused in organizational development. Munich
Health Care group secured the valuation of shares of Aashish Hospitals Private Limited, with an
intention to get funds by selling its shareholding to the extent of 50% of the paid up capital of the
company, to KLM Hospitals Private Limited as its partner in the venture, at a value of Rs.25
Crores so that it can secure enough funds to prevent the hampering of the activities of the
Hospital which renders various essential lifesaving services.

Corporate governance essentially involves balancing the interests of a company's many

stakeholders, such as shareholders, management, customers, suppliers, financiers, government
and the community. Since corporate governance also provides the framework for attaining a
company's objectives, it encompasses practically every sphere of management, from action plans
and internal controls to performance measurement and corporate disclosure and the respondent
has been visibly successful in doing so.

2. Whether Section 241 and 242 can be applied in this case

It is submitted that the respondents have not committed any acts of oppression or
mismanagement. It is clear and evident from the facts mentioned that the petitioners have not
been subjected to any mismanagement or oppression of any form and thus this suit has no
standing on the grounds of 241 and 242. The company's affairs have clearly not been or are being
conducted in a manner prejudicial or oppressive to the interest of the shareholders and owners.
The respondents have the discretion to choose the manner of raising funds. Hence merely
because the respondents outvoted the petitioners in decisions relating to the company, it does not
amount to mismanagement. Respondents gave a proposal to take care of the entire finances of
the Company and its hospitals, the administration and relieved Aashish of all administrative
responsibilities for enabling him to concentrate on his career as a Doctor, in the hospitals run by
the Company and was not intended to cause any oppression on Mr. and Mrs. Aashish as this
decision was taken with mutual consent and there was no coercion or undue influence.

The selling and transferring of shares to KLM Hospital was to comply with the terms of the
financial terms of the contract. It was for a proper purpose. Hence, though it led to the
reduction in the share structure of the company, it does not amount to oppression. The decision
of the majority shareholders is binding upon the minority and the company. The removal of Mr.
and Mrs. Aashish from the Board does not per se constitute oppression and mismanagement. An
isolated abusive act will not amount to oppression. It is clear as per the shareholding agreement
Munich Health Care shall have absolute control over the finances and administration of the
hospitals belonging to the Company. it is submitted that there is no deadlock in the management
of the company. The allotment of shares was in accordance with the law. In the event that the
petitioners want to contest their removal from the Board, the alternative remedy is to file a
company suit. Hence it is not just and equitable to wind up the company.

The requirements for proving oppression were laid down in Scottish Co-Op1 and have been
approved by the Supreme Court of India in the case of S.P. Jain.2 It is submitted that the
respondents have not violated the AoA or the Memorandum and deviations, if any, are trivial.
This is because the respondents decision to enter into a financing agreement with KLM Hospital
does not amount to mismanagement and that, the transfer of shares does not attract any
preemption. Under the terms of shareholders agreement, the respondents have the right by
themselves to provide further equity and debt to another company if it failed to achieve its
business targets. In any event, it is a settled position that the Board has the discretion to choose
the mode and manner of mobilizing funds. 3 Additionally, trading in such circumstances would
amount to mismanagement only if the Directors decision to trade was influenced by self-

1 Scottish Co-op Wholesale Society v. Meyer, [1959] A.C. 324 (House of Lords). [Scottish
Co-op]
2 SP Jain v. Kalinga Tubes Ltd, AIR 1965 SC 1535 (Supreme Court of India). [SP Jain]
3 Sushma Harish Sharma v. Hotel Horizon Pvt Ltd, [2007] 139 CompCas 261(Company
Law Board).
interest.4 This exception is not satisfied in the present case. The Directors believed bona fide it
would be better for the image of the company if the investors injected cash. Moreover Dr.
Aashish was given a complete charge of arranging for other consultants and shall be in charge of
rendering services in the Hospitals belonging to the Company.

In the present case, the transfer of shares did not reduce the petitioners shareholding. In any
event, where the reduction of shareholding of a group of shareholders is a consequence of what
the Directors were lawfully obliged to do, such actions of respondent cannot be vitiated, as they
are in the larger interests of the company5. The petitioners have also contested their removal from
the Board of Directors. The right of a majority shareholder to vote for the removal of Directors is
a private right and not an act done in the conduct of affairs of a company. 6 The Supreme Court
of India has held that the termination of Directorship will per se not give rise to a remedy for
oppression.7

It is submitted that the removal of the appellants from the Board does not amount to oppression
for the following reasons: first, even assuming the removal of the Directors may be bad in law; it
does not by itself constitute oppression. Second, the principle of legitimate expectations will not
apply in this case. In any event, the test as to whether an act is oppressive is not whether it is
legally permissible.8The test is whether the act is for a mala fide purpose.9 Assuming that a single
act in contravention of the law does not support the inference that the law was violated for a
mala fide purpose.10 Hence it is submitted assuming that mere failure to give the stipulated notice
does not amount to oppression.
3. Whether a first and life time director be removed from the company

The shareholders are supreme for the appointment of directors. Similarly, they have the powers
to remove a director appointed by them by passing an ordinary resolution and since its an

4 Re Saul D Harrison and Sons plc, [1994] B.C.C. 475, 478 (Court of Appeal). [Saul D
Harrison]
5 Needle Industries (India) Ltd v. Needle Industries Newey (India) Holding Ltd, 1981 (3)
6 Re Astec BSR plc, [1999] B.C.C. 59 (Chancery Division).
7 Hanuman Prasad Bagri v. Bagress Cereals Pvt Ltd, 2001 (4) SCC 420, at 18 (Supreme Court of India).
[Hanuman Prasad]
8 VS Krishnan, 2008 (3) SCC 363, at 10.
9 VS Krishnan, 2008 (3) SCC 363, at 10.
10 Needle Industries, 1981 (3) SCC 333, at 51.
established fact that the respondents here in the case are the shareholders/ owners of the
company having majority shareholding rights and paid up share capital they have the complete
right to remove Mr. Aashish and Mrs. Aashish for their wrongful conducts. The majority in
number of votes cast is the final nail in the coffin for removal of a director. This does not apply
to the appointment and removal of directors by the National Company Law Tribunal. There is no
concept of a permanent director or lifetime director in a company under the Act. However, some
of the private limited companies do contain an article in the Articles of Association regarding
permanent or lifetime director and appoint directors in that fashion. This does not mean to say
that such directors cannot be removed by the shareholders. The Act overrides Memorandum or
Articles of Association or agreement or any resolution to the extent they are repugnant to the
provisions of the Act and, therefore, shareholders do have a right to remove any director who has
been appointed as permanent or lifetime director in a company. An ordinary resolution for
removal of a director under provisions of Section 169 of the Companies Act, 2013 is sufficient.
Moreover there is no deadlock in management of the company and the issue of shares by the
respondents was in accordance with the law.

The respondents in this case of the company are supreme in appointment as well as removal of
directors. Any provisions in the Articles of Association or any agreement or resolution passed for
appointment of permanent or lifetime director do not hold good and the shareholders have every
right to remove a director. The requirement is that a special notice is to be given for convening a
shareholders meeting. The special notice and the notice convening the meeting are to be given to
the director to be removed with a right for him to represent at the meeting. The representation of
the said director is to be circulated amongst the shareholders. An ordinary resolution is sufficient
for removal of a director and every shareholder has a right to vote at the resolution. The removal
of the petitioners from directorship does not make it just and equitable to wind up the company
as alternative remedies are available and more over the removal was not for an arbitray reason.

It would be just and equitable to wind up the company only if first, two groups of shareholders
have equal shareholding and there is complete deadlock in the management of the company.
Second, there is no possibility of the continuance of the company as a commercial concern. 11

11 Hind Overseas v. Raghunath Prasad Jhunjunwala, AIR 1976 SC 565, at 62 (Supreme Court of India).
Wherein, in the present case neither grounds are satisfied. The company is still capable of
continuing under the able guidance and leadership of the respondents.

4. Whether Munich Health Care is responsible for financial mismanagement of the

companys funds

According to the shareholder agreement Munich Health Care shall have absolute control over the
finances and administration of the hospitals belonging to the Company. The respondents used
this power with care and due diligence for the welfare of the company. Munich Health Care was
so cautious of its responsibilities that any expenditure beyond Rs.10, 000/- to be incurred or to be
approved by Dr. Aashish required the approval of the Board so that a collective decision can be
taken upon the companys finances, which the petitioners have understood otherwise. All the
financial schemes and decisions undertaken were in the bona fide interest of the company being
it the borrowing of funds for the up gradation of the hospital or the selling of shares to KLM
Hospitals to repay the debts to the financial institutions.

It is the duty of the Court to sanction a financial scheme which complies with statutory
requirements and is fair.12In the absence of oppressive conduct by the majority shareholders, the
other shareholders cannot raise an objection. 13Nor can the scheme be rejected on vague
complaints of financial mismanagement made by the minority.14The majority shareholders have
not committed any acts of oppression and mismanagement towards the minority shareholders.
Therefore the latter does not have the right to raise an objection. It is well settled under common
law that a scheme can be rejected only if it is obviously unfair, patently unfair and unfair to the
meanest intelligence.15 This position has been adopted by Indian Courts as well.16 The onus of
proving unfairness cannot be discharged by vague and general assertions in the absence of any

12 Re Hoare & Co Ltd, 1934 (150) LT 374 (Chancery Division).

13 In Re Jaypee Cement Ltd, [2004] 122 CompCas 854, at 107 (Allahabad High Court).
14 In Re Maneckchowk and Ahmedabad Manufacturing Co Ltd, (1970) 40 CompCas 819 (Gujarat High Court).
15 Re Sussex Brick Co Ltd, [1961] Ch. 289, 292 (Chancery Division).
16 State of Orissa v. Official Liquidator, (1966) 2 Comp LJ 31 (Orissa High Court).
particulars.17 It is presumed that the majority shareholders know where the best interests of the
company lie.18

In the present case, the financial schemes were floated amidst major financial problems at the
company. The funds were suggested to preserve the interests of the shareholders. Hence it is
submitted that the scheme for was the benefit of the company, and not designed to defraud any
particular shareholder. In fact, this act of transferring the shares to KLM Hospitals, prevented
further action against the guarantors who are the petitioners by the financial institutions. Thus, a
corollary can be drawn that the Respondents, acting in good faith saved the Petitioners from
personal liability and humiliation.

5. Whether there is a breach of contract and fiduciary duties

There is a clear breach of the shareholders agreement and fiduciary duties. A fiduciary duty is the
highest standard of care which was completely neglected by Mr. and Mrs. Aashish. On account
of the huge contacts and standing in the profession Dr. Aashish had set up a very good team of
consultants, doctors and surgeons in various medical disciplines in all the hospitals which he
utilized to meet his own selfish needs. In the board meeting, Mrs. Aashish passed pungent
remarks and allegations against Munich Health Care and its management without any proper
proof or grounds of evidence; as per the shareholders agreement Munich Health Care shall have
absolute control over the finances and administration of the hospitals belonging to the Company
and that is exactly what the respondents did, they took care of the finance in the best interest of
the company with due care and diligence.

Mr. Aashish and Mrs.Vandana were supposed to exercise duty of care, duty of good faith and
duty of loyalty which they completely failed for their personal interest Mr. Aashish objected the
selling of shares to KLM Hospitals even though it was very necessary to meet the financial needs

17 In Re Hindustan General Electric Corpn Ltd, AIR 1959 Cal 679 (Calcutta High Court).
18 Ambalal Sarabhai Enterprises Ltd v. Swastik Household and Industrial Products Pvt Ltd.(1987) 1 CompLJ 141
(Gujarat High Court).35
of the company. The respondents also breached the terms of agreement and duty of
confidentiality when the wife of Dr. Aashish started a Hospital of her own, after she was
removed as a director of the company for her misconduct. Dr. Aashish was also visiting the
Hospital as a consultant. The regular patients of Aashish Hospitals Private Limited stopped
coming to Aashish hospitals and started consulting Dr. Aashish in his wifes hospital which is a
blatant breach of the contract agreement and fiduciary duties. Dr. Aashish also started
communicating and conveying through his patients and nursing staff and other doctors that he
would not be continuing for long in Aashish Hospitals Private Limited therefore also hoping to
induce the staff of the company to leave the company and join Mrs. Aashishs hospital thus
causing immense loss and work force issues in the company of the respondents.

Therefore, on account of the breach of contract and on account of breach of fiduciary duties as a
director, KLM Group of shareholders and Munich Health Care moved a resolution for removal
of Dr. Aashish from the directorship of the Company keeping the Companys best interests in
account.