1997 (5) TMI 342 - SC - Companies Law

Doctrine of public interest invoked - Held that - Appeal allowed. The company is only a deemed public limited company. Its shareholding is very closely held. The only other factor referred to in the writ petition to invoke the doctrine of so-called public interest, is the fact that the company had borrowed moneys from public institutions. This is no ground for not availing of the statutory remedies provided under the Act before the appropriate statutory forums which are designed for this very purpose. We are distressed to find that the well-reasoned judgment of the Single Judge was interfered with in a casual manner. The impugned judgment rests on fragile foundations and reads more like in ipse dixit.

Summary

Issues Involved:
1. Oppression of minority shareholders and mismanagement of the company.
2. Jurisdiction of the High Court under Article 226 of the Constitution.
3. Alternative remedies under the Companies Act.
4. Public interest in company disputes.

Detailed Analysis:

Oppression of Minority Shareholders and Mismanagement of the Company:
The appellants contended that disputes arose between the managing director and his son-in-law, leading to multiple petitions under sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement. Despite the petitions, the Company Law Board (CLB) did not grant interim reliefs such as the supersession of the board of directors or the appointment of an administrator. The CLB directed the company to follow certain procedures but did not pass any substantive orders.

Jurisdiction of the High Court under Article 226 of the Constitution:
The first respondent filed a writ petition under Article 226 of the Constitution before the High Court of Andhra Pradesh, seeking a mandamus to prosecute the appellants and to investigate the company's affairs. The writ petition alleged misappropriation of funds and financial mismanagement. The Supreme Court noted that the Act provides specific mechanisms for addressing such grievances, and the High Court should not have entertained the writ petition when statutory remedies were available.

Alternative Remedies under the Companies Act:
The Companies Act provides for the investigation of a company's affairs by the Central Government upon a report from the Registrar or upon application by a significant number of shareholders. Sections 234, 235, and 237 outline the procedures and conditions for such investigations. The Supreme Court emphasized that these statutory remedies must be exhausted before resorting to the High Court's writ jurisdiction. The first respondent had not utilized these remedies and instead approached the High Court directly.

Public Interest in Company Disputes:
The Division Bench of the High Court entertained the appeal on the grounds of public interest, citing the falsification of accounts and potential jeopardy to public interest due to the company's borrowing from public institutions. The Supreme Court disagreed, stating that the company was a closely-held entity and that the alleged public interest did not justify bypassing the statutory remedies. The Court reiterated that the Act's provisions are designed to handle such disputes effectively.

Conclusion:
The Supreme Court allowed the appeal, setting aside the Division Bench's judgment and reinstating the Single Judge's decision to dismiss the writ petition. The Court underscored the importance of adhering to statutory remedies and discouraged the use of writ jurisdiction in matters where specific legal mechanisms exist. The first respondent was ordered to pay costs of Rs. 15,000 to the appellants.