2005 (5) TMI 335 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction to exercise powers under Section 237(b)(i) of the Companies Act.
2. Prima facie case for investigation under Section 237(b)(i).
3. Simultaneous investigations by SEBI, CBI, and Department of Company Affairs under Section 209A.

Detailed Analysis:

1. Jurisdiction to exercise powers under Section 237(b)(i) of the Companies Act:
The appellants contended that the companies were not carrying on any business at the time of the respondent's application for investigation under Section 237. They argued that the Central Government and/or the Company Law Board had no jurisdiction to investigate the affairs of a company that had ceased business operations. The court, however, found this submission to involve mixed questions of law and fact. The learned Single Judge had decided against the appellants on both counts, and the court agreed with this conclusion. It was noted that the mere fact that investigations and proceedings had been initiated against the companies did not mean they had ceased all business activities. Despite various orders and investigations, the companies were still involved in business activities, as evidenced by their own affidavits. The disposal of shares and other assets for debt repayment was considered part of the companies' business activities, warranting further investigation under Section 237.

2. Prima facie case for investigation under Section 237(b)(i):
The respondent's application for investigation was based on material gathered from the Joint Parliamentary Committee, reports from investigations under Section 209A of the Companies Act, and an interim report from SEBI. The court found that there were sufficient grounds justifying the invocation of powers under Section 237. It was emphasized that to invoke these powers, it was not necessary to establish guilt but merely to show circumstances suggesting fraudulent or unlawful conduct. The material before the respondent indicated that the companies were involved in activities that led to the stock market crash in 2001, attributed to Ketan Parekh. The Company Law Board had found grounds for investigation, and the court agreed that the facts disclosed warranted an investigation into the affairs of the companies.

3. Simultaneous investigations by SEBI, CBI, and Department of Company Affairs under Section 209A:
The appellants argued that simultaneous investigations by SEBI, CBI, and the Department of Company Affairs under Section 209A should preclude a fresh investigation under Section 237(b)(i). The court, however, found that the ongoing investigations did not preclude the invocation of Section 237. The learned Single Judge had considered this issue and concluded that the investigations under different sections and by different authorities did not overlap to an extent that would prevent a separate investigation under Section 237. The court agreed with this conclusion, noting that the nature and scope of the investigations under Section 237 were distinct and warranted in light of the material and evidence presented.

Conclusion:
The court dismissed the appeals, agreeing with the learned Single Judge's findings on all counts. The companies were found to be carrying on business activities, justifying the invocation of Section 237. The material before the respondent warranted an investigation, and the ongoing investigations by other authorities did not preclude a fresh investigation under Section 237. The appeals were dismissed on both factual and legal grounds.