2009 (3) TMI 574 - HC - Companies Law

Whether a shareholder of a company has no locus standi to maintain a petition for reliefs under section 163 of the Companies Act if he is also a Director of the company? Whether the Company Law Board has the power and jurisdiction in a petition for reliefs under sections 163, 621 or 629 of the Companies Act to advise the Registrar of Companies to take necessary action as per law in the event of the Petitioner in a petition for reliefs under section 163 making an application under section 629 of the said Act? Whether the Company Law Board on finding that a company has not been given inspection as required by section 163 has the power or jurisdiction to advise the Registrar of Companies to initiate prosecution proceedings against the company for contravention under section 163 of the Companies Act? Held that - From the judgment of the Company Law Board, it appears that all the facts and circumstances have not been considered while coming to the conclusion that the company is in fact in possession of the records and that the Petitioner is not in possession of the same. This is probably because the learned Member had decided ultimately not to pass any orders under section 163 either directing the company to give inspection or rejecting the Petitioner s application for the same. Mr. Sathe stated that the company is in possession of the reconstructed record for the period prior to February 2007 and the original record for the period after February 2007. He stated that the Petitioner may take inspection of the same at any time. The Petitioner is at liberty to do so without prejudice to his rights and contentions in the petition before the Company Law Board.The Appeal is, therefore, allowed. The order and judgment of the Company Law Board is set aside. The matter is remanded to the Company Law Board for a fresh decision.

Summary

Issues Involved:
1. Whether a shareholder who is also a Director of a company has the right to maintain a petition for reliefs under section 163 of the Companies Act.
2. Whether the Company Law Board has the authority to advise the Registrar of Companies to take action in petitions under sections 163, 621, or 629 of the Companies Act.
3. Whether the Company Law Board can recommend prosecution proceedings against a company for non-compliance with section 163 of the Companies Act.

Analysis:
1. The judgment addressed the issue of whether a shareholder who is also a Director of a company can maintain a petition under section 163 of the Companies Act. The court affirmed that being a Director does not preclude a shareholder from seeking relief under section 163. The court emphasized that under section 163, it is the company, not individual Directors, that is obligated to provide inspection of records. Therefore, the petition was deemed maintainable, and the shareholder had the necessary standing to file it.

2. The judgment also examined the authority of the Company Law Board to advise the Registrar of Companies in petitions under sections 163, 621, or 629 of the Companies Act. The court ruled that the Company Law Board does not possess the jurisdiction to merely advise parties and authorities. The Board should have decided on the application under section 163 rather than offering advice. Sections 621 and 629 do not grant the Board the power to recommend prosecution for contraventions of section 163.

3. Furthermore, the judgment considered whether the Company Law Board could recommend prosecution proceedings against a company for non-compliance with section 163 of the Companies Act. The court concluded that the Board lacked the authority to issue such advice. Even if the Registrar of Companies had the power to direct compliance with section 163 requisitions, the judgment did not instruct the Registrar to ensure the company provided the requested information. Consequently, the court set aside the Board's order and advised a fresh consideration of the matter.

In summary, the judgment clarified the rights of shareholders who are also Directors to file petitions under section 163, highlighted the limitations on the Company Law Board's advisory role, and emphasized the Board's lack of jurisdiction to recommend prosecution for non-compliance with section 163. The decision underscored the importance of a proper legal analysis and the need for a clear, decisive ruling on petitions under the Companies Act.