2010 (5) TMI 691 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of fraud, misfeasance, and mismanagement.
2. Non-compliance with statutory requirements.
3. Misuse of company funds and fraudulent transactions.
4. Failure to hold annual general meetings and file annual returns.
5. Failure to appoint a whole-time company secretary.
6. Improper sale and lease of company assets.
7. Non-recovery of statutory records.

Summary:

1. Allegations of Fraud, Misfeasance, and Mismanagement:
The petitioners alleged that the respondent-company's directors committed acts of fraud, cheating, oppression, mismanagement, and misfeasance. They diverted company funds, sold fixed assets fraudulently, and created multiple charges on certain fixed assets. The petitioners requested an investigation into the company's affairs u/s 237(b) of the Companies Act, 1956.

2. Non-compliance with Statutory Requirements:
The company failed to maintain a quorum of minimum three directors as required by section 252 of the Act. The tenure of certain directors, appointed as additional directors in 2003, had expired in 2004, yet they continued to act as regular directors, violating the company's articles and section 290 of the Act. The directors also attracted disqualification u/s 274(1)(g).

3. Misuse of Company Funds and Fraudulent Transactions:
The directors misused company funds for personal gain, including an investment of Rs. 3 crores in Rutvij Chemicals Limited, which was not reflected in subsequent audited accounts. Additionally, Rs. 191.32 lakhs invested in two private companies in 1998 was missing from the company's accounts from 2001 onwards.

4. Failure to Hold Annual General Meetings and File Annual Returns:
The company failed to convene and hold annual general meetings for seven years (2000-2007) and did not file annual returns with the Registrar of Companies due to non-finalization of annual accounts. This contravened sections 159, 166, 210, and 220 of the Act. The directors also failed to inform shareholders about the reasons for not holding AGMs.

5. Failure to Appoint a Whole-time Company Secretary:
The directors did not appoint a whole-time company secretary as required by section 383A of the Act.

6. Improper Sale and Lease of Company Assets:
The company owned valuable properties in Mumbai, some of which were sold by the directors despite encumbrances by secured creditors. Additionally, 350 acres of land were leased to trusts managed by the company's chairman, overlooking the court receiver's presence. The Charity Commissioner later declared these leases illegal.

7. Non-recovery of Statutory Records:
The company failed to retrieve its statutory records from the court receiver for eight years, making it impossible to finalize annual accounts.

Conclusion:
The Board concluded that the directors violated various provisions of the Act and conducted the company's affairs with intent to defraud its members and the public. The Board ordered an investigation into the company's affairs u/s 237(b) to protect the interests of the company and its shareholders. The Central Government was directed to appoint inspectors for this purpose, and the petitioners were instructed to provide all relevant information during the investigation. The company petition was disposed of with these directions.