2013 (7) TMI 27 - HC - Companies Law

Scheme of amalgamation - jurisdiction of High Court of order investigation from a particular agency - duty and power of the high court while issuing directions - Held that - Looking to the facts in full agreement with His Lordship, there would certainly be a justification to carry on investigation. If looking to the Income Tax Assessment order relied on by Mr. Mookherjee it would find, for the assessment year 2007-2008 the Company earned net profit for Rs.290/-. They suffered penalty. The total income that was assessed was Rs.3,400/- only and the company paid tax for Rs.1,046/-. Such an insignificant company proposed scheme of amalgamation involving crores through allotment of shares at a huge premium. However, His Lordship was perhaps not correct in either directing Director, Revenue Intelligence or the Reserve Bank of India. His Lordship was competent to issue direction under Section 237(a)(ii). His Lordship was right in sending the issue to the Ministry of Corporate Affairs being the appropriate authority of the Central Government. However, it is for the Central Government to decide which authority would investigate. Be that as it may, the report of SFIO would clearly show, despite being informed, the company did not appear. Hence, Mr. Mookherjee was not right in saying, opportunity was not given. There seems to be no irregularity. It is a fit and proper case for the Central Government to consider as to whether an investigation should be carried out by appropriate agency having authority in law followed by action that is permitted in law. Considering the backdrop, we do not feel it inclined to permit the appellant to proceed with the proposed scheme of amalgamation. Hence, the application for convening meeting of the shareholders treating the same as on the day s list dismissed.

Issues Involved:
1. Scheme of amalgamation and the investigation into the affairs of the company.
2. Jurisdiction and authority of the learned Judge in directing investigations.
3. Allegations of bias and procedural fairness.
4. Legality and appropriateness of the orders passed by the learned Judge.

Issue-wise Detailed Analysis:

1. Scheme of Amalgamation and Investigation:
The appellant proposed a scheme of amalgamation with Magic Tradelink Pvt. Ltd. and Moonlite Technochem Pvt. Ltd., both based in New Delhi. The Delhi High Court had already directed meetings to ascertain shareholders' wishes. However, the learned Single Judge in Calcutta directed the Registrar of Companies to investigate the first transferor company intending to amalgamate with Moonlite. The investigation revealed irregularities, including the issuance of share premiums and substantial investments involving private companies. The Director, Revenue Intelligence, and later the Ministry of Corporate Affairs and SFIO, were involved in further investigations, which pointed out irregularities. The Reserve Bank of India also observed that the company might have operated as a non-banking financial company without proper registration.

2. Jurisdiction and Authority:
The appellant contended that the learned Judge exceeded his jurisdiction by directing a series of investigations, arguing that such actions were beyond the powers conferred by the relevant laws. The appellant's counsel cited various legal precedents to support this claim, emphasizing that the Judge should have either allowed or dismissed the petition for shareholder meetings instead of prolonging the investigation. The court acknowledged that the Judge had wide discretion under Section 391 but clarified that the Judge should not have directed specific agencies like the Director, Revenue Intelligence, or the Reserve Bank of India. Instead, the matter should have been referred to the Ministry of Corporate Affairs, allowing the Central Government to decide the appropriate investigating authority.

3. Allegations of Bias and Procedural Fairness:
The appellant raised concerns about bias, arguing that the learned Judge's series of orders aimed to harass the company. They cited the Apex Court's decision in Needle Industries, which highlighted that a series of illegal acts could indicate oppression. The appellant also argued that the company was not given sufficient opportunity to respond to the SFIO report. However, the court found that the company had been informed and did not appear, thus rejecting the claim of insufficient opportunity.

4. Legality and Appropriateness of Orders:
The court reviewed the orders passed by the learned Judge and found justification for the investigations due to the significant irregularities revealed. However, it noted that the Judge should not have directly instructed specific agencies to investigate. The court upheld the necessity of investigations but emphasized that the Central Government should decide the investigating agency. The court dismissed the application for convening shareholder meetings and directed that the reports be available to the Central Government for further action. The appeals were disposed of with modifications, clarifying that the Central Government has the authority to determine the appropriate steps.

Conclusion:
The court concluded that while the learned Judge had the discretion to investigate under Section 391, the specific directions to agencies like the Director, Revenue Intelligence, and the Reserve Bank of India were beyond his jurisdiction. The Central Government should decide the appropriate investigating authority. The application for shareholder meetings was dismissed, and the reports were made available for the Central Government to take further action. The appeals were disposed of with clarifications and modifications, and no further appearances before the learned Judge were deemed necessary.

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