1998 (6) TMI 586 - Board - Companies Law

Summary

Issues Involved:
1. Maintainability of the reference under Section 388B of the Companies Act, 1956.
2. Allegations of fraud, misfeasance, persistent negligence, and breach of trust against the respondent.
3. The impact of parallel criminal proceedings on the maintainability of the reference.
4. The issue of limitation and delay in filing the reference.
5. The role and actions of the Union of India as a shareholder and applicant in the reference.

Issue-wise Detailed Analysis:

1. Maintainability of the Reference:
The respondent challenged the maintainability of the reference on the grounds that the subject matter was already part of several criminal proceedings initiated by the Union of India. The respondent argued that parallel proceedings on the same charges could prejudice his defense in the criminal trials. Additionally, the respondent contended that the reference was barred by limitation due to inordinate delay in filing.

2. Allegations of Fraud, Misfeasance, Persistent Negligence, and Breach of Trust:
The Union of India alleged that the respondent, in his capacity as director/managing director of Maruti Udyog Limited, committed various offenses resulting in five FIRs. These included:
- Cars Diversion Case: Allegations of delivering cars at pre-budget prices to certain customers, causing financial losses to the company.
- Hydraulics Case: Allegations of causing the company to make advances and purchases from Hydraulics Ltd. at inflated prices, benefiting Hydraulics unduly.
- Dealership at Ghaziabad: Allegations of appointing a dealer in Ghaziabad in reversal of a board policy, purportedly in exchange for personal benefits.
- Transport Case: Allegations of awarding a transportation contract to Delhi-Ahmedabad Roadways, causing a loss to the company.
- Subros Case: Allegations of awarding a contract for air-conditioners to Subros Ltd. and advancing funds without proper justification.

3. Impact of Parallel Criminal Proceedings:
The respondent argued that the reference should not proceed as it would force him to disclose his defense in the criminal proceedings prematurely. The Union of India, however, maintained that the reference was necessary to determine the respondent's fitness to hold office.

4. Issue of Limitation and Delay:
The respondent contended that the reference was barred by the laws of limitation, as the alleged incidents occurred between 1983-84 and 1991-92, and the reference was filed in December 1996. The Union of India argued that the Limitation Act did not apply to proceedings before the Company Law Board, which is a quasi-judicial authority. However, the Board acknowledged that delay and laches could be considered in such proceedings.

5. Role and Actions of the Union of India:
The Union of India, holding a significant shareholding in the company, argued that it acted in the public interest by initiating the reference. The respondent countered that the Union of India, being actively involved in the company's management, should have taken timely action if it had concerns about his conduct. The Board noted the lack of explanation from the Union of India for the delay in initiating the reference.

Conclusion:
The Company Law Board dismissed the reference on the grounds of gross and inordinate delay. The Board found no plausible explanation for the delay in forming an opinion and making the reference, given that the Union of India was actively involved in the company's management and aware of the allegations for years. The Board did not consider the other preliminary objections or the merits of the case due to the decision to dismiss the reference. The reference was dismissed without any order as to costs.