2015 (4) TMI 1299 - Board - Companies Law

Oppression and mismanagement - siphoning of funds - invocation of Section 237(b) of the Companies Act - dismissal of the petition sought contending that no case for passing an order to the Central Government to appoint an Inspector for investigation into affairs of the Company is made out as contemplated in Section 237(b) of the Act - time limitation - HELD THAT - There is apparent delay in filing the petition which has not been explained by the petitioner. It is a settled proposition of law that the doctrine of delay and laches is applicable to the proceedings under the Companies Act filed before the CLB - thus the petition also suffers from delay and laches and deserves to be dismissed on this ground also. Whether a case is made out under section 237(b) of the Act to pass an order for investigation into affairs of the Respondent No. 1 Company? - HELD THAT - The provisions contained in Section 237(2) of the Act do not permit a fishing expedition into the affairs of a company. The allegations of the petitioner primarily rest on an isolated transaction of 2008 appearing in the balance-sheet of the Respondent No. 1 Company and in my judgment this is not a sufficient ground to warrant an order for investigation into the affairs of the Company. Further taking into consideration the most pertinent fact that the Respondent No. 4 has not come forward to file its reply nor rebutted the fact of having received back the amount-in-question it is established that the Respondent No. 1 Company has paid back the amount to the Respondent No. 4 as shown in its Books of Accounts - It has been held in various decisions that the powers conferred on the CLB under Section 237 of the Act are ought to be exercised carefully on proper facts and circumstances considering its far-reaching consequences. Therefore no case as alleged by the Petitioner is made out. There are no merits in the petition - petition dismissed.

Summary

Issues Involved:
1. Locus Standi of the Petitioner
2. Delay and Laches in Filing the Petition
3. Merits of the Case for Investigation under Section 237(b) of the Companies Act

Detailed Analysis:

1. Locus Standi of the Petitioner:
The Respondents argued that the Petitioner lacked the locus standi to file the petition under Section 237(b) of the Companies Act, as the Petitioner was neither a shareholder, creditor, nor a contributory of the Respondent No. 1 Company. They contended that the Petitioner, being a shareholder of Respondent No. 4, which had advanced Rs. 1.35 Crores to Respondent No. 1, did not qualify as "any other person(s)" under Section 237(b)(i) of the Act. The Petitioner countered that as a 50% shareholder of Respondent No. 4, it was an "aggrieved person" and thus entitled to file the petition. The judgment noted that the phrase "any other person(s)" in Section 237(b)(i) means "a party(ies) aggrieved" and not a stranger. Since Respondent No. 4, who advanced the loan, did not file a reply or rebut the repayment claim, the Petitioner was not considered an "aggrieved party" and thus lacked the locus standi to file the petition.

2. Delay and Laches in Filing the Petition:
The Respondents raised a preliminary objection regarding the delay and laches in filing the petition, pointing out that the allegations pertained to the year 2008, while the petition was filed in July 2014. The Petitioner did not provide any explanation for this delay. The judgment acknowledged the delay and held that the petition suffered from inordinate and unexplained delay and laches, warranting its dismissal on this ground as well.

3. Merits of the Case for Investigation under Section 237(b) of the Companies Act:
The Petitioner alleged that Respondent Nos. 2 and 3 siphoned off funds from Respondent Nos. 4 and 5 into Respondent No. 1 and committed fraud. The Petitioner sought an investigation under Section 237(b) of the Act. The Respondents argued that the object of an investigation under Section 237 is to discover something not apparent, and since the facts were visible in the balance-sheets, an investigation was unwarranted. The judgment cited precedents that emphasized the need for prima facie evidence and proper grounds for ordering an investigation. It was noted that the Respondent No. 4 did not rebut the repayment of the loan, and the isolated transaction of 2008 did not justify an investigation. The judgment concluded that no sufficient grounds existed for ordering an investigation under Section 237(b) of the Act.

Conclusion:
The petition was dismissed on the grounds of lack of locus standi, unexplained delay and laches, and insufficient grounds for ordering an investigation under Section 237(b) of the Companies Act. The interim orders were vacated, and no costs were awarded.