1997 (12) TMI 665 - Board - Companies Law

Summary

Issues:
1. Alleged mismanagement and siphoning off company funds through donation to a non-existing trust.
2. Alleged misappropriation of company funds through diversion of automobile parts without proper accounting.

Analysis:

Issue 1:
The petitioners sought the appointment of an administrator due to alleged mismanagement involving a donation of Rs. 10 lakhs to a trust that was claimed to be non-existent at the time of donation. The petitioners argued that the donation was a ploy to siphon off company funds. The respondents countered this claim, stating that the trust was still in existence, supported by income tax documents. The Board found that the trust was indeed operational during the relevant period, as evidenced by independent records and the petitioner's own admission of being a trustee. Therefore, the allegation of donating to a non-existing trust was not substantiated.

Issue 2:
The second allegation involved the diversion of automobile parts without proper accounting, leading to the misappropriation of company funds. The petitioners highlighted discrepancies in the figures of certain automobile parts in the company's annual report. The respondents argued that the company had a consistent practice of reporting production figures and had been certified by auditors. The Board noted the significant discrepancies but refrained from making a conclusive decision at that point. The respondents agreed to provide a reconciliation statement, and the Board decided not to appoint an administrator based on the allegations alone, pending further information.

Additional Considerations:
The Board addressed the issue of bringing subsequent events into a Section 397/398 petition. While acknowledging diverse opinions on this matter, the Board clarified that subsequent events could be considered for molding relief if the main petition succeeds. However, interim relief based on subsequent events should only maintain the status quo until the main allegations are assessed. The Board emphasized that subsequent events could be brought on record but should not disrupt the ongoing proceedings.

In conclusion, the Board rejected the petitioners' request for the appointment of an administrator at the interim stage, based on the allegations of subsequent events. The decision was made considering the lack of conclusive evidence regarding the alleged mismanagement and the need for further information to assess the situation accurately.