1991 (8) TMI 347 - HC - Companies Law

Summary

Issues Involved:
1. Legality of removal of directors.
2. Right to inspect company records.
3. Preliminary objections by respondents.
4. Applicability of inherent powers of the court.

Issue-Wise Detailed Analysis:

1. Legality of Removal of Directors:
The petitioners, who were formerly directors of the Respondent Company, alleged that they were illegally removed from their positions through a resolution passed on November 22, 1988. They argued that their removal was based on flimsy grounds, specifically citing violations of Section 299 of the Companies Act, which led to their automatic cessation as directors under Section 283. The respondents contended that the petitioners had indeed ceased to be directors due to these violations, and thus, they were not entitled to inspect the company records. The court noted that the issue of whether the petitioners had ceased to be directors was central to the main petition and had not yet been decided.

2. Right to Inspect Company Records:
The petitioners claimed a statutory right under Section 209 of the Companies Act to inspect the books of accounts and other records of the Respondent Company. They argued that such inspection was necessary to support their company petition. The respondents countered that only current directors were entitled to such inspection under Section 209(4) of the Act and that the petitioners, being mere shareholders after their removal, did not have this right. The court, however, found that there was no prima facie evidence to suggest that the petitioners had ceased to be directors and thus allowed their application for inspection.

3. Preliminary Objections by Respondents:
The respondents raised two preliminary objections. First, they argued that the petitioners, having ceased to be directors, were not entitled to inspect the records. Second, they pointed out that the petitioners had previously filed Company Petition No. 4 of 1989, which was dismissed, and no inspection application was moved in that petition or the subsequent appeal. The court dismissed these objections, stating that the earlier petition was not dismissed on merit and that the failure to move an inspection application in the earlier petition did not preclude the petitioners from seeking inspection now.

4. Applicability of Inherent Powers of the Court:
The court emphasized the applicability of Rules 6 and 9 of the Companies (Court) Rules, 1959, which allow the court to use its inherent powers to ensure justice. The court held that there was nothing in the Act or the Rules prohibiting the inspection of records by a party in a pending case, even if the party was not a director. The court cited the case of Rajdhani Roller Flour Mills (P) Ltd. v. Mangilal Bagri to support the view that shareholders could inspect company records in proceedings under Sections 397 and 398 of the Companies Act. The court concluded that the inherent powers should be invoked to allow the petitioners to inspect the records of the Respondent Company.

Conclusion:
The court allowed the application for inspection filed by petitioners No. 30 and 31. The Respondent Company was directed to allow the petitioners to inspect the books of accounts, files, documents, and papers during office hours, in the presence of a responsible officer of the company. Additionally, the Respondent Company was instructed to paginate all relevant documents and prepare a list of these documents, a copy of which was to be given to the petitioners. The inspection was scheduled to commence on September 16, 1991.