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2019 (4) TMI 2109 - HC - Indian LawsFraud - mis-appropriation - falsification of records - conspiracy - It is alleged in the complaint that the fabric stocks worth about Rs. 8,32,14,000/- hypothecated to the State Bank of India was removed by the petitioners between 2014 to November 2016, without the knowledge and permission of the bank and other Directors - mismanagement of the sister group of companies - Suppression of facts - HELD THAT - Admittedly, there is a dispute between them regarding the management which has culminated into MOU, later not honoured by both the parties. The 1st petitioner has made a specific declaration that it has become invalid. In the said circumstances, when any member of the company has any grievance or complaint about oppression or mismanagement, he should have resorted to an application to the tribunal as contemplated under Section 241 of the Companies Act-2013. Under Section 206 of the Companies Act-2013, the Registrar of the Company, based on the information received by him can seek for explanation, production of document and conduct enquires. If the Registrar is satisfied on the basis of information available with him or furnished to him or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act, he can proceed with inquiry - Thus, it is very clear that while dealing with the affairs of a company, if any person abuse the position with intend to deceive, to gain undue advantage from, or to injure the interests of, company or its shareholders or its creditors or any other person, he deemed to have committed fraud. In the complaint, it is not only alleged that by his act of commission and omission the petitioners had caused loss to the 2nd respondent but also it is alleged that the bank has declared the company as NPA Non Performing Asset . It is alleged that the mismanagement has caused loss of several crores, therefore interest of the bank is also involved. If the allegations are true, the gravity of the offence is grave and fit to be investigated by the Serious Fraud Investigation Organisation which is empowered to investigate offence of this nature, as per Section 212 of the Companies Act - From the complaint, as well as the petition, there is enough material to infer that the mismanagement does not stop with one company namely M/s. M.C. Spinners Pvt. Ltd., but also all other sister concern, in which the 1st petitioner and 2nd respondent, their family members are involved. The forgery alleged in the transfer of vehicles also not confined to the petitioners and M/s. M.C. Spinners Pvt. Ltd. This Court of the opinion that the complaint under Section 156(3) of the Cr.P.C. before the Judicial Magistrate and seeking registration of the complaint by the Inspector of Police, CCB, Coimbatore, itself an outcome of mala fide intention to pressurize the petitioners to part away their right of Managing the Company. Having resorted to the provisions of Companies Act and filed a C.P. Nos. 27 and 28 of 2015, before the Company Law Board, Chennai, it is clear that the 2nd respondent and his sons, who are the shareholders and Directors of sister concern are aware of the new enactment and the redressal procedures contemplated under the new Act. The Criminal Original Petition is Allowed.
Issues Involved:
1. Allegations of fraud, misappropriation, falsification of records, and conspiracy. 2. Validity and enforceability of the Memorandum of Understanding (MOU). 3. Jurisdiction and competence of the police to investigate corporate mismanagement. 4. Applicability of the Companies Act, 2013 for investigating corporate fraud. 5. Appropriate forum and procedure for addressing corporate mismanagement and fraud. Issue-wise Detailed Analysis: 1. Allegations of Fraud, Misappropriation, Falsification of Records, and Conspiracy: The complaint was filed by a director of M/s. M.C. Spinners Pvt. Ltd., alleging that the petitioners, who are also directors and shareholders, engaged in maladministration, forgery, criminal breach of trust, and cheating. The specific allegations included removing hypothecated fabric stocks worth Rs. 8,32,14,000/- and various machineries without the bank's or other directors' knowledge, thereby causing significant financial loss to the company. The complaint also claimed that the petitioners transferred vehicles and misappropriated job work money, leading to a total loss of Rs. 18 crores. 2. Validity and Enforceability of the Memorandum of Understanding (MOU): The petitioners contended that the dispute arose from a misunderstanding between two groups of companies, which led to an MOU on 12.11.2014. However, the MOU was later declared invalid by the 1st petitioner. The respondents argued that the terms of the MOU were not honored, and the 1st petitioner had acknowledged its invalidity in a letter dated 19.01.2015. The court noted that the dispute continued despite the MOU and was not honored by both parties. 3. Jurisdiction and Competence of the Police to Investigate Corporate Mismanagement: The petitioners argued that the complaint did not disclose any cognizable offense and was filed to harass them. They contended that corporate mismanagement should be investigated under the Companies Act, 2013, and not by the police. The court agreed, stating that the investigation of corporate mismanagement should follow the procedures under the Companies Act, 2013, which includes investigation by the Serious Fraud Investigation Office (SFIO) and not local police. 4. Applicability of the Companies Act, 2013 for Investigating Corporate Fraud: The court highlighted that the Companies Act, 2013 provides a comprehensive procedure for investigating corporate mismanagement and fraud. Sections 206, 210, and 212 outline the roles of the Registrar of Companies and the SFIO in conducting inquiries and investigations. The court emphasized that the allegations in the complaint should be addressed through these statutory mechanisms rather than through a criminal complaint to the police. 5. Appropriate Forum and Procedure for Addressing Corporate Mismanagement and Fraud: The court noted that the appropriate forum for addressing the grievances of corporate mismanagement is the Company Law Tribunal, as per Section 241 of the Companies Act, 2013. The court directed that the Registrar of Companies should conduct an inquiry into the affairs of M/s. M.C. Spinners Pvt. Ltd. and its sister concerns, and report to the Central Government for further action. The court quashed the FIR registered by the police, stating that the complaint should be addressed through the specialized procedures provided under the Companies Act, 2013. Conclusion: The court quashed the FIR in Crime No. 29 of 2017, directing the Registrar of Companies to investigate the affairs of M/s. M.C. Spinners Pvt. Ltd. and its sister concerns. The court emphasized the need to follow the procedures under the Companies Act, 2013 for investigating corporate mismanagement and fraud, rather than resorting to criminal complaints to the police.
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