2016 (11) TMI 167 - Tri - Companies Law

Entitlement to move an application for conducting the investigation in to the affairs of Respondent 1 Company under Section 213 of Companies Act, 2013 - Held that - There is no dispute that the applicant s shareholding is 37% in the equity capital of Respondent-I M/s R.S. India Wind Energy Pvt Ltd. Therefore, the applicant fulfils the criteria prescribed under Sub Clause (a) of Sec 213 and is entitled to move an application for conducting the investigation in to the affairs of Respondent 1 Company under Section 213 of Companies Act, 2013. The purpose of investigation is to discover something which is apparently not visible to the naked eyes. The petitioner has brought out some apparent malpractices in the working of Respondent 1 Company to show that deeper probe is necessary. There has been complaint of mismanagement in the affairs of Respondent-I company. The applicant has also made out a good case by showing that there has been prima facie violations of the provisions of Companies Act in the maintenance of the minutes of various proceedings of the Respondent-I company. Apparent misdeeds and dishonesty in the maintenance of minutes of the company in contravention of the provisions of the Act cannot be ruled out. Law makes the investigation comprehensive of all sorts of illegalities. Sub clause 1 clause (b) of section 213 is wide enough to include contravention of any law. There has been prima facia existence of malpractices in tampering of records, which cannot be overlooked. In the facts, it appears that deeper probe in the affairs of Respondent No. l company is necessary. There is also a prayer in the company application for an investigation in to the affairs of Respondent 11 Power Wind Ltd. However it has not been explained in the application as to under what circumstances a probe is necessary against Respondent 11 Company. In the absence of sufficient material to show that affairs of Respondent 11 Company necessitates investigation, the same cannot be allowed.

Summary

Issues:
- Application seeking directions for investigation of financial irregularities and fraudulent conduct
- Discrepancies in the minutes of meetings provided by Respondent-I company
- Allegations of fabrication and interpolation of meeting minutes
- Legal provisions regarding maintenance of company records and minutes
- Violations of Companies Act in maintaining minutes of proceedings
- Prima facie evidence of malpractices and mismanagement in Respondent-I company
- Request for investigation into the affairs of Respondent-I company
- Decision on the application for investigation into Respondent-I company

Analysis:
1. The application filed by the Petitioner sought directions for investigating financial irregularities and fraudulent conduct, including appointing an independent auditor to conduct a forensic audit. The Petitioner alleged discrepancies in the minutes of meetings provided by Respondent-I, pointing out alterations and fabrications in the records.

2. Respondent-I contended that draft minutes were shared with the Petitioner and differences in signatures or agenda numbering did not affect the substance of the meetings. However, the Petitioner argued that these discrepancies indicated malpractices and potential fabrication of records by Respondent-I.

3. The Tribunal observed multiple vital differences in the minutes of meetings, including changes in agenda, participants' presence, and text. Such alterations were deemed unacceptable, and it was noted that the Respondent-I company failed to maintain minutes as per legal requirements, violating provisions of the Companies Act.

4. Referring to Section 213 of the Companies Act, the Tribunal found that the Petitioner, holding a significant share in Respondent-I company, had valid reasons to request an investigation into its affairs due to prima facie evidence of mismanagement and violations of company law provisions.

5. The Tribunal highlighted the legislative intent for transparent company affairs and the severe penalties for tampering with meeting minutes. It noted the Company Law Board's previous observation of alterations in meeting minutes, further supporting the need for a deeper probe into Respondent-I company's operations.

6. While the application for investigation into Respondent-I company was partly allowed, the request for probing into Respondent 11 Power Wind Ltd. was not granted due to insufficient justification. The Central Government was directed to initiate an investigation into the affairs of Respondent-I company, with the next hearing scheduled for a specified date.

7. In conclusion, the Tribunal's decision emphasized the importance of upholding legal standards in maintaining company records and conducting thorough investigations into suspected malpractices and mismanagement to ensure transparency and accountability in corporate operations.