2017 (9) TMI 195 - Tri - Companies Law

Mis-management of affairs - illegally smuggled potato seeds without the knowledge and consent of the petitioner and without taking the necessary approval from the Government of India - law on investigation into the affairs of the company - proof of misappropriation - Held that - Substantial allegation disclosing credible information for us to conclude that respondents had been acting with an intention to commit fraud or mis-appropriate or commit any act of any misfeasance. The allegations merely remain the figment of imagination of the petitioners. Merely levelling an allegation would not be sufficient to constitute fraud as has been observed in paras (a) to (d) extracted from Barium Chemicals case Ltd. (1966 (5) TMI 36 - SUPREME COURT OF INDIA). the investigation can be ordered to unearth the facts shrouded in a mystery and not the one patent from the record. Therefore, we are unable to find any iota of evidence in support of any allegation levelled by the petitioner. For example, the allegation is that potato seeds have been imported in India without the requisite sanction from the Government of India. There is no document placed on record showing at least the import of potato seeds or its use or sale. Likewise, there are vague allegations without any substation that assets of Simplot India were illegally sold and sale proceeds were misappropriated. There is not an iota of evidence as to the nature of assets whether land, movable assets or any other. There is no evidence when it was sold. A roving enquiry in law is prohibited by law laid down by Supreme Court Barium Chemicals Ltd. (supra). It is extremely difficult-nay impossible to consider such an allegation as credible information for triggering the investigation process. We, therefore, have remained unable to persuade ourselves to accept the prayer made by the petitioners. The issue concerning impugned meetings held on 08.10.2016, 24.10.2016 and 09.12.2016 at Seattle, Washington would also not be sufficient for us to pass an order concerning investigation. There is no denial by the respondents that the meetings were held and even explanation for holding that meeting have been tendered. The respondents have also placed on record the factum of associating the petitioner and another former Director, Mr. Kakkar for the aforesaid meetings. Such an allegation of illegality of meeting would not fall within the parameter of Section 213(b) of the Act and therefore, on that count also, we are not able to persuade ourselves to accept the prayer made by the petitioners.

Summary

Issues Involved:
1. Investigation under Section 213(b) of the Companies Act, 2013.
2. Legality of Board meetings held on 18.10.2016, 24.10.2016, and 09.12.2016.
3. Refund of US$ 2 million equity with interest.

Detailed Analysis:

1. Investigation under Section 213(b) of the Companies Act, 2013:
The petitioners sought an investigation into the alleged mismanagement of M/s. Himalya Simplot Pvt. Ltd. (Himalya Simplot). The tribunal emphasized that the purpose of an investigation under Section 213(b) is to uncover hidden or non-apparent facts. Investigation is warranted when there is prima facie evidence of fund siphoning or mysterious management practices. The tribunal referenced several judgments, including *Delhi Flour Mills Co. Ltd., In re.*, *Barium Chemicals Ltd. v. CLB*, and *Rohtas Industries Ltd. v. S.D. Agarwal*, to underline that the power to order an investigation is discretionary and must be based on honest opinion formed from existing circumstances. The tribunal concluded that there was no substantial evidence presented by the petitioners to suggest fraud, misfeasance, or other misconduct. Allegations of smuggling potato seeds and selling assets without proper resolutions lacked documentary proof. Hence, the petition for investigation was dismissed.

2. Legality of Board Meetings:
The petitioners challenged the legality of Board meetings held on 18.10.2016, 24.10.2016, and 09.12.2016, where Mr. Richard Charles Nelson was appointed as an additional Director. The respondents contended that the petitioners were informed about these meetings and had chosen not to attend. The tribunal noted that the meetings aimed to meet pre-arbitral requirements and were rescheduled for the convenience of the petitioners. The tribunal found no grounds under Section 213(b) to declare these meetings illegal, but allowed the petitioners the liberty to seek other remedies regarding these meetings.

3. Refund of US$ 2 million Equity with Interest:
The petitioners sought a refund of US$ 2 million equity with 18% interest per annum. The tribunal did not find sufficient evidence to support this claim. The tribunal highlighted that the business of Simplot India had not been conducted since March 2013 due to unresolved deadlocks between shareholders, and the process of winding up had been initiated. The tribunal dismissed the claim for refund as part of the broader dismissal of the petition.

Conclusion:
The petition was dismissed with costs quantified at ?50,000, as the tribunal found no credible evidence to support the allegations of fraud or mismanagement. The tribunal emphasized the need for substantial proof to trigger an investigation under Section 213(b) and found the petitioners' claims to be unsubstantiated.