2020 (2) TMI 1209 - AT - Companies Law

Oppression and Mismanagement - transfer of shares - prosecuting or recommending for prosecution white collar crimes/frauds - investigation under Section 235 to 237 of the Companies Act carried out - HELD THAT - It is not in dispute that the Hon ble High Court of Andhra Pradesh vide its order dated 07.07.2011(Page 155 of the appeal) directed the Central Government to investigate into the affairs of the company. The investigation was done and the report stated that right from the incorporation the affairs of the company were not running as enshrined in the provisions of the Companies Act but was running like a fiefdom of the promoter directors. No record is maintained, including the books of accounts, to comply with the regulatory and legal requirements and most the of transactions were being carried out in cash and the Inspectors were helpless in verifying such transactions in absence of any cash book, accounting legers etc. - as per Section 223 Companies Act, 2013 the report submitted by any inspector appointed by the Central Government, shall be admissible in any legal proceeding as evidence in relation to any matter contained in the report. Admittedly since inception, Respondent No.1 has been the Managing Director of the Company and no return has been filed till 2001. No records were maintained for AGM, Board Meeting, financial statement etc and lot of transactions has been taking place in cash only. Therefore, he cannot escape his responsibility for not running the company as per requirements of law - The annual returns filed by the appellant subsequently after they had been in control has been rejected in the impugned order. The consequence is that there is no annual return/financial statements since inception. This compliance needs to be ensured within three months from the date of this order. Inspite of present orders, ROC will be free to take any steps punitive or otherwise under the Companies Act, 2013 for non-filing of statutory returns/documents against the company and directors. Appeal dismissed - decided against appellant.

Issues Involved:
1. Oppression and mismanagement under Sections 397, 398, 111A read with 402 and 403 of the Companies Act, 1956.
2. Filing of balance sheets and annual returns without proper authorization.
3. Sale of company property without approval.
4. Misappropriation of sale proceeds.
5. Non-maintenance of statutory records and non-compliance with regulatory requirements.
6. Delay and laches in filing the company petition.
7. Estoppel and res judicata.
8. Misjoinder and non-joinder of parties.
9. Reliance on the SFIO report.

Issue-wise Detailed Analysis:

1. Oppression and Mismanagement:
The original petitioners alleged oppression and grave mismanagement by Respondent No.3 and others, including falsification of accounts and unauthorized allotment of shares. The company failed to launch its business activities, leading to various legal battles and financial liabilities. Respondent No.1, as the promoter-director, invested significantly but faced non-cooperation from other directors, leading to civil and criminal cases against him.

2. Filing of Balance Sheets and Annual Returns:
The appellants were accused of filing balance sheets and annual returns from 1994-95 to 1999-2000 without the knowledge of the original 1st petitioner, who was also a promoter director. The appellants allegedly filed Form 32 fraudulently for appointing new directors and removing the original 1st petitioner without proper approval.

3. Sale of Company Property:
The appellants sold company property without members' approval and misappropriated the sale proceeds, despite the property being attached by the City Civil Court, Hyderabad. This sale was conducted without disclosing the attachment to the buyers.

4. Misappropriation of Sale Proceeds:
The appellants were found to have misappropriated the entire sale proceeds from the sale of 4.30 acres of land, leading to financial losses for the company and its creditors.

5. Non-maintenance of Statutory Records:
The company did not maintain statutory records or comply with regulatory requirements from its inception. No board meetings or AGMs were held, and most transactions were conducted in cash, making it difficult to verify them in the absence of proper records.

6. Delay and Laches:
The appellants argued that the company petition was barred by delay and laches, as the cause of action arose in 2003 and 2006, but the petition was filed in 2013. The tribunal rejected this argument, noting the continuous nature of the alleged mismanagement.

7. Estoppel and Res Judicata:
The appellants claimed that the petition was barred by estoppel and res judicata, as similar issues were previously contested in a High Court petition dismissed for default. The tribunal found no merit in this argument, as the dismissal did not address the substantive issues.

8. Misjoinder and Non-joinder of Parties:
The appellants contended that the petition was barred for non-joinder and misjoinder of parties. The tribunal found that the necessary parties were included, and the petition was maintainable.

9. Reliance on the SFIO Report:
The tribunal relied on the SFIO report, which highlighted severe lapses in the company's management, including falsification of accounts and unauthorized share allotments. The report's findings were admissible under Section 223 of the Companies Act, 2013, and supported the tribunal's decision.

Conclusion:
The tribunal upheld the findings of oppression and mismanagement, dismissed the appeal, and imposed costs on the respondents for non-compliance with statutory requirements. The tribunal directed the company to ensure compliance with statutory filings within three months and allowed the ROC to take necessary punitive actions. The appeal was dismissed with no order as to costs.

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