2024 (6) TMI 1042 - HC - Companies Law

Calling upon to furnish various details, documents and information - challenge to order passed under Section 206 (4) of the Companies Act 2013 - HELD THAT - The impugned order under Section 206 (4) of the Act should make out a prima facie case as to the information called for, and how the same relates to the business of a Company being carried on for fraudulent and unlawful purpose. In the impugned order, the said linkage is totally absent. In the impugned order, there is no finding even prima facie of the petitioner s business being conducted fraudulently or unlawful purpose or in defiance of the provisions of the Act, etc. On the contrary in the affidavit in reply it is stated in the impugned notice respondent no. 1 is not alleging or establishing any fraud against petitioner, but is issued for gathering information and it is an opportunity of being heard. In such a case complying with the preconditions under Section 206 (1) to (3) is mandatory. Therefore, even on this count, initiation of Section 206 (4) of the Act being jurisdictional condition, is not satisfied, and therefore, the impugned order is wholly without jurisdiction. Therefore, without satisfying these preconditions an order of the nature issued and impugned in this petition cannot be sustained. Petition disposed off.

Summary

Issues:
Challenge to the order passed under Section 206(4) of the Companies Act 2013.

Analysis:
1. The petition challenged an order dated 4th October 2018 under Section 206(4) of the Act, requiring the petitioner to provide details, documents, and information. The petitioner argued that the order lacked the necessary determination and basis for issuing it.

2. The respondent admitted in the affidavit that preconditions under Section 206(1) and (3) were not met but justified issuing the order directly under Section 206(4) for gathering information, without alleging fraud against the petitioner.

3. Section 206 of the Act empowers the Registrar to call for information, inspect books, and conduct inquiries. The petitioner contended that the impugned order did not indicate any scrutiny of documents or the need for further information as required by the Act.

4. The petitioner argued that the impugned order failed to specify any complaints or reasons for initiating proceedings, and the basis for the order against the petitioner was misconceived, referring to an incorrect entity.

5. The petitioner further contended that the order was based on a newspaper report involving a former employee, lacking proper application of mind or enquiry by the respondent, rendering the order legally flawed.

6. The Court held that the impugned order did not establish a prima facie case linking the information sought to fraudulent or unlawful business practices. Compliance with preconditions under Section 206(1) to (3) was deemed mandatory, making the order without jurisdiction.

7. Consequently, the Court allowed the petition, issuing a Writ of Certiorari to quash the impugned order under Article 226 of the Constitution of India, as it failed to meet the necessary legal requirements.

8. The judgment emphasized the importance of adhering to statutory procedures and establishing a clear linkage between the information sought and the alleged fraudulent or unlawful activities before issuing orders under Section 206(4) of the Act.