1980 (1) TMI 171 - HC - Companies Law

Investigation of company s affairs in other cases, Restrictions on establishment of place of business in India

Summary

Issues Involved:
1. Appointment of Ahammed Yoosuf as managing director without Reserve Bank sanction.
2. Non-resident equity participation exceeding 40% without Reserve Bank permission.
3. Raid by Enforcement Directorate in 1976 and its consequences.
4. Alleged detriment to the company due to Kunhammed's interest in a rival firm.

Issue-wise Detailed Analysis:

1. Appointment of Ahammed Yoosuf as Managing Director:

The petitioner argued that the appointment of Ahammed Yoosuf as managing director in February 1973 was illegal due to the absence of Reserve Bank sanction, violating the Foreign Exchange Regulation Act. However, the court noted that at the time of appointment, the Foreign Exchange Regulation Act, 1973, was not in force, and the predecessor enactment of 1947 contained no such restrictions. The petitioner himself had proposed Ahammed Yoosuf's appointment at the 71st board meeting on February 14, 1973. Therefore, the court found no merit in this claim, as the appointment was lawful at that time.

2. Non-resident Equity Participation:

The petitioner contended that the non-resident equity participation exceeding 40% was illegal under section 29 of the Foreign Exchange Regulation Act, 1973. The court clarified that a violation of section 29(1) could only be established if no application for permission had been made to the Reserve Bank or if such an application had been rejected. The petitioner admitted that steps had been taken to obtain the necessary permission, and there was no evidence that the application had been rejected. The court found no basis for the petitioner's claim, as the matter was still pending with the Reserve Bank.

3. Raid by Enforcement Directorate in 1976:

The petitioner pointed to a raid by the Enforcement Directorate in July 1976, which allegedly revealed unaccounted income of Rs. 6.75 lakhs. This amount was later included in the company's balance sheet, and the company had to pay income tax on it. The petitioner claimed that this necessitated an investigation. However, the court noted that the petitioner himself was involved in the management during this period and was implicated in the raid. The court found it unwise to initiate a parallel investigation under section 237 of the Companies Act when the matter was already under adjudication by the Enforcement Directorate.

4. Alleged Detriment to the Company:

The petitioner alleged that Kunhammed's interest in a rival firm was detrimental to the company's business. The court found no evidence to support this claim. The company's import business continued as usual, and its export business had picked up only after 1973. The court noted that the petitioner was aware of Kunhammed's involvement in the rival firm when he was appointed as a director. The court concluded that the company's business had not suffered due to Kunhammed's interests.

Conclusion:

The court dismissed the company petition, finding no circumstances suggesting that the company's business was being conducted for fraudulent or unlawful purposes or in a manner oppressive to the minority. The petitioner was also found to be actively participating in the company's management during the period in question. The court left the parties to bear their own costs.