2011 (1) TMI 1222 - Board - Companies Law

Summary

Issues Involved:
1. Whether the petition discloses grounds for passing an order under section 250 or section 247(1A) of the Companies Act, 1956, for investigation into the affairs of respondent No. 1 company.
2. Whether an investigation under section 247(1A) read with section 250 of the Act should be ordered.
3. Whether the petition falls under section 237(b) of the Act and within the jurisdiction of the Western Region Bench at Mumbai of the Company Law Board.

Issue-Wise Detailed Analysis:

1. Grounds for Investigation under Section 250 or Section 247(1A):
The petitioners allege that respondent No. 2, in collusion with respondents Nos. 3 to 20, illegally and fraudulently siphoned off the assets of respondent No. 1 company and reduced the petitioners' shareholding from 50% to 0.5%. The petitioners argue that the fraudulent activities, including the sale of flats and wrongful appointments of directors, necessitate an investigation under section 237(a)(iii) of the Companies Act. The petitioners also claim that respondent No. 2's actions were aimed at hijacking the company and defrauding the petitioners.

2. Investigation under Section 247(1A) and Section 250:
The Company Law Board has jurisdiction under section 247(1A) to investigate the membership and other matters of a company to determine the true persons financially interested in the company's success or failure or those able to control or materially influence the company's policy. However, the allegations in the petition, primarily concerning fraud and mismanagement, fall under section 237(b) of the Act, which deals with fraudulent or unlawful conduct of the company's business, fraud by persons involved in the company's formation or management, and failure to provide necessary information to members. The petition does not disclose grounds for invoking section 247(1A) or section 250, as it lacks specific averments related to membership issues or changes in the board composition prejudicial to public interest.

3. Jurisdiction under Section 237(b):
The petition's allegations, including fraudulent sale of flats, wrongful share allotment, and suppression of statutory records, are covered under section 237(b) of the Act. This section addresses circumstances suggesting fraudulent conduct, fraud by company managers, and withholding information from members. The petition aligns with section 237(b)(i) to (iii) and falls within the jurisdiction of the Western Region Bench at Mumbai. The Principal Bench of the Company Law Board, New Delhi, does not have jurisdiction under section 247(1A) or section 250 for this petition.

Conclusion:
The petition C.P. No. 71 of 2008 does not disclose grounds for exercising jurisdiction by the Company Law Board, Principal Bench, New Delhi, under section 247(1A) or section 250 of the Act. It is squarely covered under section 237(b) and falls within the jurisdiction of the Western Region Bench at Mumbai. The petition shall be heard by the Western Region Bench at Mumbai, and the ex parte stay on the proceedings in C.P. No. 29 of 2008 is vacated.