9911796707
TMI Blog1980 (7) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The chief agent and his relatives hold 72 shares and the directors control another 122. In April, 1972, the company fraudulently sold 64 shares, belonging to seven members, who were not supporting the directors; and these shares were purchased by the relatives of the directors and the chief agent. The group in management has been misappropriating the company's funds, destroying valuable records to cover up their misdeeds, causing loss to the company by declining to proceed against debtors, and writing off bad debts after privately collecting amounts from the concerned debtors. Some particulars relating to the alleged misappropriation, destruction of records, etc ., are furnished, and there is also a general allegation that the company has been incurring losses as a result of all the above. The company has denied all these allegations in its counter-affidavit. The 2nd petitioner has been examined as P.W. 1 and Exs. A-1 to A-6 have been marked on the side of the petitioners. The company has examined its present managing director as R.W. 1, and marked Exs. B-1 to B-7. Sections 235 to 246 of the Companies Act, 1956, deal with the investigation of the affairs of a company. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied to the Central Government for an investigation, has failed despite sufficient grounds shown for it, or, when the court finds that a proceeding before it, under either section 397 or section 398 of the Act, cannot satisfactorily terminate without such an investigation". But it appears from the decision of the Delhi High Court in Delhi Flour Mills Co. Ltd., In re [1975] 45 Comp. Cas. 33 , that a prior application to the Central Govt. under section 236, or the pendency of proceedings under sections 397 and 398, are not conditions precedent for exercising the court's power under section 237( a )( ii ). The Delhi case had arisen from an application filed by a single shareholder; and it is also not Contended before me that the numerical strength of the members, who move the court under section 237, should satisfy the minimum prescribed by section 235. The present proceedings are only for the purpose of deciding whether the affairs of the company should be looked into by the inspectors. And, according to counsel for the petitioners, it is not necessary for his clients to prove their allegations before this court; they could prove them before the inspectors. NO doubt, cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs of a company is a matter for the majority, and a dissatisfied minority cannot seek outside interference. The Companies Act provides for the protection of minorities in three ways: ( i ) by giving them a right to complain against oppression, ( ii ) by permitting them to act on behalf of the company when it is wound up, as in the case of misfeasance proceedings, and ( iii ) by enabling them to obtain remedies indirectly through investigation. The court's discretion under section 237 is, therefore, to be exercised only when it is satisfied that the minority has made out at least a prima facie case that the rule in Foss v. Harbottle [1843] 2 Hare 461, requires relaxation in the interests of the company. The Calcutta High Court has held in In re Patrakola Tea Co. Ltd., AIR 1967 Cal 406, that before the company court orders an investigation under section 237( a )( ii ), the petitioner should make out a strong case in relation to one or other of the matters referred to in clause ( b ). In other words, the circumstances enumerated in clause ( b ) are material for the exercise of the court's discretion also. The discretion is certainly a judicial one and is to be exercised on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter was settled with the concurrence of P.W. 1 and the amount (less Rs. 2 for expenses) was credited in his suspense account as per Ex. B-3, pending filing of a compromise petition before the court. Exhibit A-2 is a certified copy of the compromise petition filed on November 6, 1971, and Ex. A-1 is a compromise decree. The petitioners' case that Sri Namboodiripad had received payment and issued a receipt and that the suit was compromised when this was brought to light, does not stand scrutiny in the light of the admitted circumstance that P.W. 1 himself was aware that the receipt was a false one and that the compromise was effected on the footing that it was not genuine. Misappropriation is a serious matter, and the evidence available is insufficient to establish even a prima facie case. The allegations relating to destruction of records and the fraudulent transfer of the 64 shares were not pursued at the time of hearing. P.W. 1 did not in his evidence even make mention about the destruction of any records; and a suggestion thrown at R.W. 1 during his cross-examination about "removal" of records was promptly denied. The same is the position regarding the 64 shares said to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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