9911796707
TMI Blog1994 (12) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... o convert the same into a public limited company and it was incorporated as a public limited company with effect from November 25, 1993. The authorised capital which was hitherto Rs. 10 lakhs was raised to Rs. 1 crore. Petitioner No. 2 and respondent No. 1, who were hitherto managing director and joint managing director respectively, were both appointed as managing directors in the annual general meeting held on February 6, 1993, for a period of five years. Even before that, Mr. N. Ch. Subba Raju, who was the director, had resigned and in his place, Dr. B. Achanti was appointed as NRI director on November 22, 1992. The same was approved by the annual general body meeting held on July 6, 1993. Respondents Nos. 2 and 3 are the father and the maternal grandfather, respectively, of the first respondent. Respondent No. 2 was projected as the alternate director to Dr. Mrs. Vijayalakshmi Achanti who is the wife of Dr. B. Achanti, NRI director on the board of directors of the company. The second respondent had participated in the board meetings and also had performed some functions. The petitioners dispute the position of the second respondent as alternate directors to Dr. Vijayalakshmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 from holding any board meetings, passing any resolutions, casting any votes, issuing any share capital or increasing the authorised share capital, operating the bank account of the petitioner-company or interfering in the day-to-day affairs of the company and from entering into the company from time to time including the general body meeting, In I.A. No. 594 of 1994, the said court issued injunction orders restraining petitioners Nos. 2 to 6 from paying any amounts in respect of cheques, instruments, whatsoever of any nature presented by or through or signed by any one of the above petitioners whether jointly or severally in respect of account No. 387. The said order was also passed on April 22, 1994. Against the order passed in I.A. No. 593 of 1994, petitioners Nos. 2 to 8 had preferred CMA No. 580 of 1994, before this court and this court by order dated April 28, 1994, allowed the same by converting it to a revision under article 227 of the Constitution of India when an objection was raised by the respondents that on the ground of pecuniary jurisdiction the said appeal was not maintainable in this court and is only maintainable in the court of the Chief Judge, City Civil Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ( d )to declare that the appointment or co-option of any director other than those elected in the annual general body meeting as null, void and inoperative. The cause for filing the said suit is stated from paragraphs 8 onwards in the plaint of the said suit. The said suit is still pending. Serious dispute is raised by the petitioners with regard to the status of the second respondent as an alternate director to Mrs. Vijayalakshmi Achanti. His participation and actions by virtue of the said status is assailed as being illegal and void. In fact, it is averred that Mrs. Vijayalakshmi Achanti was never appointed as NRI director and that there is no resolution to that effect and that there was no occasion to appoint the second respondent as alternate director to her. It is alleged by the petitioners that the first respondent with an evil design of capturing the financial control of the company, hatched a conspiracy along with his father, i.e. , the second respondent herein and his group by illegally appointing the second respondent as alternate director in violation of the provisions of company law and the articles of association and that in that process, he concocted the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly all the actions purported to have been done by him in respect of the affairs of the petitioner-company as null and void ; and (5)To declare that the meeting held on April 6, 1994, at the instance of petitioners Nos. 2 to 6 and the resolutions passed therein as valid and operative. Interim reliefs sought for : (1)Restraining respondents Nos. 1 and 2 by an order of temporary injunction from conducting the proposed annual general body meeting on June 14, 1994, and from conducting ordinary business and special business and passing resolutions mentioned in the said notice in pursuance of the notice dated May 19, 1994, to the members of the petitioner-company. (2)Restraining respondents Nos. 1 and 2 by an order of temporary injunction from holding any board meetings, passing any resolutions, casting any votes, issuing any share capital or increasing the authorised share capital, or to operate any bank accounts in the name of the company or its branches and to do any acts prejudicial to the interests of the petitioner-company. (3)Restraining respondent No. 2 by an order of temporary injunction from interfering in the day to day administration of the company or from entering i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as disqualified to act as the managing director of the petitioner-company. (2)To direct respondents Nos. 1 and 2 to keep all the business records, account books, bank accounts, cheque books and pass-books of the company in the head office of the company at 505-B, HUDA complex, Mythrivanam, Ameerpet, Hyderabad. (3)To direct respondents Nos. 1 and 2 to produce all the accounts of income and expenditure of the Calcutta branch office of the company from July, 1993, to-date. (4)To declare that the alleged allotment of 1,32,800 shares on September 20, 1993, and 90,700 shares on March 31, 1994, and also the issue of alleged share certificates in favour of the alleged shareholders by respondents Nos. 1 and 2 are invalid and inoperative in law. (5)To declare the notice dated September 1, 1994, issued to the board of directors of the company and the notice dated September 24, 1994, issued to the members of the company by respondents Nos. 2, 3, 4 and the proposed respondent No. 5 calling for the extraordinary general body meeting and also the holding of the extraordinary general body meeting on October 20, 1994, and the resolutions if any passed in the said extraordinary general body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors and whether it was an urgent expenditure are questions which may have to be considered by the company judge before whom the proceedings are pending. Any observations made by us on the merits of the matter may affect the proceedings before the learned company judge and at this stage, we think it appropriate to order, in the particular circumstances of the case, that the objections raised before us by learned counsel for the petitioners may be raised before the learned company judge at the appropriate time in accordance with law so that the same be considered by him. It was further urged by learned counsel for the appellants that the application for a direction to the second respondent to deposit the cheques in the account of the company in terms of the order passed by the learned company judge may be disposed of and a direction be issued to the respondents to comply with the order passed by the learned company judge in that regard. Since we are disposing of the main appeal itself, we are not obliged to decide the interlocutory application as it is still open to the applicant to raise grievance before the learned company judge in that regard too." The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os. 1 and 2 to make over and deliver all the cheques, drafts, bills and other negotiable instruments received from the customers of the company, bank pass books and other documents relating to the bank accounts of the company in the custody and possession of respondents Nos. 1 and 2 to petitioner No. 2, to direct respondents Nos. 1 and 2 to make over and deliver all the business records of the company, account books and any other documents of the company which are in the custody and possession of respondents Nos. 1 and 2 to petitioner Nos. 2. ( g )C.A. No. 246 of 1994 to stay the holding of the meeting convened by respondents Nos. 2 to 5 pursuant to the impugned notice dated September 1, 1994. The said meeting was scheduled on October 10, 1994, and by order dated October 19, 1994, this court had allowed the meeting to go on, but directed that if any resolution is passed, the same shall not be given effect to until further orders. The said order is subsisting as on today. ( h )C.A. No. 247 of 1994 directions against respondents Nos. 1 and 2 to deposit all the cheques, drafts and other negotiable instruments drawn in favour of the company and also to file the statement of said ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional Judge, City Civil Court, Hyderabad, referred to supra. The respondents raised a jurisdictional issue with regard to the maintainability of the company petition itself and filed C.A. No. 144 of 1994, to decide the same as a preliminary issue. The first respondent has also filed C.A. No. 217 of 1994, seeking a direction to permit him to incur an expenditure of Rs. 18,08,462.47 to run the day to day affairs of the company and to operate the said bank account of the company. Mr. T. Ramakrishna Rao, learned counsel for the petitioners, vehemently contends that on the dates specified, no meetings were held by the respondents and that all the said meetings and resolutions said to have been passed are fabricated and cooked-up and that there was no quorum to hold the said meetings and that the second respondent was not at all the alternate director and was further disqualified in view of the order of this court dated September 2, 1994, in CRP No. 2034 of 1994. He further submits that for holding a board meeting seven clear days notice is necessary and the same was not at all issued for holding any of the above meetings projected by the respondents. He contends that the two suits, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. Company Law Board [1969] 39 Comp Cas 856 (MP), Selvaraj ( V. ) v. Mylapore Hindu Permanent Fund Ltd. [1968] 38 Comp Cas 153 ; AIR 1968 Mad. 378, H.H. Manabendra Shah v. Official Liquidator, Indian Electrim Tools Corporation Ltd. [1977] 47 Comp Cas 356 (Delhi), Chandigarh Tourist Syndicate P. Ltd., In re [1978] 48 Comp Cas 267 (Punj.), Century Flour Mills Ltd. v. S. Suppiah [1975] 45 Comp Cas 444 (Mad.) [FB], Pravin Kantilal Vakil v. Rohini Ramesh Save [1985] 57 Comp Cas 31 (Bom.) and Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 (SC) in support of his contentions. Mr. A. Krishna Murthy, learned counsel for respondents Nos. 1 and 2, counters the argument of counsel for the petitioners and contends that even though initially an objection was raised with regard to the maintainability of the company petition, in view of the several allegations made against the respondents, the respondents now concede for a direction to the Central Government for investigation by an inspector into the affairs of the company as prayed in prayer ( a ) of the company petition and that all other reliefs are unsustainable and are beyond the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recting investigation under section 237( a )( ii ) of the Companies Act, and I have to deal only with the said power which is expressly conferred on the company court to order investigation which is one of the modes, the other modes being by a company voluntarily inviting such an investigation or the Central Government under clause ( b ) of section 237 of the Act directing such an investigation on formation of opinion that such an investigation is warranted. In Jiyajeerao Cotton Mills Ltd. v. Company Law Board [1969] 39 Comp Cas 856 (MP), a Division Bench of the Madhya Pradesh High Court was dealing with the power of the company court to interfere with the order of the Government ordering investigation under section 237( b )( ii ). The same is inapplicable to the case on hand. In V. Selvaraj v. Mylapore Hindu Permanent Fund Ltd. [1968] 38 Comp Cas 153 ; AIR 1968 Mad. 378, the court was dealing with the matters contemplated by sections 166, 186 and 256 of the Companies Act regarding the powers of the company court to give directions for appointment of an independent chairman for the annual general body meeting as the said meeting could not be convened because of the disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foreign exchange regulations which have got no bearing on this case. In Amirtharaj v. Ramiah Nadar [1968] 38 Comp. Cas. 337 (Mad.), Justice T. Ramaprasada Rao of the Madras High Court was dealing with the power relating to investigation contemplated under section 235 of the Companies Act, 1956, with the corresponding old provisions of the Companies Act, 1913, and concisely speaking, the statement of law made is that the company court dealing under section 237( a )( ii ) is empowered to direct the Central Government to order investigation and after passing such an order, the company court ceases to have jurisdiction to adjudicate on other aspects. A similar view was taken in R. Prakasam v. Sree Narayana Dharma Paripalana Yogam [1980] 50 Comp. Cas. 611 (Ker.). The said proposition of law was reiterated further in Rajendra Menon ( R.R. ) ( No. 2 ) v. Cochin Stock Exchange Ltd. [1990] 69 Comp Cas 256 (Ker.). A company is an artificial being existing only in the contemplation of law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. The Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lications seeking interim orders are only steps-in-aid for final adjudication. But, when the final adjudication itself is not a judgment, seeking interim prayers or prayers unrelated to section 237( a )( ii ) are wholly misconceived. Further, the investigation with regard to fact-finding includes within its scope contravention of legal provisions and that is yet to be done. Before the investigation is done and a fact-finding is recorded, it is premature for this court to express opinion one way or the other. Even after the investigation is conducted and the report is submitted to the Central Government, it is for the Central Government to move in the matter and take appropriate action, for, this court becomes functus officio once an order is made directing the Central Government to appoint officers for investigation into the affairs of the company. The purpose of investigation is not to investigate into the economic working of a company. The purpose is to see whether the allegations concerning mismanagement, misappropriation or other illegal acts are justified. The High Court exercising jurisdiction under section 237( a )( ii ) has no power to appoint an inspector to investigate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issues. For the reasons aforestated, except relief No. 1 for directing the Central Government to make an investigation in exercise of the powers under section 237( a )( ii ) of the Companies Act, the other prayers, be they in the kind of main prayers or interlocutory, are unsustainable. It is for the investigating agency to take such steps as contemplated in the relevant provisions of the Companies Act, for effective investigation and reporting. The civil suits and interlocutory applications therein and the CMAs arising out of the interlocutory applications shall be disposed of by the civil courts on their own basis and in accordance with law. The order dated October 19, 1994, directing not to give effect to the resolutions, if passed, on October 20, 1994, are vacated and if any resolutions are passed on October 20, 1994, they will take effect in accordance with law. In the circumstances, the Secretary, Company Affairs, Government of India, who has been impleaded as respondent No. 6 is directed to appoint competent persons as inspector/s to investigate into the affairs of the first petitioner-company touching upon the aspects mentioned above, within three months from the date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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