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TMI Blog2002 (3) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... nt persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if ( i )the company, by special resolution; or ( ii )the Court, by order, declares that the affairs of the company ought to the investigated by an inspector appointed by the Central Government; and ( b )may do so if, in the opinion of the Company Law Board, there are circumstances suggesting ( i )that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent on unlawful purpose; ( ii )that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or ( iii )that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desirable in the interests of the company itself. The judicial conscience must be satisfied that there has been misadministration in the affairs of the company warranting an investigation. 3. It was argued by the counsel for the appellants that in Safia Usman v. Union of India [2000] CLC 110 a single Judge of this Court held that without exhausting the remedy under section 237( b ), the Court cannot exercise power under section 237( a )( ii ). A reading of this decision shows that proper relief was not asked in the petition as required under section 237( a )( ii ) and company itself was not impleaded as a party. Existence of alternate remedy also can be taken as a condition for refusing to exercise the discretionary jurisdiction in appropriate cases, but it cannot operate as an absolute bar. Nowhere in section 237 it is stated that court cannot be approached under section 237( a )( ii ) before approaching the CLB under section 237( b ). It is true that after amendment of section 237( b ). (Companies Amendment Act, 1988 with effect from 31-5-1991), the CLB has power to direct the Central Government to appoint inspectors to investigate into the affairs of the company if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumscribe or fetter the jurisdiction of this court by reading into the section something which is not there." (p. 68) 4. Another decision pointed out by the learned counsel for the appellants in the Apex Court decision in Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy [1997] 90 Comp. Cas. 383 1 . There a writ petition was filed seeking direction for investigation by the Central Bureau of Investigation. The Apex Court held that in view of the specific remedies under sections 43A, 234, 235, 237, 397 and 398 of the Act, a writ petition will not lie. It is not a matter of public interest and remedy available under the Act shall be availed of. Here the petitioner has approached under section 237 and it cannot be held that petition is not maintainable. Scope and power of company court under section 237( a )( ii ) was not discussed in that decision. Ofcourse under section 237( a )( ii ), Court s would insist upon solid factual base and mere allegations are insufficient. It was held by this court in Mrs. U.A. Sumathy v. Dig Vijay Chit Fund (P.) Ltd. [1983] 53 Comp. Cas. 493 , that: "... No doubt, clause ( a )( ii ) of section 237 does not lay down what ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt s discretion under section 237 is, therefore, to be exercised only when it is satisfied that the minority has made out at least a prina facie case that the rule in Foss v. Harbottle [1843] 2 Hare 461, requires relaxation in the interest of the company..." (p. 489) We agree with the above observation that before passing an order under section 237( a )( ii ) the Court should be satisfied that there are sufficient materials to show that affairs of the company is in such a way that an investigation is necessary. We also note that existence of circumstances described under section 237( b ) may sway the Court to pass an order under section 237( a )( ii ) also. But we are of the opinion that it is not always mandatory that the Court can pass a declaration only if the conditions under section 237( b ) exist. No such restrictions are placed by the Legislature even though the Court will exercise its judicial discretion only on sufficient materials and only after the court is convinced that situation warrants an investigation in the interest of the company as a whole. We also note that for a minority shareholder or a person legally interested in the affairs of the company, may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the company as mentioned in the notice attached to the report and accounts of 1991. The managing director had been fraudulently mismanaging the company in utter disregard of the interest of the shareholders and was acting in an autocratic and oppressive manner. He began to create false and fabricated documents with nefarious motive to oust the petitioner and other members of the board of directors who opposed the misutilisation and misappropriation of public funds. He created documents and minutes purporting to remove the petitioner and others who opposed the mismanagement and oppression. Though on the public, issue shares were oversubscribed to the tune of 14 times and huge amounts were collected from the public, shares were neither allotted properly nor amounts refunded to the applicants whose application for shares were not accepted. It is understood that 1200 complaints are filed before the jurisdictional court in Bombay against the managing director by the subscribers to whom amounts were not refunded. It was also stated that for non-convening of the meeting and not filing balance sheet for the period 1992 to 1996 many proceedings are pending. Share value of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be proved. 8. Based on the decision in Uunet India Ltd. v. I.C. Rao [1998] 93 Comp. Cas. 41 (AP). It was argued that once the company court passes a discretionary declaration under section 237( a )( ii ) for appointment of an inspector for investigation, it cannot set aside as it is not a judicial or a quasi-judicial order and is not appealable. The court is not appointing inspectors by itself. Order does not deter the rights of the parties. We are of the view that the order is also appealable under section 483 of the Act. But when a discretionary order under section 237( a )( ii ) is passed by the proper Court with jurisdiction, unless there is compelling ground appellate court will not interfere. In other words, if there is no prima facie material at all before the Court and the Court ordered investigation under section 237( a )( ii ) as a fishing expedition, appellate court will interfere. But it is settled law that if order passed after considering the materials available, normally appellate court will not interfere with the discretionary order passed by a competent court with jurisdiction. Therefore, we may come to the facts of the case. 9. On behalf of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 210000 8. Smt. T.P. Kunhamina 210000 9. Mr. Joseph Pudussery 48000 2400000 [Emphasis supplied]" 10. With regard to the allegation that due to public issue of shares, Rs. 24.74 crores was over subscribed and it was not refunded, it is stated as follows : ". . . In terms of the public issue every application for shares was to be for a minimum of 100 shares of its multiples and a sum of Rs. 5 per share was to be paid towards application money. The issue was oversubscribed and the total shares application money received by the first-respondent-company was Rs. 27.90 crores as against the share allotments made for Rs. 3.16 crores. Hence a sum of Rs. 24.74 crores had to be refunded to the unsuccessful applicants. It is revealed from the Director s Report formed part of the balance sheet as at 31-3-1996 of the first-respondent-company that only Rs. 1 crore had been paid for the estate to Bank of Tokyo out of the capital of Rs. 3.60 crores raised through the public issue and as a result, the possession of the Estate was restored to the Receiver because of the non-payment of the balance money." [Emphasis supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefits. It was stated in the prospectus that the refund will be made to the unsuccessful applicants by cheque or demand draft drawn on any of bankers to the issue. The first respondent had opened the refund account with ANZ Grindlays Bank, Mumbai - 1, which was not include as bankers to the issue as per the prospectus. ANZ Grindlays Bank has filed a suit , O.S. No. 431 of 1993 against the first-respondent before the Sub-Court, Ernakulam; for recovery of a sum of Rs. 1,05,29,947.70 . It was found from the statement of the refund that the first-respondent had transferred a sum of Rs. 2,02,93,904 from the refund account on 8-5-1992 for making payments to the following parties :- ( i ) Issued D.D. for Rs. 1 crore in favour of Bank of Tokyo. ( ii )Transferred Rs. 75,00,000 to the account of Fairgrowth Financial Services Ltd., Bangalore. ( iii )Rs. 27,92,294 was issued to the first-respondent by way of pay order and was encashed by it." [Emphasis supplied] Further it was stated as follows : "...the prospectus issued by the first respondent on 18-12-1991 shows that the object of the issue was to provide a part of the funds required for acquiring the tea estate along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e averments of the third respondent. The Tribunal will be revealed the investigation. But there are prima facie materials to order a declaration for investigation. 14. On these prima facie facts, the learned Company Judge held as follows: "All these facts and materials on record clearly establish that there are sufficient materials available on record in support of the various allegations made by the petitioner in the petition regarding the mismanagement of the first respondent, diversion of funds, failure to comply with the statutory obligations etc. warranting a deeper probe into the affairs of company . . ." On the basis of my finding that there are sufficient materials on record warranting an order under section 237( a )( ii ) of the Companies Act to direct the fourth respondent to investigate into the affairs of the company as provided under section 237( a ) of the Companies Act. Hence this petition is allowed. The fourth respondent is directed to appoint one or more competent inspectors to investigate the affairs of the first-respondent-company under section 237( a ) of the Companies Act and to report within a specified time limit. . ." Thus, the company court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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