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TMI Blog2013 (6) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... y other company. (c) To direct the Registrar of Companies ('RoC'), Mumbai not to take on record any of the documents pertaining to change in shareholding pattern of the respondent-companies. (d) To direct the respondent No. 1-company to maintain the status quo with respect to the shareholding of respondent No. 1-company as per the annual return filed on 22nd October, 2010. Case of the petitioner In brief, the facts of the case as set out in the petition are as follows: 1.1 The petitioner No. 2 is a British citizen of Indian origin residing in UK and he is the owner and manager of petitioner No. 1. 1.2 The R2 approached the petitioner No. 2 through one Mr. Sreenath Dwarkanath who was working with the petitioner No. 1 along with his friend Mr. K.V.B. Vishwanathan and represented an investment opportunity in one of his group company, namely, Parshwa Agrico (P.) Ltd. which was engaged in wheat trade business. They represented that if the petitioner No. 2 make investment in the said company, he would get 30 percent to 40 percent profits per year on his investment. Accordingly, the petitioner No. 1 remitted US $ 9,99,950 to Parshwa Agrico (P.) Ltd. from its bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay premium of per equity share and the R2 in fact allotted the shares of R1-company to petitioner No. 1 at a premium of ₹ 105 per equity share. 1.6 Immediately after coming to know the aforesaid facts the petitioner No. 2 requested R2 to hand over the physical possession of share certificates. Despite assurances, R2 did not deliver the said share certificates. The petitioners once again met R2 and enquired about the status of allotment of shares against the entire investments made by him and also requested the R2 amongst others to hand over the share certificates. R2 assured the petitioners that Once the annual report of R1-company is filed, he would hand over the share certificates allotted to the petitioner No. 1 and shall also issue additional share of R1-company against the balance amount for which shares were yet to be issued. However, the petitioners never received physical possession of shares in spite of the repeated requests and demands of the petitioners. 1.7 Thereafter, in the month of February 2011 the petitioner sought the inspection of R1-company on the portal of the Ministry of Corporate Affairs and were shocked to learn from the annual return filed on 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JPGPL account No. 3095 with National Co-operative Bank, (2) Aarya Powertech (P.) Ltd., account No. 3094 with same National Co-operative Bank, and (3) Aamrupa Engineering Mining (P.) Ltd., account No. 3093 with same National Co-operative Bank. It is alleged that the respondents have, thus, committed acts of fraud, cheating, misfeasance and the funds which were invested by the petitioners have been utilised for personal gains of the chairman and Board of directors of respondent-companies and business of the company has been conducted with intent to defraud the petitioner No. 2, creditors, members or any other person or otherwise to cause gross loss and injury to the petitioner No. 2 and others. It is further alleged that the R2 amongst the others have incorporated various companies with similar names and business activities so as to defraud the petitioners and the statutory bodies like Income-tax Department, etc. The Mehta group of companies consists of around 17 companies and R2 was director at some point of time or the other in about 36 companies. 2. The petitioners have also pleaded various violations of the provisions of the Act committed by the R1-company such as non-filin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since the R2 was also dealing in the same kind of business and he was looking for an opportunity to expand its business, it was, therefore, decided that Gulf Agro Food Industries India Ltd. would process wheat for the R2's company, namely, Parshwa Agrico (P.) Ltd. After some negotiations a memorandum of understanding ('MoU') dated 8th May, 2006 between the two companies was executed. According to the said MoU, Parshwa agreed to supply the raw material to Agro Food Industries India Ltd. for processing and also extended a sum of ₹ 4 crore as financial assistance to Gulf Agro Food Industries India Ltd. Further, on 24th May, 2006, another MoU came to be executed between his company on one hand and Mr. K.V. Vishwanathan, Mr. Faisal Aftab, Mrs. Chhaya Sreenath (wife of Sreenath Dwarkanath) and Mrs. Rehana Hanif Manjra (Wife of petitioner No. 2) on the other side by which it was agreed that they would invest ₹ 4.5 crore in Parshwa Agrico (P.) Ltd. to meet its expenses of supplying wheat to Agro Food Industries India Ltd. under the earlier MoU dated 8th May, 2006. 5.4 It is alleged that Mr. Faisal Aftab backed out from the MoU dated 24th May, 2006. Therefore, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s next averred that to fulfil its obligation under clause 6(c) of MoU dated 24th February, 2007, the petitioner No. 2 remitted an amount of US $ 12,00,000 through petitioner No. 1 to the account of P.V. Page Co. on 19th March, 2007 towards expenses of incorporation of new company and for partial contribution towards its share in equity in the proposed company. However, the said amount could not be credited to the account of P.V. Page Co. due to some technical issues. It is stated that since the delay occurred in the incorporation of new company in terms of MoU dated 24th February, 2007, the petitioner No. 2 through Mr. K.V. Vishwanathan requested through R2 to adjust the remittance made by him as equity investment in the R1-company. The R2 agreed to do so but asked the petitioner No. 2 to pay premium of ₹ 105 per share to which the petitioner No. 2 agreed. Accordingly, the amounts remitted by petitioner No. 1 on 19th March, 2007, 5th August, 2007, 29th October, 2007, 13th November, 2007 were credited in the account of R1-company treating as share application money. 5.8 It is the case of R1 and R2 on 12th March, 2008 that the petitioner No. 1 through Mr. K.V. Vishwanath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucture for the upcoming projects by giving coal linkages, etc. When power sector was in the boom in 2010, GEVPL which is a subsidiary of Gayatri Projects Ltd. attracted towards the coal linkage obtained by the promoters of JPGPL from Ministry of Coal and when approached by Mr. Manish Mehta (R2) GEVPL had shown interest to invest in the upcoming power project and entered into agreement on 31st May, 2010 to develop a 500 MW coal based thermal power project at Yavatmal District, Maharashtra. It is further stated that GEVPL is a subsidiary of Gayatri Projects Ltd. ('GPL') through which the investment in JPGPL [Jinbhuvish Power Generations (P.) Ltd.] was done in the year 2010 pursuant to the agreement entered into JPGPL, its Promoters and GEVPL to jointly develop 500MW coal based thermal power project at Yavatmal District, Maharashtra. It is if further stated that the representations given by the JPGPL and promotes from time-to-time were specifically made as part of the agreement. Further the investment in JPGPL was done by strictly complying with the provisions of law. GEVPL has acted within its powers given in the memorandum of association of the company. It is further stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No. 1. It is submitted that the entire petition is based on allegations in relation to impugned shares of R1-company allotted to petitioner No. 1 and its alleged transfer. According to the learned counsel, barring the said instance, all other allegations are bald and baseless. It is submitted that from the reading of pleadings of the petition, it may be noted that all the amounts invested by the petitioners from time-to-time were allegedly received by third parties, namely, Mr. K.V. Vishwanathan, Mr. Sreenath Dwarkanath, etc., towards the alleged allotment of shares in R1-company. Moreover, the petitioner has not filed even a single document to support their allegations. It is submitted that the alleged MoUs entered into between the petitioners and R1 and R2 have been denied by the petitioners in their rejoinder and further affidavits. It is, therefore, contented that mere allegations are not sufficient to invoke the discretionary powers of this Board for the investigation under section 237(b). The learned counsel has relied upon the following decisions in support of his contentions: (i) Kumaranunni v. Mathrubhumi Printing Publishing Co. Ltd. [1983] 54 Comp Cas 370 (Ker.); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irs of a company, such investigation will not be lightly undertaken, since an investigation may seriously damage a company and should not be ordered without proper material gathered. 14. It is further argued by the learned counsel for the respondents that from the reading of the petition it may be seen that it contains various allegations involving the third parties who are not impleaded in the present petition. According to the learned counsel in the absence of such parties, namely, Parshwa Agro, Mr. Vishwanathan, Mr. Sreenath Dwarkanath, P.V. Page Co., etc., the petition cannot be decided and, therefore, the petition is liable to be dismissed as it does not disclose proper cause of action against the respondents. 15. In reply, it has been submitted by the learned counsel for the petitioners, that the investment of the amount disclosed by the petitioners has not been denied by the respondents. According to him admittedly, no share certificates pertaining to R1 have been issued. It is argued by the learned counsel for the petitioner, that they never agreed to pay ₹ 105 per share as premium. According to the learned counsel for the petitioners upon the representation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t they had nothing to do with the said shares. The said statement was accepted as an undertaking to the court as recorded in its order dated 31st October, 2012. Furthermore, the said undertaking as recorded in the order of the High Court is final and binding on the petitioners. Thus, the petitioners as per their own admission do not have any right or title or interest in the said equity shares which are now the subject-matter of the petition and, therefore, the petitioners have no locus standi to file this petition. It is, therefore, contended, that the petition is liable to be dismissed since the allegations contained in the petition are in relation to these equity shares and if once the petitioners themselves denied their title to the impugned shares, then nothing survives in the petition to be decided. 19. In support the learned counsel for the respondents has relied upon decision V.V. Park v. F.M.C. Steel Ltd. [1980] 50 Comp Cas 127 (Del.) and submitted that the petition is liable to be dismissed and the petitioners have no locus standi to apply to the court for an order under section 237(b) of the Act. 20. Replying to the above submissions, the learned counsel appearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the petitioners have locus to file the petition. 23. Next point raised by the learned counsel for the respondents that since the petitioners have approached this forum with unclean hands and have suppressed the material and vital facts and, hence, they have disentitled themselves to any equitable reliefs. The respondents have given the following illustrations to show that the petitioners have suppressed the following information from the hon'ble Board: (a) Petitioner No. 2 has been declared insolvent by a competent court in the UK on 10th May, 2011. While this fact has been brought to record of this hon'ble Board, the same has not been refuted and is, therefore, deemed to have been accepted by the petitioners. (b) Petitioner No. 2 was also convicted by a court in Dubai and he was sentenced for 3 years of imprisonment. However, since petitioner No. 2 was absconding, a red corner notice was issued against petitioner No. 2 by the Interpol, Abu Dhabi and thereby requesting Interpol, New Delhi (by way of a letter dated 8th July, 2012). (c) Pursuant to an extensive search carried out by various police authorities (across the world), petitioner No. 2 was finally a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. He adds that the petitioners are in no way concerned with Gulf Agro Foods (I) Ltd. It is, therefore, submitted that the allegations made by the respondents against the petitioner No. 2 do not have bearing on the merits of the case and on this ground the petition cannot be dismissed. 26. I have considered the submissions advanced by both the parties. I am of the opinion that the criminal proceedings pending against either of the parties do not have relevancy in the petition filed under section 237(b) of the Act. I agree with the view expressed by the learned counsel for the petitioner that in a petition under section 237(b) the CLB has to take decision in the facts and circumstances of the given case. For the reasons stated above, I reject the contention of the learned counsel for the respondents that the petition is liable to be dismissed for the reason that the petitioner No. 2 has not disclosed material and vital facts in the petition relating to his criminal antecedent and the cases pending against him. 27. The respondents have also taken objection in relation to mis-joinder of parties. According to the respondents, Parshwa Agro, Mr. K.V. Vishwanathan, Mr. Sreenath Dw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy petition pending in UK and the other is the civil suit filed by Mr. Iqbal Vali Bux for specific performance of an agreement in respect of the impugned shares in India. Be that as it may, while adjudicating this petition I am not impressed by the said factors and independent of all the civil and criminal litigations against both the parties. I propose to proceed to examine the facts and circumstances of this case and decide as to whether is this a fit case for making an order of investigation into the affairs of R1-company under section 237(b) of the Act. 31. Before dealing with this issue I would like to reproduce the provision contained in section 237(b) of the Act here as under: 237. Without prejudice to its powers under section 235, the Central Government.-- .... (b) may do so if, [in its opinion or in the opinion of the Tribunal there are circumstances suggesting: (i) that the business of the company is being conducted with intend 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 fraudulent or unlawful purpose. (ii) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aarya Powertech (P.) Ltd. (now Jinbhuvish (P.) Ltd.) and transfer of shares between Aarya Infratech to Aarya Powertech (P.) Ltd. (now Jinbhuvish (P.) Ltd.) which look place on 10th March, 2010. The company has rectified this also in the 3rd revised annual return dated 10th December, 2011 to 3rd June, 2010 only. 34. Furthermore, the explanation offered by the answering respondents that the filing of both the revised annual returns were a mistake in by the company secretary in view of the fact that amended article of association read with shareholders agreement dated 30th May, 2010 executed by and between GEVPL and R1, R2 and R8 clearly shows that petitioner No. 1 was not a shareholder on the date of signing of the said agreement. The distinctive number of shares which alleged to be standing in the name of the petitioner No. 1 is actually standing in the name of Aarya Powertech (P.) Ltd. (now known as Jinbhuvish Powertech (P.) Ltd.), i.e., R8. Also the said shareholders agreement clearly shows that the shareholding pattern at the time of execution of shareholders agreement, as per Annexure 1 of the said agreement, the shareholding pattern upon acquisition of the first tranche pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext requirement is that there are circumstances suggesting, etc. These words indicate that before the Central Government forms its opinion it must have before it circumstances suggesting certain inferences. These inferences are of many kinds and it will be useful to make a mention of them here in a tabular form: (a) that the business is being conducted with intent to defraud - (i) creditors of the company, or (ii) members, or (iii) any other person; (b) that the business is being conducted - (i) for a fraudulent purpose, or (ii) for an unlawful purpose; (c) that persons who formed the company or manage its affairs have been guilty of - (i) fraud, or (ii) misfeasance or other misconduct, towards the company or towards any of its members. (d) that information has been withheld from the members about its affairs which might reasonably be expected including calculation of commission payable to - (i) managing or other director, (ii) managing agent, (iii) the secretaries and treasurers, (iv) the managers. 28. These grounds limit the jurisdiction of the Central Government. No jurisdiction, outside the section which empowers the initiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be valid. In other words, the enumeration of the inferences which may be drawn from the circumstances, postulates the absence of a general discretion to go on a fishing expedition to find evidence. No doubt the formation of opinion is subjective but the existence of the sine qua non for action must be demonstrable. If the action is questioned on the ground that no circumstances leading to an inference of the kind contemplated by the section exists, the action might be exposed to interference unless the existence of the circumstances is made out. The conclusions must relate to intend to defraud, a fraudulent or unlawful purpose, fraud or misconduct or the withholding of information of a particular kind. In the present case, there is no hint even in this affidavit that the circumstances were such as to suggest fraud, intent to defraud or misconduct, this is to say circumstances under which investigation can be ordered. A court can act only on the materials placed before it; and those materials should at least be such as to satisfy the court that a deeper probe into the company's affairs is desirable in the interests of the company itself. The materials should be such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolvency proceedings in the UK. Despite having the knowledge of the fact, the answering respondents to protect the petitioner No. 2 from the process of law allowed him to invest the amount in India as admitted them in their own reply affidavit filed in para No. 30. The relevant extract thereof is being reproduced here as under: Sometime in December 2009, Mr. K.A. Vishwanathan approached R2 and represented to him that there were insolvency proceedings filed in the United Kingdom against the petitioner No. 2 and safeguard investment in the R1-company, it would be appropriate if the shares held by him in respondent No. 1 through the petitioner No. 1 be transferred in favour of someone trustworthy to avoid attachment and these shares could be re-transferred in favour of the petitioner No. 1 after the said insolvency proceedings were over. Believing the said representation to be true and only with an intention of helping the petitioner No. 2 to protect his investment, the Board of directors of R1-company passed a resolution dated 1st February, 2010 to seek legal opinion on the issue of transfer of shares held by the petitioner No. 2 to Mr. K.V. Vishwanathan and from him to R2 and fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It appears that there were marry such transaction amount three companies, namely, (1) JPGPL, Account No. 3095 with National Co-operative Bank (2) Aarya Powertech (P.) Ltd., account No. 3094 with same National Co-operative Bank, and (3) Aamrupa Engineering Mining (P.) Ltd. Account No. 3093 with same National Co-operative Bank. The respondents have failed to submit any cogent explanation in this regard. 41.4 In the disclosure made relating to shareholding pattern of the R1-company, the petitioner's shareholding has not been reflected leading to conclusion that the intention of the respondents were not bona fide throughout. Further, acting upon an application signed by Mr. K.V. Vishwanathan and Mr. Sreenath Dwarkanath for issuance of the share certificate under their signatures, on the basis of which share certificate has been issued in the year 2011 is also another suspicious circumstance which need to be probed deeply. 41.5 The explanation in respect of the alleged error committed by the company secretary (R9) in filing of Form which according to them occurred due to communication gap does not seem convincing. The gist of the explanation of the R1-company as it appears f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and same business activities. The R2 has been director in about 36 companies. The balance sheet of Parshwa Agrico (P.) Ltd., which is other group companies of R1-company if looked into item-wise, raise many questions to be answered. 41.8 Admittedly, the respondent-company did not file any annual returns of Form 23AC, 23ACA, e-Form 66, e-Form 20B, e-Form 2 for allotment of shares, e-Form 23 and e-Form 5 required to be filed within the prescribed time limit. The respondents failed to place any convincing reasons. Therefore, the allegations of the petitioners that the same were filed with mala fide intentions cannot be out rightly rejected. 42. Thus, from the perusal of all the sequence of circumstances narrated hereinabove, it is established that the business of the R1-company is being conducted with intend to defraud the petitioner and its members and, therefore, in my opinion, this is a fit case in which an order should be made for investigation into the affairs of the R1-company. 43. It may be mentioned here that while dealing similar issues, this Bench in the case Incab Industries Ltd., In re. [1996] 23 CLA 245 (CLB) : [1997] 1 Comp LJ 156 (CLB) has laid down that if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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