Company Law Board
Union Of India (Uoi), Through ... vs Vikas Wsp Limited And Ors. on 2 August, 2004
Equivalent citations: [2005]124COMPCAS781(CLB), [2005]63SCL176(CLB)
ORDER
K.C. Ganjwal, Member
1. The Central Govt. has filed two petitions viz. CP No. 50/2003 under Section 237 and CP No. 51/2003 under Section 397/398 read with Section 408 of the Companies Act, 1956 respectively against M/s Vikas WSP Ltd. and other respondents seeking orders to appoint inspectors to investigate into the affairs of the respondent company and also for appointment of the directors by the Central Govt on the Board of respondent company and removing the present Board of Directors of the respondent company. The main grounds seeking investigation under Section 237 as well as appointment of directors by the Central Govt. on the Board of M/s Vikas WSP Ltd. (hereinafter referred to as the company) are financial irregularities as well as violations of various provisions of Companies Act, 1956 such as violation of Section 383(A), 205(A), 209(A), and 299/300 etc. The petitioner and respondents are common in both company petitions and the averments made in both the petitions are also similar in nature. Therefore, both the petitions are clubbed and being disposed of by this common order.
2. A summary of both the petitions is as follows:-
M/s Vikas WSP Ltd. became a public limited company on 22.9.1992 with the registered office at Railway Road, Siwani, Haryana. The main objects of the company is to carry on the business of cultivators, growers, processors, producers, manufacturers importers, exporters, buyers, sellers, traders, etc of Guar Seeks, Guar Split, Guar meal, Guar gum, Guar Polymer etc. The press report appeared in "Economic Times" dated 7.8.2000 published by Shri Rajiv Goel. The investigation done by the Economic Times was based on invoices, shipping bills , excise clearance documents and financial statements nailing the management on many issues such as sales realization over stated, abnormally high margins and claiming wrong export turn over of 233 crores. The former director of the company Mr. B.M. Jindal also sent a letter of complaint to the then Minister of Law, Company Affairs to investigate the foul play of the company. The reference was also received from the Central Economic Intelligence Bureu vide their letter dated 17.4.2001. On the basis of these complaints/reports, the Deptt. of Company Affairs vide order dated 3/103/2000/CL-II dated 23.10.2000 directed the Joint Director, Kanpur to carry out the inspection of the company. During the course of inspection the violations of various sections of Companies Act, 1956 as well as financial regularities were found by the Inspecting Officer, Deptt. of Company Affairs, Kanpur. Accordingly, on the basis of inspection report of Regional Director, Deptt, of Company Affairs, Kanpur the Central Govt. have filed these petitions.
3. The Learned Counsel appearing for the Central Govt submitted that following violations have been found by the inspecting officer which are as under:
(a) Violation of Section 383(A) of the Companies Act, 1956.
The paid up capital of the company as reported is Rs. 1.49 crores as on 31.3.1993 and as per requirements of Section 383(A) of the Companies Act, 1956, company should have whole time Company Secretary. There is no Company Secretary working in the respondent company. The company in its reply has stated that it had appointed Company Secretary on 26.2.1993 whereas on examination no such information/document was available/filed in the office of Registrar of Companies, Delhi and Haryana. The company has not furnished any documentary proof in support of their averments.
(b) Violation of Section 205(A) of the Companies Act, 1956 The company declared dividend out of the profits during the years 1993-94 to 1999-2000 but the unclaimed/unpaid amount of dividend amounting to Rs. 20,97,273 was not transferred in a separate account after expiry of stipulated period of 42 days. Further the company has transferred this amount in the general revenue account of the Central Govt. after expiry of stipulated period of three years as per provisions of this Section the company has committed the default.
(c) Violation of Section 209(A) of the Companies Act 1956.
To examine the export sale of Rs. 232,66 crores as reported in the annual accounts of the company as on 31.3.2000 the summons were issued on 19.3.2002 to all directors by Regional Director, Deptt. of Company Affairs, Kanpur calling upon to be present personally or through an authorized representative and submit a reply and produce the records etc, but none of the directors or their authorised representatives appeared before Regional Director, Deptt. of Company Affairs, Kanpur on 3.4.2002 the date fixed for hearing nor produced any records etc to verify the export sales. The company has conceded that it did not appear before Regional Director, Deptt. of Company Affairs, Kanpur on 3.4.2002.
(d) Violation of Section 299/300 of the Companies Act 1956 During the course of inspection, it was noticed that the company has made transactions with the firm namely, Vikas Chmi Gums (India) for the purchase of goods from time to time in which the directors of the company namely, Balmukund Jindal, Babulal Jindal and Ramesh Chand Jindal were partners and interested directors. These directors did not disclose their interest in the company with whom the transactions were made and thus violated the provisions of Section 299/300 Companies Act, 1956.
(e). Violation of Section 297 of the Companies Act, 1956 The company is regularly purchasing gaur splits which is raw material from M/s Vikas Chmi Gums (India) Ltd in which the directors of the company are partners. The company purchased the raw material from the aforesaid firm to the extent of Rs. 13.55 crores. During the year ended 31.3.2001. However, the company has not passed any Board resolution nor obtained the prior approval of the Central Govt. in terms of Section 297 of the Companies Act, 1956 for the aforesaid transactions which is a clear violation.
Financial Irregularities.
(a) The company claimed income tax exemption under Section 10(B) Income Tax Act 1961, being a 100% EOU in respect of sale of 232.66 crores during the period ending 31.3.2000. Whereas the export sales reported to banks was Rs. 71 crores and as per statement filed with Noida Export Processing Zone was Rs. 73 crores. The company also made exports of Rs. 77.47 crores during 2001 but the same has been shown as Rs. 304.37 crores in provisional unaudited balance sheet. The company has therefore, received benefits showing all sales as 100% EOU which is not in order and thereby defrauded income tax department of several crores.
(b). The company has imported DG sets valued Rs. 3.41 crores without payment of duty when the second export oriented unit is yet to commence production and thereby defrauded the Central Govt, for several crores of rupees.
(c) The company cleared goods through the following export houses which do not have an IEC code as indicated in the report of the Central Economic Intelligence Bureau:-
i. M/s Sinochem Industries Ltd, New Delhi ii. M/s Petro Brasil Ltd, Chennai iii. M/s Denver Duo International, Mumbai iv. M/s China National Petroleum Development Corporation Ltd.
As the company did not export goods through the export houses having IEC code, the goods have been sold within India only.
An amount of Rs. 20 crores was paid to the certain close relatives of Managing Director of the respondent company on 31.3.2000 allegedly not for genuine business purposes. The decision of the company was not prudent in terms of the provisions of the Companies Act, 1956.
It was alleged that the company defrauded a short term loan of Rs. 63 crores due to IDBI.
It has been complained by the shareholders that the company declared an interim dividend at the rate of 50% in April, 2001 but the same was not paid to the shareholders within a stipulated period of 30 days thereby violating the provisions of Section 207 of the Act. The export sales of the company grew from Rs. 23 crores in 1994-95 to Rs. 71 crores in 1999-2000 and immediately fell to Rs. 26 crores in 2001-2002. This sudden fall is attributed to correction of export figures to realistic level from fudged figures. The company and their statutory auditors have not explained this sudden fall in the export figures.
The quarterly statement of accounts published by the company for the quarter ending 30.6.2001, 30.9.2001 and 30.12.2001 were showing the net profits to the rune of Rs. 30.83 crores, Rs. 22.40 crores and 19.02 crores respectively. However, in the last quarter for the year 2001-2002 i.e. 31.3.2002, the company has shown net loss to the tune of Rs. 173.91 crores, which means that accounts are fudged and falsified.
4. The learned counsel for the petitioner prayed in view of whole scale violations of the provisions of the companies Act, 1956, the Central Govt. be allowed to investigate the affairs of the company under Section. 237 of Companies Act, 1956. He further submitted that the conduct of the company being prejudicial to the public as well as the interest of the company itself, the CLB may pass an order under Section 408 for appointing directors by the Central Govt. on the. Board of Directors of the respondent company in public interest so as to prevent the further oppression and mismanagement of the company. It was also mentioned that the conduct of the company is not entirely transparent and needs to be investigated. Accordingly, it was prayed that two petitions being entirely different in their scope be allowed.
5. The learned counsel for petitioner cited the judgment of Calcutta High Court 1965 Indian Law Calcutta 1385 in the case of New Central Jute Mills Co. Ltd. v. Dy Secy, Min. of Fin. and Ors. The judgment indicates the scope of Section 237 of the Companies Act, 1956 Sub-clause (1) of Clause B of Section 237 may require investigation as to whether business of the company is being conducted "for a fraudulent or unlawful purpose. The theory that the root of the trouble might lie buried people in the past and unyielding delimitation of the period of investigation would not succeed in getting at the root. The law does not fix a time limit for reporting. The learned counsel also referred to the judgment of Madhya Pradesh High Court 1969 Ind Law MP 1479 in the case of Giyajeerao Cotton Mills v. Company Law Board and Ors. and mentioned that the expression in Section 237(b)(ii), "the affairs of the company" is wide enough to include contravention of any law by the time being in force. The relevant para reads as under:-
"------Investigation under Section 237(b)(ii) is about the affairs of a company and not into the circumstances suggesting the matters specified in Clause (b)(ii). The expression "the affairs of the company" is wide enough to include contravention of any law for the time being in force and there is no justification in the language of Section 237(b)for reading into that provision any limitation as regards the period of affairs to be investigated or as regards the persons in the management of the affairs of the company or as regards the members of the company."
6. The learned counsel for the respondents submitted: The present petition is not maintainable as the petitioner have filed the petition just to harass the respondent company. The petitioner has already filed various cases against the respondent covering all the violations/allegations made in the present petitions. The petitioner should not be allowed to pursue parallel proceedings. The respondent company was incorporated as a private limited company under the name and style of Vikas Gum Mills Pvt. Ltd. on 22.6.1988. The company was converted into public limited company in the name of Vikas WSP Ltd under Section 44(2) of the Companies Act, 1956 on 22.9.1992. The company is engaged in manufacturing trading and export of Guargum border chemically known as water soluble polymers (WSP) since 1990. Being natural polymers adequate overseas demands exist for company's product for food, textiles, oil exploration and pharmaceutical. The former directors Mr. J.D. Agarwal and B.M. Jindal, the real brothers of present Managing Director Shri B.D. Agarwal separated from the family in April, 2000 due to some family problems. They developed nexus with the journalist of Economic Times and succeeded in publishing a negative article against the company on 7.8.2000 in the Economic Times. Both of them resigned from the Board of Director of the company on 5.9.2000 and thereafter they have been making false allegations/complaints against the company in different Govt. departments. The Central Excise Prevention Branch, Director General of And Evasion (Central Excise, New Delhi) have conducted the enquiries against the company. As regards enquiry conducted by the Central Excise Preventive Branch, Panchnama dated 10.8.2000 is relevant. The Central Excise Preventive party paid a surprise visit on 10.8.2000 just after three days of publishing the Economic Times Article and the search report reveals "as a result of search nothing incriminating found." Regarding enquiry conducted by Director General Anti Evasion (Central Excise, New Delhi) on 16.6.1999, the excise department returned all the documents on 16.6.2000. Nothing further has been heard in this context from the excise department.
7. It was submitted by the Learned Counsel for the respondent that there is no violation of Section 383A of the Companies Act, 1956 Mr Harish Sharma, Company Secretary was appointed in the year 1993. The above said violation has already been decided by the Learned Judicial Magistrate Siwani vide its order dated 28.2.003 in the favour of the respondent company. The learned magistrate mentioned in his order that the complaint is hopelessly time barred and the application was refused and the accused were discharged, The petitioner is estopped in law to raise the same issue before this Board. Regarding violation of Section 209A of the Companies Act 1956 it was submitted that the statutory auditors of the respondent company was summoned by Deptt. of Company Affairs to produce documents. The statutory auditors of respondent company M/s Sanjay K. Goel and Associates, newly appointed Chartered Accountant visited the office of Joint Secretary, Department of Company Affairs on 6.2.2003 and provided the required information. The break up of total turnover was given as under:
-Export Turnover of two EOUs : Rs. 7789.26 lakhs
for Guar Gum Power
- Domestic turnover of 3 DTA : Rs.22708.13 lakhs
units Guar Gum Power/Splits -----------------
Total Rs. 30497.39 lakhs
Therefore, the turnover of 304.97 crores matches with the turnover declared by the company. The respondent company also filed its income tax returns as per turn over stated above. The company had already replied suitably to Jt. Director, (Inspection), Kanpur. The above information was asked by the Deptt. of Company Affairs after receiving a false complaint from former director Shri B.M. Jindal. As such, there is no violation of Section 209(A) of the Act. The company has stated that the mere reasons of coining down of the export sales was the paucity of bank finance i.e. post shipment finance. In the absence of export bill facility during the year 2000-2001, the respondent company could not make export upto its full capacity but had to sell its Guar Gum in the domestic market to run the factory. The export came down but there was increase sales in the domestic market.
In reply to the alleged violation under Section 299 and 300 of the Companies Act, 1956, the respondent have stated that the learned judicial magistrate Siwani has already decided this case in their favour vide order dated 28.2.2003 and the petitioner is estopped in law to raise the same issue before this Bench. The respondents have taken same plea of the order of learned judicial magistrate, Siwani in their favour in violation of Section 297 of the Companies Act, 1956.
8. Regarding financial irregularities, the Learned Counsel for respondent submitted that the company has claimed income tax exemption on its profit under Section 10(B) of the Income Tax 1961, being a 100% EOU. The allegations leveled are false as the total turnover of the company was Rs. 232.66 crores during the period ending 31.3.2000 and the same has been verified by company's bankers and commercial taxes Departments as well as Central Excise Departments, Following the publication of the article in "Economic Times" dated 7.8.2000, the officers of the central excise (preventive branch) Rothak paid a visit to the factory on 10.8.2000 to witness the search proceedings. The search party carried out the search of the respondent company's factory premises in the presence of Shri Babu Lal Jindal but nothing (sic) was found. The respondent company has stated that a team of company's consortium banks paid a visit on 8 and 9th August, 2000 and verified the turnover of 232.67 crore. The consortium banks have issued a certificate that confirming that they have received a full payment of export bills negotiated through them. The Learned Counsel submitted that the Joint Director(Inspection) despite having inspected the books of accounts and sale and purchase invoice of the company from 9th April to 12th April, 2001 and verified the turnover of 232.67 crores, without applying his own mind accepted the company's turnover of Rs. 71 crores. The said report of the Joint Director is motivated and not judicious in nature. It was submitted by the respondent that for the period ending 31.3.2001, the company did not receive the NOC for export incentive for the domestic exporter so it showed the export sales to the tune of Rs. 77.47 crores and the balance as domestic sales. The total sales are for Rs. 304.37 crores. The company has taken benefit under Section 10E of the Income Tax Act to the extent of export sales of Rs. 77.47 crores only as and when the NOCs' are received the income tax return so filed can be revised. The company had filed its income tax return by declaring separate export sales as well as domestic sales. Therefore, the total sale of Rs. 304.37 crores is correct. Regarding sale of imported TV sets valued 3.41 crores without payment of excise duty the respondent company has submitted that they received a letter from Enforcement Directorate, Ministry of Finance on 7.11.2001 which was duly replied on 21.11.2001 alongwith documentary evidence of import of goods into India.
9. The company imported DG sets duty free under valid import license from the SIA, Ministry of Commerce and Industry. The Deptt. of Commerce and Industry validated vide their letter 31.12.2001 with ex-post facto approval and the show cause notice so served was withdrawn by the Central Excise Department. The respondent submitted that the proceedings already dropped by the competent authority cannot be made a basis of the petition. In reply to the goods cleared by the company through export houses not having IEC code, the respondent submitted that the company exported goods through some foreign export houses located in the distant countries in the overseas. It is purely a matter of misconception as all the export houses were located in the overseas and as such there was no need of IEC code to clear these goods. It is correct that the company has published in "Economic Times" dated 31.10.2001 that in future the company will enter only direct export due to the fact that export made through export houses require a lot of work from time to time. The goods exported through foreign trade houses were shipped to abroad and there is no reason to say that these goods were sold in India. The allegations leveled are false and untrue.
10. As regards payment of Rs. 20 crores to the close relatives of the Managing Director of the company, the respondents have submitted that an amount of Rs. 20 crores was received to a lot fresh shares as a private placement was proposed dining 1999-2000. It may be noted that due to depressed market conditions, the proposed issue of shares was deferred, hence the money received for allotment of fresh shares were returned back to the concerned persons. A statement has also been provided by the respondent to the Joint Director., Department of Company Affairs, Kanpur.
11. The respondents have specifically denied that the company defrauded a short term loan of Rs. 63 crores due to IDBI. A short term loan was taken from IDBI to meet out working capital requirement as well as to establish plant and machinery. The company paid interest upto June, 2001. Subsequently, IDBI filed a case in Debt Recovery Tribunal in the year 2002 for the recovery of the short term working capital loan and the same is subjudice before DRT, Jaipur.
12. The respondent in their reply submitted that the interim 50% dividend was declared in 2001. The company sent dividend cheques on 12.7.2001 by courier within 42 days after record date. The company has attended all complaints lodged with BSE/NSE and SEBI. The complaints were received mainly from those shareholders who had changed their residences and the company had incomplete postal addresses. The company received 205 complaints only. Out of 36,000 shareholders which were attended to and resolved. There was no violation of any provisions of Section 207 of the Companies Act, 1956. In reply to sudden fall of production figures the respondents have stated that the quarterly figures published were un-audited upto 31.12.2001. The company had to purchase heavy raw materials against export orders and orders in pipeline. Following the terrorist attack, the export orders worth Rs. 110 crores were suspended/deferred which resulted into heavy losses Gaur being a khariff crop, new arrival commenced in the month of November./December and Guar prices declined sharply and the company suffered heavy losses on this account. The losses can be attributed to real prices fall in raw material prices as well as cancellation of orders booked before 11.9.2001 attacks. The copies of suspended export of Rs. 110 crores have been filed by the company.
13. The respondents have filed the additional synopsis (written submissions) on 31.5.2004. In reply to that the petitioners have filed brief synopsis and written submissions alongwith documents on 15.7.2004, when this judgment was being written. Some of the points clarified by the petitioners in written submissions are as follows:-
Alleged Export Turnover The petitioners have submitted that the respondents have relied on the assessment order dated 28.3.2003 for the financial year 1999-2000 which is not an acceptable proof of export. The assessment order dated 28.3.2003 has been procured without producing relevant proof of export related documents to the assessing officer. The order mentioned that as regards books of accounts, the assesse vide its letter dated 28.1.2003 has reported that all records of the company were destroyed in the fire accident on 26.4.2001 at Company's factory premises as stated at pages 33-35 of respondents synopsis. Therefore, the assessment order is based on statement on oath of Shri B.D. Agarwal and his certain manipulated accounting documents placed before the assessing officer whereas in the inspection of the company under Section 209A of the Companies Act, 1956 no such incidents of fire or any destruction of document in alleged fire on 26.4.01 was mentioned. The Joint Managing Director, Shri B.D. Agarwal of the respondent company has therefore made different contradictory statements before different investigating agencies. Similarly, in reply to the Article published in Economic Times dated 30.10.2001, Shri B.D. Agarwal, Managing Director stating mat in future register only direct export as export sales and will discontinue export sales through export houses/trading house and merchant exports. This implies that Shri Agarwal has earlier given wrong clarification/statement regarding commission and brokerage to commission shareholders. The Income Tax Assessing Officer has recorded in the assessment order as follows:
"The export house wise break up of export including through the restricted L/C are as under:-
Sl.No. Name of the Export House Value of exports
(Rs. in lac)
1. Sinochem Industries Ltd, New Delhi 3648.87
2. Petro-Brasil Ltd, Chennai 3148.95
3. Denver Duo International, Mumbai 299.94
4. China National Petroleum Development Corpn. 1869.44
Ltd. Delhi -------
Total - 8967.20
-------
The petitioners have stated that Joint Director of Foreign Trade, New Delhi reveals that the above companies/firms were not issued IE- Code Number by their office as none of these units are not registered with their office as 100% EOU/SEZ Units. The petitioners have mentioned that ROC Delhi has confirmed that M/s Synochem Industries and M/s National Petroleum Development Corpn. are not found to be registered with their office . It is therefore, evident that the alleged export houses from where respondent company claimed to have export of Rs. 8967.20 lakhs out of total export turn over of Rs. 232.66 crores are fictitious entities and the export figures given to the assessing officer in the income tax are false and dubious.
The petitioners have also contended that respondents have lied blatantly that SEBI have concluded investigations in their favour. In fact, SEBI have filed complaint in the court of Additional Chief Metropolitan Magistrate, Mumbai under Section 24(1)(27) of SEBI Act and the accused Shri B.D. Agarwal has been asked to appear in person.
14. I have heard the arguments of learned counsel of both the sides and also gone through the records of the case, it is evident from the averments made by the petitioner that an article was published in "Economic Times" on 7.8.2000 by one Shri Rajiv Goel sometime, Simultaneously, Shri B.M. Jindal, the former director of the company also sent letter of complaint to the then Minister of Law, Justice and Company Affairs. A reference was received from Central Economic Intelligence Bureau. Based on these complaints Joint Director, Deptt. of Company Affairs, Kanpur was asked in Oct. 2000 to carry out the inspection of the respondent company. During the course of inspection the inspecting officer pointed out some violations of the provisions of the Companies Act, 1956 as well as some other financial irregularities. Accordingly, the Central Govt. has filed two separate petitions one under Section 237 and another petition under Section 397/398/408 as already mentioned. Both these petitions are being disposed by this common order.
15. Regarding violation of provisions of Section 383A, 205A, 209A, 299/300 and 297 as alleged by the Central Govt in their petition in para 8.12 to 8.15, it is observed that ROC, NCT of Delhi and Haryana filed a complaint before the competent court for violation of above said provisions of the Companies Act, 1956. The learned judicial magistrate, Siwani while passing order on 28.2.2003 observed as under:-
"----Therefore, in my considered opinion the present complaint is hopelessly time barred and, therefore, the present application is allowed and the accused cannot be served notice of accusation under Section 251 of Code of Criminal Procedure hence the present application is allowed and the accused are discharged."
16. The Central Govt. has filed a revision petition before the Court of District Judge at Siwani and the same is still pending for disposal. Undoubtedly, these are whole scale violations of the Companies Act, 1956 as contended by the petitioners but these violations are compoundable offences under the Companies Act, 1956. If the respondent think fit, they could file appropriate application for compounding these offences which they have not done in view of the order of the Learned Judicial Magistrate, Siwani. The respondents have explained the reasons of violations and the Central Govt. has not been able to establish that the explanations given by the respondents are wrong. The Central Govt. has mainly relied on the inspection report of the Regional Director, Deptt. of Company Affairs, Kanpur who has pointed out certain violations of the Companies Act, 1956 but they do not prove any fraudulent or unlawful purpose. The Regional Director, Deptt. of Company Affairs, Kanpur has already carried out inspections for these violations and the same are sub-judice as stated above. I am therefore not inclined to "accept the arguments of the petitioner that in view of most of these 'compoundable' violations of the various provisions of the Companies Act, the case is made out for further investigation under Section 237 of the Companies Act, 1956.
17. Now, I proceed to examine financial irregularities mentioned in the petition. It has alleged that the company claimed Income Tax exemption under Section 10(3) of the Income Tax act 1961, being a 100% EOU in respect of sale of 232.66 crores during the year ending 31.3.2000. It was alleged that the export sales reported to banks was only Rs. 71 crores and the statement filed before Noida Export Processing Zone was Rs. 73 crores. The company made exports of Rs. 77.47 crores during the year 2001 but the same was shown as Rs. 304.37 crores. It is observed that the SEBI has carried out an investigation against the respondent company and they have cleared them from the allegations leveled by Ex director Mr. B.M. Jindal, However, the Central Govt. has now intimated that SEBI has filed a complaint in the court of additional Chief Metropolitan Magistrate, Mumbai under Section 24(1), (27) of SEBI Act and summons have been issued on 3.6.2004. The SEBI is a specific act under which they will take action required under the Act and this seems to be the latest development.
18. The Jt. Dir. Inspection, Deptt. of Company Affairs, Kanpur carried out his inspection but did not verity the turnover of Rs. 232.67 crores. He only mentioned what had been quoted in the letter of CEIB whereas he should have applied his mind and come to the conclusion on the basis of inspection conducted by them. His conclusion after inspection on this point is missing. On the other hand the Assistant Commission, Commercial Taxes Deptt, Anti Evasion made a survey of the respondent company on 18.7.2001 and made his assessment and verified the export turnover of the company at Rs. 232.58 crores. The income tax investigating wing found export figures from their office as under:
1. Kandla Rs. 2,18,31,32,243/-
2. ICD New Delhi Rs. 1,94,41,271/-
--------------------
Total Rs. 2,20,25,73,514/-
--------------------
19. The total export sales claimed by the company as mentioned above was verified by the Income Tax Deptt. and the remaining unverified portion i.e. Rs. 12,32,38,549 has been reconciled by the company with the Asstt. Director of Income Tax, Rohtak. The Central Govt. is of the view that no final assessment order has been received from the Income Tax Deptt. and the matter is still pending. It is also noticed that a team of companies consortium banks visited the premises on 8 and 9th Aug. 2000 after publication of the Articles in Economic Times and verified turnover of Rs. 232.67 crores and they did not find any discrepancies in the company's declared turnover.
20. The respondent company was issued a show cause notice for import of duty free DG sets by the Commissioner Central Excise but they have not proceeded further in the matter after company's reply.
21. During the arguments it was also mentioned by the learned counsel for petitioner that the Managing Director is a proclaimed offender as on date and he is not available to public and as such he cannot be expected to run the company in a prudent manner. In reply the Learned Counsel for respondent stated that there is no such law prohibiting Mr. B.D. Aggarwal, to be Managing Director, even though he is the proclaimed offender.
22. From these findings, it appears that alleged allegations of violation of various sections of the Companies Act, 1956 discussed above, where offences are compoundable, have been decided by the learned judicial magistrate, Siwani against the petitioners. The appeal is pending and it would not be correct to intervene at this stage when the matter is subjudice. Regarding financial irregularities, it is observed that the report of Regional Director, Deptt. of Company Affairs, Kanpur is not conclusive and based on his own findings. In almost all issues raised in both the petitions, the RD has merely mentioned that some of the acts are in violation of the Companies Act, 1956 but he has not shown as to why further investigations under Section 237 be ordered by this Bench. It is not the case of Regional Director, Kanpur, that he was not supplied the documents asked by him from the company. There are ample powers vested with the Central Government under Section 235 of the Companies Act, 1956 and they should have invoked those powers if the company was erring or not supplying documents. The matter is also seized by various Govt. agencies like Income Tax, Excise Deptts. and SEBI etc. In some cases, final decisions are yet to arrive. The report of the Inspecting Officer should have been based on his own findings after pursuing the documents/record of the company when the complaint was received from Central Economic Intelligence Bureau as also the report published in the Newspaper. The mere violation of various sections of the Companies Act, 1956, where offences are compoundable and the matter is subjudice, and cannot lead to investigation under Section 237 of the Companies Act, 1956. The object of investigation under Section 237 of the Companies Act is to discover something that is not apparently visible to the naked eye (Delhi Flour Mills Company Ltd. In Respondents,(1975)45 Comp Cases 33(Del). It is essential that the material placed before the Board is such that it satisfy the Court that a deeper probe into the affairs of the company is desirable in the interests of the company itself (Sumanthy (UA) v. Dig Vijay Chit Fund Pvt. Ltd. (1983) 53 Com. Cases 493(Ker)). In Jiyajee Rao Cotton Mills Ltd. v. CLB (1969) 39 Com. Cases 856 (MP) it has been held that the expression "affairs of the company" in Section 237 is vide enough to include violation of any law for the time being enforce. In the New Central Jute Mills Ltd. V. Dy. Secy, Ministry of Finance (1970)40 Com Cases 102 DB-CAL, it has been held that the expression "fraudulent or unlawful purpose" is wide enough to include the contravention of any law for time being enforce. The learned counsel for petitioner relied on the above judgments to stress his point that when the company is not working in a transparent manner and the company has filed differing accounts/returns/information to different authorities. The company has also violated provisions of various sections of the companies act, 1956 as well as provisions of SEBI and Income Tax etc. The business of the company is being carried on fraudulent purpose and with intent to defraud its creditors. There is no doubt that there are wide enough powers given to Company Law Board to order investigation under Section 237 but to form such opinion, it has to be established that the management of the affairs of the company have been guilty of fraud, misfeasance or other misconduct towards the company or its members. As observed by the Hon'ble Supreme Court in the judgment, of Jiyajee Cotton Mills v. Company Law Board and Ors. 1969 Indian Law MP 1479, no reasonable person or authority, much less and expert body like the Company Law Board could have reasonably found the opinion that the circumstances were so suggestive to order investigation under Section 237 without influenced by matters extraneous to Section 237 (b)(2) while forming the opinion by the Board.
23. Keeping in view the circumstances of the case as well as the arguments advanced by both the parties, I find that various authorities like Income Tax, Excise Deptt. like SEBI are seized of the matter and are looking into it under separate statute. The violation of provisions of various sections of Companies Act are compoundable and the matter is subjudice before the District Judge, Siwani. The inspection has already been conducted under Section 209(A) of the Companies Act, 1956 and no fruitful purpose is likely to be achieved by ordering investigation under Section 237 of the Companies Act, 1956 as the Central Govt. has not been able to bring out specific reasons for ordering such investigation. I am therefore, not convinced that this is a fit case for ordering investigation under Section 237 of the Companies Act, 1956. Accordingly, the CP No. 50 of 2003 is disposed of with no directions.
24. However, I find that the Respondent company has not earned its affairs prudently and have violated provisions of various acts of Government including violations of provisions of Companies Act, 1956. Some Government Authorities like Income Tax, Excise, etc are yet to give their final verdict on the information supplied by the company. The company has filed disputing figures of production with different agencies. Undoubtedly, the affairs of the company are not transparent and doubts have been created in the minds of shareholders and public at large. In order to effectively safeguard the interest of the company as also of shareholders and the public at large. I accept the plea of the Central Govt. that some check and transparency needs to be restored in the Board of Directors. Accordingly, I allow the second Company Petition No. 51/2003 filed under Sections 397/398 and 408 of the Companies Act, 1956 and direct the Central Government to appoint not more than three Directors on the Board of Directors of the respondent company for a maximum period of three years from the date they assume office.
25. With the above directions, the company petition 51/2003 is also disposed of.
26. There are no orders as to cost.