Andhra HC (Pre-Telangana)
Uunet India Limited And Ors. vs I.C. Rao And Ors. on 14 December, 1994
Equivalent citations: 1995(1)ALT452, [1998]93COMPCAS41(AP)
JUDGMENT B. Subhashan Reddy, J.
1. This company petition is filed under section 237(a)(ii) of the Companies Act, 1956, invoking this court's jurisdiction to declare that the affairs of the first petitioner-company, namely, Uunet India Ltd., are fit to be investigated by an inspector appointed by the Central Government. In support of the said relief, several allegations are made that the respondents, particularly, respondents Nos. 1 and 2 have committed acts contrary to the company law as also the memorandum and articles of association of the first petitioner-company.
2. The first petitioner-company is hereinafter referred to as "the company". The company was firstly incorporated as a private limited company on May 25, 1990, and later on a resolution was passed on May 3, 1993, to 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.
3. 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 Achanti and questioned his consequential acts of participation in the affairs of the company as illegal and unauthorised. The meeting of the board of directors said to have been held on September 20, 1993, October 4, 1993, March 31, 1994, April 7, 1994, and April 24, 1994, are disputed by petitioners Nos. 2 to 6. With regard to the meeting held on July 4, 1993, the petitioners admit the same only to the extent of passing of resolution to raise funds for purchase of the cars of Maruti Van and Ambassador. The petitioners claim that they had convened a board meeting on April 6, 1994, preceded by notice dated March 25, 1994, and that the said meeting was held at Hotel Krishna Oberoi to transact the business of the company. It is stated that in the said meeting dated April 6, 1994, resolutions were passed (a) appointing petitioners Nos. 4 to 6 as directors of the company; (b) to change the registered office of the company from the residential premises of the first respondent to the business office in Software Technology Park, HUDA Complex, Maithrivanam, Ameerpet, Hyderabad; (c) for allotment of 24,500 equity shares to the applicants whose share applications were pending with the company; (d) to change the authorised signatory to operate the bank account in the name of the second petitioner jointly with the sixth petitioner instead of the previous signatories, i.e., the second petitioner and the first respondent. This meeting and the validity of the same is disputed by the respondents. In fact, impugning the same a suit was filed in O.S. No. 458 of 1994, on the file of the court of the Additional Judge, City Civil Court, Hyderabad, on April 21, 1994, seeking a declaration that defendants Nos. 3 and 4 (petitioners Nos. 4 and 5) are not the directors of the company and D-5 (petitioner No. 6) is not the additional/alternate director of the company and to cancel or forfeit the shares allotted to the petitioners and to declare that the board meeting was not held on April 6, 1994, and not to take cognizance of any resolution passed in the said alleged meeting dated April 6, 1994. Two interlocutory applications Nos. 593 and 594 were filed seeking restraint orders against petitioners Nos. 2 to 6. In I.A. No. 593 of 1994, the court of the Ist Additional Judge, City Civil Court, Hyderabad, granted injunction on April 22, 1994, restraining petitioners Nos. 2 to 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 6 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, Hyderabad. Against the said order in the CMA, the respondents have preferred LPA No. 96 of 1994, and a Division Bench of this court by order dated May 3, 1994, allowed the same setting aside the order passed by the learned single judge with directions to file a CMA before the lower appellate court. Pursuant to the same, CMA No. 92 of 1994 was filed before the Vacation Judge, City Civil Court and I.A. No. 86 of 1994, was filed to suspend the interim injunction orders issued by the trial court. Against the orders in I.A. No. 594 of 1994, petitioners Nos. 2 to 6 had filed CMA No. 93 of 1994, before the said vacation judge. I.A. No. 86 of 1994 in CMA No. 92 of 1994, to suspend the interim orders passed by the trial court was dismissed by the Vacation Judge of the City Civil Court by order dated May 25, 1994. Assailing the same, CRP No. 2034 of 1994 was filed by petitioners Nos. 2 to 6 before this court and this court allowed the same by order dated September 2, 1994. Now, Mr. A. Krishnamurthy, learned counsel for respondents Nos. 1 and 2 submitted a photostat copy of letter dated December 12, 1994, addressed by Mr. P. S. Narasimha, Advocate, Supreme Court, to him stating that the Supreme Court in SLP No. 19935 of 1994, has set aside the said order dated September 2, 1994, passed in the above CRP.
4. Respondents Nos. 3 and 4 have filed O.S. No. 1111 of 1994, on the file of the court of the IV Additional Judge, City Civil Court, Hyderabad, against the petitioners and others including respondents Nos. 1 and 2 herein seeking the reliefs of :
(a) perpetual injunction restraining them from holding any board meetings of the first defendant-company (first petitioner herein) excepting holding a board meeting for the purpose of calling the annual general body meeting, passing any resolutions, taking any policy decisions, issuing or allotting any shares or increasing the authorised share capital or operating any of the bank accounts in the name of the company at Hyderabad or branches elsewhere and from doing any acts prejudicial to the interests of the company;
(b) to appoint a receiver for taking inventory of the property of the company;
(c) to declare all the board resolutions passed by the defendants subsequent to June 14, 1994, excepting the board meeting for the purpose of calling the annual general body meeting of the company as null, void and inoperative; 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.
5. 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 holding of meetings of the board of directors with the alleged quorum of two directors on September 20, 1993, October 4, 1993, March 31, 1994, April 7, 1994, and April 24, 1994, and that in the said meetings, the minutes were concocted by the second respondent in the status of chairman of the said meetings and that there was no service of notice or agenda on the directors of the company before the meetings said to have been conducted on the aforementioned dates.
6. Detailing the above, the petitioners plead that all the aforesaid actions of respondents Nos. 1 and 2 are nothing short of mismanagement of the company and that the same warrants investigation by an Inspector appointed by the Central Government under section 237(a)(ii) of the Companies Act, 1956. Pending consideration of the said plea for investigation under the above legal provision, the petitioners have sought for several other prayers as a part of the main relief and also interim prayers. It is apt to extract the main prayer sought for by the petitioners, as also the other prayers along with the said main prayer and also interim reliefs while filing the company petition and also reliefs which are sought to be added by way of amendment under Order 6, rule 17 of the Civil Procedure Code, 1908, in the company applications.
Prayers originally sought for in Company Petition No. 24 of 1994 :
(1) That the affairs of the company conducted by respondents Nos. 1 and 2 in the administration of the company and in the financial operations of the company, be investigated by an inspector to be appointed by the Central Government and consequently direct the Central Government to appoint an Inspector to investigate into the affairs of the company conducted by respondents Nos. 1 and 2;
(2) To declare the alleged board meetings dated September 20, 1993, October 4, 1993, March 31, 1994, April 7, 1994, April 21, 1994, April 24, 1994, or any other alleged board meetings said to have been held by respondents Nos. 1 and 2 and the alleged resolutions passed therein as illegal, and inoperative in law;
(3) To declare the notice dated May 19, 1994, issued to the members of the petitioner-company convening the annual general body meeting on June 14, 1994, as illegal and inoperative in law;
(4) To declare that respondent No. 2 is not a validly appointed alternate director of the petitioner-company and consequently 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 into the petitioner-company's premises or its branches.
(4) Directing respondents Nos. 1 and 2 to keep all the records of the company, account books of the company, bank account books and office seals of the company in the registered office premises of the petitioner-company at HUDA complex, Mythrivanam, Ameerpet, Hyderabad, and pass such other order or orders deemed fit in the interests of justice.
Additional prayers sought for in C.A. No. 228 of 1994 by way of amendment :
(1) To declare that respondents Nos. 3 and 4 are not the shareholders of the company;
(2) To declare that O.S. No. 1111 of 1994 is illegal and inoperative in law.
(3) To declare all the actions already taken by respondents Nos. 1 to 4 and other alleged shareholders belonging to the group of respondents Nos. 1 and 2 pursuant to the alleged board meetings mentioned above and the resolutions passed therein as invalid and inoperative in law.
(4) To direct respondents Nos. 1 to 4 and other alleged shareholders belonging to the group of respondents Nos. 1 and 2 not to take any further action pursuant to the above alleged board meetings pending investigation by the Inspector to be appointed by the Central Government into the affairs of the company conducted by respondents Nos. 1 and 2.
(5) That respondent No. 1 be directed not to convene board meetings or general body meetings, pass any resolutions, cast any vote, issue any share capital or increase the authorised share capital or growing (sic) any third party rights or alienate the properties of the company and not to operate any of the bank accounts of the company or its branches and not to do any acts prejudicial to the interests of the company pending investigation by the Inspector to be appointed by the Central Government; and (6) Respondent No. 1 be directed to hand over all the cheques and other negotiable instruments drawn in favour of the company by the customers and others and bank pass-books and cheque books of the company which are in his custody to petitioner No. 2 and also hand over all the business and administrative records, account books along with vouchers of payments and receipts which are in the custody to petitioner No. 2 pending investigation by the inspector to be appointed by the Central Government.
Further additional prayers sought for by amendment in C.A. No. 268 of 1994 :
(1) To declare respondent No. 1 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 meeting are invalid and inoperative in law; and (6) To declare that the civil suit O.S. No. 458 of 1994, filed by respondent No. 1, before the Ist Additional Judge, City Civil Court, as illegal and unsustainable in law.
7. The petitioners had also filed several company applications. In C.A. No. 101 of 1994, filed by the petitioners, this court by order dated June 13, 1994, passed injunction orders restraining respondents Nos. 1 and 2 from conducting the annual general body meeting scheduled on June 14, 1994, from conducting ordinary business and special business and passing resolutions mentioned in the said notice dated May 19, 1994, and restraining respondents Nos. 1 and 2 from holding any board meetings, passing any resolutions, casting any votes, issuing any share capital or increasing the authorised share capital or operating any bank accounts in the name of the company and doing any acts prejudicial to the interests of the company or from entering into the company's premises or its branches pending the disposal of the company petition.
8. Respondents Nos. 1 and 2 had filed C.A. No. 106 of 1994, to vacate the said order. This court passed a limited order on June 29, 1994, permitting respondents Nos. 1 and 2 to deposit the cheques given in the list and to disburse the amounts given in the list annexed thereto by operating the current account of the company with the Bank of India, Khairatabad branch and the respondents were directed to file a copy of the bank statement after completion of the transactions. The petitioners had filed C.A. No. 127 of 1994 to review the said order and by order dated July 13, 1994, this court disposed of the same to the effect that the expenditure by respondents Nos. 1 and 2 shall not exceed Rs. 10,73,247.80. Against said orders, the petitioners had preferred OSA No. 24 of 1994, before the Division Bench and by order dated October 6, 1994, the Division Bench had dismissed the same by making the following observations :
"In view of the fact that expenditure to the extent of Rs. 10 lakhs and odd has already been incurred by the second respondent in pursuance of the impugned order passed by the learned company judge, it is not for us to enter into the merits of the order, particularly, as the proceedings are still pending before the company judge. Whether or not the expenditure to the extent of Rs. 7,73,000 was authorised by the 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 petitioners have filed the following other applications :
(a) C.A. No. 115 of 1994 - to appoint a commissioner to make local investigations at the registered office premises at 505-B Mythrivanam, Ameerpet, Hyderabad, and the residential premises of respondents Nos. 1 and 2 at 27 on Road No. 10, Jubilee Hills, Hyderabad, and office premises at Anu Capital and Investments Limited, Hyderabad, 203, Concord Apartments, Somajiguda, Hyderabad, and to make an investigation of all the records, computer equipment, furniture, communicating equipment, etc., of the company.
(b) C.A. No. 116 of 1994 - directions to respondents Nos. 1 and 2 to produce upon oath all the documents including account books of the company in their possession and power as stated in the notice dated June 25, 1994, issued by the petitioners and to keep the said records and accounts in the safe custody of the Registrar of the High Court or in the alternative to direct respondents Nos. 1 and 2 to give inspection of the same and to permit the petitioners to take out xerox copies of the same.
(c) C.A. No. 121 of 1994 - directions against respondents Nos. 1 and 2 to make discovery on oath of the documents which are or have been in their possession and power relating to the company and the matters in dispute in the company petition.
(d) C.A. No. 191 of 1994 - to strike off the defence of the respondents on the ground of non-compliance with the order dated July 6, 1994, passed by this court directing counsel for the respondents to file an affidavit of documents.
(e) C.A. No. 224 of 1994 - to stay all further proceedings in O.S. No. 1111 of 1994, on the file of the court of the IVth Additional Judge, City Civil Court, Hyderabad, and to declare that the said suit is illegal and invalid in law. Interim stay was granted by this court on September 12, 1994, against which respondents Nos. 3 and 4 filed OSA No. 32 of 1994, but the Division Bench by order dated October 20, 1994, dismissed the same by directing the respondents to move the company judge for vacating the said order.
(f) C.A. No. 218 of 1994 - to authorise and allow the petitioners to operate the bank account of the company by depositing the cheques/DDs and other negotiable instruments received from the customers in favour of the company and also to operate the said account to incur expenditure of the company from time to time and to direct respondents Nos. 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 cheques, drafts and negotiable instruments and to direct respondents Nos. 1 and 2 to make over and deliver to petitioner No. 2 all the bank pass-books, cheque books and documents relating to the bank accounts of the company and all the business records of the company, account books of the company and any other documents of the company in the custody and possession of respondents Nos. 1 and 2.
(i) C.A. No. 251 of 1994 - directions against respondents Nos. 1 and 2 to make over and deliver all the cheques, drafts and bills and other negotiable instruments, etc., as pleaded in the other related petitions.
(j) C.A. No. 256 of 1994 - to implead the Registrar of Companies and the Secretary, Department of Company Affairs, Union of India, as respondents Nos. 6 and 7 in the company petition.
(k) C.A. No. 257 of 1994 - directions to the Registrar of Companies to dispose of the application seeking extension of time for holding the annual general meeting of the company within a week or alternatively to direct the Registrar of Companies to extend the time for a period of three months from October 6, 1994, for holding the annual general meeting of the company.
(l) C.A. No. 267 of 1994 - directions against the Registrar of Companies to give inspection of all the documents of the company with the said Registrar detailed in the annexure and to direct the said Registrar to produce the said documents at the time of the hearing of the company petition.
9. The respondents filed a counter controverting the allegations made by the petitioners. They contend that several reliefs sought for are beyond the scope of section 237 of the Companies Act. They state that the civil suits filed by them are not barred and that the orders passed by the civil court are valid and operative. They assert that the second respondent was validly appointed as alternate director and that his participation in the meetings and the actions and resolutions are all true and valid and are binding and that the board meetings which are specified above and disputed by the petitioners are held properly preceded by notice and agenda and to the knowledge of petitioners Nos. 2 and 3. Further, the respondents dispute the truth and validity of the board meeting said to have been held by the petitioners on April 6, 1994, which is, of course, subject matter of O.S. No. 458 of 1994, on the file of the court of the Ist Additional 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.
10. 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, i.e., O.S. No. 458 of 1994, filed by respondents Nos. 1 and 2 and O.S. No. 1111 of 1994, filed by respondents Nos. 3 and 4 in the civil court are not at all maintainable. He further contends that respondents Nos. 3, 4 and 5 are not at all the shareholders and respondent No. 2, holds only 10 shares worth Rs. 100 and that it is incomprehensible that respondent No. 2 who holds such a minimum of 10 shares worth Rs. 100 can act as alternate director taking important decisions relating to company affairs. He has taken me to the various sections of the Companies Act like sections 72, 73, 75, 193 and articles 68, 69, 173, 96, 98, 99, 101, 114, 115, 119, 120, 128, 130, 150 of the articles of association and related provisions and submits that the respondents have flagrantly violated the said provisions. He further submits that this court, as a company court, has got ample jurisdiction to grant the prayers sought for and that the words "affairs of the company" should not be understood in a limited sense, but it has to be construed in a comprehensive and a liberal sense embracing all the affairs of the company. He questions the allotment of shares of 1,32,800 on the ground that even though the date is shown as September 30, 1993, it is not communicated within the specified time as contemplated under section 75 of the Companies Act and that the same was communicated only on April 7, 1994. He further submits that there cannot be any allotment of shares without application and that such applications are absent, apart from the fact that the shareholders were not communicated about the allotment of shares. He further submits that the first respondent was disqualified to be a managing director of the company as he was already a managing director of another company and that simultaneous managing directorship is impermissible under clause (d) of Part I of Schedule 13 to the Companies Act. He pleads that to undo the wrongs committed by respondents Nos. 1 and 2, this court can invoke its inherent powers to issue appropriate directions in the interests of justice and also to grant the prayers in the interlocutory applications, apart from granting the other prayers. Mr. T. Ramakrishna Rao, learned counsel for the petitioners, has cited the judicial precedents in British India Corporation v. Robert Menzies [19361 6 Comp Cas 250; AIR 1936 All 568, Jiyajeerao Cotton Mills Ltd. v. Company Law Board [1969] 39 Comp Cas 856 (MP), Selvaraj (V.) v. Mylapore Hindu Permanent Fund Ltd. , Manabendra Shah (H.H.) 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.
11. 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 scope of the petition under section 237 of the Companies Act. He takes me to sections 235, 237, 397, 398, 399, 10F, 391, 394, 395, 400 to 407 and particularly, pointing out to the amendments brought to the above legal provisions. He also cites articles 115(c), 132 and 78. He states sections 290 and also 175 coupled with article 78 and section 260 and argues that in the absence of the chairman, the members can elect a chairman. He submits that all interlocutory applications have got no nexus with the main application under section 237. He also submits that the allegations made in the company petition are very vague. He submits that the first respondent is not a managing director of two companies as argued by learned counsel for the petitioners, but the other concern which deals in process control and instrumentation is a proprietary concern and not a company. He submits that the order in the CRP cannot be construed as res judicata determining the rights of the parties finally and the same also does not bind the second respondent as he was not a party to the same and that in any event, the same is now set at naught by the Supreme Court. He cites the decisions rendered in Amirtharaj v. Ramiah Nadar [1968] 38 Comp Cas 337 (Mad), R. Prakasam v. Sree Narayana Dharma Paripalana Yogam [1980] 50 Comp Cas 611 (Ker), Rajendra Menon (R. R.) (No. 2) v. Cochin Stock Exchange Ltd. [1990] 69 Comp Cas 256 (Ker).
Mr. Y. Jaganmohan, learned counsel for respondents Nos. 3 to 5, adopts the arguments of Mr. A. Krishna Murthy.
12. In British India Corporation v. Robert Menzies [1936] 6 Comp Cas 250; AIR 1936 All 568, a Division Bench of the Allahabad High Court was dealing with the power of the company court for directing the furnishing of a copy of the register of members of the company to a shareholder thereof. A rule framed by the Allahabad High Court in exercise of the rule making power under the Companies Act, was also a question for consideration. Basing on that, Mr. T. Ramakrishna Rao, learned counsel for the petitioners submits that even though there is no specific provision in the Companies Act, a company court is having the jurisdiction to enforce compliance with the provisions of the Act in all matters concerning the company. I am afraid, I cannot countenance this argument for the reason that my jurisdiction is invoked only for the purpose of directing 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. , 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 disputes. This decision has got no bearing on this case. In H. H. Manabendra Shah v. Official Liquidator, Indian Electrim Tools Corporation Ltd. [1977] 47 Comp Cas 356, the Delhi High Court held that a written application for allotment of shares is necessary before a person can be entered as a member in the register of shareholders. This proposition cannot be doubted. But, there is a statutory presumption under section 164 of the Companies Act, and it is for the petitioners to rebut the same in the investigation to be conducted. It is for the authorities, either the investigating officials or the Central Government, to consider as to whether there is compliance with regard to the provisions of the Act and also the articles of association pointed out by the petitioners. In Chandigarh Tourist Syndicate P. Ltd., In re [1978] 48 Comp Cas 267, the Punjab High Court entertained an application under section 151 of the Civil Procedure Code, 1908, read with rule 9 of the Companies (Court) Rules, 1959, seeking a direction against the outgoing managing director to hand over the records, keys of the almirahs and the cash on hand relating to the company to the newly elected managing director. The said case has got no application to the instant case, as still the claim and rival claims of removal of the directors and induction of new directors including that of managing director has got to be investigated and such a stage did not come. Handing over the records or other properties of the company will only be a consequent step after the above process is done. In Century Flour Mills Ltd. v. S. Suppiah [1975] 45 Comp Cas 444, the Full Bench of the Madras High Court dealt with the difference between a stay order and an injunction and undid an illegal act done in convening the extraordinary general body meeting of the shareholders in spite of the stay order. This has also got no application in the instant case. In Pravin Kantilal Vakil v. Rohini Ramesh Save [1985] 57 Comp Cas 31 (Bom) the interpretation of sections 391 and 392 of the Companies Act, fell for consideration which in no way is concerned with this case. In Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548, the Supreme Court dealt with the nature of a share as to whether it is a movable property and allied aspects like shareholders' rights, transferability etc., as also the foreign exchange regulations which have got no bearing on this case.
13. 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).
14. 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 Act contemplates several provisions. But, I am now concerned only with one provision, i.e., section 237(a)(ii), under which the power of this court is invoked for directing the Central Government to order investigation by the concerned inspectors. The company court itself is not invested with any powers of investigation under the above provision and all that it can do is to consider the plea of the petitioners as to whether it is a fit case to direct the Central Government to do so. Section 237 conceives of three situations, where the Central Government can appoint inspectors for investigation. The first is when the company itself declares that such an investigation is necessary, the second is when the court makes an order and the third is when the Central Government forms an opinion that circumstances enumerated in clause (b) exist. This court is concerned only with the second aspect, i.e., whether circumstances exist to issue directions to the Central Government which power is traceable to section 237(a)(ii) and it is invoked by the petitioners. Passing such an order for investigation is neither judicial nor quasi judicial. Such an order will not determine the rights of the parties. It only paves the way for action to be initiated either by the parties or by the Central Government or authorities specified. In fact, it was held that an order of the company court directing investigation under section 237(a)(ii) is not a judgment within clause 15 of the Letters Patent and is not appealable. A Division Bench of the Madras High Court in Ramiah Nadar v. Amirtharaj, , laid down the said proposition. The same is based on the authoritative pronouncement of the Constitution Bench of the Supreme Court in Narayanlal v. M. P. Mistry, . When an order by the company court directing investigation in exercise of the powers under section 237(a)(ii) of the Companies Act, is not a judgment determining the rights of the parties, it is ununderstandable as to how the plea with regard to other prayers can be considered at all, as they are not specifically conferred on this court under section 237 of the Companies Act. Even interlocutory prayers cannot be considered as it cannot be said that they are ancillary to the grant of the main prayer. It is needless to mention that all interlocutory applications 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 mis-management, 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 the affairs of a company. When the court directs the Central Government to appoint inspectors to investigate a company's affairs and when the inspector submits a report to the Government, it is only the Government that can move matters as it thinks fit and the party who prompted the court to issue the order under section 237(a)(ii) cannot seek relief on the basis of and on a consideration of the report. In the instant case, a dispute is raised telling upon the interests of the company and its shareholders and status of directors/additional directors or alternate directors, as also the managing director and holding of the meetings, passing of the resolutions and validity thereof and a fact-finding regarding the truth or otherwise of the allegations made by the petitioners may be necessary and further the respondents themselves do not resist such an investigation and in fact, Mr. A. Krishna Murthy, learned counsel for respondents Nos. 1 and 2, submits that in view of the allegations made, respondents Nos. 1 and 2 are prepared to face the same investigation in order to have a clear cut fact finding in that regard and Mr. Y. Jaganmohan, learned counsel appearing for the other respondents also concurs with the submission of Mr. A. Krishna Murthy.
15. In the circumstances, I am inclined to direct the Central Government to appoint inspector/s to investigate into the affairs of the company and the inspector/s so appointment shall report thereon to the Central Government making things clear so as to enable the parties, what course of action they opt to take and also enabling the authorities to take such steps as are necessary. It is needless to mention that for the matters not enumerated under the Companies Act, to be dealt with by the authority/the company court/the Company Law Board, the civil courts' jurisdiction under section 9 of the Civil Procedure Code, 1908, is not barred. But this aspect as to whether the civil suits in O.S. Nos. 458 of 1994 and 1111 of 1994 are maintainable or not is not for adjudication of this court for the reasons stated supra, as this proceeding is only a truncated one specifically dealing with the aspect to order investigation under section 237(a)(ii) and it is for the petitioners to raise the pleas with regard to maintainability of the above civil proceedings and if such contentions are taken, they will be dealt with as triable issues.
16. 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 of the receipt of this order. It is for the Central Government to take such consequent action as deemed fit depending upon the result of the said investigation.
17. Ms. Balajayashree, learned counsel representing the petitioners, at the time of delivery of the judgment, has apprised me that W.P. No. 20440 of 1994, has been filed by the petitioners in this court impugning the proceedings of the Registrar of Companies dated November 2, 1994, and that the operation of the said order has been suspended by this court. She also states that another WPMP No. 25890 of 1994, has been filed seeking permission to the petitioners to hold the annual general meeting and that the same is pending. I refrain from making any comments with regard to the institution of the said writ petition or the interim order passed, as also the pendency of the WPMP and it is for the concerned learned judge to deal with the same. So far as this company petition is concerned, the same is finally disposed of with the directions mentioned above. No costs.