Delhi High Court
Amaan Sachdev & Ors. vs Fahed Abdulrahman Ali Alkhamiri & Ors. on 2 June, 2016
Author: Najmi Waziri
Bench: Najmi Waziri
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgement reserved on: 01.04.2016
% Judgement delivered on: 02.06.2016
+ CO.A.(SB) 39/2013
AMAAN SACHDEV & ORS. ..... Appellants
Through: Ms Manmeet Kaur, Mr Yashvardhan
Bandi & Mr Manan Chaddha, Advs.
versus
FAHED ABDULRAHMAN ALI ALKHAMIRI & ORS. ..... Respondents
Through: Mr U.K. Chaudhary, Sr. Advocate with
Mr Naveen Dahiya & Mr Himanshu Vij.,
Advocates.
CORAM:
HON'BLE MR. JUSTICE NAJMI WAZIRI
NAJMI WAZIRI, J
1. This Company Appeal, preferred under section 10F of the Companies
Act, 1956, (hereinafter referred to as the „Companies Act‟) impugns the order
dated 03.07.2013 in Company Petition No. 26 (ND) of 2013 passed by the
Company Law Board, Northern Region Branch, New Delhi (hereinafter
referred to as the „CLB‟). The impugned order rejected, on merits, the
appellants‟ prayer for an investigation into the Respondent No. 12-company
under section 235 of the Companies Act.
2. It was the appellants case before the CLB that Mr. Amaan Sachdev
and Mr. Aneel Sachdev held a total of 10,000 equity shares of Rs. 10 each,
they held 100% of the total voting power of the Respondent No. 12-company
thus the petition under section 235 was maintainable; they claimed to have
CO.A.(SB) 39/2013 Page 1 of 20
noticed several irregularities in the affairs and day-to-day running of the
respondent No. 12-company; that the respondents had carried out various E-
form filings with the ROC without obtaining proper approval from the Board
of Directors and shareholders of the company. These alleged irregularities
included:
i. Holding meetings without the requisite period of notice required
by law.
ii. Increasing the share capital of the company from Rs.1,00,000/-
to Rs.1,40,00,000/- through an Extraordinary General Meeting
convened without the permission of the appellants, who were
shareholders at the time, and thereby reducing the shareholding
of the appellants from 100% to 0.73%.
iii. Appointing respondent Nos. 1 and 2 as directors of the company
and not providing an explanatory statement for the same.
iv. Forcing appellant Nos. 2 and 3 to resign from the Board of
Directors without their consent.
v. Allotting shares of the company to companies based in Kuwait.
vi. Fraudulently changing the registered address of the company
three times.
vii. Filing irregular balance sheets from 2005 to 2011.
3. The appellants contend that an investigation under section 235 of the
Companies Act ought to be carried out to ascertain the truth behind these
alleged unscrupulous activities of the respondents. section 235 reads as
follows:
"235. Investigation of the affairs of a company.
(1) The Central Government may, where a report has been
made by the Registrar under sub- section (6) of section
234, or under sub- section (7) of that section, read with
CO.A.(SB) 39/2013 Page 2 of 20
sub- section (6) thereof, appoint one or more competent
persons as inspectors to investigate the affairs of a
company and to report thereon in such manner as the
Central Government may direct.
(2) Where-
(a) in the case of a company having a share capital, an
application has been received from not less than two
hundred members or from members holding not less than
one- tenth of the total voting power therein, and
(b) in the case of a company having no share capital, an
application has been received from not less than one- fifth
of persons on the company' s register of members, the
Company Law Board may, after giving the parties an
opportunity of being heard, by order, declare that the
affairs of the company ought to be investigated by an
inspector or inspectors, and on such a declaration being
made, the Central Government shall appoint one or more
competent persons as inspectors to investigate the affairs
of the company and to report thereon in such manner as
the Central Government may direct."
4. The appellants therefore filed a petition under section 235 of the
Companies Act before the CLB. Vide the impugned order dated 03.07.2013,
the CLB reasoned as under:
"6. After going through the contents of the Petition,
replies, rejoinders and arguments (oral and written),
prima facie, it is clear that the Petitioners were initially the
shareholders with 100% voting power in the company.
However, the petitioners have alleged that Respondent
No.1 has filed E-form with the ROC for the appointment of
R-2 as Executive Director, resignation of Petitioner No.2
and 3 from the post of Director; increase in the authorized
capital from Rs.1 lakh to Rs.1.40 crores, allotment of
shares on various dates, change in the registered office of
the company three times and holding of Annual General
Meeting at a shorter notice without seeking consent of
100% shareholders. In addition, some errors have been
pointed out in the compliance certificates and balance
sheets for the years ending 31.3.2005, 31.3.2006,
CO.A.(SB) 39/2013 Page 3 of 20
31.3.2007, 31.3.2008, 31.3.2009, 31.3.2010 and 31.32011.
All these allegations and irregularities are based on the
documents filed by the company with Registrar of
Companies and these returns/forms are available within
public domain. As such, facts/violations/irregularities have
been observed by examination of
papers/returns/documents/forms of the company available
on the Portal of Ministry of Corporate Affairs. In this
context, the observations made in the case of Binod Kumar
Kasera Versus Nandlall & Sons Tea Industries (P) Ltd. &
Ors. (2010) 153 Comp Cas 184(CLB) [page 210, 211;
para 40] are relevant which states that the object of an
investigation u/s 235(2) of the Act is to discover something
which is not apparently visible to the naked eye and where
a petition discloses merely facts which are apparent from
the balance sheet of the company, an investigation will not
be ordered. In the present Petition, the contraventions and
irregularities have already been noticed and stated by the
Petitioners in the Petition and these matters have also been
taken up with the various law enforcing agencies including
SHO, Safdarjung Police Station, New Delhi, SHO Kalkaji
Police Station, New Delhi, Economic Offences Wing, New
Delhi, Registrar of Companies, Hon'ble Judical First Class
Magistrate Court-I, Kochi and Chief Metropolitan
Magistrate, Saket District Court, New Delhi. Under these
circumstances, it is inferred that the Petitioners have
already observed and collected evidences pertaining to the
violations, irregularities and statutory non-compliances.
But, as stated by the Respondents, there was some deed of
settlement which was signed on 12th July, 2010 and the
Respondent Advocate has also stated that the amount of
Rs.12.7 crores have been invested by the Kuwait Group
Companies from the incorporation while not a single
penny has been invested by the Petitioners except Rs.1 lakh
paid at the time of incorporation of the Respondent No.12
Company on behalf of AI Futtooh Investments and its
associates and the said amount of Rs.1 lakh has already
been paid to the Petitioners in the year 2004 itself.
However, the main grievances of Petitioners relate to
dilution of shareholding of the Petitioners, removal of
Petitioner No.2& 3 from the directorship and appointment
of Respondent No.2 as Executive Director and prima facie,
CO.A.(SB) 39/2013 Page 4 of 20
documents/returns/forms pertaining to these controversial
matters are available on the Portal of the Ministry of
Corporate Affairs and the same can be used for action u/s
397/398 of the Companies Act, 1956. Admittedly, the
investigation u/s 235 of the Act is a fact finding process
and to order investigation, the power is administrative in
nature. But in the instant case, the facts are already known
and nothing new is to come out in the process of
investigation. This view is also substantiated by the fact
that these matters have been filed with various law
enforcing agencies including Courts based on the
papers/documents available with the petitioners. In view
of this, the balance of convenience does not go in favour of
the petitioners and hence, the prayer made in the petition
for ordering investigation u/s 235 of the Companies Act,
1956 does not stand on merits. As such, the prayer for
ordering investigation u/s 235 of the Companies Act, 1956
is hereby rejected.
7. The Company Petition is disposed of accordingly.
Interim reliefs, if any, are hereby vacated.
8. No order as to cost."
5. Aggrieved by this order, the appellants have preferred this appeal.
6. The appellants submit that the entire proceedings on behalf of the
respondents before the CLB was without due authority since the special
power of attorney on behalf of respondent Nos. 1 and 2, authorizing Mr.
Anshuk Pasricha to pursue the matter before the CLB, had not been notarised
or apostilled before any agency or the Government of India or of the Indian
Consulate in Kuwait. The appellants rely upon the settled principle of law
laid down in the case of Rupak Gupta and Ors. v. Banaras House Pvt. Ltd.
and Ors., C.P. No. 75(ND)/2012 which held that the sanctity of affidavits
must be strictly adhered to. In the written arguments before the CLB
(annexed as Annexure P-11 to this appeal) the following objection was taken:
"The Petitioners wish to highlight that this special power
of attorney, on the basis of which Shri Anshuk Pasricha
CO.A.(SB) 39/2013 Page 5 of 20
has sworn the affidavit is neither notarise, nor apostilled
nor attested as mandatorily required by law and given that
the said special power of attorney was executed outside of
India it was required to be presented before the consulate
of the Indian Government in Kuwait for it to be legally
valid. The said special power of attorney does not fulfil
any of these requirements and therefore Shri Anshuk
Pasricha cannot swear any affidavit before this Hon‟ble
Bench or for that matter before nay Court till such time
that his special power of attorney is executed in
accordance with law. For that reason alone, the Short
Reply field on behalf of Respondent No.12 before this
Hon‟ble Bench taken be taken on record since it suffers
from the infirmity that it does not have a legally sworn
affidavit. It is the submission of the Petitioners that this
Hon‟ble Bench may therefore disregard each and every
averment made in the said reply and not place any reliance
on the same."
7. The learned counsel for the appellants submits that the impugned order
has not even referred to this objection which is most preliminary in nature as
it discusses the issue of authorization of a person to pursue the case before
the CLB. In effect, the contention is that in the absence of due authorization
before a notified Government officer, such representation on behalf of the
company would be non est in the eyes of law.
8. In reply, the respondents contend that this is a curable technical defect.
The learned counsel for the respondents refers to the judgments of the
Supreme Court in Union Bank of India v. Naresh Kumar and Ors., (1996) 6
SCC 660 and this Court in Mahesh Nathani v. Sir Edward Dunlop Hospitals
India Limited, 2005 (82) DRJ 136 which have held that defects relating to
authorization of power of attorneys can be cured and ratified even at the
appellate stage. Mahesh Nathani (supra) held:
"22. It is thus clear that the petitioner has confirmed that Mr.
Gulati was appointed his attorney by executing attorneys dated
16th July, 1997 and 27th December, 1997. Further, in this
CO.A.(SB) 39/2013 Page 6 of 20
power of attorney dated 18th October, 2004, action of Mr.
Gulati having instituted this very company petition is specifically
approved and ratified. Thus not only power of attorney on a
valid stamp paper as per Indian Law is produced, there is a
specific authorisation for instituting present proceedings as well.
Therefore, the objection of the respondent that there is no
specific authorisation to file a company petition is ill founded
and reliance on the judgment of this court in the case of J.S.
Bhalla v. G.J. Bhawnani 23(1983) DLT 125 or in the case of
Shantilal Khushalda and Bros. Pvt. Ltd. v. Smt. Chandanbala
Sughir Shah and Anr. (Vol.77) 1993 Company Cases 253
(Bombay) shall also be of no avail. If the earlier power of
attorney was not stamped as per Indian Law, it was a mere
irregularity which could be cured. The Supreme Court in the
case of United Bank of India v. Naresh Kumar and Ors. (1996) 6
SCC 660 went to the extent of holding that such ratification can
be proved even at Appellate stage. Therefore, I do not find any
force in this preliminary submission of the respondent."
9. The respondents further contend that the acts of Mr. Anshuk Pasricha
have accordingly been ratified by a Board Resolution dated 13.04.2015. The
Court finds that in view of the preceding discussion of the law on curability
of the defect and the subsequent ratification of the acts of and authority in
favour of Mr. Pasricha by the company, the preliminary objection of the
appellants is untenable and is therefore rejected.
10. The learned Senior Advocate for the respondents has raised a
preliminary objection that this petition is not maintainable because the
appellants have also filed C.P. No. 133/2013 before the CLB through which
they have availed the proper remedy under sections 397 and 398 of the Act.
He contends that the prayers in C.P. No. 133/2013 are of wider amplitude and
encompass even the prayers of the present petition, rendering the present
petition redundant and since the matter is sub-judice before the CLB; (ii) the
appellants cannot pursue two separate proceedings for the same cause of
action as it amounts to forum shopping; and (iii) therefore, the present
petition is infructuous and deserves to be dismissed. He further submits that
CO.A.(SB) 39/2013 Page 7 of 20
the factual finding of the CLB does not amount to a judgment within the
ambit of Clause 15 of the Letters Patent, 1865 and as such cannot be
appealed by an aggrieved party. He relies on the case law laid down by the
Calcutta High Court in Mayank Kocher v. Transport & Handling Equipments
MFG. Co. P. Ltd, (2008) 143 Comp Cas 601 (CLB). While discussing
section 235 of the Act, the order records that:
"Under this Section directing an investigation is only
analogous to the issue of a fact finding commission by a civil
court for looking into accounts or making an investigation
and does not amount to a judgment within Clause 15 of the
Letters Patent, so as to enable an aggrieved party to appeal."
11. Refuting this, the learned counsel for the appellants argues that an
appeal under section 10F of the Companies Act is maintainable even if the
order is judicial, quasi-judicial or administrative in nature; that in the case of
R.P. Khosla v. Connaught Plaza Restaurant Pvt. Ltd. & Ors., (2014) 184
Comp Cas 305 it was held that even assuming the orders of the CLB were
administrative in nature, the language of section 10F is wide enough to cover
even these administrative decisions.
12. The appellants contend that not ordering an investigation despite a
preliminary observation of irregularities in the running of the company
cannot be maintained. The Court however notes that the CLB has not made
any adverse observations against the affairs of the Company accept for
recording the allegations of the appellant and instead it has observed that
Section 235 cannot be used to initiate investigations merely on the allegations
of a shareholder nor would an application be maintainable unless it met the
requirement of Section 235 of the Act
13. He further contends that the impugned order erred in not appreciating
the real intent behind the section 235, under which the investigation is to be
CO.A.(SB) 39/2013 Page 8 of 20
of a very preliminary nature and is only meant to shed light on the affairs of
the company, and the CLB cannot substitute its own opinion for that which
may be brought out from an investigation. He further contends that an
investigations under section 235 is neither criminal in nature nor is it to be
conducted by police; that the requirement of a minimum shareholding under
section 235 has to be read liberally and cannot be a bar to the present
proceedings because a similar requirement is stipulated under section 399 of
the Act with respect to applications under section 397 and 398. He contends
that this principle should be liberally interpreted and extended to also apply
to investigations under section 235; that as the question of the voting power
being reduced to below 10% constitutes the cause of action for this petition
under section 235 of the Act, the same should be investigated to reveal the
true state of affairs of the company. He submits that, as was held in Citicorp
International Finance Corporation case (supra), an "(a)n order to
investigate under Section 235 of the Act, in any case cannot prejudice the
respondents" because the direction of holding an investigation under this
section is similar to the appointment of a fact finding commission. He relies
upon the judgement in Shri Kishan Khariwal vs. The Ganga Nagar Industries
Ltd. & Ors., [2004] 118 Comp Cas 626 which held that where the dispute
related to reduction of shareholding to less than 10%, the same would not be
a bar under section 399. It held:
"This Board has always taken the view that if the shareholding of
the petitioners is reduced below 10% of account of further issue of
shares and if the issue of further shares is also challenged in the
petition, then, the petition will not be dismissed as not maintainable
in terms of Section 399. Instead, the allegation relating to the issue
of further shares would be examined first as to whether the same is
an oppressive act and if it is found to be so, then only other
allegations in the petition would be examined."
CO.A.(SB) 39/2013 Page 9 of 20
14. The appellants contend that the money which was received by them
under Foreign Direct Investment was only a loan from the companies M/s Al
Futtooh Investment Company, M/s Hamoor International Trading and M/s
Kuwait Investment Projects Company. The appellants refer to the Foreign
Inward Remittance Certificates (FIRCs) which would indicate that the money
came into the country in the form of borrowings from the abovementioned
Kuwaiti companies. They submit that the respondents have failed to produce
any documentary evidence to show any connection between respondent Nos.
1 and 2 with the three abovementioned Kuwaiti companies and that this
raises certain doubts regarding the correlation between these entities.
15. The respondents refute this claims and contentions of the appellants.
They argue that the appellants, who are in fact legal professionals,
incorporated the respondent No.12-company on behalf of respondent Nos.1
and 2; that the appellants have been paid for their legal services and the
money, which the petitioners claim to have received in the form of a loan,
was actually Foreign Direct Investment against equity in the respondent
No.12-company. The respondents place reliance upon the Foreign Inward
Remittance Certificates (FIRC), which show the contribution made by the
respondents.
16. The learned Senior Advocate submits that, in any case, the
appellants do not qualify the threshold criteria of holding a minimum of
one-tenth of the total voting power in the respondent-No.12 company, as
required under section 235(2) of the Act; that it is an admitted fact that the
shareholding of the appellants is only 0.73% and that this is, therefore,
fatal to their case. He submits that the meaning of 10 per cent of voting
power has been considered in Smt. Chandra Prabha and Another v. Hotel
Shweta (P) Ltd. & Others (1995) 4 Comp LJ 540 (CLB) which held as
under:
CO.A.(SB) 39/2013 Page 10 of 20
"13. The petitioners have filed the petition under Section 235 read
with Section 237(b) of the Act. As per Section 235(2) of the
Companies Act, 1956, an application for a declaration for
investigation has to meet the minimum qualification, namely, that it
should be from not less than 200 members or from members
holding not less than one tenth of the total power. According to the
petitioners, the total paid up capital was Rs.50.52 lakhs and their
holding was within the limits. The respondents, however, contend
that, on the date of petition, the paid up capital was Rs.75 lakhs.
From a scrutiny of Form No. 2 within regard to the additional paid
up capital was Rs. 75 lakhs. From a scrutiny of Form No. 2 with
regard to the additional allotment of Rs.24.48 lakhs, it was found
that the allotment was stated to have been made on 28.2.92/demand
draft was also obtained towards filing fee on 4.3.92, but the actual
filing appeared to have been done with Registrar of Companies
after the petition was filed. However, in view of the demand draft
being dated March, 1992, which showed the contemporaneity of the
allotment, and in view of the audited balance sheet for the year
ended 31.03.1992 reflecting the paid up capital as Rs.75 lakhs, the
voting strength was determined by reckoning the paid up capital of
Rs.75 lakhs. As such, on the date of filing of the petition, i.e., 17
November, 1992, the petitioners held less than one-tenth of the total
voting power and so could not maintain this application under
section 235 of the Act. We, however, in view of the circumstances as
set out in the petition and the various pleadings ast(sic) the facts,
having regard to the provisions of Section 237(b) of the Act, the
various circumstances set out in the pleadings were considered as
„information‟ for examining whether there was justification for
forming an opinion, with regard to investigation under that section.
"
17. Likewise in In Re: Shree Rama Multi Tech Ltd. [2005] 63 SCL 154
(CLB), the CLB relied upon the judgment in Smt. Chandra Prabha and
Another v. Hotel Shweta (P) Ltd. & Others (supra) and held as under:
"I have gone through the pleadings and heard learned counsel for
both the parties and it is observed that the petitioner has not
fulfilled the conditions laid down for filing petitions under Section
235 as the present petition under Section 235 has not been filed by
200 members or from members holding not less than one tenth of
the total voting power. Accordingly, the company petition No.
CO.A.(SB) 39/2013 Page 11 of 20
46/2003 is not maintainable under Section 235(2) and the same is
dismissed being not maintainable."
18. The learned senior advocate argues that the scope of Section 235 and
Section 397 and 398 of the Act are different. He submits that legislative
intent behind section 235 is ambiguous, the requirement is that the applicant
should have at least 1/10 of the voting power. He relied upon the ratio of
Mayank Kocher vs. Transport & Handling Equipments Mfg. Co. Pvt. Ltd,
which held:
"8. By the impugned order the Company Law Board held that the
nature of investigation that the petitioner before it had sought could
be more meaningfully conducted in proceedings under Section 111
or under Sections 397 and 398 of the Act. What the Company Law
Board implied was that there would be a logical consequence of
such investigation if ordered in the course of Section 111 or
Sections 397 and 398 proceedings in that upon investigation and
the result thereof, the petitioner's right to relief could be assessed.
9. It is beyond question that an investigation under Section 237 can
be directed upon subjective satisfaction of the existence of
circumstances enumerated in Section 237. If, however, it is shown
or the Company Law Board is otherwise satisfied that such
circumstances do not exist or that the facts and allegations are such
that it is impossible to form an opinion as to the existence of such
circumstances, an investigation is not called for....."
19. The learned Senior Advocate discerns between the language of section
235 and section 399 of the Companies Act and asserts that the legislative
intent behind these sections is unambiguous, insofar as section 235 requires
an application for investigation to be received from members holding not less
than "one-tenth of the total voting power" in the company whereas Section
399 requires an application from members holding not less than "one-tenth of
the issued share capital" of the company. To support his proposition he relies
upon the ratio of Mayank Kocher vs. Transport & Handling Equipments Mfg.
Co. Pvt. Ltd (supra) which held:
CO.A.(SB) 39/2013 Page 12 of 20
8. The said prayers apart from being prayers, which could be
prayed for only in a petition under Section 111 of the Act of 1956
clearly reveal along with other averments made in the petition that
the petitioner is not a shareholder and is, therefore, not entitled to
maintain the petition. Since as on date (or as on date of filing of the
company petition), he is not a member of the respondent-company,
he, therefore, has no locus standi to inspect and take copies of the
documents of the respondent-company. Reliance is placed on the
judgment of the hon'ble Delhi High Court in the case of V.V. Purie
v. E.M.C. Steel Ltd. [1980] 50 Co. Cas 127, wherein it is held that a
person having no manner of interest or concern in the company as
a shareholder, creditor or otherwise, has no locus standi to prefer
an application to the court for an order under Section 237(a)(ii) of
the Companies Act, 1956, declaring that the affairs of a company
ought to be investigated by an inspector appointed by the Central
Government. The judgment further lays down that (headnote):
Though Section 237 is couched in very wide language, the
basic limitation that the courts will not entertain action on
behalf of private persons to enforce the observance of
public rights and duties unless they have a personal
interest in the matter and unless their rights and interests
are in some way affected, is implicit in the interpretation of
the section.
20. The learned Senior Advocate for the respondent submits that the
Calcutta High Court was of the opinion that any report under Section 235 is
more in the nature of an investigative report; it is a matter of finding facts and
is not a judicial order, and therefore the analogy to this appeal would not lie
in the present case. He contended that the proper and effective remedy for the
appellants would lie under Section 397 and 398 of the Act. He also
contended that the appellants are concealing the fact that the parties had
signed a deed of settlement on 12.07.2010. He states that the appellants have
no right to pray for an investigation to be carried out under Section 235 of the
Act since they have not approached this Court with clean hands.
21. In rebuttal, the learned counsel for the appellants cites the judgment of
Rohtas Industries v. S.D. Agarwal and Ors., (1969) 139 Comp Cas 781 (SC),
CO.A.(SB) 39/2013 Page 13 of 20
wherein the Hon‟ble Supreme Court set aside a impugned order of the High
Court and held that in cases of allegations of fraud on the part of the directors
of a company, an investigation must be carried out if there is prima facie
evidence of any intent to defraud, fraudulent or unlawful activities, or
instances of misconduct. The judgment observes as under:
"39. Coming back to Section 237(b), in finding out its true
scope, we have to bear in mind that that section is a part of the
scheme referred to earlier and therefore the said provisions takes
its colour from Sections 235 and 236. In finding out the legislative
intent we cannot ignore the requirements of those sections. In
interpreting Section 237(b) we cannot ignore the adverse effect of
the investigation on the company. Finally, we must also remember
that the section in question is an inroad on the powers of the
company to carry on its trade or business and thereby an infraction
of the fundamental right guaranteed to its shareholders under
Article 19(1)(g) and its validity cannot be upheld unless it is
considered that the power in question is a reasonable restriction in
the interest of the general public."
22. The appellants further rely upon the dicta of Raghunath Swarup
Mathur v. Har Swarup Mathur & Ors., (1970) 40 Comp Cas 282 (All),
wherein it was held that in appropriate cases, a probe under Sections 235 to
237 may be a necessary prelude to proceedings under Sections 397 to 399 of
the Act. It reads as under:
"28. Before concluding, I may indicate a procedure which could, in
appropriate cases, be held to be a necessary prelude to proceedings
under Sections 397 and 398. Sections 235 to 237 of the Act
empower the Central Government to appoint one or more
inspectors to investigate the affairs of a company and to submit a
report, which is made legally admissible evidence, by
Section 246 of the Act, in proceedings before a court of law. Such a
report could provide the basis of action by the Central Government
against a company under either Section 397 or Section 398 of the
Act, as laid down by Section 243 of the Act, or, for recovery of
damages in respect of any fraud, misfeasance, or other misconduct
in the management of the company's affairs, where this is necessary
CO.A.(SB) 39/2013 Page 14 of 20
in public interest, as provided by Section 244 of the Act. It could,
therefore, be urged, in cases where a detailed inquiry into the
conduct of the affairs of a company is called for, that a petition
under either Section 397 or Section 398 of the Act, without applying
for such an inquiry, under Section 236 of the Act, is premature."
23. The learned counsel for the appellant submits that, in the present case,
the benefit of ordering an investigation under section 235 would bring clarity
to the dubious position of the company as well as the prima facie irregular
filings done by it. The appellants finally rely on the dicta in J.P. Srivastava&
Sons (P) Ltd. and Ors. v. Gwalior Sugar Co. Ltd., (2005) 1 SCC 172, to
contend that the legislative intent behind restricting the filing of petitions
under Sections 235 and 397 is to prevent frivolous litigation. They argue that
the requisite shareholding for filing petitions shall not be permitted to be used
as a protective shield by wrongdoers who mismanage and play frauds on
companies. According to the appellants, what is required is that there must be
enough material on record so as to raise a doubt regarding instances of foul
play in the management of the affairs of the company and that, as also
observed by the CLB, this is present within these set of facts.
24. Having considered the aforestated contentions, the Court is of the view
that the present appeal oversteps its statutory applicability. What is
undisputed is that the appellant fails to meet the threshold of 10% share of the
total voting power as is necessary under section 235 of the Act. Therefore,
that is his first impediment in directing an investigation and the application
under section 235 as well as this appeal would not be maintainable.
Furthermore, in section 397 and 398 of the Act, which deals with application
for relief in cases of oppression and mismanagement respectively, required
the applicant to have at least 10% of the issued share capital. It is only in
applications under Section 397 and 398 of the Act, where the challenge in
such applications is to reduction of the issues share capital itself, through
CO.A.(SB) 39/2013 Page 15 of 20
oppression or mismanagement then the threshold of 10% would not be
applicable.
25. The Court would note that Mayank Kocher (supra) discusses the
Barium Chemicals Ltd. V. Company Law Board [1966] 36 Comp Cas 639
(SC) and another judgment, Shankar Sundaram v. Amalgamations Ltd.
[2002] 111 Comp Case 252 (Mad), rendered by a Single Judge of the Madras
High Court, and agrees with the latter that notwithstanding S.237, the CLB
had the power to investigate under Section 397/398 of the Act. It went on to
hold that an investigation under S. 237 can be directed upon the subjective
satisfaction of the existence of circumstances as enumerated in the said
section. This means that if the CLB comes to the conclusion that
circumstances as mentioned in S237 do not exist, or that it is not possible to
form such an opinion of the existence of such circumstances on the basis of
available facts and allegations made by the applicant, then no investigation
will be warranted.
26. The present impugned order has taken into consideration the facts
taken on record as well as the allegations of wrongdoing made by the
respondents regarding digital signatures, reduction in shareholding and
voting rights of the petitioners, their removal from directorship from the
company, infusion of share capital and change of registered office of the
company twice. All this information has been made available through filing
before the Registrar of Companies from the years 2005 onwards and the
impugned order takes into consideration the same and concluded that nothing
new could come out in the process of investigation. Therefore it formed the
opinion that the circumstances mentioned in S. 237 did not exist so as to
trigger any investigation. The Court finds that in the circumstances the CLB
had taken into the available facts on record and the conclusion arrived at
cannot be faulted.
CO.A.(SB) 39/2013 Page 16 of 20
27. The impugned order has relied upon the judgment of the Kerala HC in
Mrs U.A. Sumathy and Anr. v. Dig Vijay Chit Fund (P) Ltd., 1983 53
CompCas 493 (Ker) which held that section 235 does not lay down what
precise circumstances are to be proved so as to trigger an investigation but in
the least the materials on record to be examined must be such as to satisfy the
court that a deeper probe into the company affairs are desirable in the interest
of the companys‟ itself. The impugned order also relied upon the ratio in
Binod Kumar Kasera vs Nandlall & Sons Tea Industries (P) Ltd. & Ors.
(2010) 153 Comp. Cas. 184 (CLB), which held that where the facts are
disclosed on the basis of the records, like the balance sheet of the company,
an investigation would not be ordered. Hence, there must exist at least a
prima facie evidence that the affairs of the company are being run in a
fraudulent and unlawful way so as to defraud its creditors or is contrary to the
interest of the company itself which would lead to the conclusion that an
investigation would be necessary. Mere allegation of a disgruntled
shareholder would not be a sufficient ground to order an investigation.
28. The appellants have sought an investigation regarding the irregularities
mentioned in paragraph 2 hereinabove, which relate primarily to documents
already on record. It is the effect of these documents which would be
examined in the proceedings under Section 397 and 398, which, incidentally,
have already been preferred by the appellant. The impugned order has
rightly analysed as in the context of the facts of the case that the appellant,
who initially had 100% voting power in the company were subsequently
allegedly removed/ displaced from the said voting power by respondent no.1
appointing its two executive directors accepting resignation of appellant no. 2
and 3 from the post of Director; increase in the authorized capital from Rs. 1
lac to Rs. 1.40 crores; allotment of shares on various dates, change in the
registered office of the company thrice over; holding of AGM at shorter
CO.A.(SB) 39/2013 Page 17 of 20
notices without consent of 100% of the shareholders; the information was
already available and has been obtained by the appellants through an e-filing
of the E-form before the Registrar of Companies. Other allegations against
the company relate to compliance certificates and Balance Sheets for the year
ending 31.03.2005, 31.03.2006, 31.03.2007, 31.03.2008, 31.03.2009,
31.03.2010 and 31.03.2011, and this information has been gleaned from the
documents and returns and forms filed with the ROC, which are available in
the public domain. Therefore, the effect of the aforesaid documents would
have to be, at best, examined by the proceedings under Section 397 and 398
of the Act. The objective of investigation under section 235 of the Act is to
unearth and find out the new material or data. Since no further information
beyond the aforesaid documents pertaining to the company is likely to be
obtained, the impugned order rightly rejected the application. It also
recorded that regarding other violations, complaints have already been filed
before the law enforcing agencies, including, SHO, Safdarjung Police
Station, New Delhi, SHO Kalkaji Police Station, New Delhi, Economic
Offences Wing, New Delhi, Registrar of Companies, First Class Magistrate
Court-I, Kochi and Chief Metropolitan Magistrate, Saket District Court, New
Delhi.
29. The CLB rightly relied upon the observations in the case of Binod
Kumar Kasera (supra), which held that object of investigation under section
235(2) of the Act is to discover something which is not apparently visible to
the naked eye and where a petition discloses merely facts which are apparent
from the Balance Sheet of the company, an investigation will not be ordered.
The appellants have already approached the relevant authorities for relief.
section 235 cannot be an exercise of roving inquiry, nor could it be invoked
by any person, who does not meet the threshold of 10% voting power
because the repercussions of an investigation would have wide ramifications,
CO.A.(SB) 39/2013 Page 18 of 20
it could cast a shadow upon the functioning of the company, affecting its
stature, goodwill and value of market shares, as may be. The decisions relied
upon by the parties do not show that the requirement of 10% of the voting
power under section 235 has been either read down or diluted. Instead, they
show that the requirement of 10% issued share capital under section 399 may
not be insisted upon where such reduction by way of oppression or
mismanagement itself is disputed. The impugned order has rightly referred
to the ratio in Hariganga Cement Ltd. Vs Company Law Board & Anr. (1988)
Bom 603, which held that the power of the Company Law Board under
section 237(b) of the Companies Act, being wide in nature and scope, the
discussion to use the same should be exercised with immense circumspection
and in a judicious manner. Such discretionary power would have to be
exercised in a reasonable manner and not in the absence of circumstances not
warranting investigation, into the affairs of the company.
30. The impugned order has recorded that, according to the respondents,
there was some deed of settlement signed on 12.07.2010 and that the
respondents had invested an amount of Rs. 12.7 crores whereas the appellants
had made investment of only Rs. 1 lakh at the time of incorporation of the
said company, which amount has already been paid back to him by the
investors‟ group of companies. Any investigation under Rule 235 of the Act
would be a fact finding process and such power would be administrative in
nature. However, since the facts were already known to the parties, through
the statutory filings of the company, no further information would come out
from the investigation. Indeed the said information has already been placed
before the various law enforcing agencies by the appellants for them to carry
out their respective necessary action. Evidently, the impugned order takes
into account all the relevant facts and has come to the conclusion that the
circumstances under Section 237 do not exist to warrant an investigation.
CO.A.(SB) 39/2013 Page 19 of 20
31. In these circumstances, this court does not find any reason to differ or
interfere with the impugned order. The appeal is without merit and is,
accordingly, dismissed.
NAJMI WAZIRI, J.
JUNE 02, 2016 CO.A.(SB) 39/2013 Page 20 of 20