Company Law Board
The Bank Of Rajasthan Ltd. vs Rajasthan Breweries Ltd. And Ors. on 6 June, 2007
Equivalent citations: (2008)1COMPLJ160(CLB), [2007]79SCL395(CLB)
ORDER
Vimla Yadav, Member
1. In this order I am considering the Company Petition No. 54 of 2002 whereby the petitioner namely the Bank of Rajasthan Ltd. has sought investigation into the affairs of the Respondents under Section 237 of the Companies Act, 1956 (hereinafter referred to as 'the Act').
2. The undisputed facts of the case are: The respondent company, namely, M/s Rajasthan Breweries Limited, (hereinafter referred to as the 'Respondent No. 1/Respondnet Company") was incorporated on 31.12.1973 with its registered office at 111 KM Stone, Delhi Jaipur Highway, Village, Shahjahanpur, Tehsil Behror, District Alwar Rajasthan with the main object of carrying on the business of brewers, distillers, and dealers and manufacturers of wine, beer, spirits, alcohol, maltactors, hope merchants, com merchants, brewers, manufacturers and dealers in chemicals, aerated and material waters and other drinks. To deal in and erect factories for the refinement, preservation, dehydration, canning and bottling of vegetable products, milk powder, jams, pickles, ghee, fat cream, ham, pork, poultry and all kinds of meat and vegetables, fruit and cereal products, squashes, syrups, health foods and drinks and cognac of every description whether intoxicating or not. The authorised share capital was Rs. 1,20,00,000 and the paid up capital was Rs. Rs. 20,29,09,000/- The petitioners held 150,00,00,000 divided into 15,00,00,000 @ Rs. 10/- each.
3. The Rajasthan Breweries Limited (hereinafter referred to as RBL) was incorporated on 31.12.1973. On 10th October, 1994, The Bank of Rajasthan Ltd. (hereinafter referred to as the Bank) extended working capital facilities by sanctioning limits under cash credit and L.C. etc. in favour of RBL. As per the loan documents dated 20.1.2005, apart from stocks, the plant and machinery mentioned in Schedule A to the Petition was hypothecated in favour of the Bank. Accordingly, Form- 8 and 13 under Section 125 of the Companies Act was filed with the Registrar of Companies. On 29th December, 1997, based on the request of the RBL, the Bank renewed the sanctioned limits and at this stage sanctioned limits admittedly were Rs. 10.50 crores. In the interregnum, in 1995-1996, RBL converted loan evidently given by IIFL (Respondent No. 2) by issuing shares at the face value of Rs. 10 each at a premium of Rs. 9.50. In view of the fact that RBL had started committing defaults in repayment of the loan; the Bank appointed an Auditor being Ms Syam Lal Aggarwal to inquire into the affairs of RBL. On 4th February, 1998 Ms Shyam Lal Aggarwal submitted their Report (extracts of which are contained in Pages 14 to 15 of the petition). In view of the above, in 1999, the Bank filed a Company Petition bearing C.P. No. 25 of 1999. On 19.5.2000, the Bank also issued a Recall Notice demanding repayment of its dues. Upon failure to pay its dues in May-June, 2000, the Bank filed a proceedings with DRT, Jaipur being O.A. No. 3532000. A sum of Rs. 11.24 crores with interest at the rate of 19.% with effect from 1.6.2000 was clalmed by the Bank in the aforesaid proceedings. In the said O.A., on 26.6.2000, the Hon'ble DRT passed an interim order restraining RBL from transferring and or alienating its assets and also directed RBL to deposit its sale proceeds from business and or its receivable with the Bank. In the Company Petition No. 25 of 1999, the Rajasthan High Court by an order of 20th July, 2000 directed the DRT, Jaipur to decide the O.A. No. 353 of 2000 within a period of three (3) months. Consequently, on 6.9.2000 when the matter came up for hearing before the Hon'ble DRT it (a) Confirmed the interim order dated 26.6.2000; (b) Rejected the request of the petitioner bank to enable it to sell the plant and machinery as per the relevant clause in the loan documents without the intervention of the Court; (c) It also rejected the Bank's application for appointment of Receiver and attachment before the judgment and lastly; (d) The Tribunal, however, appointed a Local Commissioner for preparing an inventory of the stocks. This order was violated because of which an application was moved before the DRT, where it was directed by order dated 5.7.2000 that an inventory be taken with the help of the Superintendent of Police, Alwar. In February, 2001, the RBL filed a petition under Section 141 of the Companies Act before the CLB for rectification of the charges inter alia stating that the Bank had no charge over the Beer Plant.
4. The CLB vide order dated 15.2.2001 directed rectification of changes; upon confirming itself to the position as it obtained on 20.1.1995. Aggrieved by the CLB order dated 15.2.2001, the Bank filed an appeal being Company Petition No. 1 of 2001 in the Hon'ble High Court of Rajasthan. On 4th May, 2001 in the said Company Petition No. 1 of 2001 in the Hon'ble High Court of Rajasthan passed an interim order restraining RBL from alienating and/or transferring its assets. In the meanwhile, between the date of recall Notice in May-June, 2000 till 30.3.2001, RBL had sold various fixed assets as is evident from the balance sheet of RBL, for the relevant period. In order to keep the creditors at bay, RBI, filed a reference with the Hon'ble BIFR under SICA on 11.6.2001. Having got its reference registered under SICA, immediately thereof RBL moved an application in the DRT on 9.8.2001 seeking a stay of O.A. No. 353 of 2000. The DRT however, stayed the proceedings only with respect of principal debtor i.e. RBL but continued proceedings against the indemnifiers. Aggrieved by the same, RBL preferred an Appeal to the DART. The DART by an order dated 29.9.2001, stayed the proceedings even against the indemnifiers. In these circumstances, the petitioner Bank moved an application before the DRT on 5.11.2001 to modify/vacate its order dated 6.9.2000 whereby it had injuncted the bank from selling the assets; in view of the fact that the Hon'ble High Court of Rajasthan by an order dated 20.7.2000 had directed the DRT to complete the proceedings within three months. Since, no orders were passed, the Bank was constrained to file a Writ Petition bearing No. 116 of 2002 before the Hon'ble High Court of Rajasthan. In the said Writ Petition the Hon'ble High Court of Rajasthan by an order dated 13.2.2002 even without issuing notice to RBL directed the DRT to dispose of the application within a period of 15 days. Aggrieved by the said directions of the Single Judge in CWP No. 1176 of 2001, RBL moved an application under Article 226(3) for recall of order dated 13.2.2002. Consequently, by an order dated 14.3.2002, Ld. Single Judge dismissed the Writ petition evidently on the grounds that it was unaware of the fact that the DRT had granted stay against the indemnifiers'; the net effect being that the proceedings against both principal borrower (RBL) and the indemnifier stood stayed and hence, it ought not have passed a direction whereby DRT was requested to decide the Bank's application for modifying its order of 6.9.2000 within a period of 15 days. The Bank, being aggrieved by the aforesaid order filed an appeal before the Hon'ble Division Bench Hon'ble High Court of Rajasthan being Appeal N0.243 of 2002. The Division Bench by a detailed order, keeping in view the fact that more than two years had passed even though originally three months have been given to decide the O.A. to the DRT, observed that the injunction on the Bank to sell its assets ought to be vacated. The Hon'ble Division Bench accorded accordingly. RBL, being aggrieved by the said order filed an SLP before the Hon'ble Supreme Court of India against the aforesaid order dated 23rd May, 2002, the Hon'ble Division Bench of the Hon'ble High Court of Rajasthan. By an order dated 22.7.2002, the SLP of RBL was dismissed as withdrawn. In the meanwhile, the Bank was constrained to file another writ petition being CWP No. 963 of 2002 on account of the fact that despite several letters had been sent to the RBL, it had not given to the Bank a copy of the reference filed with the BIFR. By an order of 14th March, 2002, the Rajasthan High Court in the said writ petition directed RBL to supply a copy of the reference within seven days. RBL realizing that by virtue of order of the Hon'ble Division Bench dated 23.5.2002, the bank will be entitled to sell the assets; it once again attempted to stall the sale of assets by filing a suit through its related company i.e. Texas Brewery Co. Ltd. in the Hon'ble High Court of Delhi. The suit was registered as 1082 of 2002. By an order dated 19.6.2002, the Hon'ble High Court of Delhi passed an ex-parte order in the said suit even without giving notice to the bank permitted the bank to proceed with the auction of plant and machinery which was mortgaged and/or over which the bank had a charge. RBL realizing that this had made matters worse, moved an application under Rule 9 of the Company Court Rules in the pending Company appeal No. 1 of 2001 filed by the bank before the Hon'ble High Court of Rajasthan, for injuncting the bank from accepting bids for sale of the plant. The said application was disposed of by the Hon'ble Single Judge vide order dated 20.6.2002 after recording the conduct of RBL and importantly squarely dealing with the submission of the RBL that the Bank was selling assets i.e. the Beer Plant which was not purportedly charged to it. The Hon'ble Single Judge clearly observed that the order of this Hon'ble Board i.e. CLB was not final.
5. Further, it was pointed out by the counsel for the petitioners that on 16.7.2002, the BIFR passed an order dismissing the reference on the ground that:
i. If the cLalm of the RBL is to be accepted that it has sold the Beer Plant then it is not an industrial undertaking in view of the fact that it had failed to satisfy as to which of its plants was in operation as on 30 March 2001.
ii. It was also held that the net worth of the company was not eroded in view of the dubious pleas raised with respect to the following:
a. Loss of Rs. 27.05 lakhs recorded with respect of the sale of shares of ACIL; an interconnected and related company. This observation was made on the ground that the company had not furnished details of parties to whom shares were sold, how the shares were valued etc. b. Writing off of debts of Rs. 7.93 crores when; in the previous year the sundry debtors were shown at Rs. 4.24 crores (as on 31.3.2000). The BIFR did not allow the losses incurred by the company of Rs. 3.69 crores (Rs.7.93 crores minus Rs. 4.24 crores).
c. The BIFR also did not accept the increase in expenses by Rs. 3.03 crores in view of the fact that for the relevant period the sales had actually dropped while; manufacturing expenses which is a variable cost had increased and also the expenses for power and fuel expenses had increased for which no explanation was provided d. Lastly, it also disallowed the increase in loss by Rs. 2.52 crores on account of un-provided interest and statutory liabilities primarily on the grounds that if these were un-provided why had the statutory auditor not commented on the same in the balance sheet as on 31.3.2001.
6. The counsel for the petitioners further argued that the BIFR at page 227 and 228 at paragraph E have clearly noted the dubious play employed by RBL to sell the Beer Plant. It transpired that the loan given by IIFL to RBL was converted into equity by issuance of shares. The shares were thereafter cancelled and IIFL, was once again, shown as a creditor in the books of RBL. The consideration for the sale of beer plant evidently was adjusted against the said credit. However, at page No. 22 (2nd paragraph) BIFR noted that no valuation was carried out before it was sold and no permission of the DRT was taken even though restraint order was operating against RBL. The BIFR noted at page 22 the statement of the representative that this was an omission in the following words:
The representative of the company had admitted in the hearing that there was an omission on the part of the company not to have gone back to Hon'ble DRT, when Hon 'ble CLB had allowed them to sell the Beer Plant to IIFL.
On 20th September, 2002, the DRT Jaipur in O.A. No. 353 of 2000 passed a final judgment and order..
7. The counsel for the petitioners reiterated that -
a. RBL has been managing its affairs in a manner to defraud its creditors and in executing its nefarious design it has been taking the aid and assistance of its interconnected and/or related companies which are impleaded as Respondents in the petition;
b. Mr. Sanjay Jain who continued to be the director of RBL as is evident from the annual returns and Form 32 filed in the additional documents is a common director;
c. Investigations are also required in respect of sale of shares of or investments made in ACIL. Admittedly, as recorded in BIFR's order dated 16.7.2002 shares of ACIL were purchased at Rs. 12.00 crores and were sold at loss of Rs. 11.1 crores. The details of persons to whom the shares were sold and whether any Valuation report was generated before sale has not been disclosed till date;
d. As regards the sale of Beer Plant, RBL has admitted it had earned a profit of Rs. 23.00 crores. There are no details as to whether valuation was carried out and who were the unsecured creditors to whom money had been paid on generation of profit.
e. Admittedly, RBL has written off the secured creditors, including advances, which includes advances given to supplier to the extent of Rs. 7.93 crores. No details have been submitted as to the persons or entities against whom these debts were outstanding or, the particulars of the suppliers to whom advances had been given. Furthermore, nothing has been stated by RBL as to the steps it took for recovery of the debts. There is not even a reference to a legal notice which RBL could possibly have sent for seeking recovery of the debt.
8. Shri C.S. Yadav, Counsel for the respondents argued that the present petition filed by the bank is an abuse of the process of law and is a coercive measure adopted by the bank for ill motives. Further, the present petition is barred by latches. The bank has alleged that on 4.2.1998, they appointed Mr. Shyam L.Agarwal to audit the company and as per their audit reports they came to know about the financial irregularities of the respondent company. The present petition has been filed in the year 2002 about 4 years after the bank allegedly came to know about financial irregularities of the Respondent No. 1. It is settled law that the cLalmant has to come to the court without any delay or latches. The petitioner is seeking an investigation into the affairs of the respondents and take over all the management and control of the respondent company. It is submitted that the petition of the bank is clearly barred by latches and they are neither entitled for interim nor final relief.
9. It was argued that the petitioner has not placed the correct facts before the Hon'ble Board. The petitioner has not filed agreement dated 20.1.1995 before this Hon'ble Board. It was pointed out that the said agreement was entered into between the petitioner and respondent No. 1 and the canning line of the R-1 company was mortgaged/hypothecated to the bank. The bank with malafide intentions got the entire plant and machinery of the respondent No. 1 charged in their favour. When the respondent No. 1 came to know about such deeds of the bank, the R-1 challenged the same before this Hon'ble Board. This Hon'ble Board vide order dated 13.5.2001 has held that only canning line was charged with the bank and not the entire plant and machinery. The order of the Company Law Board has been appealed by the bank but there is no stay of the operation of the order passed by Company Law Board. The Hon'ble High Court of judicature of Jaipur had only restrained the R-1 from transferring or alienating its assets. It was further directed that the respondent No. 1 would file the revised form No. 8 and 13 for the original charges created on 20.1.1995 and the same has been complied with. The highhandedness of the bank is apparent from this. Further, the bank has intentionally not filed the sanction letter vide which the limits to the tune of Rs. 10.5 crores were sanctioned in favour of Respondent No. 1. It was pointed out that despite sanctioning limits to the extent of Rs. 10.5 crores, the bank did not disburse the entire amount and disbursed only Rs. 5.5. crores. The respondent No. 1 made repeated requests to the bank to release the entire amount but the bank failed to do so, which led to the loss of business to the respondent No. 1, as it could not fulfill the contractual obligations resulting in huge losses.
10. The bank has concealed the material facts that the agreement dated 29.12.1997 was entered into only on the basis that the bank will increase the limits and sanction the entire amount. For this purpose, additional personal guarantees were given by the respondent No. 1 but the bank refused to sanction and release additional limits.
11. Further, it was argued by the counsel for the respondents that the petitioner bank has intentionally not filed the report of Mr. Shyam L. Aggarwal and queries raised by them and the replies made by the R-1. It was reiterated that the answering respondent company has no sister concern much less M/s Asian Consolidated Ind Ltd. M/s Asian Overseas/Mac Overseas and/or Ganesh Exports. The hypothecated goods were not siphoned off as falsely alleged by the petitioner bank. Even the amounts mentioned against the four companies are wrong. Asian Consolidated Ind. Ltd. was paid a sum of Rs. 75.08 lacs and not Rs. 185.38 lacs as alleged. This amount was paid to the said company for purchase of packing material (cans). The amount paid to Asian Overseas was Rs. 50.51 lacs and not Rs. 9.58 lacs as falsely alleged. This amount was paid to the said company for purchase of Calcutta Office. In fact, the said amount was returned by the said company in July, 1997 since the deal could not be finalized and hence the money was returned by the said company. Similarly Mac Overseas was paid only a sum of Rs. l1.68 lacs and not Rs. 12.68 lacs as mischievously and falsely stated by the petitioner bank. This amount was paid towards office rent security for the Delhi Office and it was adjusted in the rent account in due course. The amount paid to Ganesh Exports was towards Mumbai office rent security and the same too was adjusted in the rent account. This position has been repeatedly clarified yet the petitioner bank has been misrepresenting and twisting the facts with malafide and mischievous intent. It was pointed out that the respondent company did not make any dishonest depiction of goods allegedly purchased against L/C as stock available for hypothecation against C/C for availing release of additional funds much less as alleged. In fact as on 31.12.1997 none of the L/C was outstanding and, therefore, the allegation is prima facie misplaced and mischievous. The value of the stock in transit was not inflated the value of stock in transit as on 31.12.1997 was Rs. 32.47 lacs and not Rs. 4 lacs as falsely alleged. The petitioner bank has repeatedly been told that the goods lying in the custom bounded warehouse and the chemicals/malt/lids lying at Mumbai depot may be verified to ascertain the truth. However, it was pointed out that the petitioner has been malafidely harping upon the misrepresentations in order to somehow show the answering respondent company in poor light. Further, it was pointed out that the goods dispatched to the depots were not shown wrongly as alleged. The goods dispatched to depots, till the time they were delivered, belonged to the respondent company and, therefore, there was nothing wrong in the same being shown. Further, there was no encashment as falsely and mischievously stated by the petitioner bank. The amounts received from the distributors were shown as current liabilities much within the knowledge of the petitioner bank. The materials transported to the depots were not sale and the payments that came from the distributors were advances and were duly reflected as current liabilities. The petitioner bank though in full knowledge of the above, it was argued, has twisted the facts and made misrepresentations with malafide intents. Further, there was no wrong depiction of the liabilities by the respondent company much less as alleged. The officials of the petitioner bank have, it was pointed out, periodically verified stocks and liabilities and the same can be vouched from the official stocks and liabilities. There was no inducement much less as imputed to the respondent company. It was pointed out that there was not any disparity between the stock shown and the real value of the stock as alleged. The allegation that the respondent company entered into an agreement with UBL and created first charge on Plant and Machinery against the terms and conditions to facilities granted by bank is frivlous, foul and total misrepresentation. Even though this Hon'ble Board, has rejected the claim of the petitioner bank on the plant and machinery other than the bottling line, yet the bank is harping upon in total disregard of the orders of the Hon'ble Company Law Board and is claiming charge on the said plant and machinery as well. The respondent company was forced to approach UBL, which is one of the leading breweries company in India, to manufacture and supply UBL's products on job charges basis and had, therefore, requested for an advance of Rs. 75 lacs which was to be used for production of UBL brands products. Initially the above advance was to be subject to creation of security of plant and machinery excluding the bottling line which was under charge with the petitioner bank. However, later UBL agreed to advance the amount without creation of any security. Thus there was no irregularity much less as alleged. In fact, the respondent company had to approach UBL because of shortage of working capital caused by the petitioner bank's wrongful withholding of the credit facility to the respondent company. It was further pointed out that the petitioner bank has deliberately not filed the report of M/s Shyamlal Aggarwal dated 4.2.1998, the queries raised by the bank and the reply to the said queries, as the same would have exposed the hollowness of the allegations of irregularities against the respondent company.
12. Shri C.S. Yadav, Counsel for the respondents further argued that the petitioner has placed wrong facts before this Hon'ble Board regarding the orders passed by DRT. It was pointed out, DRT in this interim as well as final order has directed that the hypothecated assets of the respondent No. 1 be sold in order to realise the outstanding amount. The hypothecated assets as per the CLB's order is only canning line and no other portion of the plant and machinery.
13. It was further argued that the position of directors of the company as shown by the petitioner is absolutely wrong. Smt. Nisha Jain wife of Shri Sanjay Jain was a director in M/s IIFL 15 years back and that too only for a month. Smt Nisha Jain was never a director in M/s ACIL. Shri Sanjay Jain was never a director of M/s IIFL. Smt. Neera Jain was director in M/s IIFL 15 years back and that too only for a month. Shri Rakesh Jain was never a director of M/s IIFL. Smt. Ritu Jain was never director in TBCL. Shri Rajiv Jain was never a director of M/s IIFL. Shri R.C. Jain was never a director of IIFL and was director in M/s Mac Overseas 15 years back and that too only for 4 months.
14. Further, it was argued that the bank sanctioned working capital limits only once in the year Jan 1995 and did not disburse it fully till the account has become NPA. No additional funds were ever provided by the petitioner. It was on account of the petitioner that the respondent suffered loss as despite sanctioning, the petitioner failed to disburse the entire sanctioned amount; consequently the respondent was not able to fulfill the orders in hand.
15. It was pointed out by the counsel for the respondents that the company had sold fixed assets on 31.3.2001 and no order passed by DRT Jaipur was prevalent at that time for restraining the respondent company from alienating the movable and immovable properties. The first such order came only on 4.5.2001 and no properties have been alienated after that. The bank was aggrieved by the said transfer, bank filed proceedings for contempt before DRT, which was dismissed.
16. Further, it was informed that the company got total income of Rs. 23 Crores only from profit on sale of lien free assets i.e. Rs. 12 crores only from profit on sale of lien free assets i.e. Rs. 12 crores assets were disposed off to pay off creditors of Rs. 35 crores. Hence there was no money inflow on this account and hence nothing could have been paid to the petitioner bank. The company has not violated the order passed by the Hon'ble DRT on 6.9.2000 as the order was not to sell the hypothecated property of the company which as per the ROC records was the Canning Line only. The company has not sold the above plant and machinery and hence not violated any interim orders.
17. My attention was drawn to the various cases filed by the petitioner against the R-1. It was pointed out that the list itself shows that the bank is filing one after another frivolous cases against the respondent. It was pointed out that the winding up petition was also filed by the bank. The suit filed by the bank before DRT has already been decreed and recovery proceedings are on. In the meanwhile the bank has also taken steps under Securitization Act. As per the bank's own showing the bank has taken the entire plant and machinery and land of respondent No. 1 in their possession since 3.6.2002 and have deployed there own private course at the factory site. It was argued that in these circumstances, the question as per the bank's own showing their interest as a secured creditor is protected. It was reiterated that the bank is heavily relying upon the order passed by BIFR. The bank is not at all relying upon the order passed by CLB and the inspection conducted on the orders of Ministry of Company Affairs, Union of India, wherein except for the alleged failure to make provision for tax and interest liability, no other discrepancy has been pointed out. It was pointed out that an inspection under Section 209 A and Section 211(7) of the Companies Act, 1956 has been conducted on the order of the Ministry of Company Affairs, Union of India, wherein except for the alleged failure to make provision for tax and interest liability, no other discrepancy has been pointed out. Further, all the records are with the petitioner. In the circumstances ordering investigation would be ineffective. Further, it was pointed out that the petitioner has filed the present petition without inspecting the records of Registrar of Companies with regard to the respondents. The petitioner has given wrong facts and has not been able to establish the facts that all the respondents are connected to each other. All the allegations levelled by the petitioner are baseless. On the allegations levelled in the petition no orders can be passed under Section 237 of the Companies Act, 1956.
18. I have considered the pleadings and the documents filed therewith as well as arguments of the counsels for the petitioner's and the respondents. Petitioners' case is that it is a fit case for ordering investigation under Section 237(b) of the Companies Act, 1956 whereas the respondents case is that no case has been made out for ordering an investigation under Section 237(b) of the Act. Further, the respondents have raised a preliminary objection that this petition is not maintainable as there is a delay of four years, the petitioner came to know of the alleged irregularities through the Auditors' report on 4.2.1998, whereas the petition has been filed in August 2002 after more than four years. This preliminary objection is not tenable as the provisions of the Limitation Act, 1963 do not apply to the proceedings of this quasi-judicial authority which, as per the provisions of Section 10E (5) of the Companies Act, 1956 "shall in the exercise of its powers and the discharge of its functions under the Act or any other law be guided by the principle of natural justice and shall act in its discretion." Of course, latches do apply. But I find none in this case to justify throwing of this petition at the threshold itself.
Although the petitioner has been kept entangled in litigation before various forums at various levels till this financial institution got possession and control of the respondent company's assets to whom it had provided public money as C/C limit against hypothecation of the R-1's assets. First, it remained a disputed fact whether the petitioner had charge against only the canning unit or the entire assets. According to the respondents, the petitioner has charge only against the canning unit and not other assets, though the same were to be charged while finalising terms with the UBL, another concern and the respondents but the entire assets were not charged with the petitioner. However, these facts are not of much relevance for deciding to order investigation under Section 237(b) of the Act. Further, I find that the respondents have, in order to make out their case for non investigation, placed reliance on the issues like the petitioner has not disclosed agreement dated 20.1.95 (regarding charging of canning unit, etc); and non-production of letter dated 29.12.1997 regarding increasing of C/C limit by the petitioner; the auditors' report containing question answers not produced; misrepresentation and twisting of facts by the petitioner--wrong depiction of liabilities; value of stock in transit is not inflated, it is not sale but advance against goods, value was Rs. 32.47 lacs and not Rs. 4 lacs; the discrepancies and so called mismanagement and siphoning off funds pointed out by the petitioner is explained; the petitioner has failed to establish that the respondent companies are connected with each other, some of the family members were directors in these companies but that was long ago; inspection under Sections 209A and 211(7) of the Act have already been carried out now leaving no scope for ordering investigation under Section 237(b) of the Act which would be ineffective, if ordered. I find that the contentions raised by the respondents are not even relevant for considering a case for ordering investigation. Instead of meeting the specific charges and making their case for non-investigation, the respondents have reiterated their grievances that despite the assurance for raising the C/C limit, the same was not raised, the sanctioned amounts were not released. Non-production of certain documents does not weaken otherwise strong case of the petitioner making a prima facie case for investigation by pointing out specific instances including the grounds relied upon by the BIFR. The facts and circumstances of the case reveal the close connection with the respondent companies, the manner in which the transactions have taken place reveals it all that Shri Sanjay Jain is all in all in these connected family concerns which have joined hands in committing irregularities and helping the Respondent No. 1 company in siphoning off funds and escaping the liabilities of the financial institution and thereby causing prejudice to public interest.
19. This Board has an onerous duty to form an opinion with regard to the existence of the intent to defraud...(conditions contained in Section 237(b) are to be satisfied) before ordering investigation under Section 237(b) of the Act. Now coming to the facts of the present case, it has to be determined that whether the conditions as Laid down in Section 237(b) of the Act are satisfied or not. The facts and circumstances of the present case prima facie demonstrate and establish the existence of pre-requisites which compel me to form an opinion in terms of Section 237(b) of the Act. On a consideration of the facts and circumstances of the case, I am satisfied that the grounds for ordering investigation do exist. I find overwhelming material pointing to the circumstances suggesting that the business of the company was conducted for a fraudulent and unlawful purpose with the intent to defraud the general public and the petitioner bank, and the persons concerned in the management of the company have been guilty of fraud, misfeasance or other misconduct towards the company. This is a case squarely covered under the provisions of Section 237(b) as the pre conditions for initiating such action exist as would be clear from the following:
a. Admittedly, as recorded in BIFR's order dated 16.7.2002 shares of ACIL were purchased at Rs. 12.00 crores and were sold at loss of Rs. 11.1 crores. The details of persons to whom the shares were sold and whether any Valuation report was generated before sale has not been disclosed till date;
b. As regards the sale of Beer Plant, RBL has admitted it had earned a profit of Rs. 23.00 crores. There are no details as to whether valuation was carried out and who were the unsecured creditors to whom money had been paid on generation of profit;
c. Admittedly, RBL has written off the secured creditors, including advances, which includes advances given to supplier to the extent of Rs. 7.93 crores. No details have been submitted as to the persons or entities against whom these debts were outstanding or, the particulars of the suppliers to whom advances had been given. Furthermore, nothing has been stated by RBL as to the steps it took for recovery of the debts. There is not even a reference to a legal notice which RBL could possibly have sent for seeking recovery of the debt;
d. If the cLalm of the RBL is to be accepted that it has sold the Beer Plant then it is not an industrial undertaking in view of the fact that it had failed to satisfy as to which of its plants was in operation as on 30 March 2001.
e. The net worth of the company was eroded in view of the dubious pleas raised with respect to the following:
(i) Loss of Rs. 27.05 lakhs recorded with respect of the sale of shares of ACIL; an interconnected and related company, the company had not furnished details of parties to whom shares were sold, how the shares were valued etc.
(ii) Writing off of debts of Rs. 7.93 crores when; in the previous year the sundry debtors were shown at Rs. 4.24 crores (as on 31.3.2000). The BIFR did not allow the losses incurred by the company of Rs. 3.69 crores (Rs.7.93 crores minus Rs. 4.24 crores).
(iii) The BIFR also did not accept the increase in expenses by Rs. 3.03 crores in view of the fact that for the relevant period the sales had actually dropped while, manufacturing expenses which is a variable cost had increased and also the expenses for power and fuel expenses had increased for which no explanation was provided.
(iv) The BIFR also disallowed the increase in loss by Rs. 2.52 crores on account of un-provided interest and statutory liabilities primarily on the grounds that if these were un-provided why had the statutory auditor not commented on the same in the balance sheet as on 31.3.2001.
f. The respondents have taken the aid and assistance of its interconnected and/or related companies which are impleaded as Respondents in the petition and have been managing its affairs in a manner to defraud its creditors and in executing its nefarious design;
g. Mr. Sanjay Jain, the director of RBL is a common director in the connected concerns as is evident from the annual returns and Form 32 filed in the additional documents;
20. The above makes the credentials and intention of the respondent company amply clear. Such credentials raise suspicion. Investigation seems to be the remedy available. The directors owe fiduciary duty to the shareholders and they have to function in not only in good faith but in utmost good faith. But in this case shareholders faith seems to have been belied. It is a case where the respondents and the persons concerned in the management of the company appears to be guilty of fraud, misfeasance and other misconduct towards the company.
21. As regards the respondents' argument that since inspection under Section 209A has already been ordered in the case of the respondent company and hence there is no justification for multiplicity of proceedings for the same action by way of investigation under Section 237(b) of the Act, the scope of inspection and the scope of investigation is entirely different. Inspection does preclude investigation. Section 209A of the Act has been introduced in the place of Sub-section (4), Clauses (b), (c)(d) of Section 209 by Companies Amendment Act (XLI) of 1974) with effect from 1.1.1975 to strengthen the law suitably. Inspection under this Section could not be effective unless the inspector is given power to compel production of books, and to examine on oath, etc., as an Income Tax Officer has under Section 131 of the Income Tax Act. The inspection under this section is not an investigation, though it may lead to one, in case there is anything wrong or objectionable or fraudulent. It is to ensure that there is nothing objectionable in the conduct of the business or affairs of the company. On a perusal of the inspection report, the Central Government may lay the information to police for the purpose of investigation under the Criminal Procedure Code instead of proceeding under Section 235 and 237 of the Companies Act. (Indian Express (Madurai) Pvt. Ltd. v. Chief Presidency Magistrate (1974) 44 Companies Act, 1956 Cases 106(Mad). Scope of investigation under Section 237(b) is very wide as compared to the scope of inspection provided under Section 209A of the Act. The expression "affairs of the company, in Section 237 is wide enough to include violation of any law in the conduct of those affairs which is for the time being in force. An investigation can extend upto the whole range of company's affairs without any limitation as to the period or officers or members to be covered. "Intent to defraud" is not something black and white which can be inspected and picked up. Only investigation can facilitate culling out the "intent to defraud" from a wider spectrum provided by investigation by going deep into the contents investigated. On the other hand inspection under Section 209A only triggers investigation. Violations of the provisions of the Companies Act inspected under Section 209 A only strengthen the ground for investigation. Investigation alone can reveal the true state of affairs. In fact, inspection under Section 209A is a much more stronger ground fortiori for ordering investigation under Section 237(b) of the Act.
22. In the present case the petitioner is on a very sound footing besides having come to this Board bona-fide. Only investigation under Section 237(b) of the Act can bring out the true state of affairs. Let the truth prevail. An order to investigate under Section 237(b) of the Act, in any case cannot prejudice the respondents. An order of this Board under this section, directing an investigation is only analogous to the issue of a fact finding commission. This particular power of the CLB is not of judicial or quasi-judicial nature. It is a power of administrative nature and the CLB may even take the initiative suo-motu or on the application of or information supplied by any shareholder or other person.
23. The respondents' preliminary objection that this petition is not maintainable being barred by limitation, as held above, is not tenable. On consideration of this petition on merits, I find that this petition is maintainable on merits as well. The allegations made in the petition have been substantiated to enable this Board to be able to form a prima-facie opinion to satisfy itself that the circumstances of the case fall under one or the other of the Sub Clause (i), (ii) or(iii) of Section 237(b) of the Act given as under:
237.
(a)...
(b) may do so, (in its opinion or in the opinion of the of the Tribunal) there are circumstances suggesting --
(i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its member, or that the company as formed for any fraudulent or unlawful purpose;
(ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or
(iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, (* *) or the manager, of the company.
Unless the CLB forms an opinion that such circumstances exist, it cannot order an investigation under Section 237 of the Act. For an order under Section 237 of the Act there must exist circumstances which in the opinion of CLB suggest what has been set out in Sub Clauses (i), (ii) or (iii). The petitioners have succeeded to make out a case under Sub Clause (i), (ii) or (iii) of Section 237(b) of the Act. The material placed before the CLB must be such as to justify an order for deeper probe into the affairs of the company. The allegations made in the petition are such a matter as would require an investigation.
24. However, the petitioner's prayer seeking that the Board of Directors of the company be superseded and an Administrator and/or Special Officer be appointed to take charge over the management and affairs and books, papers, records and documents of the company as well as it assets and properties is beyond the scope of Section 237 of the Act. Under Section 237 no orders granting such relief can be given. 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. An order of investigation is not an end by itself, it is only a means to find out the full facts of the acts complained of. It is nothing but an exploratory measure to be proved or disproved with reference to the facts later on ascertained. This discretionary power of the CLB has to be exercised in good faith. An investigation may be ordered when public interest is involved or detriment to the interest of shareholders had been caused surreptitiously. Such investigation should not be taken lightly. Unless proper grounds exist for investigation of the affairs of the company investigation cannot be ordered.
25. In view of the above, I have reason to believe that there is a likelihood of the existence of malpractices envisaged in Clauses (i) to (iii) of Section 237(b) of the Act. To prove this prima-facie case of "intent to fraud" and misfeasance on general public and specifically the financial institution, the petitioner bank in this case conducting the business of the company otherwise for a fraudulent and unlawful purpose, I have no hesitation in granting the petitioner's prayer for ordering investigation under Section 237(b) of the Companies Act, 1956 in view of the foregoing. The facts and circumstances of the case compel me to opine that this is a fit case for ordering investigation under Section 237(b) of the Act. To do substantial justice between the parties, I hereby order that investigation of the respondent companies be carried out by the Central Government under the provisions of Section 237(b) of the Companies Act, 1956 so that the truth can come out about the nature and modus operandi of these transactions.
26. With the above directions, the petition is hereby allowed. No order as to cost.