Company Law Board
Eswar Usha Corporation vs Richimen Silks Ltd. on 3 May, 1999
Equivalent citations: [1999]97COMPCAS778(CLB)
ORDER
S. Balasubramanian, Chairman
1. The petitioner, a company incorporated in the Republic of Panama has filed this petition through its power of attorney holder, alleging various acts of oppression and mismanagement in the affairs of Ricimen Silk Limited (the company) under Sections 397/398 of the Companies Act, 1956. Since the petitioner holds only 5,45,000 shares of Rs. 10 each in the subscribed capital of Rs, 10 crores, it has obtained the authorisation of the Central Government under Section 399(4) of the Act to file this petition. A copy of the authorisation is enclosed with the petition as annexure-20. Originally when the petition was heard on January 27, 1998, the petitioner sought certain interim reliefs, ex parte. With a view to hear the respondents, the matter was posted to February 17, 1998, when the respondents were represented by one Shri Naroop, advocate when he made a statement that the company would give inspection of the books of account to the petitioner as prayed for at para. B at page 12 of the petition and as such we did not pass any order on the other interim reliefs sought other than recording the undertaking by counsel for the respondents to give inspection of records of the company. We also directed that replies to the petition should be filed by September 15, 1998, and rejoinder, if any, by April 15, 1998, and posted the matter for hearing on June 11, 1998. On March 20, 1998, we heard an application moved by the petitioner for extension of time to carry out the inspection of the books of account up to April 30, 1998, and accordingly extended the period of filing of reply, etc., to that extent. On this day also, Shri Naroop was present representing the respondents. On June 11, 1998, it was noted that none was present from the respondents side and no reply to the petition was found to have been filed. With a view to give an opportunity to the respondents to file their replies, time was extended up to July 15, 1998, and the matter was adjourned to September 2, 1998, with the directions that a copy of our order on that date containing the directions should be served on the respondents by the petitioner. In the meanwhile, the petitioner filed C. A. No. 280 of 1998 seeking appointment of an interim administrator on the ground that the inspection of the books of account of the company as permitted by the Company Law Board through a chartered accountant has revealed misutilisation of the funds of the company by the respondents for their personal benefits. A copy of the chartered accountant's report was enclosed with the application. When this application was moved on November 17, 1998, we advised counsel to serve a copy of the same on all the respondents to enable them to file their replies and posted this application along with the petition for consideration on December 14, 1998. We also directed that a copy of the order containing the directions should be served on the respondents by the petitioner. On December 14, 1998, when the matter was taken up for consideration, it was noted that none from the respondents' side was present even though it was stated by counsel for the petitioner that our earlier order indicating the date of hearing today was served on all the respondents. It was noticed that no reply has been filed by the respondents on the petition and it was also seen that the Bench officer has also sent notices to the respondents about the date of hearing on December 14, 1998. Since the respondents have not availed of the various opportunities given by us to file their replies to the petition, we decided to hear the matter ex parte and heard the arguments of Shri Dhawan. We find from the chartered accountant's report enclosed with C. A. No. 280 of 1998 that certain serious observations/conclusions have been arrived at by him in regard to the financial management of the company. Since, the respondent-company is a public listed company, we considered it appropriate that one more opportunity should be given to the company/other respondents to explain their stand with regard to the allegation made in the petition as well as in C. A. No. 280 of 1998. Accordingly, we once again directed the respondents to file their replies to the petition as well as C. A. No. 280 of 1998 by March 10, 1999. Accordingly, the petition was posted for hearing on March 31, 1999. On this day, one Shri Baugapati Prasad, advocate appeared for the respondents to state that he was appearing on instructions from his clients but no vakalatnama has been given in his favour and that no case papers also have been given to him. This led us to believe, especially in view of the fact that the respondents have not chosen to file any reply that they were not interested in participating in these proceedings. Accordingly, the order is being issued ex parte.
2. The company is a listed company with a subscribed capital of Rs. 10 crores. It is averred in the petition that it has over 48,000 shareholders of which nearly 4,000 of them being NRIs. It appears that the company is a part of Richimen group of companies having a few other public limited companies in the group. It appears as a part of mobilising funds, the second respondent induced a number of NRIs to subscribe to the share capital of the company by giving a rosy picture about the prospects of investment in the company and the petitioner has contributed Rs. 54.4 lakhs for 5.45 lakhs equity shares of Rs. 10 each in 1986. It also appears that after mobilising funds, the respondent-company completely neglected the petitioner by not sending annual reports, etc., which a shareholder is entitled to get. It is seen from the petition that all attempts made by the petitioner to get information about the functioning of the company had failed prompting him to send a complaint to the chairman, Securities and Exchange Board of India, Bombay Stock Exchange, etc. Since nothing came out of these complaints, the petitioner, through its power of attorney at Chennai tried to get inspection done of the records of the company, which was also refused by the company. Only after persistent efforts, in August, 1994, the petitioner could get balance-sheets of the company for the year ended March 31, 1992, and March 31, 1993. It also transpires from the petition that the Department of Company Affairs had conducted an inspection of the records of the company which revealed several violations of the provisions of the Companies Act. We have seen a copy of the show-cause notice issued by the Regional Director, Madras, as annexed at page 64 of the petition in this regard. It is also seen that certain prosecution proceedings have been initiated by the Registrar of Companies.
3. At the request of the petitioner, we permitted him to have the books of account and other records of the company inspected by a chartered accountant. One Shri Ramanath, chartered accountant of Hyderabad, has conducted the inspection. Following are some of the important observations of the auditor.
--No statutory audit has been conducted or accounts presented after the financial year 1992-93.
--Diversion of funds of the company to sister concerns in the form of intercorporate deposits, loans and advances running into lakhs of rupees.
--Discrepancies in the share capital account.
--A huge outstanding of Rs. 1.88 crores as calls in arrears out of the total issued capital of Rs. 10 crores.
--Doubtful nature of local sales and supply of samples contributing nearly 80 per cent, of the total production of the company.
--Non-maintenance of various statutory registers.
--Non-holding of general body meetings after December 20, 1993, and non-presentation of audited accounts before the annual general meeting.
--Under utilisation of the capacity which works out to roughly 10 per cent, of the installed capacity.
As we have already observed, the company is a listed company having a large number of shareholders. The petitioner has clearly brought out that the promoters of the company, after having mobilised enormous amount of about Rs. 7 crores, more particularly from NRIs, have not bothered to conduct the affairs of the company in accordance with the provisions of law and in a prudent manner. The petitioner having invested more than Rs. 50 lakhs has been running from pillar to post to get some information on the functioning of the company without any success. The Regional Director, Department of Company Affairs has also in his report dated July 17, 1998, reported that the company has not filed balance-sheets from 1994 onwards. Notwithstanding the various observations made by the chartered accountant who has inspected the books of account and the fact that the Regional Director has initiated prosecution against the company, the very fact that the company has not finalised its accounts from 1993-94, onwards and that no annual general meeting has been held after 1993, in spite of the fact that it is a listed company, to protect the interest of a large number of shareholders, we consider it appropriate that suitable remedial action deserves to be taken especially when the respondents have not chosen to participate in the proceedings. While we note that the petitioner has sought for appointment of an administrator, we find there are sufficient prima facie materials to exercise our powers under Section 237(b) of the Companies Act to order an investigation into the affairs of the company. Accordingly, we hereby direct the Central Government to carry out an investigation into the affairs of the company and take appropriate further action on receipt of the investigation report. This investigation should be completed at the earliest as the element of public interest is involved. The Bench officer will send a copy of the petition and also a copy of the chartered accountant's report to the Central Government along with a copy of this order. Further, in exercise of our powers under Section 402 of the Act, we also direct the Central Government to appoint a suitable professional person as a director on the board of the company for a period of three years from the date of appointment to effectively monitor the conduct of affairs of the company.
4. With the above directions, we dispose of this petition.