1999 (10) TMI 588 - HC - Companies Law

Summary

Issues:
1. Interpretation of section 237(a)(ii) of the Companies Act, 1956 regarding the power of the Court to direct investigation into a company's affairs.
2. Requirement of impleading the company and its key personnel as parties in a petition seeking investigation.
3. Consideration of the power of the Company Law Board (CLB) in ordering investigations under section 237(a)(ii) of the Companies Act, 1956.
4. The concurrent jurisdiction of the Court and the CLB in matters related to company investigations.

Analysis:

1. The judgment addresses the petitioner's claim under section 237(a)(ii) of the Companies Act, 1956, seeking a direction for the investigation of a company's affairs. The Court clarifies that its role is to declare the need for an investigation by an Inspector appointed by the Central Government, rather than directly ordering the investigation. As the petition did not seek such a declaration and instead requested a direction to the Central Government, the Court finds the prayer misconceived.

2. The Court emphasizes the necessity of impleading the company and its key personnel as parties in a petition seeking an investigation into a company's affairs. Referring to precedent, the Court asserts that natural justice and fairness require the involvement of the company, its Managing Director, and other Directors allegedly mismanaging the company in such proceedings. Failure to include these parties would result in an unfair order and violate the principles of natural justice, leading to the dismissal of the petition.

3. The judgment highlights the role of the Company Law Board (CLB) in matters related to company investigations under section 237(a)(ii) of the Companies Act, 1956. It suggests that the petitioner should first approach the CLB, a specially constituted statutory body with the power to pass appropriate orders in such circumstances. Given the CLB's expertise and jurisdiction in dealing with company affairs, the Court deems it appropriate for the petitioner to seek redressal through the CLB before resorting to the Court.

4. The Court addresses the contention regarding the concurrent jurisdiction of the Court and the CLB in company investigation matters. While acknowledging the concurrent nature of the jurisdictions under section 237(a)(ii), the Court upholds the principle that the petitioner should approach the lower authority first. It emphasizes the importance of specialized bodies like the CLB in dealing with company-related issues and suggests that the petitioner should utilize the statutory remedy available through the CLB before seeking discretionary relief from the Court.

In conclusion, the judgment dismisses the company petition, emphasizing the procedural requirements, the role of specialized statutory bodies like the CLB, and the need for parties to follow the established legal procedures in matters concerning company investigations.