TMI Blog1971 (8) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... is being conducted with intent to defraud its creditors, members or any other persons and is otherwise fraudulent and in a manner oppressive to its members. The allegations can be broadly summarised under three heads: ( i )that the managing agents have without the permission or sanction of the board of directors purchased capital assets in excess of the prescribed limit and also sold the capital assets in excess of the prescribed limits, such as purchase of aeroplane, setting up of the plant at Bangalore and purchase and sale of one Ambassador car : ( ii )flagrant violation of the provisions contained in section 372 by purchasing the shares of Alembic Chemical Works Company Ltd. and M/s. Dharak Ltd.; and ( iii )purchases at inflated price from certain specified firms in which Mr. Ramanbhai B. Amin, a partner of the firm of managing agents, namely, Nishechi Services, has vital interest. The petitioner has further stated that he has brought all these malpractices to the notice of the Central Government and requested the Central Government to take action under section 237 of the Companies Act to appoint an inspector to investigate into the affairs of the company, but the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government to appoint an inspector to investigate the affairs of any company and to report thereon in such manner as the Central Government may direct in the circumstances mentioned in the section, namely : ( a )in the case of a company having a share capital, on the application either of not less than 200 members or of members holding not less than one-tenth of the total voting power therein ; ( b )in the case of a company not having a share capital, on the application of not less than one-fifth in number of the persons on the company's register of members ; ( c )in the case of any company, on a report by the Registrar under sub-section (6) or sub-section (7) read with sub-section (6) of section 234. Section 236 prescribes the manner of making the application as provided for by section 235. Under section 237, obligation is cast on the Central Government to appoint an inspector to investigate the affairs of the company if ( i )the company adopts a special resolution to that effect and conveys it to the Central Government; or ( ii )the court by its order directs the Central Government to appoint an inspector to investigate into the affairs of a company. Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has already approached the Central Government to appoint an inspector and as that application has not been finally decided, this court should not proceed to make any order under section 237( a )( ii ) even if it has jurisdiction to pass such order. It is undoubtedly true that the petitioner has approached the Central Government and has sent various applications, letters and affidavits requesting the Central Government to take action against the company in exercise of the powers conferred upon the Central Government under section 237( b ). But at this stage, on the demur, the question is : whether this court has or has no jurisdiction to entertain an application under section 237( a )( ii ) and in an appropriate case to make an order directing the Central Government to appoint an inspector. That the court, in its wisdom, in a given case, may not pass an order under section 237( a )( ii ) is entirely a different matter. The larger question argued was that this court cannot entertain a petition simpliciter under section 237 ( a )( ii ) unless the party has first approached the Central Government drawing its attention to various malpractices committed in the administration of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntertain a petition for giving a direction to the Central Government to appoint an inspector to investigate the affairs of the company. Once the court makes an order, it is obligatory upon the Central Government to appoint an inspector. There are three distinct methods by which a party desirous of getting the affairs of a company investigated may get an inspector appointed by the Central Government. If the requisite number of members are available, application can be made under section 235. Any one who is unable to collect the requisite number of members may bring to the notice of the Central Government various malpractices committed in the administration of the affairs of a company and the Central Government may act suo motu under section 237( b ). In the aforementioned two cases the question of appointment of an inspector is within the discretion of the Central Government. But there is a third mode legislatively recognised and mandatory in character by which an inspector can be got appointed by the Central Government and that is where the special resolution to that effect is adopted by the company, or where the court makes an order to that effect. The legislature has conferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members gather together and come to the court as required by section 399. Approaching the matter from this angle and proceeding further, it was urged that it would not be appropriate to read section 237 in isolation but it must be read subject to section 235. The scheme of sections 235, 236 and 237 is quite clear and unambiguous. The requisite number of members can request the Central Government to appoint an inspector. The legislature also conferred power upon the Central Government to appoint an inspector suo motu. But the legislature also thought fit to confer jurisdiction on the court to examine the allegations against a company even at the instance of a single shareholder, and, if satisfied, to direct the Central Government to appoint an inspector. By putting this construction, which appears to be grammatically correct and in consonance with the spirit of section 237, there should be no apprehension of opening the flood-gates of litigation. Whenever the court directs a thing to be done, there is judicious investigation of allegations by a judicially trained mind and reason is the hallmark of judicial approach, fairplay and moderation. A party who comes to this court requesti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be so investigated." It is further observed that, thus, if an individual member fails to persuade the board to appoint an inspector, of its own motion, or if the requisite fraction of members fails to persuade the board to do so, an application may be made to the court to reverse the board's decision. Gower, in his Principles of Modern Company Law, third edition, at page 606, has observed as under : "It is very uncommon for an application to be made to the court for an order since it is cheaper, quicker and normally easier to apply direct to the board to exercise their power under section 165( b )." It thus appears that even though ordinarily a single shareholder would be too unwilling to take proceedings in a court of law invoking the court's jurisdiction under section 237( a )( ii ) and, therefore, would prefer to go to the Central Government, yet there is nothing in the language of the section or in the practice indicated hereinabove to lead to the conclusion that no one can come to the court without first going to the Central Government. Entertaining of an application directly by the court without insisting upon the applicant going to the Central Government would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication to that effect proceed to pass such an order. If the court has such wide power to exercise jurisdiction under section 237( a )( ii ) in another proceeding against the same company, there is no justification for holding that a petition simpliciter under section 237( a )( ii ) cannot be entertained by the court. Viewed from this angle, the observations of the Allahabad High Court in Raghunath Swarup Mathur v. Har Swarup Mathur [1970] 40 Comp. Cas. 282 (All.) would not be of any assistance. In that case, while dismissing a petition under sections 397 and 398, it was observed that no case is made out for making an order under section 237( a )( ii ). Lastly, I would also like to point out that rule 11(9) of the Companies (Court) Rules, 1959, provides that the court can be moved under section 237 by a petition. That, of course, is not decisive. But if the construction that I put upon section 237 is correct, the fact that a petition is prescribed for moving the court may also point in the same direction. Thus, upon a proper construction of section 237, a petition can be filed under section 237( a )( ii ) of the Companies Act for a prayer that the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X
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