TMI Blog1997 (5) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Respondent. JUDGMENT Mrs. Manohar, J. - Leave granted. 2. The first appellant-company was established in 1944 as a private limited company under the Companies Act, 1913. It continued as a private limited company under the Companies Act, 1956 ('the Act'). However, with effect from 1-2-1975, by virtue of section 43A of the Act, it became a public limited company in view of the fact that the annual turn-over of the company was above the prescribed limit. The first appellant-company, however, continues to be a closely-held company consisting of only 61 shareholders including 11 employees and ex-employees. The second appellant is the chairman and managing director of the first appellant- company. The third appellant is the joint managing director of the first appellant-company. The main object of the company is to carry on the business of parcel lorry service, manufacture of automobile components and dealership of Telco. 3. It is the case of the appellants that there were disputes between the managing director, i.e., second appellant, and his son-in-law, Srihari Rao, who was a former director of the first appellant-company and a former Member of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the pendency of all these proceedings before the CLB, on 5-10-1996, the 1st respondent filed a writ petition under article 226 of the Constitution before the High Court of Andhra Pradesh for a writ of mandamus directing Union of India and the Secretary (Finance), Union of India (respondents 1 and 2 in the writ petition) to forthwith prosecute the present appellants 2 and 3 in accordance with law. The first respondent has challenged in the writ petition various transactions entered into by the first appellant-company relating to purchases and sales. The first respon-dent has also challenged the correctness of the figures shown in the balance-sheet and profit and loss accounts of the first appellant-company. According to the first respondent there was misappropriation of the funds of the company by appellants 2 and 3. It was claimed by the first respondent that this amounts to misappropriation of public funds and that, for the alleged acts of appellants 2 and 3, the Union of India should be directed to prosecute appellants 2 and 3. There is a further prayer in the writ petition that the Court should direct an inquiry by the Central Bureau of Investigation into the alleged financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired, he may refer the case to the Central Government. Whereupon, the Central Government could order an invest-tigation under section 235. The Central Government, therefore, will not readily order an investigation into the affairs of the company unless the Registrar makes a report as set out in section 235(1), read with section 234(6) and (7). 8. Under section 235(2), a power is given to the CLB in case where, inter alia, an application is received from not less than 200 members, or members holding not less than one-tenth of the total voting power in a company, to declare, after giving the parties an opportunity of being heard, that the affairs of the company ought to be investigated by an Inspector or Inspectors. 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. 9. The power, therefore, to appoint Inspector to investigate the affairs of a company has to be exercised by the Central Government after a proper preliminary scrutiny by the Registrar or by the CLB as the case may be. It cannot be instituted simply on the basis of allegations made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Act. Neither the Central Government nor the CLB has been moved by the 1st respondent in accordance with law for this purpose. Instead of moving the authorities prescribed under the Act the first respondent has chosen to resort to the writ jurisdiction of the High Court for a direction to have the affairs of the company investigated by the CBI. 11. Under section 397 of the Act any member of a company who complains that the affairs of the company are being conducted in a manner prejudi- cial to public interest or in a manner oppressive to any member or members may apply to the CLB for an order under that section. The CLB has wide powers to make such orders as it may think fit to bring an end to the matters complained of. Some of the shareholders of the first appellant-company have, in fact, filed petition under sections 397 and 398 before the CLB in which they have asked for similar reliefs including the appointment of an interim administrator. The acts of mismanagement and oppression complained of are similar to those set out in the writ petition before the High Court. The only ground alleged in the writ petition for moving the High Court under article 226 is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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