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2016 (11) TMI 29 - BOMBAY HIGH COURT

2016 (11) TMI 29 - BOMBAY HIGH COURT - TMI - Necessity of investigation into the affairs of the company - exercise of power by the Central Government by resorting to section 212(1) of the Act of 2013 - Held that:- We do not think that there were materials in the present case and which can be termed as enough to warrant the exercise of power by the Central Government by resorting to section 212(1) of the Act of 2013. The Central Government, in the order under challenge, did not spell out any circ .....

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blished as circumstances or material enough for exercise of the power. - That is clearly lacking in this case. - This is the only basis, namely, the report of the Registrar of Companies, West Bengal, or its contents which has enabled the Central Government to exercise its powers under section 212(1)(c). It is, therefore, apparent that it has not necessarily acted in terms of its power conferred by section 212 to direct investigation into the affairs of the company in public interest. The .....

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coal mines and alleged diversion of raw materials. There has been absolutely no details furnished nor referred in the report. Rather, the report proceeds on the basis that as far as these issues are concerned nothing can be done by the Ministry of Corporate Affairs or the Registrar of Companies. - We fail to understand, therefore, how based on allegations and counter allegations between two groups of shareholders can it be even held that it is necessary in public interest to direct an invest .....

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nion or satisfaction is based only on the complaint of the Member of Parliament to the CVC and with regard to which report was called for from the Registrar. Even the contents of that report have been, as held above, misread and totally misinterpreted. Based on that no opinion could have been recorded that it is necessary to investigate the affairs of the company in public interest. - WRIT PETITION NO. 2025 OF 2016 & with NOTICE OF MOTION (LODG) NO. 554 OF 2016 - Dated:- 5-10-2016 - S.C. DHARMAD .....

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onstitution of India or any other writ/order/direction in the nature of Certiorari calling for the records and proceedings in respect of the proceedings related to the investigation ordered by the Respondent and after going through the same,to quash and set aside the Order dated 6th May, 2016 passed by the Respondent No.2. 2 Since the petitioners as also the respondents counsel have been heard at great length, on conclusion of arguments, we dispose of this writ petition finally by the present ju .....

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al paid up share capital of this company. The petitioner Nos.1 to 6 and the petitioner No.7 are also Directors of the company. They are related inter-se. We are not concerned with their relationship, but suffice it to state that these petitioners claim to be permanent residents of Raipur, the capital of the State of Chattisgarh. The first respondent to this writ petition is the Additional Director (Investigation) of Serious Fraud Investigation Office (for short "SFIO"). It initially is .....

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rh and one at village Hirma in District Jharsuguda in the State of Odisha. This company was originally incorporated in 1997 to take over the business activity of a partnership firm Singhal Enterprises. The partners of that firm were petitioner Nos.1 and 2, one Radha Krishan Agarwal and one Parmanand Agarwal. They are brothers of petitioner No.1 (hereinafter referred to as the said Radha Krishan and Parmanand). However, the company could not take over the business of partnership and undertook a d .....

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pany is held by the said Radha Krishan and his family and the petitioner Nos.1 to 6 and 9. There are no other or public shareholders in the company. It is claimed that petitioner No.1 and Radha Krishan and Parmanand with their families were involved in several other businesses. Sometime prior to 24th April, 2007, there were disputes between the parties with regard to the division of various of businesses and assets between the family members. With an intention to settle all such disputes, three .....

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ponge iron manufacturing company at Raigarh, namely, B.S. Sponge Private Limited. The petitioners state that in terms of the MOU, the Jharsuguda unit of Singhal Enterprises Private Limited was to be demerged to another company to be owned by the said Radha Krishan and his family. Further, since the two factories of the company were located in two geographically different regions, it was thought in the interest of the company to give effect to such scheme of demerger. The other company was identi .....

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bligation thereunder. In January, 2008, he opposed the sanction to the scheme of demerger alongwith the said B.S. Sponge Private Limited. The said Parmanand followed up with the institution of a suit in March 2008, being Civil Suit No.47 of 2008 before the Hon'ble High Court at Calcutta seeking, inter alia, revocation of this family settlement recorded in the said MOU. There were applications filed for interlocutory / interim reliefs. That was for an injunction from giving effect to the MOU .....

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cutory applications. The direction was that pendency of the suit shall not be an excuse for not implementing the outstanding obligations under the MOU. On 17th January, 2011, the same High Court sanctioned a scheme of demerger. An appeal was filed against these orders. As far as the appeal from the interlocutory order dated 3rd August, 2010, the same was disposed of by a common judgment on 12th October, 2012. Reliance is placed upon these orders to submit that the company appeal of Parmanand aga .....

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's suit and that of Parmanand filed in the year 2008 are pending. 8 It is then claimed that because of these disputes between two group of shareholders the consolidated annual accounts of the company could not be prepared after 31st March, 2007. Insofar as the annual accounts for 2007 are concerned, the same have been audited and were approved by the shareholders in the Annual General Meeting held on 27th September, 2007. The annual accounts were disclosed in the petition for sanction of the .....

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tory obligations under the provisions of the then Indian Companies Act, 1956, but in the absence of the information about the affairs of the Jharsuguda unit controlled by Radha Krishan it was not possible to prepare the consolidated accounts. 10 The company and its Directors received notice from the Registrar of Companies from time to time with regard to non-compliance of the statutory provisions relating to filing of annual accounts and/or holding of the AGMs and copies of these notices togethe .....

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that is how Company Petition Nos. 475 and 112 were filed in the year 2010 and 2012 in the High Court at Calcutta. Interim orders were passed by that Court against the Registrar of Companies restraining him from prosecuting the petitioners during the pendency of the applications invoking section 633 of the Indian Companies Act,1956. 13 Thus, the claim of the petitioners is that there are disputes despite which they have endeavoured to prepare the accounts of the Raigarh unit, get them audited and .....

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r, on account of non-cooperation and non-supply of particulars of accounts relating to the Jharsuguda unit, the order of the Company Law Board could not be implemented. Though the AGMs were held, the annual accounts could not be approved. The meetings had to be adjourned sine die. It is then claimed that a round of complaints was commenced by the said Radha Krishan and his group. They approached the Registrar of Companies for the alleged non filing of DIN-3 as also non filing of accounts and ann .....

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any. The petitioners pointed out in detail as to how the entire attempt on their part is to comply with law, but given the pending disputes between family members and the litigation, they are unable to do so. The petitioners also forwarded alongwith their replies, copies of the relevant orders passed by the High Court of Calcutta. They also gave a detailed explanation as sought by the Registrar when he invoked section 234(1) of the Indian Companies Act, 1956. 15 It is stated that since Radha Kri .....

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Law Board from time to time. The first interim order was passed on 23rd April, 2013, copy of which is Annexure-S. There are further orders passed but the petition is pending adjudication. 16 The petitioners then complain that a letter was sent in June 2013 by the Registrar of Companies, West Bengal, Kolkata forwarding the complaint of a third party having no connection whatsoever with the company and called upon the company to provide the comments on the same. After referring to the details of .....

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uired to be done at their end. The petitioners went on apprising the Registrar about the legal proceedings and the stage at which they are pending. They have yet not concluded. 17 It is, therefore, claimed that after 8th April, 2015, no further queries were raised by the Registrar of Companies but suddenly a summons was issued on 26th May, 2016, by the first respondent. That is on the basis of an order dated 6th May, 2016, of the Central Government. The petitioner Nos.1 to 8 were called upon to .....

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no allegation nor indicates the nature of the purported investigation by the Union of India / Central Government. Though the summons refers to an order dated 6th May, 2016, purportedly passed by the second respondent under section 212(1) clause (c) of the Companies Act, 2013, a copy of the said order was neither enclosed nor provided to the petitioners at the time of service of the impugned summons. A copy of this order, however, was provided by the first respondent when the petitioners demanded .....

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Therefore, the report was not available for the petitioners to resist these orders effectively. 19 Reliance is also placed upon a letter dated 13th June, 2016, issued to the company by the State Bank of India informing and recording that the company obtained a total credit of only ₹ 22.82 crores from the bank as on 12th June, 2016. 20 It is in the above circumstances that this writ petition has been filed. 21 The writ petition has been amended extensively by incorporating and raising grou .....

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company. The Central Vigilance Commission (for short CVC ) desired a factual report on the complaint of one Lok Sabha MP Gajendra Singh Rajukhedi. The important issues raised by the Registrar of Companies are that the petitioner-company had obtained more than ₹ 100 crore loan from the State Bank of India, Park Street Branch, Kolkata. The petitioner-company has not filed balance sheets / annual returns since the year 2007. The petitioner-company does not possess record of a Board Meeting No .....

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rar on 22nd July, 2015. In addition to that, there is a comprehensive report and that is how this letter / report reads. We shall refer to the details of that a little later. 22 Based on this report, it is stated, that the SFIO comes into picture. When there is a serious allegation and misuse of public funds, coal mines, sale of minerals to other plants then it is in public interest that the investigation has to be held. For that purpose, the SFIO is fully empowered. That apart, the Central Gove .....

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e gross irregularities and serious offences. Therefore, timely action should be permitted. 23 This affidavit comes only after this Court, on filing of this writ petition had, on 31st August, 2016, passed the following order : 1. When this writ petition was called out for admission and together with a notice of motion, the respondents contesting the petition have filed an affidavit in reply. It is tendered in Court today. We take it on record. 2. Since Mr. Godbole for the petitioners complains th .....

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y the respondents. 24 It is on the above material that we have heard the learned counsel appearing for parties. 25 Mr. Girish Godbole learned counsel appearing for the petitioners would submit that there is no compliance with the direction of this Court contained in the above quoted order. He submitted that the Additional Director SFIO has not procured all the original records and files from the Registrar of Companies. Though this direction was issued, the records have not been produced for peru .....

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arge family involving about three brothers. These three brothers, in turn, have formed separate groups comprising of their families, There are two units one at Raigarh in Chattisgarh and another at Jharsuguda in the State of Odisha. The company manufactures sponge iron. That there are disputes between these groups who have the entire shareholding of the company and those disputes are subject matter of several proceedings pending before the High Court of Calcutta. There was an attempt made to res .....

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ng the businesses of the company. Though this demerger was taken forward and a company petition seeking approval to the scheme of demerger was filed in the Calcutta High Court, one group member backed out and filed an affidavit in opposition. That is how the scheme could not go through. Thereafter, the orders were passed by the single Judges of the High Court of Calcutta refusing interim reliefs and sanctioning the scheme. Appeals from the said order were preferred and as far as appeal against i .....

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his matter according to Mr. Godbole. He would submit that the Central Government cannot exercise the power under section 212 of the Act of 2013 when there are allegations and counter allegations of groups of shareholders and family disputes and legal proceedings are pending in a competent Court. Thereafter, the Central Government cannot at the behest and instance of one rival or disgruntled group seek to investigate the affairs of the company. Precisely that has happened in the instant case. The .....

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bole submits that this writ petition has been filed without in any manner submitting to these authorities pursuant to the summons and the reason for the same is that this is a case of complete abuse of the power vesting in the Central Government. The Central Government, before it seeks to investigate the affairs of a company, must form an opinion that the circumstances which are referred in the statutory provisions are existing, enabling it to exercise that power. The opinion must be that of a r .....

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asonable explanation for its inability to comply with some of the statutory provisions to the Registrar of Companies. The Registrar of Companies may have threatened at one time to proceed against the company in competent courts, but even with regard thereto, the company resisted by approaching the Company Judge and seeking his protection by invoking section 633 of the Indian Companies Act, 1956. Mr. Godbole submits that there are enough powers in the Act enabling the Registrar of Companies to ta .....

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, it is clear case of a abuse of the power and that this Court, therefore, should quash and set aside the entire order of the Central Government and the proposals for an investigation stated to be pending with it. 28 Mr. Godbole submits that even the so-called grounds and which are contained in the report of the Registrar of Companies based on which the impugned order is passed would demonstrate that none of them have any basis. If a bank like a Nationalized Bank has any pending dues and stated .....

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r issuing licences for prospecting minerals therefrom and those authorities can use them. There is no substance in such allegation because there is no divergence as is claimed. Even if there is diversion alleged, action can be taken under distinct laws for the alleged violation of the rules and regulations enabling mining and transport of coal or other minerals. For all these reasons, Mr. Godbole would submit that this is a fit case where this Court should exercise its jurisdiction and strike do .....

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elied upon the following decisions in support of his above contentions : (1) (1969) 1 SCC 325 Rohtas Industries vs. S.D. Agarwal & ors. (2) (1997) 5 SCC 446 Sri Ramdas Motor Transport Ltd. & Ors. vs. Tadi Adhinarayana Reddy & Ors. (3) (1979) 4 SCC 729 Moolchand Gupta vs. Jagannath Gupta and Co. (P) Ltd. (4) 1987 MhLJ 775 Hariganga Cement Ltd. vs. The Company Law Board, Delhi. (5) (1978) 1 SCC 405 Mohinder Singh Gill vs. The Chief Election Commissioner, New Delhi. (6) AIR 39 (1952) SC .....

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to the notice of the Central Government that its affairs are being managed in such a way as would prejudice the interest of the public, then, to protect such larger public interest, powers are conferred in the Central Government. Mr. Agarwal relied upon the entire scheme contained in The Indian Companies Act, 1956 and The Companies Act, 2013. He submits that the power akin to section 235 of the Companies Act, 1956 and now to be found in the Companies Act, 2013, vide section 212, has been exerci .....

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ecause the Central Government formed the requisite opinion. The grounds or the contents of the report enabled the Central Government to form that opinion. The opinion is reasonable. The discretion has been exercised by applying correct judicial principles and there is no deviation from the same. For these reasons and when the petition is premature, this Court should not interfere in writ jurisdiction and the petition be dismissed. 31 The Indian Companies Act, 1956 (for short 1956 Act ) and The C .....

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o not introduced. As far as the power and referable to the provisions of these two enactments are concerned, their basic foundation remains the same. 32 As far as the 1956 Act is concerned, the same contains provision enabling the Central Government to act upon a report made by the Registrar under sub-section (6) of section 234 or sub-section (7) of section 234 read with subsection (3) thereof and appoint one or more competent persons as Inspectors to investigate into the affairs of the company .....

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estigation of affairs of a company can be directed by the Central Government on the basis of a report made by the Registrar under section 234(6). Section 234 of the Companies Act, 1956, enables the Registrar to call for information or explanation. If on perusing any document, which a company is required to submit to him under the Act, the Registrar is of the opinion that any information or any explanation is necessary with respect to any matter to which such document purports to relate, he may, .....

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furnished, but, in the opinion of the Registrar, is inadequate, then, he has a power and which is enumerated in section 234(3A) which sub-section has been introduced by the Act 65 of 1960. Then comes a situation where the company or any person as referred to in the above sub-sections refuses or neglects to furnish any such information or explanation or if the company or any such person as is referred to in sub-section (3A) refuses or neglects to produce any such books and papers, that is an offe .....

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furnished within the specified time or furnished but on such information or explanation being perused the Registrar forms an opinion that the document referred to in sub-section(1) together with such information or explanation or such books and papers discloses an unsatisfactory state of affairs or does not disclose a full and fair statement of any matter to which the document purports to relate, the Registrar shall report in writing the circumstances of the case to the Central Government. 34 B .....

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ers specified in the order, within such time as he may specify therein and thereupon the other sub-sections commencing from sub-sections (2) to (6) would apply. The Registrar can also refuse to act on the representation if it is found to be frivolous or vexatious. Thereupon he has an obligation to disclose the identity of his information to the company. 35 It is, therefore, in terms of such a report from the Registrar or independent of that in terms of an action under sub-section (7) of section .....

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r other persons and the persons concerned in the management of its affairs have in connection therewith been guilty of fraud, misfeasance, or other misconduct towards the company or its members. Therefore, the power under section 235 was exercised in relation to that company by the Central Government. The argument before the Hon'ble Supreme Court was that the Central Government had no material before it from which it could have come to the conclusion that the business of the appellant-compan .....

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ged in the Hon'ble Supreme Court. After stating the facts in great details and the rival contentions, the Hon'ble Supreme Court set out both the provisions, namely, from section 235 to section 237 and held as under : 5. Before taking action under Section 237(b)(i) and (ii), the Central Government has to form an opinion that there are circumstances suggesting that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwis .....

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assing the impugned order. It seems to have been oppressed by the opinion that it had formed about Shri S. P. Jain. From the arguments advanced by Mr. Attorney, it is clear that but for the association of Mr. S.P. Jain with the appellant-company, the investigation in question, in all probabilities would not have been ordered. Hence, it is clear that in making the impugned order irrelevant considerations have played an important part. The power under Sections 235 to 237 has been conferred on the .....

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e material before it, then the same is liable to be struck down. This position is also clear from the decision of this Court in Barium Chemicals v. Company Law Board. It was urged by Mr. Setalvad, learned Counsel for the appellant that clause (b) of Section 237 prescribes two requirements i.e. (1) the requisite opinion of the Central Government and (2) the existence of circumstances suggesting that the company's business was being conducted as laid down in sub-clause (1) or that the persons .....

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ng whether they did in fact exist and further whether the Central Government in making that order had taken into consideration any extraneous consideration. But according to the learned Attorney the power conferred on the Central Government under clause (b) of Section 237 is a discretionary power and the opinion formed, if in fact an opinion as required by that section has been formed, as well as the basis on which that opinion has been formed are not open to judicial review. In other words acco .....

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… … … 11. Coming back to Section 237(b), in finding out its true scope we have to bear in mind that that section is a part of the scheme referred to earlier and therefore the said provision takes its colour from Sections 235 and 236. In finding out the legislative intent we cannot ignore the requirements of those sections. ln interpreting Section 237(b) we cannot ignore the adverse effect of the investigation on the company. Finally we must also remember that the section in .....

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the power conferred on the Central Government is not an arbitrary power and the same has to be exercised in accordance with the restraints imposed by law. For the reasons stated earlier we agree with the conclusion reached by Hidayatullah, and Shelat, JJ. in Barium Chemicals' case that the existence of circumstances suggesting that the company's business was being conducted as laid down in sub-clause (1) or the persons mentioned in sub-clause (2) were guilty of fraud or misfeasance or o .....

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d circumstances did not exist in this case. 36 Therefore, the Central Government has to form an opinion that there are circumstances suggesting as above and the Central Government, before it acts, has to comply with the statutory prerequisites. The above dictum of the Hon'ble Supreme Court was also applied in the case of Sri Ramdas Motor Transport (supra). There, the factual position was that a private limited company established in the year 1944 continued to be privately managed until 1st F .....

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section 397 and 398 of the 1956 Act on the ground of oppression of a minority shareholder and mismanagement in the affairs by the second and third appellants. In the said petition, injunction was sought to restrain the first appellant before the Hon'ble Supreme Court from proceeding with the Rights Issue of its shares. The Company Law Board declined to grant any interim order. Thereafter, the rival groups filed another Company Petition before the Company Law Board. There also, an interim in .....

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referred to the allegations in the writ petition and then held that based on a prayer for investigation into the affairs of the first appellant company and to take action, that the writ petition was filed. The Hon'ble Supreme Court referred to the powers conferred in the Central Government in paragraphs 7 and 8 of the decision. Thereafter, following Rohtas Industries, in paragraphs 9, 10 and 13, it held thus : 9. The power, therefore, to appoint Inspector to investigate the affairs of a comp .....

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may be done if in the opinion of the Company Law Board there are circumstances suggesting that the business of the company is being conducted with the intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive of any of its members or that the company was formed for any fraudulent or unlawful purpose. The Company Law Board may also come to a conclusion that there are circumstances suggesting that the persons concerned .....

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Board has been moved by the 1st respondent in accordance with law for this purpose. In the case of Rohtas Industries Ltd. v. S.D. Agarwal this Court examined the nature of the power conferred on the Central Government under Section 235 as well as 237(b) and held that the scheme of these sections makes it clear that unless proper grounds exist for investigation of the affairs of a company, such investigation will not be lightly undertaken. An investigation may seriously damage a company and shoul .....

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the present case an attempt has been made by the first respondent to get the affairs of the company investigated in the manner provided under the Companies Act. Neither the Central Government nor the Company Law Board has been moved by the 1st respondent in accordance with law for this purpose. Instead of moving the authorities prescribed under the Companies 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 compan .....

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y other factor referred to in the writ petition to invoke the doctrine of so called public interest, is the fact that the company had borrowed moneys from public institutions. This is no ground for not availing of the statutory remedies provided under the Companies Act before the appropriate statutory forums which are designed for this very purpose. We are distressed to find that the well-reasoned judgment of the Single Judge was interfered with in a casual manner. The impugned judgment rests on .....

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f Mr. Godbole that in order to settle or to get over certain private disputes and legal proceedings resulting therefrom, the intervention of the Central Government was sought even in the present case and that could not have been taken cognizance of for exercising the subject power. Surprisingly, this was also the issue in Sri Ramdas Motor Transport (supra). Between Rohtas and Ramdas, a Division Bench of this Court also had an occasion to consider somewhat identical controversy. The decision of t .....

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y in the management of the company as was urged before the Division Bench. Though he retired from the office of the Director by rotation and failed to get himself re-elected, he by himself and his associates went to the extent of proposing a resolution at the Annual General Meeting and for removal of the Chairman and the Director of the company who were the main promoters. He sought his associates to be replaced as Directors in the resultant vacancies. The resolution as proposed by him failed. T .....

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Meeting on 31-3- 1986 was misconducted; and (3) That Shri G.R. Agarwal had invested over ₹ 25 lakhs in the names of poor and illiterate villagers of Jeetpura, Haryana, in the sums of ₹ 10,000/- to ₹ 25,000/- each even though those persons had no resources. It is, therefore, Shri G.R. Agarwal, who is actively controlling the affairs of the company on the basis of such bogus shares. To substantiate these allegations, the said Arora had collected signatures and thumb impressions a .....

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s and Rohtas Industries held as under : 11. Some of the principles governing the orders passed by the Company Law Board under section 237(b) of the Companies Act may be borne in mind. The earlier view of the Supreme Court reported in AIR 1953 SC 53 was not approved subsequently. In the said decision in 1953, the Supreme Court had held that "whenever a provision of law confers certain power on an authority on its forming a certain opinion on the basis of certain facts, the courts are preclud .....

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ision in Barium Chemicals' case (AIR 1967 SC 295) that the existence of circumstances suggesting that the company's business was being conducted as laid down in sub-clause (i) or the person mentioned in subclause (ii) were guilty of fraud or misfeasance or other misconduct towards the company or towards any of its members is a condition precedent for the Government to form the required opinion and, if the existence of those conditions is challenged, the courts are entitled to examine whe .....

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o the opinion formed by the Company Law Board. 12. It is well settled that the discretionary powers under Section 237(b) of the Companies Act must be exercised honestly and not for corrupt or ulterior purposes. The authority must form the requisite opinion honestly and after applying its mind to the relevant material before it. In exercising the discretion, the authority must have regard only to circumstances suggesting one or more of the matters specified in sub clauses (i), (ii) and (iii) of S .....

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rved in the above case at paragraph-46 that - "If it is established that there were no materials upon which the authority could form the requisite opinion, the court may infer that the authority did not apply its mind to the relevant facts. The requisite opinion is then lacking and the condition precedent to the exercise of the power under Section 237(b) is not fulfilled. … … … … 15. The discretionary powers vested in the Company Law Board under Section 237(b) of .....

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required of an ordinary citizen by that of an expert. Hence, if the court comes to the conclusion that no reasonable authority would have passed the impugned order on the material before it, then the same is liable to be struck down. 16. The formation of the opinion under Section 237 of the Companies Act by the Central Government is subjective, but the existence of circumstances relevant to the inference as the sine que non for action must be demonstrable. It is not reasonable to say that the cl .....

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s challenged that the opinion has been formed mala fide or upon extraneous or irrelevant matters, the respondents must disclose before the court, the circumstance which will indicate that his action was within the four corners of his own powers. 40 Thus, the principle is that there has to be an opinion formed. That opinion may be subjective, but the existence of circumstances relevant to the inference as to the sine qua non for action must be demonstrable. It is not reasonable to hold that the c .....

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ercised by the Registrar. Then, the report has to be made by the Registrar and the Registrar or the Inspector after inspection of the Books of account or inquiry under section 206 and other books and papers of the company under section 207, shall submit a report in writing to the Central Government along with such documents, if any, and such report may, if necessary, include a recommendation that further investigation into the affairs of the company is necessary. For that, reasons in support hav .....

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tion passed by a company that the affairs of the company ought to be investigated; or (c) in public interest it may order an investigation into the affairs of the company. (2) Where an order is passed by a court or the Tribunal in any proceedings before it then the affairs of a company ought to be investigated, the Central Government shall order the investigation into the affairs of that company. (3) For the purposes of this section, the Central Government may appoint one or more persons as insp .....

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fairs are to be investigated or in public interest. Thus, there is a discretion to order an investigation into the affairs of the company. 43 As far as the principles laid down in the afore quoted decisions they are salutary and must apply even to the exercise of power in terms of section 210 of the 2013 Act. What we find is that the Registrar of Companies, West Bengal, received a letter from the Ministry of Corporate Affairs dated 30th October, 2015. It is evident that the letter referred to th .....

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te Ltd had taken more than 100 crores loan from State Bank of India, Park Street Branch, Kolkata. The Manager / GM has supported the Company instead of stopping loan. b) It appears that Hon'ble MP has also raised doubts that If any thing wrong goes in balance sheet tomorrow and loan goes bad the bank will suffer . c) The Company has taken Iron Ore from Barbil, Orissa to Raigarh, Chhattisgarh. The Company has got CBT allotment of 10 Railway Rack per month and doing fraudulent activity. They s .....

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y has not filed its balance sheet for five years comes within his purview. However, his explanation says that the company has filed a petition before the Calcutta High Court being Company Petition Nos.475 of 2010 and 112 of 2012 restraining the Registrar of Companies from taking action. There is an interim order passed on 3rd October, 2010. As far as the loan transaction with State Bank of India, he says clearly in his report that it is not covered under the purview of the Companies Act. Wrong d .....

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, misuse of mines, sale of materials to the other plants were not covered under the purview of the Ministry of Company Affairs or the Registrar of Companies. The Member of Parliament has requested in his complaint that investigation with regard to these issues should be by the Railway Board. 45 The Registrar of Companies had already made a detailed report and forwarded it to the Ministry and the contents of which he has reproduced. He has also reported on the issue raised in the letter of the Mi .....

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of facilities he has opined that it is not for his office to take any action. It is on the basis of such a report that the impugned order has been passed. The impugned order reads as under : WHEREAS, the Central Government has the power under section 210 and section 212(1)(c) of the Companies Act, 2013 to order investigation into the affairs of a company in Public interest. 2. AND WHEREAS ROC, West Bengal has submitted his report dated 13.01.2016 to the Central Government in the matter of Singha .....

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4. The Director, SFIO, in exercise of powers u/s 212(1), may decide such number of inspectors, as he may consider necessary and the Inspectors so appointed, shall exercise all the relevant powers under the Companies Act, 2013 for the purpose of the investigation. 5. SFIO shall complete the investigation and submit report to the Central Government within a period of four months from the date of issue of this order. 6. This order is issued for and on behalf of the Central Government. Sd/- (U K Sah .....

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tions of law. The respondents ought be aware that there is a difference in the language of the two relevant sections, namely, section 210 and section 212. 47 Section 210 falling in the same Chapter XIV titled Inspection, Inquiry and Investigation contains these two sections. Section 210 confers a discretion in the Central Government to order an investigation into the affairs of the company and that power has to be exercised if there is an order passed by a Court or a Tribunal in any proceedings .....

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investigation into the affairs of a company by Serious Fraud Investigation Office. This power is without prejudice to the provisions of section 210. This power is to be exercised if the Central Government is of the opinion that it is necessary to investigate into the affairs of a company by the SFIO. Therefore,the power to investigate into the affairs of company is common to both provisions. In the former there are three clauses (a) to (c) in sub-section (1) of section 210 and the investigation .....

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d on the request of the Central Vigilance Commission or based on its recommendations. However, by its very title, the investigation under section 212 by the SFIO ought to be on the basis of the opinion of the Central Government that it is necessary to investigate into the affairs of the company by SFIO. That opinion has to be based on the report of the Registrar or Inspector under section 208; on intimation of a special resolution passed by a company that its affairs are required to be investiga .....

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s set out in various sub-sections of section 212, would denote as to how its involvement comes after the investigations are assigned to it by the Central Government. By their very nature the investigations into frauds relating to a company have to be assigned. They have to be of such magnitude and seriousness demanding involvement of experts in the fields enumerated in sub-section (2) of section 211. Therefore, while exercising the powers under sub-section (1) of section 212, the Central Governm .....

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ts power under the above sections to order investigation into the affairs of a company in public interest. None disputes that power or its existence. In para 2 of the impugned order, however, a reference is made to the report of the Registrar of Companies, West Bengal, dated 13th January, 2016. We have already held that the findings in this report are not enough for the Central Government to exercise the drastic power. Something more was required and to be established as circumstances or materia .....

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sfaction is the report of the Registrar. We have referred to the details in that report and we are of the firm opinion that based on that the Central Government could not have recorded a satisfaction or an opinion that investigation into the affairs of the company are necessary. There is no element of public interest which is projected, save and except some vague and general references to certain allegations in matters of bank finance and allotment of coal mines and alleged diversion of raw mate .....

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into the affairs of the company. Once we reach the conclusion that there is lack of requisite material to arrive at the requisite opinion or record the necessary satisfaction, then, in exercise of our powers of judicial review, we can safely quash and set aside the impugned order. We find that the opinion recorded or the satisfaction reached is vitiated by total non application of mind. None of the factors which are germane and relevant for forming the opinion have been referred. The opinion or .....

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