TMI Blog1998 (6) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... sound business principles or prudent commercial practices. This reference is now made with a request that Company Law Board may inquire into the case and record a decision as to whether or not the respondent, Bhargava, is a fit and proper person to hold the office of director or any other office connected with the conduct and management of the company. 2. Such opinion is alleged to have been formed on the basis of the CBI charge-sheets and reports relating to five cases against the respondent Bhargava and a few others in the employment of the company. 3. There are two other applications in the proceedings, one by the respondent, Bhargava, challenging the maintainability of the reference, and other by the Suzuki Motor Corporation, fifty per cent shareholder of the company for intervening in the pending proceedings. (However, this application was not pressed.) The respondent, Bhargava, has challenged the maintainability of the reference on the grounds, inter alia, that the subject-matter of this reference is also the subject-matter of several criminal proceedings on the self-same charges initiated by the Union of India against the respondent, Bhargava, and a few ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after investigation, and launching of prosecution, according to the applicant, is under consideration. The fourth case is still under investigation of the CBI and in the fifth and the last case, the investigation is complete and initiation of prosecution is said to be under consideration of the applicant. 6. The five such cases may be categorized as, (a) cars diversion case, (b) Hydraulics case, (c) dealership at Ghaziabad case, (d) transport case, and (e) Subros case. In regard to the cars case (12 cars case) an FIR No. R.C.-1(A)/92-SEU(IV) was registered in April, 1992, and after completion of the investigation the CBI has filed charge-sheets before the court of the Special Judge, Delhi, who has taken cognizance thereof. With regard to Hydraulics case, an FIR was registered as RC-3(A)/92-ACU(V) on December 14, 1992, and on completion of investigation charge-sheets were filed in the court of the Special Judge, Delhi, who has taken cognizance of the trial of the accused persons. In the Ghaziabad dealership case, an FIR being No. RC-3(A)/94-ACU(IV) was registered in September, 1994, and the same is still under investigation. In the transport case an FIR RC-2(A)/94-ACU was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de from Hydraulics at a price which was higher than that quoted by Hydraulics from a date prior to the date from which other suppliers were given benefit of such price increase. Further, the increase in price in respect of supplies made by Hydraulics was made without any corresponding increase of price in respect of supplies by others, and further, Hydraulics were given a larger share of business than other suppliers. In regard to advances made to Hydraulics it is alleged that advance of ₹ 50 lakhs on a security of landed property at Madras, which, according to the applicant, was not worth more than ₹ 25.70 lakhs, was allowed by the said Bhargava and the said Krishnamurthy defying all usual norms. It is further alleged that K. Jayakar, son of the said V. Krishnamurthy, the then chairman of the company was married in June, 1983, to a daughter of Shri Muthu-krishnan who was controlling the said Hydraulics. The charge is that the said R. C. Bhargava along with the said Krishnamurthy entered into a criminal conspiracy with the said Muthukrishnan in pursuance of which certain acts of omission and commission were committed. Dealership at Ghaziabad : The al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for air-conditioners to the company. It is further alleged that the respondent increased the price for each air-conditioner component without proper justification and also allowed an advance of ₹ 195.36 lakhs to the said Subros in June, 1986, whereas there was no such stipulation about payments of advance in the supply order. It is alleged that all this was done in consideration of Lalit Suri providing a commercial flat. 9. According to the applicant-Union of India, the above are the circumstances clearly suggesting that the respondent, R. C. Bhargava, in the conduct and management of the affairs of the company, is guilty of fraud, misfeasance, persistent negligence and further the respondent has not conducted the affairs of the company in accordance with sound business principles and prudent commercial practices. 10. The respondent in his reply to the said alleged charges and also the opinion formed by the Union of India on the basis thereof submits that the formation of the opinion may be a subjective process, but it is always open to the court, here the Company Law Board, being called upon to make an inquiry in a proceeding of reference under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in foreign exchange. According to the respondent, this is not disputed, the company had primarily three categories of customers, viz., customers eligible under the manufacturer's quota (MQ), customers eligible under foreign exchange quota (FQ), and general categories of customers (GQ). The MQ consisted of 5 per cent of the cars manufactured, FQ 15 per cent, of such cars. It is stated by the respondent that 17 vehicles which were in the factory of the company were already invoiced or to be invoiced came under the special quota of MQ, and FQ. Further, for the year 1991-92, the budget day was July 24, 1991, the cars were cleared after July 24, 1991, and for clearance of the cars special permission was obtained from the Excise Commissioner. 13. With regard to the Hydraulics case the answer of the respondent is that all decisions were taken pursuant to a recommendation of a technical committee of which he was not a member. As regards advance, it is his case that the loans were advanced according to the usual practice followed by the vendor development policy of the company. And in any event, all the loans in question were repaid with interest and the company did not suffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, R. C. Bhargava, wanted to proceed first with the respondent's application as to the maintainability of the petitioner's application before such application is taken up for consideration on the merits. Since learned counsel for the respondent Bhargava insisted upon taking his application first, we allowed learned counsel to proceed with the respondent's application since we thought if he succeeded in his contention as to the maintainability of the petitioner's application, then such application filed under Section 388B of the Act, need not be proceeded with. But after hearing S. B. Mookerjee, learned senior advocate for some time we decided to take up the main petition for hearing since contentions and counter-contentions from either side were common. 20. As stated above, S. B. Mookerjee, learned senior advocate appearing for the respondent, R. C. Bhargava, raised certain preliminary objections as to the maintainability of the reference initiated by the Union of India under Section 388B of the Act. The first objection is on the question of limitation or delay. The second objection is that in view of the initiation of criminal proceedings against the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany Law Board, as the Company Law Board is not a court. He relies on the decision of the Company Law Board in Shiv Dayal Agarwal v. Sidhartha Polyster Pvt. Ltd. [1997] 88 Comp Cas 705. He also argues that the Companies Act is a comprehensive legislation providing substantive law besides limitation and procedures. As he submits, if the Limitation Act is applied or delay and laches are being resorted to to reject the application under Section 388B, it would then simply defeat the purpose of incorporating Section 388B in the Act, that is, protection of public interest at large. It is his argument that rejection of a complaint under Section 388B on the ground of limitation or delay and laches would tantamount to legalising the criminal conduct of the person concerned on technical grounds. He submits that public interest being the object of Section 388B, such technical objection should not be entertained. He refers to certain decisions of courts in Collector, Land Acquisition v. Mst. Katiji [1987] 62 Comp Cas 370 (SC) ; [1987] 2 SCC 107, Tilokchand Motichand v. CST [1970] 25 STC 289 AIR 1970 SC 898, Rabindra Nath Bose v. Union of India, AIR 1970 SC 470 and Ramchandra Shankar Deodhar v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a substantial participant in the affairs -of the company and at the relevant time the board of directors of the company, comprising a good number of nominees of the Government or Government institutions along with other directors was conducting and managing the affairs of the company with the best endeavour to protect the interest of the company or the public interest, if it can be so called. There is no explanation or any plausible explanation as to why the Central Government came to know of the acts complained of in 1992 or 1994, i.e., the dates of filing of FIRs when the Government was in substantial control of the management of the company having a majority in the board of directors including R. C. Bhargava being the nominee of the Government, and the Government have the power of recalling any of the delinquent nominee directors. Further, it has been submitted by and on behalf of the respondent, Bhargava, that some of the said acts complained of were enquired into by a high-powered departmental committee as also some objections were raised by an independent and constitutional authority being the Comptroller and Auditor-General. It is also submitted that the company satisfacto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why the CBI enquiry was initiated after such a long delay. It is also not explained by the Government why this proceeding is initiated presently under Section 388B of the Act just a few months before the respondent, Bhargava, is due to retire. It is also a fact that the said Bhargava was successively appointed during the relevant period and thereafter as director, managing director and for some time chairman-cum-managing director with due concurrence of the Central Government. It is also not the fact in the instant proceeding that the Central Government in its independent capacity, not being in any way concerned with the company or any of its directors, has initiated these proceedings under Section 388B of the Act after holding an independent opinion about circumstances suggesting the cases as enumerated in Section 388B against the concerned director. 29. It appears from the record that the decision for allotment of cars was discussed by the board consisting of Government directors besides the other directors. Later, an aggrieved non-allottee instituted a case against the company which was dismissed. All were in the knowledge of the Central Government at the relevant time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Government came to know of the same belatedly, we would definitely go by what Mr. Dhingra has submitted. But unfortunately in the present case it is not so. There is no explanation from the Government about the gross delay in forming an opinion and making the reference. All the aforesaid acts complained of were well within the knowledge of the Government and even the FIR in all cases and charge-sheets in some of the cases were filed long before the presentation of this petition in December, 1996. There is no explanation as to why the Government chose to wait till December, 1996. 36. Under these circumstances, this reference is liable to be dismissed and should be dismissed for gross and inordinate delay. 37. In view of this, we are not considering the other preliminary objections raised by the respondent. We also record that counsel for both sides desired that whatever our decision on the maintainability may be, we may record our findings on the allegations against him. Counsel for both sides urged before us to inquire into and record a decision on the merits of the case. We do not consider it appropriate to do so when we have decided to dismiss the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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