TMI Blog2021 (4) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... ffairs of Respondent No. 1 Company violates the provisions of the statute, in as much as in terms of Section 210 (2) of the Companies Act 2013, such a direction can be given only to the Central Government and not to the Registrar. In terms of Section 213 of the Companies Act 2013, such a direction can be given, once again, only to the Central Government and not to the Registrar, and only upon the satisfaction of the conditions precedent specified therein. The Learned NCLT erred in directing the Registrar of Companies to investigate into affairs of Respondent No. 1 Company, as the said Directions violate the statutory provision of Section 210 (2) and Section 213 of the Companies Act 2013 - Appeal allowed in part. - Company Appeal (AT) (CH) No. 06 of 2021 - - - Dated:- 26-4-2021 - [ Justice Venugopal M. ] Member ( Judicial ) And [ V. P. Singh ] Member ( Technical ) For the Appellant : Mr C. Aryama Sundaram, Senior Advocate for Mr Manoj Menon Advocate For the Respondent : Mr Soumendra Nath Mookherjee, Senior Advocate for R-2 Mr Ratnanko Banerji, Senior Advocate for R-3 and R-4 Mr K. Gowtham Kumar, Mr Nakul Mohta, Mr Kanishk Kejriwal, Advocate and Mr Amit Rajkotia, PCS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including Respondent No. 2) to operate the bank accounts of Respondent No.1 Company. 4. The Appellant contends that the NCLT by the Impugned Order superseded the said Board Resolution dated November 19, 2019, of the Company and the manner in which the Company had been operating its accounts for more than a year, without any discussion or finding of any mismanagement or forming even a prima facie opinion on the allegations of the Respondent No. 2 to 4, of purported siphoning off funds. 5. The Appellant contends that the Learned NCLT interfered with the Company's internal management through the impugned Order, which Respondent No.1 Company was exercising by the Board Resolution dated November 19, 2019, impermissible in law. The NCLT further directed the Registrar of Companies to investigate the affairs of the Respondent No. 1 Company. Respondent's contention 6. Respondent No. 1 Company is a closely held family Company between the Appellant Group and the Respondent Group. The Company has been run like a quasi partnership between the two groups. Respondent No. 2 is a whole-time Director, appointed as a Director on December 11, 2014, and is the single largest share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. 10. The mala-fide intention behind this Resolution was that the Appellants could have a free hand to withdraw money from the Company without Respondent No. 2. It is further contended that large sums of money from debtors totalling ₹ 15,74,96,859/- are due to Respondent No. 1 from various Government undertakings. Appellants were pressurising all the Directors to deposit such amounts to accounts in Yes Bank, Hyderabad, over which the Appellants have exclusive control. 11. The Respondent contends that the Board Resolution dated November 19, 2020, cannot give the Appellants any right to derogate their fiduciary duty to the Respondent No. 1 Company and its Members, including the Respondents. 12. The NCLT has noticed prima facie acts of oppression and mismanagement committed by Appellants; therefore, to protect the rights and interests of the Respondents and the Respondent Company, the NCLT has passed various interim orders, including the impugned Order, which do not warrant any intervention of this Appellate Tribunal. The NCLT has passed the balancing order to protect the interest of both parties until the parties resolve the disputes amicably. The Respondents being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by both the groups (all the Directors) jointly in terms of Circular Resolution dated November 6, 2019. From then onwards, the Appellants are constantly trying to control all the bank accounts in spite of Respondent No. 2 being a Full-time Director and his Group having a substantial shareholding of 45.33%. It is further contended that despite Orders of the NCLT, the Appellants have passed Board Resolution dated January 30, 2021, to open new bank accounts of the Respondent No. 1 Company without the signature of Respondent No. 2. Fearing adverse Order, Appellants diverted ₹ 80,25,000/- from the Bank Account of the Respondent No. 1 Company to the personal accounts of the Appellant group. The Appellant further passed the Resolution in its Board meeting dated January 30, 2021, to wind up and shift the factory from Wardha. 18. The Learned Counsel for the Appellant submitted that the impugned Directions of the NCLT are against the Board Resolution dated November 19, 2019, of the Respondent No. 1 Company. The NCLT has passed the impugned Order without even forming a prima facie opinion as to how the implementation of the said Board Resolution has been detrimental to the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of the Respondent No. 1 Company. 22. Therefore, in addition to other Directions of NCLT, we further direct that a weekly report of all the transactions of more than ₹ 1000/- from all the Bank Accounts of the Company be circulated to all the Directors by email, so that any transaction which pertains to siphoning off funds may immediately be reported to the Adjudicating Authority, who may examine the reported transaction and pass appropriate Order. Appellant's objection about the investigation of the Respondent No. 1 Company's affairs by Registrar of Companies; 23. The Appellant further contends that the direction of the NCLT to the Registrar of Companies to conduct an investigation into the affairs of Respondent No. 1 Company and to take appropriate action against the persons found guilty is erroneous. 24. Appellant contends that the Companies Act provides for inspection, enquiry and investigation under Chapter XIV. The specific powers of the Learned NCLT to direct an investigation are traced to Section 210 (2) and 213 of the Act. In this regard, the powers of the Registrar of Companies are found in Section 206 and 207 of the Companies Act, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of investors are not being addressed, the Registrar may, after informing the Company of the allegations made against it by a written order, call on the Company to furnish in writing any information or explanation on matters specified in the Order within such time as he may specify therein and carry out such inquiry as he deems fit after providing the Company a reasonable opportunity of being heard: Provided that the Central Government may, if it is satisfied that the circumstances so warrant, direct the Registrar or an inspector appointed by it for the purpose to carry out the inquiry under this sub-section: Provided further that where business of a company has been or is being carried on for a fraudulent or unlawful purpose, every officer of the Company who is in default shall be punishable for fraud in the manner as provided in Section 447. (5) Without prejudice to the foregoing provisions of this section, the Central Government may, if it is satisfied th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany at any place. (4)(i) If any director or officer of the Company disobeys the direction issued by the Registrar or the inspector under this section, the director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees. (ii) If a director or an officer of the Company has been convicted of an offence under this section, the director or the officer shall, on and from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall be disqualified from holding an office in any company. 210. Investigation into affairs of Company.- (1) Where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company,- (a) on the receipt of a report of the Registrar or inspector under Section 208; (b) on intimation of a special resolution 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny in respect of such matters and to report thereupon to it in such manner as the Central Government may direct: Provided that if after investigation it is proved that- (i) the business of the Company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the Company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the Company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the Company who is in default and the person or persons concerned in the formation of the Company or the management of its affairs shall be punishable for fraud in the manner as provided in Section 447. 25. The Companies Act provides for inspection, enquiry and investigation under Chapter XIV. The specific powers of the Learned the NCLT direct an investigation traced to Section 210 (2) and Section 213 of the Act. In this regard, the powers of the Registrar are found in Section 206 and 207 of the Act. The Registrar has been granted powers of inspection and enquiry and not of investigation. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 213 of the Companies Act 2013 (pari-materia in its content to Section 237 of the 1956 Act), has reiterated the very same view. 30. Therefore, it is clear that the NCLT may direct the Central Government to investigate under Section 210 (2) of the Companies Act 2013. After a reference from the NCLT, the Central Government has to mandatorily appoint an Inspector under Section 210 (2) of the Act. Therefore, before the Learned NCLT passes such an order, it will follow as a natural corollary that the Learned NCLT, at least form prime facie opinion, based on the records available and the submissions made, that such an investigation into the affairs of the Company was necessary, and such direction, in any event, ought to be issued to the Central Government and not to the Registrar. 31. Therefore, the direction issued by the Learned NCLT appointing the Registrar of Companies to investigate into the affairs of Respondent No. 1 Company violates the provisions of the statute, in as much as in terms of Section 210 (2) of the Companies Act 2013, such a direction can be given only to the Central Government and not to the Registrar. In terms of Section 213 of the Companies Act 2013, s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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