9911796707
TMI Blog2021 (4) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... pany be operated jointly by one representative of Appellants and one representative of Respondent No. 2 to 4 and directed the Registrar of Companies to investigate into the affairs of the Respondent No. 1 Company. The original parties status in the Company Petition represents them in this Appeal for the sake of convenience. Appellant's Contention 2. Respondent No. 2 to 4 herein applied the NCLT, vide IA No. 989 of 2020, challenging the Board Resolution of the Respondent No. 1 Company, which among other things, provided for the bank accounts of the Respondent No.1 Company to be jointly operated with the 2nd Respondent as a necessary signatory and anyone of the other three Directors of the said Company as a Co-signatory. Respondent No. 2 to 4 failed to maintain a challenge against the said Board Resolution in Civil Suit No. 117 of 2020 before the Civil Judge, Wardha, Maharashtra. After that, an unsuccessful attempt was made to get the same relief by filing IA 664 of 2020. However, the Respondent filed IA No. 989 of 2020 before the NCLT, wherein the impugned Order has been passed. 3. The Appellant contends that Respondent No.2 is one of the Directors of Respondent No. 1 Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 Company and committed acts of mismanagement and siphoning and diverting the Company's funds to their accounts and related entities. This compelled Respondent No. 2 and his Group to file the present Company Petition for mismanagement and oppression. From time to time, interim orders have been passed to prevent the Appellants from committing any further acts of oppression and mismanagement and protect the assets and properties of the Company. 7. The latest attempt of the Appellants to oust Respondent No. 2 from the Board of Directors of Respondent No. 1 Company was by calling an Extraordinary General Meeting (EOGM) of the Company on August 14, 2020. However, by interim Order dated August 12, 2020, the NCLT restrained the Appellants from giving effect to any such Resolution to remove Respondent No. 2. To circumvent the said Order, the Appellant called another Board meeting of the Company on September 12, 2020, whereby the Resolution was passed for changing the designation of Respondent No. 2 from a whole-time Director to non-executive Director, thereby stripping Respondent No. 2 of all powers qua the Company. 8. The Appellants made an earlier attempt to undo the interim pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent's Bank Account of Respondent No. 1 Company without the signature of Respondent No. 2. In its meeting held on January 30, 2021, the Board of Directors passed the Resolution to wind up and shift the factory from Wardha. It issued an office Order dated February 5, 2021, which may also result in loss of subsidy. 14. We have heard the arguments of the Learned Counsel for the parties and perused the records. 15. Before the NCLT in IA No. 989 of 2020, the primary challenge of Respondent No. 2 to 4 herein was against the Board Resolution of Respondent No. 1 Company, passed on November 19, 2019. By the impugned Order, NCLT, among other things, provided for the Bank Accounts of Respondent No. 1 Company to be jointly operated with the 2nd Respondent as a necessary signatory and anyone of the other three Directors of the said Company as a Co-signatory. The Resolution dated November 19, 2019, already provided for any two Directors out of the four Directors being a Joint Authorised Signatory of the Bank Accounts of Respondent No. 1 Company. The Appellant contended that the NCLT by the impugned Order superseded the Board Resolution of the Company. The NCLT, without any discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... older with 39.70% of the Company's paid-up share capital. Both groups have allegations and counter-allegations about siphoning off funds from the Respondent No. 1 Company. Respondent No. 2 and his Group has filed the Company Petition for mismanagement and oppression wherein, from time to time, interim Orders have been passed to prevent the Appellants from further acts of mismanagement and oppression and to protect the assets and properties of the Company. From the earlier interim Orders dated September 23, 2020, the Board Resolution to change the designation of Respondent No. 2 to a Non-executive Director was stayed. This Order was challenged before this Appellate Tribunal. Still, this Appellate Tribunal did not interfere with the Order of the NCLT, but the only direction was to dispose of the Company Petition within two months expeditiously. However, the said Company Petition is still lying pending. 20. However, at this interim stage, it cannot be decided as to whose allegations are correct. It is pertinent to mention that this Appellate Tribunal, by its Order dated December 4, 2020, in Company Appeal (AT) No. 222 of 2020, directed the NCLT to dispose of the Company Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Registrar is of the opinion that any further information or explanation or any further documents relating to the Company is necessary, he may by a written notice require the Company- (a) to furnish in writing such information or explanation; or (b) to produce such documents, within such reasonable time, as may be specified in the notice. (2) On the receipt of a notice under sub-section (1), it shall be the duty of the Company and of its officers concerned to furnish such information or explanation to the best of their knowledge and power and to produce the documents to the Registrar within the time specified or extended by the Registrar: Provided that where such information or explanation relates to any past period, the officers who had been in the employment of the Company for such period, if so called upon by the Registrar through a notice served on them in writing, shall also furnish such information or explanation to the best of their knowledge. (3) If no information or explanation is furnished to the Registrar within the time specified under sub-section (1) or if the Registrar on an examination of the documents furnished is of the opinion that the inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and every officer of the Company, who is in default shall be punishable with a fine which may extend to one lakh rupees and in the case of a continuing failure, with an additional fine which may extend to five hundred rupees for every day after the first during which the failure continues. 207. Conduct of inspection and inquiry.- (1) Where a Registrar or inspector calls for the books of account and other books and papers under Section 206, it shall be the duty of every director, officer or other employee of the Company to produce all such documents to the Registrar or inspector and furnish him with such statements, information or explanations in such form as the Registrar or inspector may require and shall render all assistance to the Registrar or inspector in connection with such inspection. (2) The Registrar or inspector, making an inspection or inquiry under Section 206 may, during the course of such inspection or inquiry, as the case may be,- (a) make or cause to be made copies of books of account and other books and papers; or (b) place or cause to be placed any marks of identification in such books in token of the inspection having been made. (3) Notwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) on an application made by- (i) not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or (ii) not less than one-fifth of the persons on the Company's register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the Company; or (b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that- (i) the business of the Company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the Company was formed for any fraudulent or unlawful purpose; (ii) persons concerned in the formation of the Company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the Company or towards any of its members; or (iii) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 213, which requires "good reasons" to be shown and "satisfaction" of the Learned NCLT of the circumstances, both of which are absent in the impugned Order. 27. Hon'ble, the Supreme Court of India in case of Rohtas Industries, Limited Rohtas Industries Ltd vs D. Agarwal 1969 (1) SCC 325, while examining the nature of the power conferred on the Central Government under the corresponding Section 235 of the Companies Act 1956, held that unless proper grounds exist for the investigation of the affairs of the Company, such investigation ought not to be lightly undertaken. The same was explained by stating that investigation can seriously damage the reputation of the Company and, therefore, ought not to be ordered without proper material gathered in the manner prescribed under the Companies Act. Such powers have been conferred on the Central Government with the faith that it will be exercised reasonably. 28. Further, in case of Barium Chemicals Ltd Barium Chemical Ltd vs CLB reported in AIR 1967 SC 295 held that "there must exist circumstances which, in the opinion of the Authority, suggest what has been set out in Sub-clause (i), (ii) or (iii). If it is shown that the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and impugned Order regarding the investigation into the affairs of the Respondent No. 1 Company by the Registrar of Companies deserve to be set aside.
ORDER
The Appeal is partly allowed. The directions as stated in Clause (ii), (iii) & (iv) of Para 61 of the Impugned Order are being set aside. However, the Learned NCLT, after providing an opportunity of hearing to both the parties, if it makes a prima facie opinion and arrives at the conclusion that investigation into the affairs of the Respondent No. 1 Company is needed, may pass an order under Section 210(2) of the Companies Act 2013.
Regarding the Order about the operation of the Bank Accounts of the Respondent No. 1 Company, without any alteration of the earlier Order, we further direct that;
"A weekly report of all the transactions of more than Rs. 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 orders."
The Appeal is disposed of accordingly-no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
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