2007 (11) TMI 417 - HC - Companies Law

Court dismisses petition seeking direction for Central Government action under Companies Act; petitioner ordered to pay costs

The Court dismissed the writ petition seeking a direction for the Central Government to institute proceedings under section 401 of the Companies Act, ... Oppression and mismanagement - Held that:- In view of the multifarious litigation pending between the petitioner and the contesting respondents, and the fact that the Central Government has already moved the Company Law Board for action, though not under section 401, find no merit in the contention that its decision not to do so is a wilful omission to exercise discretion which it was lawfully bound to, in the circumstances of this case. In the light of the above findings, the writ petition has to fail. The petitioner has indulged in speculative litigation, by seeking to use the jurisdiction of this Court under article 226, when plainly, there was absolutely no occasion for it to seek recourse to it, as the facts do not justify entertainment of such proceeding. Issues:- Direction to Central Government to institute proceedings under section 401 of the Companies Act, 1956.- Allegations of oppression and mismanagement by the petitioner.- Discretionary power of the Central Government under section 401.- Allegations of vexatious litigation and forum shopping by private respondents.- Abuse of discretion by the Central Government.- Jurisdiction of the High Court under article 226.- Relief claimed for a direction to the Central Government.- Proper exercise of discretion by the Central Government.- Malice in law and legal mala fides.- Costs to be paid by the petitioner.Direction to Central Government to Institute Proceedings under Section 401:The writ petitioner sought a direction for the Central Government to initiate proceedings under section 401 of the Companies Act, 1956. The petitioner claimed that the reports of an inspection into the respondent's affairs were not pursued vigorously, and a petition prepared against the respondent disappeared. Allegations of improper exercise of discretion by the Central Government were made, stating that violations were detected in the inspection report. The petitioner urged that the Central Government should take action under section 401. The first respondent denied acting capriciously, stating that actions were being taken based on investigations and applications filed. The private respondents alleged vexatious litigation and financial disputes with the petitioner, claiming that the present litigation was an effort to coerce them.Discretionary Power of the Central Government under Section 401:The Central Government's discretionary power under section 401 was highlighted, emphasizing that necessary legal advice must be obtained before prosecuting individuals for criminal liability. The respondents argued that steps were being taken in accordance with the law and public interest. The petitioner contended that the Central Government's omission to prosecute under sections 397 and 401 amounted to an abuse of discretion for extraneous reasons.Allegations of Vexatious Litigation and Forum Shopping:The private respondents accused the petitioner of engaging in vexatious litigation and forum shopping, claiming that financial disputes existed between them. They alleged that the petitioner initiated criminal campaigns against them and lodged multiple complaints and FIRs. The private respondents asserted that the Department had the prerogative to decide on actions to be taken.Abuse of Discretion by the Central Government:The petitioner argued that the Central Government abused its discretion by not taking action against companies violating the Act. They relied on Supreme Court decisions to support their claim that the High Court could issue directions in cases of improper exercise of discretion by public authorities.Jurisdiction of the High Court under Article 226:The High Court's jurisdiction under article 226 was invoked by the petitioner to compel the Central Government to take necessary actions against the respondents. The Court considered whether the Government's decision not to file proceedings under section 401 was a wilful omission and found no merit in the contention.Proper Exercise of Discretion by the Central Government:Sections 237 and 242 of the Act grant wide discretion to the Central Government to pursue remedies, and the Court observed that the Government reasonably exercised this discretion by moving an application before the Company Law Board for investigation. The petitioner was advised to seek remedies before the appropriate forum.Malice in Law and Legal Mala Fides:The Court discussed the concept of legal mala fides in the context of discretionary power abuse, emphasizing that an authority must exercise its discretion lawfully. The judgment cited precedents to illustrate when the exercise of discretionary power becomes improper.Costs to be Paid by the Petitioner:The Court dismissed the writ petition, stating that the petitioner engaged in speculative litigation without justification. The petitioner was directed to pay costs of Rs. 30,000, to be deposited with the Prime Minister's Relief Fund within a specified timeframe. The Court found the petitioner liable for costs due to the unnecessary nature of the proceedings.---