2020 (10) TMI 272 - Tri - Companies Law

Tribunal rules for minority shareholders in fraud case, appoints Independent Forensic Auditor

T.P. Anilkumar and Ors. Versus Indus Motor Company Private limited and Ors.

The Tribunal ruled in favor of the Petitioners, minority shareholders, in a case involving allegations of fraud and mismanagement by majority shareholders ... Appointment of independent forensic auditor - HELD THAT:- After perusing the case records including the Order passed earlier on 17.01.2020 and 17.02.2020, the interim counter filed by the respondents, particularly the report of the Advocate Commissioner and the counter filed by the respondent Company against the Report, this Bench is of the view that the petition was filed under Section 241 and 242 of Companies Act and the reliefs sought for can only be available under the same sections of the Companies Act and cannot be granted under Arbitration and Conciliation Act. This Tribunal pass the following order: I. While considering the present situation to meet the ends of justice, this Tribunal allows the appointment of an Independent Forensic Auditor to complete the auditing work within 60 days from the date of appointment of the auditor by this Bench. II. It is also directed to constitute an audit committee consisting of two directors from the Petitioner's side and two from the Respondent's side other than Respondent No. 2 for helping and co-operating in completing the independent audit. III. The costs of the forensic auditor should be borne by both the parties equally. It is also directed both the parties to suggest the list of persons to perform as an Independent Forensic Auditor before 19.06.2020. List the Company Petition on 22.06.2020, for suggesting list of auditors by both the parties. Issues:1. Allegations of fraud and mismanagement by majority shareholders in the company.2. Appointment of an Advocate Commissioner to authenticate company records.3. Disruption in the authentication process due to COVID-19.4. Interim application seeking relief for appointment of independent financial auditor.5. Obstruction of statutory rights under the Companies Act by Respondents.6. Respondents' application under Section 8 of the Arbitration and Conciliation Act.7. Petitioners' request for appointment of an audit committee.8. Decision on the reliefs sought under Sections 241 and 242 of the Companies Act.Analysis:1. The case revolves around allegations of fraud and mismanagement by majority shareholders (Respondent Nos. 2-6 & 8) in the company, as raised by minority shareholders, the Petitioners. The Petitioners, who individually hold shares in the company, have accused the Executive Management of perpetrating fraud and bad corporate governance practices over the years. The mismanagement issues are detailed in the Company Petition CP/02(KOB)/2020.2. An Advocate Commissioner was appointed by the Tribunal to authenticate the statutory records of the company. However, the authentication process faced disruptions due to various reasons, including the unavailability of records at the scheduled times and the impact of COVID-19 on the operations of the company's offices.3. The Respondents were accused of obstructing the Petitioners from exercising their statutory rights under the Companies Act and violating previous orders. The Petitioners sought relief for the appointment of an independent financial auditor to investigate the alleged fraudulent transactions and mismanagement.4. Respondents filed an application under Section 8 of the Arbitration and Conciliation Act, seeking resolution of disputes through arbitration as per a prior agreement. They contested the allegations made by the Petitioners and argued against the need for certain reliefs sought in the Company Petition.5. The Tribunal, after considering the arguments and case records, ruled that the reliefs sought by the Petitioners could only be granted under Sections 241 and 242 of the Companies Act, not under the Arbitration and Conciliation Act. Consequently, the Tribunal ordered the appointment of an Independent Forensic Auditor and the constitution of an audit committee to facilitate an independent audit process.6. The costs of the forensic auditor were to be shared equally by both parties, who were directed to suggest a list of auditors for appointment within a specified timeframe. The case was scheduled for further proceedings to finalize the appointment of auditors and oversee the completion of the independent audit process.