2021 (6) TMI 31 - HC - Companies Law

Court affirms Registrar's power to probe director removal complaints

The court upheld the Registrar of Companies' authority to investigate complaints of alleged illegal removal of directors under Section 206 of the ... Vacation/removal of the respective second respondent and his family members as directors in the group companies - Summons issued directing the respective petitioners to appear on a specified date and submit all the registers/documents before the 1st respondent - HELD THAT:- It is settled law that a summon issued under a statutory provision can be challenged only, if it has been issued without jurisdiction and without authority under law. Under the impugned summons, the Registrar of Companies has observed that it is not clear as to whether the respective petitioners have complied with the provisions of Section 167 and Section 169 of the Companies Act, 2013, as the case may be, for vacating/removal of the directors or not and only for the said purpose, as contemplated under section 206(4) of the companies Act, the impugned summons have been sent to the respective petitioners for further clarification/enquiry. Admittedly, no final orders have been passed on the respective second respondents' complaints under section 206 (7) which empowers the Registrar of Companies to punish the company and every officer of the company in the event of the company failing to furnish any information or explanation or produce any document required under section 206 of the Act. In the case on hand, the impugned summons have been issued by the Registrar of Companies only in accordance with the procedure contemplated under Section 206(4) of the Companies Act. The Registrar of Companies has also given reasons for seeking further explanation from the directors of the respective companies. He has observed that the respective directors of the respective companies have not produced the dispatch proof and the acknowledgement proof for having sent the notices to all the directors for conducting Board Meeting from 01.04.2019 to 10.07.2020 - this Court is of the considered view that these writ petitions have been filed prematurely, even before passing of any adverse orders by the Registrar of Companies against the respective petitioners. Petition disposed off. Issues Involved:1. Jurisdiction and authority of the Registrar of Companies under Section 206 of the Companies Act, 2013.2. Validity of the summons issued under Section 206 of the Companies Act, 2013.3. Premature filing of writ petitions challenging the summons.4. Internal disputes in the management of the companies.5. Mediation proceedings and their impact on the investigation under Section 206.6. Compliance with procedural requirements under Section 206 of the Companies Act.Detailed Analysis:1. Jurisdiction and Authority of the Registrar of Companies:The writ petitions challenge the summons issued by the Registrar of Companies (1st respondent) under Section 206 of the Companies Act, 2013. The petitioners argue that the Registrar lacks jurisdiction to conduct an inquiry into internal management disputes. However, Section 206 grants the Registrar the power to call for information, inspect books, and conduct inquiries if he believes the business of a company is being carried out for fraudulent or unlawful purposes or not in compliance with the Act. The court noted that the Registrar's authority under Section 206 is statutory and includes the power to investigate complaints about the alleged illegal removal of directors.2. Validity of the Summons Issued Under Section 206:The summons were issued based on complaints from the respective 2nd respondents, alleging fraudulent resolutions passed by the petitioners to remove them and their family members as directors. The Registrar issued the summons to investigate these allegations. The court emphasized that a summons issued under a statutory provision can be challenged only if it is issued without jurisdiction or authority. The Registrar followed the procedure outlined in Section 206, including providing reasons for the summons and seeking further clarification from the petitioners.3. Premature Filing of Writ Petitions:The court found that the writ petitions were filed prematurely, as no adverse orders had been passed against the petitioners by the Registrar. The petitioners sought to challenge the summons before the investigation was completed. The court held that interfering at this stage would amount to stalling the investigation, which is not permissible under law. The Registrar must be allowed to complete the investigation and consider all objections raised by the petitioners.4. Internal Disputes in the Management of the Companies:The petitioners contended that the Registrar's power under Section 206 does not extend to internal management disputes. However, the court noted that the complaints involved allegations of fraudulent resolutions, which fall within the Registrar's purview to investigate. The Registrar is empowered to inquire into such matters to ensure compliance with the Companies Act.5. Mediation Proceedings and Their Impact on the Investigation:The petitioners argued that ongoing mediation proceedings should preclude the investigation under Section 206. The court acknowledged the mediation but held that it does not bar the Registrar from exercising his statutory powers to investigate the complaints. The mediation proceedings and the investigation can proceed concurrently, and the Registrar must consider the outcomes of the mediation when making any final decisions.6. Compliance with Procedural Requirements Under Section 206:The court emphasized that the Registrar must follow the procedural requirements under Section 206, including issuing written notices, providing opportunities for the company to respond, and recording reasons for further inquiries. The Registrar observed that the petitioners had not provided dispatch and acknowledgment proof for notices issued for board meetings, raising questions about compliance with Sections 167 and 169 of the Companies Act. The court directed the Registrar to proceed with the investigation while ensuring that all procedural safeguards are followed.Conclusion:The court disposed of the writ petitions, directing the Registrar to continue the investigation under Section 206 of the Companies Act. The petitioners were given the opportunity to raise legal objections and produce documentary evidence. The Registrar was instructed to consider all objections and provide a fair hearing to both parties. The interim stay on the investigation was vacated to allow the Registrar to proceed. The court reiterated that the investigation must adhere to the procedural requirements of Chapter XIV of the Companies Act, 2013.