TaxTMI 
TaxTMI 
1997 (5) TMI 342
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....nt is the chairman and managing director of the first appellant- company. The third appellant is the joint managing director of the first appellant-company. The main object of the company is to carry on the business of parcel lorry service, manufacture of automobile components and dealership of Telco. 3. It is the case of the appellants that there were disputes between the managing director, i.e., second appellant, and his son-in-law, Srihari Rao, who was a former director of the first appellant-company and a former Member of Parliament. The disputes started some time in 1993. In 1994 (according to the appellants, at the instigation of Srihari Rao) eight shareholders of the company filed before the CLB, Principal Bench, New Delhi, a company petition bearing CP No. 7 of 1994 under sections 397 and 398 of the Act, on the ground of oppression of minority shareholders and mismanagement of the affairs of the company by the second and third appellants. In the said petition, an injunction was sought to restrain the first appellant-company from proceeding with the rights issue of its shares. After hearing both the parties, however, the CLB declined to grant any interim order to this eff....
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....d loss accounts of the first appellant-company. According to the first respondent there was misappropriation of the funds of the company by appellants 2 and 3. It was claimed by the first respondent that this amounts to misappropriation of public funds and that, for the alleged acts of appellants 2 and 3, the Union of India should be directed to prosecute appellants 2 and 3. There is a further prayer in the writ petition that the Court should direct an inquiry by the Central Bureau of Investigation into the alleged financial mismanagement of the company and misappropriation of funds by appellants 2 and 3; that a report should be submitted to the Court within four weeks pending the disposal of the writ petition; and on the basis of such report the Court should give further directions. There is also a prayer for the appointment of an interim administrator to take charge of the affairs of the first appellant-company. All these prayers relate the alleged mismanagement of the affairs of the first appellant-company by appellants 2 and 3. In essence, the writ petition under article 226 prays for an investigation into the affairs of the first appellant-company, and for action against appel....
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....ought to be investigated by an Inspector or Inspectors. On such a declaration being made, the Central Government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to report thereon. 9. The power, therefore, to appoint Inspector to investigate the affairs of a company has to be exercised by the Central Government after a proper preliminary scrutiny by the Registrar or by the CLB as the case may be. It cannot be instituted simply on the basis of allegations made by one shareholder. Under section 237 of the Act, there is a further power given to the Central Government to appoint Inspectors to investigate the affairs of a company if the company, by a special resolution, or the Court, by order declares that such investigation is necessary. Similarly, this may be done if in the opinion of the CLB there are circumstances suggesting that 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 of any of its members or that the company was formed for any fraudulent or unlawful purpose. The CLB may also co....
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....nk fit to bring an end to the matters complained of. Some of the shareholders of the first appellant-company have, in fact, filed petition under sections 397 and 398 before the CLB in which they have asked for similar reliefs including the appointment of an interim administrator. The acts of mismanagement and oppression complained of are similar to those set out in the writ petition before the High Court. The only ground alleged in the writ petition for moving the High Court under article 226 is that the CLB is not moving in the matter. Under an excuse that the CLB has not yet made an order, a shareholder cannot be allowed to by pass the express provisions of the Act and move the High Court under article 226. A shareholder has very effective remedies under the Act for prevention of oppression and mis-management. When such remedies are available, the High Court should not readily entertain a petition under article 226. 12. The learned single judge before whom the present writ petition came up for hearing very rightly held that the Act provides a forum to consider the grievances made out by the first respondent in the writ petition. When such a forum, statutorily constituted, exis....