TaxTMI 
TaxTMI 
2010 (10) TMI 914
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.... under sections 397-398 of the Act is to end continuing acts of oppression and mismanagement for better future of the Company. Winding up Petition has already been filed before the Bombay High Court. As such there is no occasion for the CLB to exercise any jurisdiction in the present petition. The present petition has not been filed by Central Government but rather by a department which does not have power and authority to file such petition. Authority under section 401 of the Act cannot be sub-delegated. The basis of the present petition is alleged to be an adverse report in investigation under section 235 of the Act which was carried out on the direction of the Registrar of Companies who issued an adverse report under section 209 of the Act. It is essential to give a prior hearing and notice before initiating such investigations and filing any report thereto. In the absence of such notice and hearing, the investigation and report thereto are illegal and no petition can be filed before the CLB on the said basis and as such this petition filed by the petitioner is not maintainable. He further submitted that the purpose for exercising jurisdiction under sections 397-398 of the Act b....
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....the Registrar of Companies in putting spokes in the wheels of the Company. The applicant was a honorary, independent professional director of the Company and resigned from the Company, on 23 December, 1999 due to deteriorating health conditions. The applicant is not controlling shareholder of the Company and has not drawn any salary, sitting fees, profits of any nature, or financial benefits from the Company. The board of the company was comprised of a group of eminent and ethical individuals from deficient spheres of life and with expertise in different fields. The Board had made a policy decision that the Company shall be managed by team of qualified persons and for that purpose, had appointed a whole time Company Secretary Ms. Shweta Panwani, to comply with all statutory requirement of various Acts including Companies Act. A paid whole time Director and financial Controller Mr. R.K. Khandelwal, to manage, control and decide upon all financial matters such as mobilizing resources through debt and equity and also deciding on matters related to means of financing. 3. He further submitted that in the year 2000, the inspection of the Company was ordered under section 209A of the C....
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....rtunity of being heard, and under section 235 the applicant has to be not only be certain number of members but has to be accompanied by evidence." "Therefore, the petitioner has acted in a prejudiced manner and in gross violation of the principles of Natural Justice. He further submitted that this view is followed in several subsequent judgments including Rohtas Industries Ltd. v. S.D. Agarwal [1969] 39 Comp. Cas. 781 (SC) wherein it is held:" "We agree with, the conclusions reached by Hidayatullah and Shelat. JJ in Barium Chemicals Case that the existences of circumstances that the company's business was being conducted as laid down in sub-clause (i) or persons mentioned in sub-clause (ii) were guilty of fraud misfeasance or other misconduct towards the Company or its members is a condition precedent for the Government to form an opinion...". The investigation report is based on unreliable and inadmissible evidence in law. The inspector did not approach the Company nor did he visit the premises of the Company to inspect the records of the Company. The real purpose of conducting inspection is to educate the company and its officers, the procedures and provisions" of the A....
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....mpany and hence the question subjecting the members to oppression by such directors does not arise. The Company has not carried out any antisocial business or any illegal business which is ultra virus to the constitution or to any other law. The petitioner has just picked up the terms from the framing of the section in order to window-dress the petition with the intention to misguide the Court by using the terminology jargon, in a manner similar to the way the petitioners have misrepresented to the witnesses and public at large and misguided them and misused their powers and office. There is no specific averment and it has been specified in the petition so as to which class of members have been subjected to oppression by whom; and what role the present respondents have to play in the same. Further, the petitioner has not made out any case for winding up of the petitioner Company which is preliminary to seeking reliefs under sections 397 & 398 of the Act without which the petition for seeking reliefs under the shelter of oppression and mismanagement is not maintainable and hence is liable to be struck down on that single ground itself. He invited reference to the judgment in Hanuman....
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....ot only there should be act of oppression, but such acts should continue or if not, the consequences of such act should continue till the date of petition. In the instant case the alleged acts have extinguished in the year 1999 and also the alleged oppressors which are Respondent Nos. 2 & 3, do not Continue to be in the management thereafter. The present applicant i.e., Respondent No. 2 resigned on 23-10-1999 and Respondent No. 3 resigned on 5-4-1994. Also the alleged acts are not of continuous nature existing till the date of filing of the petition. Therefore, the present petition is not maintainable because the alleged acts have been committed way back in the year 1999 and these acts do not continue till the date of filing of the petition. In case of mismanagement section 398 comes into play only when either the acts of mismanagement or its consequences are continuing till the date of filing of the petition or there is an anticipation on such events taking place in immediate future in case the present management is allowed to continue. The said view was upheld in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC). In the instant case since the Respondent Nos. ....
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....the Central Government vide Ministry of Corporate Affairs Order No. 23/159/96/CL.II dated 23-3-2004. It is pertinent to note that the investigation was done in accordance with the provisions of law and a report was submitted to the Central Government. The Companies Act has given powers to the Central Government to apply under sections 397 and 398 where it is of the opinion that circumstances exist which make it just and equitable, if the affairs of the Company are being conducted in a manner prejudicial to the public interest. It is wrong and denied that the petition under sections 397 and 398 is only maintainable if the petitioner can demonstrate that there is a fit case for winding up the Company but such winding up would prejudice the shareholder/public interest and therefore the CLB should exercise jurisdiction under sections 397 and 398 of the Act. CLB has not vast powers under section 402 of the Act, the powers are not curtailed to winding of the company. The petitioner has not filed any winding up petition before the Hon'ble Bombay High Court which is pending for disposal. The applicant should be put to strict proof to the averments made in para under reply. The petitioner h....
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....d be maintainable even if the oppression was of a short duration and a singular conduct if its effects persist indefinitely. It is therefore, submitted that in view of the abovementioned legal position, the pleas raised by the applicant in the application are non-sustainable under law. In the circumstances it is submitted that the Hon'ble Bench may dismiss the application under reply with costs. The Learned Counsel relied upon a judgment reported in the matter of Surinder Singh Bindra v. Hindustan Fasteners (P.) Ltd. [1990] 69 Comp. Cas. 718 (Delhi). It is held "Continuous acts of mismanagement-complained of cannot be overlooked on the ground that they were prior to three years period of limitation provided under Article 137. 10. Heard the Learned Counsel appearing for the parties, perused the pleadings, documents and citations relied upon by them. To decide the issue of maintainability of the petition, the following issues are emanated and the same are needed to be addressed. (i)Whether SFIO has authority to file the petition ? (ii)Whether the petition is maintainable for recovery of amounts by invoking sections 397-398 read with sections 406, 542 & 543 of the Act? Whethe....
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....among group associates. The management was found to have indulged in falsification of accounts of the Company. Further the allegation of the petitioner that the Company adjusted the application money in the form of deposit for software, rigging of share price through manipulation of working results in financial statements, shares reprinted and sold in the market whole original jumbo share certificates were under seizure of Income-tax Department, contravention of section 41 read with section 372/372A, contravention of sections 78, 293, 295, 370 etc. From the pleadings it is apparent that the petition is filed basing on the report of the Investigating Officers. In this regard the provision under which the Union of India approached this Bench is necessary to emphasize. Section 397 empowers the CLB to make such order as it thinks fit, may with a view to bringing to an end the matters complained off by any member of a Company who complains that the Affairs of the company are being conducted in a manner prejudicial to public interests or in a manner, oppressive to any member or members. Section 398 empowers the Bench in case of mismanagement in the affairs of a company and may apply any ....
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....ner has not made out any case for winding up of the company on just and equitable ground. It is also held by the CLB in the matter of Subhash Chandra Agarwal v. Associated Limestone Ltd. [1998] 16 SCL 212 (CLB - Delhi) "in order to maintain petition for relief against oppression and mismanagement, there must be justification for winding up of Company on just and equitable grounds from the facts contained in the petition. Non-existence of such condition is fatal to the petition". As stated supra the petitioner is not remediless. Most of the allegations are in the nature of grievances which specific alternate course of action is available under various provisions of the Act and other laws which could be resorted by the petitioner. The petitioner also invoked the provisions of sections 542 & 543 of the Act. Section 542 reads thus "liability for fraudulent conduct of business. (1) If in the course of the proceedings on an application made to the Tribunal under section 397 or 398 in respect of a Company, it appears that any business of the Company has been carried on with intent to defraud creditors of the Company or any other persons or for any fraudulent purpose, the CLB may if ....
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....ement with the above judgment. On this ground alone the main petition itself is liable to be dismissed. Accordingly the issue is answered. Now I deal with the issue No. (iii) From the petition it is seen that all the allegations pertain to the years 1992, 1993, 1995, 1999, 2000. It is well settled law that the acts complained of in the affairs of the Company must be continuous till the date of filing of the petition. Admittedly, the petition is filed in the year 2006. There is no such averment in the petition that the acts complained of are still in existence. The Respondents 2 & 3 contended that they were the directors of the Company and resigned in the years 1999 and 1994 respectively. Further it is contended by the respondents that the allegations pertain to the subsequent years and they were ceased to be directors and they are not in day to day management of the Company. Further they averred that the Company was managed by the experts. Hence, it is contended by the respondents that they are past directors and they are no where concerned with the affairs and management of the Company. I do not accept the stand of the respondents on the ground that they are past directors. ....