TaxTMI 
TaxTMI 
2016 (6) TMI 218
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.... 235 was maintainable; they claimed to have noticed several irregularities in the affairs and day-to-day running of the respondent No. 12-company; that the respondents had carried out various E-form filings with the ROC without obtaining proper approval from the Board of Directors and shareholders of the company. These alleged irregularities included: i. Holding meetings without the requisite period of notice required by law. ii. Increasing the share capital of the company from Rs. 1,00,000/- to Rs. 1,40,00,000/- through an Extraordinary General Meeting convened without the permission of the appellants, who were shareholders at the time, and thereby reducing the shareholding of the appellants from 100% to 0.73%. iii. Appointing respondent Nos. 1 and 2 as directors of the company and not providing an explanatory statement for the same. iv. Forcing appellant Nos. 2 and 3 to resign from the Board of Directors without their consent. v. Allotting shares of the company to companies based in Kuwait. vi. Fraudulently changing the registered address of the company three times. vii. Filing irregular balance sheets from 2005 to 2011. 3. The appellants contend that an investigation und....
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.... for the years ending 31.3.2005, 31.3.2006, 31.3.2007, 31.3.2008, 31.3.2009, 31.3.2010 and 31.32011. All these allegations and irregularities are based on the documents filed by the company with Registrar of Companies and these returns/forms are available within public domain. As such, facts/violations/irregularities have been observed by examination of papers/returns/documents/forms of the company available on the Portal of Ministry of Corporate Affairs. In this context, the observations made in the case of Binod Kumar Kasera Versus Nandlall & Sons Tea Industries (P) Ltd. & Ors. (2010) 153 Comp Cas 184(CLB) [page 210, 211; para 40] are relevant which states that the object of an investigation u/s 235(2) of the Act is to discover something which is not apparently visible to the naked eye and where a petition discloses merely facts which are apparent from the balance sheet of the company, an investigation will not be ordered. In the present Petition, the contraventions and irregularities have already been noticed and stated by the Petitioners in the Petition and these matters have also been taken up with the various law enforcing agencies including SHO, Safdarjung Police Station, Ne....
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....it that the entire proceedings on behalf of the respondents before the CLB was without due authority since the special power of attorney on behalf of respondent Nos. 1 and 2, authorizing Mr. Anshuk Pasricha to pursue the matter before the CLB, had not been notarised or apostilled before any agency or the Government of India or of the Indian Consulate in Kuwait. The appellants rely upon the settled principle of law laid down in the case of Rupak Gupta and Ors. v. Banaras House Pvt. Ltd. and Ors., C.P. No. 75(ND)/2012 which held that the sanctity of affidavits must be strictly adhered to. In the written arguments before the CLB (annexed as Annexure P-11 to this appeal) the following objection was taken: "The Petitioners wish to highlight that this special power of attorney, on the basis of which Shri Anshuk Pasricha has sworn the affidavit is neither notarise, nor apostilled nor attested as mandatorily required by law and given that the said special power of attorney was executed outside of India it was required to be presented before the consulate of the Indian Government in Kuwait for it to be legally valid. The said special power of attorney does not fulfil any of these re....
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....s 253 (Bombay) shall also be of no avail. If the earlier power of attorney was not stamped as per Indian Law, it was a mere irregularity which could be cured. The Supreme Court in the case of United Bank of India v. Naresh Kumar and Ors. (1996) 6 SCC 660 went to the extent of holding that such ratification can be proved even at Appellate stage. Therefore, I do not find any force in this preliminary submission of the respondent." 9. The respondents further contend that the acts of Mr. Anshuk Pasricha have accordingly been ratified by a Board Resolution dated 13.04.2015. The Court finds that in view of the preceding discussion of the law on curability of the defect and the subsequent ratification of the acts of and authority in favour of Mr. Pasricha by the company, the preliminary objection of the appellants is untenable and is therefore rejected. 10. The learned Senior Advocate for the respondents has raised a preliminary objection that this petition is not maintainable because the appellants have also filed C.P. No. 133/2013 before the CLB through which they have availed the proper remedy under sections 397 and 398 of the Act. He contends that the prayers in C.P. No. 133/2013 a....
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....e company, and the CLB cannot substitute its own opinion for that which may be brought out from an investigation. He further contends that an investigations under section 235 is neither criminal in nature nor is it to be conducted by police; that the requirement of a minimum shareholding under section 235 has to be read liberally and cannot be a bar to the present proceedings because a similar requirement is stipulated under section 399 of the Act with respect to applications under section 397 and 398. He contends that this principle should be liberally interpreted and extended to also apply to investigations under section 235; that as the question of the voting power being reduced to below 10% constitutes the cause of action for this petition under section 235 of the Act, the same should be investigated to reveal the true state of affairs of the company. He submits that, as was held in Citicorp International Finance Corporation case (supra), an "(a)n order to investigate under Section 235 of the Act, in any case cannot prejudice the respondents" because the direction of holding an investigation under this section is similar to the appointment of a fact finding commission. He relie....
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....ing of the appellants is only 0.73% and that this is, therefore, fatal to their case. He submits that the meaning of 10 per cent of voting power has been considered in Smt. Chandra Prabha and Another v. Hotel Shweta (P) Ltd. & Others (1995) 4 Comp LJ 540 (CLB) which held as under: "13. The petitioners have filed the petition under Section 235 read with Section 237(b) of the Act. As per Section 235(2) of the Companies Act, 1956, an application for a declaration for investigation has to meet the minimum qualification, namely, that it should be from not less than 200 members or from members holding not less than one tenth of the total power. According to the petitioners, the total paid up capital was Rs. 50.52 lakhs and their holding was within the limits. The respondents, however, contend that, on the date of petition, the paid up capital was Rs. 75 lakhs. From a scrutiny of Form No. 2 within regard to the additional paid up capital was Rs. 75 lakhs. From a scrutiny of Form No. 2 with regard to the additional allotment of Rs. 24.48 lakhs, it was found that the allotment was stated to have been made on 28.2.92/demand draft was also obtained towards filing fee on 4.3.92, but th....
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....would be a logical consequence of such investigation if ordered in the course of Section 111 or Sections 397 and 398 proceedings in that upon investigation and the result thereof, the petitioner's right to relief could be assessed. 9. It is beyond question that an investigation under Section 237 can be directed upon subjective satisfaction of the existence of circumstances enumerated in Section 237. If, however, it is shown or the Company Law Board is otherwise satisfied that such circumstances do not exist or that the facts and allegations are such that it is impossible to form an opinion as to the existence of such circumstances, an investigation is not called for....." 19. The learned Senior Advocate discerns between the language of section 235 and section 399 of the Companies Act and asserts that the legislative intent behind these sections is unambiguous, insofar as section 235 requires an application for investigation to be received from members holding not less than "one-tenth of the total voting power" in the company whereas Section 399 requires an application from members holding not less than "one-tenth of the issued share capital" of the company. To support his p....
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....Rohtas Industries v. S.D. Agarwal and Ors., (1969) 139 Comp Cas 781 (SC), wherein the Hon'ble Supreme Court set aside a impugned order of the High Court and held that in cases of allegations of fraud on the part of the directors of a company, an investigation must be carried out if there is prima facie evidence of any intent to defraud, fraudulent or unlawful activities, or instances of misconduct. The judgment observes as under: "39. Coming back to Section 237(b), in finding out its true scope, we have to bear in mind that that section is a part of the scheme referred to earlier and therefore the said provisions takes its colour from Sections 235 and 236. In finding out the legislative intent we cannot ignore the requirements of those sections. In interpreting Section 237(b) we cannot ignore the adverse effect of the investigation on the company. Finally, we must also remember that the section in question is an inroad on the powers of the company to carry on its trade or business and thereby an infraction of the fundamental right guaranteed to its shareholders under Article 19(1)(g) and its validity cannot be upheld unless it is considered that the power in question is a reas....
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....hat, as also observed by the CLB, this is present within these set of facts. 24. Having considered the aforestated contentions, the Court is of the view that the present appeal oversteps its statutory applicability. What is undisputed is that the appellant fails to meet the threshold of 10% share of the total voting power as is necessary under section 235 of the Act. Therefore, that is his first impediment in directing an investigation and the application under section 235 as well as this appeal would not be maintainable. Furthermore, in section 397 and 398 of the Act, which deals with application for relief in cases of oppression and mismanagement respectively, required the applicant to have at least 10% of the issued share capital. It is only in applications under Section 397 and 398 of the Act, where the challenge in such applications is to reduction of the issues share capital itself, through oppression or mismanagement then the threshold of 10% would not be applicable. 25. The Court would note that Mayank Kocher (supra) discusses the Barium Chemicals Ltd. V. Company Law Board [1966] 36 Comp Cas 639 (SC) and another judgment, Shankar Sundaram v. Amalgamations Ltd. [20....
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....e must exist at least a prima facie evidence that the affairs of the company are being run in a fraudulent and unlawful way so as to defraud its creditors or is contrary to the interest of the company itself which would lead to the conclusion that an investigation would be necessary. Mere allegation of a disgruntled shareholder would not be a sufficient ground to order an investigation. 28. The appellants have sought an investigation regarding the irregularities mentioned in paragraph 2 hereinabove, which relate primarily to documents already on record. It is the effect of these documents which would be examined in the proceedings under Section 397 and 398, which, incidentally, have already been preferred by the appellant. The impugned order has rightly analysed as in the context of the facts of the case that the appellant, who initially had 100% voting power in the company were subsequently allegedly removed/ displaced from the said voting power by respondent no.1 appointing its two executive directors accepting resignation of appellant no. 2 and 3 from the post of Director; increase in the authorized capital from Rs. 1 lac to Rs. 1.40 crores; allotment of shares on variou....