AI Drafter 
TaxTMI 
TaxTMI 
2021 (4) TMI 1088
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....the Bank Account of the Respondent No. 1 Company be operated jointly by one representative of Appellants and one representative of Respondent No. 2 to 4 and directed the Registrar of Companies to investigate into the affairs of the Respondent No. 1 Company. The original parties status in the Company Petition represents them in this Appeal for the sake of convenience. Appellant's Contention 2. Respondent No. 2 to 4 herein applied the NCLT, vide IA No. 989 of 2020, challenging the Board Resolution of the Respondent No. 1 Company, which among other things, provided for the bank accounts of the Respondent No.1 Company to be jointly operated with the 2nd Respondent as a necessary signatory and anyone of the other three Directors of the said Company as a Co-signatory. Respondent No. 2 to 4 failed to maintain a challenge against the said Board Resolution in Civil Suit No. 117 of 2020 before the Civil Judge, Wardha, Maharashtra. After that, an unsuccessful attempt was made to get the same relief by filing IA 664 of 2020. However, the Respondent filed IA No. 989 of 2020 before the NCLT, wherein the impugned Order has been passed. 3. The Appellant contends that Respondent No.2 i....
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....dent No. 2 from the Board of Directors of the Respondent No. 1 Company and committed acts of mismanagement and siphoning and diverting the Company's funds to their accounts and related entities. This compelled Respondent No. 2 and his Group to file the present Company Petition for mismanagement and oppression. From time to time, interim orders have been passed to prevent the Appellants from committing any further acts of oppression and mismanagement and protect the assets and properties of the Company. 7. The latest attempt of the Appellants to oust Respondent No. 2 from the Board of Directors of Respondent No. 1 Company was by calling an Extraordinary General Meeting (EOGM) of the Company on August 14, 2020. However, by interim Order dated August 12, 2020, the NCLT restrained the Appellants from giving effect to any such Resolution to remove Respondent No. 2. To circumvent the said Order, the Appellant called another Board meeting of the Company on September 12, 2020, whereby the Resolution was passed for changing the designation of Respondent No. 2 from a whole-time Director to non-executive Director, thereby stripping Respondent No. 2 of all powers qua the Company. 8. ....
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....ed a Resolution in the Board meeting held on January 30, 2021, to open the Respondent's Bank Account of Respondent No. 1 Company without the signature of Respondent No. 2. In its meeting held on January 30, 2021, the Board of Directors passed the Resolution to wind up and shift the factory from Wardha. It issued an office Order dated February 5, 2021, which may also result in loss of subsidy. 14. We have heard the arguments of the Learned Counsel for the parties and perused the records. 15. Before the NCLT in IA No. 989 of 2020, the primary challenge of Respondent No. 2 to 4 herein was against the Board Resolution of Respondent No. 1 Company, passed on November 19, 2019. By the impugned Order, NCLT, among other things, provided for the Bank Accounts of Respondent No. 1 Company to be jointly operated with the 2nd Respondent as a necessary signatory and anyone of the other three Directors of the said Company as a Co-signatory. The Resolution dated November 19, 2019, already provided for any two Directors out of the four Directors being a Joint Authorised Signatory of the Bank Accounts of Respondent No. 1 Company. The Appellant contended that the NCLT by the impugned Order s....
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....ector appointed as a director on December 11, 2014, and is the single largest shareholder with 39.70% of the Company's paid-up share capital. Both groups have allegations and counter-allegations about siphoning off funds from the Respondent No. 1 Company. Respondent No. 2 and his Group has filed the Company Petition for mismanagement and oppression wherein, from time to time, interim Orders have been passed to prevent the Appellants from further acts of mismanagement and oppression and to protect the assets and properties of the Company. From the earlier interim Orders dated September 23, 2020, the Board Resolution to change the designation of Respondent No. 2 to a Non-executive Director was stayed. This Order was challenged before this Appellate Tribunal. Still, this Appellate Tribunal did not interfere with the Order of the NCLT, but the only direction was to dispose of the Company Petition within two months expeditiously. However, the said Company Petition is still lying pending. 20. However, at this interim stage, it cannot be decided as to whose allegations are correct. It is pertinent to mention that this Appellate Tribunal, by its Order dated December 4, 2020, in Comp....
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...., inspect books and conduct inquiries.-(1) Where on a scrutiny of any document filed by a company or on any information received by him, the Registrar is of the opinion that any further information or explanation or any further documents relating to the Company is necessary, he may by a written notice require the Company- (a) to furnish in writing such information or explanation; or (b) to produce such documents, within such reasonable time, as may be specified in the notice. (2) On the receipt of a notice under sub-section (1), it shall be the duty of the Company and of its officers concerned to furnish such information or explanation to the best of their knowledge and power and to produce the documents to the Registrar within the time specified or extended by the Registrar: Provided that where such information or explanation relates to any past period, the officers who had been in the employment of the Company for such period, if so called upon by the Registrar through a notice served on them in writing, shall also furnish such information or explanation to the best of their knowledge. (3) If no information or explanation is f....
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....arry out the inspection of books of account of a company or class of companies. (7) If a company fails to furnish any information or explanation or produce any document required under this section, the Company and every officer of the Company, who is in default shall be punishable with a fine which may extend to one lakh rupees and in the case of a continuing failure, with an additional fine which may extend to five hundred rupees for every day after the first during which the failure continues. 207. Conduct of inspection and inquiry.- (1) Where a Registrar or inspector calls for the books of account and other books and papers under Section 206, it shall be the duty of every director, officer or other employee of the Company to produce all such documents to the Registrar or inspector and furnish him with such statements, information or explanations in such form as the Registrar or inspector may require and shall render all assistance to the Registrar or inspector in connection with such inspection. (2) The Registrar or inspector, making an inspection or inquiry under Section 206 may, during the course of such inspection or inquiry, as the case ma....
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....For the purposes of this section, the Central Government may appoint one or more persons as inspectors to investigate into the affairs of the Company and to report thereon in such manner as the Central Government may direct. 213. Investigation into Company's affairs in other cases.- The Tribunal may,- (a) on an application made by- (i) not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or (ii) not less than one-fifth of the persons on the Company's register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the Company; or (b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that- (i) 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....
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....ra), the Learned the NCLT has also been granted powers to direct an investigation into a company's affairs. However, such direction may be issued only to the Central Government and not to the Registrar under Section 210 (2) and 213. The NCLT, in passing the Order, for the investigation to be conducted into the affairs of the Respondent No. 1 Company by the Registrar, ignored the mandate of Section 213, which requires "good reasons" to be shown and "satisfaction" of the Learned NCLT of the circumstances, both of which are absent in the impugned Order. 27. Hon'ble, the Supreme Court of India in case of Rohtas Industries, Limited Rohtas Industries Ltd vs D. Agarwal 1969 (1) SCC 325, while examining the nature of the power conferred on the Central Government under the corresponding Section 235 of the Companies Act 1956, held that unless proper grounds exist for the investigation of the affairs of the Company, such investigation ought not to be lightly undertaken. The same was explained by stating that investigation can seriously damage the reputation of the Company and, therefore, ought not to be ordered without proper material gathered in the manner prescribed under the Com....