Company Application No. 465 of 2008 in Company Petition No. 71 of 2006. Case: Pradeep Vakil Vs Union of India (UOI). Company Law Board

Case NumberCompany Application No. 465 of 2008 in Company Petition No. 71 of 2006
JudgesKanthi Narahari, Member (Judicial)
IssueCompany Law
Citation2011 (101) CLA 263
Judgement DateOctober 09, 2010
CourtCompany Law Board


Kanthi Narahari, Member (Judicial), (Mumbai Bench)

1. The present application is filed by Respondent No. 2, in CP No. 71 of 2006, under regulation 44 of the Company Law Board Regulations, 1991, for dismissal of CP No. 71 of 2006 as it is not maintainable under Sections 397 and 398 of the Companies Act, 1956 ('the Act').

2. Shri Swapnil Bangur, learned Counsel, appearing for the applicant submitted that the petition filed by the Petitioner, i.e. Union of India, under Sections 397 and 398 of the Act, is not maintainable as the prayer in the petition is for recovery of certain amount from the directors. Such claims do not fall within the jurisdiction of the Company Law Board ('CLB') and it is appropriate to file suit for claim/recovery before a civil court of appropriate territorial jurisdiction. The jurisdiction of the CLB in a petition under Sections 397 and 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 the 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 ('RoC') 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 and 398 of the Act by the CLB is to give relief to the shareholders by ending any alleged act of mismanagement and oppression in the company. As no such relief has been claimed in the present petition, the petition is not maintainable. The petition under Sections 397 and 398 is maintainable only if the Petitioners can demonstrate that there is a fit case for winding up the company but such winding up would prejudice the shareholders/public interest and, therefore, the CLB should exercise jurisdiction under Sections 397 and 398. The present petition should also be stayed due to the pendency of the petition filed before the hon'ble Bombay High Court as two simultaneous proceedings on similar issues may lead to contradictory orders from two different courts. The petitions filed under Sections 397 and 398 of the Act are to end continuing acts of oppression and mismanagement. Such petitions are for curative or remedial reliefs. The present petition does not allege any act after the year 1999 and consequently the present petition is not maintainable as it does not seek any relief within the legal jurisdiction of the CLB. This petition is for recovery of an alleged amount against the ex-directors and as such it is not maintainable. It is a settled law that the issue of maintainability has to be decided by a court seeking to exercise any jurisdiction prior to passing any order including an order for filing reply on merits by the Respondents. The applicant is an ex-director of the Respondent-company. The company was performing very well and has lakhs of shareholders. Some politicians with vested interests are attempting to tarnish the credibility and image of the company by conspiring with various other persons, including competitors having common, mala fide intention to act against the interest of the company and cause harm to the company for their own selfish benefits. The equity shares as well as the fixed deposits of the company were the most sensitive area initially targeted by these persons and which had snowballing negative impact on general investing public so as also on the Government bodies, thereby causing prejudice in their minds towards the company. The company tried its level best from time and again to bring the same to the notice of various Government Departments but all its efforts were in vain. The company has addressed several letters to various persons bringing out the high-handedness of the RoC 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 23rd December, 1999, due to deteriorating health conditions. The applicant is not the 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 different spheres of life and with expertise in different fields. The Board had made a policy decision that the company shall be managed by a team of qualified persons and for that purpose, had appointed a whole-time company secretary Ms. Shweta Panwani, to comply with all the statutory requirement of various Acts, including the Act. A paid whole-time director and financial controller Mr. R K Khandelwal, to manage, control and decide upon all financial matters such as mobilising resources through debt and equity and also deciding on matters related to means of financing.

3. He further submitted that in the year 2000, an inspection of the company was ordered under Section 209A of the Act, by the RoC, for the fourth or fifth time, between the period 1992 to 2000 and it was alleged that the company and its officers did not co-operate. But it is pertinent to note that no notice of any such inspection was ever received by the company nor any inspector or any other officer visited the company for inspecting the records of the company. It is alleged by the RoC that due to non-cooperation of the company, a report under Section 234(6) of the Act was made to the Government recommending investigation under Section 235(1) of the Act. The company and the applicant never had any opportunity to place its case before the RoC but was totally ignorant of any inspection being conducted. The Government on receipt of report of the RoC ordered an investigation into the affairs of the company on 23rd March, 2004. No opportunity was given to the applicant or to the company at any stage to present its case prior to ordering the investigation. It is further submitted that the Central Government after a prolonged delay of four years ordered an investigation into the affairs of the company and appointed Mr. S Vasudevan working in the office of Serious Fraud Investigation Office ('SFIO') under Section 235(1) of the Act, to conduct the investigation into the affairs of the company. The investigation order does not show any application of mind on the part of the Government in order to form an opinion requiring investigation and also does not disclose formation of any opinion. The said order of investigation is amenable to judicial review so as to decide whether the material available before the Government was sufficient to form an opinion that investigation under Section 235 of the Act was eminent. The report of investigation was placed before the Central Government seeking reliefs against the Respondents under Sections 397 and 398 read with Sections 542 and 543 of the Act. Further, it is evident from the said investigation order that the Petitioner has...

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