1. This is a petition filed under Sections 235, 237, 397 and 398 read with Sections 402 and 403 of the Companies Act, 1956 (''the Act") for appointment of one or more competent persons as inspectors to investigate the affairs of M/s Rangoli Texdye Private Limited ("the Company") for the reasons enumerated therein.
2. Shri T.V.L. Narasimha Rao, learned Counsel appearing for the petitioners, while initiating his arguments submitted that the Company was promoted in September, 1995 by among others respondents 2, 3 & 4 with the object of setting up a polyester yarn dying unit. During the year 1996, the second petitioner together with his relatives and friends at the behest of the second respondent's parents had invested to the tune of Rs. 32.50 lakhs towards share capital of the Company and further became director on the Board of the Company, with understanding that the second petitioner would not participate in the day-to-day affairs of the Company on account of his critical physical conditions.
Accordingly, the second petitioner had kept with the second respondent signed blank cheques in advance for facilitating issuance of cheques in favour of the creditors or suppliers of the Company. The second respondent was to furnish necessary statement of accounts and progress of the Company from time to time. Similarly, the second petitioner had executed blank loan as well as security documents giving his personal guarantee and collateral security of his immovable property in favour of the respondents 6 & 7 for the credit facilities extended by them in favour of the Company. However, later it transpired that the second respondent failed to conduct the affairs of the Company on sound business principles and corporate practices, without settling the dues of creditors but embezzled substantial amounts of the Company and deliberately committed acts of fraud and misfeasance with malafide intentions and oblique motives against the pecuniary interest of the shareholders, creditors, employees and statutory authorities, resulting in removal of the statutory records, furnitures, computer systems and other movable assets of the Company and closure of the factory as well as the corporate office premises without any intimation to the staff members, workers and other members including the petitioners and absconded himself with effect from 14.10.2002, the fact of which has been confirmed by the sixth respondent as well as the eighth respondent in the counter filed on their behalf. The second petitioner was to face several of civil and criminal proceedings at the hands of the financial institutions, suppliers and other creditors on account of the fraudulent conduct of the second respondent in collusion with the officials of the respondents 6, 7 and 9 as detailed hereunder: - The second petitioner was forced to enter into a Memorandum of Understanding with the eighth respondent at the forceful intervention of the Police authorities which lead to extortion of post dated cheques to the tune of Rs. 15 lakhs from the second petitioner to satisfy the claim of 16.68 lakhs of the eighth respondent against the Company.
The second petitioner had to pay an aggregate sum of Rs. 16.90 lakhs out of his personal resources in favour of the workers, suppliers and other creditors towards their claim against the Company.
The second petitioner was forced to effect the transfer of ownership of a four-wheeler owned by the Company in favour of M/s Chandulal Transport, one of the creditors of the Company, in lieu of their claim due from the Company.
The second respondent had disposed of DG set of 82.50 KVA, through M/s J.P. Enterprises, which led to a complaint lodged by the second petitioner in October, 2002 with the Abids Police Station. The sixth respondent failed to take action against the second respondent for illegally disposing DG set hypothecated in their favour, in spite of the communication dated 07.12.2002 of the second petitioner (Annexure-VI) disclosing the fact that the officials of the sixth respondent were in collusion with the second respondent.
M/s S.K. Marketing, Bangalore, one of the dealer aspirant for the products of the Company had illegally removed the stocks of the Company hypothecated in favour of the seventh respondent on the strength of an unlawful authorization dated 06.11.2002 of the second respondent towards refund of the security deposits kept with the Company.
The second respondent manipulated the financial accounts as of 31.03.2000 and submitted two completely different sets of balance sheets certified by two different Chartered Accountants, one submitted before the Registrar of Companies and the other before the seventh respondent, to secure higher credit limits.
The second respondent submitted a fake, forged and non-existent sanction letter purported to have been written by the seventh respondent addressed to the sixth respondent enhancing working capital limits with the seventh respondent in order to mislead the sixth respondent facilitating release of funds in favour of the Company by the sixth respondent. The sixth respondent ought not to have disbursed Rs. 180 lakhs without obtaining any confirmation from the seventh respondent in regard to the alleged enhancement of credit facilities by the latter. The sixth respondent neither divulged details of such forged letter nor furnished copy of the same on account of the collusion between the officials of the sixth respondent and the second respondent. No criminal action has either been taken against the second respondent by the sixth respondent, even though a nominee of the sixth respondent was on the Board of the Company.
The second respondent failed to submit stock statements and periodical returns and did not allow the seventh respondent to conduct stock audit.
The second respondent failed to obtain the confirmation of balances in respect of various debtors and creditors thereby giving ample scope for siphoning of the Company's funds, as qualified by the Statutory Auditor of the Company in their report on the accounts for the year 1999-2000.
The second respondent had opened and operated secretly a current account (CD/890) in the Company's name with the Nedungadi Bank Ltd., since merged with the ninth respondent and diverted huge amounts of the Company in the range of Rs. 85 lakhs during the period 01.04.2002 to 16.10.2002, as borne out by the statement of accounts (Annexure-XIII), revealing innumerable cash withdrawals, which are not reflected in the books of account of the Company, causing pecuniary loss to the Company and its shareholders.
The ninth respondent failed to adhere to the norms prescribed by the RBI while opening the account by the second respondent in the name of the Company and the account was found to be opened even without any introduction, which is a mandatory requirement. The payments made from the current account of the Company were not in due course of the business of the Company. The ninth respondent acted negligently and deliberately accommodated the second respondent to carry out the fraudulent misappropriation of funds of the Company.
The second respondent had manipulated the stock records as borne out by the panchanama dated 31.01.2002 (Annexure-XIV) recorded at the time of the inspection conducted in the factory premises by the Central Excise officials in January, 2002.
Though the seventh respondent in their communication dated 11.10.2002 (Annexure-XI) leveled a series of charges against the second respondent, they failed to maintain any proper credit monitory system in violation of the terms of the agreement entered between the Company and the seventh respondent. The seventh respondent never raised the issue of the fake sanction letter said to have been issued by them in their counter and deliberately avoided any action in spite of the serious fraud committed by the second respondent.
Though the respondents 7 & 9 have inter-se account transaction, they failed to take cognizance of the current account opened and operated with the ninth respondent in the name of the Company by the second respondent. Thus, the officials of the respondents 7 & 9 in active collusion with the second respondent enabled the latter to siphon of the Company's funds.
The second petitioner was constrained to lodge a criminal complaint against the second respondent with the IV Metropolitan Magistrate, Hyderabad, seeking investigation by the Police authorities, who registered the crime and the investigation is in progress.
Shri Narasimha Rao, learned Counsel further reiterated that the second petitioner never participated in the management of the Company, in view of his heart ailment and surgery undergone by him in the year 1995. The registered office and the corporate office have always been in different places. The day-to-day affairs of the Company have been conducted at the corporate office, as borne out by the correspondence exchanged among the respondents 2, 6 and 7 and other creditors of the Company. The letter of authority (Annexure-IX) given in favour of M/s S.K. Marketing and the panchanama taken at the time of inspection conducted by the officials of Excise Department (Annexure-XIV) show that the second respondent was in-charge of the factory unit of the Company. According to the sixth respondent, the second respondent was actively negotiating with them and participated in the bank meetings.
Furthermore, when their officials visited the factory and corporate office premises and not the registered office, which were found to be closed at the time of their visits. This shows that the second respondent was actively involved in the management of the Company from corporate office. The first petitioner, an employee, cannot have any legal status in the Company and cannot be made responsible for the present state of affairs of the Company. The first petitioner had signed only the genuine sale invoices and not any other records. All the records were signed by the second respondent or his authorised representative. According to the eighth respondent, he was making supplies to the Company as per the orders placed by the first petitioner and the second respondent respectively. Against this background, the plea of the seventh respondent that the first petitioner was involved in the management of the Company as well as the factory administration and production, reveals the collusive attitude of the seventh respondent with the second respondent. Though the fifth respondent had resigned from the office of director with effect from 26.12.2001, yet he is responsible and answerable for the activities of the Company prior to his resignation from the post of director. During August, 2002, the second respondent together with his brother had purchased 1,26,500 equity shares of the Company from his friends and relatives for valuable consideration made through post-dated cheques.
When the original share certificates together with duly executed transfer deeds were lodged with the Company for effecting the transfer in the name of the respective transferees in September 2002, the second respondent refused to register the transfer of shares without any sufficient cause, thereby causing pecuniary-loss to them. Shri Narasimha Rao, learned Counsel while concluding his submissions emphasized the following: - The above materials are sufficient to form a prima-facie opinion that the affairs of the Company require to be investigated, satisfying the essential requirement to exercise powers under Section 237 as held in Punjab Agro Industries Corporation Limited v. Superior Genetics (India) Ltd. -(2002) Vol.108 CC 349, Deputy Secretary, Ministry of Finance, Department of Revenue & Company Law v. Sahu Jain Ltd. - (1970) Vol.40 CC 83 and Rohtas Industries, Ltd. v. S.D. Agarwal 350. The provisions of Section 235 to 251 dealing with "investigation" recognize another form of remedy available to the minority shareholders. The purpose of the investigation is to find out whether those in charge of the affairs of a company are guilty of illegal conduct or of conduct trenching upon breach of fiduciary obligations or oppression or misfeasance, in support of which learned Counsel referred to Kumaranunni v. Mathrubhumi Printing & Publishing Co. Ltd. -(1983) Vol.54 CC 370. An inspector merely probes into the affairs of a company and embodies in the report his opinion. The document is admissible in evidence only as a piece of opinion. The opinion, by itself does not affect the rights of the Company. He does not write a judgment which binds the Company nor does he penalise anybody. Investigation is only a fact-finding measure and has no quasi judicial character, as held in New Central Jute Mills Co. Ltd. v. Deputy Secretary, Ministry of Finance - AIR 1966 Calcutta 151 and Ashoka Marketing Ltd. v. Union of India - AIR 1967 Calcutta 159. The discretion conferred to order an investigation is administrative and not judicial, since its exercise one way or the other does not affect the rights of a company nor does it lead to any serious consequences as, for instance, hampering the business of the company. The investigation undertaken under this provision is for ascertaining facts and is thus merely exploratory, as held in Barium Chemicals Ltd. v. Company Law Board - AIR 1967 SC 295.
For these reasons, Shri Narasimha Rao, learned Counsel prayed that the CLB is exercise of powers vested in Section 237 (b) may order for a detailed investigation in the affairs of the Company and gave up the relief of winding up of the Company.
3. Shri S.R. Raghunathan, learned Counsel appearing for the respondents 2, 3 & 5 submitted: The Company was floated at the instance of the second petitioner and not of the second respondent. While the second petitioner was carrying on the affairs of the Company at the registered office as its sole financier, the corporate office was looked after by the second respondent only running day-to-day affairs of the factory and public relations: The registered office of the Company was shifted to the second petitioner's building with effect from 01.05.1996 as borne out by the search report (Annexure-XVI). The factory was under the control, lock and key of the second petitioner and the second respondent was not responsible for loss of any machinery at the factory premises. Shri Raghunathan referred to the statement of the eighth respondent to show that supplies were made to the Company under instructions of the first petitioner and the second respondent and that the payments were delayed by the Company on account of the fact that the second petitioner was out of station. The position of the second respondent as Managing Director was in the nature of an employee and it was only the second petitioner controlling the entire affairs of the Company. At the behest of the second petitioner, the corporate office was closed, upon which the statutory records and other records were kept in his custody at the registered office. The cheques were always in the custody of the second petitioner, who never left at any point of time any signed blank cheques with the second respondent. The third respondent being wife of the second respondent is in no way concerned with the affairs of the Company, but included as a party to the proceedings with a view to harass this respondent. The fifth respondent originally a director had resigned from the said office as early as on 26.12.2001 and therefore is not responsible for the activities of the Company. The second respondent is prosecuting the company petition before the CLB and, not absconding anywhere. The petitioners instead of approaching the CLB, could have appointed an independent auditor for verification of the accounts, which they have failed purposely with oblique motive. The charges in regard to withdrawal of funds from the Company's account maintained with the ninth respondent are already covered under the criminal proceedings initiated against the second respondent. The second respondent never embezzled any amount of the Company and never committed any act of fraud, misfeasance and dishonesty. These charges remain unsubstantiated. Therefore, the requirements of Section 237(b)(i) & (ii) are not satisfied and Sub-clause (iii) is inapplicable, in which case, the application under Section 237 does not lie as held in Barium Chemicals Ltd. v. Company Law Board - 1966 (Vol.XXXVI) CC 639. The fake letter produced before the sixth respondent alone cannot be the basis for ordering investigation into the affairs of the Company. Even otherwise by means of such fake letter, the Company would not suffer any loss but only financial institutions. The properties of the respondents 2, 3 & 5 are also given as securities for the credit facilities extended to the Company by the sixth respondent. The second petitioner pursuant to the communication dated 17.10.2002 of the seventh respondent (Annexure-XI) pointing out the irregularities committed in the affairs of the Company called on the officials and undertook to set right the irregularities.
The balance sheet of the Company was signed from time to time by the second petitioner and the entire state of affairs of the Company are within his knowledge and therefore estopped from making charges against the second respondent. Moreover, it is not prudent on the part of the second petitioner to acquire 1,26,500 equity shares of the Company at face value just one month prior to filing of the company petition. The petitioners have come out with the present petition throwing the blame on the second respondent for their illegal acts and frauds. Shri Raghunathan, learned Counsel, while concluding his submissions relied on S.L. Verma v. Delhi Flour Mills Co. Ltd. -(1975) Vol.45 CC 33 to show that "the object of an investigation under Section 237 is to discover something which is not apparently visible to the naked eye.
Where a petition discloses merely facts which are apparent from the balance-sheet of the company, an investigation will not be ordered. At least prima facie evidence should exist concerning circumstances which would lead to the conclusion that an investigation was necessary". The present petition has been filed for certain collateral purpose with the intention of obtaining certain findings against the respondents so as to make use of such findings in the criminal proceedings already launched by the second petitioner against the second respondent and in the process the second petitioner is making efforts to absolve himself from the liabilities of the Company. The conditions for exercise of the statutory power enunciated in Section 237(b) not being satisfied, the CLB is not to exercise the discretionary powers vested in that section, as held in Rohtas Industries Ltd. v. S.D. Agarwal 4. Ms. Deepa, learned Counsel appearing for the sixth respondent submitted: This respondent being a public financial institution, extended credit facilities in favour of the Company to the tune of Rs. 479 lakhs, with the outstanding principal amount of Rs. 308 lakhs as at 30.05.2003, on the security of the immovable properties belonging to the third respondent, fixed deposit receipts of face value of Rs. 25 lakhs held in the name of the respondents 2, 3 and 5 with a scheduled Commercial Bank, their personal guarantee and that of the second petitioner. When the officials of this respondent visited the factory unit in October, 2002, they came to know that the factory was totally defunct and that one DG set of 82.50 KVA was missing from the site. In this connection, Ms. Deepa referred to the correspondence exchanged with the second petitioner. The second respondent is absconding and not within the reach of this respondent, who has been frequently shifting his residence. The balance sheets of the Company submitted to this respondent were found to be manipulated balance sheets. The second respondent had produced a fake, forged and non-existent sanction letter said to have been issued by the seventh respondent facilitating this respondent to enhance the working capital limits, release of which in favour of the Company was stopped on knowing his fraudulent conduct.
Furthermore, this respondent had given consent in favour of the seventh respondent for taking over the assets of the respondents 1 to 3 and 5 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. These acts of this respondent would show that their officials never acted in collusion with the second respondent. In these circumstances, Ms. Deepa prayed for suitable order safeguarding the interest of this respondent.
5. According to Shri K.S. Sundar, learned Counsel appearing for the seventh respondent, the company petition has been filed with ulterior motive, in order to thwart the recovery proceedings initiated before the Debt Recovery Tribunal. Though the second respondent was participating and negotiating with this respondent in bank meetings, the second petitioner cannot throw the entire blame on the second respondent. The first petitioner, being son of the second petitioner is involved in the factory administration, production and management of the Company. The working capital loans extended by this respondent in favour of the Company are duly secured by the immovable properties belonging to the second petitioner and his personal guarantee. All the loan and security documents were executed by the directors including the second petitioner as per the Board resolution passed by the Board of directors. The Company and its directors are bound to settle the outstanding dues and cannot be disowned by the second petitioner. When the affairs of the Company became irregular, the second petitioner, pursuant to the communication dated 11.10.2002 (Annexure-XI) of this respondent called on their officials and assured them to set right the irregularities. This respondent made a complaint before the Institute of Chartered Accountants of India pursuant to filing of the manipulated balance sheets for the year 1999-2000 certified by two chartered accountants. As the second petitioner had already lodged a police complaint against the second respondent, this respondent did not take any criminal action for the same illegal and irregular acts of the second respondent. The officials of this respondent never colluded with the second respondent at any point of time.
6. According to the eighth respondent, the entire business activities of the Company were looked after by the petitioners 1 & 2 and the second respondent. This respondent had made supplies of dyes and chemicals to the Company on the basis of the orders placed by the first petitioner and the second respondent respectively. When the Company came to be closed, this respondent was forced to prefer a Criminal Compliant before the Crime Branch of Police in December, 2002. During police enquiry the second petitioner voluntarily undertook to repay the entire amount of Rs. 16.68 lakhs due to this respondent and issued post dated cheques in discharge of the Company's liability. All the cheques issued by the second petitioner have already been encased and a few cheques are yet to be realized. This respondent never colluded with the second respondent in having preferred a criminal compliant for recovery of the outstanding amount. Therefore, this respondent sought for dismissal of the company petition.
7. According to Shri P.B. Sampath Kumar, learned Counsel, the ninth respondent took over the erstwhile Nedungadi Bank Ltd., with which the Company had maintained a current account. The second respondent withdrew amounts during the period between April and October, 2002, which were allowed in good faith and this respondent never colluded with the second respondent to carry out the purported fraudulent misappropriation of funds of the Company. There was no willful lapse on the part of this respondent either in opening or operating the account in the name of the Company by the second respondent. Shri Sampath Kumar, learned Counsel, therefore, prayed for dismissal of the company petition against this respondent.
8. Shri Narasimha Rao, learned Counsel, in his reply submitted: The petitioners have served a copy of the company petition upon the Registrar of Companies on 04.03.2003 in terms of the Company Law Board Regulations, 1991 and filed the company petition before the CLB on 26.03.2003. The sixth respondent initiated proceedings in December, 2003 before the Debt Recovery Tribunal and the seventh respondent initiated the recovery proceedings on 12.03.2003. Moreover, the petitioners are not seeking any relief for themselves. In spite of a written request of the second petitioner to take possession of the assets, the seventh respondent refused to take delivery of the assets of the Company. The seventh respondent failed to take appropriate steps for sale of the assets of the Company towards discharge of their dues, though the second petitioner has always been willing and cooperating for sale of the assets. Moreover, the second petitioner has sought for appointment of a receiver before the Debt Recovery Tribunal for sale of the assets of the Company. Thus, the second petitioner never delayed the proceedings before the Debt Recovery Tribunal. While the petitioners are minority shareholders, the respondents' group collectively holding 57.56 per cent of shares of the Company cannot plead either ignorance of the present state of affairs of the Company or deny their control over the business of the Company. Though the second respondent is represented before the CLB, yet he is not available for the public. While searching the corporate office, registered office and factory premises of the Company in January, 2002, the officials of the Central Excise did not procure any document at the registered office of the Company. Learned Counsel, referring to the panchanama dated 31.01.2002 taken at the factory premises (Annexure XIV) submitted that certain documents in regard to the seventh respondent were removed by the Central Excise officials from the second respondent's car while he was leaving the factory premises. The panchanama taken at the corporate office under the control of the second respondent has not been made available by him. Though the fifth respondent had resigned on 09.06.2001, form-32 filed before the Registrar of Companies shows that he had resigned on 26.12.2001. This discrepancy has not been explained by the respondents. The financial institutions have neither been informed about the resignation of the fifth respondent from the Board of the Company. According to the petitioners, the security offered by the third respondent in the form of fixed deposit receipt is not transferable and the sixth respondent cannot take the same as security. The sixth respondent in their counter (para 19) refers to a letter dated 04.06.2002 addressed to the seventh respondent by the second respondent denying issuance of any fake sanction letter. However, the communication of the seventh respondent dated 11.10.2002 (Annexure-XI) does not speak of such a letter dated 04.06.2002 of the second respondent. Thus, it is clear that the letter dated 04.06.2002 is also a fake one, veracity of which can be found out only when the matter is investigated by an inspector. The Police investigation will bring out only the criminal aspects of the irregularities. Moreover, investigation under the provisions of Section 237 is not barred by such Police investigation. By virtue of the proposed investigation, the Company would not be in a way prejudiced, more so when the Company has already been closed and therefore urged for an order of investigation into the affairs of the Company.
9. After considering the pleadings and the arguments of learned Counsel, the issue that arises for my consideration is whether there are sufficient materials to form a prima-facie opinion that the affairs of the Company require to be investigated, satisfying the essential requirements to exercise powers under Section 237(b), which provides as under: 237 (b) may do so, if [in its opinion or in the opinion of the Tribunal], there are circumstances suggesting - (i) that the business of the company is being conducted with intend to defraud its creditors, members or any other persons, 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; (ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to the managing or other director, or the manager, of the company.
Under Clause (b) of Section 237, the CLB, may take the initiative suo-moto or on the application of or information supplied by any shareholder or other person. However, before ordering an investigation, it must be satisfied as to whether the circumstances of the case fall under one or other of the Sub-clause (i), (ii) or (iii). Unless any of such circumstances exist, the CLB cannot order an investigation. I shall now proceed to consider as to whether the requirements of Section 237(b) have been satisfied in the present case. The materials on record reveal the following state of affairs of the Company: - The second respondent was said to have disposed of DG set of 82.50 KVA in favour of M/s J.P. Enterprises, Tondapalli (Shadnagar), R.R. District from the factory premises of the Company, in respect of which the police complaint lodged by the second petitioner is pending.
The Company's stocks hypothecated in favour of the seventh respondent were purportedly parted in favour of M/s S.K. Marketing, Bangalore, pursuant to a purported illegal authorization of the second respondent towards refund of the security deposit taken by the Company.
The Company had submitted two completely different sets of balance sheets for the year ended 31.03.2000, certified by two different Chartered Accountants, namely, Mr. C.V.S. Balachandra Rao and Mr. V. Srinivasa Rao, in respect of which the complaint made before the Counsel of the Institute of Chartered Accountants of India is pending. Shri V. Srinivasa Rao, in his reply dated 15.1.2003 to the Institute categorically stated that he never subscribed his signature to any balance sheet of the Company prepared from the year 1998-99 onwards. Any balance sheet of the Company after the year 1997-98 containing his signature is not a genuine document.
The second respondent reportedly fabricated a fake sanction letter said to have been issued by the seventh respondent in favour of the sixth respondent conveying enhancement of working capital limit by the seventh respondent.
The second respondent had opened and operated a current account (CD/890) in the name of the Company with the Nedungadi bank Limited, Basheer Bagh, Hyderabad since merged with the ninth respondent and said to have diverted substantial amounts of the Company without authority and knowledge of the second petitioner through the said account during the period between 01.04.2002 and 16.10.2002, as borne out by the statement of accounts furnished by the ninth respondent, showing innumerable cash withdrawals by the second respondent.
The Central Excise officials had conducted search in January 2002 in the premises of the Company, as borne out by the panchanama dated 31.01.2002 recorded by its officials to verify evasion of excise duty, if any, by the Company, at which time, the stocks in the factory premises did not tally with the records kept by the Company.
The second respondent was said to have committed grave irregularities while enjoying the credit facilities from the seventh respondent as borne out by their communication dated 11.10.2002 (Annexure-XI), compelling the second petitioner to lodge a police complaint (Annexure-VII) on 28.04.2002.
The above state of affairs of the Company indicate beyond doubt that all is not well in the affairs of the Company, more so, in the light of pending police and criminal complaints. The fake sanction letter and the fabricated balance sheet on record, no doubt, ought to have prejudiced the interests of apart from the Company, the respondents 6 and 7. All the withdrawals from the current account maintained with the ninth respondent, involving several lakhs of rupees remain unexplained by the second respondent. The depletion of stocks and removal of the machinery from the factory premises have not been justified by the second respondent. The financial irregularities in the affairs of the Company said to have forced the second petitioner to settle the claim of creditors, suppliers and employees from and out of his personal sources to the tune of several lakhs of rupees. The recovery proceedings against the Company before the Debt Recovery Tribunal at the instance of the respondents 6 & 7 throw light on the state of the affairs of the Company. The present state of affairs of the Company prima-facie show that the business of the Company was not conducted on sound business principles and corporate practices, but in a manner oppressive to its members and that the persons in the management of the Company were apparently guilty of grave irregularities causing prejudice to the interest of the Company or its members or creditors.
While according to the petitioners, the second respondent was attending to day-to-day affairs of the Company and in-charge of the factory and therefore responsible along with officials of the respondents 6, 7 & 9 for all the illegalities, it is the contention of the second respondent that the petitioners 1 & 2 are solely responsible for the present state of affairs of the Company. The purpose of the investigation is to find out as to whether who were in-charge of the Company and whether those in charge of the Company are guilty of illegal conduct or of conduct trenching upon breach of fiduciary obligations or oppression or misfeasance as held in Mathrubhumi Printing & Publishing Co. Ltd. (supra). Towards this end, an inspector merely probes into the affairs of the Company and embodies in the report his opinion. The opinion, by itself does not affect the rights of the Company and the Inspector does not give a judgment binding the Company. In the present case, the Company has become defunct and therefore, the appointment of an inspector could not affect the reputation and prospects of the Company.
It is only a fact-finding measure, as held in a number of decisions cited by Counsel for the petitioners (supra). The facts and materials before me, in my considered view do reasonably suggest and are sufficient to form a prima-facie opinion that the Company's business was conducted as laid down in Sub-clause (i) or the persons mentioned in Sub-clause (ii) were guilty of fraud or misfeasance or other mis-conduct towards the Company or any of its members, satisfying the essential requirements, to exercise power under Section 237, as held in Barium Chemicals Ltd. and Punjab Agro Industries Corporation Limited (supra). The circumstances summarised hereabove need not be proved for ordering an investigation into the affairs of the Company. At this juncture, "it has to be borne in mind that what the Board (the CLB) is to be satisfied about is whether the circumstances suggest any of these things and not whether they establish any of these things", as observed by the apex court. I, therefore, in exercise of the powers vested in Section 237(b) order investigation into the affairs of the Company as prayed for in the company petition. Accordingly, the Central Government will appoint one or more competent persons as inspectors to investigate the affairs of the Company and take appropriate further action on receipt of the investigation report. The Bench Officer will send a copy of the petition and the relevant records to the Central Government for expeditious action in terms of this order. With these directions the company petition stands disposed of. No order as to cost.