PREMIER PLANTATIONS LTD. Vs. M. EBRAHIMKUTTY

JUDGEMENT

(1.) FIRST respondent in this appeal (referred in this judgment as the petitioner for convenience) filed a petition under Section 237 of the Companies Act, 1956 ('the Act') to direct the Central Government to appoint one or more competent persons as inspectors by declaring that the affairs of the Premier Plantations Ltd., first appellant ('as company') ought to be investigated and to report thereon within a specified time limit. Before going into the facts of the case we may first discuss the power of this Court under Section 237(a)(ii). Section 237 reads as follows : 'Investigation of company's affairs in other cases. - Without prejudice to its powers under Section 235, the Central Government - - (a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if - -(i) the company, by special resolution; or (ii) the Court, by order, declares that the affairs of the company ought to the investigated by an inspector appointed by the Central Government; and (b) may do so if, in the opinion of the Company Law Board, there are circumstances suggesting - - (i) that the business of the company is being conducted with intent 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 on 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 a managing or other director or the manager, of the company.' A reading of the above section will show that power given under Section 237 to the Central Government is independent and operates without prejudice to its powers under Section 235 of the Act. But under Section 237(a) the Central Government can appoint an inspector for investigating the affairs of the company only if the company passes a special resolution for it or if an order is passed by the Court. Under Section 237(b) the CLB is also empowered to do so in certain special circumstances required the Central Government to conduct investigation. By virtue of the power under Section 237(a)(ii), the Court cannot appoint directly inspector or inspectors to investigate the affairs of the company but only make a declaration that the affairs of the company ought to be investigated by an inspector appointed by the Central Government. Once such an order is passed it is mandatory for the Central Government to conduct such investigation by appointing competent persons as inspectors - -Delhi Flour Mills Co. Ltd., In re [1975] 45 Comp. Cas. 33 (Delhi), and in Alembic Glass Industries Ltd., In re [1972] 42 Comp. Cas. 63 (Guj.).

(2.) THE Court referred to in Section 237 is the Court having jurisdiction under Section 10 of the Act and no other Court or a Court hearing writ petitions. Petition was filed before the competent company court in this case. It is true that mere allegations are not sufficient to support an application to the court to act under Section 237(a)(ii). The material placed before the Court should be such as to satisfy the Court that a deeper probe into the affairs of the company is desirable in the interests of the company itself as held by this Court in P. Sreenivasan v. Yoosuf Sagar Abdullah and Sons (P.) Ltd. [1983] 53 Comp. Cas. 485. In other words, the Court will not pass a declaration under Section 237(a) for a fishing expedition. But the Court is entitled to see whether on the basis of the material brought before the Court, declaration is to be made or not Modi Industries Ltd. v. Union of India [1982] 52 Comp. Cas. 589 (Delhi). An isolated instance of mismanagement is not enough for the Court to declare that an investigation is required. The material placed before the Court should be such as to satisfy the Court that a deeper probe into the company affairs is desirable in the interests of the company itself. The judicial conscience must be satisfied that there has been misadministration in the affairs of the company warranting an investigation.

(3.) ANOTHER decision pointed out by the learned counsel for the appellants in the Apex Court decision in Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy [1997] 90 Comp. Cas. 383'. There a writ petition was filed seeking direction for investigation by the Central Bureau of Investigation. The Apex Court held that in view of the specific remedies under Sections 43A, 234, 235, 237, 397 and 398 of the Act, a writ petition will not lie. It is not a matter of public interest and remedy available under the Act shall be availed of. Here the petitioner has approached under Section 237 and it cannot be held that petition is not maintainable. Scope and power of company court under Section 237(a)(ii) was not discussed in that decision. Of course under Section 237(a)(ii) Court's would insist upon solid factual base and mere allegations are insufficient. It was held by this court in Mrs. U.A. Sumathy v. Dig Vijay Chit Fund (P.) Ltd. [1983] 53 Comp. Cas. 493, that: '... No doubt, Clause (d)(ii) of Section 237 does not lay down what circumstances are to be proved before the court and on that materials the court could act. But that does not mean that mere allegations are sufficient. A court can act only on the materials placed before it; and those materials should at least be such as to satisfy the court that a deeper probe into the company's affairs is desirable in the interests of the company itself...' (p. 496) The powers under Section 237(a)(ii) were considered by Justice M.P. Menon in the decisions in P. Sreenivasan's case (supra). In that decision it was held as follows : 'The section conceives of three situations where the Central Government can appoint inspectors for investigations. The first is when the company itself declares that such an investigation is necessary. The second is when the court makes an order. And the third is when the Central Government forms an opinion that the circumstances enumerated in Clause (b) exist. The first is easy to understand : when the company itself wants an investigation, the Central Government need not stop to enquire why. The third can also be understood because when suo motu action is proposed to be taken by the Government, it shall not act arbitrarily, but only consistent with guidelines laid down. But what about the second situation, where the court has to make an order ? Mr. Ramanatha Piliai for the petitioner suggests that the power and the discretion of the court are uncontrolled; it can direct an investigation whenever it suspects that all is not well with the company. Whether the apprehensions of the court are true or not is a matter to be found by the investigating inspectors, and the court is not to insist on evidence. It appears to me that this is too broad a statement. Investigation of the company's affairs by the Department of Trade in England has always been understood as a statutory exception to the rule in Foss v. Harbottle [1843] 2 Hare 461 that the internal affairs of a company is a matter for the majority, and a dissatisfied minority cannot seek outside interference. The Companies Act provides for the protectionof minorities in three ways