PRINCIPAL
BENCH
NEW
DELHI
19th
October, 2001
Present: 1. Justice A.K.
Banerji, Chairman
2. Shri S.
Balasubramanian, Vice Chairman
In the matter of
Companies Act, 1956-Section 235
AND
In the matter of
Punjab Agro industries Corporation Limited
Versus
M /S Superior
Genetics (India) Limited
PETITIONER:
Punjab Agro Industries Corporation Limited
RESPONDENTS:
1.
Superior Genetics (India) Ltd.
2.
Dr. A.S. Bindra
3.
Mrs. Kanwarjit Kaur
Present on behalf of parties:
1.Shri Abhinav
Vashisht, Advocate .. for
petitioner
2.Shri M.D.
Ghulam Akbar, Advocate .. for
petitioner
3.Shri Anil K.
Aggarwal, practicing Co.Secy.. for respondents
4.Shri
Dharamveer, Co.Secy ..
for respondents
(Date of hearing:
5.7.2001)
S. BALASUBRAMANIAN:
1. The 1st
respondent is a joint venture company promoted jointly by the petitioner and
the 2nd and 3rd respondents in terms of a financial
collaboration agreement dated 30.9.1993.
This company was incorporated on 26th October, 1993 with the
main object of setting up a semen processing laboratory for the production of
superior genetics. As per the financial
agreement, initially the petitioner and the respondents were to contribute 50%
each towards share capital and ultimately the petitioner was to have 26% shares
and the respondents 25% shares and the public and financial institutions 49%
shares. The project envisaged a total
expenditure of about Rs. 6.53 crores to be financed by the petitioner of Rs.1.80
crores, the 2nd and 3rd respondents Rs.1.73 crores and
IDBI Rs.3 crores by way of term loan.
The petitioner has so far invested Rs.1.35 crores and the 2nd
and 3rd respondents Rs.1.82 crores.
Even though IDBI had sanctioned Rs.3 crores, yet, the same had not been
disbursed. The Board of Directors of
the company consisted of 5 directors – 3 from the petitioner side including the
Chairman and the 2nd and 3rd respondents. These respondents were entrusted with the powers to carry on the day to day management
of the company including the power to operate the Bank accounts. After
having incurred an expenditure of over Rs.3.17 crores on the project, the
project has come to a standstill and in terms of the agreement the petitioner
has invoked arbitrary proceedings.
2. In
this petition filed under Section 235 of the Act, the petitioner has sought for
an investigation into the affairs of the company on the ground that the 2nd and 3rd
respondents, being in charge of over all management of the company all these
years, have not only siphoned of funds of the company but also have incurred
various expenditure without the authority of the Board and as such an
investigation should be ordered into the affairs of the company.
3. Shri
Abhinav Vashisht, learned counsel appearing for the petitioner submitted: The 2nd respondent is the
managing director of the company and thus was in full charge of day to day
management. Further, even before he was
appointed as the managing director through various Board Resolutions extensive
powers were delegated to him including operation of the bank accounts jointly
with the 3rd respondent.
Sometime in June, 1995, the accounts of the company for the period
1993-94 were checked by the petitioner and it was found that there were many
irregularities due to absence of proper vouchers, receipts etc. Further, it was
also noted that even though more than Rs.38 lacs had been paid as advance for
purchase of land, the same has not been registered in the name of the company so far.
In some cases, there have been unexplained credit in favour of M/S A.S. Bindra & Associates, which is
controlled by the 2nd respondent.
In addition there have been excess expenditure on the project than was
had been approved in the project report to the extent of Rs.71 lacs. Even though the Board had approved the
accounts for all the years, yet, at the time of approving the accounts, it was
also stipulated that the same was subject to verification by the petitioner. Accordingly, the petitioner carried out an
inspection of the accounts of the company for the period from 1.2.1996 to
31.3.1998 as per Exhibit Annexure-4 from which also it could be seen that all
the allegations of the petitioner are substantiated. All this would indicate
that there has been mismanagement of the company and siphoning of funds which
could be revealed only by an investigation into the affairs of the company and
as such an order of investigation should be made.
4. Shri
Anil Aggarwal, Practising Company Secretary appearing for the respondents submitted:
This petition is not maintainable in terms of Section 235 of the Act as
according to that section only members holding 10 or more percent of shares in
the company could file a petition. The
petitioner, as a single shareholder, has no right to file the petition. The claim of the petitioner that the
respondents have been managing the affairs of the company is unfounded. The
petitioner has 3 nominees on the Board including the Chairman and there have
been regular Board Meetings wherein the working of the company was being
reviewed regularly. The petitioner
started investing in the company only after it carried out verification of the
accounts for the year 1993-94 and only after satisfying himself that the accounts
were being maintained properly. Therefore to allege that the accounts of
1993-94 suffer from infirmities is an after thought. Due to some political
reasons, the petitioner withdrew from the project by not investing the balance
amount of committed Rs.1.8 crores. The
2nd respondent had promoted another company in the name of Punjab
Meats Limited which was ordered to be closed by the State Government for some
political reasons. Because of the
closure of that company, that company could not service the loans taken from
IDBI and therefore IDBI did not disburse any loan to the respondent company
resulting in shortage of funds to complete the project. The nominees of the petitioner always
constituted the majority on the Board and this Board has approved every Balance
Sheet right from 1993-94 and as such they cannot allege that there had been
financial mismanagement or siphoning of funds.
When the respondents collaborated with the petitioner to establish the
project, they had legitimate expectation of full and complete cooperation from
the petitioner, the non availability of which has resulted in the project
coming to a standstill. As far as the
specific allegations are concerned, the respondents have furnished full details
in the reply including copies of registration of the land in favour of the company,
from which it could be seen that none of the alleged financial mismanagement is
founded on any material. Therefore this
petition deserves to be dismissed.
5. We
have considered the pleadings and arguments of the counsel. As far as the maintainability of the
petition in terms of Section 235 of the Act is concerned, the claim of the
respondents that only “Members” and not a “Member” can file a petition is not
correct. One of the basic principles
interpretation of a statute is that a singular always includes a plural and
vice versa. Since the petitioner holds
more than 10% shares in the company, it can maintain a petition. As far as the merits of the case are
concerned, we find that the entire petition of the petitioner seeking for
investigation is based on the allegation relating to the accounts for 1993-94
and accounts for 1.2.1996 to 31.3.1998.
In respect of the accounts for 1993-94, we find from Annexure R-4 that
the petitioner had brought out the various deficiencies in these accounts to
the respondents by a letter dated 17.1.1995 and had made investment in the company thereafter as matching
contribution. This must have been only
after getting satisfactory reply from the company. As far as the accounts of 1996-98 are concerned, the petitioner had
checked the accounts of the company sometime in August, 1999 as is evident from
Annexure 4. Most of the findings of
this report are found in the petition.
We have gone through the report and find that this report only points
out non availability of vouchers etc. for small amounts. There are only two substantive findings in
that report – one relates to non registration of land for which over Rs.36 lacs
have been spent and another not adjustment of advances made to indigenous
suppliers of about Rs.39 lacs. In the
reply, the respondents have enclosed
copies of the documents relating to registration of land and they have
also enclosed supporting vouchers etc. for the advances made to indigenous
suppliers. Another finding in the
report is that there have been excess expenditure of about Rs.70 lacs compared
to the approved cost. The respondents
have clarified the reasons for escalation in the cost with which we are
satisfied. It is on record that the nominees of the petitioner constitute
majority on the Board and the Board had approved the accounts year after
year. It is also on record that all the
accounts have been audited without any adverse comments.
6. On of
the essential requirement to exercise poweres under Section 135 if that there
should be sufficient material to form a prima facie opinion that the affairs of
the company require to be investigated. In the present case, in respect of all
the allegations, we find satisfactory explanation from the respondents. Under
these circumstances, in the absence of any other material suggesting that there
could be instances of siphoning of funds requiring investigation, we cannot
order investigation. Further, in view
of the petitioner having majority on the Board, it can have a special audit
carried out and can take further action on the basis of that report. In a
similar case, wherein a Government
undertaking had majority on the Board and sought for investigation into the
affairs of that company as in the present case, this Board declined to consider
that prayer (A.P.Civil Supply Corporation Ltd V Delta oil Co Ltd – 3 CLJ
146). From the reply of the respondents, we find that the project could
not take of due to causes beyond the control of the respondents.
7. This
petition is dismissed for want of proper/adequate material to enable us to form an opinion that an order of investigation should be
made.
(S.
Balasubramanian)
(A.K. Banerji)