Present:
Shri K.C. Ganjwal, Member
In the matter of Companies Act, 1956, Sections 237, 397/398 r.w.408 and
In the matter of:
M/s Vikas WSP Limited
AND
Union of India, through Secretary, Ministry of Finance and Company
Affairs, Shastri Bhawan, New Delhi-110001 ..Petitioner
And
In the matter of :
Union of India, Ministry of Finance and Company Affairs, ..Petitioner
Versus
ORDER
K.C. GANJWAL
1. The Central Govt.
has filed two petitions viz. CP No.50/2003 under Section 237 and CP No.51/2003
under Section 397/398 read with Section 408 of the Companies Act, 1956
respectively against M/s Vikas WSP Ltd. and other respondents seeking orders to
appoint inspectors to investigate into the affairs of the respondent company
and also for appointment of the directors by the Central Govt on the Board of
respondent company and removing the present Board of Directors of the
respondent company. The main grounds seeking investigation under Section 237 as
well as appointment of directors by the
Central Govt. on the Board of M/s Vikas WSP Ltd. (hereinafter referred to as
the company) are financial irregularities as well as violations of various
provisions of Companies Act, 1956 such as violation of Section 383(A), 205(A),
209(A), and 299/300 etc. The petitioner and respondents are common in both
company petitions and the averments made in both the petitions are also similar
in nature. Therefore, both the
petitions are clubbed and being disposed of by this common order..
2. A summary of both
the petitions is as follows:-
M/s Vikas WSP
Ltd. became a public limited company on 22.9.1992 with the registered office at
Railway Road, Siwani, Haryana. The main
objects of the company is to carry on the business of cultivators, growers,
processors, producers, manufacturers importers, exporters, buyers, sellers,
traders, etc of Guar Seeks, Guar Split, Guar meal, Guar gum, Guar Polymer etc.
The press report appeared in “Economic
Times” dated 7.8.2000 published by Shri Rajiv Goel . The investigation done by the Economic Times was based on
invoices, shipping bills , excise clearance documents and financial statements
nailing the management on many issues such as sales realization over stated,
abnormally high margins and claiming wrong export turn over of 233 crores
. The former director of the company
Mr. B.M. Jindal also sent a letter of complaint to the then Minister of Law,
Company Affairs to investigate the foul play of the company. The reference was also received from the
Central Economic Intelligence Bureu vide their letter dated 17.4.2001. On the basis of these complaints/reports,
the Deptt. of Company Affairs vide order dated 3./103/2000/CL-II dated
23.10.2000 directed the Joint Director, Kanpur to carry out the inspection of
the company. During the course of
inspection the violations of various sections of Companies Act, 1956 as well as
financial regularities were found by the Inspecting Officer, Deptt. of Company
Affairs, Kanpur. Accordingly, on the
basis of inspection report of Regional
Director, Deptt. of Company Affairs,
Kanpur the Central Govt. have filed these petitions.
3. The Learned
Counsel appearing for the Central Govt submitted that following violations have
been found by the inspecting officer which are as under:
(a)_Violation
of Section 383(A) of the Companies Act, 1956.
The paid up
capital of the company as reported is Rs.1.49 crores as on 31.3.1993 and as per
requirements of section 383(A) of
the Companies Act, 1956, company should
have whole time Company Secretary. There
is no Company Secretary working in the respondent company. The company in its
reply has stated that it had appointed Company Secretary on 26.2.1993 whereas
on examination no such information/document was available/filed in the office
of Registrar of Companies, Delhi and Haryana. The company has not furnished any
documentary proof in support of their averments.
The company
declared dividend out of the profits during the years 1993-94 to 1999-2000 but
the unclaimed/unpaid amount of dividend amounting to Rs.20,97,273 was not
transferred in a separate account after expiry of stipulated period of 42
days. Further the company has
transferred this amount in the general revenue account of the Central Govt.
after expiry of stipulated period of three years as per provisions of this
Section the company has committed the default.
©
Violation of Section 209(A) of the Companies Act, 1956.
To examine the
export sale of Rs.232.66 crores as reported in the annual accounts of the
company as on 31.3.2000 the summons were issued on 19.3.2002 to all
directors by Regional Director, Deptt.
of Company Affairs, Kanpur calling upon to be present personally or
through an authorized representative and submit a reply and produce the records
etc, but none of the directors or their authorised representatives appeared
before Regional Director, Deptt. of Company Affairs, Kanpur on 3.4.2002 the
date fixed for hearing nor produced any records etc to verify the export sales. The company has conceded that it did not
appear before Regional Director, Deptt. of Company Affairs, Kanpur on 3.4.2002.
During the course
of inspection, it was noticed that the company has made transactions with the
firm namely, Vikas Chmi Gums (India) for the purchase of goods from time to
time in which the directors of the company namely, Balmukund Jindal, Babulal
Jindal and Ramesh Chand Jindal were partners and interested directors. These directors did not disclose their
interest in the company with whom the transactions were made and thus violated
the provisions of Section 299/300 Companies Act, 1956.
The company is
regularly purchasing gaur splits which is raw material from M/s Vikas Chmi Gums
(India) Ltd in which the directors of the company are partners . The company purchased the raw material from
the aforesaid firm to the extent of Rs.13.55 crores. During the year ended 31.3.2001.
However, the company has not passed any Board resolution nor obtained
the prior approval of the Central Govt. in terms of Section 297 of the
Companies Act, 1956 for the aforesaid transactions which is a clear violation.
Financial
Irregularities.
(a) The company
claimed income tax exemption under Section 10(B) Income Tax Act 1961, being a
100% EOU in respect of sale of 232.66 crores during the period ending
31.3.2000. Whereas the export sales
reported to banks was Rs.71 crores and as per statement filed with Noida Export
Processing Zone was Rs.73 crores. The company also made exports of Rs.77.47
crores during 2001 but the same has been shown as Rs.304.37 crores in
provisional unaudited balance sheet.
The company has therefore, received benefits showing all sales as 100%
EOU which is not in order and thereby defrauded income tax
department of several crores.
(b). The company
has imported DG sets valued Rs.3.41 crores without payment of duty when the
second export oriented unit is yet to commence production and thereby defrauded
the Central Govt. for several crores of rupees..
© The company cleared goods through the
following export houses which do not have an IEC code as indicated in the
report of the Central Economic Intelligence Bureau:-
i.
M/s Sinochem Industries Ltd, New Delhi
ii.
M/s Petro Brasil Ltd, Chennai
iii.
M/s Denver Duo International, Mumbai
iv.
M/s China National Petroleum Development Corporation Ltd.
As the company
did not export goods through the export houses having IEC code, the goods have
been sold within India only.
An amount of
Rs.20 crores was paid to the certain close relatives of Managing Director of
the respondent company on 31.3.2000 allegedly not for genuine business
purposes. The decision of the company was not prudent in terms of the
provisions of the Companies Act, 1956.
It was alleged
that the company defrauded a short term loan of Rs.63 crores due to IDBI.
It has been
complained by the shareholders that the company declared an interim dividend at
the rate of 50% in April, 2001 but the same was not paid to the shareholders
within a stipulated period of 30 days thereby violating the provisions of Sec
207 of the Act. The export sales of the
company grew from Rs.23 crores in
1994-95 to Rs.71 crores in 1999-2000 and immediately fell to Rs.26 crores in
2001-2002. This sudden fall is
attributed to correction of export figures to realistic level from fudged
figures. The company and their statutory auditors have not explained this
sudden fall in the export figures.
The quarterly
statement of accounts published by the company for the quarter ending
30.6.2001, 30.9.2001 and 30.12.2001 were showing the net profits to the tune of
Rs.30.83 crores, Rs.22.40 crores and 19.02 crores respectively. However, in the last quarter for the year
2001-2002 i.e. 31.3.2002, the company has shown net loss to the tune of
Rs.173.91 crores, which means that accounts are fudged and falsified.
4. The learned
counsel for the petitioner prayed in view of whole scale violations of the
provisions of the companies Act, 1956, the Central Govt. be allowed to
investigate the affairs of the company under Section. 237 of Companies Act,
1956. He further submitted that the
conduct of the company being prejudicial to the public as well as the interest
of the company itself, the CLB may pass an order under Section 408 for
appointing directors by the Central
Govt. on the Board of Directors of the respondent company in public interest so
as to prevent the further oppression and mismanagement of the company. It was also mentioned that the conduct of
the company is not entirely transparent and needs to be investigated. Accordingly, it was prayed that two
petitions being entirely different in their scope be allowed.
5. The learned
counsel for petitioner cited the judgement of Calcutta High Court 1965 Indian Law Calcutta 1385 in the
case of New Central Jute Mills Co. Ltd. Vs. Dy Secy, Min. of Fin. and Ors. The judgement indicates the scope of Section
237 of the Companies Act, 1956
sub-clause (1) of Clause B of Section 237 may require investigation as
to whether business of the company is being conducted “for a fraudulent or
unlawful purpose. The theory that the
root of the trouble might lie buried people in the past and unyielding
delimitation of the period of investigation would not succeed in getting at the
root. The law does not fix a time
limit for reporting. The learned counsel also referred to the
judgement of Madhya Pradesh High Court 1969 Ind Law MP 1479 in the case of
Giyajeerao Cotton Mills V/s Company Law Board and Ors. and mentioned that the
expression in Section 237(b)(ii), “the affairs of the company” is wide enough
to include contravention of any law by the time being in force. The relevant para reads as under:-
“------Investigation
under Section 237(b)(ii) is about the affairs of a company and not into the
circumstances suggesting the matters specified in clause (b)(ii). The expression “the affairs of the company”
is wide enough to include contravention of any law for the time being in force
and there is no justification in the language of section 237(b)for reading into
that provision any limitation as regards the period of affairs to be
investigated or as regards the persons in the management of the affairs of the
company or as regards the members of the company.”
6. The learned
counsel for the respondents submitted: The present petition is not maintainable
as the petitioner have filed the petition just to harass the respondent
company. The petitioner has already
filed various cases against the respondent
covering all the violations/allegations made in the present
petitions. The petitioner should not be
allowed to pursue parallel proceedings.
The respondent company was incorporated as a private limited
company under the name and style of
Vikas Gum Mills Pvt. Ltd. on 22.6.1988.
The company was converted into public limited company in the name of
Vikas WSP Ltd under Sec 44(2) of the Companies Act, 1956 on 22.9.1992. The company is engaged in manufacturing
trading and export of Guargum border
chemically known as water soluble polymers (WSP) since 1990. Being natural polymers adequate overseas
demands exist for company’s product for food, textiles, oil exploration and
pharmaceutical. The former directors
Mr. J.D. Agarwal and B.M. Jindal, the real brothers of present Managing
Director Shri B.D. Agarwal separated from the family in April, 2000 due to some
family problems. They developed nexus
with the journalist of Economic Times and succeeded in publishing a negative
article against the company on 7.8.2000 in the Economic Times. Both of them resigned from the Board of
Director of the company on 5.9.2000 and thereafter they have been making false
allegations/complaints against the company in different Govt. departments. The Central Excise Prevention Branch , Director
General of Anti Evasion (Central Excise, New Delhi) have conducted the
enquiries against the company. As
regards enquiry conducted by the Central Excise Preventive Branch, Panchnama
dated 10.8.2000 is relevant. The
Central Excise Preventive party paid a surprise visit on 10.8.2000 just after
three days of publishing the Economic Times Article and the search report
reveals “as a result of search nothing incriminating found.” Regarding enquiry conducted by Director
General Anti Evasion (Central Excise, New Delhi) on 16.6.1999, the excise department returned all the documents on
16.6.2000. Nothing further has been
heard in this context from the excise department.
7. It was submitted
by the Learned Counsel for the
respondent that there is no violation of Sec 383A of the Companies Act, 1956 Mr
Harish Sharma, Company Secretary was appointed in the year 1993. The above said violation has already been
decided by the Learned Judicial Magistrate Siwani vide its order dated 28.2.003
in the favour of the respondent company. The learned magistrate mentioned in
his order that the complaint is hopelessly time barred and the application was
refused and the accused were discharged.
The petitioner is estopped in law to raise the same issue before this
Board. Regarding violation of Section
209A of the Companies Act 1956 it was submitted that the statutory auditors of
the respondent company was summoned by Deptt. of Company Affairs to produce
documents. The statutory auditors of respondent company M/s
Sanjay K. Goel and Associates, newly appointed Chartered Accountant visited the
office of Joint Secretary, Department of Company Affairs on 6.2.2003 and
provided the required information. The
break up of total turnover was given as under:
-Export Turnover
of two EOUs : Rs. 7789.26 lakhs
for Guar Gum Power
- Domestic
turnover of 3 DTA : Rs.22708.13
lakhs
units Guar Gum Power/Splits --------------------
Total Rs. 30497.39 lakhs
Therefore, the
turnover of 304.97 crores matches with the turnover declared by the
company. The respondent company also
filed its income tax returns as per turn over stated above. The company had already replied suitably to
Jt. Director, (Inspection), Kanpur. The above information was asked by the Deptt. of Company Affairs
after receiving a false complaint from former director Shri B.M. Jindal. As
such, there is no violation of Section 209(A) of the Act. The company has stated that the mere reasons
of coming down of the export sales was the paucity of bank finance i.e. post
shipment finance. In the absence of
export bill facility during the year 2000-2001, the respondent company could
not make export upto its full capacity but had to sell its Guar Gum in the
domestic market to run the factory. The export came down but there was increase
sales in the domestic market.
In reply to the alleged violation under
Section 299 and 300 of the Companies Act, 1956, the respondent have stated that
the learned judicial magistrate Siwani has already decided this case in their
favour vide order dated 28.2.2003 and the petitioner is estopped in law to
raise the same issue before this Bench.
The respondents have taken same plea of the order of learned judicial
magistrate, Siwani in their favour in violation of Section 297 of the Companies
Act, 1956.
8. Regarding
financial irregularities, the Learned Counsel
for respondent submitted that the company has claimed income tax
exemption on its profit under Section 10(B) of the Income Tax 1961, being a 100%
EOU. The allegations leveled are false
as the total turnover of the company was Rs.232.66 crores during the period
ending 31.3.2000 and the same has been verified by company’s bankers and
commercial taxes Departments as well as Central Excise Departments. Following
the publication of the article in “Economic Times” dated 7.8.2000, the officers
of the central excise (preventive branch) Rothak paid a visit to the factory on
10.8.2000 to witness the search proceedings.
The search party carried out the search of the respondent company’s
factory premises in the presence of Shri Babu Lal Jindal but nothing
indiscriminating was found. The
respondent company has stated that a team of company’s consortium banks paid a
visit on 8 and 9th August, 2000 and verified the turnover of 232.67
crore. The consortium banks have issued
a certificate that confirming that they have received a full payment of export
bills negotiated through them. The
Learned Counsel submitted that the
Joint Director(Inspection) despite having inspected the books of accounts and
sale and purchase invoice of the company from 9th April to 12th
April, 2001and verified the turnover of 232.67 crores, without applying his own
mind accepted the company’s turnover of Rs.71 crores. The said report of the Joint Director is motivated and not
judicious in nature. It was submitted
by the respondent that for the period ending 31.3.2001, the company did not
receive the NOC for export incentive for the domestic exporter so it showed the
export sales to the tune of Rs,.77.47 crores and the balance as domestic
sales. The total sales are for
Rs.304.37 crores. The company has taken
benefit under Section 10E of the Income Tax Act to the extent of export sales
of Rs.77.47 crores only as and when the NOCs’ are received the income tax
return so filed can be revised. The
company had filed its income tax return by declaring separate export sales as
well as domestic sales. Therefore, the
total sale of Rs.304.37 crores is correct.
Regarding sale of imported TV sets valued 3.41 crores without payment of
excise duty the respondent company has submitted that they received a letter
from Enforcement Directorate, Ministry of Finance on 7.11.2001 which was duly
replied on 21.11.2001 alongwith documentary evidence of import of goods into
India.
9. The company
imported DG sets duty free under valid import license from the SIA, Ministry of
Commerce and Industry. The Deptt. of
Commerce and Industry validated vide
their letter 31.12.2001 with ex-post facto approval and the show cause notice
so served was withdrawn by the Central Excise Department. The respondent submitted that the
proceedings already dropped by the competent authority cannot be made a basis
of the petition. In reply to the goods
cleared by the company through export houses not having IEC code, the
respondent submitted that the company exported goods through some foreign
export houses located in the distant countries in the overseas. It is purely a matter of misconception as
all the export houses were located in the overseas and as such there was no
need of IEC code to clear these goods.
It is correct that the company has published in “Economic Times” dated
31.10.2001 that in future the company will enter only direct export due to the
fact that export made through export
houses require a lot of work from time to time. The goods exported through foreign trade houses were shipped to
abroad and there is no reason to say that these goods were sold in India. The allegations leveled are false and
untrue.
10. As regards
payment of Rs.20 crores to the close relatives of the Managing Director of the
company, the respondents have submitted that an amount of Rs.20 crores was
received to a lot fresh shares as a
private placement was proposed during 1999-2000. It may be noted that due to depressed market conditions, the
proposed issue of shares was deferred, hence the money received for allotment
of fresh shares were returned back to the concerned persons. A statement has also been provided by the
respondent to the Joint Director., Department of Company Affairs, Kanpur.
11. The respondents
have specifically denied that the company defrauded a short term loan of Rs.63
crores due to IDBI. A short term loan
was taken from IDBI to meet out working capital requirement as well as to
establish plant and machinery. The
company paid interest upto June, 2001.
Subsequently, IDBI filed a case in Debt Recovery Tribunal in the year
2002 for the recovery of the short term working capital loan and the same is
subjudice before DRT, Jaipur.
12. The respondent in
their reply submitted that the interim 50% dividend was declared in 2001. The company sent dividend cheques on
12.7.2001 by courier within 42 days after record date. The company has attended all complaints
lodged with BSE/NSE and SEBI. The
complaints were received mainly from those shareholders who had changed their
residences and the company had incomplete postal addresses. The company received 205 complaints only.
Out of 36,000 shareholders which were attended to and resolved. There was no violation of any provisions of
Sec 207 of the Companies Act, 1956. In
reply to sudden fall of production figures the respondents have stated that the
quarterly figures published were un-audited upto 31.12.2001. The company had to purchase heavy raw
materials against export orders and orders in pipeline. Following the terrorist attack, the export
orders worth Rs.110 crores were suspended/deferred which resulted into heavy
losses Gaur being a khariff crop, new arrival commenced in the month of
November./December and Guar prices declined sharply and the company suffered
heavy losses on this account. The
losses can be attributed to real prices fall in raw material prices as well as
cancellation of orders booked before 11.9.2001 attacks. The copies of suspended export of Rs.110
crores have been filed by the company.
13. The respondents
have filed the additional synopsis (written submissions) on 31.5.2004. In reply to that the petitioners have filed
brief synopsis and written submissions alongwith documents on 15.7.2004, when
this judgement was being written. Some
of the points clarified by the petitioners in written submissions are as
follows:-
The petitioners
have submitted that the respondents have relied on the assessment order dated
28.3.2003 for the financial year 1999-2000 which is not an acceptable proof of
export. The assessment order dated
28.3.2003 has been procured without producing relevant proof of export related
documents to the assessing officer. The
order mentioned that as regards books of accounts, the assesse vide its letter
dated 28.1.2003 has reported that all records of the company were destroyed in
the fire accident on 26.4.2001 at Company’s factory premises as stated at pages
33-35 of respondents synopsis.
Therefore, the assessment order is based on statement on oath of Shri
B.D. Agarwal and his certain manipulated accounting documents placed before the
assessing officer whereas in the inspection of the company under Section 209A
of the Companies Act, 1956 no such incidents of fire or any destruction of
document in alleged fire on 26.4.01 was mentioned. The Joint Managing Director, Shri B.D. Agarwal of the respondent
company has therefore made different contradictory statements before different
investigating agencies. Similarly, in
reply to the Article published in Economic Times dated 30.10.2001, Shri B.D.
Agarwal , Managing Director stating that in future register only direct export
as export sales and will discontinue export sales through export houses/trading
house and merchant exports. This
implies that Shri Agarwal has earlier given wrong clarification/statement
regarding commission and brokerage to commission shareholders. The Income Tax Assessing Officer has
recorded in the assessment order as follows:
“The export house
wise break up of export including through the restricted L/C are as under:-
Sl.No. Name of
the Export House Value
of exports
(Rs.in
lac)
1. Sinochem
Industries Ltd, New Delhi
3648.87
2. Petro-Brasil
Ltd, Chennai
3148.95
3. Denver Duo
International, Mumbai 299.94
4. China National
Petroleum Development Corpn.
1869.44
Ltd. Delhi -------------
` Total - 8967.20
------------
The petitioners have stated that
Joint Director of Foreign Trade, New Delhi reveals that the above
companies/firms were not issued IE- Code Number by their office as none of
these units are not registered with their office as 100% EOU/SEZ Units. The petitioners have mentioned that ROC
Delhi has confirmed that M/s Synochem Industries and M/s National Petroleum
Development Corpn. are not found to be registered with their office . It
is therefore, evident that the alleged export houses from where respondent
company claimed to have export of Rs.8967.20 lakhs out of total export turn
over of Rs.232.66 crores are fictitious entities and the export figures given
to the assessing officer in the income tax are false and dubious.
The petitioners have also
contended that respondents have lied blatantly that SEBI have concluded
investigations in their favour. In
fact, SEBI have filed complaint in the court of Additional Chief Metropolitan
Magistrate, Mumbai under Sec. 24(1)(27) of SEBI Act and the accused Shri B.D.
Agarwal has been asked to appear in person.
14. I have heard the
arguments of learned counsel of both the sides and also gone through the
records of the case, it is evident from the averments made by the petitioner
that an article was published in “Economic Times” on 7.8.2000 by one Shri Rajiv
Goel sometime. Simultaneously, Shri
B.M. Jindal, the former director of the company also sent letter of complaint
to the then Minister of Law, Justice and Company Affairs. A reference was received from Central
Economic Intelligence Bureau. Based on
these complaints Joint Director, Deptt. of Company Affairs, Kanpur was asked in
Oct. 2000 to carry out the inspection of the respondent company. During the course of inspection the
inspecting officer pointed out some violations of the provisions of the
Companies Act, 1956 as well as some other financial irregularities. Accordingly, the Central Govt. has filed two
separate petitions one under Section 237 and another petition under Sec.
397/398/408 as already mentioned. Both these petitions are being disposed by
this common order.
15. Regarding
violation of provisions of Section 383A, 205A, 209A, 299/300 and 297 as alleged
by the Central Govt .in their petition in para 8.12 to 8.15, it is observed
that ROC, NCT of Delhi and Haryana filed a complaint before the competent court for violation of above said provisions
of the Companies Act, 1956. The learned judicial magistrate, Siwani while
passing order on 28.2.2003 observed as under:-
“----Therefore,
in my considered opinion the present complaint is hopelessly time barred and,
therefore, the present application is allowed and the accused cannot be served
notice of accusation under Section 251 of Code of Criminal Procedure hence the
present application is allowed and the accused are discharged.”
16. The Central Govt.
has filed a revision petition before the Court of District Judge at Siwani and
the same is still pending for disposal.
Undoubtedly, these are whole scale violations of the Companies Act, 1956
as contended by the petitioners but these violations are compoundable offences
under the Companies Act, 1956. If the
respondent think fit, they could file appropriate application for compounding
these offences which they have not done in view of the order of the Learned
Judicial Magistrate, Siwani. The
respondents have explained the reasons of violations and the Central Govt. has
not been able to establish that the explanations given by the respondents are
wrong. The Central Govt. has mainly
relied on the inspection report of the Regional Director, Deptt. of Company
Affairs, Kanpur who has pointed out certain violations of the Companies Act,
1956 but they do not prove any
fraudulent or unlawful purpose. The
Regional Director, Deptt. of Company Affairs,
Kanpur has already carried out inspections for these violations and the
same are sub-judice as stated above. I
am therefore not inclined to accept the arguments of the petitioner that in
view of most of these ‘compoundable ‘ violations of the various provisions of
the Companies Act, the case is made out
for further investigation under Section 237 of the Companies Act, 1956.
17. Now, I proceed to examine financial
irregularities mentioned in the petition.
It has alleged that the company claimed Income Tax exemption under Sec
10(3) of the Income Tax act 1961, being a 100% EOU in respect of sale of 232.66
crores during the year ending 31.3.2000.
It was alleged that the export sales reported to banks was only Rs.71
crores and the statement filed before Noida Export Processing Zone was Rs.73
crores. The company made exports of
Rs.77.47 crores during the year 2001but
the same was shown as Rs.304.37 crores.
It is observed that the SEBI has carried out an investigation against
the respondent company and they have cleared them from the allegations leveled
by Ex director Mr. B.M. Jindal. However, the Central Govt. has now intimated
that SEBI has filed a complaint in the court of additional Chief Metropolitan
Magistrate, Mumbai under Section 24(1), (27) of SEBI Act and summons have been
issued on 3.6.2004. The SEBI is a
specific act under which they will take action required under the Act and this
seems to be the latest development.
18. The Jt. Dir.
Inspection, Deptt. of Company Affairs, Kanpur carried out his inspection but
did not verify the turnover of Rs.232.67 crores. He only mentioned what had been quoted in the letter of CEIB
whereas he should have applied his mind and come to the conclusion on the basis
of inspection conducted by them. His
conclusion after inspection on this point is missing. On the other hand the Assistant Commission, Commercial Taxes
Deptt, Anti Evasion made a survey of the respondent company on 18.7.2001 and
made his assessment and verified the
export turnover of the company at Rs.232.58 crores. The income tax investigating wing found export figures from their
office as under:
1. Kandla Rs.2,18,31,32,243/-
2. ICD New Delhi Rs. 1,94,41,271/-
Total Rs.2,20,25,73,514/-
-----------------------
19. The total export
sales claimed by the company as mentioned above was verified by the Income Tax
Deptt. and the remaining unverified portion i.e. Rs.12,32,38,549 has been
reconciled by the company with the Asstt. Director of Income Tax, Rohtak. The Central Govt. is of the view that no
final assessment order has been received from the Income Tax Deptt. and the matter
is still pending. It is also noticed
that a team of companies consortium banks visited the premises on 8 and 9th
Aug. 2000 after publication of the Articles in Economic Times and verified
turnover of Rs.232.67 crores and they did not find any discrepancies in the
company’s declared turnover.
20. The respondent
company was issued a show cause notice for import of duty free DG sets by the
Commissioner Central Excise but they have not proceeded further in the matter
after company’s reply.
21. During the arguments
it was also mentioned by the learned counsel for petitioner that the Managing
Director is a proclaimed offender as on date and he is not available to public
and as such he cannot be expected to run the company in a prudent manner. In reply the Learned Counsel for respondent stated that there is no such
law prohibiting Mr. B.D. Aggarwal, to be Managing Director, even though he is
the proclaimed offender.
22. From these
findings, it appears that alleged allegations of violation of various sections
of the Companies Act, 1956 discussed above, where offences are compoundable,
have been decided by the learned judicial magistrate, Siwani against the
petitioners. The appeal is pending and
it would not be correct to intervene at this stage when the matter is subjudice. Regarding financial irregularities, it is observed that the report of Regional
Director, Deptt. of Company Affairs, Kanpur is not conclusive and based on his
own findings. In almost all issues
raised in both the petitions, the RD has merely mentioned that some of the acts
are in violation of the Companies Act, 1956 but he has not shown as to why
further investigations under Section 237 be ordered by this Bench. It is not the case of Regional Director, Kanpur,
that he was not supplied the documents asked by him from the company. There are
ample powers vested with the Central Government under Section 235 of the
Companies Act, 1956 and they should have invoked those powers if the company
was erring or not supplying documents.
The matter is also seized by
various Govt. agencies like Income Tax, Excise Deptts. and SEBI etc. In some cases, final decisions are yet to
arrive. The report of the Inspecting
Officer should have been based on his own findings after pursuing the
documents/record of the company when the complaint was received from Central
Economic Intelligence Bureau as also the report published in the
Newspaper. The mere violation of
various sections of the Companies Act, 1956, where offences are compoundable
and the matter is subjudice, and cannot lead to investigation under Section 237
of the Companies Act, 1956. The object of investigation under Section 237 of
the Companies Act is to discover something that is not apparently visible to
the naked eye (Delhi Flour Mills Company Ltd. In Respondents,(1975)45 Comp
Cases 33(Del). It is essential that the material placed before the Board is
such that it satisfy the Court that a deeper probe into the affairs of the
company is desirable in the interests of the company itself (Sumanthy (UA) v Dig Vijay Chit Fund Pvt.
Ltd. (1983) 53 Com. Cases 493(Ker)). In Jiyajee Rao Cotton Mills Ltd. v. CLB
(1969) 39 Com. Cases 856 (MP) it has been held that the expression “affairs of
the company” in Sec. 237 is vide enough to include violation of any law for the
time being enforce. In the New Central
Jute Mills Ltd. V. Dy. Secy. Ministry
of Finance (1970)40 Com Cases 102 DB-CAL, it has been held that the expression
“fraudulent or unlawful purpose” is wide enough to include the contravention of
any law for time being enforce. The
learned counsel for petitioner relied on the above judgments to stress his
point that when the company is not working in a transparent manner and the
company has filed differing accounts/returns/information to different
authorities. The company has also
violated provisions of various sections of the companies act, 1956 as well as
provisions of SEBI and Income Tax etc.
The business of the company is being carried on fraudulent purpose and
with intent to defraud its creditors.
There is no doubt that there are wide enough powers given to Company Law
Board to order investigation under Section 237 but to form such opinion, it has
to be established that the management of the affairs of the company have been guilty of fraud,
misfeasance or other misconduct towards the company or its members. As observed by the Hon’ble Supreme Court in
the judgement of Jiyajee Cotton Mills Vs. Company Law Board and Ors. 1969
Indian Law MP 1479, no reasonable person or authority, much less and expert
body like the Company Law Board could have reasonably found the opinion that
the circumstances were so suggestive to order investigation under Section 237
without influenced by matters extraneous to section 237 (b)(2) while forming
the opinion by the Board.
23. Keeping in view
the circumstances of the case as well as the arguments advanced by both the
parties, I find that various authorities like Income Tax, Excise Deptt. like
SEBI are seized of the matter and are looking into it under separate statute. The violation of provisions of various
sections of Companies Act are compoundable and the matter is subjudice before
the District Judge, Siwani. The inspection has already been conducted under
Section 209(A) of the Companies Act, 1956 and no fruitful purpose is likely to
be achieved by ordering investigation under Section 237 of the Companies Act,
1956 as the Central Govt. has not been able to bring out specific reasons for ordering such investigation. I
am therefore, not convinced that this is a fit case for ordering investigation
under Section 237 of the Companies Act, 1956.
Accordingly, the CP No.50 of 2003 is disposed of with no directions.
24. However, I find
that the Respondent company has not carried its affairs prudently and have
violated provisions of various acts of Government including violations of
provisions of Companies Act, 1956. Some
Government Authorities like Income Tax, Excise, etc are yet to give their final
verdict on the information supplied by the company. The company has filed disputing figures of production with
different agencies. Undoubtedly, the
affairs of the company are not transparent and doubts have been created in the
minds of shareholders and public at large.
In order to effectively safeguard the interest of the company as also of
shareholders and the public at large. I
accept the plea of the Central Govt. that some check and transparency needs to
be restored in the Board of Directors.
Accordingly, I allow the second Company Petition NO.51/2003 filed under
Sections 397/398 and 408 of the Companies Act, 1956 and direct the Central
Government to appoint not more than three Directors on the Board of Directors
of the respondent company for a maximum period of three years from the date
they assume office.
25. With the above
directions, the company petition
51/2003 is also disposed of.
26. There are no orders as to cost.
( K.C. GANJWAL )
Member
New Delhi,
Dated the August, 2004.