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SEBI

SEBI has released a Master Circular for Mutual Funds which is a compilation of all the circulars issued by SEBI on Mutual Funds, which are operational as on date of this circular.  The Master Circular has 17 Chapters which include Governance norms, Disclosures and Reporting norms, Loads, fees and expenses, among other things. This Master Circular shall supersede the previous Master Circular CIR/IMD/DF/18/2014 dated October 01, 2014. Further, in case of any inconsistency between the master circular and the applicable circulars, the contents of the relevant circular shall prevail.

RBI

RBI has set up a working group to review the guidelines for hedging of commodity price risk by residents in the overseas market amid rising volumes of cross-border trade. The working group will review guidelines for hedging of commodity price risk by residents in overseas markets during the development phase of our domestic commodity derivative market. The eight member group headed by RBI Executive Director Mr. Chandan Sinha will assess the risks faced by resident entities and their hedging requirements and also identify gaps in the existing regulatory framework in relation to the hedging requirements of commodities, participants and products. It will also suggest the broad principles for guiding the regulatory regime for overseas hedging of commodity risks in addition to recommending a modified framework for residents hedging commodity risk overseas. The Working Group with members drawn from RBI, SEBI, Commercial Banks and corporate sector will submit its report by February 28, 2017.

Updates:

1. Under GST late returns would attract fee @ 100 per day subject to maximum of Rs 5,000/- maximum fee in case of annual return is 0.25% of aggregate turnover.
2. Direct cash deposit in supplier’s bank a/c not attracts disallowance u/s 40A (3) [Bolkunda Pachwai & (S) C.S. Shop vs. Income-tax Officer (ITAT Kolkata)].
3. CBDT clarifies due date extension also applicable to Accounts audited under Sec 44AB vide notification no 225/195/2016-ITA II.
4. The CBDT on monday said assessees taking advantage of direct tax dispute resolution scheme, 2016 will be required to pay taxes within the stipulated period to avail the relief under the scheme.

Happy Teachers Day

Updates:

1. University not wholly or substantially financed by government is not eligible for exemption u/s 10(23)(iiiab). [Visvesvaraya Technological University vs. ACIT (Supreme Court of India)].
2. Ministry of Corporate Affairs vide General Circular No. 8/2016 dated 29.07.2016, has extended the date to file financial Statements or Annual Returns on or before 29.10.2016, where due date for holding of AGM is on or after 1st April, 2016, without payment of additional fees.
3. CBDT clarifies that no enquiry or investigation in respect of assets /income declared which were found during the course of Search u/s 132 or Survey action u/s 133A of the Income-tax Act,1961. Circular No. 32 of 2016.
4.  The Central Government hereby designates the Courts ( mentioned in the circular) as Special Courts for the purposes of providing speedy trial of offences punishable with imprisonment of two years or more under the Companies Act, 2013. Vide F. No. 01/12/2009-CL-I (Vol-IV).
5. Relaxation in export policy for export of Red Sanders wood under S. No. 188, Chapter 44 of Schedule 2 of ITC (HS) Classification of Export and Import 2012 - 25/2015-2020 dated 02.09.2016 - Foreign Trade Policy
6. Rate of exchange of conversion of the foreign currency with effect from 02nd September, 2016 have been declared vide Notification No.  - 119/2016 dated 1.9.2016.

Ten per cent share of total voting power is a mandatory requirement for the applicant seeking direction for investigation being directed under section 235

AMAAN SACHDEV 
V. FAHED ABDULRAHMAN ALI ALKHAMIRI

[2016] 133 CLA 260 (Del.) 
HIGH COURT OF DELHI 
CA (SB) No. 39 of 2013 
Najmi Waziri, J 
2nd June 2016

Where the appellant fails to meet the threshold of 10 per cent share of the total voting power as per section 235, an investigation into the affairs of the company cannot be directed, and in that case the appeal against order rejecting such application would also be not maintainable.

Companies Act, 1956 – Sections 235 and 237 – Investigation of the affairs of a company – Qualification to maintain petition seeking – Can shareholders having less than 10 per cent of voting rights file petition under section 235 or appeal from order in petition under section 235 – Whether it is undisputed that the appellant in this case fails to meet the threshold of 10 per cent share of the total voting power as necessary under section 235 – Held, yes – Whether this is the first impediment in directing an investigation under section 235 as per application, and the appeal against order rejecting such application would also be not maintainable – Held, yes – Whether furthermore sections 397 and 398, which deal with application for relief in case of oppression and mismanagement respectively, require the applicant to have at least 10 per cent of the issued share capital – Held, yes, only exception being cases where challenge is to reduction of the issued share capital itself in such applications [Para 24].

Where nothing new would come out in the process of investigation inasmuch as the information has already been made available through filing before the Registrar of Companies, and the circumstances mentioned in section 237 did not exist, so as to trigger any investigation, the High Court cannot find fault with the conclusion arrived at

Where the impugned order of the Company Law Board (Board) has taken into consideration the facts taken on record as well as the allegations of wrongdoing made by the respondents, and all the information has been made available through filing before the Registrar of companies, and the Board has concluded that nothing new would come out in the process of investigation, and the circumstances mentioned in section 237 did not exist so as to trigger any investigation, the High Court cannot find fault with the conclusion arrived at by the Board.

Companies Act, 1956 – Sections 235 and 237 – Investigation of the affairs of a company – Circumstance for – Facts already known to parties through statutory filing – Nothing new would come out in the process of investigation – Company Law Board order taking into consideration all facts – Can High Court interfere with the order – Whether when all the information being sought has been made available in the filing of report / documents, before the Registrar of companies and nothing new would come out in the process of investigation, the circumstances mentioned in section 237 do not exist, and the Company Law Board has made its impugned order taking into consideration all the facts on record, the High Court cannot find fault with the conclusion arrived at by the Board – Held, yes [Para 26].

Synopsis

The High Court did not find any reason to differ or interfere with the impugned order of the Company Law Board. Finding the appeal without merit, it dismissed the same.

Cases referred to : Barium Chemicals Ltd. v. CLB [1966] 36 Comp Cas 639 (SC) ; Binod Kumar Kasera v. Nandlall & Sons Tea Industries (P.) Ltd. [2009] 93 CLA 108 (CLB ; Hariganga Cement Ltd. v. CLB [1988] 64 Comp Case 603 (Bom.) ; J P Srivastava & Sons (P.) Ltd. v. Gwalior Sugar Co. Ltd. [2004] 63 CLA 161 (SC) ; Kishan Khariwal v. Ganga Nagar Industries Ltd. [2004] 50 SCL 567 (CLB) ; Mahesh Nathani v. Sir Edward Dunlop Hospital India Ltd. [2005] 67 CLA 38 (Del.) ; Mayank Kocher v. Transport & Handling Equipments Mfg. Co. (P.) Ltd. [2007] 79 CLA 29 (CLB) ; Mrs. U A Sumathy v. Dig Vijay Chit Fund (P.) Ltd. [1983] 53 Comp Cas 493 (Ker.) ; R P Khosla v. Connaught Plaza Restaurant (P.) Ltd. [2014] 121 CLA 12 (Del.) ; Raghunath Swarup Mathur v. Har Swarup Mathur [1970] 40 Comp Cas 282 (All.) ; Rohtas Industries Ltd. v. S D Agarwal [1969] 39 Comp Cas 781 (SC) ; Rupak Gupta v. Banaras House (P.) Ltd. [2013] 112 CLA 287 (CLB) ; Shankar Sundaram v. Amalgamations Ltd. [2002] 38 SCL 777 (Mad.) ; Shree Rama Multi Tech Ltd., In re. [2005] 64 CLA 224 (CLB) ; Smt. Chandra Prabha v. Hotel Shweta (P.) Ltd. [1995] 4 Comp LJ 540 (CLB) and Union Bank of India v. Naresh Kumar [1996] 23 CLA 80 (SC).

Appearances : Ms. Manmeet Kaur, Yashvardhan Bandi & Manan Chaddha for the Appellant. U K Chaudhary, senior advocate (Naveen Dahiya & Himanshu Vij with him) for the Respondent.

ORDER

1. This company appeal, preferred under section 10F of the Companies Act, 1956, (‘the ‘Companies Act’) impugns the order dated 3rd July, 2013 in Company Petition No. 26 (ND) of 2013 passed by the Company Law Board, Northern Region Branch, New Delhi (‘the CLB’). The impugned order rejected, on merits, the appellants’ prayer for an investigation into the respondent No. 12-company under section 235 of the Companies Act.
2. It was the appellants case before the CLB that Mr. Amaan Sachdev and Mr. Aneel Sachdev held a total of 10,000 equity shares of Rs. 10 each, they held 100 per cent of the total voting power of the respondent No. 12-company, thus, the petition under section 235 was maintainable ; they claimed to have noticed several irregularities in the affairs and day-to-day running of the respondent No. 12-company ; that the respondents had carried out various e-form filings with the Registrar of Companies (‘RoC’) without obtaining proper approval from the Board of directors and shareholders of the company. These alleged irregularities included :
   1. Holding meetings without the requisite period of notice required by law.
   2. Increasing the share capital of the company from Rs. 1,00,000 to Rs. 1,40,00,000 through an extraordinary general meeting (‘EGM’) convened without the permission of the appellants, who were shareholders at the time, and thereby reducing the shareholding of the appellants from 100 per cent to 0.73 per cent.
   3. Appointing respondent Nos. 1 and 2 as directors of the company and not providing an explanatory statement for the same.
   4. Forcing appellant Nos. 2 and 3 to resign from the Board of directors without their consent.
   5. Allotting shares of the company to companies based in Kuwait.
   6. Fraudulently changing the registered address of the company three times.
   7. Filing irregular balance sheets from 2005 to 2011.
3. The appellants contend that an investigation under section 235 of the Companies Act ought to be carried out to ascertain the truth behind these alleged unscrupulous activities of the respondents. section 235 reads as follows :

   235. Investigation of the affairs of a company. –
        1. The Central Government may, where a report has been made by the Registrar under sub-section (6) of section 234, or under sub-section (7) of that section, read with sub-section (6) thereof, 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.
        2. Where –
           1. in the case of a company having a share capital, an application has been received from not less than two hundred members or from members holding not less than one-tenth of the total voting power therein, and
           2. in the case of a company having no share capital, an application has been received from not less than one-fifth of persons on the company’ s register of members, the Company Law Board may, after giving the parties an opportunity of being heard, by order, declare that the affairs of the company ought to be investigated by an inspector or inspectors, and on such a declaration being made, the Central Government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to report thereon in such manner as the Central Government may direct.”

4. The appellants, therefore, filed a petition under section 235 of the Companies Act before the CLB. Vide the impugned order dated 3rd July, 2013, the CLB reasoned as under :

   6. After going through the contents of the petition, replies, rejoinders and arguments (oral and written), prima facie, it is clear that the petitioners were initially the shareholders with 100 per cent voting power in the company. However, the petitioners have alleged that respondent No. 1 has filed E-form with the Registrar of Companies (‘RoC’) for the appointment of R-2 as executive director, resignation of petitioner Nos. 2 and 3 from the post of director ; increase in the authorised capital from Rs. 1 lakh to Rs. 1.40 crore, allotment of shares on various dates, change in the registered office of the company three times and holding of annual general meeting (‘AGM’) at a shorter notice without seeking consent of 100 per cent shareholders. In addition, some errors have been pointed out in the compliance certificates and balance sheets for the years ending 31st March, 2005, 31st March, 2006, 31st March, 2007, 31st March, 2008, 31st March, 2009, 31st March, 2010 and 31st March, 2011. All these allegations and irregularities are based on the documents filed by the company with RoC and these returns/forms are available within public domain. As such, facts/violations/irregularities have been observed by examination of papers/returns/documents/forms of the company available on the Portal of Ministry of Corporate Affairs. In this context, the observations made in the case of Binod Kumar Kasera v. Nandlall & Sons Tea Industries (P.) Ltd. [2009] 93 CLA 108 (CLB)/[2010] 153 Comp Cas 184 (CLB) [page 210, 211 ; para 40] are relevant which states that the object of an investigation under section 235(2) of the Act is to discover something which is not apparently visible to the naked eye and where a petition discloses merely facts which are apparent from the balance sheet of the company, an investigation will not be ordered. In the present petition, the contraventions and irregularities have already been noticed and stated by the petitioners in the petition and these matters have also been taken up with the various law enforcing agencies including SHO, Safdarjung Police Station, New Delhi, SHO, Kalkaji Police Station, New Delhi, Economic Offences Wing, New Delhi, Registrar of Companies, hon’ble Judicial First Class Magistrate court-I, Kochi and Chief Metropolitan Magistrate, Saket District Court, New Delhi. Under these circumstances, it is inferred that the petitioners have already observed and collected evidences pertaining to the violations, irregularities and statutory non-compliances. But, as stated by the respondents, there was some deed of settlement which was signed on 12th July, 2010 and the respondent-advocate has also stated that the amount of Rs. 12.7 crore have been invested by the Kuwait Group Companies from the incorporation while not a single penny has been invested by the petitioners except Rs. 1 lakh paid at the time of incorporation of the respondent No. 12-company on behalf of AI Futtooh Investments and its associates and the said amount of Rs. 1 lakh has already been paid to the petitioners in the year 2004 itself. However, the main grievances of petitioners relate to dilution of shareholding of the petitioners, removal of petitioner Nos. 2 and 3 from the directorship and appointment of respondent No. 2 as executive director and prima facie, documents/returns/forms pertaining to these controversial matters are available on the Portal of the Ministry of Corporate Affairs and the same can be used for action under section 397/398 of the Companies Act, 1956. Admittedly, the investigation under section 235 of the Act is a fact finding process and to order investigation, the power is administrative in nature. But in the instant case, the facts are already known and nothing new is to come out in the process of investigation. This view is also substantiated by the fact that these matters have been filed with various law enforcing agencies including courts based on the papers/documents available with the petitioners. In view of this, the balance of convenience does not go in favour of the petitioners and, hence, the prayer made in the petition for ordering investigation under section 235 of the Companies Act, 1956 does not stand on merits. As such, the prayer for ordering investigation under section 235 of the Companies Act, 1956 is hereby rejected.
   7. The company petition is disposed of accordingly. Interim reliefs, if any, are hereby vacated.
   8. No order as to cost.”

5. Aggrieved by this order, the appellants have preferred this appeal.
6. The appellants submit that the entire proceedings on behalf of the respondents before the CLB was without due authority since the special power of attorney on behalf of respondent Nos. 1 and 2, authorising Mr. Anshuk Pasricha to pursue the matter before the CLB, had not been notarised or apostilled before any agency or the Government of India or of the Indian Consulate in Kuwait. The appellants rely upon the settled principle of law laid down in the case of Rupak Gupta v. Banaras House (P.) Ltd. [2013] 112 CLA 287 (CLB)/[2012] 116 SCL 332 which held that the sanctity of affidavits must be strictly adhered to. In the written arguments before the CLB (annexed as Annexure P-11 to this appeal) the following objection was taken :

   “The petitioners wish to highlight that this special power of attorney, on the basis of which Shri Anshuk Pasricha has sworn the affidavit is neither notarised, nor apostilled nor attested as mandatorily required by law and given that the said special power of attorney was executed outside of India it was required to be presented before the consulate of the Indian Government in Kuwait for it to be legally valid. The said special power of attorney does not fulfil any of these requirements and, therefore, Shri Anshuk Pasricha cannot swear any affidavit before this hon’ble Bench or for that matter before any court till such time that his special power of attorney is executed in accordance with law. For that reason alone, the short reply filed on behalf of respondent No. 12 before this hon’ble Bench taken be taken on record since it suffers from the infirmity that it does not have a legally sworn affidavit. It is the submission of the petitioners that this hon’ble Bench may, therefore, disregard each and every averment made in the said reply and not place any reliance on the same.”

7. The learned counsel for the appellants submits that the impugned order has not even referred to this objection which is most preliminary in nature as it discusses the issue of authorisation of a person to pursue the case before the CLB. In effect, the contention is that in the absence of due authorisation before a notified Government officer, such representation on behalf of the company would be non est in the eyes of law.
8. In reply, the respondents contend that this is a curable technical defect. The learned counsel for the respondents refers to the judgments of the Supreme Court in Union Bank of India v. Naresh Kumar [1996] 23 CLA 80 (SC)/[1996] 6 SCC 660 and this court in Mahesh Nathani v. Sir Edward Dunlop Hospital India Ltd. [2005] 62 SCL 362 which have held that defects relating to authorisation of power of attorneys can be cured and ratified even at the appellate stage. Mahesh Nathani (supra) held :

   22. It is, thus, clear that the petitioner has confirmed that Mr. Gulati was appointed his attorney by executing attorneys dated 16th July, 1997 and 27th December, 1997. Further, in this power of attorney dated 18th October, 2004, action of Mr. Gulati having instituted this very company petition is specifically approved and ratified. Thus, not only power of attorney on a valid stamp paper as per Indian Law is produced, there is a specific authorisation for instituting present proceedings as well. Therefore, the objection of the respondent that there is no specific authorisation to file a company petition is ill founded and reliance on the judgment of this court in the case of J S Bhalla v. G J Bhawnani [1983] 23 DLT 125 or in the case of Shantilal Khushalda & Bros. (P.) Ltd. v. Smt. Chandanbala Sughir Shah [1993] 77 Comp Cas 253 (Bom.) shall also be of no avail. If the earlier power of attorney was not stamped as per Indian law, it was a mere irregularity which could be cured. The Supreme Court in the case of United Bank of India v. Naresh Kumar [1996] 6 SCC 660 went to the extent of holding that such ratification can be proved even at appellate stage. Therefore, I do not find any force in this preliminary submission of the respondent.”

9. The respondents further contend that the acts of Mr. Anshuk Pasricha have accordingly been ratified by a Board resolution dated 13th April, 2015. The court finds that in view of the preceding discussion of the law on curability of the defect and the subsequent ratification of the acts of and authority in favour of Mr. Pasricha by the company, the preliminary objection of the appellants is untenable and is, therefore, rejected.
10. The learned senior advocate for the respondents has raised a preliminary objection that this petition is not maintainable because the appellants have also filed CP No. 133/2013 before the CLB through which they have availed the proper remedy under sections 397 and 398 of the Act. He contends that the prayers in CP No. 133/2013 are of wider amplitude and encompass even the prayers of the present petition, rendering the present petition redundant and since the matter is sub-judice before the CLB ; (ii) the appellants cannot pursue two separate proceedings for the same cause of action as it amounts to forum shopping ; and (iii) therefore, the present petition is infructuous and deserves to be dismissed. He further submits that the factual finding of the CLB does not amount to a judgment within the ambit of clause 15 of the Letters Patent, 1865 and as such cannot be appealed by an aggrieved party. He relies on the case law laid down by the Calcutta High Court in Mayank Kocher v. Transport & Handling Equipments Mfg. Co. (P.) Ltd. [2007] 79 CLA 29 (CLB)/[2008] 87 SCL 248. While discussing section 235 of the Act, the order records that :

    “Under this section directing an investigation is only analogous to the issue of a fact finding commission by a civil court for looking into accounts or making an investigation and does not amount to a judgment within clause 15 of the Letters Patent, so as to enable an aggrieved party to appeal.”

11. Refuting this, the learned counsel for the appellants argues that an appeal under section 10F of the Companies Act is maintainable even if the order is judicial, quasi-judicial or administrative in nature ; that in the case of R P Khosla v. Connaught Plaza Restaurant (P.) Ltd. [2014] 121 CLA 12 (Del.)/[2014] 126 SCL 179 (Del.) it was held that even assuming the orders of the CLB were administrative in nature, the language of section 10F is wide enough to cover even these administrative decisions.
12. The appellants contend that not ordering an investigation despite a preliminary observation of irregularities in the running of the company cannot be maintained. The court, however, notes that the CLB has not made any adverse observations against the affairs of the company except for recording the allegations of the appellant and instead it has observed that section 235 cannot be used to initiate investigations merely on the allegations of a shareholder nor would an application be maintainable unless it met the requirement of section 235 of the Act.
13. He further contends that the impugned order erred in not appreciating the real intent behind the section 235, under which the investigation is to be of a very preliminary nature and is only meant to shed light on the affairs of the company, and the CLB cannot substitute its own opinion for that which may be brought out from an investigation. He further contends that an investigation under section 235 is neither criminal in nature nor is it to be conducted by police ; that the requirement of a minimum shareholding under section 235 has to be read liberally and cannot be a bar to the present proceedings because a similar requirement is stipulated under section 399 of the Act with respect to applications under sections 397 and 398. He contends that this principle should be liberally interpreted and extended to also apply to investigations under section 235 ; that as the question of the voting power being reduced to below 10 per cent constitutes the cause of action for this petition under section 235 of the Act, the same should be investigated to reveal the true state of affairs of the company. He submits that, as was held in Citicorp International Finance Corpn. case (supra), an “[a]n order to investigate under section 235 of the Act, in any case cannot prejudice the respondents” because the direction of holding an investigation under this section is similar to the appointment of a fact finding commission. He relies upon the judgment in Kishan Khariwal v. Ganga Nagar Industries Ltd. [2004] 50 SCL 567 (CLB) which held that where the dispute related to reduction of shareholding to less than 10 per cent, the same would not be a bar under section 399. It held :

    “This Board has always taken the view that if the shareholding of the petitioners is reduced below 10 per cent of account of further issue of shares and if the issue of further shares is also challenged in the petition, then, the petition will not be dismissed as not maintainable in terms of section 399. Instead, the allegation relating to the issue of further shares would be examined first as to whether the same is an oppressive act and if it is found to be so, then only other allegations in the petition would be examined.”

14. The appellants contend that the money which was received by them under foreign direct investment was only a loan from the companies Al Futtooh Investment Co., Hamoor International Trading & Kuwait Investment Projects Co. The appellants refer to the foreign inward remittance certificates (‘FIRCs’) which would indicate that the money came into the country in the form of borrowings from the abovementioned Kuwaiti companies. They submit that the respondents have failed to produce any documentary evidence to show any connection between respondent Nos. 1 and 2 with the three abovementioned Kuwaiti companies and that this raises certain doubts regarding the correlation between these entities.
15. The respondents refute this claims and contentions of the appellants. They argue that the appellants, who are in fact legal professionals, incorporated the respondent No. 12-company on behalf of respondent Nos.1 and 2 ; that the appellants have been paid for their legal services and the money, which the petitioners claim to have received in the form of a loan, was actually foreign direct investment against equity in the respondent No. 12-company. The respondents place reliance upon the FIRC, which show the contribution made by the respondents.
16. The learned senior advocate submits that, in any case, the appellants do not qualify the threshold criteria of holding a minimum of one-tenth of the total voting power in the respondent-No. 12 company, as required under section 235(2) of the Act ; that it is an admitted fact that the shareholding of the appellants is only 0.73 per cent and that this is, therefore, fatal to their case. He submits that the meaning of 10 per cent of voting power has been considered in Smt. Chandra Prabha v. Hotel Shweta (P.) Ltd. [1995] 4 Comp LJ 540 (CLB) which held as under :
    13. The petitioners have filed the petition under section 235 read with section 237(b) of the Act. As per section 235(2) of the Companies Act, 1956, an application for a declaration for investigation has to meet the minimum qualification, namely, that it should be from not less than 200 members or from members holding not less than one-tenth of the total power. According to the petitioners, the total paid-up capital was Rs. 50.52 lakh and their holding was within the limits. The respondents, however, contend that, on the date of petition, the paid-up capital was Rs. 75 lakh. From a scrutiny of Form 2 within regard to the additional paid-up capital was Rs. 75 lakh. From a scrutiny of Form 2 with regard to the additional allotment of Rs. 24.48 lakh, it was found that the allotment was stated to have been made on 28th February, 1992, demand draft was also obtained towards filing fee on 4th March, 1992, but the actual filing appeared to have been done with Registrar of Companies after the petition was filed. However, in view of the demand draft being dated March, 1992, which showed the contemporaneity of the allotment, and in view of the audited balance sheet for the year ended 31st March, 1992 reflecting the paid-up capital as Rs. 75 lakh, the voting strength was determined by reckoning the paid-up capital of Rs. 75 lakh. As such, on the date of filing of the petition, i.e., 17 November, 1992, the petitioners held less than one-tenth of the total voting power and so could not maintain this application under section 235 of the Act. We, however, in view of the circumstances as set out in the petition and the various pleadings ast (sic) the facts, having regard to the provisions of section 237(b) of the Act, the various circumstances set out in the pleadings were considered as “information” for examining whether there was justification for forming an opinion, with regard to investigation under that section.’
17. Likewise in Shree Rama Multi Tech Ltd., In re. [2005] 64 CLA 224 (CLB)/[2005] 63 SCL 154, the CLB relied upon the judgment in Smt. Chandra Prabha (supra) and held as under :

    “I have gone through the pleadings and heard learned counsel for both the parties and it is observed that the petitioner has not fulfilled the conditions laid down for filing petitions under section 235 as the present petition under section 235 has not been filed by 200 members or from members holding not less than one-tenth of the total voting power. Accordingly, the company petition No. 46/2003 is not maintainable under section 235(2) and the same is dismissed being not maintainable.”

18. The learned senior advocate argues that the scope of section 235 and sections 397 and 398 of the Act are different. He submits that legislative intent behind section 235 is ambiguous, the requirement is that the applicant should have at least 1/10th of the voting power. He relied upon the ratio of Mayank Kocher (supra), which held :

    8. By the impugned order the Company Law Board held that the nature of investigation that the petitioner before it had sought could be more meaningfully conducted in proceedings under section 111 or under sections 397 and 398 of the Act. What the Company Law Board implied was that there would be a logical consequence of such investigation if ordered in the course of section 111 or sections 397 and 398 proceedings in that upon investigation and the result thereof, the petitioner’s right to relief could be assessed.
    9. It is beyond question that an investigation under section 237 can be directed upon subjective satisfaction of the existence of circumstances enumerated in section 237. If, however, it is shown or the Company Law Board is otherwise satisfied that such circumstances do not exist or that the facts and allegations are such that it is impossible to form an opinion as to the existence of such circumstances, an investigation is not called for….”

19. The learned senior advocate discerns between the language of section 235 and section 399 of the Companies Act and asserts that the legislative intent behind these sections is unambiguous, insofar as section 235 requires an application for investigation to be received from members holding not less than “one-tenth of the total voting power” in the company whereas section 399 requires an application from members holding not less than “one-tenth of the issued share capital” of the company. To support his proposition he relies upon the ratio of Mayank Kocher (supra) which held :

    8. " The said prayers apart from being prayers, which could be prayed for only in a petition under section 111 of the Act of 1956 clearly reveal along with other averments made in the petition that the petitioner is not a shareholder and is, therefore, not entitled to maintain the petition. Since as on date (or as on date of filing of the company petition), he is not a member of the respondent-company, he, therefore, has no locus standi to inspect and take copies of the documents of the respondent-company. Reliance is placed on the judgment of the hon’ble Delhi High Court in the case of V V Purie v. E M C Steel Ltd. [1980] 50 Comp Cas 127, wherein it is held that a person having no manner of interest or concern in the company as a shareholder, creditor or otherwise, has no locus standi to prefer an application to the court for an order under section 237(a)(ii) of the Companies Act, 1956, declaring that the affairs of a company ought to be investigated by an inspector appointed by the Central Government. The judgment further lays down that (headnote) :
       Though section 237 is couched in very wide language, the basic limitation that the courts will not entertain action on behalf of private persons to enforce the observance of public rights and duties unless they have a personal interest in the matter and unless their rights and interests are in some way affected, is implicit in the interpretation of the section.”

20. The learned senior advocate for the respondent submits that the Calcutta High Court was of the opinion that any report under section 235 is more in the nature of an investigative report ; it is a matter of finding facts and is not a judicial order, and, therefore, the analogy to this appeal would not lie in the present case. He contended that the proper and effective remedy for the appellants would lie under sections 397 and 398 of the Act. He also contended that the appellants are concealing the fact that the parties had signed a deed of settlement on 12th July, 2010. He states that the appellants have no right to pray for an investigation to be carried out under section 235 of the Act since they have not approached this court with clean hands.
21. In rebuttal, the learned counsel for the appellants cites the judgment of Rohtas Industries Ltd. v. S D Agarwal [1969] 39 Comp Cas 781 (SC), wherein the hon’ble Supreme Court set aside a impugned order of the High Court and held that in cases of allegations of fraud on the part of the directors of a company, an investigation must be carried out if there is prima facie evidence of any intent to defraud, fraudulent or unlawful activities, or instances of misconduct. The judgment observes as under :

    39. " Coming back to section 237(b), in finding out its true scope, we have to bear in mind that that section is a part of the scheme referred to earlier and, therefore, the said provision takes its colour from sections 235 and 236. In finding out the legislative intent we cannot ignore the requirements of those sections. In interpreting section 237(b) we cannot ignore the adverse effect of the investigation on the company. Finally, we must also remember that the section in question is an inroad on the powers of the company to carry on its trade or business and thereby an infraction of the fundamental right guaranteed to its shareholders under article 19(1)(g) and its validity cannot be upheld unless it is considered that the power in question is a reasonable restriction in the interest of the general public.”

22. The appellants further rely upon the dicta of Raghunath Swarup Mathur v. Har Swarup Mathur [1970] 40 Comp Cas 282 (All.), wherein it was held that in appropriate cases, a probe under sections 235 to 237 may be a necessary prelude to proceedings under sections 397 to 399 of the Act. It reads as under :

    28. " Before concluding, I may indicate a procedure which could, in appropriate cases, be held to be a necessary prelude to proceedings under sections 397 and 398. Sections 235 to 237 of the Act empower the Central Government to appoint one or more inspectors to investigate the affairs of a company and to submit a report, which is made legally admissible evidence, by section 246 of the Act, in proceedings before a court of law. Such a report could provide the basis of action by the Central Government against a company under either section 397 or section 398 of the Act, as laid down by section 243 of the Act, or, for recovery of damages in respect of any fraud, misfeasance, or other misconduct in the management of the company’s affairs, where this is necessary in public interest, as provided by section 244 of the Act. It could, therefore, be urged, in cases where a detailed inquiry into the conduct of the affairs of a company is called for, that a petition under either section 397 or section 398 of the Act, without applying for such an inquiry, under section 236 of the Act, is premature.”

23. The learned counsel for the appellant submits that, in the present case, the benefit of ordering an investigation under section 235 would bring clarity to the dubious position of the company as well as the prima facie irregular filings done by it. The appellants finally rely on the dicta in J P Srivastava & Sons (P.) Ltd. v. Gwalior Sugar Co. Ltd. [2004] 63 CLA 161 (SC)/[2005] 1 SCC 172, to contend that the legislative intent behind restricting the filing of petitions under sections 235 and 397 is to prevent frivolous litigation. They argue that the requisite shareholding for filing petitions shall not be permitted to be used as a protective shield by wrongdoers who mismanage and play frauds on companies. According to the appellants, what is required is that there must be enough material on record so as to raise a doubt regarding instances of foul play in the management of the affairs of the company and that, as also observed by the CLB, this is present within these set of facts.
24. Having considered the aforestated contentions, the court is of the view that the present appeal oversteps its statutory applicability. What is undisputed is that the appellant fails to meet the threshold of 10 per cent share of the total voting power as is necessary under section 235 of the Act. Therefore, that is his first impediment in directing an investigation and the application under section 235 as well as this appeal would not be maintainable. Furthermore, in sections 397 and 398 of the Act, which deals with application for relief in cases of oppression and mismanagement respectively, required the applicant to have at least 10 per cent of the issued share capital. It is only in applications under sections 397 and 398 of the Act, where the challenge in such applications is to reduction of the issues share capital itself, through oppression or mismanagement then the threshold of 10 per cent would not be applicable.
25. The court would note that Mayank Kocher (supra) discusses the Barium Chemicals Ltd. v. CLB [1966] 36 Comp Cas 639 (SC) and another judgment, Shankar Sundaram v. Amalgamations Ltd. [2002] 38 SCL 777 (Mad.), rendered by a Single Judge of the Madras High Court, and agrees with the latter that notwithstanding section 237, the CLB had the power to investigate under section 397/398 of the Act. It went on to hold that an investigation under section 237 can be directed upon the subjective satisfaction of the existence of circumstances as enumerated in the said section. This means that if the CLB comes to the conclusion that circumstances as mentioned in section 237 do not exist, or that it is not possible to form such an opinion of the existence of such circumstances on the basis of available facts and allegations made by the applicant, then no investigation will be warranted.
26. The present impugned order has taken into consideration the facts taken on record as well as the allegations of wrongdoing made by the respondents regarding digital signatures, reduction in shareholding and voting rights of the petitioners, their removal from directorship from the company, infusion of share capital and change of registered office of the company twice. All this information has been made available through filing before the RoC from the years 2005 onwards and the impugned order takes into consideration the same and concluded that nothing new could come out in the process of investigation. Therefore, it formed the opinion that the circumstances mentioned in section 237 did not exist so as to trigger any investigation. The court finds that in the circumstances the CLB had taken into the available facts on record and the conclusion arrived at cannot be faulted.
27. The impugned order has relied upon the judgment of the Kerala High Court in Mrs. U A Sumathy v. Dig Vijay Chit Fund (P.) Ltd. [1983] 53 Comp Cas 493 (Ker.) which held that section 235 does not lay down what precise circumstances are to be proved so as to trigger an investigation but in the least the materials on record to be examined must be such as to satisfy the court that a deeper probe into the company affairs are desirable in the interest of the company’s itself. The impugned order also relied upon the ratio in Binod Kumar Kasera v. Nandlall & Sons Tea Industries (P.) Ltd. [2009] 93 CLA 108 (SC), which held that where the facts are disclosed on the basis of the records, like the balance sheet of the company, an investigation would not be ordered. Hence, there must exist at least a prima facie evidence that the affairs of the company are being run in a fraudulent and unlawful way so as to defraud its creditors or is contrary to the interest of the company itself which would lead to the conclusion that an investigation would be necessary. Mere allegation of a disgruntled shareholder would not be a sufficient ground to order an investigation.
28. The appellants have sought an investigation regarding the irregularities mentioned in paragraph 2 hereinabove, which relate primarily to documents already on record. It is the effect of these documents which would be examined in the proceedings under sections 397 and 398, which, incidentally, have already been preferred by the appellant. The impugned order has rightly analysed as in the context of the facts of the case that the appellant, who initially had 100 per cent voting power in the company were subsequently allegedly removed/displaced from the said voting power by respondent No. 1 appointing its two executive directors accepting resignation of appellant Nos. 2 and 3 from the post of director ; increase in the authorised capital from Rs. 1 lakh to Rs. 1.40 crore ; allotment of shares on various dates, change in the registered office of the company thrice over ; holding of AGM at shorter notices without consent of 100 per cent of the shareholders ; the information was already available and has been obtained by the appellants through an e-filing of the E-form before the RoC. Other allegations against the company relate to compliance certificates and balance sheets for the year ending 31st March, 2005, 31st March, 2006, 31st March, 2007, 31st March, 2008, 31st March, 2009, 31st March, 2010 and 31st March, 2011, and this information has been gleaned from the documents and returns and forms filed with the RoC, which are available in the public domain. Therefore, the effect of the aforesaid documents would have to be, at best, examined by the proceedings under sections 397 and 398 of the Act. The objective of investigation under section 235 of the Act is to unearth and find out the new material or data. Since no further information beyond the aforesaid documents pertaining to the company is likely to be obtained, the impugned order rightly rejected the application. It also recorded that regarding other violations, complaints have already been filed before the law enforcing agencies, including, SHO, Safdarjung Police Station, New Delhi, SHO, Kalkaji Police Station, New Delhi, Economic Offences Wing, New Delhi, RoC, First Class Magistrate Court-I, Kochi and Chief Metropolitan Magistrate, Saket District Court, New Delhi.
29. The CLB rightly relied upon the observations in the case of Binod Kumar Kasera (supra), which held that object of investigation under section 235(2) of the Act is to discover something which is not apparently visible to the naked eye and where a petition discloses merely facts which are apparent from the balance sheet of the company, an investigation will not be ordered. The appellants have already approached the relevant authorities for relief. Section 235 cannot be an exercise of roving inquiry, nor could it be invoked by any person, who does not meet the threshold of 10 per cent voting power because the repercussions of an investigation would have wide ramifications, it could cast a shadow upon the functioning of the company, affecting its stature, goodwill and value of market shares, as may be. The decisions relied upon by the parties do not show that the requirement of 10 per cent of the voting power under section 235 has been either read down or diluted. Instead, they show that the requirement of 10 per cent issued share capital under section 399 may not be insisted upon where such reduction by way of oppression or mismanagement itself is disputed. The impugned order has rightly referred to the ratio in Hariganga Cement Ltd. v. CLB [1988] 64 Comp Cas 603 (Bom.), which held that the power of the CLB under section 237(b) of the Companies Act, being wide in nature and scope, the discussion to use the same should be exercised with immense circumspection and in a judicious manner. Such discretionary power would have to be exercised in a reasonable manner and not in the absence of circumstances not warranting investigation, into the affairs of the company.
30. The impugned order has recorded that, according to the respondents, there was some deed of settlement signed on 12th July, 2010 and that the respondents had invested an amount of Rs. 12.7 crore whereas the appellants had made investment of only Rs. 1 lakh at the time of incorporation of the said company, which amount has already been paid back to him by the investors’ group of companies. Any investigation under section 235 of the Act would be a fact finding process and such power would be administrative in nature. However, since the facts were already known to the parties, through the statutory filings of the company, no further information would come out from the investigation. Indeed the said information has already been placed before the various law enforcing agencies by the appellants for them to carry out their respective necessary action. Evidently, the impugned order takes into account all the relevant facts and has come to the conclusion that the circumstances under section 237 do not exist to warrant an investigation.
31. In these circumstances, this court does not find any reason to differ or interfere with the impugned order. The appeal is without merit and is, accordingly, dismissed.