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Judgment
Ch. Mohd. Sharief Tariq, J
Under Consideration is CA/390/ND/2019 filed in CP/220/PB/2018. The Applicant has filed a Company Petition under Sections 241 & 242 of the Companies Act, 2013 r/w Rules 11 & 32 of the NCLT Rules, 2016, which is pending adjudication.
The prayers made by the Applicant in the Application are as follows:-
i. To allow the Applicant to inspect the original statutory records, minutes, books of accounts including but not limited to cash books, bank statements, ledgers, purchase-sales documents, tax documents, expense vouchers and all other relevant documents or information etc. of the Company, and. to take extract and copies thereof, from the Company; and
ii. To allow the Applicant to conduct the inspection aforesaid along with the Professionals viz., Advocate, Company Secretary or Chartered Accountant; and.
iii. To fix the dates, time and place for carrying out the inspection as aforesaid; and
iv. To direct the concerned authorities/departments for providing Police Security, in case need arises; and/or
v. Pass such further or other orders as this Hon'ble Tribunal deems fit and proper in the facts and circumstances of the matter.
The Ld. Counsel for the Applicant has submitted that the Applicant is the shareholder with 20.31% shareholding and a Director of the 1st Respondent Company. It is further submitted that CP No. 220 of 2018 filed under Sections 241 and 242 of the Companies Act, 2013 before this Bench inter-alia is on account of the various illegalities and clandestine manner in which Respondent Nos. 2 to 4, diverted and misused the resources and are blatantly involved in misappropriation and siphoning of funds of the Company. Therefore, the Counsel for the Applicant has prayed to pass an Order to allow the Applicant to conduct the inspection of the Books of Accounts and other Statutory Records of Respondent No. 1.
The Learned Counsel for the Applicant further submits that the Applicant is being kept in dark about the affairs of the Company and in spite of the admitted fact that the Applicant is a director and shareholder of the company; still the Respondents are running the Company as their proprietorship concern. Also, the Applicant is not being supplied with requisite legal documents for the Board Meetings, General Meetings as well as other statutory records/information of the Company.
A reply was filed on behalf of the Respondent No. 1 on 11.01.2019, where in it had denied all grounds, submissions, allegations and contentions that had been raised by the Applicant in his application. It is further submitted that the Petition was filed by the Petitioner at a time when the respondent No. 1 had called for a shareholder's meeting to vote for the removal of the Petitioner from the Respondent Company for the reason that he was acting against the interest of the Company and had committed breach of trust.
It has been placed on record that the Applicant acted against the interest of the first Respondent Company at a time when the company was in financial trouble and saddled with liability because of the actions of the Applicant himself. Now, when the Respondent Company has managed to become financially stable and is free from liabilities due to the efforts of the Respondent Nos. 2-4, the Applicant has filed the present petition with an intention to enjoy the fruits of success and to obstruct the smooth Working of the first Respondent Company.
The Petitioner in March, 2017 came in touch with M/s. Synthesis (erstwhile major client of Respondent No. 1 and now its competitor) and collaborated with M/s. synthesis on a personal level to the detriment of the Respondent. The scheme formulated by the Applicant with M/s. synthesis was that instead of Respondent, the Applicant himself would act as the trading agent, thereby leading to severing of ties between M/s. Synthesis and Respondent thereby reducing the business between them to nil. As a result, the Applicant started dealing with M/s. synthesis personally by earning commissions for him and caused huge financial loss to the Respondent, Because of all this, the Respondent was left in a situation where in he had no substantial machines available for trading and hence the entire business with M/s. Synthesis and M/s. Samyuktha came to a standstill.
It is contended that the Respondent No. 1 with the help of Respondents 2 and 3 was able to once again establish itself and built its capacity to manufacture winding machines in its own name and sell them in the market. However, the Applicant till his removal on 23.06.2018 continued to misuse his position of being the Director of Respondent No. 1 by virtue of which he had access to 'the Accounts and other documents of Respondent No. 1 and started to indulge in pilfering the clients of respondent No. 1 by personally approaching them and also tried to convince them to discontinue using the services of Respondent No. 1.
In reply arguments it is submitted by the counsel for the Applicant/petitioner that earlier Respondent No. 2 had business relations with M/s. , Synthesis and at times the entity was not considered as competitor. But when the applicant/petitioner is having the same degree of business relations with the entity as were that of the R 2, the same is considered as competitor. Therefore, the allegation leveled by the Respondents is denied.
On perusal of the pleadings of the parties, the issue that arises is as follows:
Whether the Applicant/Petitioner has a right to inspect the Books of Accounts and other statutory records of Respondent No, 1, i.e., Chawala and Choudhary Trading Pvt. Ltd., (hereinafter referred as "Company"), during the pendency of the Company Petition bearing number 220/241-242/PB/2018, filed under Section 241-242 of the Companies Act, 2013?
The Applicant/Petitioner is director and holding 20.31% shares in 1st Respondent Company and has alleged that the Respondents Nos. 2-4 have diverted and misused the resources of the Company. It is further contended that the Respondents have not supplied the relevant documents to the Applicant/Petitioner in relation to the Board Meetings, General Meetings and other statutory records/information.
The Respondents would contend that the Applicant/Petitioner was acting against the interest of the company and committed breach of trust. The Company has become financially stable and is free from liabilities due to the efforts of the Respondents and the Applicant/Petitioner's intention is to enjoy the fruits of success and to obstruct the smooth working of the Company. It is specifically alleged by the Respondents that that the Applicant/Petitioner is in touch with M/s. Synthesis, the erstwhile client of Respondent No. 1 Company, which is now a competitor. However, the Respondents have not supported their contention with any documentary evidence. Moreover, the stand of Respondents is contradictory as on the one hand it is stated that the Applicant/Petitioner is intending enjoy the fruits of success, on the other hand it is stated that Applicant/Petitioner wants to obstruct the business.
The matter complained of in the Company Petition is related to the oppression and mismanagement with regard to which a proper enquiry is being conducted by this Tribunal. Therefore, the allegation and counter allegation levelled by the parties are yet to be determined. However, the prayers of the Applicant/Petitioner for seeking a direction for conducting an inspection of Books of Accounts of the Company is not dependent on the conclusion of the enquiry being conducted in the Company Petition.
The shareholders of a Company are entitled to certain rights and duties, which are well enumerated under the relevant provision of the Companies Act, 2013 and the Company is under legal obligation to provide the necessary information to the shareholders for the purpose of convening the General Meetings. Moreover, in this case, the Applicant/Petitioner besides being shareholder is a director and that the Respondent Nos. 2-4 wanted to remove him from the position of a director, but this Tribunal was pleased to issue ad-interim Order of stay on 20.06.2018.
For the purpose of an easy reference, we may refer to the relevant provisions of the Companies Act, 2013 to understand as to what are the rights of the shareholder and the director of a company and without prejudice to the allegations with regard to the conduct of a particular Shareholder and director, those rights and duties are exercisable without any hindrance being created by the Company or Board of Director. The relevant provisions of Sections 94, 119, 128 of the Companies Act, 2013 are as follows:
Section 94 - Place of keeping and inspection of registers, returns, etc.--
(1) The registers required be keeping and maintaining by a company under section 88 and copies of the annual return filed under section 92 shall be kept at the registered office of the company:
Provided that such registers or copies of return may also be kept at any other place in India in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company and the Registrar has been given a copy of the proposed special resolution in advance:
Provided further that the period for which the registers, returns and records are required to he kept shall be such as may be prescribed.
(2) The registers and their indices, except when they are closed under the provisions of this Act, and the copies of all the returns shall be open for inspection by any member, debenture-holder, other security holder or beneficial owner, during business hours without payment of any fees and by any other person on payment of such fees as may be prescribed.
(3) Any such member, debenture-holder, other security holder or beneficial owner or any other person may--
(a) take extracts from any register, or index or return without payment of any fee; or
(b) require a copy of any such register or entries therein or return on payment of such fees as may be prescribed.
(4) If any inspection or the making of any extract or copy required under this section is refused, the company and every officer of the company who is in default shall be liable, for each such default, to a penalty of one thousand rupees for every day subject to a maximum of one lakh rupees during which the refusal or default continues.
(5) The Central Government may also, by order, direct an immediate inspection of the document, or direct that the extract required shall forthwith be allowed to be taken by the person requiring it.
Section 119 -Inspection of minute-books of general meeting.--
(1) The books containing the minutes of the proceedings of any general meeting of a company or of a resolution passed by postal ballot, shall--
(a) be kept at the registered office of the company; and
(b) be open, during business hours, to the inspection by any member without charge, subject to such reasonable restrictions as the company may, by its articles or in general meeting, impose, so, however, that not less than two hours in each business day are allowed for inspection.
(2) Any member shall be entitled to be furnished, within seven working days after he has made a request in that behalf to the company and on payment of such fees as may be prescribed, with a copy of any minutes referred to in sub-section (1).
(3) If any inspection under sub-section (1) is refused, or if any copy required under sub-section (2) is not furnished within the time specified therein, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each such refusal or default, as the case may be,
(4) In the case of any such refusal or default, the Tribunal may, without prejudice to any action being taken under sub-section (3), by order, direct an immediate inspection of the minute-books or direct that the copy required shall forthwith be sent to the person requiring it.
Section 128 -Books of account, etc., to he kept by company.--
(1) Every company shall prepare and keep at its registered office books of account and other relevant hooks and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting: Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address of that other place: Provided further that the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.
(2) Where a company has a branch office in India or outside India, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarized returns periodically are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).
(3) The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours, and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as may be prescribed:
Provided that the inspection in respect of any subsidiary of the company shall be done only by the person authorized in this behalf by a resolution of the Board of Directors.
(4) Where an inspection is made under sub-section (3), the officers and other employees of the company shall give to the person making such inspection all assistance in connection with the inspection which the company may reasonably be expected to give.
(5) The books of account of every company relating to a period of not less than eight financial years immediately preceding a financial year, or where the company had been in existence for a period less than eight years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order: Provided that where an investigation has been ordered in respect of the company under Chapter XIV, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.
(6) If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.
On perusal of the provisions mentioned above, it is established that a shareholder or director has right to inspect the documents, which are maintained by the company. The same is a statutory right, which cannot be denied by the company and its directors to its Shareholders/Directors. In view of it, the Petitioner/Applicant being shareholder/director cannot be denied the right of inspection of the documents as prayed for. Therefore, the first Respondent Company and other Respondents are directed to permit the Applicant/Petitioner to inspect the original statutory records as prayed in the application. The respondents shall fix dates, time, place for such inspection under intimation to the Applicant/Petitioner within a week's time from the date of the pronouncement of this Order. The Applicant/Petitioner shall be at liberty to inspect the record during a full week. The applicant/petitioner may take the help of a Company Secretary and Chartered Accountants. The payment of their fee will be the responsibility of Applicant/Petitioner. The Respondents shall provide orderly atmosphere for such inspection to be done by the Applicant/Petitioner. In case there will any resistance from the Respondents, the Applicant/Petitioner will be at liberty to approach the local police with the copy of this order to seek protection during the inspection. The police shall provide the required protection to the Applicant/Petitioner.
Accordingly, the issue framed herein above stands decided in favour of Applicant/Petitioner and against the Respondents. Therefore, the Company Application is allowed.
The Order is pronounced in the open court.