Safia Usman vs Union of India (UOI) and Another

K.A. Abdul Gafoor, J.—The petitioner claims to be a contributory of a company called Aluva Techno Rubbers (Pvt.) Ltd. which is not made a party in this petition. The petitioner seeks a direction to the first respondent "to investigate the affairs of the company, viz., Aluva Techno Rubbers (Pvt.) Ltd., Industrial Development Area, Erumathala Post, Aluva-5". This petition is seen to be filed invoking the provision u/s 237(a)(ii) of the Companies Act, 1956. It is submitted that the affairs of the company are under total mismanagement both in its functioning and finance. Therefore, a direction shall be issued as prayed for. According to me, that prayer cannot be granted for different reasons. The function enjoined on this court in terms of Section 237(a)(ii) is not to direct the Central Government to conduct investigation but to declare "that the affairs of the company ought to be investigated by an Inspector appointed by the Central Government". So this court is only to issue a declaration with reference to the affairs of the company. Such a declaration is not sought for in this petition. What is sought for is a direction to the Central Government. So, the prayer sought is thus misconceived.

Even if the prayer is taken as one within the fold of Section 237(a)(ii), this court cannot issue such a declaration concerning a company which is not impleaded before me as a party. It has been held by this court in the Division Bench decision reported in Malabar Cements Ltd. Vs. R. Mukundan and Others, that before an investigation is ordered by the court, the incumbent against whom such investigation is sought shall be a party. In this case, even if the petitioner is taken as seeking a declaration that the affairs of the company ought to be investigated, necessarily, the company, its managing director and such other directors who are really mismanaging the affairs shall be parties. Mere mentioning the name of the company in the cause title, will not suffice the requirement of natural justice and fairness. If a company has to be declared that its affairs ought to be investigated, necessarily, it has to be understood what are the affairs of that company. That can be shown before this court only by the directors and its managers. Therefore, the company is a necessary party in such proceeding. If an order is issued without the company, that will not be a fair order so far as they are concerned and it will be offending the principle of natural justice. So, even if the prayer is taken as one within the fold of Section 237(a)(ii), no relief can be granted to the petitioner as the company and its managing director or other directors who are said to mismanage the company are not impleaded in this petition. That also is a reason for rejecting this petition.

It has to be rejected on yet another reason as well. Of course, Section 237(a)(ii) enables this court to declare that the affairs of the company ought to be investigated by the Inspector appointed by the Central Government. That is a discretionary relief left to this court. At the same time, Clause (b) to the said section enables a specially constituted statutory body, namely the Company Law Board, to pass appropriate orders in such circumstances. The Company Law Board had been invested with such power in terms of the amendment effected in the Companies Act, in 1988. When the said body is constituted only to deal with the affairs of the company, it is only appropriate that such body shall consider that matter in preference to the discretionary remedy vested in this court. When there is such statutory body invested with such wide powers, it is only appropriate that the petitioner shall first approach that Board to redress the grievance if any.

It is contended by counsel for the petitioner that even when 1988 amendment made to the Act, the power vested with the court was not taken away by amending Clause (a) of that section. The power of the court is still reserved. Therefore, this court can exercise that power. It is not the question that the jurisdiction vested in this court has been taken away. When instead of the executive Central Government a new statutory Board has been invested with such power by reason of the aforesaid amendment, is it not necessary that one should approach the Company Law Board first, it being a specially constituted statutory body to deal with certain cases arising in respect of companies incorporated under the Companies Act alone ?

It is further contended that the jurisdiction vested in this court u/s 237(a)(ii) and (b) is concurrent. In such circumstances, there is no reason to relegate an incumbent to the statutory authority. This contention also cannot be accepted. When concurrent jurisdictions are conferred on two different authorities, the lowest among them should be approached first, is the normal rule and there is no reason to depart from that normal rule. So, merely because the remedy available to the petitioner in terms of Section 237(a)(ii) to approach this court or under Clause (b) of the said section to approach the Company Law Board is concurrent, there is no reason to exercise the discretionary remedy vested with this court when the petitioner has a statutory remedy available to her.

I am more inclined to accept this view because the issue involved in this case is declaration that the company''s affairs need an investigation. Necessarily, there shall be an enquiry to be conducted by this court with respect to the main objects, its conduct of business, financial aspects and dealings. This may necessarily require evidence as to whether there is mismanagement or maladministration as the petitioner alleges. When there will be contentions versus contentions from either side, necessarily, parties may have to rely on oral evidence as well to substantiate their case as to whether there is mismanagement of the company or not, because declaration with respect to the affairs of the company is important for the reputation of the company itself. If oral evidence has to be adduced, this court may not find time to collect such evidence. That also is the reason why the petitioner should approach the specialised statutory authority, the Company Law Board constituted by the Act, to seek the very same relief.

It is stated that the petitioner had moved the Company Law Board and the prayer has been rejected as is revealed by annexure A-2.

Annexure A-2 does not reflect that her petition has been rejected by the Company Law Board because annexure A-2 is a communication by the Registrar of Companies to the petitioner. The petitioner can take up the matter even by reminding the same and the Company Law Board shall consider it on the merits after affording necessary opportunity to the petitioner. Any order passed by such Board is also amenable for appeal before a Division Bench of this court.

Thus, there is no merit in the company petition. It is dismissed.