G.RAVISHANKAR, V. THE UNION OF INDIA

WP/12296/2019

AI Insights

The case involves two writ petitions filed by Hyderabad Pollution Controls Ltd. and its managing director, Mr. S. Gopalakrishnan Nair, against the Union of India and other respondents, challenging the legality of inspection orders issued by the Registrar of Companies (ROC) under the Companies Act, 2013. The petitions argued that the inspections were arbitrary and violated principles of natural justice. The court examined the legal provisions under the Companies Act, 2013, particularly Sections 206 and 207, which empower the ROC to conduct inspections and inquiries into company affairs. The court found that the inspections were justified given the serious allegations of mismanagement and oppression within the company, and dismissed the petitions.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 736878 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 04-02-2020
• Assessment Year: misc
• Other Referred Cases: Moolchand Gupta vs. Tagannath Gupta, Rohtas Industries vs. S.D. Agarwal, Barium Chemicals Limited vs. Company Law Board
• Laws Referred To: Companies Act, 2013, Constitution of India
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO; B CHANDRASEN
• Assessee Lawyers: K RAJENDRAN
• Keywords: Abuse of power; Companies Act; Inspection; Natural Justice; Unconstitutional; Writ petition
• Section: 207; 206; 206(5); 207(3)(b)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE FOURTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE A. RAJASHEKER REDDY WRIT PETITION NO: 10201 OF 2017 & 12296 OF 2019 wP NO.10201 0F 2017: Between: '1 . tV/s. HYDERABAD POLLUTION CONTROLS LTD., A company registered under the Companies Act, 1956, having its factory/office at: 90/G, Phase-1, IDA Jeedimetla, Hyderabad-SOO 055. Rep. by its Managing Director, Mr. S. Gopalakrishnan Nair 2. S.GOPALAKRISHNAN NAIR, S/o.Late Sri.Shankaran Nair, aged about 66 years, Occu: Managing Director of Petitioner-1 company, At 90/G, Phase-1, IDA Jeedimetla, Hyderabad-500 055. AND ...PETTTTONERS '1 . THE UNION OF lNDlA, Thru' l 4lN|STRY OF CORPORATE AFFAIRS, A' Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110 001. Rep. by its Secretary, Thru'. Government Pleader, High Court at Hyderabad 2. f HE REGIONAL DIRECTOR, South East Region, II/CA, 3rd Floor, Corporate Bhawan, GSI Post, Thatthiannaram, Bandlaguda, Nagole, Hyderabad - 500 068. 3. THE REGISTRAR OF COIVPANIES,, Andhra Pradesh & Telangana, MCA, 2nd Floor, Corporate Bhawan, GSI Post, Thatthiannaram, Bandlaguda, Nagole, Hyderabad - 500 068. 4. Mr. S.Radhakrishnan S/o. Late Sri Shankaran Nair, aged 61 yrs, R/o.83/B, Vengal Rao Nagar, Hyderabad- 500 038. (R4 impleaded as per Court order dated 2610712019 in l.A2117 (WPMP 16165t17)) ...RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ l /andamus, or any other appropriate Writ, Order or Direction declaring the action of the Respondents ordering inspection through the notice No. RAP/IN5/206/201612897 dated 15-3-2016 of the Responden!3 as illegal, arbitrary, capricious, perverse, unjust, unreasonable, without any authority of law, without following the due process of law, in gross violation of the provisions of Chapter XIV particularly section 206 of the Companies Act, 2013, in gross violation of principles of natural justice, gross abuse of power and u nco nstitutional being violative of Articles 14, '19 etc. of the Constitution of lndia besides being opposed to all canons of equity, justice and fair play and grant such other or further relief(s) as this Hon'ble Court may deem just, fit and proper in the circumstances of the case, in the interest of justice. WPMP. NO: 12641 Ot 2Ct17 Petition under Section 151 CPC praying that in the circ:mstances stated in the affidavit filed in support of the petition, the High Court ma', be pleased to stay Respondents from proceedings any further on the inspection or taking any coercive steps seeking explanations/answer to queries from the petiti)ners or connected persons and grant such other or further rellef(s) as this Hon'bie Court may deems fit just and proper in the circumstances of the case. Counsel for the Petitilnerrs: SRI K. RAJENDRAN Counsel for Respondenl Nos. 1 to 3: SRI NAMAVARAPU RAJESH ^/AR RAO ASSISTANT SOLICITOR ( iENERAL Counsel for Respondent No. 4: SRI B. CHANDRASEN REDDY Between: '1 . G.RAVISHANKAR, S/o.Sri.S.Gopalakrishnan, aged aboL t 40 years, Occu- Business, 2. S.GOPALAKRISHNAN NAIR, S/o.Late Sri.Shankaran Nair, rged about 73 years, Occu- Business, 3. G.PARAMESWARAN, S/o.Sri.S.Gopalakrishnan, aged ab()ut 37 years, Occu- Business, All at 90iG, Phase-|, IDA Jeedimetla, Hyderabad-Soo 055. ...pETtTtoNERS AND '1 . THE UNION OF lNDlA, Thru IVIINISTRY OF CORPORATE l,FFr lRS, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110 0C1. Flep. by its Secretary, Thru. Government Pleader, High Court at Hydera rad 2. THE REGIONAL DIRECTOR, South East Region, Ministry o Corporate Affairs, 3. THE INSPECTOR and JOINT DIRECTOR, 0/o. Regional Dir:ctc,r, Ir/CA, lVinistry of Corporate Affairs 4. Sri S.Radhakrishnan, S/o. Late Sri Shankaran Nair, R/o.83/ll, Vengal Rao Nagar, Hyderabad. R4 is implearJed as per COURT order dated 07lOBl2019 , , , ,t .?rJf.rororn * Petition under Article 226 ol lhe Constitution of lndia pra'7ing that in the circumstances stated in the affidavit filed therewith, the High Cc urt may be pleased toto issue a Writ l rlandamus, or any other appropriate Writ, Order or Direction declaring the summons u/s.207(3)(b) of the Companies Act, 2013 d1.27.05.2019 issued by the Respondent-3 to the Petitioners and any prrrsuant actions by Respondents as ultra-virus, illegal, arbitrary, capricious, perverse, unjust, unreasonable, without any authority of law, without following the Cue process of law, in gross violation of the provisions of Chapter XIV of the Comp anir-.s Act, 2013, in gross violation of principles of natural justice, gross abuse of power and WP NO: 12296 OF 2019 u nconstitutional being violative of Articles 14, 19,21 etc. of the Constitution of lndia besides being opposed to all canons of equity, justice and fair play and grant lA NO: 1 OF 2019 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay the summons u/s.207(3)(b) of the Companies Act, 2013 dt.27.05.2019 issued by the Respondent-3 to the Petitioners and order restraint on Respondents from proceeding any further on the illegally initiated inspection or further summoning the Petitioners or connected persons and grant Counsel for the Petitioners: SRI K. RAJENDRAN Counsel for Respondent Nos. 1 to 3: SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL Counsel for Respondent No. 4: SRI B. CHANDRASEN REDDY The Court made the following: COMMON ORDER THE HON']]LE SRI JUSTICE A.RAJASHEKER RE,DDY Writ petition rro.10201 of 2077 is filed by M/s.Hvderabad Pollution Controls Limited- 1\", petitioner (for short, the Company represented b1. its managing dir:ct rr, the 2\"d petitioner assailing the rcti:n of the 3.d respondent-the F.egistrar of Companies in ordering ins pection through the impugned notice no.RAP llNS/206l20 16, dated 15-C3-2016 as being illegal, arbitrary, contrary to Chapter XIV particularly Sr ction 206 ol the Companies Act, 20 1 3, (for short, \"the 20 I 3 Act\") and vic lative of Articles Writ petition no.72296 of 2Ol9 is hled by the 2nd p rtitioner in writ petition no.1020 I of 2017 and his two sons as shareholders of the Company to declare the action of the 3.d respondent-:he Inspector & Joint Director, Ministry of Corporate Affairs, in issuing suremons dated 27 -O5-2O19 undr'r Section 2O7 (3) (b) of the 2013 Act as being illegal, ultra-uints, arbitrirrv, contrary to Chapter XIV of the Act and violative of Articles 14, 19 & 2 L of the Constitution and for grant rf consequential reliefs. 02. Since the parties and the subject matter being sim lar in these writ petitjons, thel- arr: ht-'ard and disposed of together. Suffli,:e i:- to advcrt to the facts in WP No. lO2Ol of 2017 . WRIT PETITION Nos. 1020 1 of 2O 17 & 12296 o:-2!!p COMMON ORDER:: 74, 79 of the Constitution of India and for grant of cons:quential reliefs. 03. The case of the 2\"d petitioner is that the 1\"t petitioner-Company was established in the year l97a engaged in the business of manufacturing industrial fans and allied products. The 2\"d petitioner, besides being himself as the managing director of the Company, as on 26-02-2007 was holding 427o shares of the Company, his sons who are petitioners in writ petition no. 12296 of 2019, are also shareholders and directors of the Company. That his younger brother who is impleaded as 4h respondent in both these writ petitions was also made a director of the company, and he held 28o/o shares of the Company, their brother-in- law held 307o shares in the Company. That the 2\"d petitioner states that his brother (Respondent-4), Sri S.Radhakrishnan and their brother-in- law, Sri N.Ayyapan Nair, were brought in initially as employees to join the Company and were later made Directors of the Company. Thereafter, the brother-in-law (Sri N.Alyapan Nair) retired from the Company by selling his shares and accordingly sold 167o out of 3070 of his shareholding to the 2\"d petitioner and the remaining 14% of his shares to the 4th respondent. Consequently, 2\"d petitioner share holding has become 58% of the total paid-up shares and 4ti. respondent's share holding has become 42o/o of the total paid-up shares. Accordingly, shares were transferred on 27 -O2-2OO7 and the said Sri N.A5,yapan Nair had resigned from the Board of Directors of the Company besides having signed and delivered declaration stating that he has no shares and/or interest in the Company from that date. 04. 2nd petltioner alleges that after certain period, 4d respondent and their brother-in-iau colluded and stolen the execute(r share transfer deeds, docume n -s, securities and records of the C cm.:any and 111 January, 20 10 expressed that 4tl, respondent should be made 5Oo/o stake holder in the Company, on the ground that e rtire documents evidencing the shares transferred on 27 -O2-2OO7 were in his custodv. Thus, 2\"d petit:oner unr,r,illingly made the 4ft respr,ndr:nt as equal stakeholder by signing the documents on 08-04-2010. TlLat 2n'l petitioner later came to knou, that a new set ol share certificates, share transfer agreements u,ere illegally fabricated and created b1' his brother, 4th respondent and the brother-in-lar,,'. 2\"d petitioner allege s tliat the share transfer agreerlerLt dated 08-04-2010 shou,s thilt shares mentioned therein rvere newly created share certificatr s zrnd they are shown to have been Iodged for transfer on 27 -O2-2OO7, whr:n the actual transfer of the s:rares by the brother-in-law of the 2\"t p,rtitioner has taken place on 27 -O2-2OO7, hence the set transfer of slrarr:s on 08-04- 20 10 is farce anceedings before the NCLT in CP No.40 of 2011 (nou, concluded). That as :orrrplaints were filed. before the ROC, the Registrar can conduct ins1,s51i6. invoking Section 206 ol :he 20i3 Act. That it is the discretiorL of the 1\"r respondent (Centrai Government-Ministry of Corportte Affairs) to conduct/order for the inspection based on the recommen,lations given by () the respondents 2 & 3. That in a given situation, the 3'd respondent also got power to order lor supplementary inspection. That according to the complaint filed by the 4th respondent, no notices issued to him regarding the annual general meetings of the Company. That the 4m respondent also submitted online complaint dated 1 1-05-2013 vide SRN been illegally removed from the directorship of the Company, for which the e-form 32 was filed by the 2\"d petitioner to ROC. As per item no.S(l) of the said e-form 32, his cessation date is shown as 15-12-2011 whereas as per minutes of board meeting attached thereto, he has vacated office under Section 283 (1) (g) ol the 2013 Act, on 29-IO-2OIO on the ground that he was absent for 3 consecutive meetings of the Board of directors of the Company. He further prayed to cancel the said e-form 32, mark the Company under management dispute, penalize and launch prosecution against the managing director (2nd petitioner), practicing company secretary u,ho digitally certified the said false and unauthorized e-forrn 32 regarding his cessation. That the 4th respondent has also submitted physical complaints dated 18-04-2014 and 27 -06- 2014 against the affairs of the Company. It is stated that the inspection carried out by the ROC is under the orders of Central Government and it is in tune N,ith the provisions of Section 206 of the 20 13 Act. Hence, the u,rit petitions are liable to be dismissed. No.B74751553 against the petitioners Company alleging that he has 08. Heard Sri X.R:,rjendran, the learned counsel for tht petitioners, Sri N. Rajeswara Rao, tlre learned Asst. Solicitor General of lndia for official respondents and Sri B. Chandrasen Reddy, the learned counsel for the 4th respondent. 09. The main contention of the Iearned counsel for tlre 1>ctitioners is inspection of books and documents of the Company )]' iln lnspector appointed for tha,- p rrpose can only be done if the Cent ral (iovernment or the Registrar ot Companies (ROC) if satisfied orr the basis ol information available or furnished to him that the bu:siness of a Company is being carried out in a fraudulent or for unl au,ful purposes, not in compliance nith the provisions of the 2013 Act, or tbe grievances of the investors al e not being addressed. It is his further corltention that no satisfaction is rt:corded in proceeding to order in;pe,:tion of the records of the Company including further inspection thr:recf. It is also contended that in t1-re light of the proceedings before he NCLT, (now concluded), the re spondent-authorities ought not to -rav,: conducted parallel proceedings on the same set of allegations, whiclr formed part of the allegations befor,: the NCLT. Reliance is placed on .he clecisions of the Hon'ble Supr:m: Court in MOOLCHAND GUPTA u.;. -TAGANNATH GUPTA,1 ROIJ?AS INDUS?RIES us. S.D. AGARWAI] < BARIUM CHEMICALS ' ruR tgzo sc ro3s ' eln t969 sc tor t atR t967 -sc 2gs LIMITED as. COMPANY LAW BOARDI. 10. On the other hand, learned Asst. Solicitor General of India appearing lor the respondent-authorities contended that the proceedings before the NCLT are totally different from the proceedings initiated by the ROC. It is also submitted that under the new Act of 2013 Act, the Central Government is empolvered to direct inquiry and inspection on being satisfied that the circumstances warrant an inquiry to be ordered and in this case in the light of the complaint lodged by the 4 ttt respondent affairs of the Company prejudicial to the interest of the stakeholders, steps were taken under Section 206 of the 2013 Act as well as under Section 2O7 and no exception can be taken to the impugned action of the respondent-authorities. 1 i. Learned counsel for the 4th respondent submits that in the light of the company petition, CP No.40 of 2071 being allowed and the consequent allotment of shares of the Company in the ratio of 50 : 50 to both groups of the petitioners and the 4th respondent, the mismanagement, oppressive and vindictive conduct of the 2\"d petitioner stands exposed. It is also contended that the impugned inspection of the Company and the consequent steps thereof are statutory in nature to protect the interest of the stakeholders in the Company and to prevent any prejudicial action in dealing with the affairs of the Company by the 2\"d petitioner and his sons. 6 alleging acts of oppression and mismanagement in the conduct of the g 12. Power to call lor information, inspect books and cc ndrrct inquiries and conduct ol inspection and inquiry are defined under tlect-ion 206 and 207 of Indian Cornpanies Act, 2013, they are reproducecl for convenience sake:- \"Section 2O6. Power to call for information, insDect books and conduct inquiries.- (1) Where on a scruting oJ' ang doanment Jiled by a co npanA or on anA information receiued bq him, the Registrar is of the opinion that ang further information or explctnalion or any further documents relattng t) the companA is necessary, he may by ct. tuitten notice require the company- (a) to furnish in Lurtting such information or explanation; o. (b) to produce such documents, utithin such reasonable time, as mag be specified in the n otice. (2) On the receipt of a notice under sub-section (1), it shtll be the dutA of the compang and oJ its offi.cers concerned to furnish suck informatton or explanation to the best of their knotLtledge and poLt.rcr ant to produce the documents to the Registrar tuithin the time specified or ertended bg '.he Registrar: Prouided thai u4ere such tnfonnation or explanation re etes to anA post period, the offi.cers uth:t had been in the emplogment of the (ompenA for such peiod, if so called upon bg the Regtstrar through a notice st rued on them in turtting, shall also funt.ish such information or explanation to the best of their knouledge. (3) If no infonnation or explanatton ts fumished to the Reqist\"ar uithin the time specifi.ed under su.b-section (1) or tf the Registrar on o.n e.camination of the doanments furnished is of the opinion that the infonnatiott or explanation fumished is inadequa'.e or if the Registrar is satis/ied on t'. scruting of the documents furnished that an unsatisfactory state of affoirs eris s in the companA and does not disclose a futt and fair statement of the informt tior,. required, he mag, bg another uitten notice, call on the companA to produce for his inspection such further books of account, books, papers and explanations t'.s hz mag require at such place and al such time as he mag specifg in the notice: ''- Prouided that before anA notice is serued under this s t-section, the Registrar shall record h)s reasons in witing for issuing such noh:e. IU ft) If the Registrar is satisfed on the basis of infortnation auailable tuith or fumished to him or on a representation made to him by anV person that the business of a compang is being carried onfor a fraudulent or un.la u.tful purpose or not ln compliance wtth the prouisions of this Act or if the grieuances of inuestors are not being addressed, the Registrar mag, afi.er informtng the company of the allegations made against tt bA a witten order, call on the company to furnish tn witing ony infonnation or explanatton on matters specified in the order within such time as he may specify theretn and carry out such inquiry as he deems fit afier prouiding the company a reasonable opportunitA of being heard: Prouided that the CentraL Gouernment moA, if it is satisfi.ed that tl-Le ctrcumstances so l.uarrant, direct the Registrar or an inspector appointed bg it for the purpose to carry out the [nquiry under this sub-section: Prouided further that tuhere business of a compang has been or is being carried on for a fraudulent or unla uful purpose, euery officer of the compang u.tho is in default shall be punishable for fraud in the manner as prouided in section 447. (5) Without prejudice to the foregoing prouisions o/ this section, the Central Gouernment maA, if i, is satisred that tlTe circum-stances so warran| direct inspection of books and papers of o company by an inspector appointed bg it for the purpose. (6) The Central Gouemment may, hauing regard to the circumstances bg general or special order, authorize anA statutory authoity to carry out the inspection of books of account of a compang or class of componies. (7) If a company fails to fumish any infonnation or explanation or produce ang document required under this section, the companA and euery olficer of the companA, uho is in defautt shalt be punishable uith a fine uhtch may extend to one lakh rupees and in the case of a continuing failure, uith an additional fine u.thich may ertend to fiue hundred rupees for euery dag after the fi.rst duing uhich the failure continues. Section 2O7. Conduct of inspectlon and inquiry.-(1) Where a Regi-strar or inspector calls for the books of account and other books and papers under section 206, it sfa be the dutg of euery director, olJicer or other emplogee of the companA to produce all such doalments to the Registrar or inspector and furnish him with such statements, tnformation or explanations in such form as the Registrar or tnspector may require and shall render all asslslance to the Registrar or inspector in connection with such inspection. ll (2) The Registrar or inspector, making an inspection or inquiry under section 206 maA, during the course of such inspection or inquiry, as the ccse rnay be,- (a) make or (ause to be made copies of books of account ond other books and papers; or (b) place or cantse to be placed ang marks of identificatiot ir such books Lrt token of the lnspection hauing been made. (3) Notuithstanding angthing contained in anu other lau lcr the time being in force or in anA contract to the contrary, the Registrar or in;pe(:tor making an tnspection or inquiry shall haue all the powers as are uested in a :iuil court under the Code of Ciuil Procedure, 1908, u-thile trying a suit in respect of thz foilouing matters, namely:- (a) tlr.e discouery and production of books of tccc'unt and other documents, ttt such place and time as may be specified LA sLch Registrar or inspector making the inspection or inquiry: (b) summoning and enforcing the attendance of per:;ons and examining them on oath: atLd (c) inspection of ang books, registers and other doalments of the companA at nny ptace. F) i) If anA director or offcer of the companA dtsobeys the dtrection issued bg the Registrar or the inspector under this section, the director or the olfi.cer sholl be punishable uith tmpisonment tuhich maA extend to one Aear atd utith fine tuhich shall not be less thctn tuentA-fi.ue thousand rupees but tuhich may extend to one takh rupees. (ii) If a director or an officer of the compang has been anLictetd of an ctffence under thts sectiotT, the director or the olficer shall, on and from tl e dote on uhich he ts so conuicted, be deerned to haue uacated his offi.ce as such and on :;uch uacation of olfice, shall be rlisqtLalified from holding an office in any compang. \" 13. Both the above provisions are self explanatory. F ronr Section 206 t c ':-) z0o ;i .- \";t,i\" 1a?o '1 "