2000(2) ALL MR 8


Indian Express Newspapers (Bombay) Pvt. Ltd. & Ors. Vs. Union Of India & Ors.

Writ Petition No. 4037 of 1987

7th February, 2000

Petitioner Counsel: Mr. D.D. MADON with Mrs. A. KALYANRAM i/by CRAWFORD BAYLEY & Co.
Respondent Counsel: Mr. H.V. MEHTA

Companies Act (1956), S.237 - Notice under - Conduct of business with intent to defraud - Notice challenged in High Court - Stay granted 12 years back - No further proceeding under notice taken - Apprehension in notice that conduct of company was done to defraud creditors had still not materialised - Proceedings u/s.237 quashed by High Court. (Paras 4,5,7,9)


N. J. PANDYA, J. :- It is a petition filed by the petitioners Indian Express Newspapers (Bombay) Pvt. Ltd. along with others challenging the intended action under Section 237 of the Companies Act by the Company Law Board. The impugned notice is at Exh. "A", page 224. It is dated 13.11.1987. After referring to the intricate holdings and connections of different companies in the initial part of the impugned notice and also referring to the fact that late Mr. Ramnath Goenka along with his relatives are having virtual control of all the companies; reference is also made to inspection report and other materials at page 226, internal page 3. These instances numbering in all (1) to 15 upto internal page 6, following apprehension is mentioned.

"AND WHEREAS in the opinion of the Company Law Board: there are circumstances suggesting that the affairs of the companies mentioned hereinafter are being conducted with an intent to defraud the creditors, members or any other persons and that the persons concerned with the management of the said companies have been guilty of mis-conduct towards them:"

2. At the time when the matter was admitted, as per the then prevalent rules, it had come up before the learned Single Judge on 1.3.1988. The learned Judge while admitting the petition and issuing rule had granted interim order in terms of prayer clause (d), which reads as under :

"(d) To stay the operation of the order during the pendency of the petition and to prevent the respondents from commencing and proceeding with the investigation."

3. Effectively, therefore, the impugned notice has remained as it is without any proceedings having commenced thereunder.

4. Obviously, therefore, the time that has gone by is almost 12 years and that cannot be ignored. Whatever apprehensions referred to above were there. If at all they were to materialise they could have certainly done so and instead of being mere apprehension there would have been concrete instances of that nature. In other words, the apprehensions would have concretised by now.

5. Needless to say there is nothing of the sort on record brought by the Respondent-Board. During the entire period it is nobody's case that accounts are not submitted, general meetings are not held and all the requirements of the Companies Act are not fulfilled. Had there been any untraced effect as apprehended in the impugned notice, the shareholders would not have kept quiet and certainly not the creditors.

6. The company having All India operation on its own or through its subsidiaries, if are engaged in the aforesaid exercise of either diversion of funds or mismanaging it in the manner to defraud the creditors, the ill effect thereof will be felt very soon and the creditors would certainly raise hue and cry.

7. Nothing of the sort having happened, obviously the apprehension felt in the impugned notice have not materialised. We are placing definitely on record that the malafide alleged in the petition we are not gone into. We are proceeding on the basis that the impugned action being on certain apprehension and due to passage of time without they having been belied, in our opinion there is no question of proceeding any further with the notice.

8. If one turns to section 237 of the Companies Act, 1956 it is clear that as per clause (b)(i) the business of the company should be found to be conducted with an intent to defraud. Obviously, the exact words are "that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose:"

9. The apprehensions referred to above are merely referring to some reports and materials that the Company Law Board had with it at the relevant time. According to the Board, these were the portend of things to come. If they were so the things would have certainly come to head. We have recorded the fact that this very situation is missing.

10. For these reasons we are setting aside the impugned action without going into the question of malafide or bonafide. The net result, therefore, is that the petition succeeds. Rule is made absolute.

Petition allowed.