The court emphasized the importance of allowing parties to address adverse findings in reports submitted in a proceeding under Sections 397 and 398 of the Companies Act.

( 1 ) THIS appeal has been preferred by the Calcutta Chemical Co. Ltd. , hereinafter referred to as " the company ", against the order of a learned single judge of this court taking company matters, dismissing the application of the company to file a supplementary affidavit, a copy of the proposed supplementary affidavit having been annexed to the said application, in a proceeding under Sections 397 and 398 of the. Companies Act, 1956.

( 2 ) THE company has an overdraft account with its banker, the United Bank of India, hereinafter referred to as " the bank ". The credit facilities that were available to the company under the said overdraft account at the relevant time was up to Rs. 146. 37 lakhs. As such limit or extent of the credit facilities was considered by the company to be inadequate for its purpose, it approached the bank to enhance and/or modify the overall limit of the credit facilities. After some discussions that took place between the bank and the representatives of the company, the bank by its letter dated July 6, 1979, required the company to appoint a firm of technical consultants to study the viability of the unit of the company and a firm of chartered accountants for the internal audit of the company. Such appointments were to be made by the company after the approval of the bank. As required, the company, with the approval of the bank, appointed S. R. Batliboi and Co. , a firm of chartered accountants, both for the purpose of studying the viability of the unit of the company and for inter nal audit. S. R. Batliboi and Co. by its letter dated July 23, 1980, inform ed the company that the study would " cover various aspects of the com pany's working together with our suggestions for remedial measures as pay be considered necessary for bringing about improvements in the future".

( 3 ) AFTER the technical report and the internal audit report were submitted by S. R. Batliboi and Co. , the bank considered the same and by its letter dated August 6, 1980, agreed to enhance and modify the credit facilities of the company from Rs. 146. 37 lakhs to Rs. 178. 04 lakhs on certain terms and conditions which included, among others, a term that the company should undertake to implement the modification in its organisational' set up as suggested by S. R. Batliboi and Co. , in its report on Techno-Economic Study, within the next six months and submit a report to the bank to that effect. Another term was that a nominee of the bank woultf be on the board of directors on non-rotational basis. It appears that the com- pany accepted the terms and conditions as proposed by the bank for the enhancement of the credit facilities for the company up to Rs. 178. 04 lakhs and, accordingly, the bank, in its turn, enhanced and/or modified the credit facilities for the company up to the said amount.

( 4 ) IT appears that in its report on Techno-Economic Study and in the report on internal audit, S. R. Batliboi and Co. made certain adverse findings and comments in regard to the working of the company and also made certain recommendations or suggestions required to be implemented by the company for the improvement of its functions and/or activities. The said report was submitted by S. R. Batliboi and Co. on March 21, 1980, and the report on internal audit was submitted by it on January 17, 1980.

( 5 ) ON June 17, 1981, respondents Nos. 1, 2 and 3, who are the shareholders of the company, filed an application before the company court under Sections 397 and 398 of the Companies Act, inter alia, praying for the super-session of the board of directors of the company and for appointment of a special officer and/or an administrator to carry on the business and affairs of the company. In support of the said prayers, respondents Nos. 1, 2 and 3 in the said application under Sections 397 and 398 relied upon the adverse findings and comments made in the said Tech no-Economic Study report and the internal audit report of S. R. Batliboi and