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2005 Supreme(Cal) 563
High Court Of Calcutta
Indira Banerjee
BIRLA CORPORATION LTD - Appellant
Versus
EAST INDIA INVESTMENT CO.PVT.LTD - Respondent
APO 395 Of 2005
Decided On : 08/24/2005
ABHRAJIT MITRA, D.BASAK, Jayanta Mitra, Moloy Ghosh, RANJAN BACHAWAT, S.N.MUKHERJEE, SANJIB BANERJI, Subhojit Roy, SUDIPTO SARKAR
The power to direct an investigation under section 247(1A) of the Companies Act should be invoked bona fide and in public interest. An investigation is not necessary in the absence of allegations of mismanagement, misappropriation, or siphoning of funds, or any acts contrary to law.
Headnote:
COMPANY LAW - Investigation - Section 247(1A) - True persons - Meaning - Power to direct investigation - Circumstances - Public interest - Bona fide.
Fact of the Case:
Appellants, holding less than 0.16% of company shares, filed an application with the Company Law Board (CLB) under section 247(1A) read with section 250 of the Companies Act, seeking an investigation into the membership and other matters of Birla Corporation to ascertain the true persons financially interested in its success or failure or controlling the company. The application was based on the death of Smt. Priyamvada Devi Birla, who had controlling interest in the respondent companies holding 63.8% of the company's shares, and disputes regarding alleged wills executed by her. The CLB dismissed the application, holding that no case had been made out for an investigation.
Finding of the Court:
The Court held that the CLB did not err in dismissing the application. The appellants failed to demonstrate any change in shareholding or the Board of Directors, and the estate of the deceased was controlling the majority shares and was materially interested in the company's affairs. The Court also held that the CLB was not required to adjudicate on who was entitled to the estate of the deceased in the company.
Issues: 1. Whether the CLB erred in dismissing the application for investigation under section 247(1A) of the Companies Act? 2. Whether the expression 'true persons' in section 247(1A) requires identification of the human agencies controlling the juristic entity or persons?
Ratio Decidendi: 1. The CLB did not err in dismissing the application as no case for investigation was made out. 2. The question of whether the expression 'true persons' in section 247(1A) requires identification of the human agencies controlling the juristic entity or persons is not required to be adjudicated in this case.
Final Decision: The appeal is dismissed without any order as to costs.
( 1 ) THIS appeal under section 10f of the Companies Act, 1956, is against an order dated 25th April, 2005 of the learned Company Law Board, in an application of the appellants under section 247 (1a) read with section 250 of the Companies Act, 1956, refusing to direct the Central Government to appoint an Inspector and/or Inspectors to investigate into the affairs of Birla Corporation, hereinafter referred to as the company, as regards the membership of the company and other matters relating to the company, for the purpose of ascertaining the true persons who are financially interested in the success or failure of the company or are controlling the company.
( 2 ) THE appellants, who admittedly own less than 0. 16 per cent of the shares of the company, filed an application in the Company Law Board under section 247 (1a) read with section 250 of the Companies Act, inter alia praying for the following orders:" (a) The relevant facts in relation to the shares in the company particularly the ones held by the respondent Nos. 1 to 28 be enquired into; (b) An investigation be directed on such terms and on such conditions as to this Hon'ble Board may seem fit and proper for obtaining information and ascertaining the true identity of person or persons who are financially interested in the success or failure, whether real or apparent, of Birla corporation Limited and, further, to ascertain the true identity of the person or persons who are able to control or to materially influence the policy and affairs of the company; (c) An investigation be directed to ascertain as to whether the provisions of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997 have been complied with by the persons now seeking to control or to materially influence the policy and affairs of the company. "
( 3 ) IN the aforesaid application the appellants also prayed for an interim order of injunction restraining the respondent Nos. l to 28 from exercising any rights as shareholders of the company including the right to vote or to receive dividends, bonus shares or right shares.
( 4 ) THE sole ground for seeking an investigation, as disclosed in the application is the death of Smt. Priyamvada Devi Birla, who had controlling interest in the respondent Nos. l to 28, who jointly hold 63. 8 per cent of the shares of the company, and disputes with regard to alleged wills allegedly executed by her. There is no allegation of mismanagement of the company, of siphoning of funds or of the company being run in a manner against its own interest, against the interest of its
shareholders or against public interest.
( 5 ) SOME of the averments in the petition filed before the Company Law board are extracted hereinbelow :"13. After the death of Madhav Prasad Birla and till her death on July 3, 2004, Smt. Priyamvada Birla was the promoter Chairman of the company. 22. . . . . . . . . . . . . . . . . It appears that the said Lodha is seeking to exercise control over the shareholding of the respondent Nos. l to 19 companies and the charitable societies. 23. In view of the pending proceedings before the Hon'ble High Court at calcutta and the serious disputes in respect of the two sets of Wills relating to the estate of Smt. Priyamvada Birla, no question arises of any person exercising any control in respect of the shares formerly controlled by Smt. Priyamvada Birla. 28. Such investigation and necessary ancillary orders have been necessitated, inter alia, inasmuch as substantial change, long term in nature, is being sought to be brought about in the composition of the Board of Directors of the company at the Annual General Meeting of the company which has been sought to be convened on September 15, 2004. A true copy of the relevant notice in respect of such Annual General Meeting is annexed hereto and marked P-4'. "
( 6 ) BY the order under appeal the Company Law Board dismissed the application, holding that no cas
