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MADRAS HIGH COURT
BALAKRISHNA AYYAR
The Coimbatore Spinning and Weaving Co.Ltd.
Versus
M. S. Srinivasan, Chartered Accountant, Coimbatore
Writ Petn. No. 428 of 1957
Decided On : 24 July, 1958
COMPANIES ACT - S. 234(7) - REPRESENTATION TO REGISTRAR - INVESTIGATION BY INSPECTOR - SCOPE OF ENQUIRY - BIAS OF INSPECTOR - WRIT OF PROHIBITION.
Fact of the Case:
A shareholder of a company wrote to the Registrar of Companies alleging various frauds and misfeasance by the Managing Agents. The Registrar, after giving the company an opportunity to explain, reported to the Central Government that the affairs of the company were in an unsatisfactory state. The Central Government appointed an Inspector to investigate the affairs of the company. The company filed a writ petition to prohibit the Inspector from holding the enquiry on the ground that the Registrar had not given it a proper opportunity to be heard, that the representation to the Registrar was not made in accordance with S. 234(7) of the Companies Act, and that the Inspector was biased.
Finding of the Court:
1. The Registrar had given the company a sufficient opportunity to be heard before making his report to the Central Government. 2. The representation to the Registrar was made in accordance with S. 234(7) of the Companies Act. 3. The Inspector was not disqualified from holding the enquiry on the ground of bias.
Issues: 1. Whether the Registrar had given the company a proper opportunity to be heard before making his report to the Central Government. 2. Whether the representation to the Registrar was made in accordance with S. 234(7) of the Companies Act. 3. Whether the Inspector was disqualified from holding the enquiry on the ground of bias.
Ratio Decidendi: 1. The Registrar is required to give the company an opportunity to be heard before making his report to the Central Government, but this does not mean that he must hold a formal hearing. It is sufficient if he gives the company a reasonable opportunity to present its case in writing. 2. A representation to the Registrar under S. 234(7) of the Companies Act need not allege that the business of the company is being carried on in fraud of its creditors or of persons dealing with the company. It is sufficient if it alleges that there has been fraud or misfeasance or malfeasance or unlawful or fraudulent activities in the past. 3. An Inspector appointed under S. 235 of the Companies Act is not disqualified from holding the enquiry on the ground of bias. The duties of an Inspector are not quasi-judicial in nature and he is not required to act impartially.
Final Decision: The writ petition was dismissed.
ORDER :- This is a petition for the issue of a writ prohibiting the first respondent Mr. M.S. Srinivasan from holding an enquiry and conducting an investigation into the affairs of the Coimbatore Spinning and Weaving Co. Ltd., in pursuance of an order dated 10-4-1957 made by the Government of India.
2. The relevant facts are these. In May 1956 one Parameswara Iyer, a share-holder in the Coimbatore Spinning and Weaving Company Ltd., wrote fn the Registrar of Companies a letter in which he made various allegations against the management. He said that the Managing Agents
"have since their assumption of office been acting most selfishly jeopardising the interests of the company and have by frauds, misfeasance, mis-conduct, misappropriation and falsification of accounts and various other acts in contravention of law unduly enriched themselves at the expense and loss of the company causing loss not only to members but also to the Government by suppressing the true income and defrauding the taxes legitimately due."
He then proceeded to enumerate what he called a few of the major items of fraud and misconduct of the Managing Agents.
1. The Managing Agents of the company are a firm consisting of two partners, viz., V. Gopal Naidu and A.V. Srinivasulu Naidu. Between the year; 1944 and 1952 three bungalows were constructed to Coimbatore, one for each of the three sons of Gopal Naidu, at a cost of more than Rs. 8,99,000. Every pie of this money was taken out of the funds of the company.
2. A sum of Rs. 70,000, was paid out of the companys funds to the G.E.C. (India) Ltd, Coimbatore, for the work of electrification they did on the three bungalows built for the sons of Gopal Naidu.
3. In 1951 Amirthammal, a grand-daughter of Gopal Naidu, was married and in connection with that event a sum of over a lakh of rupees was expended. About Rs. 91,800 of the money thus spent came out of the funds of the mills, the amount being debited to various items such as purchases of mill stores, cotton waste etc.
4. In spite of the fact that the mills turned out laree quantities of cotton waste which were avail, able for sale, a sum of Rs. 70,000 was shown to have been expended on the purchase of cotton waste from one Arumugham Chettiar of Kinathukadavu. This transaction is a bogus one.
5. Various expenses incurred by the Managing Agents and their friends for their personal and private needs were debited to the accounts of the mills.
"A debit note of Rs. 30,840 in N. Ramaswami Naidus account, credit even to him in the succeeding year will show the fictitiousness of the transactions and accounts."
3. On 7th June, 1956, the Registrar of Companies, Madras, wrote to the Coimbatore Spinning and Weaving Co., Ltd., enclosing extracts from the letter of Parameswara Iyer and asking for "very urgent and detailed remarks."On 21st June 1950 the company replied that the allegations were false and irrelevant and absolutely without evidentiary value and suggested that the complaint might be lodged.
4. On 6th July 1956, the Registrar of Companies again wrote to the company asking it to send its detailed remarks on each of the specific allegations within 15 days. The companys attention was also drawn to S. 234 of the Companies Act, 1956, and it was told that in the absence of a detailed answer it would be presumed that it had no explanation to give. To this the company replied by a letter dated 19-7-1956 asking for a months time in order that it might examine the several allegations and give its explanation.
5. On 6-8-1956 the Manager of the company and Mr. Srinivasa Aiyar, an advocate of the company filed before the Registrar a written explanation dated 5-8-1956. On 23-8-1956 the company wrote that Messrs. V. Rajagopalachari and V. Srinivasa Aiyar, advocates, had been authorised to represent the company and requested that they be heard on behalf of the company with reference to the statement that had been filed on 6-8-1956.
On 24-8-1956 Messrs. Rajagopalachari and Srinivasa Ayy
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