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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
A. RAJASEKHAR REDDY, J.
Karvy Stock Broking Limited – Appellant
Versus
The Union of India – Respondent
W.P. Nos. 5024, 8997 of 2020
Decided On : 26-08-2020
The High Court of Telangana held that the inquiry initiated by the Central Government and the report submitted by the Registrar of Companies are in conformity with Section 206(4) of the Companies Act, 2013. The court also held that the opinion formed by the Central Government for ordering investigation into the affairs of the petitioner-company is in consonance with Section 212(1) (a) and (c) of the Act.
Fact of the Case:
The petitioner, a stock broking company, challenged the order passed by the Ministry of Corporate Affairs directing investigation into its affairs under Section 212(1)(a) and (c) of the Companies Act, 2013. The petitioner contended that the inquiry initiated by the Central Government and the report submitted by the Registrar of Companies were not in conformity with Section 206(4) of the Act and that the opinion formed by the Central Government for ordering investigation was not in consonance with Section 212(1) (a) and (c) of the Act.
Finding of the Court:
The court held that the inquiry initiated by the Central Government and the report submitted by the Registrar of Companies were in conformity with Section 206(4) of the Act. The court also held that the opinion formed by the Central Government for ordering investigation into the affairs of the petitioner-company was in consonance with Section 212(1) (a) and (c) of the Act.
Issues: ['Whether the inquiry initiated by the Central Government and the report submitted by the Registrar of Companies are in conformity with Section 206(4) of the Companies Act, 2013?', 'Whether the opinion formed by the Central Government for ordering investigation into the affairs of the petitioner-company is in consonance with Section 212(1) (a) and (c) of the Act?']
Ratio Decidendi: The court held that the inquiry initiated by the Central Government and the report submitted by the Registrar of Companies were in conformity with Section 206(4) of the Act. The court also held that the opinion formed by the Central Government for ordering investigation into the affairs of the petitioner-company was in consonance with Section 212(1) (a) and (c) of the Act. The court relied on the following principles:
Final Decision: The court dismissed the writ petition filed by the petitioner.
ORDER :
1. Since the issue involved in both the writ petitions is connected and the parties are same, they are heard together and are being disposed of by this common order.
2. The petitioner in both the writ petitions is M/s. Karvey Stock Broking Limited and it is represented by its Vice President (Legal) Mr. Ch. Viswanath.
3. The 2nd respondent-Office of Director General, Ministry of Corporate Affairs, represented by its Joint Director, in exercise of jurisdiction under Section 212 (1) (a) and (c) of the Companies Act, 2013 (for short ‘the Act’) ordered investigation into the affairs of the petitioner-company in the public interest, vide Order No. 07/341/2015-CL II (SER) dated 27-02-2020. In pursuance of the order dated 27.02.2020, the Investigating Officer issued notice dated 16.06.2020 under Section 217 of the Act calling for information, and vide communication dated 19.06.2020, intimated the petitioner to strictly comply with Section 217 of the Act, with a default clause.
4. Challenging the order passed by the 2nd respondent under Section 212 (1) (a) and (c) of the Act dated 27.02.2020, petitioner-company filed W.P. No. 5024 of 2020, and challenging the consequential notices issued under Section 217 of the Act dated 16.06.2020 and 19.06.2020, W.P. No. 8997 of 2020 has been filed.
5. Since the result in W.P. No. 5024 of 2020 will have bearing on W.P. No. 8997 of 2020, the former is taken up for adjudication.
6. The case of the petitioner-company, as per the averments made in the affidavit filed in support of the writ petition is that, it is involved in the business of stock broking, commodities trading, depository, wealth management services and distribution of other financial produces.
7. As there were media reports stating that the petitioner-company is violating the regulations of Securities Exchange Board of India (SEBI), the 5th respondent-Ministry of Corporate Affairs, O/o. the Registrar of Companies, through its Assistant Director-6th respondent, vide letter in Ref. ROCH/KSBL/2019/2410 dated 03.12.2019, called for certain information from the petitioner-company with regard to current status of investigation by SEBI, and the action taken against the petitioner and its group of companies, and to submit a copy of the latest financial statement of the company. The petitioner-company, vide letter dated 13.12.2019, submitted a detailed reply with regard to information sought for by the 6th respondent.
8. Thereafter, the 6th respondent issued notice dated 14.01.2020 under Section 206(1) of the Act, calling upon the petitioner, to furnish some more information and documents within seven days of receipt of notice. As the information sought for by the 6th respondent is voluminous, petitioner vide letter dated 22.01.2020, sought four weeks time. But, without considering the request made by the petitioner vide letter dated 22.01.2020, the 6th respondent issued notice dated 24.01.2020 under Section 206(3) of the Act, to produce original documents/registers maintained by the company on 27.01.2020, in pursuance thereof, the officials of the company were physically present on 27.01.2020, and submitted a preliminary reply and sought further time for producing some more documents and for personal hearing.
9. As the respondents are proceeding with undue haste, petitioner filed W.P. No. 3143 of 2020, alleging that the respondents, without giving adequate time to respond to the notice dated 14.01.2020 issued under Section 206(1) of the Act, have issued further notice dated 24.01.2020 under Section 206(3) of the Act, as such the same is illegal and arbitrary.
10. In the said writ petition, the learned Assistant Solicitor General represented before the court that the respondents would take into consideration the explanation submitted by the petitioner on 03.02.2020, and proceed with the inquiry in accordance with law, after giving opportunity to the petitioner and considering the above representation of the learned Assistant Solicitor General, this
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