A company investigation under S.237 requires solid evidence of misconduct; mere allegations are insufficient for judicial intervention.

1This is a petition filed by two members of the Dig Vijay Chit Fund (P) Ltd. under S.237 of the Companies' Act, for a declaration that the affairs of the company require investigation by an Inspector appointed by the Central Government.

2The main business of the company is in kuries and in money lending. The first petitioner, along with six other share holders, had earlier filed a petition for winding it up, but that was dismissed on the ground that they had other remedies, and that the prayer for winding up was unreasonable in the circumstances disclosed. The present is a resort to one of the other remedies available.

3The allegations in the petition are broadly the following: The Chief Agent and the directors of the company are utilising their position to oppress other shareholders. The Chief Agent and his relatives hold 72 shares, and the directors control another 122. In April 1972 the company fraudulently sold 64 shares belonging to seven members who were not supporting the directors; and these shares were purchased by relatives of the directors and the Chief Agent, The group in management has been misappropriating company's funds, destroying valuable records to cover up their misdeeds, causing loss to the company by declining to proceed against debtors, and writing off bad debts after privately collecting amounts from the concerned debtors. Some particulars relating to the alleged misappropriation, destruction of records, etc., are furnished, and there is also a general allegation that the company has been incurring losses as a result of all the above.

4The company has denied all these allegations in its counter affidavit. The 2nd petitioner has been examined as P. W. 1 and Exts. A-1 to A-6 have been marked on the side of the petitioners. The company has examined its present Managing Director as R. W. 1, and marked Exts. B-1 to B-7.

5Sections 235 to 246 of the Companies Act deal with the investigation of the affairs of a company. Under S.235 the Central Government is given power to appoint inspectors for the purpose; and the power is to be exercised either on the application of members or on the basis of a report of the registrar under S.234. S.236 provides that members applying under S.235 should furnish evidence to show that they have "good reason for requiring the investigations". Clause (a) of S.237 obliges the Central Government to arrange for an investigation when the company, by special resolution or the court, by order declares that an investigation is called for, while clause (b) confers a discretion on the Government to do so when the circumstances enumerated thereunder are found to exist. S.238 to 241 deal with inspectors, their powers and the report they have to make. S.242 to 244 specify the follow up measures Government could take on the basis of the reports. Prosecution of persons found criminally liable, moving the court for winding up or for relief from oppression, and initiation of misfeasance and other proceedings are some of the measures contemplated. S.245 provides for the expenses of investigation, and S.246 declares that the inspectors' reports shall be admissible as evidence in legal proceedings. An analysis of the above provisions indicates that appointment of inspectors is a matter in the discretion of the Government under S.236, and also clause (b) of S.237; but in cases governed by S.237(a), the Government has a duty to act. The machinery for inspection could be set in motion on the request of members under S.236, only when a certain percentage of the total number of members apply; the Central Government cannot act when the strength of those who apply is below the minimum prescribed. But what about an application to the court under S.237(a) (ii) ? Can the court order an investigation irrespective of the number of members who seek to invoke its power?

6S.237 does not in terms speak of an application to be filed in court; but R.11(a)(9) of the Companies (Court) Rules, 1959 conceives of such an appli