Case: Sri Ramdas Motor Transport Ltd Vs. Tadi Adhinarayana Reddy &amp; Other

misfeasance or other misconduct towards the company or towards any of its members; or that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect. In these circumstances, on the basis of the opinion so framed by the Company Law Board, the Central Government may order an investigation. Neither the Central Government nor the Company Law Board has been moved by the first respondent in accordance with law for this purpose. In the case of Rohtas Industries v. S. D. Agarwal this Court examined the nature of the power conferred on the Central Government under Section 235 as well as Section 237(b) and held that the scheme of these sections makes it clear that unless proper grounds exist for investigation of the affairs of a company, such investigation will not be lightly undertaken. An investigation may seriously damage a company and should not be ordered without proper material gathered in the manner provided in the Companies Act. The power of investigation has been conferred on the Central Government on the faith that it will be exercised in a reasonable manner. The department of the Central Government which deals with companies is presumed to be an expert body in company law matters. Therefore the standard that is prescribed under Section 237(b) is not the standard required of an ordinary citizen but that of an expert 10. In the present case an attempt has been made by the first respondent to get the affairs of the company investigated in the manner provided under the Companies Act. Neither the Central Government nor the Company Law Board has been moved by the first respondent in accordance with law for this purpose. Instead of moving the authorities prescribed under the Companies Act the first respondent has chosen to resort to the writ jurisdiction of the High Court for a direction to have the affairs of the company investigated by the CBI 11. Under Section 397 of the Companies Act any member of a who company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members may apply to the Company Law Board for an order under that section. The Company Law Board has wide powers to make such orders as it may think fit to bring an end to the matters complained of. Some of the shareholders of the first appellant company have, in fact, filed petitions under Sections 397 and 398 of the Companies Act before the Company Law Board in which they have asked for similar reliefs including the appointment of an interim administrator. The acts of mismanagement and oppression complained of are similar to those set out in the writ petition before the High Court. The only ground alleged in the writ petition for moving the High Court under Article 226 is that the Company Law Board is not moving in the matter. Under an excuse that the Company Law Board has not yet made an order, a shareholder cannot be allowed to bypass the express provisions of the Companies Act and move the High Court under Article 226. A shareholder has very effective remedies under the Companies Act for prevention of oppression and mismanagement. When such remedies are available, the High Court should not readily entertain a petition under Article 226 12. The learned Single Judge before whom the present writ petition came up for hearing very rightly held that the Companies Act provides a forum to consider the grievances made out by the first respondent in the writ petition. When such a forum, statutorily constituted, exists, it is but appropriate that resort to Article 226 should be discouraged. There is an efficacious alternative remedy available under the statue. In fact under the Companies Act, a more satisfactory solution is available. The Single Judge was right in pointing out that some of the shareholders have initiated proceedings before the Company Law Board. The only grievance of the petitioner in the writ petition is that no orders have been passed thereon. The Single Judge has rightly held that such a grievance cannot constitute a ground for invoking the jurisdiction of the High Court under Article 226. He, therefore, dismissed the writ petition 13. In appeal, however, the Division Bench of the Andhra Pradesh High Court presided over by the Chief Justice, entertained the appeal on the ground that the petition raised many serious issues as to falsification of the accounts of a public limited company. It said that the acts of the company would jeopardize public interest. Therefore, the petition involved wider "public interest" and should be entertained. In the result the Division Bench issued a direction to the Central Government to make its own verification of the allegations in the writ petition. In other words, the Division Bench of the High Court directed an investigation into the affairs of the company, bypassing the detailed provisions with in-built safeguards under the Companies Act, designed specially for this purpose. The only ground for intervention appears to be "public interest". We fail to see what public interest is involved in disputes of the kind referred to in the writ petition. They basically deal with mismanagement of the affairs of the company and oppression of the minority shareholders. The company is only a deemed public limited company. Its shareholding is very closely held. The only other factor referred to in the writ petition to invoke the doctrine of so-called public interest, is the fact that the company had borrowed moneys from public institutions. This is no ground for not availing of the statutory remedies providing under the Companies Act before the appropriate statutory forums which are designed for this very purpose. We are distressed to find that the well-reasoned judgment of the Single Judge was interfered with in a casual manner. The impugned judgment rests on fragile foundations and reads more like an ipse dixit

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]13. In appeal, however, the Division Bench of the Andhra Pradesh High Court presided over by the Chief Justice, entertained the appeal on the ground that the petition raised many serious issues as to falsification of the accounts of a public limited company. It said that the acts of the company would jeopardize public interest. Therefore, the petition involved wider "public interest" and should be entertained. In the result the Division Bench issued a direction to the Central Government to make its own verification of the allegations in the writ petition. In other words, the Division Bench of the High Court directed an investigation into the affairs of the company, bypassing the detailed provisions witht safeguards under the Companies Act, designed specially for this purpose. The only ground for intervention appears to be "public interest". We fail to see what public interest is involved in disputes of the kind referred to in the writ petition. They basically deal with mismanagement of the affairs of the company and oppression of the minority shareholders. The company is only a deemed public limited company. Its shareholding is very closely held. The only other factor referred to in the writ petition to invoke the doctrine ofd public interest, is the fact that the company had borrowed moneys from public institutions. This is no ground for not availing of the statutory remedies providing under the Companies Act before the appropriate statutory forums which are designed for this very purpose. We are distressed to find that thed judgment of the Single Judge was interfered with in a casual manner.