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

2. The first appellant company was established is 1944 as a private limited company under the Companies Act, 1913. It continued as a private limited company under the Companies Act, 1956. However, with effect from, by virtue of SectionA of the Companies act, 1956, it became a public limited company in view of the fact that the annual turnover of the company was above the prescribed limit. The first appellant company, however, continues to be a closely held company consisting of only 61 shareholders including 11 employees and. The second appellant is the Chairman and Managing Director of the first appellant company. The third appellant is the Joint Managing Director of the first appellant company. The main object of the company is to carry on the business of parcel lorry service, manufacture of automobile components and dealership of Telco  3. It is the case of the appellants that there were disputes between the Managing Director i.e. second appellant, and his, Srihari Rao, who was a former Director of the first appellant company and a former Member of Parliament. The disputes started some time in 1993. In 1994, (according to the appellants, at the instigation of Srihari Rao) eight shareholders of the company filed before the Company Law Board, Principal Bench, New Delhi, a company petition bearing CP No. 7 of 1994 under Sections 397 and 398 of the Companies Act, 1956, on the ground of oppression of minority shareholders and mismanagement of the affairs of the company by the second and third appellants. In the said petition an injunction was sought to restrain the first appellant company from proceeding with the Rights Issue of its shares. After hearing both the parties, however, the Company Law Board declined to grant any interim order to this effect. The Company Law Board directed the company to filed an affidavit with regard to the Rights Issues and to follow the procedure which it had followed earlier for the Rights Issue  4. Thereafter, Srihari Rao and some others filed before the Company Law Board another Company Petition No. 15 of 1994 under Sections 397 and 398 of the Companies Act, 1956 on the ground of oppression of minority shareholders and mismanagement of the affairs of the company by the second and third appellants. This petition was filed on. An interim relief was sought from the Company Law Board for supersession of the Board of Directors of the first appellant company and for reconstitution of the Board of Directors. An interim injunction was also sought against Appellants 2 and 3 to restrain them from functioning as Managing Director and Joint Managing Director of the first appellant company. The company petition was listed for hearing on. It was adjourned at the request of the petitioners therein and thereafter from time to time. The petitioners before the Company Law Board filed an application to receive evidence by affidavit. This application was rejected by the Company Law Board on. The main petition was thereafter heard from5 onwards  5. On6 Srihari Rao filed another company application for appointment of an administrator. During the hearing of this application, the petitioners in the said petition took further time for filing a better affidavit in support of their application and the application was adjourned to. The hearing of the main company petition was adjourned to May 1997 at the instance of the petitioners therein. We have set out these facts as the grievance of the first respondent in his writ petition is that the Company Law Board has failed to pass an order  6. During the pendency of all these proceedings before the Company Law Board on6 the first respondent filed a writ petition under Article 226 of the Constitution before the High Court of Andhra Pradesh for a writ of mandamus directing Union of India and the Secretary (Finance), Union of India (Respondents 1 and 2 in the writ petition) to forthwith, prosecute the present Appellants 2 and 3 in accordance with law. The first respondent has challenged in the writ petition various transactions entered into by the first appellant company relating to purchases and sales. The first respondent has also challenged the correctness of the figures shown in the balance sheet and profit and loss accounts of the first appellant company. According to the first respondent there was misappropriation of the funds of the company by Appellants 2 and 3. It was claimed by the first respondent that this amounts to misappropriation of public funds and that, for the alleged acts of Appellants 2 and 3, the Union of India should be directed to prosecute Appellants 2 and 3. There is a further prayer in the writ petition that the Court should direct an inquiry by the Central Bureau of Investigation into the alleged financial mismanagement of the company and misappropriation of funds by Appellants 2 and 3; that a report should be submitted to the Court within four weeks pending the disposal of the writ petition; and on the basis of such report the Court should give further directions. There is also a prayer for the appointment of an interim administrator to take charge of the affairs of the first appellant company. All these prayers relate to the alleged mismanagement of the affairs of the first appellant company by Appellants 2 and 3. In essence, the writ petition under Article 226 prayers for an investigation into the affairs of the first appellant company, and for action against Appellants 2 and 3. The interim prayer for an administrator of the company also clearly, shows that the main grievance of the first respondent in the writ petition relates to the mismanagement of the affairs of the first appellant company

Reasoning:
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.