NATIONAL COMPANY LAW APPELLATE TRIBUNAL

C.P. Yogshwara and Ors. Vs. Union of India and Ors.

MANU/NL/0193/2020

13.03.2020

Company

When affairs of Company are being conducted in manner prejudicial to public interest, Tribunal is empowered to replace the existing Management

The Union of India moved a Petition under Sections 401/397/398 read with Section 408 of the Companies Act, 1956 (now Section 241(2) read with Section 242 of the Companies Act, 2013). It also sought relief under Section 388B of the Companies Act, 1956 for appointment of the Government Nominated Directors and the control of the affairs and management of the Company Megacity Bangalore Developers & Builders Limited (MBDBL).

The National Company Law Tribunal by impugned order came to a considered opinion that, Union of India made out a case so as to interfere in the affairs of the Company with suitable orders so as to protect the property of the Company; to protect the interest of stakeholders of the Company and to ensure that the Company follow statutory compliances etc. The Tribunal also formed opinion that the existing management should not be continued and should be replaced by the New Directors to be nominated by the Union of India as per law.

Appellants, Shareholders of the Company have challenged the decision on the ground that the Tribunal misdirected itself by granting the relief under Section 388B of the Companies Act, 1956. The learned Counsel for the Appellants submitted that, in absence of corresponding provision to Section 388B in the new Companies Act, 2013, no such relief can be granted, since it was clearly not the intention of the statute to vest powers on the Government to replace the Board of Directors.

It appears that Central Government through Ministry of Corporate Affairs on the basis of the report of the Registrar of Companies, Karnataka referred to non-filing of the statutory returns for the year 2006-07 and consequently depriving legitimate rights of the Members. It is not in dispute that the matter was investigated by the Serious Fraud Investigation Office (SFIO), which filed report.

The investigation by the SFIO clearly shows that the aforesaid Company was conducting its business in the manner, which was prejudicial to the public interest. It was also against the interest of the stakeholders of the Company and the Company was not filing its statutory returns under the existing management.

Section 465 of the Companies Act, 2013 relates to 'Repeal of certain enactments and savings' including the Companies Act, 1956. The Central Government is also empowered in sub-Section (1) of Section 434 for transfer of matters, proceedings including proceedings before the Company Law Board were transferred to the Tribunal.

The Central Government is empowered under Section 241(2) of the Companies Act, 2013 to file application in cases, if it is of the opinion that the affairs of the Company are being conducted in a manner prejudicial to public interest. The Tribunal in terms of Section 242 of the Companies Act, 2013, if of the opinion, that the Company's affairs or/are being conducted in a manner prejudicial to the public interest and to wind up the Company would unfairly prejudice member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the Company should be wound up, it (Tribunal) with a view to bring to an end the matters complained of, make such order as it thinks fit.

Even in absence of Section 388B of the Companies Act, 1956, with a view to bring an end of the matters complained of, the Tribunal is empowered to pass similar order relying on Sections 241 & 242 of the Companies Act, 2013 as was empowered under Section 388B of the old Act. The investigation against the Appellants reveals that, the irregularities were committed by the Directors/Management of the company and for the said reason, criminal action was also taken against the Directors.

In view of the fact that the affairs of the Company are being conducted in the manner prejudicial to the public interest as noticed from the report of the SFIO, it is held that, the Tribunal is empowered to replace the present Management and to replace it with Directors nominated under the control and management by the Central Government. No interference is called for. The Appeal is dismissed.

Tags : Report Public interest Management Replacement

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