NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Neeta Shrinivas Zanvar and Ors. Vs. Nagarjuna Agro Chemicals Private Limited and Ors.

MANU/NL/0164/2021

26.04.2021

Company

Unless proper grounds exist for the investigation of the affairs of the Company, investigation ought not to be lightly undertaken

Present Appeal emanates from the Order passed by the National Company Law Tribunal, in Company Petition, whereby the NCLT directed that, the Bank Account of the Respondent No. 1 Company be operated jointly by one representative of Appellants and one representative of Respondent No. 2 to 4 and directed the Registrar of Companies to investigate into the affairs of the Respondent No. 1 Company.

The Appellant contends that, the NCLT by the Impugned Order superseded the Board Resolution dated November 19, 2019, of the Company and the manner in which the Company had been operating its accounts for more than a year, without any discussion or finding of any mismanagement or forming even a prima facie opinion on the allegations of the Respondent No. 2 to 4, of purported siphoning off funds.

The Appellant contends that, the Learned NCLT interfered with the Company's internal management through the impugned Order, which Respondent No. 1 Company was exercising by the Board Resolution dated November 19, 2019, impermissible in law. The NCLT further directed the Registrar of Companies to investigate the affairs of the Respondent No. 1 Company.

The Companies Act provides for inspection, enquiry and investigation under Chapter XIV. The specific powers of the Learned the NCLT direct an investigation traced to Section 210 (2) and Section 213 of the Act. In this regard, the powers of the Registrar are found in Section 206 and 207 of the Act. The Registrar has been granted powers of inspection and enquiry and not of investigation. Such powers have been vested solely with the Central Government or any Inspector appointed by the Central Government, under Section 210 to 213 of the Act.

Hon'ble, the Supreme Court of India in case of Rohtas Industries Ltd. vs. D. Agarwal, while examining the nature of the power conferred on the Central Government under the corresponding Section 235 of the Companies Act 1956, held that unless proper grounds exist for the investigation of the affairs of the Company, such investigation ought not to be lightly undertaken. The same was explained by stating that investigation can seriously damage the reputation of the Company and, therefore, ought not to be ordered without proper material gathered in the manner prescribed under the Companies Act. Such powers have been conferred on the Central Government with the faith that it will be exercised reasonably.

Therefore, it is clear that the NCLT may direct the Central Government to investigate under Section 210 (2) of the Companies Act 2013. After a reference from the NCLT, the Central Government has to mandatorily appoint an Inspector under Section 210 (2) of the Act. Therefore, before the Learned NCLT passes such an order, it will follow as a natural corollary that the Learned NCLT, at least form prime facie opinion, based on the records available and the submissions made, that such an investigation into the affairs of the Company was necessary, and such direction, in any event, ought to be issued to the Central Government and not to the Registrar.

The direction issued by the Learned NCLT appointing the Registrar of Companies to investigate into the affairs of Respondent No. 1 Company violates the provisions of the statute, as in terms of Section 210 (2) of the Companies Act 2013, such a direction can be given only to the Central Government and not to the Registrar. In terms of Section 213 of the Companies Act 2013, such a direction can be given, once again, only to the Central Government and not to the Registrar, and only upon the satisfaction of the conditions precedent specified therein.

The Learned NCLT erred in directing the Registrar of Companies to investigate into affairs of Respondent No. 1 Company, as the said Directions violate the statutory provision of Section 210 (2) and Section 213 of the Companies Act, 2013. Impugned Order regarding the investigation into the affairs of the Respondent No. 1 Company by the Registrar of Companies is set aside. Appeal partly allowed.

Tags : Proper grounds Investigation Legality

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