M.H. Beg, J. - (1.) RAGHUNATH Swarup Mathur and his four sons are the petitioners before this court under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as the Act). The petitioners fulfill the requirements of Section 399 of the Act for filing a petition under Sections 397/398 of the Act as they hold more than one -tenth of the paid up capital of the Co -operative Co. Ltd., Nawabganj, Saharanpur, which is the company involved here. The petitioners allege that the first three opposite parties, Har Swarup Mathur and Kishan Swarup Mathur and Jagroop Swarup Mathur, the real brothers of petitioner No. 1, control the affairs of the co -operative company and that the three opposite parties Nos. 4 to 6 - -Hari Mohan Mathur and R.P. Mathur and K.K. Bhartari - -are mere puppets in their hands. M/s. Shyam K. Gupta Company, Auditors, opposite party No. 7, have been impleaded by the petitioners on the allegation that they have been colluding in concealing irregularities and frauds of opposite parties Nos. 1 to 3. The Central Government, opposite party No. 9, is probably impleaded only because Section 400 of the Act requires a notice of such a petition to be sent to the Central Government. The real targets of the attack of the petitioners are the three opposite parties, who according to the petitioners, have functioned in various capacities contrary to the provisions of the Act and realised salaries illegally from the company. The petitioners also allege that the three opposite parties are defrauding the company, misappropriating funds, and embezzling money.
(2.) SO far as H.S. Mathur, opposite party No. 1, the former managing director, is concerned, it is in evidence that a suit was filed by the company for the recovery of Rs. 15,621 from him on the ground that he had illegally drawn Rs. 825 as salary as a managing director from April 1, 1961, to October 27, 1962, without obtaining either the sanction of the Central Government as required by Section 269(2) of the Act, or the sanction of the company under Section 317 of the Act. Another ground on which the amount was alleged to have been illegally paid to him is that the company made no profits from March, 1961, to March, 1962, so that the opposite party was said to be bound to refund the amount under Section 309(5) of the Act because his appointment did not have the approval of the Central Government under Section 198(4) of the Act. This claim, however, having formed the subject -matter of a suit by the company which was dismissed by the Civil Judge, Saharanpur, the case of the contesting opposite parties is that the suit was rightly dismissed as the salary was paid to the opposite party No. 1 after obtaining the required sanction under the law and that no appeal was filed as the decision of the civil judge was correct. The petitioners alleged that the suit was dismissed owing to collusion between the contesting opposite parties. In other words, the petitioners want to reopen the case by means of this petition on vague allegations of fraud and collusion of which particulars are wanting to sustain the plea. Another ground of attack against the opposite party No. 1 is that the accounts were not kept properly during his term of office as managing director and that the audit reports from 1959 to 1962 and a letter written by the Registrar of Companies, U.P., dated March 16, 1963 (annexure " D ") show that " there were embezzlements and corruption on a large scale." No audit report supports a charge of this character. Indeed, the petitioners have themselves alleged that the auditors are colluding with the contesting opposite parties to whitewash and conceal the contesting opposite parties' illegal acts. A perusal of a copy of the above -mentioned letter, filed by the petitioners themselves, shows that the Registrar had asked for information and accounts on the ground that accounts had not been properly maintained, as required by Section 209 of the Act. This information was required to be furnished within ten days of the receipt of the letter. There is no mention there of any embezzlement, corruption or fraud. The letter also indicates that the appointments of K.S. Mathur, opposite party No. 2, either as general manager or as secretary, being irregular for contravening the provisions of Sections 310 and 314, the company was required to give information about the steps taken to obtain refund of excess payments. Information was also required to be given, within ten days, whether steps had been taken to regularise increase of the sitting fees of directors from Rs. 25 to Rs. 100 per meeting by obtaining the approval of the Central Government under Section 310 of the Act or to show that the excess amount paid had been refunded.
(3.) THE only specific item mentioned by the petitioners of alleged embezzlement is that an annual expenditure of fuel was shown as ranging from Rs. 7,000 to about Rs. 14,000 in different years whereas it was said to be always less than Rs. 100 every year. It was, however, stated in the petition that, in the balance sheet, the expenditure for fuel had been shown as amalgamated in subsequent years with expenditure for "steam coal ". The counter -affidavit of the contesting opposite parties shows that they furnished details of all expenditure to the Registrar, but, as the Registrar was not satisfied, the company was prosecuted under Sections 216 and 218 of the Act for failure to furnish information from 1958 to 1961 and that the managing director was convicted. As regards the alleged expenditure on the specific item of fuel, the contesting opposite parties ascertained that it was always correctly shown and that large variations in the amount shown were due to substitution of coal in place of other fuel in subsequent years. Apparently, only the other fuel was shown separately as " fuel " in some years and the petitioners have picked upon this item due to the resulting confusion. Another ground taken is that petitioner No. 1 filed a complaint against opposite parties Nos. 1 and 2 under Sections 465/477A, Indian Penal Code, for falsification of the attendance register, but the petitioners themselves state that this case was compromised on 15th March, 1963.;