ANDHRA PRADESH STATE CIVIL SUPPLY CORPORATION LTD Vs. DELTA OILS AND FATS LTD

JUDGEMENT

(1.) THIS is a petition under Section 235(2) of the Companies Act, 1956 (hereinafter called "the Act"), filed by the A. P. State Civil Supplies Corporation Ltd. which is fully owned by the Government of Andhra Pradesh. The respondents in this case are Delta Oils and Fats Limited, Tadepallygudam, West Godavari District (AP), (a joint venture between the petitioner and three other private entrepreneurs) and its former managing director and two other directors. The petitioner has prayed for an order for investigation into the affairs of the respondent-company during the period when respondent No. 2 J. Ramachandra Rao was the managing director of the company.

(2.) The company, incorporated on February 18, 1982, was a joint venture between the A. P. State Civil Supplies Corporation and J. Ramachandra Rao, respondent No. 2 herein, and three others who were the co-promoters. The petitioner-corporation contributed Rs. 25 lakhs, being 50 per cent. of the share capital of the respondent-company and the private co-promoters contributed the balance 50 per cent. In addition, the petitioner-corporation also provided a bridge loan of Rs. 10 lakhs. As per the joint venture agreement, the petitioner-corporation had the right to appoint its nominee director as the chairman and Ramarhandra Rao was designated as managing director. The company was under the direct management and supervision of Ramachandra Rao as its managing director till he was removed by the majority decision of the shareholders at an extraordinary general meeting in 1992.

(3.) THEREFORE, according to the petitioner, there is prima facie evidence that respondent No. 2, the former managing director had acted dishonestly and mismanaged the joint venture by committing irregularities and malpractices justifying an order of investigation by the Company Law Board. Only an order of such investigation would bring out as to how the company which had built up reserves in the last 8 to 9 years, had not only eroded the funds but posted a loss year during 1991.