K P BALAKRISHNAN NAIR Vs. VINDYA TEA AND INDUSTRIES PVT LTD

JUDGEMENT

(1.) THIS is a petition filed under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act"), alleging various acts of oppression and mismanagement in the affairs of Vindhya Tea and Industries Private Limited (hereinafter referred to as "the company") and seeking the following reliefs :

(2.) By the time when the matter was taken up for hearing it transpired that the financial institution, namely, the Tamil Nadu Industrial Investment Corporation, which had advanced credit facilities to the company, had in exercise of its powers under Section 29 of the State Financial Corporations Act, 1951, auctioned the entire undertaking of the company and utilised the proceeds, towards discharging the company's liabilities of TIIC and also for the liability towards Canara Bank. In view of this, the substratum of the company has been lost. The petitioners did not agitate on the various allegations and also did not press for the relief sought in the petition. Consequently, as alleged by the counsel for the petitioners we are not dealing with any of the allegations contained in the petition, nor the various reliefs sought except those relating to financial irregularities committed by the respondents and related reliefs of surcharging the respondents under Section 406 of the Companies Act.

(3.) THESE additional affidavits also deal with the reports of both the TIIC and Canara Bank furnishing the financial transactions that these institutions had with the company. Arguments were advanced on the above allegations and the parties also submitted their written arguments. During the hearing, it transpired that the petitioners had already filed a criminal complaint on the alleged financial irregularities and the police had seized practically all the documents and records of the company for the purpose of conducting an enquiry on the criminal complaint. The material before us without the original documents are not adequate even to form a prima facie opinion on the various allegations, in a proceeding under Section 397/398. By virtue of Section 406, the Company Law Board is empowered to invoke the provisions of Schedule XI by which it can impose penalty, for fraud committed by the officers for not keeping proper account, for fraudulently conducting the business of the company and also assessing the damages against the delinquent directors for ordering restoration of the same to the company. In other words, the action under Schedule XI is very drastic in nature. For taking such drastic action, mere prima facie opinion is not sufficient and as a matter of fact such a prima facie finding itself could not be proper as held in Colaba Land and Mill Co. Ltd. v. Vasant Investment Corporation Ltd., AIR 1964 Guj 107, cited by counsel for the petitioners. It can be done only on a specific finding given in respect of each allegation. From the averments of the petitioners without primary documents, especially when the respondents have defended each of the allegations it is not possible for us to give any definite conclusion on the allegations of financial irregularities. Since the petitioners have already filed a criminal complaint with the police who have seized the primary documents and other records of the company, we consider it appropriate not to express any opinion about the alleged act of financial irregularities. In the circumstances, we are not in favour of going into the merits of the various irregularities alleged by the petitioners against respondents Nos. 2 to 6. Accordingly, the petition is dismissed. No order as to costs.