LexSRI RAMDAS MOTOR TRANSPORT LTD. AND ORS. versus TADI ADHINARAYANA REDDY AND ORS.
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A SRI RAMDAS MOTOR TRANSPORT LTD. AND ORS. v. TADI ADHINARAYANA REDDY AND ORS. MAY 1, 1997 B [K.S. PARIPOORNAN AND SUJATA V. MANOHAR, JJ.] Constitution of India, 1950: Aiticle 226-Writ Petition not to be easily entertained when alternative remedy is available-Held, resort to Article 226 of the Constitution should be discouraged when a statutory forum for redressal C of grievances is provided. Companies Act, 1956 : Sections 397 and 398--l'ower of the Company Law Board to make necessary orders for relief in cases of oppression of shareholders and mismanagement of the company. D Sections 235 and 237-Power of the Central Government to make investigation into the affairs of the company. TI1e first appellant is a company which initially was a private limited company but subsequently became a public limited company under Section E 43-A of the Companies Act, 1956. The second appellant is the Chairman and Managing Director and the third appellant is the Joint Managing Director of the above mentioned company. Eight shareholders of the company filed before the Company Law Board, New Delhi, a Company Petition under Sections 397 and 398 of the F Companies Act, 1956 on the ground of oppression of minority shareholders and mismanagement of the affairs of the company by the second and third appellants. An injunction was sought to restrain the company from proceeding with the Rights issue of its shares. The Com- pany Law Board declined to grant any interim order. It directed the G company to file an affidavit with regard to the Rights Issue and to follow the procedure which it had followed earlier for the Rights Issue. Thereafter, S a former Director of the company and some others filed another Company Petition under Sections 397 and 398 on the ground of oppression of minority share holders and mismanagement of the affairs H of the company by the second and third appellants. S filed another com- 1160 -- RAMDAS MOTOR TRANSPORT LTD. v. T.A. REDDY 1161 pany application for appointment of an administrator. During the pendency of these proceedings before the Company Law Board, the first respondent filed a writ petition under Article 226 of the Constitution of India before the High Court for a Writ of Mandamus directing the Union of India to prosecute the second and third appellants. A The main grievance related to the mismanagement of the affairs of the B company. The single judge of the High Court dismissed the writ petition holding that the Companies Act provides forum to consider the grievances which are mentioned in the writ petition. The Division Bench of the High Court, however, allowed the appeal holding that the petition involved wider public interest. Hence this appeal. Allowing the appeal, (setting aside the judgment of the Division Bench and upholding the judgment of the Single Judge of the High Court), this Court HELD : 1. No attempt has been made by the first respondent to get the affairs of the company investigated in the manner provided under the Companies Act, 1956. Neither the Central Government nor the Company Law Board has been moved by the first respondent in accordance with law c D for the purpose. [1166-H; 1167-A] E 2. The power of investigation into the affairs of the company has been conferred on the Central Government under Section 235 and 237 of the Companies Act, 1956 on the faith that it will be exercised in a reasonable manner. Investigation has not be undertaken lightly as it may prove damaging to the company. [1166-F -GJ F 3. Under Section 397 of the Companies Act, 1956 any member of a company may apply to the Company Law Board complaining that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member and the Board G has got wide powers to make necessary orders. [1167-C] 4. The High Court should not readily entertain a petition under Article 226 of the Constitution of India when effective remedies for preven- tion of oppression and mismanagement of the company are available under the Companies Act 1956. A shareholder cannot be allowed to bypass H 1162 SUPREME COURT REPORTS [1997) 3 S.C.R. A the express provisions or the Act. [1167-EJ 5. The Single Judge of the High Court has rightly held that the resort to Article 226 of the Constitution of India should be discouraged when a forum, statutorily constituted, exists under the Companies Act, 1956. The grievance
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