M.P. Menon, J.
1. The petitioner, a director and also a manager of Yoosuf Sagar Abdulla & Sons (P.) Ltd., seeks a declaration under Section 237 of the Companies Act, 1956, that the affairs of the company ought to be investigated by the inspector appointed by the Central Govt. Necessary directions to the Central Govt. are also sought for.
2. The facts stated and the allegations made in the petition briefly are these. A foreign national, Yoosuf Sagar Abdulla, was doing import and export business at Calicut. On the eve of his return to Kuwait in 1954, he formed the company for taking over that business. Yoosuf Sagar Abdullah is no more, but 51 shares still continue to be in his name, apparently for want of sanction from the competent authority for transferring them to others. Only 161 shares have been issued, and the other shares are now being held by Yakkob Yoosuf Sagar (son of the founder through his Indian wife), Ahammed Yoosuf Sagar (son through a Kuwait wife), K. V. Kunhammed, Mrs. Fathima, Damodaran Nambiar and the petitioner (2 shares). Ahammed Yoosuf is a Kuwaiti citizen and a non-resident. He was appointed as managing director in February, 1973. During the same month, K.V. Kunhammed (2 shares) was appointed as assistant director and he was also authorised to manage the affairs of the company and to carry out the duties and exercise the powers of the managing director. No permission was obtained from the Reserve Bank to appoint the foreign national (Ahammed Yoosuf) as managing director. K. V. Kunhammed, who is now in virtual management, ismanaging partner of M/s. Haji P.I, Ahammed Koya & Sons, a firm carrying on the same business ; and it is this firm that is now actually doing the business of the company. The premises of the firm was raided by officers of the Enforcement Directorate in July, 1976, and they found out ' that Kunhammed had got some unaccounted money in the import of date fruits made on the basis of the licence issued to the company '. The non-residential interest in the company is more than 40 per cent, and no sanction from the Reserve Bank has been obtained to continue this position. Kunhammed has 'lately' been keeping back the minutes book and other documents without permitting the petitioner to have access to them. Consideration of the profit and loss account and the balance-sheet for the year ending September 15, 1976, was unusually postponed to July, 1977, to cover up what was detected in the 1975 raid. The business is being carried on in a manner oppressive to members including the petitioner, and he is also not being furnished with the information he is entitled to get, as director.
3. K. V. Kunhammed has filed a detailed counter-affidavit on behalf of the company denying all the petitioner's allegations and suggesting that he (the petitioner), who was actively participating in the management till 1978, has chosen to make them only because his remuneration was reduced and some of his powers were curbed during 1977 and 1978. The petitioner has got himself examined as P.W. 1 and Exs. A-i to A-3 are marked on his side. The respondent has produced only some documents and they are Exs. B-1 to B-6.
4. Counsel for the petitioner raised the following points at the time of hearing:
' (i) the appointment of Ahammed Yoosuf as managing director in February, 1973, without the sanction of the Reserve Bank was opposed to the provisions of the Foreign Exchange Regulation Act;
(ii) non-resident equity participation exceeding 40 per cent, is illegal, in view of section 29 of the Foreign Exchange Regulation Act, 1973 ;
(iii) the raid of 1976 and the consequent disclosures reveal a state of affairs which requires investigation ; and
(iv) because of Kunhammed's interest in the rival firm, the company's business has been going down.'
5. The above, according to counsel, are circumstances calling for an order under Section 237(a)(ii) of the Companies Act, 1956.
Section 237 reads ;
' Investigation of company's affairs in other cases.--Without prejudice to its powers under section 235, the Central Government--
(a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if-
(i) the company, by special resolution ; or
(ii) the Court, by order,
declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government; and
(b) may do so if, in the opinion of the Central Government, there are circumstances suggesting-
(i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose ;
(ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members ; or
(iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, the managing agent, the secretaries and treasurers, or the manager, of the company.'
6. The section conceives of three situations where the Central Govt. can appoint inspectors for investigation. The first is when the company itself declares that such an investigation is necessary. The second is when the court makes an order. And the third is when the Central Govt. forms an opinion that the circumstances enumerated in Clause (b) exist. The first is easy to understand : When the company itself wants an investigation, the Central Govt. need not stop to enquire why. The third can also be understood because when suo motu action is proposed to be taken by the Government, it shall not act arbitrarily, but only consistent with guidelines laid down. But what about the second situation, where the court has to make an order Mr. Ramanatha Pillai for the petitioner suggests that the power and the discretion of the court are uncontrolled ; it can direct an investigation whenever it suspects that all is not well with the company. Whether the apprehensions of the court are true or not is a matter to be found by the investigating inspectors, and the court is not to insist on evidence. It appears to me that this is too broad a statement. Investigation of the company's affairs by the Department of Trade in England has always been understood as a statutory exception to the rule in Foss v. Harbottle ( 2 Hare 461) that the internal affairs of a company is a matter for the majority, and a dissatisfied minority cannot seek outside interference. The Companies Act provides for the protection of minorities in three ways (i) by giving them a right to complain against oppression, (ii) by permitting them to act on behalf of the company when it is wound up, as in the case of misfeasance proceedings, and (iii) by enabling them to obtain remedies indirectly through investigation. The court's discretion under Section 237 is, therefore, to be exercised only when it is satisfied that the minority has made out at least a prima facie case that the rule in Foss v. Harbottle  2 Hare 461, requires relaxation in the interests of the company. The Calcutta High Court has held in In re Patrakola Tea Co. Ltd., AIR 1967 Cal 406, that before the company court orders an investigation under Section 237(a)(ii), the petitioner should make out a strong case in relation to one or other of the matters referred to in Clause (b). In other words, the circumstances enumerated in Clause (b) are material for the exercise of the court's discretion also. The discretion is certainly a judicial one and is to be exercised only when a minority acts in the interests of the company as a whole.
7. Turning to the first point raised by the petitioner, the answer furnished by the respondent is that in February, 1973, when Ahammed Yoosuf was appointed managing director, there was no prohibition against a foreign national being so appointed. The Foreign Exchange Regulation Act, 1973, was not then in force ; and the predecessor enactment of 1947 contained no such restrictions. Mr. Ramanatha Pillai is unable to dispute this position ; and it is also seen from Ex. A-1 that the proposal to appoint Ahammed Yoosuf as managing director was made by the petitioner himself at the 71st meeting of the Board held on February 14, 1973. He cannot certainly complain in 1978 about a lawful decision taken by the Board in 1973 at his own instance, and then seek an investigation on that ground.
8. As regards non-resident equity participation, what Section 29 of the FER Act, 1973, lays down is that a company with more than 40 per cent. ' nonresident interest ' shall not carry on in India, or establish in India a branch, office or other place of business for trading, except with the permission of the Reserve Bank. Sub-section (2) provides that companies of this nature which were there at the commencement of the Act should apply to the Reserve Bank for permission to continue, within six months of such commencement. When an application is made, the Reserve Bank will hold an enquiry and pass orders allowing it or rejecting it. If the application is rejected, the company shall discontinue business from the expiry of 90 days after receipt of the order. When no application is made within the time allowed, a like order can then also be issued by the Reserve Bank. In the case of a company like the present, therefore, aviolation of section 29(1) can he established only if it is shown that no application at all has been made to the Reserve Bank, or that the application made has been rejected. But the petitioner admits in evidence (as P. W. 1) that in May, 1974, he himself had discussed with a firm of lawyers in Madras the question of approaching the Reserve Bank for permission under the FER Act (46/73). He adds :
' It is true that we had taken some steps to get appropriate permission from the Reserve Bank under the Foreign Exchange Regulation Act. I do not know whether the Reserve Bank has denied or given permission.'
9. Thus, an application for permission has admittedly been made and there is nothing to show that it has been rejected, and that the company is continuing its activities in spite of such rejection. It is difficult to accept the petitioner's contention that the burden of showing that permission has already been obtained is on the respondent ; the respondent has no such case. Even the petitioner does not state that the application has been rejected. The respondent's case in the counter-affidavit is that the matter is still pending with the Reserve Bank ; and they cannot be called upon to produce an order which has not been passed at all. The FER Act, 1973, also provides the machinery for its enforcement and it is idle to think that it will be set in motion only under orders of this court under Section 237 of the Companies Act. In this view, it is also unnecessary to consider the respondent's contention that the 51 shares of the deceased founder could not be taken note of for arriving at the 40% limit.
10. The third circumstance relates to the 1976 raid and its consequences. According to the petitioner, the officers of the Enforcement Directorate raided the business premises of Kunhammed Koya's firm as also the office of the respondent-company in July, J976. A typed sheet of paper evidencing transactions to the extent of Rs. 6,75,000 was seized from Koya's office and this indicated that Koya had concealed, as unaccounted, the company's income to that extent. The amount was later included in Ex. A-3, balance-sheet for the year ending September 15, 1976 ; but the company had never received this amount. It was forced to pay income-tax for the said amount and to borrow funds for the purpose. Koya also took his commission for the profit. The petitioner signed Ex. A-3 as a director only because he was persuaded to do so by Koya and the auditors. But in cross-examination (as P.W. 1), the petitioner admits that his residence was also raided and some papers seized, including a file of the year 1972. The petitioner himself had brought down this paper from Kuwait. Copies of letters he had sent to Yakkob Yoosuf Sagar were also taken away. An exact copy of the typed sheet seized from Koya's office was found at the petitioner's residence also. The sheet disclosed disbursements to the tune of Rs. 6'75 lakhs, including Rs. 52,000 to Koya, Fathima, her daughter and the petitioner himself. He had not actually received any portion of the aforesaid amount, though he had given a statement to the Enforcement Officers that he had received Rs. 2,000. It was the petitioner himself who had typed out the sheet, though under instructions from Koya. Both Koya and himself are parties to the adjudication proceedings initiated in pursuance of the raid and the proceedings are still pending.
11. If anything, the above discloses that the raid was conducted at a time when the petitioner and Koya were on good terms, and was directed against something which was not the making of Koya alone. One of the files seized admittedly belonged to a period before Koya was made a director. It was the petitioner who had brought it down from Kuwait. The contents of the typed sheet were equally against Koya and the petitioner. Even on his own admission, the petitioner was actively participating in the management of the company's affairs from 1973 to 1978. He was operating the bank account from 1975 to 1978. He was attending office every day and was getting a decent salary and bonus. He was carrying on correspondence on behalf of the company. Exhibit A-3, balance-sheet, which accounted for the income said to have been concealed, was signed by him long after the raid. I refrain from saying anything more because the adjudication proceedings are still pending, but it will certainly be unwise to bring about a parallel investigation by the inspectors of the company department into a matter which has already been enquired into by officers of the Enforcement Directorate, and is now at the stage of adjudication. The investigation under Section 237 is into the affairs of a company, and not into a specific illegal act which a company or even an individual could commit.
12. Detriment to the company by reason of Koya's interest in the rival firm also remains a bare allegation ; if anything, the evidence is opposed to it. The company's business is to import dates, and to export wood scantlings, coir products, spices and the like. P.W, 1 does not refer to the diversion by Koya of even a single item of import or export. Before 1973, the company had very little export business ; the business was practically confined to importing dates of the annual value of Rs. 5 lakhs. This business continued in the same fashion till 1977, when the system of ' open general licence ' was introduced, and it became less attractive. Obviously, therefore, the import business had not suffered because of Koya's induction. As for exports, this line of business had picked up only from 1973, and the maximum amount of business was done in 1974. In 1975 and 1976, the company got some export orders, and these were executed by using the licence of Koya's firm ; the company itself had no export licence. On the export side also, therefore, the company had not suffered any difficulty because of Koya. The petitioner knew, when Koya was brought in asdirector with his active participation in February, 1973, that the 'rival firm ' was doing the same business on a large scale, at least from 1958.
13. The respondent's case that the petitioner's present approach to this court is the result of his annoyance at the board resolutions reducing his remuneration and cancelling his power to operate bank accounts, need not be minutely examined in view of what has been stated above. It must, however, be noticed that the petitioner was a party to Exs. A-1 and A-2, resolutions of 1973, whereunder Ahammed Yoosuff was made managing director and Koya, the director-in-charge. On his own admission, the officers of the Enforcement Directorate had reason to suspect his complicity in the circumstances that led to the 1976 raid. The business of the company had also not gone down because of Koya's rival interests; and at any rate, the petitioner was a full-time salaried director during the period in question. Under these circumstances, it is difficult to assume that the accusations now made in regard to these matters are all based on a bona fide apprehension about the affairs of the company, and not influenced by an anxiety to grind one's own axe. No circumstance have been brought to light to suggest that the business of the company is being carried on for fraudulent or unlawful purposes or in a manner oppressive of the minority, or that those in management (and the petitioner is admittedly one among them) have misconducted themselves towards the company or its members.
14. I, therefore, dismiss the company petition, leaving the parties to bear their own costs.