Madras High Court stays single-Judge order for inquiry into CSI funds; says "no unusual expenditure" should be incurred by CSI pending appeal

The Madras High Court on Monday stayed a February 1 single-Judge order whereby the Registrar of Companies (RoC) was asked to proceed with an inquiry under Section 206 of the Companies Act, 2013 against the Church of South India Trust Association (CSITA) for alleged malpractices with respect to assets owned by it. .The stay was issued by a Bench of Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy today on an appeal moved by the CSTIA. .While issuing notice in the matter, the Court was informed that as per the single-judge judgment, today was the last day for passing an order in the matter. In view of this and other submissions made, the Court issued an order of unconditional stay on the single-judge order until the disposal of the appeal. .The Court, however, also added that no unusual expenditure should be incurred by CSTIA while the appeal remains pending..Appearing for the CSTIA, Senior Advocate V Shekhar pointed out that the single-Judge had agreed with the Trust that the report issued in the matter by the RoC and the order for the initiation of serious fraud investigation were passed without complying with the procedure, without application of mind and in violation of natural justice principles. .However, he said that the single-judge directed that the challenged Section 208, Companies Act report issued by the RoC be treated as a Section 206 (4) show cause notice "considering the nature of the allegations.".If such an order is allowed to stand, the authority will not have an open mind in examining the allegations against the CSI Trust, Shekhar argued, asserting that the Trust is ready cooperate if a proper inquiry is conducted. “We are ready to cooperate, there is nothing to hide.. we will prove before the ROC,” he said. .Chief Justice Banerjee, in turn, proposed that the Division Bench could modify the single-judge order so that it would be open to the RoC to issue a notice under Section 206, Companies Act on the basis of the complaint made against the CSI. Thereafter, the CSI could file their reply and the RoC can take further steps, the Court suggested. .In its order, the Court recorded as much, observing that the modified order could direct the issuance of a fresh show cause notice and for the CSTIA to respond within a specific time frame, so that the Registrar and the Central government may thereafter deal with the matter in accordance with law. .Appearing for the complainant who had alleged that the Trust indulged in fraud and on whose complaint the RoC had issued its report, advocate Sreedhar informed the Court that the single-judge order being challenged was a common order passed in three petitions. ."To an extent, Mr Prakash is right. An order cannot become a show cause notice.. The order should not be regarded as any pronouncement on the merits," Chief Justice Banerjee orally observed. .He added that the Court can pass an order requiring the RoC to issue a show cause notice so that he may take further steps in accordance with the law. The Chief Justice added that such an order would not be prejudicial to the complainant either. .All the same, the Court adjourned the hearing to April 19, opining that it should first hear the views of the other respondents to the case.