A Pending FIR Alone Cannot Curtail Shareholders’ Voting Rights.

The petitioner, a shareholder of Karnataka State Seeds Corporation Limited, alleged that shares belonging to deceased shareholders had been transferred fraudulently and sought investigation and consideration of his representations dated 14 December 2022 and 2 August 2023.

An internal auditor reported suspected manipulation of share transfers, following which the Corporation lodged a police complaint; an FIR was registered and the investigation remained pending.

The Corporation’s Board had resolved to hold elections and permit voting by shareholders named in the FIR, relying on the State Law Department’s opinion that a pending investigation alone did not justify curtailing their voting rights.

The election was not proceeded with while the writ petition and an interim order were in force.

1. Whether a writ of mandamus should issue directing the respondents to investigate the alleged fraudulent transfer of the Corporation’s shares, when the police had registered an FIR and investigation was ongoing.

2. Whether the Court should restrain the Corporation from holding elections or allowing shareholders named in the FIR to vote, pending investigation into the alleged share transfers.

The petition invoked the High Court’s writ jurisdiction under Article 226 of the Constitution.

The Court applied no specific provision of the Companies Act and cited no precedent. It proceeded on the basis that, where the alleged offences are already under police investigation, no further investigative direction is required on the facts; and that the mere pendency of an FIR, without a determination that the share transfers were illegal, does not by itself justify curtailing shareholders’ voting rights.

The Board’s election decision remained operative because it had not been challenged.

The Court considered the petitioner’s grievance substantially addressed because the Corporation had referred the allegations to the police, an FIR had been registered, and the investigation was still underway.

It declined to direct a separate investigation.

As to the election, the Court noted the Law Department’s opinion, the Board’s resolution to proceed with the election and allow the named shareholders to vote, and the absence of any finding by a competent authority that the transfers were illegal.

Since the Board’s decision had not been challenged, the Court found no basis in this petition to prevent the Corporation from acting on it.

Respondent No. 3 was left at liberty to proceed pursuant to the Board’s resolution dated 10 July 2024.

No further order was made on the growers’ shareholders’ impleading application.