Appointment of Government nominee directors

‘The Company had invited deposits from the public but was unable to repay the matured deposits. Many complaints were made by the depositors to the company law board. The Company Law Board took cognizance of matter and formulated  a scheme and directed the company to pay to the depositors accordingly.

The company however, failed to adhere to the scheme Thereafter the Central Government filed a petition under section 408, read with 397 and 398. It was observed that the company had  made huge  investments in its associate companies. Also the company made provisions for its debtors without giving any logical reasoning and had even written off the debts. The amount of debtors also was wrongly represented by the company. The Company had made other violations and the books of accounts of the company were not maintained properly. The Central Government prayed for six government directors being appointed in the company. The CLB after considering the entire case partly allowed the central government application and ordered two central government directors be appointed to monitor and assist the company for a period of 3 years.

Morepen Laboratories Ltd. v. Union of India [2008] 83 SCL 204 (HP)

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