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Swadeshi Cotton Mills Ltd. Vs. Swadeshi Polytex - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad High Court
Decided On
Case NumberCompany Petition No. 21 of 1976
Judge
Reported in[1982]52CompCas483(All)
ActsCompanies Act, 1956 - Sections 236, 237, 238, 239, 397, 398 and 408; Evidence Act, 1872 - Sections 123 and 124
AppellantSwadeshi Cotton Mills Ltd.
RespondentSwadeshi Polytex
Advocates:V.K. Burman and ;Raja Ram Agarwal, Advs.
Excerpt:
- - they had addressed the court on the scope of sections 124 of the evidence act as well as on the maintainability of the claim of privilege. at best it is only an expression of opinion by a particular inspector. the claim was rejected on the groundthat the affidavit in support of the claim of privilege failed to satisfy thatthe disclosure of the document would lead to public injury. 11. applying the above principles, i am satisfied that public interest would be affected by the disclosure of the contents of the document. 12. for the reasons indicated above, i am satisfied that the claim for privilege under sections 124 of the evidence act is well founded and must be upheld......binding on the government nor on companies and such reports are treated as confidential. the inspector's report is not even evidence of authoritative opinion, has no evidentiary value except for what the inspector might have stated and to make it public may also affect the follow-up action by the department. moreover, if the inspection reports are made public, it will result in a situation where the inspectors will not express their free and frank opinion and the inspection will not be effective or purposeful. 4. i, therefore, claim privilege under section 124 of the indian evidence act, 1872.' 2. i have heard mr. v.k. burman and mr. raja ram agarwal, counsel for the petitioner-company. they had addressed the court on the scope of sections 124 of the evidence act as well as on the.....
Judgment:

A. Banerji, J.

1. The Swadeshi Cotton Mills Ltd., hereinafter referred to as the ' petitioner-company', made an application, A/83, for summoning certain documents including the 'report of the Company Law Board on Swadeshi Polytex, Ghaziabad, on the investigation made by them under Sections 239 of the Companies Act and all papers connected therewith '. By an order dated 1st August, 1979, this court had directed that the report of the inspector made under Section 239 of the Companies Act, submitted to the Company Law Board may be summoned from the Board. Thereupon, Mr. V.K. Burman, learned chief standing counsel for the Central Govt., claimed privilege in respect of the above document and filed the affidavit of Shri S. Balaraman, Under-Secretary to the Company Law Board. In this affidavit, A/199, it was stated :

' 2. I have carefully considered the said document and have come to the conclusion that it contains communications made in official confidence and I consider that public interest would suffer by their disclosure for the reasons stated hereinafter.

3. In this connection, it is respectfully submitted that the inspection report represents only the inspector's views without reference to any possible explanations of the company concerned and are therefore one-sided. Further the opinion given in the report are neither binding on the Government nor on companies and such reports are treated as confidential. The inspector's report is not even evidence of authoritative opinion, has no evidentiary value except for what the inspector might have stated and to make it public may also affect the follow-up action by the department. Moreover, if the inspection reports are made public, it will result in a situation where the inspectors will not express their free and frank opinion and the inspection will not be effective or purposeful.

4. I, therefore, claim privilege under Section 124 of the Indian Evidence Act, 1872.'

2. I have heard Mr. V.K. Burman and Mr. Raja Ram Agarwal, counsel for the petitioner-company. They had addressed the court on the scope of Sections 124 of the Evidence Act as well as on the maintainability of the claim of privilege. It will, therefore, be relevant to refer to Sections 124 of the Evidence Act. It reads as follows :

'124. Official communications.--No public officer shall be compelled to disclose communications made to him in official confidence, when he considers that the public interests would suffer by the disclosure.'

3. The above section makes it clear that a public officer cannot be compelled to disclose communications made to him in official confidence when the public officer is of the opinion that public interest would suffer by the disclosure. If public interest suffers, the public officer cannot be compelled to disclose the communication or the matter in the document concerned. It is also settled that it is for the public officer to satisfy himself that the matter, the production of which is claimed, is one the disclosure whereof would affect the public interest. If this is so, the court shall not compel that public officer to produce that document or paper. A duty is cast on the court also to satisfy itself that the plea raised by the public officer is tenable.

4. Privilege can also be claimed in respect of a document or official record under Sections 123 of the Evidence Act where it relates to any affairs of the State. In such a case, it is incumbent on the court to come to a conclusion that the document in respect of which privilege is claimed are official records relating to the affairs of the State. It has been laid down in the case of State of Punjab v. Sodhi Sukhdev Singh : [1961]2SCR371 , that the court is competent, and indeed is bound, to hold a preliminary enquiry and determine the validity of the objections to the production of the documents and that necessarily involves an enquiry into the question as to whether the evidence relates to an affair of the State under Sections 123 or not. The Supreme Court has also ruled that in holding an enquiry into the validity of the objections under Sections 123, the court cannot permit any evidence about the contents of the document, on the question whether the court has the power to inspect the document or not, there is a conflict of decisions. In the case of Robinson v. State of South Australia AIR 1931 PC 264, it was held that the court has power to inspect the document in appropriate cases. In the case of S.B. Choudhury v. I. P. Changkakati AIR 1960 Assam 210, it was ruled that the court has no power to inspect the document if it refers to the affairs of the State but should decide the matter by looking into the other circumstances and before ordering production of the document. But the same is not the position in respect of a document in respect of which privilege is claimed under Sections 124 of the Evidence Act. Here the document can be inspected by the court to find out if the disclosure thereof would affect public interest. Mr. V.K. Barman has submitted to the court the report of the inspection under Sections 239 of the Companies Act in a sealed envelope.

5. Before the court looks into that document it will be necessary to consider a few facts. The petitioner-company has filed the present application under Sections 397/398 of the Companies Act praying for an investigation into the affairs of the respondent-company and for passing appropriate orders so that the affairs of the respondent-company be conducted in accordance with law. The Company Law Board was also seized of a proceeding under Sections 408 of the Companies Act. It appears that an inspector was appointed to carry on investigation into the affairs of the respondent-company under Sections 239. The inspector submitted his report. In the present petition under Sections 397/398 the petitioner-company seeks the production of the report of the inspector in support of its case of mismanagement of the affairs of the respondent-company by the respondents. An order was passed for the production of that report but the Company Law Board has, through its Under-Secretary, claimed the privilege and objected to the production of the report.

6. Shri S. Balaraman in his affidavit has stated, firstly, that public interest would suffer by the disclosure of the contents of the report; secondly, that the report of the inspector represents only an inspector's views without any explanation by the company concerned and is, therefore, one-sided; thirdly, that the report is confidential in nature; fourthly, that the report is not of evidentiary value, and, lastly, that if such reports are made public, the inspectors will not be able to express their free and frank opinion and such inspection will not be effective or purposeful. It appears to me that the plea raised by Sri S. Balaraman has substance and force. An investigation into the affairs of a company under Sections 239 of the Act is made in pursuance of an order of the Central Govt. passed under Sections 236 or Sections 237. Under Sections 237, the Central Govt. may appoint an inspector if in the opinion of the Central Govt. there are circumstances suggesting that the business of the company is being conducted with intent to defraud its creditors, members or any other person, 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 or that the 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 that the members of the company have not been given all the information with respect to its affairs. This shows that the scope of the inspector's enquiry can be very wide and his report may relate to every affair in the management and conduct of the affairs of the company. Such a report is based on the personal views of the inspector conducting the investigation. Such a report may not be on the basis of the accepted position. There may be serious objections to the contents of the report by the company concerned. It may be that the report is not accepted by the Central Govt. Such a report does not become evidence in a case until the inspector is examined. At best it is only an expression of opinion by a particular inspector. It is true that the investigations are done by the inspector in pursuance of an order of the Central Govt. and in the course of his duty, but that does not make the contents of the report to be gospel truth. It has to be sifted, examined and put to the officials of the company and then the Government may make use of it. Such a report will certainly include particulars of one or more transactions entered into by the company. It is possible that the Central Govt. may launch proceedings against the company and its officials based on the report of the inspector after corroboration. It is possible for the Central Govt. to direct the inspector to carry out a further investigation based on his report. It is also possible for the Central Govt. to direct further investigation in relation to such transactions from othersources. To reveal the contents of such a document to the public before its acceptance by the Central Govt. would not be conducive to public interest as it may thwart further proceedings and investigations. Public interest demands that matters reported to the Central Govt. should first be considered by the Central Govt. If the contents of such reports were made public before its consideration by the Central Govt, or being accepted by the Central Govt. it may lead to a dangerous precedent where the result of the investigation would have to be disclosed at a premature stage. Further, there may be comments on the correctness of the report and this may preclude the inspector from making a free and frank report, still further, the premature disclosure of the contents of the report may stifle further enquiries and proceedings. I am, therefore, of the opinion that a report of the inspector made under Sections 239 of the Companies Act, is not to be disclosed to the public before its acceptance by the Government. If the Government were to pass further orders against a company or its officials based on the report it may raise an occasion for the production of the document. However, if it is found that the document contains revelations which affect the public interest then in that event the public officer cannot be compelled to produce the document or disclose its contents once privilege is claimed on this count. In the present case, such a privilege has been claimed.

7. Mr. Raja Ram Agarwal strenuously argued that there is nothing in the provisions of the Companies Act which make the document sacrosanct and beyond the reach of the court. His contention further was that a document which is on the record of the proceedings before the Company Law Board is a document about which no privilege can be claimed. In other words, his argument was that such a document is the basis of the governmental action and, therefore, it cannot be kept confidential. In support of his contention, he referred to three decisions of the Supreme Court, State of Punjab v. Sodhi Sukhdev Singh : [1961]2SCR371 , Amur Chand Butail v. Union of India : AIR1964SC1658 , and State of U.P. v. Raj Narain : [1975]3SCR333 , In the case of State of Punjab v. Sodhi Sukhdev Singh, privilege was claimed under Sections 123 of the Evidence Act. Section 123 relates to the character or class of the document. If the document relates to the affairs of the State the court has to leave it to the head of the department to decide whether he should permit its production or not, and, only if it is found that it does not relate to an affair of the State then the claim of privilege has to be rejected.

8. In the case of Amar Chand Butail v. Union of India, the court was considering the claim of privilege under Sections 123 of the Evidence Act, for a document relating to the affairs of the State and the nature and the extent of enquiry which the court could hold. The claim was rejected on the groundthat the affidavit in support of the claim of privilege failed to satisfy thatthe disclosure of the document would lead to public injury. In my opinion, therefore, this decision is also of no assistance in the present case.

9. In the case of State of U.P. v. Raj Narain : [1975]3SCR333 , the Supreme Court was also considering a case under Sections 123 and 162 of the Evidence Act. The court laid down the foundation of the law behind Sections 123 and 162 of the Evidence Act in the following words (p. 875):

' It is that injury to public interest is the reason for the exclusion from disclosure of documents whose contents if disclosed would injure public and national interest. Public interest which demands that evidence be withheld is to be weighed against the public interest in the administration of justice that courts should have the fullest possible access to all relevant materials. When public interest outweighs the latter, the evidence cannot be admitted. The court will proprio motu exclude evidence the production of which is contrary to public interest. It is in public interest that confidentiality shall be safeguarded. The reason is that such documents become subject to privilege by reason of their contents. Confidentiality is not a head of privilege. It is a consideration to bear in mind. It is not that the contents contain material which it would be damaging to the national interest to divulge but rather that the documents would be of a class which demand protection.'

10. In this case, the court was considering the order by the High Court that no privilege can be claimed by the State of Uttar Pradesh under Sections 123 of the Evidence Act in respect of a Blue Book summoned from the Govt. of Uttar Pradesh. The privilege was claimed under Sections 123. In the case, it was also held that the affidavit filed in support of the claim of privilege was defective and the High Court was given a direction that it could direct a further affidavit to be filed on behalf of the State. It was further laid down that if the court in respect of the affidavit wishes to inspect the document, the court may do so. Although, strictly speaking, Sections 123 of the Evidence Act is not applicable to the facts of the present case, yet the principle laid down in respect of public interest would be applicable.

11. Applying the above principles, I am satisfied that public interest would be affected by the disclosure of the contents of the document.

12. For the reasons indicated above, I am satisfied that the claim for privilege under Sections 124 of the Evidence Act is well founded and must be upheld. Accordingly, the objection is sustained and the prayer for the summoning and production of the inspector's report is refused.


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