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B.M. Bajoria Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCivil Writ Appeal No. 1082 of 1969
Judge
Reported in[1972]42CompCas338(Delhi); ILR1971Delhi715
ActsCompanies Act, 1956 - Sections 209(4) and 242; Constitution of India - Article 14; Delhi Special Police Establishment Act, 1946 - Sections 2
AppellantB.M. Bajoria
RespondentUnion of India and ors.
Advocates: V.M. Tarkunde,; H.L. Anand,; T.M. Chandwani,;
Cases ReferredRohtas Industries Ltd. v. S. D. Agarwal and
Excerpt:
(i) companies act (1956) - sections 209(4), 235 & 237--inspection under section 209(4) --lodging of f.i.r. with police on the report of inspector --copy of report not supplied to company --no procedural discrimination --provisions of sections 235 & 237 and 241 examined --constitution of india article 14.; where it was contended that to lodge a report with the police on the basis of a report submitted by an official of the company law board after inspection of account books under section 209(4) of the act, without supplying a copy of the report of that official to the company, would result in such procedural discrimination as would be vocative of article 14 of the constitution :; (rejecting the above contention) that an investigation into the affairs of a company is ordered in.....h.r. khanna, c.j.(1) this is a petition under articles 226 and 227 of the conctitution of india by b. m. bajoria of calcutta against (1) the union of india. (2) the company law board, (3) shri s. s. singh, under secretary, company law board and (4) the director, special police establishment, cbi, new delhi. (2) the facts giving rise to the petition are as below : the petiri g. srinivasan, assistant inspecting officer, company law board, visited the office of the company and carried out an inspection of the books of accounts and other records of the company by virtue of authority conferred by section 209 of the companies act, 1956. shri srinivasan made a report of the outcome of the inspection to the company law board. the company law board considered the report. on january 25, 1969 shri.....
Judgment:

H.R. Khanna, C.J.

(1) This is a petition under Articles 226 and 227 of the Conctitution of India by B. M. Bajoria of Calcutta against (1) The Union of India. (2) The Company Law Board, (3) Shri S. S. Singh, Under Secretary, Company Law Board and (4) The Director, Special Police Establishment, Cbi, New Delhi.

(2) The facts giving rise to the petition are as below : The petiri G. Srinivasan, Assistant Inspecting Officer, Company Law Board, visited the office of the Company and carried out an inspection of the books of accounts and other records of the Company by virtue of authority conferred by section 209 of the Companies Act, 1956. Shri Srinivasan made a report of the outcome of the inspection to the Company Law Board. The Company Law Board considered the report. On January 25, 1969 Shri S. S. Singh respondent No. 3 addressed the following letter to the Director, Special Police Establishment, Cbi, New Dhi, respondent No. 4 :-

'M/S Cuchterlony Valley Estates (1938) is a Public Limited Company situated at New Hope, New Hope (P.O.), Nilgiris District. The company is cultivating and selling Tea and Coffee. This company is managed by the Board of Directors with a Managing Director and the present Directors are S/Shri B. N. Bajoria, Managing Director, Bakishore Bajoria. B. P. Pittie, K. N. Jalan, and G. K. Tubsrewala. During the course of a routine inspection under section 209(4) under the Companies Act by Shri C. Srinivasan, Assistant Inspecting Officer of this Department it has come to light that the properties of the company have been dishonestly disposed of and the proceeds thereof were not credited in the accounts of the company. Timber from the reserved area land of the company, viz. Lauriston Estate; New Hope Estate, Kelly Division, Glermans Estate, Suppolk Division, Tullous Division, etc, have been dishonestly cut and removed and its proceeds amounting to over Rs. 6.00 lakhs were not credited to the accounts of the company but have been dishonestly misappropriated. This has been done between January, 1967 and February, 1968 as presently seen. It has further come to light that certain properties of the company were sold at high price but in the books of the company lesser amounts were credited and the difference was dishonestly misappropriated another mode of dishonest misappropriation of the funds of the company has been found, inasmuch as the actual expenses incurred by or on behalf of the company were inflated and the inflated amount was claimed from the company between the period February, 1966 to January, 1967. The difference between the inflated amount charged and the actual amount spent was dishonestly misappropriated. It is further learnt reliably that the above dishonest misappropriations from the funds of the company were committed by the Management in connivance with certain employees and that the company was dishonestly deprived of its lawful property and moneys.

'AS there is reasonable ground for believing that the Management along with other employees have committeed the above acts of dishonest misappropriation of the company's money and have further dishonestly or fraudulently falsified the records, it is requested that a case under sections 120-B r/w 409 IPC., 409, 467, 471 and 477-A Indian Penal Code may kindly be registered and investigated. The details of the various alleged misappropriations are given in the Annexure. This may please be registered for investigations and the offenders brought to book.'

(3) Respondent No: 4 then took cognizance and had a case registered on the basis of the above letter. Copy of the First Information Report was forwarded by the police to the magistrate having jurisdiction.

(4) On November 6, 1969 the petitioner filed the present writ petition for the issuance of a writ to quash :

'(A) the report of the Assistant Inspecting Officer of the Company Law Board; (b) the reports and proceedings of the Company Law Board subsequent to the report of the Assistant Inspecting Officer aforesaid; (c) the decision of the Company Law Board to prosecute the management of the Company, and (d) the reference of the matter by the Board to the Central Bureau of Investigation and the communication of the Under Secretary of the Company Law Board dated January 25, 1969 and the proceedings now being taken by the Central Bureau of Investigation in pursuance thereof.'

(5) The petitioner has also prayed for a direction restraining the respondents from in any manner taking steps in relation to the said allegations in pursuance of the report or in relation to the conduct and affairs of the Company,

(6) The petition has been resisted by the respondents and the affidavit of Shri Sadho Saran Singh, Under Secretary of the Company Law Board, has been filed in opposition to the petition.

(7) The first contention, which has been advanced on behalf of the petitioner, is that the officers of the Delhi Special Police Establishment have no power to investigate into the offences alleged to have been committed in the State of Tamil Nadu, because no consent to such investigation had been given by the Government of that State. This contention, in our opinion, is not well-founded. The Delhi Special Police Establishment has been constituted by the Central Government by virtue of the power conferred by section 2 of the Delhi Special Police Establishment Act, 1946 (Act Xxv of 1946). Section 3 of that Act empowers the Central Government to specify by notification in the Official Gazette the offences or classes of offences which are to be investigated by the Delhi Special Police Establishment. The Central Government issued a notification under the above provision on November 6, 1956. The offences under section 409, 467, 471, 477A as well as conspiracies in relation to or in connection with those offences are mentioned besides other offences in that notification. Section 5 of the Act gives power to the Central Government to extend the powers and jurisdiction of special police establishment to areas other than a Union than a Union territory. According to section 6, nothing contained in section 5 shall be deemed to enable any member of the Delhi Special Police Establishment to exercise powers and jurisdiction in any area in a State, not being a Union territory or railway area, without the consent of the Government of that State. As the investigation in the present case has been carried on by the Special Police Establishment in areas now forming part of Tamil Nadu, question arises whether the Government of Tamil Nadu has given its consent to the members of the Delhi Special Police Establishment to exercise powers and jurisdiction in Tamil Nadu. In this connection we find that Shri G. P. Kalra, Section Officer, Department of Personnel, Cabinet Secretariat, has filed his affidavit and along with that has produced a copy of the letter dated January 23, 1957 which was sent on behalf of the Home Department of the Madras (now Tamil Nadu) Government to the Ministry of Home Affairs, Government of India. According to that letter, the Madras Government agreed to the members of the Delhi Special Police Establishment exercising powers and jurisdiction within the Madras State with regard to the offences mentioned in the notification dated November 6, 1956. Affidavit has also been filed by Shri A. T. Sathianathan, Deputy Secretary to the Government of Tamil Nadu. It is stated by Shri Sathianathan in that affidavit 'that proper sanction was accorded by the State of Tamil Nadu in letter No. 188-Home dated January 23, 1957 for the functioning of the Delhi Special Police Establishment exercising powers and jurisdiction within the State of Tamil Nadu with regard to offences mentioned in the notification of the Government of India.' According further to the affidavit, the file was dealt with at proper level in accordance with the Tamil Nadu Government Business Rules and Secretariat Instructions then in force. Shri Sathianathan has added that the final orders for according sanction for the functioning of the Delhi Special Police Establishment in, the State of Tamil Nadu were approved by the then Chief Minister Shri Kamaraj. The material brought on record, in our opinion, clearly shows that the State of Tamil Nadu has given its consent to the members of the Delhi Special Police Establishment exercising powers and jurisdiction within the State of Tamil Nadu with regard to offences mentioned in the notification dated November 6, 1956. The argument that there is nothing to show that according to the Rules of Business the Chief Minister was authorised to give the approval, is not convincing, because there is a presumption of regularity of official acts. Apart from that, the affidavit of Shri Sathianathan shows that the file was dealt with at proper level in accordance with the Tamil Nadu Government Business Rules and Secretariat Instructions then in force. A similar contention was raised in the case of The Management of Advance Insurance Co. Ltd. v. Shri Gurudasmal and others, : [1970]3SCR881 and was repelled by the Court in the following words :

'9.A doubt raised in the High Court and before us that the Government of Maharashtra had not considered the matter or that the consent was not properly given, is sufficiently answered by the affidavit of the Under Secretary to the Government of Maharashtra dated July 18, 1968 in which it is clearly stated that the Chief Minister had considered the matter and given his consent and that under the Rules of Business he was quite competent to do so. No argument has been advanced before us which entitles the appellant to go behind the memorandum and the affidavit. There is a presumption of regularity of official acts and even apart from it, the memorandum and the affidavit clearly establish that the consent was given.'

(8) Before dealing with the other contention advanced on behalf of the petitioner, it may be useful to refer to some of the provisions of the Companies Act. Section 209 of the Act relates to books of account to be kept by a company. Sub-section (4) of that section provides for the inspection of books of account and reads :

'(4)(a) The books of account and other books and papers shall be open to inspection by any director during business hours. (b) The books of account and other books and papers shall be open to inspection during business hours- (i) by the Registrar, (ii) by any officer of Government authorised by the Central Government in this behalf; Provided that such inspection may be made without giving any previous notice to the company or any officer thereof. (c) The Registrar or such officer may during the course of inspection- (i) make or cause to be made copies of the books of account and other books and paper (ii) place or cause to be placed any marks of identification thereon in token of the inspection having been made. (d) In order to enable the Registrar or such officer to make an inspection of the books of accountant and other books and papers of the company. it shall be the duty of the company- (i) to produce to the Registrar or such officer such books of account and other books and papers of the company as the Registrar or such officer may require, (ii) otherwise to give to the Registrar or such officer all assistance in connection with the inspection which the company is reasonably able to give.'

(9) Sections 235 to 251 pertain to investigation of the affairs of a Company. Section 235 provides for investigation of affairs of company on application by members or report by Registrar. Section 237 deals with investigation of the affairs of a company in other cases and reads as under :

''237.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.'

Section 239 gives power to inspectors to carry investigation into affairs of related companies or of managing agent. Section 240 provides that it shall be the duty of all officers, employees and agents of a company to preserve and to produce to an inspector or a person authorised all books and papers relating to the company and otherwise to give assistance in connection with the investigation. Section 240A empowers the inspector, where he has reasonable ground to believe that the books and papers of, or relating to, a company may be destroyed, mutilated or altered, to apply to a magistrate for seizure of such books and papers. Section 241 makes provision for the submission of the inspectors' to the Government. The Central Government is required to forward a copy of the final report made by the inspectors to the company at its registered office, and other persons specified in the section. Section 242 empowers the Central Government to launch prosecution if, from any report made under the preceding section, it appears to the Central Government that any person has, in relation to the company, been guilty of an offence. Sub-section (1) of that section reads as under :-

'242.(1) If, from any report made under section 241, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate, managing agent, secretaries and treasurers, or associate of a managing agent or secretaries and treasurers, whose affairs have been investigated by virtue of section 239, been guilty of any offence for which he is criminally liable, the Central Government may, after taking such legal advice as it think fit, prosecute such person for the offence; and it shall be the duty of all officers and other employees and agents of the company, body corporate, managing agent, secretaries and treasurers, or associate, as the case may be (other than the accused in the proceedings), to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give.

(10) Section 243 makes provision for an application for winding up of a company or for an order under sections 397 or 398, if it appears to the Central Government from the inspectors' report that it is expedient to do so. Section 244 authorised the Central Government to initiate proceedings in the name of a company for the recovery of damages or property if, from perusal of the report, it appears to the Central Government that such proceedings ought, in the public interest, to be brought by the company. It is not necessary for the purpose of this case to refer to the other provision relating to investigation into the affairs of the company.

(11) It is argued by Mr. Tarkunde on behalf of the petitioner that if it is intended to prosecute a director of the company in respect of some act of embezzlement or malfeasance concerning the affairs of the company the only way to do so is by directing investigation into the affairs of the company under section 237 of the Companies Act. After a report under section 241 of the Act is received as a result of that investigation, a copy of that report should be supplied to the company. The Government may in that event, after taking legal advice, launch prosecution in accordance with section 242. To lodge a report with the police on the basis of a report submitted by an official of the Company Law Board after inspection of account books under section 209(4) of the Act without supplying a copy of the report of that official to the company, would result, according to the learned counsel, in such procedural discrimination as would be vocative of Article 14 of the Constitution. The above argument, though ostensibly attractive, on closer examination, in our opinion, would be found to be not tenable. An investigation into the affairs of a company is ordered in a variety of circumstances which have been mentioned in section 235 and 237 of the Companies Act. In cases covered by section 237(a) the Government is bound to appoint one or more competent persons as inspectors to investigate the affairs of a company. As against that, if a case is governed by clause (b) of section 237 or in case it is governed by section 235, the Government has a discretion in the matter. An investigation into the affairs of a company under the above provisions of law from the point of view of general reputation of a company is a very serious matter. It can result in a number of consequences viz., prosecution vide section 242, winding up of the company or an order under sections 397 or 398 of the Act vide section 243 or initiation of proceedings by the Central Government in the name of the company for recovery of damages or property vide section 244 of the Act. It is also manifest that investigation is ordered into the affairs of a company when there is some aspect of those affairs regarding which the Government is not in possession of full facts and the circumstances exist as are referred to in sections 235 or 237 of the Act. In such an event, the Government orders probe into those aspects to apprise itself of the correct facts. It is only after that probe, when further facts come to the notice of the Government, that the Government has to decide about the next step i.e., whether it should drop the matter or proceed in any of the ways mentioned in sections 242 to 244 of the Act There is, however, nothing in section 237 which makes it imperative for the Government to order investigation into the affairs of the company when the Government does not consider the necessity of further probe and is already in possession of facts which, in its opinion, show the commission of an offence by an officer of the company or other person in respect of the assets of the company. There is, in such an event, no legal bar to the officer of the Company Law Board or other Government officer concerned making a report to the police. A report to the police in the very nature of things is directed against one or more than one individuals. Although the records of the company may have to be examined and produced during the course of police investigation or in evidence during the course of prosecution following that investigation, so far as the existence and continued functioning of the company are concerned, they would not be affected by such investigation or prosecution of the individuals.

(12) The question of supply of copy of inspectors report under section 241 of the Companies Act arises when the investigation into the affairs of a company is made as contemplated by sections 235 and 237 of the Act. The 'affairs of a company' have been held to mean its business affairs-its goodwill, profits or losses, contracts and assets, including its control over subsidiaries-and it makes no difference who is conducting those affairs. (See page 606 of the Principles of Modern Company Law by Gower, Third Edition). Section 241 of the Companies Act contemplates supply of a copy of the report when investigation is made. When, however, there is no such investigation, no occasion can arise for the supply of such a copy. An inspection of the account books of a company under section 209(4) is something quite distinct from an investigation into the affairs of a company as envisaged in sections 235 and 237 of the Act. The fact that in the case of such an investigation a provision is made for the supply of a copy of the report of the persons making investigation while there is no provision lor the supply of a copy of the report of the person making inspection, would not, in our opinion show discrimination vocative of Article 14 of the Constitution.

(13) We are not impressed by the argument advanced on behalf of the petitioner that section 242 alone prescribes mode of launching prosecution against officers of the company and other individuals who appeas to have been guilty of embezzlement and other acts of malfeasence in respect of the assets of a company. There is neither an express provision nor any other provision which by necessary implication warrants this conclusion. There are some provisions of the Companies Act like sections 621(1A), 624, 624A and 624B wherein the words used are 'Notwithstanding any contained in the Code of Criminal Procedure', thus indicating that those provisions would have an overriding effect. There is, however, nothing in section 242 or other provisions of the Companies Act to point to the conclusion that no prosecution can be launched or no report can be made to the police in respect of an alleged act of embezzlement or malfeasance by an individual connected with the company without recourse to an investigation under sections 235 or 237 of the Act. In the case of M. Vaidyanathan v. The Sub-divisional Magistrate, Erode and others : AIR1957Mad65 , question arose whether the provisions of section 630 of the Companies Act constituted a bar to the exercise of the jurisdiction vested in a police-officer under sections 154, 156 and 157 of the Code of Criminal Procedure. The question was answered in the negative by Rajagopalan, J. The above decision was affirmed on appeal by a Division Bench of Madras High Court (Rajamannar, C.J. and Panchapakesa, J.) in re. M. Vaidyanathan, : AIR1957Mad432 .

(14) It has been argued on behalf of the' petitioner that a company or the individual concerned may have a complete answer to offer regarding the allegation of embezzlement or malfeasance based upon the result of an inspection under section 209(4) of the Act. To initiate proceedings for prosecution without affording the company or the individual the opportunity of giving a reply to such allegations would be oppressive and be tantamount to persecution. In this respect we are of the view that more registration of a case does not necessarily mean that it would result in prosecution. If during investigation by police following such registration of the case facts come to light either in course of examination of the individual concerned or otherwise that no case for embezzlement or malfeasance has been made, the police in such a case can proceed in accordance with section 169 of the Code of Criminal Procedure. It cannot, thereforee, be said that the individual concerned has no opportunity whatsoever of showing cause before the challan is put in. Court that the allegations against him of embezzlement or malfeasance are not well-founded. It is no doubt true that the police after registration of a case does not normally drop the matter as contemplated by section 169 of the Code of Criminal Procedure but this is so in all cases registered by the police. The above circumstance cannot, in our opinion, lend material assistance to the case of the petitioner.

(15) It may also be mentioned that no ground has been taken by the petitioner in the petition about any violation of Article 14 of the constitution. Apart from that. we are of the opinion that there has been no such violation of that Article. Reference has been made on behalf of the petitioner to the case of Northern India Caterers Private Ltd., & another v. State of Punjab and another, : [1967]3SCR399 . There Lordships in that case dealt with section 5 of the Punjab Public Premises and Land (Eviction and Rent Recovery) Act. It was held by majority that the section provided two alternative remedies to the Government and left it to the unguided discretion of the Collector to resort to one or the other and to pick and choose some of those in occupation of public properties and premises for the application of the more drastic procedure under section 5. The impugned section was consequently held to be vocative of Article 14 of the Constitution. The dictum laid down in. the above case, in our opinion, cannot be of much assistance to the petitioner because we are not dealing here with two available procedures- one more drastic or prejudicial to the party concerned than the other to be applied at the arbitrary will of the authority. An investigation under section 235 and 237 of the Companies Act (as mentioned earlier) is not the same as inspection of account books under section 209(4). No inference of contravention of Article 14 can be drawn from the procedural difference between the aforesaid investigation and inspection of records. The fact that information derived as a result of the above-mentioned investigation or inspection can give rise to prosecution would not attract Article 14 of the Constitution. The said Article does not postulate that information, which may be the basis for making a report to the police, must be derived in one particular way and no other way.

(16) Reference has also been made on behalf of the petitioner to the case of Naur Ahmad v. King Emperor , wherein. while dealing with a confession recorded by a magistrate, their Lordships held that where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. The above dictum could have been attracted to the present case if the Government had resorted to investigation into the affairs of the company without complying with the provisions of section 235 and the subsequent sections of the Companies Act. The present is not a case where a power is given to do a certain thing in a certain way and the thing has been done in some other way.

(17) Another case to which reference has been made is Rohtas Industries Ltd. v. S. D. Agarwal and another, : [1969]3SCR108 . It has been held in that case that action under section 235 of the Companies Act can be taken provided certain preconditions including those mentioned in section 236 are fulfillled. It has been further held that such investigation is a serious matter and should not be ordered except on good grounds. This case too cannot be of much avail to the petitioner because no order for investigation into the affairs of the company has been made in the instant case.

(18) The matter can also be looked at from another angle. Any one who has information of the commission of a cognizable offence can make a report about the commission of such offence to the police. The police after registration of the case on the basis of that report in accordance with section 154 of the Code of Criminal Procedure can investigate the matter. If the investigation reveals that such an offence has been committed the police has to put in challan in Court, where after the trial of the case would commence in the criminal Court. There are certain offences wherein the police cannot put in challan without observing some formality such as obtaining consent in cases covered by section 196A(2) of the Code of Criminal Procedure or requisite sanction in cases covered by sanction 197 of the Code or section 6 of the Prevention of Corruption Act. There is, however, no provision of law, at least none has been cited at the bar which makes it imperative to obtain such consent or sanction or to go through other formality before the police can put in challan for a cognizable offence relating to the assets of a company. The plain effect of the acceptance of the submission made on behalf of the petitioner would be to place a procedural restriction on the prosecution of officers of a company or other individuals in respect of offence relating to the assets of a company. It is in our opinion not permissible to read such a restriction in the Statute when none; exists. Reference has been made by Mr. Tarkunde to the report of a Committee which preceded the enactment of the Companies Act. The petitioner in our opinion cannot derive much assistance from the report of that Committee in the matter of the construction of the provisions of the Companies Act. Even in;respect of the statement of objects and reasons for introducing a particular piece of legislation the Court can refer to the statement only for the purpose of ascertaining the circumstances which led to the legislation in order to find out what was the mischief which the legislature aimed at. The statement of Objects and Reasons for introducing a particular piece of legislation cannot be used for interpreting the legislation if the words used therein are clear enough. (See in this connection S. C. Prashar and another v. Vasantsen Dwarkadass and other, : [1963]49ITR1(SC) ). A report of a Committee can obviously not stand on a higher footing than the statement of Objects and Reasons.

(19) As a result of the above, the petition fails and is dismissed, but in the circumstances without costs.


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