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The Coimbatore Spinning and Weaving Co. Ltd. Vs. M.S. Srinivasan Chartered Accountant, Coimbatore and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberWrit Petn. No. 428 of 1957
Judge
Reported inAIR1959Mad229; (1959)1MLJ254
ActsCompanies Act, 1956 - Sections 234(6), 234(7), 235 and 237
AppellantThe Coimbatore Spinning and Weaving Co. Ltd.
RespondentM.S. Srinivasan Chartered Accountant, Coimbatore and anr.
Appellant AdvocateT.M. Krishnaswami Iyer and ;A. Balasubramaniam, Advs.;V. Thyagarajan and ;P.V. Marthandan, Advs.
Respondent AdvocateGovernment Pleader, ;Adv. General and ;V.V. Raghavan, Adv.
DispositionPetition dismissed
Cases ReferredSee Franklin v. Minister of Town and Country Planning
Excerpt:
- - if upon inquiry the registrar is satisfied that any representation on which he took action under this sub-section was frivolous or vexatious, he shall disclose the identity of his informant to the company,'the first objection was this. what he failed to do was to give co. as a matter of substance therefore the company cannot complain either that it was not heard or that it was not given an opportunity to present its case in writing. at, one stage it was suggested that to enable the registrar to report to the government it would be sufficient if he was satisfied after examining the explanation of the company that it disclosed 'an unsatisfactory state of affairs'.at another stage it was suggested that since proceedings under sub-section (7) are initiated by a representation that the.....orderbalakrishna ayyar, j.1. this is a petition for the issue of a writ prohibiting the first respondent mr. m.s. srinivasan from holding an enquiry and conducting an investigation into the affairs of the coimbatore spinning and weaving co. ltd., jn pursuance of an order dated 10-4-1957 made by the government of india.2. the relevant facts are these. in may 1956 one parameswara iyer, a share-holder in the coimbatore spinning and weaving company ltd. wrote to the registrar of companies a letter in which he made various allegations against the management. he said that the managing agents'have since their assumption of office been acting most selfishly jeopardising the interests of the company and have by frauds, misfeasance, misconduct, misappropriation and falsification of accounts and.....
Judgment:
ORDER

Balakrishna Ayyar, J.

1. This is a petition for the issue of a writ prohibiting the first respondent Mr. M.S. Srinivasan from holding an enquiry and conducting an investigation into the affairs of the Coimbatore Spinning and Weaving Co. Ltd., jn pursuance of an order dated 10-4-1957 made by the Government of India.

2. The relevant facts are these. In May 1956 one Parameswara Iyer, a share-holder in the Coimbatore Spinning and Weaving Company Ltd. wrote to the Registrar of Companies a letter in which he made various allegations against the management. He said that the Managing Agents

'have since their assumption of office been acting most selfishly jeopardising the interests of the company and have by frauds, misfeasance, misconduct, misappropriation and falsification of accounts and various other acts in contravention of law unduly enriched themselves at the expense and loss of the company causing loss not only to members but also to the Government by suppressing the true income and defrauding the taxes legitimately due.'

He then proceeded to enumerate what he called a few of the major items of fraud and misconduct of the Managing Agents.

1. The Managing Agents of the company are a firm consisting of two partners, viz, V, Gopal Naidu and A.V. Srinivasulu Naidu. Between the years 1944 and 1952 three bungalows were constructed in Coimbatore, one for each of the three sons of Gopat Naidu, at a cost of more than Rs. 8,99000. Every pie of tins money was taken out of the funds of the company.

2. A sum of Rs. 70,000, was paid out of the company's, funds to the G. E. C. (India) Ltd, Coimbatore, for the work of electrification they did on the three bungalows built for the sons of Gopal Naidu.

3. In 1951 Amirthammal, a grand-daughter of Gopal Naidu, was married and in connection with that event a sum of over a lakh of rupees was expended. About Rs. 91,800 of the money thus spent came out of the funds of the mills, the amount being debited to various items such as purchases of mill stores, cotton waste etc.

4. In spite of the fact that the mills turned out larsie quantities of cotton waste which were available for sale, a sum of Rs 70.000 was shown to have been expended on the purchase of cotton waste from one Arumugham Chettiar of Kinathukadavu. This transaction is a bogus one.

5. Various expanses incurred by the Managing Agents and their friends for their personal and private needs were debited to the accounts of the mills.

'A debit note of Rs. 36,840 in N. Ramaswami Naidu's account, credit given to him in the succeeding year will show the fictitiousness of the transactions and accounts.'

3. On 7th June, 1956, the Registrar of Companies, Madras, wrote to the Coimbatore Spinning and Weaving Co, Ltd, enclosing extracts from the letter of Parameswara Iyer and asking for 'very urgent and detailed remarks.' On 21st June 1956 the company repb'ed that the allegations were false and irrelevant and absolutely without evidentiary value and suggested that the complaint might be lodged.

4. On 6th July 1956, the Registrar of Companies again wrote to the company asking it to send its detailed remarks on each of the specific allegations within 15 days. The company's attention was also drawn to Section 234 of the Companies Act, 1956, and it was told that in the absence of a detailed answer it would bo presumed that it had no explanation to give. To this the company replied by a letter dated 19-7-1956 asking for a month's time in order that it might examine the several allegations and give its explanation.

5. On 6-8-1956 the Manager of the company and Mr. Srinivasa Aiyar, an advocate of the company filed before the Registrar a written explanation dated 5-8-1956. On 23-8-1956 the company wrote that Messrs. V. Rajagopalachari and V. Srinivasa Aiyar, advocates, had been authorised to represent the company and requested that they bo heard on behalf of the company with reference to the statement that had been filed on 6-8-1956.

On 24-8-1956 Messrs. Rajagopalachari and Srinivasa Ayyar explained the various allegations that had been made and they stated that the ledgers and vouchers would be produced on 6-9-1956 for inspection. On 19-110-1956 Mr. Rajagopalachari again appeared and furnished to the Registrar typed copies of certain accounts and vouchers.

He also appears to have addressed certain legal arguments and contended that it was not a fit case either on the facts or in law for the Registrar to find that the affairs of the company were in an unsatisfactory state, that there were no bona fides in the complaint and that it was a fit and proper case wherein the Registrar should find that the complaint was frivolous and vexatious and that he should disclose the identity of the informant to the company.

6. On 27-11-1956, the Registrar submitted his report to the Government of India.

7. On 10-4-1957, the Government of India appointed Mr. M.S. Srinivasan, a Chartered Accountant of Coimbatore as an Inspector.

'to investigate into the affairs of the company and to point out all irregularities and contraventions in respect of the previsions of the Companies Act or of any other law for the time being in force.'

On 12-4-1956 Mr. Srinivasan called at the office of the company and tendered a letter he had himself written pointing out that he had been appointed by the Central Government as an Inspector to investigate the affairs of the company and asking that various books be delivered to him. The company telegraphed and also wrote to the Government of India requesting that some person other than Mr. Srinivasan be appointed as Inspector. On 20/22-4-1957 the Government of India wrote to the company to say that they saw no grounds for changing the Inspector and adding,

'In case, however, you experience any difficulties during the investigation, you can always represent them to the Regional Director of this department who has been instructed to look into them.'

In these circumstances the present writ petition has been filed by the company.

8. It was stated that holders of some 31000 shares assembled in meeting and passed a resolution appointing Mr. T.T.R. Pillai to intervene on their behalf and represent their view to the Central Government. On behalf of these shareholders Mr. Thyagarajan sought leave to intervene in the present proceedings and ho was permitted to do so.

9. Mr. T. M. Krishnaswami Aiyar, the learned Advocate for the company, as also Mr, Thiagarajan raised certain objections based on Sub-section (7) of Section 234, of the Companies Act. 1956, which runs as follows :

'If it is represented to the Registrar on materials placed before him by any contributory or creditor or any other person interested that the business of a company is being carried on in fraud of its creditors or of persons dealing with the company or otherwise for a fraudulent or unlawful purpose, ho may, after giving the company an opportunity of being heard, by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order, within such time as he may specify therein; and the provisions of Sub-sections (2), (3), (4), and (6) of this section shall apply to such order. If upon inquiry the Registrar is satisfied that any representation on which he took action under this sub-section was frivolous or vexatious, he shall disclose the identity of his informant to the company,'

The first objection was this. This sub-section requires the Registrar to conform to a certain procedure. When it is represented to him that the business of a company is being carried on in the manner specified in the sub-section it is open to him to ignore the representation and take no action on it. But, if he decides to act on it, he must first of all give the company 'an opportunity of being heard.'

Thereafter he must issue a written order calling upon the company to furnish in writing any information or explanation on matters which the Registrar may specify in the order. In the present case no written order has been made conforming to the requirements of the sub-section. This deviation from the procedure prescribed by the sub-section is fatal to the entire proceedings. The result is that the report which ultimately followed must be treated as one having no existence in law; for all legal purposes it is non est. The order of the Central Government based on such a report must also fall.

10. I am unable to accept this objection. On 7-6-1956 the Registrar of Companies did write a letter to the Coimbatore Spinning and Weaving Company Ltd. enclosing extracts from the complaint which he had received from Parameswara Iyer and calling for very urgent and detailed remarks from the company. I cannot therefore accept the objection that there was no written order calling on the company to furnish its explanation.

The omission of the Registrar was not in respect of this but in respect of another matter. What he failed to do was to give Co.'an opportunity of being heard' before he made his written order. The company was undoubtedly heard through its advocates Ion at least two days; viz, 24-8-1956 and 19-10-1956, though it was subsequent to the written order.

As a matter of substance therefore the company cannot complain either that it was not heard or that it was not given an opportunity to present its case in writing. The mistake made by the Registrar was in omitting to give the company an opportunity of being heard before he made his written order. This irregularity does not appear tome to be of any importance in the circumstances of the present case. What is the object of prescribing that the company should he given an opportunity or being heard? Obviously in order that the company may satisfy the Registrar that the allegations are so frivolous or vexatious or that for some other reason there is no justification at all for taking further action on the representations that were made.

The object of the written order is to enable the company to know the substance of the allegations made against it and which it is required to meet. The entire purpose of this portion of the sub-section is to enable the company to give its explanation and present its case to tile Registrar; and that opportunity it had in ample measure. It was given full facilities for submitting its written explanation and its advocates were heard, and, as I said before, on two occasions.

11. Be it remembered that here we are concerned with a procedural matter and it is not every deviation from the prescribed procedure that would vitiate the result. It will ho wrong to assimilate the procedure prescribed in a matter of this kind to the procedure which attaches to religious rituals. There has been, in my opinion, substantial compliance with the requirements of the statute, and, in any case, the company has not suffered any prejudice.

I greatly doubt whether if an irregularity of this nature is shown to have occurred in the course of criminal trial an appellate court would set aside a conviction which followed. Even supposing that the Registrar did commit an irregularity, I do not see how it affects the jurisdiction of the Central Government to pass what order they thought proper. The learned Advocate General also pointed out that this objection has not been taken in the writ petition itself; and that and that objection appears to me to be correct.

12. Another objection based on Sub-section (7) of Section 234 was this. That sub-section requires that it should be represented to the Registrar that the business of a company is being carried on in fraud of its creditors or of persons dealing with the company, or otherwise for a fraudulent or unlawful purpose. The representation itself must allege that the business of the company is being carried on in the manner specified.

It is not sufficient that the representation should contain allegations that there had been fraud or misfeasance or malfeasance or unawful or fraudulent activities in the past. The allegations must be that such is the present state of affairs. The complaint which Parameswara Iyer sent to the Registrar contains only allegations of what according to him took place between 1944 and 1952. Those allegations are not equivalent to an allegation 'that the business of the company is being carried on in fraud of its creditors.' etc.

13. Besides: Mere representations to that effect will not do. The sub-section requires that the Registrar, after giving the company an opportunity of being heard, should make a written order calling upon it to furnish its explanation in writing. When that stage is reached the provisions of Sub-sections (2); (3), (4), (5) and (G) of Section 234 would apply.

14. Now, Sub-section (6) runs as follows :

'If such information or explanation is not furnished within the specified time, or if after perusal of such information or explanation the Registrar is of opinion that the document in question discloses an unsatisfactory state of affairs, or that it does not disclose a full and fair statement of the matter to which it purports to relate, the Registrar shall report in writing the circumstances of the case to the Central Government.'

It will ho noticed that according to this sub-section the duty of the Registrar to report to the Central Government would arise only when he

'is of opinion that the document in question discloses an unsatisfactory state of affairs, or that it does not disclose a full and fair statement of the matter to which it purports to relate.'

15. There was some argument as to the effect of this sub-section in relation to Sub-section 7 and the facts of this case. At, one stage it was suggested that to enable the Registrar to report to the Government it would be sufficient if he was satisfied after examining the explanation of the company that it disclosed 'an unsatisfactory state of affairs'.

At another stage it was suggested that since proceedings under Sub-section (7) are initiated by a representation that the business of the company 'is being carried on in fraud of its creditors' etc, the Registrar must be of opinion that the representation is true and that the business of the company 'is being carried on' in the manner alleged.

15A. Now, the allegations of Parameswara Iyer related to what he said happened between 1944 and 1952 and, even if it is supposed that his allegations are true, they will not show that the business of the company is being carried on in fraud of its creditors etc. What happened between 1944 and 1952 can in no circumstances justify the view that 'an unsatisfactory state of affairs' is disclosed at present. The allegations of Parameswara Iyer are not sufficient and cannot be regarded by any reasonable person as sufficient to show either that the present state of affairs of the company is unsatisfactory or that the affairs of the company are being carried on in the manner specified in Sub-section (7).

16. To support the argument that the expression 'is being carried on' refers to a present state of affairs and not to what happened in the past reference was made to the case reported in Southern Railway v. Railway Rates Tribunal, : AIR1955Mad476 .

17. I agree with both Mr. Krishnaswami. Aiyar and with Mr. Thyagarajan that the expression 'is being carried on' occurring in Sub-section (7) relates to the state of affairs at the time the representation to the Registrar is made and not to something which is a matter of past history. But it does not appear to me to be correct to say that in his letter to the Registrar Parameswara Iver did not make any allegation about 'the present stale' of affairs of the company. In one paragraph of his letter -- I have quoted it above and I quote it again now Parameswara Iyer expressly said :

'The said Managing Agents have since their assumption of office been acting most selfishly jeopardising the interests of the Company and have by frauds, misfeasance, misconduct, misappropriation and falsification or accounts and various other acts in contravention of law unduly enriched themselves at the expense and loss of the company causing loss not only to members but also to the Government by suppressing the true income and defrauding the taxes legitimately due.'

This passage can be fairly read as meaning that ever since the time the Managing Agents entered on their duties they have been committing acts of fraud, misfeasance and misappropriation and that that state of affairs continues. It will not therefore be right to say that there was no representation at all before the Registrar of Companies as required by Sub-section (7).

18. It was very strongly argued that even if it be that between 1944 and 1952 there had been acts of - fraud or misfeasance or malversation that is not sufficient to show that the same state of things continues.

19. To this argument the learned Advocate General replied by referring to certain provisions of the Criminal Procedure Code. He remarked that before a person can be required to furnish security for his good behaviour under Section 110 Cr. P. C., it must be shown that be is by habit a thief, a robber, a receiver of stolen properties etc. Ordinarily this is done by giving evidence of his conduct in the past.

What he is now and what he is likely to do now can be proved by a reference to what he had been doing in the recent past. No doubt the requirements of Section 110 Cr. P. C. are usually satisfied in the manner indicated by the learned Advocate General. But, I do not want to press the analogy too far.

Certain facts, however, must be remembered. If the persons who manage the affairs of a Company commit acts of fraud or misappropriation or malversation the only persons who are likely to know about it at the time the wrongful acts are being committed are the wrong-doers themselves, and, unless they fall out amongst themselves immediately information as to what has taken place will not ordinarily be forthcoming at once.

Before a shareholder or a creditor of any one else dealing with the company gets an inkling about what has been taking place there must be an interval of time. This is inevitable. Now, if the arguments of Mr. Krishnaswami Aiyar and of Mr. Thyagarajan were right what result will follow? Since of necessity the representation made to the Registrar must relate to something that had taken place in the past even though it is the proximate past it cannot relate to a state of things at present.

In such a rase there can be no representation under Sub-section (7) that would justify action by the Registrar; the sub-section would be reduced to a set of idle words. It seems to me, as the learned Advocate General contended, that the proper way to look at the matter is this: you study the allegations and put yourself various questions.

Do the allegations suggest a scheme or continuous set of operations? Ate the persons who initiated or who operated the scheme still in a position to carry on as they had been doing in the past? If that is so, it will be reasonable to infer that they continue their past mode of conduct and are enriching themselves in the same manner that they had been doing in the past.

20. I want to make one thing clear; I am expressing no opinion whatever on the truth or otherwise of the allegations made by Parameswara Iyer in his letter to the Registrar of Companies. Nor am I offering any comment on the explanation which the company offered. It will suffice for present purposes to say that on the allegations of Parameswara Iyet the Registrar was entitled to take action under Section 234 of the Act and make a report to the Central Government.

21. Parameswara Iyer did not merely allege that there had been one act of misappropriation; according to him the Managing Agents of the company had been continuously siphoning off the resources of the company for their private benefit. The specific charges he made indicate not merely the magnitude of the defalcations which he attributed to the Managing Agents; if believed they would be cogent evidence of a systematic course of dishonest or fraudulent dealing. As 1 said before, if the Registrar was persuaded that the allegations of Parameswara Iyer were prima facie true, he would have been within his rights in taking the view that the old modus operandi continued.

22. The next remark I would make here is that neither Sub-section (6) nor Sub-section (7) requires that the Registrar of Companies should record any finding. Nor do either of the sub-sections say that the Registrar has to be satisfied that the representations are true; it is enough if he is of opinion that the affairs of the company are being carried on in the manner specified in Sub-section (7). ''Opinion', it will be realised, does not denote the same state of mind as is indicated by the word 'finding' or 'satisfaction.' The three words indicate varying stages of the intellectual process.

23. It must not be overlooked that the present writ petition is directed not against the report of the Registrar, but against the order of the Central Government, The Central Government are by no means bound to accept the views or opinions of the Registrar. He makes his report and the decision is the decision not of the Registrar but of the Government,

24. Yet another argument was advanced. It was said that the provisions of Sub-section (7) of Section 234 do not apply to the present case because even if the allegations of Parameswara Iyer are assumed to be true it cannot be said that the business of the company is being carried on in fraud of its creditors because no creditor has been defrauded or even complains that he has not been paid. Nor can it be said that it is being carried on in fraud of persons dealing with the Company because there is no such allegation.

And so, all that remains in that sub-section is the requirement that there must be representation that the business of the company is being carried on for a fraudulent or unlawful purpose. Assuming for a moment that there was misappropriation of the funds of the company by the Managing Agents, that does not show that the business of the company was being carried on 'for a fraudulent or unlawful purpose.' The argument was that, before wo can say such a thing, it must be shown that the primary purpose of the operations of the company is fraudulent or unlawful.

25. In assessing the validity of this argument one must bear in, mind the purpose of this and other similar provisions in the Act. They are intended, if I may use the analogy, to enable medicinal or surgical treatment to be administered to the company before it becomes necessary to do a post-mortem examination. There are various provisions in the Act not all of them very effective, however formidable they may appear to be on paper -- which enable delinquent directors or office bearers of the company to be proceeded against.

There are also various other provisions which enable further investigation and further pursuit to be made after the company has gone into the hands of the Official Liquidator. The provisions relating to information and investigation are intended to enable the Government to remedy things even at the outset. Therefore, if it appears that the Managing Agents of the company have been misappropriating its funds then it will not be an answer to say that no creditor or person dealing with the company has yet been defrauded. That will be inevitable consequence if the matter is allowed to develop along the lines the Managing Agents are alleged to be following. In any case, it seems to me, that the allegations that the Managing Agents of the Company are misappropriating its funds can be brought within the ambit of the expression 'or otherwise for a fraudulent or unlawful purpose.'

It is unnecessary that the sole object of the operations which the Managing Agents carry on should be fraudulent or unlawful. It is not even necessary that it should be the dominant object. It would be sufficient if it is one of their objects. I am not prepared to accept the argument that the Managing Agents of a company can stave off an enquiry by alleging that the income of the company amounts to say -- Rs. 10,00,000, and that they have been misappropriating only one lakh of rupees.

26. All the arguments based on Sub-sections (6) and (7) of Section 234 must, it seems to me, fail.

27. I would here refer to a case reported in Re. : Grosvenor and West End Rly. Terminus Hotel Co. (1897) 76 LT 337. That was a case in which the Board of Trade appointed an Inspector to investigate and report on the affairs of the Grosvenor and West-End Railway Terminus Hotel Co. The company took one summons for the issue of a writ of prohibition to the Board anci to the Inspector, to prohibit them from further proceeding with the enquiry. The writ was refused by Lawrence J. The company appealed. That appeal was also dismissed.

28. Sections 56 and 59 of the Companies Act, 1862 of England provided as follows: Section 56:

The Board of Trade may appoint one or more competent inspectors to examine into the affairs of any company under this Act, and to report thereon in such manner as the Board may direct, upon the applications following, that is to say.....

Section 59. Upon the conclusion of the examination the Inspectors shall report their opinion to the Board of Trade.'

In the course of his judgment Lord Esher M. R. observed,

'The inquiry held by the inspector is not a judicial inquiry, and has nothing in the nature of judicial determination. Now, there are certain preliminaries to be observed before the Board of Trade has power to appoint an Inspector under Section 56. Even in a case in which the Board has assumed to appoint an inspector without those preliminaries being observed, it seems to me that no writ of prohibition could be issued against them.'

In the present case one point sought to be made is that there has been an irregularity in the procedure of the Registrar. If the court was justified in refusing to issue a writ where the preliminaries were not observed at all as in the English case just referred to, I do not see how an irregularity in observing the preliminaries will justify the issue of a writ.

29. Another argument was based on the terms of Section 235 of the Act. That section opens as follows :

'The Centra! Government may appoint one or more competent persons as Inspectors to investigate the affairs of any company and to report thereon in such manner as the Central Government may direct.'

The duties of an Inspector appointed under this section said Mr. Krishnaswami Iyer, are of a quasi-judicial nature. In order therefore to be competent within the meaning of the section it is not sufficient that he has got the requisite skill to do the work assigned to him. He must also be free from any bias which would disqualify. In the present case Mr. Srinivasan whom the Central Government have appointed as Inspector is, by reason of his bias wholly disqualified for holding the enquiry. Mr. Srinivasan was auditor of the Kadri Mills Ltd., in Coimbatore.

In his audit report he pointed out various irregularities suggesting misconduct on the part of Gopal Naidu and his sons. On the strength of his report criminal proceedings were instituted against Gopal Naidu and his three sons in C. C. No. 531 of 1953, on the file of the Additional First Class Magistrate of Coimbatore. Mr. Srinivasan's report was the principal document for the prosecution and he was also their principal witness. When he was cross-examined he was compelled to admit that his report was incorrect and the charges were groundless. In one portion of his evidence he stated,

'that he took full responsibility for his report for finalising which he alone took about a month, but in the later portion of his evidence after admitting that his report was incorrect in material particulars, blamed his assistants for the errors of omission and commission. The trying magistrate acquitted the accused but in his judgment made certain strong observations against the conduct of the first respondent.'

(Vide paragraph 11 of the affidavit in support of the petition), Mr, Krishnaswami Aiyar very strongly argued that in these circumstances Mr. Srinivasan is disqualified for the office of Inspector to which he has been appointed by the Central Government because that office is a quasi judicial office. The Inspector, said Mr. Krishnaswami Aiyar, has very Jarge powers. In Order to investigate the affairs of one company he may, if he thinks it necessaryto do so, investigate the affairs of any other company or individual as set out in Section 239 of the Act.

He can compel the production of all the documents he wants. He can examine on oath any of the persons referred to in Sub-section (1) of Section 240, and, if any person refuses to obey his direction to produce any document or to answer questions put to him the Inspector may certify the refusal to the court and the court may after hearing the matter punish the offender as if he had been guilty of contempt of court.

The Inspector is also entitled to invoke the assistance of the court under Sub-section (4) of Section 240 on various matters. He is required to take down in writing notes of examination of witnesses and these have to be signed by the dependent thereafter.

Such notes may be used in evidence against the deponent. On the report which the Inspector makes the Government of India may institute a prosecution under Section 242. Section 246 of the Act provides that the report of the Inspector

'shall be admissible in any legal proceeding as evidence of the opinion of the Inspector.....inrelation to any matter contained in the report.'

30. In spite of all this, I am unable to take the view that the duties of an Inspector appointed by the Central Government under Section 235 or under Section 237 of the Act are quasi judicial in their nature. The words of the section themselves make it plain that his duty is to investigate the affairs of a company and to report thereon. His position is analogous to that of a Sub Inspector of Police who goes out to investigate a crime which has been reported at his station.

That the Inspector appointed under the Companies Act has got powers to take evidence on oathwhile a Sub Inspector of Police has no such powers does not make any real difference. To carry out his duties the Inspector appointed under the Act is given certain facilities and powers in he same manner as a Sub Inspector of Police is given facilities and powers under the Criminal Procedure Code.

31. Continuing his argument on this part of the case Mr. Krishnaswami Iyer said that an Inspector appointed under the Act has to make certain decisions and that this makes his duties quasi judicial in nature. But then, that is also the position of an Inspector or Sub Inspector of Police. He too has to take! decisions on various matters. Will he search a particular house? Will he seize particular papers? Will he arrest a particular person?

That decisions have to be taken on various matters during the course of an investigation does not make the investigation a quasi-judicial proceeding. Revenue Officers are from time to time called upon by the Board of Revenue or the Government to investigate and report on various administrative matters, during the course of which they may take evidence on oath; as for example the condition of affairs in a Municipality or a Panchayat or other body working in a district.

But so far as I am aware such duties have never been held to be quasi judicial in character.

The position of an Inspector under Section 235 of the Act appears to me to be very similar to that of a revenue officer enquiring into matters of the kind mentioned above and on which he has been called upon to report by the Board of Revenue or the Government. In this particular case I had it hard to see how we can properly describe the duties of the Inspector as quasi-judicial. He has no parties before him.

The Central Government is not in the position of a plaintiff or complainant before him. Nor even Parameswara Iyer, the original petitioner to the Registrar. Parameswara Iyer cannot go before the Inspector and insist that he has a right to he present during the enquiry. Nor can Parameswara Iyer claim that the Inspector should examine witnesses in hist presence and give him an opportunity to cross-examine them. Likewise, the Managing Agents of the Company cannot insist that the Inspector should examine all the witnesses in their presence and that they should be given an opportunity to cross-examine them.

Nor can they insist that he should take all or even any part of the evidence that they may tender. No doubt the Inspector would in proper cases give the person who has made his representation to the Registrar and the Managing Agents opportunity to be present and facilities to put questions to the witnesses. But, the important thing is that they have no right to do so. What evidence he will take, whom all he will examine, in what order he will examine them, what line of enquiry he will pursue, are all matters in the absolute discretion of the Inspector. And finally, he is not required to give any decision on the matter; no report that he may make is binding on the Government or the company or the Managing Agents or the person at whose instance the Registrar took action.

32. Mr. Krishnaswami Aiyar referred to Venkatasubba Reddi v. Registrar of Co-operative Societies, : AIR1955Mad267 where it was held that the functions of the Registrar of Co-operative Societies in considering the question of registration under Section 12(2) of the Co-operative Societies Act, are undoubtedly quasi-judicial. I do not think that this case helps Mr. Krishnaswami Aiyar because a Registrar has to make an order and before doing so he has to be satisfied that there has been no contravention of the Act or the Rules. Besides the direction that he gives conclusively determines certain rights and is tantamount to an adjudication.

33. Mr. Krishnaswarmi Aiyar also referred to : AIR1955Mad476 . But that case deals with railway rates Tribunals whose duties are very different indeed from those of an inspector.

34. The decision in T.K. Musaliar v. Venkatachalam. (S) : [1956]29ITR349(SC) on which Mr. Krishnaswami Aiyar placed some reliance dealt with the position and powers of an officer appointed by the Indian Income-tax Investigation Commission to investigate into certain allegations of tax evasion by a Thangal of Travancore. But I am unable to see anything in the report that helps Mr. Krishnaswami Aiyar.

35. The case in Bharat Bank v. Employees of Bharat Bank, : (1950)NULLLLJ921SC , which Mr. Krishnaswami Aiyar cited relates to an Industrial Tribunal whose position again, is entirely different from that of an Inspector appointed under the Companies Act.

36. Much nearer in point are the cases referred to by the learned Advocate General. Of these one is (1897) 76 LT 337, which has been already referred to. The views of Lord Esher M. R. have already been quoted. Chitty L. J. was of the same opinion:

'The beginning and the end of the duty of an Inspector appointed under Section 58 is to examine and report. He does not occupy a quasi judicial position. The proceedings before him are not judicial in any proper sense of the term. There is no court, and no judge, nor anyone assuming to constitute a court, or exercising a jurisdiction which he does not possess, or exceeding any jurisdiction which he has. As has been pointed out, the whole business begins and ends with the enquiry and report. The report cannot be made the foundation of any subsequent action, it is merely evidence of the opinion or the inspector. He is nothing more than an Inspector as he is described in the Act'.

The case of Hearts of Oak Assurance Co. v. Attorney General. 1932 A. C. 392 dealt with an Inspector appointed by the Industrial Assurance Commissioner under Section 17. Sub-section (1) of the Industrial Assurance Act, 1923, for the purpose of examining into and reporting on the affairs of an industrial assurance company. The court observed: .

'It appears to me to be clear that the object of the examination is merely to recover information as to the company's affairs and that it is in no sense a judicial proceeding for the purpose of trial of an offence; it is enough to point out that there are no parties before the inspector, that he alone conducts the inquiry and that the power to examine on oath ' is confined to the officers, members, agents and servants of the company.'

It is well settled that where the duties of an officer are not judicial or quasi judicial the question of bias becomes irrelevant and does not disqualify. See Franklin v. Minister of Town and Country Planning, 1948 A. C. 87. On page 103, Lord Thankerton observed.

'I could wish that the use of the word 'bias' should be confined to its proper sphere. Its proper significance, in my opinion, is to denote a departure from the standard or evenhanded justice which thelaw requires from those who occupy judicial office, or those who are commonly regarded as holding a quasi judicial office, such as an arbitrator. The reason for this clearly is that, having to adjudicate as between two or more parties, he must come to his adjudication with an independent mind, without any inclination or bias towards one side or other in the dispute.... But, in the present case, the respondent having no judicial duty, the only question is what the respondent actually did, that is, whether in fact he did genuinely consider the reportand the objections.'

37. I may also usefully quote here the head-note to the case :

'In considering the report of the person who has held a public local inquiry under Schedule I, para 3; of the New Towns Act, 1946, after objections have been made to an order under Section 1, Sub-section 1 of the Act, the Minister of Town and Country Planning has no judicial or quasi-judicial duty imposed on him, so that considerations of bias in the execution of such a duty are irrelevant, the sole question being whether or not he genuinely considered the report and the objections.'

38. All the objections taken before me fail. This writ petition is therefore dismissed with costs of the second respondent. Advocate's fee Rs. 250/-.


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