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Sahu JaIn Ltd. Vs. Deputy Secretary, Ministry of Finance and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberMatter No. 281 of 1964
Judge
Reported in[1966]36CompCas543(Cal),70CWN399
ActsCompanies Act, 1956 - Section 237
AppellantSahu JaIn Ltd.
RespondentDeputy Secretary, Ministry of Finance and ors.
Advocates:R.C. Deb, ;Subrata Roy Chowdhury and ;Biswarup Gupta, Advs.;S. Chowdhury, ;B.N. Sen and ;B.C. Basak, Advs.
Cases Referred(Daulatram Rawatmull v. Income
Excerpt:
- .....an agreed measurement and is disputed in the affidavit-in-opposition.2. on april 11, 1963, the central government made the following order against the petitioner-company :' whereas the central government is of the opinion that there are circumstances suggesting that the business of sahu jain limited, a company having its registered office at 11, clive row, calcutta (hereinafter referred to as the said company), is being conducted with intent to defraud its creditors, members or other persons and the persons concerned in the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the said company or its members ;and whereas the central government consider it desirable that an inspector should be appointed to investigate the.....
Judgment:

Banerjee, J.

1. The petitioner-company claims to carry on business as managing agent of certain public limited companies, namely, Rohtas Industries Ltd., New Central Jute Mills Co. Ltd., Jaipur Udyog Ltd., Bharat Collieries Ltd., S.K.G. Sugar Ltd., Dehri-Rohtas Light Railway Co. Ltd., Plywood Industries Ltd., and Albion Plywood Ltd. The petitioner-company has a paid up capital of Rs. 5,00,000 and claims to have built up a general reserve of Rs. 25 lakhs. The petitioner-company further claims to be running its business on sound principles and in strict compliance of the provisions of law. These facts are pleaded in order to emphasise upon the contention that the petitioner-company should have been treated as beyond reproach. The measure put by the petitioner-company upon itself is not, however, an agreed measurement and is disputed in the affidavit-in-opposition.

2. On April 11, 1963, the Central Government made the following order against the petitioner-company :

' Whereas the Central Government is of the opinion that there are circumstances suggesting that the business of Sahu Jain Limited, a company having its registered office at 11, Clive Row, Calcutta (hereinafter referred to as the said company), is being conducted with intent to defraud its creditors, members or other persons and the persons concerned in the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the said company or its members ;

And whereas the Central Government consider it desirable that an inspector should be appointed to investigate the affairs of the said company and to report thereon ;

Now, therefore, in exercise of the several powers conferred by Sub-clauses (i) and (ii) of Clause (b) of Section 237 of the Companies Act, 1956 (1 of 1956), the Central Government hereby appoints Shri S. Prakash Chopra of Messrs. S.P. Chopra & Co., Chartered Accountants, 31F Connaught Place, New Delhi, as inspector to investigate the affairs of the said company for the period from September 1, 1958, to date and should the inspector so consider it necessary, also for the period prior to September 1, 1958, and to report thereon to the Central Government pointing out, inter alia, all irregularities and contraventions in respect of the provisions of the Companies Act, 1956, or of the Indian Companies Act, 1913, or of any other law for the time being in force and person or persons who are responsible for such irregularities and contraventions ;

The inspector shall complete the investigation and submit six copies of his report to the Central Government not later than four months from the date of issue of this order unless time in that behalf is extended by the Central Government;

A separate order will issue with regard to the remuneration and other incidental expenses of the inspector.'

3. The petitioner-company objected to the order in writing on June 12, 1963, in the following language :

' It is alleged in the preamble of the said order that the Central Government is of the opinion that there are circumstances suggesting that our business is being conducted with intent to defraud our creditors members or other persons and the persons concerned in the management of the company's affairs have in connection therewith been guilty of fraud misfeasance or other misconduct towards the company or its members. These allegations are entirely unfounded and false. We deny that there are any circumstances suggesting as indicated in the preamble. We feel that the above order has been made because of extraneous circumstances. If, however, there are any materials in the possession of the Central Government on the basis of which the Central Government has formed the above opinion, we would request you to kindly furnish the same to us at the earliest.'

4. The objection notwithstanding, the petitioner-company alleges that it did not stand in the way of investigation. But this was done, it is alleged, without prejudice.

5. Between April 16, 1963, and June 12, 1963, S.P. Chopra, the inspector, sought for various information from the petitioner-company which the petitioner alleges were all supplied in writing firstly by eight letters written between April 18, 1963, to May 6, 1963, thereafter by two letters written between May 6, 1963, to May 27, 1963, further thereafter by a letter dated May 27, 1963, and lastly thereafter by two letters dated June 26, 1963, and July 16, 1963. Copies of these letters are all annexed to the petition. The petitioner-company further alleges that it gave to S.P. Chopra all co-operation, including preparation of statements and production of books as and when required. The measure of co-operation alleged to have been extended is not admitted in the affidavit-in-opposition and paragraph 12 of the affidavit contains vague and indefinite charges of obstruction and intimidation by the petitioner-company.

6. Be that as it may, the investigation was not completed within the time fixed by the order dated April 11, 1963, and had to be extended up to October 31, 1963, by an order dated August 9, 1963, which I set out below :

' In continuation of the Central Government order of even number dated the 11th April, 1963, the Central Government hereby extends the time for the completion of the investigation and for submission of the report by the inspector appointed to investigate into the affairs of Sahu Jain Ltd., a company having its registered office at 11, Clive Row, Calcutta, under Section 237(b) of the Companies Act, 1956 (Act 1 of 1956), up to the 31st October, 1963.'

7. How this extension of time was usefully consumed does not appear but on October 31, 1963, there was a second extension of time granted to complete the investigation in the following language :

' In continuation of the Central Government orders of even number dated the 11th April, 1963, and 9th August, 1963, respectively, the Central Government hereby extends the time for the completion of the investigation and for submission of the report by the inspector appointed to investigate into the affairs of Sahu Jain Ltd., a company having its registered office at 11, Clive Row, Calcutta, under Section 237(b) of the Companies Act, 1956 (Act 1 of 1956), up to the 31st January, 1964.'

8. This extension of time also produced no better result and the Central Government extended the period for a third time by an order dated January 29, 1964, couched in the following language :

' In continuation of the Central Government orders of even number dated the 11th April, 1963, 9th August, 1963, and 31st October, 1963, respectively, the Central Government hereby extends the time for the completion of the investigation and for submission of the report by the inspector appointed to investigate into the affairs of Sahu Jain Ltd., a company having its registered office at 11, Clive Row, Calcutta, under Section 237(b) of the Companies Act, 1956 (Act I of 1956), up to the 30th June, 1964.'

9. At this stage, on February 22, 1964, S.P. Chopra wrote the following letter to the petitioner-company :

' I am deputing Shri S.D. Agarwal to check the statements, etc., filed by you with the account books of the company. He will be visiting Calcutta as from 2nd March, 1964. I shall be grateful if you would kindly afford all facilities to him.'

10. Although characterising such delegation of authority to investigate as illegal, the petitioner alleges to have given full facilities to S.D. Agarwal to carry out his work. This is, however, denied in paragraph 12 of the affidavit-in-opposition. Nothing further appears to have happened during this extended period.

11. On June 30,1964, the Central Government relieved S.P. Chopra from his appointment, at his own request, appointed S.D. Agarwal and S. Rajagopalan as co-inspectors in succession to S.P. Chopra and extended the time to make the report up to December 31, 1964. The order dated June 30, 1964, is set out hereinafter :

' Whereas vide Central Government's order of even number dated llth April, 1963, an investigation was ordered into the affairs of Sahu Jain Ltd., 11, Clive Row, Calcutta, under Section 237(b) of the Companies Act, 1956 (1 of 1956), and Shri S. Prakash Chopra of Messrs. S.P. Chopra & Co., Chartered Accountants, 31F, Connaught Place, New Delhi, was appointed as inspector for the purpose ;

And whereas the date for completion of the said investigation and for submission of the report by the said inspector was first fixed as 30th June, 1964;

And whereas it has been represented to the Central Government that due to refusal of the company and its officers to produce all books and other papers or to appear before the inspector for the purpose of examination and other non-co-operative and dilatory tactics it would not be possible to complete the investigation by the aforesaid date;

And whereas Shri S. Prakash Chopra, inspector, has regretted his inability to continue any longer with this appointment due to his other professional engagements;

And whereas after consideration of the aforesaid circumstances and also the magnitude of the work involved, the Central Government are of the opinion that certain modifications and additions in the orders already issued are necessary ;

Now, therefore, in exercise of the powers conferred by Sub-clauses (i) and (ii) of Clause (b) of Section 237 of the Companies Act, 1956 (1 of 1956), the Central Government hereby appoints in place of Shri S. Prakash Chopra, Sarvashri S. Rajagopalan and S.D. Agarwal, Senior Accounts Officers in the Company Law Board, as co-inspectors. The two inspectors shall have co-extensive powers which may be exercised by them severally or jointly. The inspectors shall complete the investigation and submit six copies of their report to the Central Government by 31st December, 1964.'

12. The petitioner-company condemns the appointment of co-inspectors as illegal and not sanctioned by law.

13. It is alleged by the petitioner-company that the newly appointed co-inspectors made no demand upon the petitioner-company for production of books and accounts but straightaway applied for seizure of books of the petitioner-company under Section 240A of the Companies Act and reinforced by necessary magisterial orders effected search and seizure of various books and documents. This action is condemned by the petitioner-company and it is alleged that orders for search and seizure were obtained by false representation and suppression of materials. I am, however, not concerned with the propriety of this action in this rule, which is the subject-matter of another rule issued by this court.

14. Aggrieved by the different actions taken, the petitioner-company moved this court under Article 226 of the Constitution, praying for a writ of certiorari for the quashing of the orders dated April 11, June 30, August 9, October 31, 1963, and January 29, 1964, for a writ of mandamus restraining the respondents from giving effect thereto or to any of them, and for a writ of prohibition restraining the respondents from proceeding under the said orders or any of them and obtained this rule on July 30, 1964.

15. During the pendency of the rule, I am told, there has been a further extension of the investigation order on December 12, 1964.

16. Mr. R. C. Deb, learned advocate for the petitioner, argued the same points in condemnation of the impugned orders as he did in Matter No. 272 of 1964 (New Central Jute Mills Co. Ltd. v. Deputy Secretary, Ministry of Finance, [1966] 36 Comp. Cas. 512) and I overrule the arguments for the same reasons as I did in that matter. I do not repeat the reasonings at this place for the sake of brevity.

17. Mr. Deb, however, raised certain other points in this rule, which I need separately consider. In paragraphs 9 to 12 of the petition, it is alleged :

(a) that all loans and advances obtained by the petitioner-company from banks are fully secured to the satisfaction of the bankers ;

(b) that the unsecured loans are from directors, shareholders and family members of the directors of the petitioner-company who are fully conversant and satisfied with the conduct of the business of the petitioner-company ;

(c) that the petitioner-company has only eight members, namely, three directors, their family members and an officer of the petitioner-company who are all satisfied with the working of the company ;

(d) that the allegation of intention to defraud 'other persons' is devoid of particulars ;

(e) that there were no complaints ever made against the petitioner-company by anybody.

18. On the above basis Mr. Deb contended that there were no circumstances suggesting necessity of an investigation under Section 237(b) of the Companies Act and that the order for investigation must have been made without legal excuse.

19. Paragraphs 9 to 12 of the petition are dealt with in paragraphs 8 to 10 of the affidavit-in-opposition as hereinbelow quoted :

' 8. With reference to paragraph 9 of the petition I do not admit that the business of the petitioner was not or is not conducted with intent to defraud its creditors, members or any other persons as alleged or at all. It is submitted that it is only after the investigation now in progress is completed that the true manner in which the business of the petitioner is being conducted whether with intent to defraud its members, creditors or other persons or not will be revealed. I deny that there were or is no instance which would justify the formation of any opinion by the Central Government that the petitioner was or is conducting its business with intent to defraud any of its creditors. I have no knowledge of and do not admit that the petitioner had no complaint from any of its creditors regarding the way its business was or is being conducted. Save as is herein expressly admitted, I deny the correctness of the submissions, contentions or allegations of the petitioner in the said paragraph 9 of the petition.

9. With reference to paragraph 10 of the petition, I have no knowledge of and do not admit that the members of the petitioner do not include any outsider. Save as aforesaid, I do not admit the allegations and submissions made in the said paragraph 10 of the petition.

10. With reference to paragraphs 11, 12 and 13 of the petition, the charges of mala fides are denied and the correctness of the submissions and contentions therein made are disputed. Assuming but not admitting that no complaints or enquiries were received or made as alleged, it is contended that such fact even if proved are irrelevant and/or in any event do not establish that the affairs of the petitioner's business are properly or correctly run.'

20. Now, 'not admitted' is no denial. If any authority is needed, reference may bs made to the judgment, dated February 2, 1949, by A.K. Sarkar J. in Suit No. 366 of 1937 (Jogandra Nath Mullik v. Kanto Mohan Mullik, Unreported). ' No knowledge ' is worse than ' not admitted '. That may only indicate how uninformed the respondents are. Bare denial does not serve any purpose, where an allegation of fact need be specifically denied. A somewhat affirmative statement, however, appears in paragraph 6 of the affidavit-in-opposition, in which it is stated :

I say that the Central Government on proper and sufficient grounds formed its opinion and bona fide made the order dated the 11th April, 1963. I submit that the opinion of the Central Government is not justiciable. I further submit that it is neither necessary or proper that the order of the 11th April, 1963, should on the face of it disclose the nature and contents of the materials on the basis of which the Central Government formed its opinion.'

21. The above statement has only an assertive value but is not revealing in any measure. I have held in Matter No. 272 of 1964 (New Central Jute Mills Co. Ltd. v. Dy. Secy., [1966] 36 Comp. Cas. 512) :

' The Government may proceed under Section 237(b) only if there are ' circumstances suggesting ' the existence of malpractices envisaged in Sub-clauses (i), (ii) and (iii) of Clause (b). In other words, the Central Government must proceed reasonably and must not be actuated by bad faith or dishonesty, must exclude from consideration matters which are irrelevant and must act according to law and not humour.'

22. I have further held in the decision referred to above :

' An order of the Central Government under Section 237(b) is certainly not justiciable, if the order has been made by the appropriate authority bona fide and reasonably, even though the reasons may not fully appeal to a court of law. It may not also be necessary for the Central Government to recite its reasonings when making an order under Section 237(b). But when the exercise of the power is challenged as actuated by malice in law, before a court of law justification for the exercise of the power must not be blanketed from the court.'

23. I have already quoted the relevant extracts from the affidavit-in-opposition. That affidavit in my opinion is unhelpful, evasive and uninformative and is an example of what an affidavit-in-opposition should not be in a writ matter. The exercise of the power under Section 237(b) has been challenged by the petitioner as done without legal excuse and specific grounds have been pleaded to show that such is the case. The affidavit-in-opposition does not reveal any legal excuse. The respondent merely plead want of knowledge, non-admission of factual statements and bare denials. I cannot, on such an affidavit, hold that the grievance made by the petitioner must be unfounded.

24. I have expressed the view in Matter No. 272 of 1964 (New Central Jute Mitts Co. Ltd., [1966] 36 Comp. Cas. 512:) that if the Central Government is to proceed on ' circumstances suggesting ' it can merely proceed on hypothesis, that is to say, on a prima facie theory to be proved or disproved with reference to facts, later on ascertained. Now, if the character of the investigation is merely that of a fact-finding commission, as pointed out by the Supreme Court in Raja Narayan Bansilal v. Maneck Phiroz Mistry, [1960] 30 Comp. Cas. 644: : [1961]1SCR417 , the Central Government cannot be expected to form a fully objective opinion about the malpractices mentioned in Sub-clauses (i), (ii) and (iii) of Section 237(b) before the investigation brings out relevant materials for the formation of such opinion. It may merely form the opinion that there are circumstances, which may be capable of innocent interpretation, but until so done, suggestively sinister. This is a form of opinion which is lesser in degree than the self-confident opinion based on reasonable materials, commonly known as objective opinion but greater in degree than the speculative view, which goes by the name of subjective satisfaction. Reading the affidavit, I do not find any material from which I can infer that the Central Government proceeded even on prima facie materials. I cannot, therefore, ignore the criticism that there is nothing to indicate that the Central Government had any legal excuse in making the order and may have proceeded on mere subjective satisfaction.

25. I need notice that the respondents do not claim privilege in respect of the materials on which they made the order of investigation under Section 237(b). They merely say that it is not necessary to disclose the materials in the order itself. That may be so, but when called upon to vindicate the making of the order before a court of law the respondents are not to hold back from the court the circumstances which suggested to them the necessity for making the order. The respondents failed to indicate those circumstances before this court, either in the affidavit-in-opposition or in course of argument. The mere assertion that they followed the law in making the order and did not act without any legal excuse is not enough to satisfy the judicial conscience of the court. I am therefore unable to uphold the order for investigation as made.

26. Before I leave this point, I desire to make one position clear. What the petitioner states in paragraphs 9 to 12 of the petition notwithstanding, it may be possible for the Central Government to make an order for investigation under Section 237(b) if in its opinion there are circumstances suggesting the necessity for such an investigation. The allegations contained in paragraphs 9 to 12 of the petition are not necessarily to be taken at their face value. The Central Government may have materials in its possession which may indicate the falsity of the allegation or the Central Government may have in its possession other materials which may call for an investigation of the affairs of the company under Section 237(b). In the instant case, the respondents fail to justify the order because they do not elect to say anything useful.

27. Following the dictum in Appeal from Original Order No. 209 of 1959 (Daulatram Rawatmull v. Income-tax Officer--unreported), I might have compelled the respondents to place before this court the materials which prompted the Central Government to take action under Section 237(b) and determine for myself whether the materials justified the action taken. I do not, however, propose to do so for two reasons. In the first place, the investigation was ordered as far back as April 11, 1963, and has made some progress. In the course of the investigation, the extreme step for search and seizure of documents has been taken. I do not think that this is an appropriate case where I should try to salvage the investigation, at this stage, by compelling the respondents to disclose the materials, if any exist at all. Then again, the Central Government can always make a fresh order for investigation on circumstances suggesting the propriety of such an action and justify the same, if called upon to do so.

28. Before I close this judgment, I need observe that Mr. Deb strongly argued that after the establishment of the Company Law Board, the Central Government lost the jurisdiction to extend the time for investigation or to appoint an inspector or co-inspector in the vacancy in the inspectorate. I have dealt with this argument in Matter No. 272 of 1964 (New Central Jute Mills Co. Ltd., [1966] 36 Comp. Cas. 512) and negatived the contention. I need not repeat my reasonings over again in this rule for so doing.

29. In the result, this rule succeeds and the impugned order of investigation is quashed and the respondents are restrained from giving further effect to the same. Let a mandate issue accordingly.

30. Nothing contained in this judgment shall stand in the way of the Central Government in making a fresh investigation order according to law.

31. There will be no order as to costs.

32. The operation of this judgment shall remain stayed for a fortnight.


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