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Titagarh Paper Mills Co. Ltd. and ors. Vs. Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberC.O. No. 11100 (W) of 1982
Judge
Reported in[1986]59CompCas94(Cal),88CWN650
ActsCompanies Act, 1956 - Section 237
AppellantTitagarh Paper Mills Co. Ltd. and ors.
RespondentUnion of India (Uoi) and ors.
Appellant AdvocateS.R. Banerjee, ;S.N. Mukherjee and ;D.C. Nandi, Advs.
Respondent AdvocateS.K. Kundu, Adv.;S.B. Mukherjee and ;S.N. Chaudhury, Advs.
Cases ReferredAflatoon v. Lt. Governor of Delhi
Excerpt:
- g.n. ray, j. 1. on this writ petition, no rule has been issued but the petition has been directed to be heard as a contested application upon notice to the respondents and such notice has been served and the respondents including respondent no. 5, sri amal chandra chakraborty, have entered appearance and contested the writ petition. this writ petition is directed against the order of the government of india dated august 10, 1977, under clause (b) of section 237 of the companies act, 1956, and notification of the government of india in the department of company affairs, no. g.s.r. 443(e), dated october 18, 1972, and the decision of the company law board to appoint an inspector to investigate into the affairs of the company and to report thereon and also against appointment of respondent.....
Judgment:

G.N. Ray, J.

1. On this writ petition, no rule has been issued but the petition has been directed to be heard as a contested application upon notice to the respondents and such notice has been served and the respondents including respondent No. 5, Sri Amal Chandra Chakraborty, have entered appearance and contested the writ petition. This writ petition is directed against the order of the Government of India dated August 10, 1977, under Clause (b) of Section 237 of the Companies Act, 1956, and notification of the Government of India in the Department of Company Affairs, No. G.S.R. 443(E), dated October 18, 1972, and the decision of the Company Law Board to appoint an inspector to investigate into the affairs of the company and to report thereon and also against appointment of respondent No. 5, Sri Amal Chandra Chakraborty, chartered accountant of M/s. S. R. Batliboi & Co., to carry on the investigation and report to the Company Law Board and also against the report submitted by the saidinspector to the Under Secretary to the Company Law Board, Government of India, and also against the alleged violation of the provisions of Section 241(2)(a) by the Central Government in not furnishing the company with a copy of the entire report of the inspector. The petitioners have also challenged withholding of the approval regarding reappointment of three whole-time directors and the decision reached by the Company Law Board, Government of India, to launch criminal complaints before the Chief Metropolitan Magistrate, Calcutta, and also against filing of separate complaint petitions before the learned Chief Metropolitan Magistrate, Calcutta, under Section 89(3) read with Section 87 of the Companies Act, registered as Case No. 1966 of 1982 and also under Section 209(5) of the Companies Act, registered as Case No. 2051 of 1982 and under Section 420 read with Section 418 of the said Act, registered as Case No. 2051 of 1982 and under Section 297/299 and 301 of the Companies Act, registered as Case No. 1880 of 1982.

2. The petitioners are Titagarh Paper Mills Co. Ltd., Sri Kanak Ghosh and Sri Pinaki Sengupta. The other petitioner, Sri Souren Biswas, had died during the pendency of the writ petition. It may be noted that the said Sri Souren Biswas was the managing director and principal officer of the Titagarh Paper Mills Co. Ltd. and his case for reappointment as managing director of the Titagarh Paper Mills Co. Ltd. was pending before the Company Law Board at the time of presenting the writ petition. The other two petitioners, namely, Sri Kanak Ghosh and Sri Pinaki Sengupta, are respectively the director and chief accountant of the Titagarh Paper Mills Co. Ltd. It is contended by the petitioners in the writ petition that the Titagarh Paper Mills Co. Ltd. is being managed and administered very efficiently and due to such efficient management, there has been gradual increase in the sales and the total quantity produced, in the net profits earned and in the building up of impregnable reserves. The board of directors of the petitioner company is made up of eleven directors, of whom five represent financial institutions, namely, the Industrial Development Bank of India, the Industrial Finance Corporation of India, the Life Insurance Corporation and the Industrial Credit and Investment Corporation of India, two from the professional management personnel in the employment of the company, two industrialists and one representing the share broker. At the relevant time, the chairman of the board of directors was Mr. S.P. Puri, formerly the managing director of the State Bank of India. It has also been contended in the writ petition that at the material time, the shareholding of public undertakings in the equity share capital of the petitioner company was made up of :

(i)The LIC20.65%(ii)The IDBI9.11%(iii)The ICICI2.40%(iv)The IFC1.20%(v)The Unit Trust5.20%(vi)The nationalised banks and the nationalised insurance companies11.00%

Total49.56%

3. It has been further contended in the writ petition that the management of the petitioner company has been maintaining internal audit system through the independent agency of a professional firm of auditors, Messrs Lovelock & Lewes, in addition to the statutory audit being conducted by another independent firm of auditors, Messrs Price Waterhouse Peat & Co. The petitioners have contended that either in the internal audit or in the statutory audit, no allegation of mismanagement and/or misfeasance and/or misconduct has been made.

4. It is contended by the petitioners that the petitioner company was subjected to a proceeding of inspection of books of account by the officers appointed by respondent No. 1, namely, the Union of India, in accordance with Section 209A of the Companies Act. Such proceeding of inspection went on for about three months, but in the absence of any communication from the inspection authorities, the petitioners believed in good faith that no irregularity was found in the said proceeding of inspection. The petitioners, however, were shocked and surprised at the publication of an order of the Government of India dated August 10, 1977, a copy whereof has been annexed to the writ petition being marked as Annexure ' C'. It has been alleged in the said order that the chairman of the Company Law Board had formed an opinion that there were circumstances suggesting that the persons concerned in the management of the affairs of the petitioner company were guilty of fraud, misfeasance and other misconduct towards the company and its members and the business of the company had been conducted with intent to defraud the members of the company and respondent No. 2 considered it necessary to appoint an inspector to investigate into the affairs of the company and to report. It is alleged that the Under Secretary to the Company Law Board assumed jurisdiction and exercised the authority conferred by Clause (b) of Section 237 of the Companies Act read with Section 10E(1) of the said Act and Sri Amal Chandra Chakraborty was appointed to investigate into the affairs of thepetitioner company in respect of years 1969 onwards and to report thereon to the Company Law Board regarding the irregularities and contraventions of the provisions of the Companies Act or any other law and/or person or persons responsible for such irregularities or contraventions. The petitioner company moved an application under Article 226 of the Constitution of India against the formation of opinion by the Central Government about the alleged irregularities and appointment of inspector before this court, whereupon Writ Application No. 5101(W) of 1977 was registered. The petitioner company in the said writ proceeding challenged the inherent vires, validity and propriety of the opinion formed by the Company Law Board and consequential appointment of the inspector and launching of proceeding of investigation through the inspector under Clause (b) of Section 237 of the Companies Act. The petitioners contend that thereafter on the ground of commercial expediency, the petitioners had to succumb to the persuasion of the leading financial institutions at the instance of the Union of India not to press further the said writ proceeding and the rule nisi issued on the said petition was thereafter not proceeded with by the petitioner company and the rule was discharged for non-prosecution on April 19, 1978.

5. The petitioners also contend that around the date of the order discharging the said rule nisi, respondent No. 5 commenced his proceeding of investigation for about 36 months and the said respondent No. 5 thereafter submitted his report to the Under Secretary to the Central Government, Department of Law, Justice and Company Affairs. The petitioners have alleged that the said respondent No. 5 virtually seized large volumes of documents, records, registers and papers of the company in one room in the head office of the company and made his own inspection and/or notings therefrom entirely behind the back of or without communicating even the substance thereof to the wholetime directors, principal executive officers of the petitioner company, although such officers had extended all possible co-operation and assistance to the said respondent No. 5. It is contended that the said respondent No. 5 chose to employ one Sri Swadesh Gupta, since deceased, who was a senior employee of the firm of auditors to which respondent No. 5 belonged, M/s. Batliboi & Co., to do the work of interrogation and recording evidence, statements and/or depositions of various persons.

6. The petitioners have contended that respondent No. 5 and the said Sri Swadesh Gupta all throughout and entirely behind the back of the wholetime directors and/or other directors and/or principal executive officers of the petitioner company carried on such investigation, interrogation, etc., and they did not even communicate the substance of such infor-nation, statements, depositions, etc., recorded by them. It is also alleged that respondent No. 5 similarly inspected the records of other companies and gathered statements and depositions of several numerous persons and/or information behind the back of the members of the board of directors and principal executive officers of the petitioner company and he also examined and recorded statements of petitioners Nos. 2 and 3, the chief accountant, the mill manager, the forest manager and several other officers in spite of the repeated demands for copies of such recorded statements of the executive officers and senior officers of the petitioner company. The petitioners have also contended that the petitioner company obtained opinion from a reputed and experienced firm of solicitors and advocates in Calcutta and made representations to respondent No. 4 refuting the allegation of alleged violation of Section 89(1) read with Section 87(1) of the Companies Act by the petitioners.' Although the petitioners reasonably believed that respondent No. 4, namely, the Registrar of Companies, had been fully satisfied about the explanation offered by the petitioner company, the said respondent No. 4 chose to pursue the proceeding of inspection and finally confronted the petitioner company with queries about (i) unauthorised perquisites to Mr. K.C. Mitra ; (ii) violation of Section 297/299/30 of the Act ; (iii) discrepancy in the overall cost; (iv) sales through M/s. George Salter (India) Ltd.; (v) dealing with Lyons Range Agency Private Ltd.; (vi) payment of cutting and packing charges, and (vii) the basis for purchase of bamboos.

7. The petitioners have also contended that in the meantime prior to the expiry of the tenure of appointment of petitioners Nos. 2, 3 and one Sri A.B. Majumdar as wholetime director of the petitioner company, a formal application upon payment of the requisite fees and in compliance with all the formalities for approval of reappointment of petitioner No. 2 as whole-time director for a term of 5 years with effect from April 1, 1981, was made. Such application was made after previous approval by the board of directors and the shareholders at their general meeting. In respect of petitioner No. 3, a similar formal application was made for approval of the reappointment of the said Sri Ghosh as the wholetime director for a term of 5 years with effect from January 1, 1980. In respect of another whole-time director, Sri Anil Bandhu Majumdar, a similar application had also been made for approval of the reappointment as a wholetime director for a term of 3 years with effect from January 1, 1981.

8. The petitioner company also by its letter dated December 18, 1981, addressed to respondent No. 1 requested him to furnish the petitioner company with the copy of the report made by the said inspector in accordance with the mandatory provisions of the Companies Act. Thereafter,petitioner No. 2 was furnished with an investigation report. It is the case of the petitioners that the copy of the investigation report furnished to petitioner No. 2 does not contain statements of evidence gathered and collected by respondent No. 5 and in spite of repeated requests and demands made by petitioner No. 1 to furnish the statements of evidence forming the report, such statements have not been furnished to the petitioners. The Director (Inspection and Investigation) of the Department of of Law, Justice and Company Affairs of the Government of India, by his letter dated February 9, 1982, addressed to petitioner No. 2, Sri Souren Biswas, since deceased, refused to furnish the petitioner with the sets of evidence recorded by the inspector and informed the said petitioner No. 2 that he was at liberty to offer his comments, if any, on the findings of the inspector, without prejudice to the action already initiated by the Company Law, Board. The said letter dated February 9, 1982, has been annexed to the writ petition as annexure ' I'. The petitioners acting through the said Souren Biswas, who was the then managing director of the petitioner company had again asked for a complete report with the statements of witnesses alleged to have been examined by the inspector and also requested the authority concerned not to initiate any proceeding on the alleged report of the inspector. Such request was also followed up by subsequent request and it was pointed out that the principles of natural justice and fairness required that the company and the managing director should be furnished with the entire report and any denial of access to such report would amount to denial of the right of reasonable opportunity of being heard. While the petitioners had been anxiously waiting for the copies of the statements and for an opportunity to defend themselves and to submit proper explanation against the report of the inspector, the Under Secretary to the Government of India, Ministry of Law, Justice and Company Affairs, confronted the petitioner company with separate charges of malpractices and irregularities found in the investigation under Section 237(b) of the Companies Act. The petitioner company, however, wrote to the Secretary to the Government of India, Ministry of Law, Justice and Company Affairs, explaining the allegations made against the company and its directors and the petitioner company contended in the said letter that the said allegations were baseless, unwarranted and irresponsible. The petitioners contend that petitioner No. 1 made further representation to respondent No. 1 and despite the serious difficulty of the petitioners to give proper defence in the absence of complete set of evidence collected by the inspector, the petitioners submitted explanations and/or comments on the inspector's report reserving their right to furnish further comments after getting statements of evidence collected by the inspector. The petitioners contend that the Company Law Board has notonly failed to accord approval of reappointment of the wholetime directors as prayed for but also directed the Registrar of Companies to lodge complaints against the petitioner company and its directors for alleged violation of various provisions of the Companies Act and for alleged misappropriation, misfeasance of the company's funds and separate complaints have been filed by the Registrar of Companies at the instance of the Company Law Board before the Chief Metropolitan Magistrate, Calcutta, against the petitioners. In the aforesaid circumstances, the instant writ petition was moved by the petitioners.

9. Mr. Banerjee, the learned counsel appearing for the petitioners, has submitted that the opinion formed by the Central Government as contained in the Notification dated August 10, 1977 (annexure ' C '), for appointing an inspector to investigate into the affairs of the company was made contrary to the overwhelming basic material and relevant facts and circumstances readily available to respondents Nos. 1, 2 and 3 and their officers. Mr. Banerjee has contended that in view of the all round progress of the company, it was not possible to form any opinion about the maladministration of the company and in the context of statistics of gradually progressive performance being made by the petitioner-company, the alleged opinion that the company had not been running efficiently and/or there had been maladministration and/or diversion of funds of the company must have been made on clear non-application of the mind to the relevant facts and/or on consideration of extraneous matters. Mr. Banerjee has contended that such formation of opinion has been made in a colourable exercise of power resulting in gross abuse of the responsibility reposed on the Company Law Board. Mr. Banerjee has also contended that the Department of the Central Government which deals with companies is presumed to be an expert body on company law matters and the standard which is prescribed under Section 237(b) of the Companies Act is not the standard required of or by an ordinary citizen but of an expert. For this contention, Mr. Banerjee has referred to a decision of the Supreme Court made in the case of Rohtas Industries Ltd. v. S.D. Agarwal : [1969]3SCR108 . Mr. Banerjee has also contended that the existence of circumstances made in Section 237(b) of the Companies Act is a condition precedent for the formation of opinion and for the said proposition, Mr. Banerjee has referred to the decision of the Supreme Court made in the case of Barium Chemicals Ltd. v. Company Law Board : [1967]1SCR898 . Mr. Banerjee has also contended that under Sections 235 to 237 of the Companies Act, power has been conferred on the Central Government on the faith that the Central Government will exercise the power in a reasonable manner, but the alleged opinion formed by respondents Nos. 1, 2 and 3 has not been donehonestly and bona fide and on a proper, reasonable and fair appreciation of relevant materials, facts, statistics and circumstances showing gradual progressive performance and achievements of the petitioner company. Mr. Banerjee has also contended that it is well-settled law that the discretion under Section 237(b) of the Companies Act is to be exercised after formation of opinion objectively as distinguished from purely subjective consideration. Accordingly, such formation of opinion objectively amounts to a judicial decision. He has contended that a judicial act is an act done by the competent authority upon consideration of facts and circumstances imposing liability or affecting the rights of others and if a body is empowered by law to enquire into the facts, acts of such body involving such consequences would be judicial acts. For this contention, Mr. Banerjee has referred to an English decision made in the Irish case of Reg (John M'Evoy) v. Dublin Corporation [1878] 2 LR Ir 371. Such definition of judicial decision in its wider sense has been cited with approval by Atkinson L. J. in the case of Frome United Breweries Co. Ltd. v. Keepers of the Peace and Justices for County Borough of Bath [1926] AC 586 (HL) and also by the Supreme Court in the judgment made in the case of Province of Bombay v. Khushaldas S. Advani, : [1950]1SCR621 . Mr. Banerjee has contended that the respondents flagrantly violated the norms of a quasi-judicial or a judicial decision in not disclosing the fact of reaching the fateful decision in launching the complaint against petitioner No. 1 and/or its directors and not granting any one of them any reasonable or adequate opportunity to show cause against the propriety/validity of the alleged decision and/or launching of four complaints. Mr. Banerjee has also contended that the report of the inspector cannot be treated as a valid report because the inspector has not conducted the said enquiry himself and he deputed some other persons to do the inspection on his behalf and on the basis of such alleged investigation made by other persons over a long stretch of years, the inspector submitted the alleged report. Mr. Banerjee has contended that under the Companies Act, the inspector has been authorised to cause inspection and make a report, but he cannot rely on investigation carried out by others at his instance and treat the same as his own investigation report. In the aforesaid circumstances, such report must be deemed to be of no consequence in the eye of law and no action can be taken on the basis of this report. Mr. Banerjee has also submitted that it will appear from the report itself that six sets of evidence had been collected by the inspector and/or assistants and the inspection report is based on a consideration of that evidence but excepting the report itself the evidence was not disclosed to the petitioners despite repeated requests made for the same. He has submitted that it is a mandatory obligation on the part of the Company Law Board to furnish the entire report to the petitioners and to give them reasonableopportunity of being heard. But such mandatory provisions have been deliberately flouted and mala fide actions in withholding approval of the reappointment of wholetime directors and launching of complaints before the learned Chief Metropolitan Magistrate, Calcutta, has been taken. In the aforesaid circumstances, the said illegal actions must be quashed by this court and the Company Law Board should immediately accord approval to the reappointment of the directors and to withdraw or cancel all orders and notifications issued in the matter of appointment of the inspector and actions taken pursuant to such report of the inspector. Mr. Banerjee has also contended that in the aforesaid facts, this court should quash the complaints lodged against the petitioners before the Chief Metropolitan Magistrate. Mr. Banerjee contends that even before giving the petitioner reasonable opportunity to show cause against the report, the Company Law Board had already formed an opinion against the petitioners and had taken the fateful decision of launching four sets of criminal complaints against petitioners Nos. 1, 2 and 3 and other directors entirely behind the back of the petitioners. He has contended that it is quite apparent that the respondents were bent upon taking actions against the petitioners without giving them any opportunity of being heard and the opportunity to submit explanation to the incomplete report of the inspector made available to the petitioners was nothing but a pretext. Mr. Banerjee submits that the actions of the respondents are glaring examples of public authorities playing fast and loose with the powers vested in them but such actions are highly reprehensible and have been condemned in various decisions of the Supreme Court and different High Courts. Mr. Banerjee has referred to a number of decisions of the Supreme Court and other High Courts where the courts have condemned the public authorities failing to maintain proper standards of justice and fair play, but it is not necessary to refer to the said cases in detail because it is well-settled law that public authorities cannot act arbitrarily and capriciously and in violation of the principles of natural justice and they are bound to act fairly, bona fide and reasonably. Mr. Banerjee has also submitted that the complaint lodged by the Registrar of Companies in the Court of the Chief Metropolitan Magistrate, Calcutta, is not the complaint made by the Registrar of Companies on an independent consideration of the facts of the case but such complaint has been made at the instance of the Company Law Board. Hence, the said complaint should not be treated as a proper complaint made by the Registrar of Companies. Mr. Banerjee has contended that the Company Law Board has dictated to the Registrar to launch complaint in the criminal court and the Registrar of Companies also cannot file any complaint under Section 242 of the Companies Act. Only the secretary of the Company Law Board will have to file a complaint under Section 242.

10. Mr. Banerjee has also contended that even for taking a decision by the Central Government to launch a prosecution, a hearing is contemplated and no ex parte decision can be taken in launching a proceeding under Section 242.

11. Mr. Mukherjee, the learned counsel appearing for the respondents, has submitted that on August 10, 1977, a decision was taken to hold an enquiry into the affairs of the company after forming a prima facie opinion that the affairs of the company had not been managed properly. Such enquiry proceeding is a fact-finding proceeding and not a judicial or quasi-judicial determination. Such formation of an opinion by the Company Law Board to cause enquiry into the affairs of the company by appointing inspectors was challenged by the petitioners in a writ petition before this court, but the petitioner company admittedly did not press the said writ petition and the rule was discharged for non-prosecution. He has contended that thereafter the inspector proceeded with the inspection work and seized various documents for the purpose of causing inspection and the said inspection continued for about three years. The petitioners have admitted in the instant writ petition that the petitioner company, their directors and principal officers had rendered all assistance and co-operation to the inspector in conducting the said enquiry. In such circumstances, the petitioners are not permitted to contend at this belated stage that the sine qua non for formation of opinion was not fulfilled and/or the inspector had no jurisdiction to conduct the enquiry and/or such enquiry was conducted by him in violation of the principles of natural justice. Mr. Mukherjee has also contended that it has been alleged in the instant writ petition that at the instance of financial institutions, the earlier writ proceeding was withdrawn by the petitioner company. On the petitioners' own showing that the leading institutions are major shareholders of the petitioner company and they desired that the enquiry should be held, the petitioners should not be permitted to contend that the enquiry was illegal and should not be allowed to be held. Mr. Mukherjee has also contended that the petitioners have failed to produce any contemporaneous document showing that any protest about the investigation being carried out by the inspector was made on the allegation that such investigation was carried on behind the back of the petitioners. On the other hand, it has been specifically stated in the writ petition that the petitioners had rendered co-operation to the work of the inspector. Mr. Mukherjee has submitted that it is not physically possible for the inspector to scrutinise each and every document and for conducting investigation into the affairs of the company over a long stretch of years, it is necessary to take the assistance of other persons. Simply because the inspector had appointed some assistants to assist him in the enquiry, it cannot be held that the work performed by the assistantshave rendered the enquiry proceeding void because they were not inspectors appointed by the Company Law Board. Mr. Mukherjee has submitted that such argument is void of any substance and is an argument in despair. Mr. Mukherjee has also submitted that before starting any investigation into the affairs of the company, no hearing is contemplated and, as such, there has not been any violation of any statutory provision or the principles of natural justice in taking an executive decision that an enquiry into the affairs of the company should be made. In this connection, Mr. Mukherjee has referred to an English decision made in the case of Norwest Hoist Ltd. v. Secretary of State for Trade [1978] 3 All ER 280. He has also referred to a decision of the Supreme Court made in the case of Raja Narayan Bansilal v. Maneck Phiroz Mistry : [1961]1SCR417 , wherein H has been held that the proceeding under Section 240 of the Companies Act is a fact-finding proceeding. Mr. Mukherjee has also submitted that the report of the inspector which has been forwarded to the petitioners is a comprehensive report and evidence has been quoted in the said report. On the face of the said detailed report, the petitioners cannot suffer any prejudice for want of evidence recorded by the inspector. He has submitted that the evidences are not the report but they are documents supporting the report. In law, the report is required to be furnished and the evidence on the basis of which the report had been made has been quoted in extenso. As such, there has been no occasion to suffer any prejudice for not getting the statements recorded by the inspector in the usual course of his investigation. In this connection, Mr. Mukherjee has referred to the report of the inspector and it appears that the statements recorded by the inspector have been quoted extensively for the purpose of arriving at the finding made by him. Mr. Mukherjee has also contended that under Section 621 of the Companies Act, the Registrar is to take action against the company for lapses and irregularities made against the company. It has been provided in the said section that no court shall take cognizance of the said offence against any act which is alleged to be committed by the company or its officers unless the shareholders or the Registrar in writing makes a complaint. He has submitted that it will appear from the writ petition that the Central Government had decided that action should be taken against the company by lodging a complaint and the Registrar of Companies was intimated of such decisions of the Central Government. The Registrar thereafter made the complaints before the Chief Metropolitan Magistrate, Calcutta. Accordingly, no illegality has been committed. Mr. Mukherjee has also contended that the petitioners will be free to raise the question of maintainability of the criminal proceedings before the learned Chief Metropolitan Magistrate and, in the facts and circumstances of the case, the writ court should not interfere at this stage.

12. In reply to the aforesaid contentions made on behalf of the respondents, Mr. Banerjee has contended that the earlier writ proceeding was not pressed by the petitioners and was allowed to be dismissed for default. As the controversy raised in the writ petition has not been decided by this court, the said writ proceeding will not operate as res judicata. Mr. Banerjee has contended that the petitioners have explained as to why the earlier writ petition has not been pressed. Accordingly, no exception can be taken for presenting the instant writ petition challenging the initiation of the enquiry proceeding illegally and mala fide. He has also contended that the instant writ petition is more comprehensive and in the instant writ petition, challenge has been thrown to subsequent actions also. In this connection, Mr. Banerjee has referred to a decision of the Supreme Court made in the case of Daryao v. State of Uttar Pradesh, : [1962]1SCR574 , wherein it has been held that if a proceeding is dismissed summarily, it will not be res judicata. Similar view has been taken in other decisions of different courts and Mr. Banerjee has referred to a Bench decision of this court made in the case of Rolls Print and Co. Ltd. v. B.M. Singh and Sen, : AIR1977Cal303 , and the decision made in the case of Anand Mohan Boral v. Bilas Bihari Lal, : AIR1979Pat36 . In the said decisions, it has been held that if a decision on merits is not given, dismissal of a proceeding for other reasons will not operate as a bar on account of res judicata. Mr. Banerjee has submitted on behalf of the petitioners that the formation of opinion was made mala fide and in utter disregard of the existing material and the appointment of the inspector was made in flagrant violation of the principles of natural justice and also in abuse of the powers conferred by the Companies Act. The inspector has also conducted enquiries arbitrarily, capriciously and he has also not caused enquiries by himself. In the facts of the case, mere delay will not matter much. When there is patent lack of jurisdiction and the officer is guilty of laches, delay will not operate as a bar in entertaining the writ petition. For this contention Mr. Banerjee has referred to a decision made in the case of Shivratan G. Mohatta v. State of Rajasthan [1980] 45 STC 354 (Raj). He has also referred to a decision of the Supreme Court made in the case of Aflatoon v. Lt. Governor of Delhi, : [1975]1SCR802 . In the said case, a notice under Section 4(1) of the Land Acquisition Act was issued in 1959 and a declaration under Section 6 was published in 1966. Notice under Section 9(1) of the Land Acquisition Act was issued in 1970. Thereafter, validity of the acquisition proceeding was challenged. The Supreme Court held that in the special facts of the case, the writ petition was not liable to be rejected on the ground of delay. Mr. Banerjee has contended that the Registrar has statutory duties and obligations under the Companies Act and in an appropriate case, if he is satisfied that the provisions of the Companies Act have been violated bya company, he can lodge a complaint, but such complaint should be lodged by him on independent scrutiny by himself and not at the dictates of any other authority. In the instant case, the Central Government has directed the Registrar to lodge a complaint. Hence, it cannot be held that a proper complaint was made by the Registrar. In the aforesaid facts, Mr. Banerjee has submitted that the facts and circumstances of the case clearly demonstrate that flagrant violation of all principles of natural justice have been made by the authorities of the Company Law Board and the actions have been taken by the respondents illegally and mala fide. Hence, the writ petition should be allowed and the reliefs prayed for in the writ petition should be granted.

13. After considering the respective submissions of the learned counsel appearing for the parties, it appears to me that the Company Law Board had taken the decision to investigate into the affairs of the petitioner company by appointing an inspector in 1977. It also appears that the petitioner company felt aggrieved by such a decision of the Company Law Board and a writ petition was moved challenging the said decision of the Company Law Board. The rule nisi issued on such application was not proceeded with by the petitioner company and the same was allowed to be discharged for non-prosecution. It is also the case of the petitioners in the writ petition itself that the petitioner company and its senior officers had rendered all co-operation to the inspector appointed by the Company Law Board to probe into the affairs of the company. It is also an admitted fact that the said inspector and other persons engaged to assist him had conducted the enquiry and looked into the various documents and registers of the company over a long stretch of time. At no point of time any objection was raised by the petitioner company about the legality of such enquiry being held pursuant to the decision of appointment of an inspector by the Company Law Board. In the aforesaid circumstances, the petitioner company and the other petitioners cannot be permitted to challenge the decision of the Company Law Board to enquire into the affairs of the company by appointing an inspector. The petitioners have contended that as the earlier writ petition was allowed to be discharged on the ground of non-prosecution, there was no occasion for the court to decide any of the issues raised in the writ petition. Accordingly, there cannot be any question of constructive res judicata so far as the issues raised in the earlier writ petition are concerned. In my view, the petitioners should not be permitted to challenge the decision of the Company Law Board to appoint an inspector for enquiring into the affairs of the company at a belated stage not on the score of any bar on the principle of res judicata but on the score that the petitioner had an opportunity to challenge the same when such a decision was taken by the Company LawBoard and as a matter of fact such challenge had also been made by the petitioners by presenting a writ petition. But the petitioner company on its own had withdrawn the same and allowed the said inspection to be conducted by the said inspector. Even assuming that the initial decision of the Company Law Board was not taken lawfully in appointing the inspector, the petitioners having allowed the said inspector to function over a long stretch of time cannot be permitted in a writ court to challenge the appointment of an inspector for causing enquiry. It should be noted in this connection that the writ court is also a court of equity and interference by the writ court is not always a must. If a party stands by and allows certain actions to be taken by other persons pursuant to a decision made against the party, such party should not be permitted to challenge the decision and the consequential actions taken on such decision at a latter stage thereby nullifying and frustrating all the actions taken in the meantime with full knowledge and consent of the other party. In that view of the matter, it is not necessary to go into the question agitated by the petitioners that the Company Law Board had acted improperly in deciding to appoint an inspector for the purpose of probing into the affairs of the company.

14. The petitioners have seriously contended that the Company Law Board have not afforded reasonable opportunity to the petitioners to make their submissions against the report of the inspector in view of the fact that despite repeated requests, copies of evidence collected by the inspector and his assistants have not been forwarded to the petitioners. The petitioners have contended that the report of the inspector having been based on the materials including the materials collected by him, copies of such evidence and the documents should be furnished to the petitioners so as to afford them real opportunity to defend themselves against the report obtained by the Company Law Board. There is no manner of doubt that a company and/or its officers and/or its directors who are likely to be prejudiced by any adverse report of the inspector appointed by the Company Law Board should be given all reasonable opportunities to defend themselves against an adverse report made by the inspector and it is the mandatory provision that the report of the inspector should be made available to the company for making effective representation against such report. The report is expected to be based on various materials collected by the inspector including oral statements recorded by him, if any. No precise formula can be laid down as to what should be the documents that would be forwarded to the company against whom an adverse report has been made by the inspector before the Company Law Board and the nature of documents required to be furnished to the delinquent company must depend on the facts of each case and the nature of the report submittedby the Inspector. It is to be ensured that the delinquent company gets all reasonable opportunities to defend itself against the report made by the inspector. In the instant case, the inspector has given a very lengthy report and the material on which he had based his report has been elaborately indicated in the report. The relevant statements of the witnesses on the basis of which the report was based have been quoted in extenso. In the aforesaid circumstances, the petitioners got all reasonable opportunities to explain and/or to defend against the report of the inspector on perusal of the said lengthy report itself containing relevant extracts from the evidence. In the facts of the case, it cannot be contended reasonably that the copies of the evidence must be furnished to the petitioners so as to afford them reasonable opportunity to defend. Accordingly, in my view, no injustice has been caused to the petitioners by not forwarding the copies of the statements of different witnessess recorded by the inspector and his assistants for the purpose of making the report. In the facts of the case not only has there been compliance with the statutory provision by forwarding the report but the basic principle of reasonable opportunity to defend against the report of the inspector has also been given to the petitioners by forwarding the report which is self-explanatory and self-contained.

15. I am also unable to accept the contention of the petitioners that the report made by the inspector cannot be accepted because the inspector has not, for all intents and purposes conducted the enquiry himself, but he has relied on the reports and the materials collected by a number of persons engaged by him. In my view, Section 237(b) of the Companies Act does not debar an inspector from taking the help of other persons in causing inspection. It can be reasonably accepted that for the purpose of probing into the affairs of a big company, it may not be possible for any single individual appointed as inspector to conduct all details of enquiry (by himself) including the inspection of various documents and registers and interrogation of different persons. There is no manner of doubt that for an effective enquiry, the inspector is bound to take the assistance of a number of persons. It will be sufficient if the inspector himself considers the materials collected by the assistants engaged by him for the said purpose and thereafter prepares his report. There are no materials to suggest that the other persons engaged by the inspector have not acted according to the direction of the inspector and the inspector has not considered the findings of such assistants.

16. I am also unable to accept the contention made by Mr. Banerjee onbehalf of the petitioners that the Company Law Board having taken a decision to file complaints against the petitioners before the Chief Metropolitan Magistrate, Calcutta, for various lapses on the part of the petitioners before the petitioners were given an opportunity to make their sub-missions against the report of the inspector, it must be held that the Company Law Board had already made up its mind about the complicity of the petitioner company and the other petitioners and the opportunity of hearing afforded to the petitioners is nothing but a pretence and a purposeless formality. In my view, if the Company Law Board comes to know of serious lapses and irregularities on the part of a company and its officers for which such company and its officers are liable to be prosecuted in a criminal court, then the concerned authorities under the Companies Act will be justified in making complaints for initiating prosecution against the company and its delinquent officers. It is not imperative to wait for a hearing to be given to the company and its delinquent officers before making a complaint in a criminal court. It should be noted that apart from making complaints in a criminal court, the Company Law Board has powers to take other measures against a delinquent company but such power cannot be exercised unless the hearing before the Company Law-Board is completed and the Company Law Board finally takes a decision. It should be borne in mind that when a case is presented in a court of law, the party against whom such proceeding is brought will get all opportunities to defend itself in accordance with the law of the land in a court of law. The criminal proceedings which have been instituted against the petitioners before the Chief Metropolitan Magistrate will be decided by the criminal court and not by the Company Law Board. Accordingly, the petitioners are not likely to suffer any real prejudice in the criminal proceedings instituted against the petitioners before the Chief Metropolitan Magistrate.

17. Mr. Banerjee, the learned counsel for the petitioners, has contended that the Company Law Board had withheld the formal approval of appointment as managing director and as wholetime directors of some of the petitioners without any just cause. He has submitted that in the board of directors of the petitioner company, there are representatives from various public financial institutions and such board of directors had approved the appointment of the said persons as managing director and wholetime directors. In my view, simply because in the board of directors there are representatives from the public institutions which are agencies of the Central Government, it cannot be contended that the Company Law Board is bound to accord approval of the decision of the board for appointment of managing director or wholetime directors. The Company Law Board has a statutory duty to consider about the reasonableness and/or suitability of the personnel to be appointed as managing director and wholetime directors of the concerned company and it is onlyproper and desirable that the Company Law Board should give its anxious consideration about the suitability of such personnel in the matter of appointment to the board of directors. In the instant case, it appears that the Company Law Board had received information that the petitioner company and some of its officers were guilty of various lapses of serious nature relating to the affairs of the company. As a matter of fact, a decision has been taken by the Company Law Board to cause enquiry into the affairs of the company by appointing an inspector. In the aforesaid circumstances, it cannot be held that the Company Law Board was unjustified in riot according approval to the appointment of some of the petitioners as managing director and wholetime directors of the company before such enquiry is concluded and the extent of their alleged complicity is investigated. It may be noted in this connection that the persons who have been appointed by the board of directors as managing director and wholetime directors of the company continue to hold such offices unless the question of their approval by the Company Law Board is finally determined. In the instant case, some of the petitioners who had been appointed as managing director and/or wholetime directors have in fact been holding their respective offices in the absence of implementing the final decision of the Company Law Board. Accordingly, the company and the said persons have not suffered any real prejudice by the delay in disposing of the cases of approval.

18. I am also unable to accept the contention of Mr. Banerjee appearing for the petitioners that the Registrar of the company not having taken any independent decision in making complaints before the Chief Metropolitan Magistrate against the petitioners, but such complaints having been made at the instance of the Central Government and/or the Company Law Board, the said complaints must be held to be illegal and void. It appears that the Company Law Board, on a consideration of the material available before it, has taken a decision to institute criminal proceedings against the petitioners and such decision of the Company Law Board was communicated to the Registrar of Companies to follow up the proposed action to institute criminal cases. The Registrar of Companies on the basis of such intimation has lodged complaints before the Chief Metropolitan Magistrate, Calcutta, and criminal cases have been started against the petitioners. Prima facie, it therefore does not appear that initiation of proceedings against the petitioners is void and without jurisdiction. However, it is not necessary to decide the said contention in the instant writ proceeding because the petitioners will be entitled to take all objections including the objection about maintainability of the criminal cases against them before the learned Magistrate. The said contention is, therefore, kept open and is not decided by this court. In the aforesaid facts and circumstances, no interference is called for in the instant writ proceeding and the writ petition is, therefore, dismissed but there will be no order as to costs. All interim orders passed in this proceeding stand vacated.

19. The learned counsel appearing for the petitioner prays for stay of operation of this judgment for a period of three weeks from today. Let the operation of the judgment remain stayed for a period of two weeks from date.


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