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Deputy Secretary, Ministry of Finance, Dept. of Revenue and Company Law Vs. Sahu JaIn Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberAppeal from Original Order No. 203 of 1965
Judge
Reported in[1970]40CompCas83(Cal),73CWN446
ActsCompanies Act, 1956 - Section 237
AppellantDeputy Secretary, Ministry of Finance, Dept. of Revenue and Company Law
RespondentSahu JaIn Ltd.
Appellant AdvocateB. Das, ;B.N. Sen and ;B. Basak, Advs.
Respondent AdvocateR.C. Deb, ;Subrata Roy Chowdury and ;P.L. Khaitan, Advs.
DispositionAppeal dismissed
Cases Referred(New Central Jute Mills Co. Lid. v. Deputy Secretary
Excerpt:
- b.c. mitra, j.1. the respondent is the managing agent of several companies incorporated under the indian companies act and mentioned in paragraph 1 of the petition. on april 11, 1963, an order was made by the central government in exercise of the powers conferred by sub-clauses (i) and (ii) of clause (b) of section 237 of the companies act, 1956 (hereinafter referred to as ' the act '). in this order it was recited that whereas the central government was of the opinion that there were circumstances suggesting that the business of the respondent was being conducted with intent to defraud its creditors, members and other persons and the persons connected in the management of the respondent's affairs had in connection therewith been guilty of fraud, misfeasance or other misconduct towards.....
Judgment:

B.C. Mitra, J.

1. The respondent is the managing agent of several companies incorporated under the Indian Companies Act and mentioned in paragraph 1 of the petition. On April 11, 1963, an order was made by the Central Government in exercise of the powers conferred by Sub-clauses (i) and (ii) of Clause (b) of Section 237 of the Companies Act, 1956 (hereinafter referred to as ' the Act '). In this order it was recited that whereas the Central Government was of the opinion that there were circumstances suggesting that the business of the respondent was being conducted with intent to defraud its creditors, members and other persons and the persons connected in the management of the respondent's affairs had in connection therewith been guilty of fraud, misfeasance or other misconduct towards the respondent or its members or other persons and whereas the Central Government considered it desirable that an inspector should be appointed to investigate the affairs of the respondent and to report thereon, the Central Government in exercise of the powers under the said provisions of the Act appointed one S. Prakash Chopra, as inspector to investigate the affairs of the respondent for a certain period mentioned in the order. The inspector so appointed was to complete the investigation and submit his report within four months from the date of the order unless the time was extended. 6n the very next day the respondent protested in writing against the order and denied that there were any circumstance justifying the formation of the alleged opinion by the Central Government. The respondent also requested that information may be supplied to it regarding materials in the possession of the Government on the basis of which the alleged opinion was formed by the Central Government. By a letter dated June 17, 1963, the appellant No. 1 refused to disclose any materials to the respondent.

2. The investigation was not completed within the time fixed by the order and by an order dated August 9, 1963, the time to submit the report was extended up to October 31, 1963. A second extension was also granted on October 31, 1963, and the time of submitting a report was extended up to January 31, 1964. The investigation, however, was not completed within the extended time and a third extension was granted by an order dated January 29, 1964, and the time to make the report was extended till June 30, 1964. On June 30, 1964, however, the inspector was relieved of his duties and two new persons, namely, S. D. Agarwal and S. Rajagopalan, were appointed co-inspectors and the time to make the report was again extended up to December 31, 1964. Aggrieved by the order appointing inspectors for the investigation and also by subsequent orders granting extension of time to make the report the petitioner moved this court under Article 226 of the Constitution and obtained a rule nisi. By a judgment and order dated August 6, 1965, this rule was made absolute and the order dated April 11, 1963, and the subsequent order mentioned above whereby time to submit the report was extended was quashed and appropriate writs were directed to be issued. It was, however, provided that nothing contained in the order would stand in the way of the Central Government in making a fresh investigation order according to law. This appeal is directed against the judgment and order dated August 6, 1965.

3. The question involved in this appeal is whether the appellants were justified in refusing to disclose to the respondent the materials which led the Central Government to form the opinion as to matters set out in Sub-clauses (i) and (ii) of Clause (b) of Section 237 of the Act. I set out below the relevant portion of the statute :

' 237 (b) may do so if, in the opinion of the Central Government, there are circumstances suggesting--

(i) that the business of the company is being conducted with intent to defraud its creditors, members, or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose ;

(ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members.'

4. On behalf of the appellants, Mr. Basak contended that the question whether the circumstances set out in Sub-clauses (i) and (ii) of Clause (b) set out above existed was a matter entirely for the subjective satisfaction of the Central Government. It was argued that the opinion of the Central Government contemplated by the statute was not justiciable and that the respondent was not entitled to know if there were any materials in the possession of the Central Government which justified the formation of the opinion. It was further argued that if the materials, on which the opinion of the Central Government was formed, were disclosed at this stage the very purpose and object of the investigation would be defeated. Evidence of fraud, misfeasance and other misconduct, it was argued, would be tampered with and destroyed if the respondent was at this stage informed about the materials on which the opinion was formed.

5. It was next contended by the learned counsel for the appellants that out of the various matters set out in Sub-clauses (i), (ii) and (iii) of Clause (b) of Section 237 of the Act, the Central Government had selected two matters, one from Sub-clause (i), namely, intent to defraud creditors, members or other persons and the matters set out in Clause (ii), namely, that persons concerned in the management of the affairs of the respondent have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the respondent or its members. The selection of two matters only out of the various matters set out in Sub-clauses (i), (ii) and (iii), was submitted, clearly proved that the Central Government applied its matter, and having so applied its mind formed its opinion and thereafter directed the investigation. It was not a case, therefore, it was submitted, where the mind was not applied at all and a sweeping order of investigation made for the purpose of a roving inquiry to discover materials upon which a case could be founded. But, it was argued, although the Central Government applied its mind to the matter before directing investigation, it was not bound, at this stage, to disclose the materials which it took into consideration in forming the opinion. The investigation, it was argued, was in the nature of a fact-finding commission and the Central Government could not be expected to form a conclusive opinion about the intent to defraud creditors, misfeasance and malpractices of those in charge of the management of the respondent, without taking into consideration the report of the investigation, which was likely to bring out relevant materials for the formation of a fully objective opinion.

6. Before dealing with the contentions mentioned above I should refer to the case made out by the respondent in the petition and the appellant's answer to the charges in the petition as laid down in the affidavit-in-opposition. The respondent's first charge is that the impugned order is mala fide, illegal, arbitrary, capricious, without jurisdiction and ultra vires the Companies Act, 1956. The second charge is that the Central Government did not and could not form any opinion as alleged and that the impugned order is perverse and was made in abuse of statutory powers. The respondent alleges that its business was never conducted with intent to defraud creditors, members or other persons. It is next alleged that all the loans and advances obtained by the respondent from its bankers are fully secured by pledge of securities, and that the unsecured loans are from directors and shareholders and family members of the directors of the respondent who are satisfied with the conduct of business of the respondent. It is next alleged that the respondent did not receive any complaint from any of its members that they have been defrauded. It is further alleged that the respondent has only eight members who are the directors and their family members and an officer of the respondent. With regard to the charge in the impugned notice that other persons had been defrauded it is alleged that this charge is mala fide, and devoid of particulars, and has been deliberately made to harass the respondent. In the next place there is a denial of the existence of circumstances which could justify the formation of any opinion on the part of the Central Government that the persons concerned in the management of the respondent's affairs had been guilty of fraud, misfeasance or other misconduct.

7. It is next alleged that the investigation was continued for a period of nearly 15 months, and that it was unreasonably and unnecessarily prolonged, and for several months nothing was done to carry on the investigation. It is alleged that this delay and procrastination in the investigation has caused tremendous dislocation and loss in the respondent's business and has affected its reputation. It is next alleged that the impugned order had fixed a period of 4 months within which the inspector was directed to complete the investigation and submit his report. But the investigation was not completed and the report was not submitted even after the expiry of 15 months and thereafter, without completing the investigation, S. P. Chopra, the inspector appointed resigned, and the appellants Nos. 2 and 3 were appointed inspectors by an order dated June 13, 1964, and by this order the period of investigation was extended till December 31, 1964. It is next alleged that the object of the investigation was to make a roving and fishing enquiry into the respondent's books and records in the hope that materials would be found on such inquiry for taking action against the respondent.

8. In support of its contention that the order is mala fide the respondent has set out in the petition particulars in support thereof which are as follows :

(i) One of the managed companies of the respondent, namely, New Central Jute Mills Company Ltd., submitted an application for licence to import jute mills machinery for the production of carpet-backing cloth. The application for import of machinery valued at Rs. 41 lakhs was recommended by the Jute Commissioner for issue of licence for Rs. 28,37,625. After scrutiny of the recommendations of the Jute Commissioner, the Joint Chief Controller of Imports and Exports, Calcutta, decided to grant 8 licences for the aggregate amount of Rs. 26,69,355 and this decision was communicated to New Central Jute Mills Company Ltd. In spite of repeated requests the import licences were not issued, and suddenly without any reason, by a communication dated May 14, 1964, the Joint Chief Controller of Imports & Exports informed the said managed company that no licence could be issued in its favour. No reason was assigned for the refusal nor was the managed company given any opportunity to show cause against the refusal ; but import licences were issued to various other jute mills who along with the managed company applied for import licences.

(ii) The said managed company entered into an agreement with Jute Industries (1961) Company Ltd. of Thailand by which the managed company agreed to supply technical know-how for setting up a jute mill in Thailand. This agreement was approved by the Reserve Bank of India. The managed company also arranged with the Thailand company for sale and export from India of jute mills machinery of the value of 1,82,628 for installation of the jute mill in Thailand, upon the managed company agreeing to invest nearly Rs. 20 lakhs in the share capital of the foreign company out of the sale proceeds of the machinery. This arrangement was made by the managed company in the face of strong international competition. The Reserve Bank of India issued necessary sanction to the managed company for the said investment and the shareholders of the company at a general meeting also approved of the venture. Thereafter, on or about February 1, 1964, an application was made under Section 372 of the Companies Act, 1956, to the Central Government for necessary sanction for investment in the shares of a foreign company. By a letter dated April 4, 1964, the Central Government refused to give sanction and this refusal was followed by a letter dated May 5, 1964, from the Reserve Bank of India to the managed company in which it was stated that the bank was advised that the Central Government had reconsidered the question of investment in the foreign company and that the proposal for investment in jute mill in Thailand was rejected and, therefore, the sanction was withdrawn. The managed company protested to the Central Government- against the cancellation of the sanction but no reply was given by the Central Government.

(iii) Rohtas Industries Ltd., another company managed by the respondent, is a manufacturer of sugar, cement, asbestos cement, paper, banaspati, chemicals, etc. The development council for paper pulp and allied industries took certain decisions for raising the production of paper during the Third Plan period. Two sub-committees were set up by the council to examine applications from various paper mills for improving production by effecting modification and balancing of equipments. Tha committee accepted several schemes submitted by seven different manufacturers including Rohtas Industries Ltd. Accordingly, this company applied to the Ministry of Industries for grant of industrial licences under the Industries (Development and Regulation) Act, 1951, for expansion of its pulp and paper factories and the requisite import licences under the approved schemes along with six other paper mills. The licencing committee and the capital goods committee of the Central Government approved the scheme of increasing production of the seven paper mills. In March, 1964, six of the paper mills received the necessary permission for importing the balancing equipments from foreign countries and they also received industrial licences for increasing their output but the Rohtas Industries Ltd. was refused both the import licence as well as the industrial licence. Such refusal was made without giving to the company an opportunity to state its case.

(iv) In February, 1961, Rohtas Industries Ltd. was granted an industrial licence for 36,000 tons of printing paper and writing paper and 36,000 tons of pulp annually. Further licences were given to produce 15,000 tons of best quality paper annually. Thereupon the company applied to the Chief Controller of Imports for necessary import licences but suddenly, by a letter dated October 7, 1961, the company was asked to show cause as to why the industrial licence should not be revoked. It was pointed out on behalf of the company that it had contacted the Export Import Bank for arranging finance and had sent its experts to Washington for negotiations. Yet, on April 17, 1964, the Central Government wrote to the company that the application for grant of import licence had been rejected and that the company should surrender its industrial licence for cancellation.

(v) Simultaneous orders of investigation and appointment of inspectors were also made with regard to Rohtas Industries Ltd. and the time to complete the investigation and make the report was also extended from time to time.

(vi) By a letter dated June 20, 1962, the Central Government agreed to grant to Jaipur Uddyog Ltd. (another managed company) a licence for the manufacture of portland cement by setting up a new industrial undertaking in Rajasthan. Pursuant to this communication the company took all possible steps for erecting a cement factory at Rajasthan. Thereafter, on April 4, 1963, the Central Government wrote to the company that the time schedule for completing the various stages of the work should be furnished to the Government and if effective steps to the satisfaction of the Government were not taken within three months the question of cancellation of the approval letter would be considered. But even before the expiry of the said period of three months the managed company was suddenly served with a show cause notice on May 10, 1963, as to why the approval granted to the company for erecting a cement factory at Rajasthan should riot be cancelled. The company showed cause as called upon, yet, on June 14, 1963, the approval already granted was suddenly cancelled.

9. The instances mentioned above have been cited by the respondent to show that the impugned order has been made by the Central Government mala fide and the managed companies of the respondent had been singled out on various occasions in the past for penal measures arbitrarily and unreasonably taken without any justification.

10. I shall now turn to the affidavit-in-opposition affirmed by appellant No. 1, on August 29, 1964. It is to be seen how far the allegations made by the respondent in support of the charges of mala fide, arbitrary and unreasonable conduct have been met by facts pleaded in the affidavit-in-opposition. It is also to be seen if any material have been disclosed to show that there were circumstances suggesting either one or the other of the matters required by Sub-clauses (i), (ii) and (iii) of Section 237(b) of the Act.

11. The main contention of the appellants as made out in the affidavit-in-opposition is that the impugned order was made bona fide and that the opinion of the Central Government is not justiciable. In answer to the respondent's allegations that there were no material for formation of an opinion on the part of the Central Government that the business was conducted with intent to defraud creditors, there is only a submission that it was only after the investigation was completed that the true manner in which the business of the respondent was conducted whether with intent to defraud its members, creditors or others would be revealed. As to the charge of mala fides there is only a bare denial and as to the allegation that no complaints had been received by the respondent regarding fraud and mismanagement from any one, it is alleged that these facts, if proved, are irrelevant and do not establish that the respondent's business is carried on correctly and properly. It is, however, admitted in the affidavit that the investigation has been going on for a period of nearly 15 months.

12. With regard to the allegations in the petition to which I have already referred regarding refusal to grant import licences, industrial licences, revocation of sanction by the Reserve Bank of India and export of jute mills machinery for the joint venture in Thailand, it is alleged that the allegations are irrevelant and such allegations did not concern the Department of Revenue and Company Law of the Ministry of Finance. There is, however, one assertion to which I must in particular refer, namely, a submission that the Central Government is not bound to disclose the reasons for forming its opinion. That is how a challenge by the respondent that there were no materials for forming an opinion and that an opinion as required by the statute was never formed was attempted to be met by the appellants. The deponent it seems was primarily concerned with one department only of the Central Government, namely, the Department of Revenue and Company Law of the Ministry of Finance. On behalf of the Union of India (appellant No. 4) no affidavit was filed to deny or controvert the allegations made in the petition.

13. It is plain to us that on the question whether there were any materialssuggesting either of the matters set out in Sub-clauses (i), (ii) and (iii) of Section 237(b), the appellants closed and bolted the door. They drew a veiltightly around them, and they thought, and indeed they still think, thatthe veil can neither be pierced nor lifted, to see if materials exist which thestatute required as a pre-condition to the making of an order under Section 237(b) of the Act. Quite apart from the fact that the charges of malafide, unreasonable and arbitrary conduct remained unanswered and unrefutedby the appellants, even by the Central Government who was a party to thewrit petition, it is to be seen if the contention of the appellants can be upheld,bearing in mind the requirement of Section 237(b) of the Act. *

14. This very question was raised in Barium Chemicals Ltd. v. Company Law Board, : [1967]1SCR898 . In that case also an order was made under Section 237(b) of the Act appointing inspectors for investigating the affairs of the company. Thereupon the company moved a writ petition under Article 226 of the Constitution and one of the charges in the petition was that the order was made mala fide. The minority view of the Supreme Court expressed by Mudholkar J. held that the discretion conferred by the section was administrative and not judicial since its exercise one way or the other did not affect the rights of a company nor did it lead to any serious consequences. It was further held, relying upon Emperor v. Sibnath Banerjee that if it could be shown that the board had in fact not formed an opinion its order could be successfully challenged and that there was a difference between not forming an opinion at all and forming an opinion upon grounds which could be regarded as inapt or insufficient or irrelevant. Referring to the loss suffered by the company the minority view was that this loss arising out of disorganised and unbusinesslike methods of carrying on business was due to lack of capability only but that the loss might conceivably have been produced by fraud and other varieties of dishonesty or misfeasance. The minority held that the discretion conferred by Section 237(b) of the Act was administrative and that the opinion to be formed under that section was a matter of subjective satisfaction, but if grounds were disclosed the court could examine them for considering whether they were relevant. It was also held, however, that the order could be challenged if it was made mala fide but that in that case it was not shown to have been so made. On this ground it was held that the attack on the order failed. The majority, however, consisting of Hidayatullah J, (as he then was), Bachawat and Shelat JJ., came to a different conclusion.

15. Hidayatullah J. (as he then was), after referring to the grounds set out under Section 237(b) of the Act, held at page 309 of the report as follows :

' These grounds limit the jurisdiction of the Central Government. No jurisdiction, outside the section which empowers the initiation of investigation, can be exercised. An action, not based on circumstances suggesting an inference of the enumerated kind, will not be valid. In other words, the enumeration of the inferences, which may be drawn from the circumstances, postulates the absence of a general discretion to go on a fishing expedition to find evidence. No doubt the formation of opinion is subjective but the existence of circumstances relevant to the inference as the sine qua non for action must be demonstrable. If the action is questioned on the ground that no circumstances leading to an inference of the kind contemplated by the section exists, the action might be exposed to interference unless the existence of the circumstances is made out. As my brother, Shelat J., has put it trenchantly :

' It is not reasonable to say that the clause permitted the Government to say that it has formed the opinion on circumstances which it thinks exist.....'

Since the existence of ' circumstances ' is a condition fundamental to the making of an opinion, the existence of the circumstances, if questioned, has to be proved at least prima facie. It is not sufficient to assert that the circumstances exist and give no clue to what they are because the circumstances must be such as to lead to conclusions of certain defmiteness. The conclusions must relate to an intent to defraud, a fraudulent or unlawful purpose, fraud or misconduct or the withholding of information of a particular kind. We have to see whether the chairman in his affidavit has shown the existence of circumstances leading to such tentative conclusions. If he has, his action cannot be questioned because the inference is to be drawn subjectively and even if this court would not have drawn a similar inference that fact would be irrelevant. But if the circumstances pointed out are such that no inference of the kind stated in Section 237(b) can at all be drawn, the action would be ultra vires the Act and void. '

16. Shelat J. was of the view that the formation of the opinion by the Central Government was a subjective process and that this opinion of the Central Government was not subject to a challenge on the ground of propriety, reasonableness or sufficiency. But his Lordship also held that the authority was required to arrive at such an opinion from circumstances suggesting what was set out in Sub-clauses (i), (ii) or (iii) and if those circumstances did not exist the Government could not say that they do exist. His Lordship was further of the opinion that the expression 'circumstances suggesting ' could not support the construction that even the existence of circumstances was a matter of subjective opinion and that the expression pointed out that there must exist circumstances from which the authority formed an opinion that they were suggestive of the crucial matters set out in the three sub-clauses. His Lordship further went on to hold at page 325 of the report :

' It is hard to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded. It is also not reasonable to say that the clause permitted the authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose. It .is equally unreasonable to think that the legislature could have abandoned even the small safeguard of requiring the opinion to be founded on existent circumstances which suggest the things for which an investigation can be ordered and left the opinion and even the existence of circumstances from which it is to be formed to a subjective process.....There must therefore exist circumstances which in the opinion of the authority suggest what has been set out in Sub-clause (i), (ii) or (iii). If it is shown that the circumstances do not exist or that they are such that it is impossible for any one to form an opinion therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute. '

17. It is thus clear 'that the majority view of the Supreme Court was that while the formation of the opinion was a matter of subjective satisfaction of the Central Government, materials leading to the formation of such opinion must exist and, if challenged in court, must be proved to exist and that if such materials do not exist the action of the Central Government in directing investigation would be ultra vires the statute.

18. In this case there is no evidence at all that any such materials existed. The respondent has challenged the appellants on the existence of such materials and has also-charged the appellants with mala fides. There was no response to this challenge and charge. The appellants declined to disclose any materials, which could prima facie at any rate have justified the formation of opinion as required by the statute. That being the position, the order directing the investigation and the subsequent orders extending the time to submit the report by the inspectors cannot but be held to be ultra vires Section 237(b) of the Act. In answer to the categorical allegations in ground (e) of the grounds set out under paragraph 18 of the petition, all that has been stated in paragraph 15 of the affidavit-in-opposi-tion affirmed on August 29, 1964, is that the Central Government is not bound to express its reasons for forming its opinion. Far from disclosing any materials, it has not even been alleged that such materials did exist and were the basis of formation of the opinion. If there are materials, there may be several reasons arising out of those materials for formation of the opinion. But even if it is held that the Central Government is not bound to disclose the reasons for forming its opinion it must be held that there must exist materials to provide the reasons on which the opinion is formed.

19. Formation of an opinion is undoubtedly a subjective process and on the same materials different persons may come to different conclusions. It is now well settled that, in matters such as these, this court will not substitute its opinion for that of the authority which by statute is required to form the opinion. Sufficiency or adequacy of materials is also a matter beyond the scope of inquiry by this court in a writ petition. But, while sufficiency or adequacy of materials or evidence is a matter into which this court cannot go in a writ petition, existence of some prima facie materials, at any rate, must be proved to the satisfaction of the court, if there is a challenge on this question by a petitioner. The statute requires as a pre-condition to the order of investigation, firstly, that the Central Government must form an opinion and, secondly, that in the opinion of the Central Government there should be circumstances suggesting one or the other of the matters enumerated in Clauses (i), (ii) and (iii) of Section 237(b). If the statute merely required that inspectors may be appointed by the Central Government if in its opinion such inspectors ought to be appointed and stopped there, the position might have been different. It might not have been open to a petitioner in that case to argue that there were no materials for forming an opinion that inspectors ought to be appointed. But the legislature did not stop at merely requiring the Central Government to form an opinion, it went very much further and laid down conditions which must be fulfilled. These conditions are that the opinion of the Central Government must be based on various existing circumstances. These circumstances have been specified and enumerated with the full particulars in Clauses (i), (ii) and (iii) of Section 237(b). Existence of these circumstances cannot be a matter of subjective satisfaction of the Central Government where, as in this case, there is a challenge by the petitioner that not one of the circumstances suggesting either of the matters set out in the said clauses exist. This challenge can be met only by satisfying the court that some materials at least do exist to justify the formation of an opinion by the Central Government as to the necessity of an investigation.

20. I shall now turn to some of the other decisions relied upon by the learned counsel for the appellants. Reliance was placed upon a decision of the Supreme Court in Ram Krishna Dalmia v. Justice S. R. Tendolkar, : [1959]1SCR279 . In that case a notification issued by the Central Government under Section 3 of the Commissions of Inquiry Act was challenged by a writ petition. Sub-section (1) of Section 3 of the Act provides :

' The appropriate Government may, if it is of opinion that it is necessary so to do.....appoint a commission of inquiry for the purpose of making an inquiry into any definite matter of public importance..... '

21. It was argued that Parliament or the Government had usurped the functions of the judiciary inasmuch as they were undertaking to hold an inquiry. This contention was rejected on the ground that the commission of inquiry could only make recommendations which were (not) enforceable proprio vigore and therefore there could be no question of usurpation of the judiciary functions and that, as the only power of the Commission was to inquire and make a report and embody therein its recommendation and had no power of adjudication in the sense of passing an order, the notification could not be challenged on the ground that the inquiry was made in exercise of judicial functions and for that reason there was usurpation by Parliament or the Government of the judicial organs of the Union of India. This decision to our mind is of no assistance to the appellants as the question in this appeal is whether there were any materials enumerated in Clauses (i), (ii) and (iii) of Section 237(b) of the Companies Act, 1956, for formation of an opinion by the Central Government to direct an investigation into the affairs of the company. The next case relied upon is a decision of the Supreme Court in Raja Narayanlal Bansilal v. Maneck Phiroz Mistry, : [1961]1SCR417 . In that case the Registrar of Companies, in exercise of his power under Section 137 of the Indian Companies Act, 1913, wrote to a company, of which the appellant was the managing agent, that the business of the company was carried on in fraud, and so he called upon the company to furnish the information which he required. The Registrar made a report to the Central Government under Section 137(5) of the 1913 Act and this report showed that the affairs of the company were carried on in fraud of contributories and that the* managing agent who was also the promoter acting under a fictitious name was advancing money to the several farms owned by the managing agent which' were purchased from the company's funds. It was also stated in the report that between 1942 and 1951 various farm lands were purchased by advancing money from a fictitious account in the company's books. There was also a statement that the managing agent was utilising the company for his personal gain and therefore a case had been made out for an investigation under Section 138. In accordance with the recommendations of the Registrar, the Central Government appointed an inspector to investigate the affairs of the company. In the meantime, the Indian Companies Act, 1913, was repealed by the Companies Act, 1956. The managing agent (appellant) challenged the appointment of the inspector, firstly, on the ground that he had been appointed under the old Act and had no jurisdiction to exercise the powers referable to the relevant provisions of the new Act. Secondly, there was a challenge to the vires of Sections 239 and 240 of the new Act inasmuch as Section 240 offended against the guarantee provided by Article 20(3) of the Constitution and certain portions of both the sections offending against Article 14. Reliance was placed on the observations in that judgment that the inquiry was no more than the work of a fact-finding commission and that the persons who were called upon to submit to the inquiry were not accused of any offence. These observations, however, were made in repelling the appellant's contentions that the appointment of the inspector was violative of Article 20(3) of the Constitution. Besides, in that case materials were disclosed in justification of an order of investigation by appointment of inspectors. None of the issues now before us were raised in this case. The next case relied upon was also a decision of the Supreme Court, State Trading Corporation of India, Ltd. v. Commercial Tax Officer, [1963] 33 Comp. Cas. 1057 ; A.I.R. 1963 S.C. 1811. In that case the question decided was that a corporation was not a citizen under Article 19 of the Constitution and could not ask for enforcement of fundamental rights granted to citizens under that article. This decision to our mind is of no assistance to the appellants because the question of enforcement of fundamental rights does not arise in this case.

22. The next case relied upon by the appellants is also a decision of the Supreme Court, Associated Cement Companies Ltd. v. P. N. Sharma, : (1965)ILLJ433SC . Reliance was placed on that decision for the proposition that the impugned order was an administrative order and was not amenable to judicial review. In that case an order was made under the Punjab Welfare Officers (Recruitment and Conditions of Service) Rules, 1952, directing the appellant to reinstate its welfare officers and the question raised before the Supreme Court was whether the State of Punjab exercising its appellate jurisdiction under Rule 6(6) of the said Rules was a tribunal within the meaning of Article 136(1) of the Constitution. The facts in that case and the questions of law raised before the Supreme Court have nothing to do with the questions now before us in this appeal and for this reason this decision is of no assistance to the appellants. Reliance was next placed on another decision of the Supreme Court, Sadhu Singh v. Delhi Administration, : [1966]1SCR243b . In that case an order was made under Rule 30(1) of the Defence of India Rules, 1962, by the District Magistrate, Delhi, whereby the petitioner was detained in prison. Thereupon the prisoner moved the Supreme Court for setting aside his detention and for an order of release. The validity of the detention order was challenged only on the ground that there was no confirmation of the order by the Administrator, Union Territory of Delhi, in the manner provided by Rule 30A(6)(b) of the Rules. The appellant's contention that the proceedings for review were quasi-judicial in character and therefore the prisoner should have been given an opportunity to make his representations was repelled by the Supreme Court on the ground that the rule was an emergency measure which authorised the Government to detain a person without trial with a view to prevent him from acting to the detriment of public order and safety. It was further held that the satisfaction of the authority and the confirmation of the order of detention were not subject to judicial review as the order of detention without trial was an executive act and that the subjective satisfaction of the detaining authority was a condition of the making of the order and, if that condition was shown to exist, the court had no power to inquire into the sufficiency of the materials on which the order was made or the propriety or expediency of making the order. I do not see how this decision is of any assistance to the applicants in this case as all that was held was that the making of the order of detention was based on the subjective satisfaction of the prescribed authority. But in this case the question is not whether the formation of the opinion by the Central Government is a matter of subjective satisfaction, as no doubt it is, but whether, having regard to the provisions of the statute the Central Government is bound to disclose the reasons if there is a challenge to the existence of the same. That being the question before us this decision of the Supreme Court is of no assistance to the appellants.

23. The decisions discussed above do not in our view support the contentions of the appellants in this appeal. Besides it is not necessary for us for the purpose of this appeal to examine other decisions for upholding the contentions of the appellants having regard to the decision of the Supreme Court in Barium Chemicals Ltd. v. Company Law Board, : [1967]1SCR898 discussed at length earlier in this judgment. In that case the majority view of the Supreme Court have been clearly and unambiguously stated by Hidayatullah J. (as he then was) and Shelat J. and indeed Mr. Basak conceded that if in our view the majority of the Supreme Court had laid down the law and the interpretation of Section 237(b) of the Companies Act, it was not open to him to raise the contentions he has raised. We see no reason to do otherwise than to hold that the majority view of the Supreme Court in Barium Chemicals Ltd. v. Company Law Board has clearly expressed its view on the interpretation of Section 237(b) of the Companies Act, 1956, and that being so, the views expressed by the Supreme Court with regard to other statutes which are not in pari materia with the statute with which we are concerned would hardly be of any assistance in dealing with the contentions of the appellants in this appeal.

24. The learned Advocate-General for the respondent submitted that it was not open to the appellant to raise the contentions mentioned above having regard to the observations of the majority of the Supreme Court in Barium Chemicals Ltd. v. Company Law Board. He, however, proceeded further and wanted to support the judgment on certain grounds, which the court below had held against him. This contention on behalf of the respondent was dealt with by the court below in the judgment delivered in Matter No. 272 of 1964, New Central Jute Mills Ltd. v. Deputy Secretary, Ministry of Finance, Deparment of Revenue and Company Law, [1966] 36 Comp. Cas. 512. Shortly put, this contention on behalf of the respondent in the court below was as follows :

25. By the Companies (Amendment) Act, 1963, which came into force from January 1, 1964, Section 10E was introduced in the Companies Act, 1956. This amendment provided for the constitution of the Company Law Board and other incidental matters. By this amendment Sub-sections (1) and (2) of Section 637 of the Companies Act, 1956, were also amended and a new Sub-section (2A) was introduced. Sub-section (2A) runs as follows:

' The provisions of this Act shall apply in relation to the Company Law Board as they apply in relation to the Central Government in respect of any matter in relation to which the powers and functions of the Central Government have been delegated to the Company Law Board. '

26. The respondent's contention in the court below was that after April, 1964, the Central Government divested itself of its powers and duties under Sections 235 to 250 of the Companies Act and therefore the appointment of I. M. Puri as co-inspector with S. P. Chopra and the appointment of S.C. Bafna in place of S.P. Chopra to act as co-inspector with I.M. Puri were all beyond the authority of the Central Government. The court below, however, repelled this contention of the respondent and held that in its opinion investigations validly started by the lawful authority at a time when that authority had not parted with its powers and duties, did not become invalid proceedings merely because of subsequent parting of powers. In other words, the investigation started by the Central Government did not become invalid by reason of the subsequent delegation of the power by the Central Government to the Company Law Board.

27. In support of this contention the learned Advocate-General, firstly, relied upon a decision of the Judicial Committee, King Emperor v. Sibnath Banerji in support of the contention that after the delegation of the powers of the Central Government under Section 237 of the Companies Act, the Central Government had no power left in its hands to appoint inspectors to continue the investigation as there was a complete divestiture of the powers created by Section 237. Reliance was next placed on a decision of the Court of Appeal in England, Blackpool Corporation v. Locker, [1948] 1 All E.R. 85. In that case the Minister of Health, acting under the provisions of the Defence (General) Regulations, 1939, delegated his powers to take possession of dwelling-houses to local authorities by means of circulars which contained various conditions relating to taking possession. In exercise of this delegated power the town clerk of a local authority took possession of a house. The owner of the house notified the local authority that he intended to use the house for his own residence. The Minister of Health purported to confirm in writing the action of the town clerk of the local authority in requisitioning the house and on this question it was held that the Minister when delegating his powers had for the time being divested himself of those powers and, therefore, had no power to ratify the requisition made by the town clerk of the local authority and that neither the corporation nor the town clerk acted as the agents of the Minister. Reliance was next placed on a Bench decision of this court, K. B. Mathur v. N. C. Chatterjee, : AIR1955Cal385 .

28. The learned Advocate-General also relied upon several other decisions in support of the contention that after delegation of the powers under Section 237(b) of the Companies Act, 1956, to the Company Law Board, the Central Government was not competent either to appoint new inspectors or to extend the time of the inspectors so appointed, to make the report. The decisions on which reliance was placed were State of Punjab v. Hari Kishan Sharma, : [1966]2SCR982 . In that case the State Government required all applications for cinema licences to be forwarded to it for disposal although Section 5(1) and (2) of the Punjab Cinemas (Regulations) Act conferred the jurisdiction to consider and deal with such applications on the licensing authority. It was held that the State Government could not convert itself into the original authority to deal with the licences because Section 5(3) of the Act allowed an appeal to the State Government to be preferred by a person who was aggrieved by the rejection of his application by the licensing authority. The next case relied upon by the learned Advocate-General was also a decision of the Supreme Court, Roop Chand v. State of Punjab, A.I.R. 1966 S.C. 1503, in which the majority of the Supreme Court held that when the Government delegated its power to entertain and decide an appeal under Section 21(4) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, to an officer who pursuant to such delegation heard the appeal and made an order, such an order was an order of the Government, as it was made under the statutory power which could only be exercised in terms of the statute. The next case relied upon is a decision of the English Court of Appeal Lewisham Borough Council v. Roberts, [1949] 1 All E.R. 815. The passage relied on is at page 824 of the report where it has been held that when the Government department delegated its functions to a town clerk under Regulation 51(5) of the Defence (General) Regulations, 1939, it was putting some one in its place to do the acts which it was authorised to do and the town clerk was an agent of the department and a sub-agent of the Crown and that the delegation to the town clerk was an administrative act so as to enable the administrative functions of requisitioning to operate smoothly and efficiently. Denning L.J. differed from the observations of Scott L.J. to the contrary in Blackpool Corporation v. Locker, [1948] 1 All E.R. 85 to which I shall presently refer, and observed that the observations of Scott L. J. were unnecessary for the decision. In Blackpool Corporation v. Locker, Scott L.J., while dealing with the question of delegation of powers of requisitioning by a Minister to local authorities, held that the Minister, when delegating his power had for the time being divested himself of those powers and therefore he had no power to ratify a purported requisition and neither the local authority to whom the power is delegated nor its town clerk acted as the Minister's agent.

29. The next contention of the learned Advocate-General was that the impugned order was made by the Central Government without applying its mind to the matter and in support of this contention reliance was placed on a decision of the Supreme Court, Jagannath Misra v. State of Orissa, [1948] 1 All E.R. 85. In that case a detention order was made under Rule 30(1)(b) of the Defence of India Rules dealing with the question whether the State Government who made the order applied its mind to the matter. Before making the order the Supreme Court held that where a number of grounds were the basis of a detention order the various grounds should be joined by the conjunctive ' and ' and use of disjunctive ' or ' in such a case made no sense and as the word ' or ' was used in the impugned order it showed that the order was more or less a copy of the rule under which it was made without any application of the mind of the authority concerned to the grounds which applied. On the same question reliance was also placed on another decision of the Supreme Court, Ram Manohar Lohia v. Slate of Bihar, : 1966CriLJ608

30. The learned counsel for the appellants sought to repel the above contention on behalf of the respondent by contending that there was an implied resumption of power by the Central Government in appointing the new inspector and extending the time to make the report. In other words, it was argued that when an authority, which had delegated its power under a statute made an order which by reason of the delegation the delegate alone could make, there was an implied resumption of the power delegated. In support of this contention the learned counsel for the appellants, firstly, relied upon Huth v. Clarke, [1890] 25 Q.B.D. 391 Lewisham Borough Council v. Roberts, [1949] 1 All E.R. 815 and Gordon, Dadds and Company v. Morris, [1945] 2 All E.R. 616. Learned counsel for the appellants also relied upon a decision of the Supreme Court, Godawari S. Parulekar v. State of Maharashtra, : 1966CriLJ1067 for the proposition that the decision of the Judicial Committee in King Emperor v. Sibnalh Banerji was not an authority for the proposition that the Governor entirely divested himself of his powers of passing an order and that the Judicial Committee was dealing with the responsibility of the Governor for the orders issued by the delegate and that all that the Judicial Committee held was that the Governor was not responsible for an order of a delegate and that the Governor could himself act under Rule 26 of the Defence of India Rules.

31. We have been told by the learned Advocate-General that the question raised by him in the appeal in support of the judgment, namely, that once having delegated its power under Section 237(b) of the Act, the Central Government could not appoint new inspectors, are the main points involved in the next appeal (New Central Jute Mills Co. Lid. v. Deputy Secretary, Ministry of Finance, See page 102 infra) in which the respondent in this appeal is the appellant. That being so, and as we are of the opinion that so far as this appeal is concerned the impugned order must be struck down on the ground that the Central Government declined to state if there were any reasons for the formation of the opinion and on the ground that existence of circumstances which enabled the Central Government to form an opinion with regard to the matters set out in Clauses (i), (ii) and (iii) of Section 237(b) of the Companies Act must be made out as the impugned order has been challenged on the ground that no such circumstances existed, it is not necessary for us to go into the other question raised by the parties in this appeal. We accordingly refrain from expressing any views on the question of the validity of the Central Government's orders appointing the new inspectors and extending the time to make the report by the inspectors so appointed, by reason of the delegation of the powers of the Central Government to the Company Law Board. In our view the refusal of the Central Government to disclose the reasons for the formation of the opinion and the failure on its part to prove the existence of any circumstances that enabled it to form the opinion with regard to the matters set out in Clauses (i), (ii) and (iii) are sufficient for striking down the impugned order.

32. In the result, this appeal fails and is dismissed with costs.

33. Certified for two counsel. All interim orders are vacated.

34. Operation of this order will remain stayed for six weeks from today, as prayed for.

Sinha, C.J.

I agree.


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