1982 (8) TMI 166 - HC - Companies Law

Audit of cost accounts in certain cases, Power of Central Government to accord approval etc., subject to conditions

Summary

Issues Involved:
1. Ultra vires of section 233(b) and section 637A of the Companies Act.
2. Arbitrariness and capriciousness of the decision.
3. Violation of fundamental rights under Article 19(1)(g) of the Constitution.

Issue-wise Detailed Analysis:

1. Ultra vires of section 233(b) and section 637A of the Companies Act:
The petitioner challenged the decision of the Company Law Board (CLB) on the grounds that it was ultra vires section 233(b) and section 637A of the Companies Act. Section 233B allows the Central Government to direct an audit of cost accounts but does not explicitly permit imposing a restriction on the number of cost audits. The petitioner argued that the absence of a provision similar to section 224(1B) in section 233B for cost audits indicates that the impugned decision is ultra vires. The court agreed, noting that the power to impose restrictions under section 637A cannot be invoked unless the principal and substantive provision of the Act expressly permits such limitations. The court observed that the legislative intent was clear in not imposing such restrictions on cost audits, as evidenced by the simultaneous introduction of a proviso allowing chartered accountants to conduct cost audits due to a shortage of cost accountants. Therefore, the impugned decision was held to be ultra vires the Companies Act.

2. Arbitrariness and capriciousness of the decision:
The petitioner argued that the decision was arbitrary and capricious, violating Article 14 of the Constitution. The respondents claimed that the restriction was necessary to promote efficiency and prevent monopoly. However, the court found that the justification for the decision was conjectural and not supported by any factual or rational data. The court noted that the figures provided by the government showed that only 143 cost auditors were actively practicing, and the government had ordered only about 470 audits out of 1,600 potential audits. The court held that the restriction of audits to 30 per auditor would not contribute to the dispersal of work and would instead concentrate the work in the hands of a few auditors. The court concluded that the decision lacked application of mind and was arbitrary.

3. Violation of fundamental rights under Article 19(1)(g) of the Constitution:
The petitioner contended that the restriction violated the fundamental right to practice a profession under Article 19(1)(g) of the Constitution. The court noted that the Cost and Works Accountants Act, 1959, regulated the profession but did not create the right to practice. The restriction imposed by the impugned decision was not a professional or technical qualification and was therefore unreasonable and unconstitutional. The court observed that the restriction materially and substantially affected the right to practice the profession, as most of the work of cost accountants pertained to cost audits ordered by the Central Government. The court held that the restriction was not imposed by law and violated the fundamental right guaranteed by Article 19(1)(g).

Conclusion:
The court quashed the impugned decision of the CLB and the letters directing the companies to engage another cost auditor. The court also directed the respondents to dispose of the petitioner's application for the reconstitution of the firm within one month. The writ petition succeeded with costs, and the rule was made absolute.