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2006 (9) TMI 293 - HC - Companies Law

Issues Involved:
1. Compliance with principles of natural justice in administrative action.
2. Requirement of notice and hearing under Section 399(4) of the Companies Act.
3. Statutory scheme and applicable provisions.
4. Scope of the expression 'in its opinion' in Section 399(4).
5. Judicial pronouncements on Section 399(4) and scope of enquiry.
6. Principles governing exercise of discretion under other statutes.
7. Applicability of principles of natural justice to the consideration by the Central Government of an application under Section 399(4).

Detailed Analysis:

1. Compliance with Principles of Natural Justice in Administrative Action:
The judgment addresses the fundamental question of whether the principles of natural justice apply to administrative actions, particularly in the context of Section 399(4) of the Companies Act, 1956. It is emphasized that fairness in administrative action is conditioned by the facts and circumstances of each situation, and an unnatural expansion of natural justice can be exasperating. The court cites the dictum from the Supreme Court in Chairman, Board of Mining Examination & Chief Inspector of Mines v. Ramjee, emphasizing that natural justice is not a judicial cure-all.

2. Requirement of Notice and Hearing under Section 399(4) of the Companies Act:
The petitioners challenged the requirement to serve a copy of their application under Section 399(4) on the company, arguing that the statute does not mandate such notice or hearing. The court examined whether the principles of natural justice require notice and hearing at the stage of considering an application under Section 399(4). It was contended that since the rights of the other side are not affected at this stage, no hearing is necessary.

3. Statutory Scheme and Applicable Provisions:
The judgment delves into the statutory scheme of Sections 397, 398, and 399 of the Companies Act, 1956. It highlights that the Central Government has the discretion to authorize members to apply to the Tribunal under Sections 397 and 398 if it deems it just and equitable. The statutory scheme is designed to prevent frivolous petitions and ensure that only genuine grievances are brought before the Tribunal.

4. Scope of the Expression 'In Its Opinion' in Section 399(4):
The court analyzed the expression "in its opinion" used in Section 399(4) and similar provisions in the Companies Act, such as Section 237. It was noted that the formation of opinion by the Central Government is a subjective process, and judicial review is limited to ensuring that the opinion is not formed on irrelevant or extraneous grounds.

5. Judicial Pronouncements on Section 399(4) and Scope of Enquiry:
The court referred to previous judgments, including Sri Krishna Tiles & Potteries (Madras) (P.) Ltd. v. Company Law Board, which held that the Central Government's consideration under Section 399(4) is an administrative function based on subjective satisfaction. The judgment affirmed that there is no requirement to hear the company at this stage, as the authorization merely removes the statutory bar for filing a petition under Sections 397 and 398.

6. Principles Governing Exercise of Discretion under Other Statutes:
The court compared the exercise of discretion under Section 399(4) with similar provisions in other statutes, such as Sections 92 and 86 of the Code of Civil Procedure and Sections 195 and 197 of the Code of Criminal Procedure. It was reiterated that such discretionary powers are administrative and do not require compliance with principles of natural justice unless the statute explicitly mandates it.

7. Applicability of Principles of Natural Justice to the Consideration by the Central Government of an Application under Section 399(4):
The court concluded that the Central Government's consideration of an application under Section 399(4) is a subjective administrative process that does not necessitate compliance with principles of natural justice. The decision to grant or deny authorization does not affect the rights of the company and is not a final adjudication on the merits of the case.

Conclusion:
The court allowed the writ petition, setting aside the requirement for the petitioners to serve a copy of their application on the company. The Central Government was directed to consider the application under Section 399(4) without involving the company and to make appropriate orders within eight weeks. The judgment reinforced that the principles of natural justice do not apply at the stage of considering an application under Section 399(4) as it is an administrative action based on subjective satisfaction.

 

 

 

 

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