2017 (7) TMI 2 - HC - Companies Law

Licence revoked under Section 25(1) of the Companies Act, 1956 - breach of natural justice - Held that - The impugned action of revocation of licence against the petitioner is in exercise of the aforesaid clause (b) of Section 25(8). The contention that in respect of exercise of powers under Section 25(8)(b), notice is not contemplated, plainly overlooks the position emerging from the two sub-sections where they both deal with revocation of licence. These provisions have conjoint and interactive reading. Though sub-section (7) and sub-section (8) are engrafted as separate and different sub-sections, projection of the both is for same purpose-which is for revocation of licence. Revocation of licence is contemplated under subsection (8)(b) if the licencee body contravenes provision of sub-section (8)(a) namely that it alters the provisions of its Memorandum with respect to its objects without prior permission of the Central Government. This being so, when sub-section (8)(b) also empowers the Central Government to revoke the licence, the requirement of notice and opportunity of being heard as per the Proviso to sub-section (7) has to also apply for an action under Section 25(8)(b) of the Act. Viewed from any standpoint in the context of requirement of complying with the natural justice and principles of audi alteram partem, the impugned order is unsustainable in law. Thus in applying and action upon the provision of Section 25(8)(b) of the Companies Act, 1956, principles of natural justice shall have to be read into the exercise of said powers. The impugned action of revocation of licence deserves to be set aside on the aforesaid ground alone without going into any other aspect.

Summary

Issues:
Challenge to revocation of license under Section 25(1) of the Companies Act, 1956 without opportunity of being heard and compliance with natural justice.

Analysis:
The petitioner challenged the order revoking its license under Section 25(1) of the Companies Act, 1956, passed by the Regional Director. The impugned order cited complaints alleging non-business activities by the petitioner, leading to the cancellation of the license under Section 25(8)(b). The petitioner argued that it had not undertaken any activity post the grant of the license in 2006 until it was awarded a water supply project in May 2007. The petitioner contended that the revocation was unjust as it had not violated any provisions of Section 25. The petitioner's counsel argued that the order was in breach of natural justice as no opportunity was provided before revoking the license.

The provisions of Section 25 of the Companies Act, 1956, grant the Central Government the power to dispense with 'Limited' in the name of charitable or other companies. Sub-sections (7) and (8) of Section 25 are crucial for the present controversy. Sub-section (7) allows the revocation of a license by the Central Government, subject to a notice and an opportunity to be heard. Sub-section (8)(a) mandates that a licensed body cannot alter its Memorandum provisions without prior approval, and clause (b) empowers the Central Government to revoke the license if this provision is contravened. The judgment emphasizes that the requirement of notice and opportunity of being heard under sub-section (7) must also apply to actions under sub-section (8)(b) for revocation of a license.

The judgment highlights the principle that compliance with natural justice is necessary when an action or decision entails civil consequences against a person. The revocation of a license, which provides exemptions and benefits to a company, falls within the realm of civil consequences, necessitating adherence to principles of natural justice and providing an opportunity to be heard. The judgment cites legal precedents where the Supreme Court extended the application of natural justice to provisions lacking explicit mention, emphasizing the need for pre-decisional hearing when an order entails civil consequences.

In conclusion, the judgment sets aside the impugned order of revocation of the license on grounds of non-compliance with natural justice principles. It emphasizes that the action under Section 25(8)(b) of the Companies Act, 1956, must incorporate principles of natural justice. The Court's decision is solely based on the violation of natural justice and does not delve into other aspects of the case, ultimately allowing the petition and making the rule absolute.