1960 (8) TMI 112 - SC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the Inspector under the new Companies Act.
2. Violation of Article 20(3) of the Constitution.
3. Violation of Article 14 of the Constitution.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Inspector under the new Companies Act:

The appellant contested the jurisdiction of the inspector appointed under the old Companies Act (1913) to exercise powers under the new Companies Act (1956). The court examined Sections 137, 138, 140, 141, and 141A of the old Act and compared them with Sections 234, 235, 239, 240, 241, and 242 of the new Act. The court noted that while the new Act expanded the scope of investigation, the inspector's appointment under the old Act should be deemed as made under the new Act by virtue of Section 645. The court rejected the argument that Section 646 provided an exception to Section 645, clarifying that Section 646 should be seen as an additional saving provision. Thus, the inspector had the authority to issue the impugned notices under the new Act.

2. Violation of Article 20(3) of the Constitution:

The appellant argued that the investigation violated Article 20(3), which protects against self-incrimination. The court analyzed the scope of Article 20(3) and concluded that the appellant was not "accused of any offence" at the time of the investigation, as required by the Article. The investigation under Section 240 was deemed a fact-finding mission into the company's affairs without any formal accusation against the appellant. The court emphasized that the investigation aimed to uncover irregularities and not to prosecute the appellant at that stage. Thus, Article 20(3) was not applicable.

3. Violation of Article 14 of the Constitution:

The appellant claimed that Sections 239 and 240 violated Article 14 by denying protections available under Sections 132 of the Indian Evidence Act and Sections 161(1) and (2) of the Criminal Procedure Code. The court reiterated that Article 14 prohibits class legislation but allows reasonable classification. The court found that companies and their managers form a distinct class due to the potential for abuse of power in managing company affairs, which affects a large number of stakeholders. Therefore, the classification made by Sections 239 and 240 was deemed reasonable and did not violate Article 14.

Conclusion:

The court dismissed the appeal, affirming that the inspector had jurisdiction under the new Act, the investigation did not violate Article 20(3), and the provisions of Sections 239 and 240 did not infringe upon Article 14. The appeal was dismissed with costs.