1965 (8) TMI 49 - HC - Companies Law

Accounts - To be kept by company, Investigation of company s affairs in other cases, Power of inspectors to carry investigation into affairs of related companies

Issues Involved:
1. Validity of the investigation order under Section 237(b) of the Companies Act, 1956.
2. Non-disclosure of materials forming the basis of the investigation order.
3. Scope and manner of the investigation under Section 237(b).
4. Appointment and succession of inspectors during the investigation.
5. Concurrent exercise of powers under Section 209(4) during an ongoing investigation under Section 237.
6. Impact of delegation of powers to the Company Law Board on ongoing investigations.
7. Procedural and technical objections related to affidavits and jurisdiction.

Detailed Analysis:

1. Validity of the Investigation Order under Section 237(b) of the Companies Act, 1956:
The petitioner-company challenged the investigation order dated April 11, 1963, under Section 237(b), arguing that the Central Government did not form an objective opinion and acted unreasonably. The court held that the opinion under Section 237(b) is exploratory, based on "circumstances suggesting" malpractices, and does not require a fully objective opinion. The court found that the Central Government acted reasonably, citing the allegation that the statutory auditors of the petitioner-company were not independent, which justified the investigation.

2. Non-disclosure of Materials Forming the Basis of the Investigation Order:
The petitioner argued that non-disclosure of the materials on which the investigation order was based was fatal. The court disagreed, stating that while non-disclosure does not invalidate the proceedings, the Central Government should justify its actions when challenged. The court noted that the respondents' affidavit was not wholly uninformative and contained a definite allegation, which was a prima facie ground for investigation.

3. Scope and Manner of the Investigation under Section 237(b):
The petitioner contended that the investigation order was unwarranted as it did not specify the manner of investigation, included contraventions of any law, and allowed the inspector to investigate periods before April 1, 1958. The court held that:
- It is not obligatory to specify the manner of reporting under Section 237(b).
- The term "unlawful purpose" in Section 237(b)(i) is broad enough to include contraventions of any law.
- Allowing the inspector to investigate periods prior to April 1, 1958, does not constitute excessive delegation of power.
- The Central Government can extend the time for completing the investigation.

4. Appointment and Succession of Inspectors during the Investigation:
The petitioner argued that the investigation should be completed by the initially appointed inspector(s) and that appointing co-inspectors or successors was improper. The court held that the investigation under Section 237(b) is administrative and not quasi-judicial, thus allowing for the appointment of co-inspectors or successors. The court emphasized that the inspector's role is to collect facts and form an opinion, not to make binding judgments.

5. Concurrent Exercise of Powers under Section 209(4) during an Ongoing Investigation under Section 237:
The petitioner challenged the order for inspection of books under Section 209(4) during the ongoing investigation. The court held that different powers under the Companies Act have different objectives, and there is no prohibition against exercising Section 209(4) powers during an investigation under Section 237. The court, however, noted that the exercise of this power in the present case seemed unnecessary.

6. Impact of Delegation of Powers to the Company Law Board on Ongoing Investigations:
The petitioner argued that after the delegation of powers to the Company Law Board, the Central Government could no longer appoint new inspectors. The court held that investigations started by the Central Government before the delegation do not become invalid and must be continued by the Central Government. The court found that the Central Government retains control over such investigations, including appointing co-inspectors or successors.

7. Procedural and Technical Objections Related to Affidavits and Jurisdiction:
The petitioner raised objections regarding the affirmation of affidavits and the jurisdiction of the Original Side of the court. The court found these objections to be technical and not fatal to the proceedings. The court noted that such objections should have been raised at the beginning of the case.

Conclusion:
The court discharged the rule, finding no merit in the petitioner's contentions. The court emphasized the need for a swift and efficient investigation to minimize the adverse impact on the company's credit and competitive position. The court also highlighted the importance of inspectors conducting investigations with competence and tact to avoid unnecessary antagonism and delays.

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