1965 (8) TMI 63 - HC - Companies Law

Investigation of Company s Affairs in other cases and Power of inspectors to carry investigation into affairs of related companies

Issues Involved:

1. Legality of the investigation order under Section 237(b) of the Companies Act.
2. Legality of the investigation order under Section 249(1)(a) of the Companies Act.
3. Validity of extensions granted for the investigation period.
4. Appointment of multiple inspectors and their powers.
5. Allegations of malice and lack of justification for investigations.

Issue-Wise Detailed Analysis:

1. Legality of the investigation order under Section 237(b) of the Companies Act:

The petitioner-company challenged the Central Government's order for investigation under Section 237(b) of the Companies Act, claiming it was "bad, illegal, without jurisdiction and mala fide in law." The court upheld the investigation under Section 237(b), citing that unreasonable declaration of dividends could be a prima facie ground for ordering an investigation. The court referenced the case "In re Miles Aircraft Ltd. [1948] WN 178; [1948] 1 All ER 225" to support this decision. The affidavit-in-opposition provided some justification for the investigation, stating that the working results and declared dividends were incompatible, suggesting the need for an investigation. The court did not find the investigation order under Section 237(b) to be without legal excuse and thus did not quash it.

2. Legality of the investigation order under Section 249(1)(a) of the Companies Act:

The investigation under Section 249(1)(a) was challenged on the grounds that the petitioner-company was not an associate of Sahu Jain Ltd. The court found that the reasons recited in the original order dated 11th April 1963 were irrelevant and that subsequent orders contained incorrect and imaginary grounds. The court emphasized that an order under Section 249(1)(a) must be based on good reasons, which were not justified in this case. The court quashed the investigation order under Section 249(1)(a), stating that the grounds for the investigation had no nexus to the relevant sections of the Companies Act.

3. Validity of extensions granted for the investigation period:

The petitioner argued that the investigation under Section 249(1)(a) lapsed due to the lack of extension in the order dated 9th August 1963. The court, however, held that the failure to submit a report within the fixed time did not automatically terminate the investigation, referencing the Supreme Court judgment in "Andheri Marol Kurla Bus Services v. State of Bombay [1959] Suppl. 2 SCR 739." The court found that the investigation could continue despite the lapse in formal extension, and the inspector's duty did not end with the failure to meet the time schedule.

4. Appointment of multiple inspectors and their powers:

The petitioner contended that the appointment of multiple inspectors under Section 249(1)(a) was invalid as the section referred to "an inspector," implying a single inspector. The court dismissed this argument, stating that "an inspector" should be read as "any inspector," and the singular includes the plural. The court also rejected the argument that investigations under Sections 237(b) and 249(1)(a) could not be combined in one order, noting that it did not matter whether the investigations were ordered under one order or separately.

5. Allegations of malice and lack of justification for investigations:

The petitioner alleged that the investigations were conducted with malice and without proper justification. The court noted that while the affidavit-in-opposition was mostly uninformative, it was not entirely devoid of justification for the investigation under Section 237(b). However, for the investigation under Section 249(1)(a), the court found that the grounds were irrelevant and not justified. The court emphasized that the Central Government must provide justification for the exercise of power if challenged on the grounds of malice in law.

Conclusion:

The court upheld the investigation under Section 237(b) but quashed the investigation under Section 249(1)(a) due to lack of proper justification. The court allowed the Central Government to make a fresh order for investigation under Section 249(1)(a) if good reasons exist. The interim order was extended for a fortnight from the date of the judgment.

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