1971 (9) TMI 103 - HC - Companies Law

Companies Law Board Power of, Reference to Tribunal of cases against managerial personnel, Reference to Tribunal of Resignation before making of application by Central Government, makes no difference where charges are of collusion and conspiracy, Reference to Tribunal of Where materials were held to be sufficient for investigation, Powers of Central Government to remove managerial personnel on the basis of Tribunal s decision

Issues Involved:
1. Validity of sections 388B to 388E of the Companies Act, 1956 under Article 14 of the Constitution.
2. Whether the Central Government applied its mind in making the reference under section 388B.
3. Maintainability of the writ petition after the amendment of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Validity of sections 388B to 388E of the Companies Act, 1956 under Article 14 of the Constitution:

The appellant contended that sections 388B to 388E confer "unanalysed and uncontrolled discretion" on the Central Government, allowing it to discriminate among individuals, thus violating Article 14 of the Constitution. The appellant argued that the discretion to proceed against particular individuals left to the subjective satisfaction of the Central Government was impermissible under Article 14. The court referred to the Supreme Court's decisions in *Barium Chemicals Ltd. v. Company Law Board* and *Rohtas Industries Ltd. v. S. D. Agarwal*, which held that similar powers conferred on the Central Government by sections 235, 237(a), and 237(b) were not discriminatory. The court concluded that the impugned sections incorporated sufficient norms for reasonable classification and did not violate Article 14. The appellant's contention that section 388B of the Act is violative of Article 14 was rejected.

2. Whether the Central Government applied its mind in making the reference under section 388B:

The appellant argued that the Central Government failed to apply its mind to the relevant materials before making the reference under section 388B. The court examined the materials on record, including allegations of fraud, misfeasance, and mismanagement against the directors, including the appellant. The court noted that the charges were sufficiently grave and serious, involving fraud, misappropriation, manipulation of accounts, and other irregularities. The court held that there were sufficient materials to justify the Central Government's decision to make a reference under section 388B. The contention of non-application of mind by the Central Government was rejected.

3. Maintainability of the writ petition after the amendment of the Companies Act, 1956:

The Tribunal was abolished by Act 17 of 1967, and all pending cases were transferred to the High Court. The appellant's writ petition sought to prohibit the respondents from proceeding with the application before the Tribunal. The court noted that the application now stood transferred to the High Court of Bombay. The appellant's counsel pressed for a declaration that sections 388B to 388E are ultra vires and an injunction restraining the Union of India from proceeding with the application. The court held that issuing such an order would indirectly stultify the hearing of the application pending before another High Court, which would be an abuse of the court's process. The court concluded that the writ petition was not maintainable after the amendment of the Act and the transfer of the application to the High Court of Bombay.

Conclusion:

The court dismissed the appeal, upholding the validity of sections 388B to 388E of the Companies Act, 1956, and rejecting the contention of non-application of mind by the Central Government. The court also held that the writ petition was not maintainable after the amendment of the Act and the transfer of the application to the High Court of Bombay. The appeal was dismissed with costs assessed at twenty gold mohurs.

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