1978 (3) TMI 172 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the Central Government's disapproval of the asset purchase agreement.
2. Petitioner's right to be heard and represent its case.
3. Requirement for the Central Government to provide reasons for its decision.
4. Applicability of natural justice principles.
5. Maintainability of the writ petition under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Legality of the Central Government's disapproval of the asset purchase agreement:
The petitioner-company entered into an agreement on June 8, 1977, to purchase the assets of M/s. Ludlow Jute Company Ltd., a non-resident company. The agreement required approval from the Government of India under the Foreign Exchange Regulation Act, 1973. The Central Government disapproved the agreement on November 23, 1977, without directly communicating with the petitioner. The court found that the approval from the Central Government was a statutory requirement under the Foreign Exchange Regulation Act, 1973, and its disapproval rendered the agreement null and void. The court held that the Central Government's decision was a condition precedent for the Reserve Bank of India to grant permission, and thus, the disapproval affected the contractual rights of the petitioner.

2. Petitioner's right to be heard and represent its case:
The petitioner contended that it had an independent right to negotiate with the Central Government or the Reserve Bank to obtain approval. The court noted that the petitioner had participated in joint discussions with the Government of India and the respondent. It was held that the Central Government acted illegally and without jurisdiction by not affording any opportunity to the petitioner to represent its case before the Government, thereby violating the principles of natural justice.

3. Requirement for the Central Government to provide reasons for its decision:
The petitioner argued that the Central Government did not assign any reason for disapproving the agreement. The court observed that the order of disapproval was passed without any reason and that no reasons were disclosed even in the affidavit-in-opposition. The court emphasized that an order without reasons cannot be tested on the grounds of mala fides and is difficult to ascertain whether the authority acted arbitrarily or with malice.

4. Applicability of natural justice principles:
The court referred to the Supreme Court's observations in A.K. Kraipak v. Union of India and Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, emphasizing that administrative authorities must act justly and fairly, and provide reasons for their decisions. The court held that the Central Government's decision must be supported by reasons, and opportunities must be given to both parties to present their cases before such authority.

5. Maintainability of the writ petition under Article 226 of the Constitution:
The respondents contended that the petitioner had no legal right and could not claim fundamental rights under Articles 19 and 31 of the Constitution. The court, however, held that the petitioner had the right to maintain the writ application challenging the action of the Central Government. The court cited the Supreme Court's decision in D.F.O., South Kheri v. Ram Sanehi Singh, which held that a writ petition is maintainable even if the right to relief arises out of an alleged breach of contract when the action challenged is of a public authority invested with statutory powers.

Conclusion:
The court quashed the impugned order of the Central Government dated November 23, 1977, and held that the agreement dated June 8, 1977, subsists subject to the approval of the Central Government. A writ of mandamus was issued commanding the respondents not to give effect to the impugned order. The operation of the order was stayed for a period of a fortnight.