1978 (11) TMI 111 - HC - Companies Law

Companies Law Board Power of, Appeal against orders of, Oppression and Mismanagement Right to apply under section 397 and 398

Issues Involved:
1. Nature of the function of the Company Law Board under Section 399(4) of the Companies Act, 1956.
2. Nature of the enquiry to be made by the Board before granting or refusing authorisation under Section 399(4).
3. Right or interest of the company to be heard before the decision is taken by the Board under Section 399(4).

Detailed Analysis:

1. Nature of the Function:
The primary issue was whether the authorisation given by the Company Law Board under Section 399(4) to a member holding less than 1/10th of the issued share capital to file an application against the company under Sections 397 and 398 was an executive or quasi-judicial act. The court analyzed the relevant provisions of the Companies Act, 1956, and the Rules, noting that the Act grants both executive and quasi-judicial powers to the Central Government. The court concluded that the function under Section 399(4) is executive or administrative, not quasi-judicial, based on the following reasoning:
- The Board's functions under sub-section (4A) are executive because they can be performed by the principal officer, unlike the quasi-judicial functions under sub-section (4B).
- Sub-section (4B) allows the Board to form Benches with civil court powers, indicating quasi-judicial functions, whereas sub-section (4A) excludes such powers.
- The procedure for authorisation under Section 399(4) is prescribed by the Companies (Central Government's) General Rules and Forms, 1956, which are executive in nature.

2. Nature of the Enquiry:
The court examined what the Central Government considers under Section 399(4) and concluded that it does not involve a detailed scrutiny of the merits of the case but only a preliminary look to see if the application is frivolous. The court noted that:
- There are no parties or lis in the proceeding under Section 399(4).
- The scrutiny by the Central Government is minimal and does not require a quasi-judicial enquiry.
- No hearing is necessary in a preliminary enquiry leading to a regular proceeding where a full hearing would be available.

The court supported this conclusion by citing various precedents, including Wiseman v. Borneman, Pearlberg v. Varty, and Norwest Hoist Ltd. v. Secretary of State for Trade, which established that preliminary enquiries do not require a hearing.

3. Right or Interest of the Company to a Prior Hearing:
The court rejected the argument that the company should be heard before authorisation is granted under Section 399(4). It emphasized that:
- The right to file a petition under Sections 397 and 398 and the restriction under Section 399(1) are statutory provisions, and the remedy provided by statute is exclusive.
- There is no common law right for the company to not be sued, and the trend in law is to discourage immunity from being sued.
- Comparable statutory provisions, such as Section 92 of the Code of Civil Procedure and Section 10 of the Industrial Disputes Act, do not require a prior hearing before initiating proceedings.

The court concluded that since the function of the Central Government or the Board under Section 399(4) is executive, no prior hearing is required, and the order of authorisation does not need to be supported by reasons. This aligns with the principle that preliminary decisions do not prejudge the merits of the case and should not require detailed reasoning.

Conclusion:
The Letters Patent Appeal was dismissed, affirming that the authorisation under Section 399(4) is an executive act, not requiring a quasi-judicial enquiry or a prior hearing for the company. The court held that the procedural safeguards in place were sufficient to ensure that the decision was within the ambit of the power given under Section 399(4).

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