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TMI Blog1969 (2) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... been guilty of fraud, misfeasance or other misconduct towards the respondent or its members or other persons and whereas the Central Government considered it desirable that an inspector should be appointed to investigate the affairs of the respondent and to report thereon, the Central Government in exercise of the powers under the said provisions of the Act appointed one S. Prakash Chopra, as inspector to investigate the affairs of the respondent for a certain period mentioned in the order. The inspector so appointed was to complete the investigation and submit his report within four months from the date of the order unless the time was extended. On the very next day the respondent protested in writing against the order and denied that there were any circumstance justifying the formation of the alleged opinion by the Central Government. The respondent also requested that information may be supplied to it regarding materials in the possession of the Government on the basis of which the alleged opinion was formed by the Central Government. By a letter dated June 17, 1963, the appellant No. 1 refused to disclose any materials to the respondent. The investigation was not completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or towards any of its members." On behalf of the appellants, Mr. Basak contended that the question whether the circumstances set out in sub-clauses ( i ) and ( ii ) of clause ( b ) set out above existed was a matter entirely for the subjective satisfaction of the Central Government. It was argued that the opinion of the Central Government contemplated by the statute was not justiciable and that the respondent was not entitled to know if there were any materials in the possession of the Central Government which justified the formation of the opinion. It was further argued that if the materials, on which the opinion of the Central Government was formed, were disclosed at this stage the very purpose and object of the investigation would be defeated. Evidence of fraud, misfeasance and other misconduct, it was argued, would be tampered with and destroyed if the respondent was at this stage informed about the materials on which the opinion was formed. It was next contended by the learned counsel for the appellants that out of the various matters set out in sub-clauses ( i ), ( ii ) and ( iii ) of clause ( b ) of section 237 of the Act, the Central Government had selected two matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans are from directors and shareholders and family members of the directors of the respondent who are satisfied with the conduct of business of the respondent. It is next alleged that the respondent did not receive any complaint from any of its members that they have been defrauded. It is further alleged that the respondent has only eight members who are the directors and their family members and an officer of the respondent. With regard to the charge in the impugned notice that other persons had been defrauded it is alleged that this charge is mala fide , and devoid of particulars, and has been deliberately made to harass the respondent. In the next place there is a denial of the existence of circumstances which could justify the formation of any opinion on the part of the Central Government that the persons concerned in the management of the respondent's affairs had been guilty of fraud, misfeasance or other misconduct. It is next alleged that the investigation was continued for a period of nearly 15 months, and that it was unreasonably and unnecessarily prolonged, and for several months nothing was done to carry on the investigation. It is alleged that this delay and procrast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up a jute mill in Thailand. This agreement was approved by the Reserve Bank of India. The managed company also arranged with the Thailand company for sale and export from India of jute mills machinery of the value of 1,82,628 for installation of the jute mill in Thailand, upon the managed company agreeing to invest nearly Rs. 20 lakhs in the share capital of the foreign company out of the sale proceeds of the machinery. This arrangement was made by the managed company in the face of strong international competition. The Reserve Bank of India issued necessary sanction to the managed company for the said investment and the shareholders of the company at a general meeting also approved of the venture. Thereafter, on or about February 1, 1964, an application was made under section 372 of the Companies Act, 1956, to the Central Government for necessary sanction for investment in the shares of a foreign company. By a letter dated April 4, 1964, the Central Government refused to give sanction and this refusal was followed by a letter dated May 5, 1964, from the Reserve Bank of India to the managed company in which it was stated that the bank was advised that the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its experts to Washington for negotiations. Yet, on April 17, 1964, the Central Government wrote to the company that the application for grant of import licence had been rejected and that the company should surrender its industrial licence for cancellation. ( v )Simultaneous orders of investigation and appointment of inspectors were also made with regard to Rohtas Industries Ltd. and the time to complete the investigation and make the report was also extended from time to time. ( vi )By a letter dated June 20, 1962, the Central Government agreed to grant to Jaipur Uddyog Ltd. (another managed company) a licence for the manufacture of portland cement by setting up a new industrial undertaking in Rajasthan. Pursuant to this communication the company took all possible steps for erecting a cement factory at Rajasthan. Thereafter, on April 4, 1963, the Central Government wrote to the company that the time schedule for completing the various stages of the work should be furnished to the Government and if effective steps to the satisfaction of the Government were not taken within three months the question of cancellation of the approval letter would be considered. But even before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng refusal to grant import licences, industrial licences, revocation of sanction by the Reserve Bank of India and export of jute mills machinery for the joint venture in Thailand, it is alleged that the allegations are irrevelant and such allegations did not concern the Department of Revenue and Company Law of the Ministry of Finance. There is, however, one assertion to which I must in particular refer, namely, a submission that the Central Government is not bound to disclose the reasons for forming its opinion. That is how a challenge by the respondent that there were no materials for forming an opinion and that an opinion as required by the statute was never formed was attempted to be met by the appellants. The deponent it seems was primarily concerned with one department only of the Central Government, namely, the Department of Revenue and Company Law of the Ministry of Finance. On behalf of the Union of India (appellant No. 4) no affidavit was filed to deny or controvert the allegations made in the petition. It is plain to us that on the question whether there were any materials suggesting either of the matters set out in sub-clauses ( i ), ( ii ) and ( iii ) of section 237( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be challenged if it was made mala fide but that in that case it was not shown to have been so made. On this ground it was held that the attack on the order failed. The majority, however, consisting of Hidayatullah J. (as he then was), Bachawat and Shelat JJ., came to a different conclusion. Hidayatullah J. (as he then was), after referring to the grounds set out under section 237 ( b ) of the Act, held at page 309 of the report as follows : "These grounds limit the jurisdiction of the Central Government. No jurisdiction, outside the section which empowers the initiation of investigation, can be exercised. An action, not based on circumstances suggesting an inference of the enumerated kind, will not be valid. In other words, the enumeration of the inferences, which may be drawn from the circumstances, postulates the absence of a general discretion to go on a fishing expedition to find evidence. No doubt the formation of opinion is subjective but the existence of circumstances relevant to the inference as the sine qua non for action must be demonstrable. If the action is questioned on the ground that no circumstances leading to an inference of the kind contemplated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded. It is also not reasonable to say that the clause permitted the authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose. It is equally unreasonable to think that the legislature could have abandoned even the small safeguard of requiring the opinion to be founded on existent circumstances which suggest the things for which an investigation can be ordered and left the opinion and even the existence of circumstances from which it is to be formed to a subjective process... There must therefore exist circumstances which in the opinion of the authority suggest what has been set out in sub-clause ( i ), ( ii ) or ( iii ). If it is shown that the circumstances do not exist or that they are such that it is impossible for any one to form an opinion therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials or evidence is a matter into which this court cannot go in a writ petition, existence of some prima facie materials, at any rate, must be proved to the satisfaction of the court, if there is a challenge on this question by a petitioner. The statute requires as a pre-condition to the order of investigation, firstly, that the Central Government must form an opinion and, secondly, that in the opinion of the Central Government there should be circumstances suggesting one or the other of the matters enumerated in clauses ( i ), ( ii ) and ( iii ) of section 237 ( b ). If the statute merely required that inspectors may be appointed by the Central Government if in its opinion such inspectors ought to be appointed and stopped there, the position might have been different. It might not have been open to a petitioner in that case to argue that there were no materials for forming an opinion that inspectors ought to be appointed. But the legislature did not stop at merely requiring the Central Government to form an opinion, it went very much further and laid down conditions which must be fulfilled. These conditions are that the opinion of the Central Government must be based on vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company. The next case relied upon is a decision of the Supreme Court in Raja Narayanlal Bansilal v. Maneck Phiroz Misery [1960] 30 Comp. Cas. 644 ; [1961] 1 SCR 417; AIR 1961 SC 29 . In that case the Registrar of Companies, in exercise of his power under section 137 of the Indian Companies Act, 1913, wrote to a company, of which the appellant was the managing agent, that the business of the company was carried on in fraud, and so he called upon the company to furnish the information which he required. The Registrar made a report to the Central Government under section 137(5) of the 1913 Act and this report showed that the affairs of the company were carried on in fraud of contributories and that the managing agent who was also the promoter acting under a fictitious name was advancing money to the several farms owned by the managing agent which were purchased from the company's funds. It was also stated in the report that between 1942 and 1951 various farm lands were purchased by advancing money from a fictitious account in the company's books. There was also a statement that the managing agent was utilising the company for his personal gain and therefore a case had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and the question raised before the Supreme Court was whether the State of Punjab exercising its appellate jurisdiction under rule 6(6) of the said Rules was a tribunal within the meaning of article 136(1) of the Constitution. The facts in that case and the questions of law raised before the Supreme Court have nothing to do with the questions now before us in this appeal and for this reason this decision is of no assistance to the appellants. Reliance was next placed on another decision of the Supreme Court, Sadhu Singh v. Delhi Administration AIR 1966. SC 91 . In that case an order was made under rule 30(1) of the Defence of India Rules, 1962, by the District Magistrate, Delhi, whereby the petitioner was detained in prison. Thereupon the prisoner moved the Supreme Court for setting aside his detention and for an order of release. The validity of the detention order was challenged only on the ground that there, was no confirmation of the order by the Administrator, Union Territory of Delhi, in the manner provided by rule 3A(6)( b ) of the Rules. The appellant's contention that the proceedings for review were quasi-judicial in character and therefore the prisoner should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Law Board [1966] 36 Comp. Cas. 639; AIR 1967 SC 295 has clearly expressed its view on the interpretation of section 237( b ) of the Companies Act, 1956 and that being so, the views expressed by the Supreme Court with regard to other statutes which are not in pari materia with the statute with which we are concerned would hardly be of any assistance in dealing with the contentions of the appellants in this appeal. The learned Advocate-General for the respondent submitted that it was not open to the appellant to raise the contentions mentioned above having regard to the observations of the majority of the Supreme Court in Barium Chemicals Ltd.'s case ( supra ). He, however, proceeded further and wanted to support the judgment on certain grounds, which the court below had held against him. This contention on behalf of the respondent was dealt with by the court below in the judgment delivered in Matter No. 272 of 1964, New Central Jute Mills Ltd. v. Deputy Secretary, Ministry of Finance, Deparment of Revenue and Company Law [1966] 36 Comp. Cas. 512. Shortly put, this contention on behalf of the respondent in the court below was as follows : By the Companies (Amendment) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses to local authorities by means of circulars which contained various conditions relating to taking possession. In exercise of this delegated power the town clerk of a local authority took possession of a house. The owner of the house notified the local authority that he intended to use the house for his own residence. The Minister of Health purported to confirm in writing the action of the town clerk of the local authority in requisitioning the house and on this question it was held that the Minister when delegating his powers had for the time being divested himself of those powers and, therefore, had no power to ratify the requisition made by the town clerk of the local authority and that neither the corporation nor the town clerk acted as the agents of the Minister. Reliance was next placed on a Bench decision of this court, K. B. Mathur v. N. C. Chatterjee [1955] 59 CWN 812; AIR 1955 Cal. 385 . The learned Advocate-General also relied upon several other decisions in support of the contention that after delegation of the powers under section 237(b) of the Companies Act, 1956, to the Company Law Board, the Central Government was not competent either to appoint new inspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question of delegation of powers of requisitioning by a Minister to local authorities, held that the Minister, when delegating his power had for the time being divested himself of those powers and therefore he had no power to ratify a purported requisition and neither the local authority to whom the power is delegated nor its town clerk acted as the Minister's agent. The next contention of the learned Advocate-General was that the impugned order was made by the Central Government without applying its mind to the matter and in support of this contention reliance was placed on a decision of the Supreme Court, Jagannath Misra v. State of Orissa AIR 1966 SC 1140. In that case a detention order was made under rule 30(1)( b ) of the Defence of India Rules dealing with the question whether the State Government who made the order applied its mind to the matter. Before making the order the Supreme Court held that where a number of grounds were the basis of a detention order the various grounds should be joined by the conjunctive "and" and use of disjunctive "or" in such a case made no sense and as the word "or" was used in the impugned order it showed that the order was more or less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the Central Government declined to state if there were any reasons for the formation of the opinion and on the ground that existence of circumstances which enabled the Central Government to form an opinion with regard to the matters set out in clauses ( i ), ( ii ) and ( iii ) of section 237( b ) of the Companies Act must be made out as the impugned order has been challenged on the ground that no such circumstances existed, it is not necessary for us to go into the other question raised by the parties in this appeal. We accordingly refrain from expressing any views on the question of the validity of the Central Government's orders appointing the new inspectors and extending the time to make the report by the inspectors so appointed, by reason of the delegation of the powers of the Central Government to the Company Law Board. In our view the refusal of the Central Government to disclose the reasons for the formation of the opinion and the failure on its part to prove the existence of any circumstances that enabled it to form the opinion with regard to the matters set out in clauses ( i ), ( ii ) and ( iii ) are sufficient for striking down the impugned order. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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