9911796707
TMI Blog1978 (11) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... -company, to make an application to the court (Madras High Court) against the company under sections 397 and 398 of the Act was an executive Act or a quasi-judicial act. Respondent No. 3 is a member of the appellant petitioner-company holding less than 1/10th of the issued share capital of the company. He applied to the Company Law Board for authorisation to file an application against the company under sections 397 and 398 of the Act. By the impugned order the authorisation was granted by the Board to respondent No. 3. The petitioner-company felt aggrieved by the said authorisation and filed a writ petition seeking to quash the impugned order mainly on the ground that the grant of authorisation under section 399(4) of the Act by the Board to respondent No. 3 was a quasi-judicial act. It was, therefore, necessary that the Board should have heard the company before deciding whether to authorise respondent No. 3 or not. Secondly, the order being quasi-judicial should have been a speaking order giving reasons why the Government thought it fit to authorise respondent No. 3. Since the company was not heard before the authorisation was given and since the order granting the authorisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at section, section 240 and sections 397 to 407, which the Central Government may, from time to time, by notification in the Official Gazette, specify. (2)Part I-A consisting of section 10F was inserted empowering the Central Government to constitute the Board of Company Law Administration to exercise and discharge such powers and functions conferred on the Central Government by or under the Act or any other law as may be delegated to it by that Government. The mere inclusion of sections 397 to 407 in section 10A( b ) of the Act should not lead to any hasty conclusion. It is only the powers and functions conferred on the court under those sections which were transferred to the Tribunal. Since no power or function was conferred on the court either under section 299(1) or section 399(4), the Company Tribunal was not to exercise any powers of the Board in a matter respecting action under sections 397 and 398. The nature of the functions of the Board acting under sub-section (4A) of section 10E seems to be executive or administrative as distinguished from being quasi-judicial. This conclusion is reached on the following reasoning. ( i )Sub-section (4A) contemplates not only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s executive functions or most of its functions as if they were executive or administrative. It is very significant that rule 13 prescribes the procedure for an application to be made under section 399(4) by a member of a company who wishes to be authorised to apply to the court-under sections 397 and 398. This function was of the Central Government and it has now come to the Board to be performed under sub-section (4A) as distinguished from sub-sections (4B) to (4D). The function is, therefore, executive or administrative. On the other hand are the Company Law Board (Bench) Rules, 1975. These are framed in exercise of powers conferred by section 642 read with sub-section (4B) of section 10E of the Act. These are, therefore, essential for the discharge of quasi-judicial functions by the Benches. It is in these Rules that a distinction is made between an application and a petition. The applications are to commence an interlocutory proceeding, while the petitions are made to commence proceedings which are not interlocutory proceedings. An interlocutory proceeding is a proceeding which takes place during the course of a legal action or proceeding. It is not, therefore, the main proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt provisions of the Statutes and the Rules, therefore, shows that the function of the Central Government performed under section 399(4) is executive and not quasi-judicial. On principle also the nature of this function seems to be executive and not quasi-judicial. Firstly, there are no parties and there is no lis in proceeding under section 399(4). It was contended by Shri Nain that the company must be regarded as the opposite party because it would be prejudiced by the making of the application by respondent No. 3 under sections 397 and 398. But the granting of authorisation by the Central Government under section 399(4) is similar to the granting of such authorisation by it under section 401. Thus, even if a person does not make an application under section 399(4) the Central Government can grant him the authorisation under section 401. Finally, the Central Government itself may make an application to the court under sections 397 and 398 by virtue of section 401. Reading section 399(4) with section 401 it would appear it is the right of the Central Government either to make the application itself under sections 397 and 398 or cause such application to be made by authorising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted by the Central Government, the company should be heard by the Central Government before granting the authorisation. 2. Nature of the enquiry What after all does the Central Government consider under section 399(4)? It does not consider the merits of the case which a member may have against the company in filing the petition under sections 397 and 398. The object and reason underlying sections 399(1) and 399(4) are that the Central Govt. should only have a preliminary look at the application proposed to be made by the member under sections 397 and 398, with a view to see if the application can be said to be a frivolous one by a disgruntled member. Very little scrutiny is required to know whether an application is a frivolous one. An application which has no merits would not necessarily be frivolous. Since the scrutiny by the Central Government does not involve any finding about the merits of the case and since the frivolous nature of the application is not something which should be decided after hearing the parties, the nature of the enquiry need not be quasi-judicial. In fact, it is well settled that no hearing is given to a person in a preliminary enquiry which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. The Court of Appeal held that this was not a situation where natural justice principles should be applied. Lord Denning M.R. in particular made explicit the policy reasons for not applying the principles: individual shareholders often in practice had little control over their company's affairs, the directors were often "a self-perpetuating hierarchy", the department's powers to appoint inspectors should be seen as a substitute for inadequate shareholder control, and consequently the courts should not fetter investigations that "might be only machinery available for keeping the public interest intact and seeing that companies were properly conducted", even if this machinery might be "slightly unfair" to individuals (See Journal of British Business Law, April 1, 1972 (page 180)). Of course, an exception to the above rule may be made when the hearing and report of a judicial tribunal of enquiry set up to investigate an alleged public scandal attracts a great deal of publicity. In such a case, it would be unfair to deny a person against whom damaging allegations may be made before the Tribunal the procedural protection accorded to a defendant in legal proceedings (S.A. de Smit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under sections 397 and 398, Since the very right of management is a result of the Companies Act, the right of a shareholder under the same. Act to file a petition under sections 397 and 398 cannot be made subject to such restriction that even the authorisation by the Central Government cannot be granted to such a member under section 399(4) except after the company management is first heard. There are several comparable statutory provisions under which powers are exercised without prior hearing being given to the person who would be affected by the proceeding to be instituted thereafter. Under section 92 of the Code of Civil Procedure the consent of the Advocate-General is necessary before a suit can be filed in respect of the management of public charities. A five-judge Bench of the Kerala High Court in Mayer Simon v. Advocate-General of Kerala, AIR 1975 Ker. 57, held that granting consent under section 92 does not adversely affect anyone but refusing the consent would cause prejudice to the applicant. The question of the person against whom the suit is filed being heard before the consent is granted by the Advocate-General, therefore, did not arise at all. Under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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