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TMI Blog2017 (4) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... t large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. As elaborated in the preceding paragraphs, the argument that the impugned order be set aside, since no public interest has been made out, is baseless, devoid of merit and thus rejected. The opinion formed by Respondent No.1, to order an investigation by the SFIO into the affairs of the Petitioner Company, in the public interest, does not warrant any interference. In view of the foregoing discussion, the issue raised in the present petition is answered in the negative and against the Petitioner Company. It is necessary to refer to the report dated 31.10.2016, submitted by the SFIO. A bare reading of the said report would show that the affairs of the Petitioner Company have been conducted in a manner prejudicial to the public interest, in addition to that of the shareholders. In view of the findings of the SFIO, as satisfied that the recommendation contained therein, warranting prosecution for the offences punishable under the relevant provisions of the 1956 Act, 2013 Act and the IPC, cannot be said to be without any justification. X X X X Extracts X X X X X X X X Extracts X X X X ..... porate Affairs 5th Floor "A" Wing, Shastri Bhawan Dr. R.P. Road, New Delhi Dated: 29th February, 2016 ORDER Whereas the Central Government is empowered under Section 212 of the Companies Act, 2013 to order investigation into the affairs of any company in Public Interest and to appoint one or more competent persons as inspectors to investigate the affairs of the company. 2. AND whereas there are very Serious Complaints against the affairs of the company i.e. M/s Sunair Hotels Limited. 3. Now, therefore, in exercise of powers conferred under Section 212(1)(c) of the Act, the Central Government hereby orders investigation into the affairs of M/s Sunair Hotels Limited, to be carried out by the Serious Fraud Investigation office. 4. The Inspectors appointed by Director, SFIO to investigate into the affairs of the above mentioned company, shall exercise all the powers available to them under the Companies Act, 2013. The inspectors shall complete their investigation and submit the report to the Central Government within a period of Six (6) months from the date of issue of this order. 4. Further, if any information is required during the course of Investigation, you are requested t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under the provisions of sections 384, 406, 409, 417, 422, 465, 468, 471, 500, 120-B of the IPC, has been filed before the concerned Court. f) A writ petition being W.P.(Crl.) 1300/2004 also came to be instituted by VLS, praying for directions of this Court for registration of an FIR, qua the factum of stealing of 21 original files, prepared by Respondent No.1, in relation to the Petitioner Company. By way of its order dated 24.08.2005, this Court directed the registration of an FIR in this behalf. Consequently, FIR No.315/2005 for the offences punishable under the provisions of sections 380, 411, 120-B of the IPC was registered at Police Station, Naraina, Delhi. Pursuant thereto, a chargesheet came to be filed before the concerned Court. g) VLS instituted a company petition being C.P.No.45(ND)/1998 seeking investigation into the affairs of the Petitioner Company. The Company Law Board, Delhi (hereinafter referred to as 'CLB') vide order dated 13.06.2001, dismissed C.P.No.45(ND)/1998 filed by VLS. An appeal, being Co.A.(SB) No.11/2001, was preferred by VLS before this Court against the said order of dismissal dated 13.06.2001. The Company Appeal came to be disposed of vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid LPA also came to be dismissed by way of the order dated 29.09.2008. A Special Leave Petition being SLP No.3317/2009 came to be instituted by VLS, in order to challenge the said order dated 29.09.2008 passed by the Division Bench of this Court. In the said proceedings in SLP No.3317/2009, the Hon'ble Supreme Court, on 22.01.2016 directed Respondent No.1 to file an affidavit clarifying whether it would be initiating any proceedings or undertaking any action against the Petitioner Company, in accordance with law. An affidavit dated 12.02.2016 came to be filed by Respondent No.1 stating that they would be taking action against the Petitioner Company, under the provisions of section 212(1)(c) of the 2013 Act. Thereafter, Respondent No.1 rendered the impugned order on 29.02.2016. The investigation carried out by the SFIO has since been concluded. The final report of investigation came to be submitted by the SFIO on 31.10.2016 (hereinafter referred to as 'SFIO Report') and the same has been placed before this Court. 5. Mr. Suhail Dutt, learned senior advocate, appearing on behalf of the Petitioner Company would contend firstly that the impugned order dated 29.02.2016 is illegal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (District Magistrate) Allahabad and Anr. v. Raj Ram Jaiswal, reported as (1985) 3 SCC 1. 12. It would then be urged that the impugned order has been rendered contrary to the principles of protection against double-jeopardy, since various legal proceedings instituted assailing the conduct of affairs of the Petitioner Company have either, already been adjudicated & dismissed before various legal fora; or are sub-judice. 13. It would then be urged that the SFIO Report, cannot be looked at by this Court in order to determine whether the impugned order is sustainable in law or not. 14. In order to buttress this submission, learned Senior Counsel would seek to place reliance upon the decision of the Hon'ble Supreme Court in Ashok Kumar Aggarwal (supra). In order to further fortify this contention, learned Senior Counsel would also seek to place reliance on the principles of the doctrine of excluding the 'fruit of poisonous tree' and the decision of the Hon'ble Supreme Court in Smt. Selvi v. State of Karnataka, reported as (2010) 7 SCC 263. 15. Per contra, Mr. Bhardwaj, learned Central Government Standing Counsel, appearing on behalf of Respondent No.1 would firstly ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the two sections viz. Section 237 of the 1956 Act and Section 212 of the 2013 Act, are not pari materia. Mr. Dayan Krishnan would also urge that the ratio of the decision in Parmeshwar Das Agarwal (supra) is not attracted to the factual matrix of the present case. 22. It would be also argued that, the report of the SFIO has unearthed numerous violations committed by the Petitioner Company, punishable under the 1956 Act, 2013 Act and the IPC; which fortify the opinion of Respondent No.1, rendered by way of the impugned order. 23. Seeking to counter the submission made on behalf of the Petitioner Company, it would be urged on behalf of VLS, that this Court ought to consider the report of the SFIO placed before it, in terms of the directions of the Hon'ble Supreme Court vide order dated 22.07.2016, in order to effectively adjudicate the instant petition on its merits. 24. I have heard the rival contentions of the learned counsel appearing on behalf of the parties, examined the documents, and perused the official record placed before me in a sealed cover. 25. The main issue that arises for consideration in the present petition, falls within a narrow compass. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) We further direct that until appropriate final ordersare passed by the High Court in terms of the present direction, the result of the investigation shall not be given effect to. List the matter again in the first week of December, 2016." (Emphasis supplied.) 29. On a conjoint reading of the directions of the Hon'ble Supreme Court in the above-extracted orders dated 22.07.2016 and 05.12.2016, the following is abundantly clear: a) This Court has been called upon to adjudicate the issues arising in the present writ petition, as this Court considers appropriate, in accordance with law, after the SFIO Report has been placed before this Court; and b) In the event the SFIO Report is rendered in favour of the Petitioner Company herein (Sunair Hotels Limited), this Court need not go into the merits of the present writ petition. 30. In other words, in the event the SFIO report is against the Petitioner Company, the present writ petition has to be determined on its merits; and after due consideration thereof, as this Court deems appropriate. 31. In the alternative, the present writ petition would automatically be rendered infructuous in the event the SFIO report is in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, by order, declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government; and (b) may do so if, in the opinion of the Company Law Board there are circumstances suggesting-- (i) that the business of the company is being conducted within tent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose; (ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company." 37. In Parmeshwar Das (supra), the Hon'ble Supreme Court, whilst deciding the issue with regard to the correctness of the order rendered by the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Barium Chemicals (supra), the Hon'ble Supreme Court, in Rohtas Industries (supra) observed as hereinbelow: "Hegde, J. 4. The Regional Director in his letter of 10th November, 1961, had given the market quotations for the ordinary shares of Albion Plywoods Ltd., on some of the dates in May, 1960. According to him those quotation were gathered from "Indian Finance". Evidently as he was inquiring into the complaint made against the New Central Jute Mills Go. Ltd., he did not mention the market quotations for the shares in question either on May 6, 1960, or immediately before that date. During the hearing of these appeals an affidavit has been filed on behalf of the appellant stating that the market quotation of the ordinary share in the Albion Plywoods Ltd. on May 6, 1960, or immediately before that date was ₹ 11. Along with that affidavit, the relevant copy of the Indian Finance was produced. It was not disputed before us that the market quotations for the ordinary shares of Albion Plywoods Ltd., on or immediately before May 6, 1960, was ₹ 11 per share. At this stage it may be mentioned that though the Under Secretary to the Government required the Regional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment [237(a)(i)(ii)]. It may be noted that before the Central Government can take action under Section 235, certain preconditions have to be satisfied. In the case of an application by members of the company under clause (a) or (b) of Section 235, the same will have to be supported by such evidence as the Central Government may require for the purpose of showing that the applicants have good reasons for requiring the investigation, and the Central Government may, before appointing an Inspector, require the applicant to give security for such amount not exceeding ₹ 1000, as it may think fit for payment of the costs of the investigation. From the provisions contained in Sections 235 and 236, it is clear that the legislature considered that investigation into the affairs of a company is a very serious matter and it should not/ be ordered except on good grounds. It is true that the investigation under Section 237(b) is of a factfinding nature. The report submitted by the Inspector does not bind anybody. The Government is not required to act on the basis of that report, the company has to be called upon to have its say in the matter but yet the risk-it may be a grave one-is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of circumstances suggesting that the company's business was being conducted as laid down in sub-clause (1) or that the persons mentioned in sub-clause (2) were guilty of fraud, misfeasance or misconduct towards the company or any of its members. According to him though the opinion to be formed by the Central Government is subjective, the existence of circumstances set out in clause (b) is a condition precedent to the formation of such opinion and therefore the fact that the impugned order contains recitals of the existence of those circumstances, does not preclude the court from going behind those recitals and determining whether they did in fact exist and further whether the Central Government in making that order had taken into consideration any extraneous consideration. But according to the learned Attorney the power conferred on the Central Government under clause (b) of Section 237 is a discretionary power and the opinion formed, if in fact an opinion as required by that section has been formed, as well as the basis on which that opinion has been formed are not open to judicial review. In other words according to the learned Attorney no part of Section 237(6) is open to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts both in this country as well as in other Commonwealth countries had occasion to consider the scope of provisions similar to Section 237(6). Judicial dicta found in some of those decisions are difficult of reconciliation. On the other hand Sarkar, C.J., and Mudholkar, J., held that the power conferred on the Central Government under Section 237(a) is a discretionary power and no facet of that power is open to judicial review. Our Brother Bachawat, J., the other learned Judge in that Bench did not express any opinion on this aspect of the case. Under these circumstances it has become necessary for us to sort out the requirements of Section 237(b) and to see which of the two contradictory conclusions reached in Barium Chemical' case is in our judgment, according to law. But before proceeding to analyse Section 237(b) we should like to refer to certain decisions cited at the bar bearing on the question under consideration. ******* ******* The decision of the House of Lords in Badfields v. Minister of Agriculture, Fisheries and Food, [(1968) 1 All ER 694] is of considerable importance. Therein the material facts are these: ******* ******* 9. The appeal was allowed by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njustices were not caused by the operation of a compulsory scheme." Lord Upjohn observed: "My Lords, on the basic principles of law to be applied there was no real difference of opinion, the great question being how they should be applied to this case. The Minister in exercising his powers and duties conferred on him by statute can only be controlled by a prerogative order which will only issue if he acts unlawfully. Unlawful behaviour by the Minister may be stated with sufficient accuracy for the purposes of the present appeal (and here I adopt the classification of Lord Parker, C.J., in the divisional court): (a) by an outright refusal to consider the relevant matter; or (b) by misdirecting himself in point of law, or (c) by taking into account some wholly irrelevant or extraneous consideration, or (d) by wholly omitting to take into account a relevant consideration. There is ample authority for these propositions which were not challenged in argument. In practice they merge into one another and ultimately it becomes a question whether for one reason or another the Minister has acted unlawfully in the sense of misdirecting himself in law, that is, not merely in respect of som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisite opinion honestly and after applying its mind to the relevant materials before it. In exercising the discretion the authority must have regard only to circumstances suggesting one or more of the matters specified in sub-clauses (i), (ii) and (iii). It must act reasonably and not capriciously or arbitrarily. It will be an absurd exercise of discretion, if, for example, the authority forms the requisite opinion on the ground that the Director in charge of the company is a member of a particular community. Within these narrow limits the opinion is not conclusive and can be challenged in a court of law. Had Section 237(b) made the opinion conclusive, it might be open to challenge as violative of Articles 14 and 19 of the Constitution, see Corporation of Calcutta v. Calcutta Tramways Co. Ltd [(1964) 5 SCR 25] distinguishing Joseph Kuruville Vellukunnel v. Reserve Bank of India [(1962) Supp 3 SCR 632]. Section 237(b) is not violative of Articles 14 and 19. 5. If it is established that there were no materials upon which the authority could form the requisite opinion the court may infer that the authority did not apply its mind to the relevant facts. The requisite opinion is then l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company having its registered office at Dalmianagar in Bihar was alleged to have conducted its affairs with intent to defraud its creditors, members or other persons and the persons concerned in the management of its affairs have in connection therewith been guilty of fraud, misfeasance, or other misconduct towards the company or its members. Therefore, the power under section 235 was exercised in relation to that company by the Central Government. The argument before the Hon'ble Supreme Court was that the Central Government had no material before it from which it could have come to the conclusion that the business of the appellant-company is being conducted with intent to defraud its creditors, members or other persons or the persons concerned in the management of its affairs having connection therewith being guilty of fraud, misfeasance etc. The challenge was raised before the Patna High Court. The Patna High Court dismissed the writ petition holding that the opinion formed by the Central Government under section 237(b) of the 1956 Act is not open to judicial review and that is conclusive. It is that decision which was challenged in the Hon'ble Supreme Court. After s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be exercised if the Central Government is of the opinion that it is necessary to investigate into the affairs of a company by the SFIO. Therefore, the power to investigate into the affairs of company is common to both provisions. In the former there are three clauses (a) to (c) in sub-section (1) of section 210 and the investigation is to be carried out by the Central Government by appointing Inspectors and there is a discretion in that behalf. This power is stated to be akin to section 235 of the 1956 Act. The latter enables investigations into the affairs of a company by the SFIO and there is one more clause (d) in sub-section (1) of section 212 where the Central Government can act on a request from any department of the Central Government or a State Government. Therefore, in a given case there could be an action initiated on the request of the Central Vigilance Commission or based on its recommendations. However, by its very title, the investigation under section 212 by the SFIO ought to be on the basis of the opinion of the Central Government that it is necessary to investigate into the affairs of the company by SFIO. That opinion has to be based on the report of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 212(1)(c). It is, therefore, apparent that it has not necessarily acted in terms of its power conferred by section 212 to direct investigation into the affairs of the company in public interest. The foundation for reaching the opinion or satisfaction is the report of the Registrar. We have referred to the details in that report and we are of the firm opinion that based on that the Central Government could not have recorded a satisfaction or an opinion that investigation into the affairs of the company are necessary. There is no element of public interest which is projected, save and except some vague and general references to certain allegations in matters of bank finance and allotment of coal mines and alleged diversion of raw materials. There has been absolutely no details furnished nor referred in the report. Rather, the report proceeds on the basis that as far as these issues are concerned nothing can be done by the Ministry of Corporate Affairs or the Registrar of Companies. We fail to understand, therefore, how in the present facts and circumstances and based on allegations and counter allegations between two groups of shareholders can it be even held that it is necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inferences drawn from the facts in the materials/circumstances led to conclusions of certain definiteness. In other words, the existence of material for formation of an opinion is a sine qua non and the same must be prima facie demonstrable, in case the opinion is challenged before a Court of law. viii. The opinion formulated is not required to be a conclusive proof of the fact that the conduct of the affairs of the company is prejudicial to the public interest, interest of the shareholders, members or any other persons, or contrary to the provisions of law. ix. Investigation under the relevant provisions of the Act, is exploratory in nature, and in the nature of a fact-finding, and must be ordered only on satisfactory grounds. x. Since investigation is an inroad into the functioning of a company, it has to be ordered after the facts and circumstances in the material available with the competent authority necessitate such an investigation. xi. Courts can consider the materials/circumstances on the basis of which the opinion to order an investigation is rendered; to ascertain whether the facts necessitating the investigation, in fact, existed, or whether extraneous consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have been pledged as security to the Bank in order to obtain loan. h) Stealing of official files prepared by the Ministry of Corporate Affairs pertaining to the Petitioner Company, in order to scuttle the process of law and escape legal consequences. i) The factum of recovery of the said official files from the residence of the Financial Controller of the Petitioner Company pursuant to the registration of FIR No.315/2005. j) The Inspection Report, concluding the inspection conducted into the affairs of the Petitioner Company under the provisions of section 209A also, brought to light various contraventions and violations committed by the Petitioner Company and its Directors, punishable under the 1956 Act. 47. Coming now to the submissions made on behalf of the Petitioner Company. Strong reliance has been placed on a decision of this Court, in Ashok Kumar Aggarwal (supra) in support of its contentions qua the impugned order being bad in law and unsustainable. In my view, the decision is clearly distinguishable, inasmuch as, it pertained to the issue whether an order framing charges was vitiated on account of nonconsideration of the relevant material at the time of grant of san ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Mohinder Singh Gill (supra) and Ravi Yaswant Bhoir (supra). 52. In Mohinder Singh Gill (supra) the legal principle enunciated is that the grounds, on which an order has been rendered, must be judged by the reasons mentioned therein and cannot be supplemented by way of fresh reasons by way of filing an affidavit or otherwise. 53. The relevant paragraphs of the report are reproduced as follows: "8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose J. in Gordhandas Bhanji A.I.T. 1952 S.C. 16. "Public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half, to show that the impugned order proceeded on preconceived notions. 58. In this behalf, the following principles of law, laid down in Collector v. Raja Ram Jaiswal (supra), are evidently not attracted to the facts on record in the present case. i. When power has been conferred to achieve a particular purpose, then such power ought to be exercised in good faith, for legitimate reasons and in order to effectuate that purpose; and ii. If the exercise of such power is based on extraneous or irrelevant considerations, it is unquestionably a colourable exercise of power. 59. The contention made on behalf of the Petitioner Company in relation to the application of the doctrine of excluding the 'fruits of the poisonous tree', is untenable in the present case, inasmuch as, the same is not attracted to the facts of the present case, on account of the circumstance that it is nobody's case that the material available with Respondent No.1 was obtained illegally by the latter; at the time of the formation of the opinion. 60. Lastly, the submission made on behalf of the Petitioner Company that the impugned order is tantamount to double jeopardy, cannot be countenanced, inasmuch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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