Section 388B to 388E
REFERENCE
TO COMPANY LAW BOARD OF CASES AGAINST MANAGERIAL PERSONNEL
[1988]
64 COMP. CAS. 304 (MAD.)
Thiruvalluvar Velanmai Kazhagam (P.) Ltd.
v.
S.A.
KADER, J.
JULY
2, 1987
A.R. Lakshmanan for the
Appellant.
S.A. Kader, J. —The appeal is against the judgment and decree of the
Court of the Subordinate Judge of Devakottai in O.S. No. 74 of 1978. The
unsuccessful plaintiff is the appellant.
The plaintiff is a private
limited company represented by its managing director and the suit was laid for
rendition of accounts against the defendant who was the former managing
director and was in management of the company till May 5, 1976, when the
present managing director assumed office. The defendant was assisted in the
management by her brother-in-law, Thirunavukkarasu Chettiar. The plaintiff
company owns extensive lands cultivated on pannai basis and on lease and the income from the lands is considerable. The company
also owns topes. The defendant, during her management, has collected paddy from
the lands and realised income from the tope, negotiated agreements for sale and
received advances without the sanction of the board and secreted these amounts.
She has failed to convene annual meetings of directors and to submit accounts,
balance-sheets and other relevant records. During her period of management, the
properties of the company were attached for agricultural income-tax and land
tax and also in execution of a decree in favour of one Parvathi Achi, a
depositor in the company. The present managing director and other directors
have discharged a substantial portion of these outstandings. The present
managing director has been requesting the defendant to hand over the accounts
and vouchers of the company, but she has not done so. She has left for Trichy
and is attempting to fabricate the accounts of the company. Hence, the suit for
directing the defendant to produce in court all accounts, vouchers, receipts,
minute books and other documents of the company in her custody together with
cash and other properties of the company in her hands and render true and
proper accounts of her management as managing director of the company till May
5, 1976.
The suit was resisted by
the defendant. She contended that the suit, as framed, did not lie in the court
below and was not maintainable for want of jurisdiction. According to her, the
court below, not being a court as denned in section 10 of the Companies Act,
has no jurisdiction either to entertain or dispose of the dispute raised in the
plaint and on this one ground alone, the suit was liable to be dismissed in
limine. The defendant denied all the other allegations of misfeasance,
malfeasance and non-feasance levelled against her and characterised them as
reckless and malicious falsehood. She had absolutely no objection to producing
the accounts and vouchers in court within such time as the court may be pleased
to grant and may be audited by the company's auditor through court. She, therefore,
prayed for the dismissal of the suit.
On the above pleadings, the
following issues were framed for trial:
(1) Whether
the court has no jurisdiction to try the suit?
(2) Whether the suit is liable to be dismissed in view of the undertaking
given by the defendant to produce the accounts?
(3) To what relief is the plaintiff
entitled?
The learned Subordinate
Judge took up for consideration issue No. 1 as a preliminary issue on the
question of jurisdiction and held that the civil court had no jurisdiction to
entertain the suit and, consequently, he dismissed the suit without going into the other issues. It
is against this decree of dismissal that the plaintiff has come in appeal.
The
only point that arises for consideration is whether the civil court has
jurisdiction to entertain this action for accounts:
Point:
The plaintiff is a private limited company and the defendant was its former
managing director. The plaintiff, represented by its present managing director,
has filed this suit against the defendant for rendition of true and proper
accounts of the defendant's management as managing director of the company till
May 5, 1976. Various allegations of malfeasance, misfeasance and non-feasance
are levelled against the defendant but they are denied by her, and it is
needless to go into that question at this stage. The contention of the
defendant is that the suit is barred under section 10 of the Companies Act of
1956. Section 10 runs thus:
"10(1)
The court having jurisdiction under this Act shall be —
(a) the High Court having jurisdiction in
relation to the place at which the registered office of the company concerned
is situate, except to the extent to which jurisdiction has been conferred on
any District Court or District Courts subordinate to that High Court in
pursuance of sub-section (2); and
(b) where jurisdiction has been so conferred,
the District Court in regard to matters falling within the scope of the
jurisdiction conferred, in respect of companies having their registered offices
in the district.
(2)
The Central Government may, by notification in the Official Gazette and subject
to such restrictions, limitations and conditions as it thinks fit, empower any
District Court to exercise all or any of the jurisdiction conferred by this Act
upon the court, not being the jurisdiction conferred—
(a) in
respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407,
both inclusive;
(b) in respect of companies with a paid-up share
capital of not less than one lakh of rupees by Part VII (sections 425 to 560)
and the other provisions of this Act relating to the winding-up of companies.
(3)
For the purposes of jurisdiction to wind up companies, the expression '
registered office' means the place which has longest been the registered office
of the company during the six months immediately preceding the presentation of
the petition for winding up".
The
argument that has been advanced before the court below, and which found favour
with it, is that the court having jurisdiction under the Companies Act shall be
the High Court having jurisdiction over the place
at which the registered office of the company concerned is situate, except to
the extent to which jurisdiction has been conferred on any District Court or
District Courts subordinate to the High Court in pursuance of sub-section (2)
and hence the Subordinate Judge did not have any jurisdiction to entertain the
suit. This contention is clearly untenable.
It is well-settled that
every presumption should be made in favour of the jurisdiction of the civil
court. In other words, the exclusion of jurisdiction of the civil court is not
to be readily inferred. Such exclusion must be either explicitly expressed or
clearly implied. A provision of law ousting the jurisdiction of the civil court
must be strictly construed and the onus lies on the party, seeking to oust the
jurisdiction, to establish his right to do so.
Section 10 of the Companies
Act defines the court having jurisdiction under that Act as the High Court
having jurisdiction in relation to the place at which the registered office of
the company concerned is situate, except to the extent to which jurisdiction
has been conferred on any District Court or District Courts subordinate to that
High Court in pursuance of sub-section (2), which enables the Central
Government by notification in the Official Gazette to empower any District
Court to exercise all or any of the jurisdiction conferred by this Act upon the
court. The court having jurisdiction under the Act, as defined under section 10
of the Act, shall have power to deal with all matters for which provision has
been made in the said Act. Hence, in respect of all matters dealt with under
the Companies Act, the court having jurisdiction is the court as denned under
section 10 of the Act. But, in respect of matters not dealt with by the
Companies Act, or for which the Companies Act does not provide remedies, the
ordinary civil court alone will have jurisdiction. In other words, the civil
court will have no jurisdiction only in respect of matters falling exclusively
within the jurisdiction of the court having jurisdiction under the Companies
Act. We have now to see whether the subject-matter of the suit is a matter
falling within the ambit of the Companies Act.
The suit, as already pointed
out, is by the company against its former managing director for rendition of
accounts. I am not able to lay my hands on any provision of the Act providing
for the determination of the question of rendition of accounts by a person who
has ceased to be the managing director, finding out the amounts due from him
and passing a decree against him therefor. Chapter IV-A of the Act introduced
by the Amendment Act of 1963 confers powers on the Central Government to remove
managerial personnel from office on the recommendation of the High Court.
Section 388B(1)(a) in Chapter IV-A deals with any person concerned in the
conduct and management of the affairs of a company, who is or has been in
connection therewith guilty of fraud, misfeasance, persistent negligence or
default in carrying out his obligations and functions under the law, or breach
of trust. This section applies only in respect of a person who is or has been
in the management and not with one whose concern with the management has
ceased. The defendant has ceased to be the managing director and hence this
provision does not apply. Further, under section 388B, there is no provision
for taking accounts, or for passing a decree against a person who has committed
acts of malfeasance, misfeasance and non-feasance. Hence, I find that there is
no provision in the Companies Act to deal with the subject-matter of this suit
for accounts. The case on hand, does not, therefore, fall within the exclusive
jurisdiction of the court having jurisdiction under the Companies Act. It is
the ordinary civil court which has jurisdiction in the matter. The learned
Subordinate Judge is, therefore, in error in holding that the suit is barred
under section 10 of the Act and in dismissing the same. The point is answered
in favour of the appellant.
In the result, the appeal
is allowed, the judgment and decree of the court below is set aside and the
suit is remitted to the court below for trial on merits. The court fee paid on
the memorandum of appeal shall be refunded. The parties are directed to appear
before the court below on August 27, 1987. The costs of this appeal will abide
the result of the suit.
[1973] 43 COMP. CAS. 68 (CAL.)
v.
Union of India
P. B. MUKHARJI, C.J.
AND B. C. MITRA, J.
A.F.O.O. No. 300 of 1966.
SEPTEMBER 16, 1971
R.C.
Deb, Subrata Roy Choudhury, P.L. Khaitan and Mahabir Prosad Chowdhury for the appellant.
Sankardas
Benerjee, Nirmal Kumar Sadhu, Bimal Kumar Basak and Dwijen Das for the respondent.
B.C.
Mitra J.—The
appellant was a director of several joint stock companies incorporated in
India, including a company known as Benett Coleman
and Co. Ltd. He claims to have resigned from the directorship of this company
on September 13, 1964, but according to the respondent the resignation took
effect from September 17, 1964.
On September 17, 1964, the
Union of India (first respondent) filed an application before the Company’s
Tribunal (respondent No. 2) constituted under section 10A of the Companies Act,
1956 (hereinafter referred to as “the Act”), against the appellant under
sections 388B and 388E of the Act. The application was also directed against
the appellant, his father, Shanti Prasad Jain, and two others, namely, Gian
Chand Jain and P.K. Ray. In that application the Union of India prayed for a
finding that the respondents in that application were not fit and proper
persons to hold the office of directors or any other office connected with the
conduct or management of Benett Coleman and Co. Ltd. and/or any other company.
There was also a prayer for such further or other orders as the circumstances
of the case might require.
The Tribunal admitted the
application and numbered it as Case No. 1 of 1964. A second application was
filed before the Tribunal by the first respondent, under section 388C of the
Act, asking for an interim direction upon the petitioner and some other persons
not to discharge their duties as directors of Benett Coleman and Co. Ltd. until
further orders of the Tribunal. On this application the Tribunal made an order
by consent of parties and without prejudice to their rights and contentions and
in particular to the respondents’ contention that they had properly resigned
from the board of directors on September 13, 1964, and September 8, 1964. In that
order it was recorded that the appellant gave an undertaking to the Tribunal
not to discharge his duties and functions as director of the said company until
final disposal of the application under section 388B of the Act. Two persons,
namely, S.R. Bhakil and Dr. R.C. Cooper were appointed directors of the
company. The appellant gave an undertaking to approach the shareholders for
approval of the appointment of S.R. Bhakil and Dr. R.C. Cooper as directors, if
necessary. It was also provided in that order that the application under
section 388C against P.K. Ray was to stand over until further orders of the
Tribunal or until disposal of the application under section 388B of the Act.
There were certain further directions with regard to hearing of the application.
On October 12, 1964, the
Union of India filed three applications before the Tribunal under section 398
read with section 401 of the Act. In that application allegations of
mismanagement of the affairs of the company were made and prayers were made for
interim orders pending disposal of Case No. 1 of 1964. One of the prayers for
interim order was the appointment of an administrator to conduct the affairs of
the company. On October 29, 1964, the second respondent made an order
reconstituting the board of directors of the company and one Dr. R.C. Cooper
was appointed chairman of the board with power to veto any resolution of the
board, which did not meet with his approval. I shall refer to this application
later in this judgment.
The appellant’s father made
several applications for particulars of pleadings and inspection of documents
and challenged the maintainability of the application for interim order.
Against the orders made in these applications the appellant’s father preferred
appeals before the Bombay High Court and obtained interim stay of further
proceedings in Case No. 1 of 1964. This appeal, however, was withdrawn on July
12, 1965. By an order dated July 13, 1965, the Tribunal fixed August 13, 1965,
as the date for filing the written statement and August 25, 1965, as the date
for framing of issues.
On August 11, 1965, the
appellant moved this court under article 226 of the Constitution praying for a
declaration that sections 388B to 388E of the Act were ultra vires the Constitution,
and as such void, and for appropriate writs directing the respondents in this
appeal not to proceed with Case No. 1 of 1964 and to withdraw the said
proceedings. A rule nisi was issued along with an interim order restraining the
respondent from proceeding in Case No. 1 of 1964, for a period of three weeks
in the first instance and thereafter until disposal of the rule. By a judgment
and order dated April 20, 1966, Banerjee J. discharged the rule and this appeal
is directed against this judgment and order.
Before proceeding any
further it is to be noticed that by Act 17 of 1967, Chapter IV of of the
Companies Act, 1956, was extensively amended. The effect of the amending Act
was that the Tribunal ceased to exist and all cases pending before the Tribunal
stood transferred to the High Court, which would have had jurisdiction in the
matter. The result is that the pending application regarding the appellant
before the Tribunal stood transferred to the High Court of Bombay and is now
pending before that court. The amendment, it is to be noticed, came into force
after the judgment of the trial court.
Mr. S. Banerjee, counsel
for respondent No. 1, raised a preliminary objection to the maintainability of
this appeal. He contended that having regard to the amendment of the Act this
appeal has become infructuous because no relief could be granted as against the
Tribunal, which ceased to exist and because the application was now pending
before the High Court of Bombay. He argued that no writ or order could be
issued against a Tribunal which was not in existence and no writ and order
could be made with regard to the application as it was pending before the High
Court of Bombay. In support of the contention that appropriate writs can be
issued only against a court, which is subordinate to the High Court, and cannot
be issued against a High Court, reliance was placed by Mr. Banerjee on a
decision of the Andhra Pradesh High Court in Venkata Somaraju v. Principal
Munsif-Magistrate and also another decision in Prabhakaran Nair
v. State of Kerala .
Reliance was also placed by counsel for the appellant on Kavalappara Kottarathil
Kochunni alias Moopil Nair v. State of Madras . In
that case, however, an application was made to the Supreme Court under article
32 of the Constitution. As we are of the view that in an appropriate case the
High Court can interfere by making a declaratory order I need not deal with the
cases mentioned above at length.
Mr. R.C. Deb, counsel for
the appellant, sought to repel this contention by referring to the prayers in
the petition. The first prayer is for a declaration that sections 388B to 388E
are ultra vires and void. The next prayer relied on by Mr. Deb, is prayer “G”
which is a prayer for injunction restraining the respondent No. 1, its servants
and agents or officers from proceeding with or taking any further steps in Case
No. 1 of 1964. Referring to these prayers counsel for the appellant argued that
this court was competent to issue any order or direction upon the first
respondent alone, and he submitted that the appellant would be content with a
declaration and an injunction as prayed. He next contended that a writ of
mandamus could also be issued against the respondent No. 1, directing it not to
proceed with the Case No. 1 of 1964, now pending before the Bombay High Court.
He further argued that the powers of the High Court under article 226 were wide
enough to enable it to issue any writs, orders or directions, and, therefore,
appropriate orders could be made restraining the respondents from proceeding
with the Case No. 1 of 1964 now pending before the Bombay High Court. He
submitted that his client was not disentitled to relief in the writ petition
merely because the Tribunal ceased to exist by virtue of the amendment to the
Act. These are the contentions of the parties on the question of relief to the
appellant in this appeal having regard to the subsequent event, namely, the
amendment to the Act, by which the Tribunal was abolished.
In order to appreciate the rival
contentions of the parties it is necessary to refer to the relevant provisions
in Act No. 17 of 1967. Section 2 provides that on the commencement of the Act
the Companies Tribunal constituted under section 10A of the Companies Act,
1956, shall stand abolished. Sub-section (3) of section 3 runs as follows:
“(3) Save as otherwise
provided in sub-section (1) and sub-section (2), every proceeding under the
said Act, pending before the Tribunal immediately before its abolition, shall,
on such abolition, stand transferred to the court having jurisdiction in
relation to such proceeding, under section 10 of the said Act, and every such
court shall deal with such proceeding as if it were a proceeding instituted
before itself and where the Tribunal has taken down, or made memorandum of any
evidence in the proceeding, the court may proceed with the proceeding from the
stage at which it was left by the Tribunal on its abolition;
Provided that if the court
is of opinion that further examination of any of the witnesses whose evidence
has already been taken down by the Tribunal is necessary in the interests of
justice, it may re-summon any such witness and after such further examination,
cross-examination and re-examination, if any, as it may permit, the witness
shall be discharged”.
The Schedule to the
amending Act indicates the other amendments made to the Act and the substance
of the amendment indicated in the Schedule is that the “Tribunal” is
substituted by the “High Court”. There is no dispute in this case that the High
Court of Bombay is the appropriate court to deal with the matters of the
company, and there is no dispute also that the application which was made
before the Tribunal now stands transferred to the Bombay High Court. The
question in these circumstances is whether the appellant is entitled to any
relief under article 226 of the Constitution, as the Tribunal has ceased to
exist and the application pending before the Tribunal now stands transferred to
the High Court of Bombay. I shall revert to this question later in this
judgment.
Turning now to the merits
of the appellant’s case, the first question for consideration is whether
circumstances existed to suggest any of the matters referred to in clauses (a),
(b), (c) and (d) of sub-section (1) of section 388B of the Act. The charges
against the appellant under those clauses have been set out in paragraph 5 of
the application, filed by the respondent No. 1 before the Tribunal, which is to
be found at page 37 of the paper book. The first charge is that the respondent
in that application is guilty of fraud, misfeasance, persistent negligence and
default in carrying out his obligations in law and/or breaches of trust. This
charge is covered by clause (a) of section 388B of the Act. The second charge
is that the business of the company is not, and has not been, conducted by the
respondent in that application in accordance with sound business principles.
This charge is covered by clause (b) of section 388B(1) of the Act. The third
charge is that the business of the company has been conducted and managed by
the respondent in that application for a fraudulent or unlawful purpose or in a
manner prejudicial to public interest. This charge is covered by clause (d) of
section 388B(1) of the Act. In paragraph 31 it is stated that after due
consideration of the facts presented to the applicant, the applicant is of
opinion that there are circumstances suggesting the charges mentioned above and
also an additional charge, namely, that the respondents in that application
have been conducting and managing Benett Coleman and Co. Ltd. in a manner which
has or is likely to cause serious injury and damage to the interest of the
industry and business to which the company pertains. This charge is in
conformity with clause (c) of section 388B(1) of the Act. It is to be noticed
that this charge was not set out in paragraph 5 of the application. I shall
refer to the particulars of the charges at greater length later in the
judgment.
Mr. S. Banerjee, counsel
for the respondents, contended that the appellant and other directors of the
company were not fit and proper persons to hold the office of directors or any
other office connected with the management of the company. Mr. R. C. Deb,
counsel for the appellant, on the other hand, contended that the facts, as set
out in the application before the Tribunal, did not disclose circumstances
suggesting, so far as the appellant was concerned, the existence of any of the
matters set out in clauses (a), (b), (c) and (d) of section 388B(1) of the Act.
He argued that it was plain from the allegations in the application, that most
of the allegations of misconduct, misfeasance, misappropriation, illegal
payments and fraud, were committed at a time when the appellant was not a
director of the company, and therefore the Central Government could not form
any opinion against the appellant that he was in any way concerned with any of
the matters set out in clauses (a), (b), (c) and (d) of section 388B(1). The
argument was that the unlawful acts alleged to have been committed by the
directors of the company were, according to the first respondent, committed
before the appellant became a director and, therefore, in referring the matter
to the Tribunal against the appellant, the Central Government failed to apply
its mind to the questions and the reference was altogether illegal and ultra
virus the powers of the Central Government. I shall deal with this last
contention later in this judgment.
The foundation of the
contention of the appellant is that he became a director of the company for the
first time on April 13, 1963, and he resigned from the directorship on
September 13, 1964, and ceased to be a director of the company with effect from
that day. According to the respondent No. 1, however, the resignation became effective
on September 17, 1964. The relevance of the difference between the two dates is
that the application before the Tribunal was presented on September 17, 1964,
and, therefore, according to the first respondent, the appellant was a director
of the company on the day when the application was moved. But even assuming
that the appellant resigned on September 13, 1964, that resignation by itself
will not relieve him of his liability or accountability for acts done during
the period he was a director of the company. Secondly, it is to be noticed that
the first, second and third respondents in the application before the Tribunal
are members of a family and the charge against them was conspiracy, collusion
and concert. Thirdly, the appellant was a director of the company, participated
at board meetings which affirmed, acted upon and gave effect to the various
resolutions of the board as well as those passed at the meeting of the company.
In support of his
contention mentioned above Mr. Deb, firstly, relied on a decision of the
Supreme Court Barium Chemicals Ltd. v. Company Law Board . In
that case the question that arose for decision of the court was whether the
words “If in the opinion of the Central Government” in section 237(b) of the
Act required that existence of circumstances suggesting inference of what has
been set out in sub-clause (i), (ii) or (iii) must be made out or whether those
words merely required formation of opinion as a subjective process. The
majority of the Supreme Court was of the opinion that though the formation of
the opinion was subjective, the existence of circumstances relevant to the
inference was the sine qua non to the formation of opinion and that that action
must be demonstrable and that if the action was questioned on the ground that
no circumstances leading to the inference of the kind contemplated by the
section existed, the action might be exposed to interference, unless the
existence of circumstances was made out. It was further held that since the
existence of circumstances was a condition to the formation of an opinion, if
the existence of the circumstances was questioned, the existence of such
circumstances has to be proved at least prima facie, and that it was not enough
to assert that circumstances exist and give no indication of what they were
because the circumstances must be such as to lead to conclusions of certain
definiteness. Hidayatullah J. (as he then was) then proceeded to say as
follows, at page 309, of the report:
“We have to see whether the
chairman in his affidavit has shown the existence of circumstances leading to
such tentative conclusions. If he has, his action cannot be questioned because
the inference is to be drawn subjectively and even if this court would not have
drawn a similar inference that fact would be irrelevant. But if the
circumstances pointed out are such that no inference of the kind stated in
section 237(b) can at all be drawn, the action would be ultra vires the Act and
void”.
It is to be noticed that
the minority took a different view on this question. The majority view of the
Supreme Court was approved in a later decision, Rohtas Industries Ltd. v. S.D.
Agarwal ,
where again the same question under section 237(b) of the Act came up for
consideration and it was held that the existence of circumstances which led to
an inference of the kind set out under section 237(b) was open to judicial
review though the opinion formed by the Government was not so amenable.
Relying on the two
decisions mentioned above, counsel for the appellant contended that the first
respondent must satisfy the court that circumstances existed which suggested
one or other of the matters set out under section 388B(1) of the Act. In other
words, it was argued that the first respondent was bound to show that, prima
facie, at any rate, one or other of the circumstances existed to justify the
application before the Tribunal. It was argued that on the materials disclosed
in the affidavit-in-opposition filed in the writ petition and the application
filed before the Tribunal, it could not be said that there were circumstances
which would entitle the respondent No. 1, so far as the appellant was
concerned, to file the application before the Tribunal for a report.
The above contention of
counsel for the appellant is founded on the fact that the appellant became a
director of the company some time after the events complained of had happened,
and, therefore, the appellant could not have participated in the acts of
misfeasance, fraud and corrupt practice. It was argued that since the appellant
was not. a director of the company at the time when the wrongful acts were
alleged to have been committed there could be no occasion for investigation
into the conduct of the appellant by an application under section 388B of the
Act.
Counsel for the appellant
further contended that his client became a director of the company on April 13,
1963, but resigned the directorship on September 13, 1964. Before the appellant
became a director of the company the Central Government in exercise of its
power under section 237 of the Act made an order on April 11, 1963, appointing
one S. Prakash Chopra as an inspector to investigate the affairs of the company
for a period prior to the time when the appellant became a director. Therefore,
counsel for the appellant contended, there could be nothing against the
appellant in the interim report submitted by the inspector. It was also argued
that the allegations of fraud against the appellant, such as they were, were
vague and entirely devoid of particulars and should, therefore, be ignored
altogether. Furthermore, it was argued, that in proceeding against the
appellant, the Central Government had proceeded entirely on irrelevant
materials. In support of this contentien reliance was placed on paragraphs 6 to
8 of the affidavit-in-opposition affirmed by Devinder Singh Dang on September
3, 1965. It was, therefore, contended that no circumstances existed to justify
action by the Central Government under section 388B of the Act against the
appellant. It was argued that, as in commencing proceeding under section 388B
against the appellant the Central Government failed to apply its mind to the
circumstances and also failed to consider the relevant and material facts, the
action against the appellant was illegal.
I do not think there is
sufficient merit in this contention on behalf of the appellant to hold that the
application before the Tribunal against the appellant was unwarranted or
illegal or that no circumstances existed to justify the application. In
paragraphs 5, 7, 14, 20, 21 and 32 of the application before the Tribunal
materials supporting allegations of misfeasance and malpractices by the
directors, including the appellant, have been set out. Furthermore, there are
allegations that the directors of the company, including the appellant,
withheld their co-operation from the inspector appointed under section 237 of
the Act. Then again serious allegations have been made in the memorandum dated
September 17, 1963 (page 82 of the paper book), by the editor of The Times of
India. This memorandum was addressed to the then Prime Minister of India at a
time when the appellant was the director of the company, and the allegations
are, to a large extent, against the management of the company as a whole.
Besides, there is another memorandum, dated October 7, 1963, signed by the
secretary, production manager and editor of The Economic Times (page 87 of the
paper book), in which it is alleged that the allegations against the directors
can only be substantiated if the top management, namely, general manager,
upwards was removed even if for a temporary period. In this memorandum there is
also an allegation of threatened destruction or removal of material evidence by
the top management of the company.
Taking all these materials
into consideration I do not think that there is any substance in the contention
of counsel for the appellant that the action taken against the appellant under
section 388B of the Act was based on irrelevant materials or that the decision
of the Central Government to commence proceedings was unjustified.
It was next argued that the
word “may” used in the section should not be read as “shall” or “must” and
should be construed to invest the Central Government with absolute discretion.
It was further contended that there was nothing in section 388E to hold that
discretion was coupled with duty, so as to construe the word “may” to mean “shall”
or “must” (sic) in so far as the two sections invested the Central Government
with absolute discretion to proceed against one individual under the penal
sections 388B and 388E, while leaving other individuals out, in similar
circumstances. The law as stated in those two sections, it was submitted, was
violative of article 14 of the Constitution. It was next contended that
discretion to proceed against particular individuals, to pick and choose among
persons similarly situated, was left to the subjective satisfaction of the
Central Government and that, it was argued, was not permissible under article
14.
In support of this
contention reliance was placed on a decision of the Supreme Court in Kalipada
Choudhury v. Union of India . In
that case the Supreme Court considered the question whether the word “may” read
in the context of section 12(1) of the Mines Act [1952] should be construed to
mean “shall”. It was held that in the context in which the word “may” was used
in that Act, it could not mean “shall” and that a discretion was left to the
Central Government to constitute a board for a group or class of mines, and
that meant that for some groups or classes of mines no board need be
constituted. Relying on this decision, counsel for the appellant argued that
the word “may” used in section 237(b) of the Act left uncontrolled discretion
to the Central Government. But, the Supreme Court also held that whether or not
the word “may” means “may” or it means “shall” would inevitably depend upon the
context in which the said word occurred, and the context of section 12(1) of
the Mines Act [1952] was not in favour of the construction that the word “may”
should be construed to mean “shall”. This decision, therefore, is of no
assistance to the appellant in this case because the word “may” in section 388B
of the Act is to be construed in the context in which it has been used in that
section. Reliance was next placed on a decision of the House of Lords in Frederick
Guilder Julius v. Lord Bishop of Oxford . In dealing with the meaning of the phrase “it shall be
lawful”, Lord Cairns L.C. held that these words merely made that legal and
possible which there would otherwise be no right to do. It was, however, held
that in certain circumstances a discretion may be coupled with a duty and when
that is done it would be the duty of the person on whom the power is conferred
to exercise that power when called upon to do so. I quote the words of the Lord
Chancellor on this point:
“But, there may be
something in the nature of the thing empowered to be done, something in the
object for which it is to be done, something in the conditions under which it
is to be done, something in the title of the person or persons for whose
benefit the power is to be exercised, which may couple the power with a duty,
and make it the duty of the person in whom the power is reposed, to exercise
that power when called upon to do so”.
The next case relied on by
counsel for the appellant was a decision of the House of Lords, Padfield v. Minister of Agriculture,
Fisheries and Food . In that case a parliamentary statute contained provisions
relating to the milk marketing scheme. The statute provided that if a complaint
was made to the minister regarding the operation of any scheme, the Minister
shall appoint a committee of investigation, which should report to the Minister
on the complaint. The producers in one region made a complaint to the Minister
but he refused to appoint a committee of investigation. Thereupon the
complainants applied to the court for an order of mandamus. Following the decision
in Frederick Guilder Julius v. Lord Bishop of Oxford it was held that an order should be made
directing the Minister to consider the complaint according to law.
The two decisions mentioned
above make it clear that when the word “may” is used in a statute, the context
in which it has been used may be sufficiently indicative of a mandate of the
statute, that the word “may” confers a duty which must be performed in certain
circumstances. In our view, in the circumstances in which the word “may” has
been used in section 388B of the Act, a discretion, without a doubt, is coupled
with a duty, and that duty must be performed by the Central Government when
certain circumstances exist.
Counsel for the
respondents, on the other hand, argued that the word “may” meant “shall”
because it imposed upon the Central Government a duty to make a reference to
the Tribunal, if in its opinion there existed circumstances mentioned in
section 388B and to remove a person from office, if the Tribunal found him
guilty. There is good deal of force in this contention. Ordinarily, the word
“may” implies a discretion. It confers a power to do something which would
otherwise be illegal, but there are other matters which are to be considered in
construing the meaning of the word “may” such as the conditions under which the
power is to be exercised, the claim or the right of the persons for whose
benefit the power is to be exercised and the purpose of the statute for which
the power is to be exercised. These are conditions which couple power with
duty, and make it obligatory for persons in whom the power is vested to
exercise that power when called upon to do so. These conditions, in my view,
are indicated in section 388B of the Act, keeping in mind the object for which
and also the right or claim of the person for whose benefit the power is to be
exercised. The fulfilment of the conditions or the existence of the
circumstances set out in section 388B couples power with duty and making it
obligatory for the Central Government to make a reference whenever in its
opinion circumstances existed suggesting that affairs of the company are being
mismanaged in the manner indicated in that section. And if such a person is
found guilty of the offences by the Tribunal, it is again the duty of the
Central Government to remove him from office. It is the statutory duty of the
Central Government to make a reference whenever circumstances indicated in the
section exist, and, indeed, when such circumstances exist, the Central
Government has got no choice or opinion in the matter but must make a reference
as contemplated by the section.
I now proceed to deal with
the question if circumstances existed to justify proceedings against the appellant
under sections 388B and 388E of the Act.
In the two decisions of the
Supreme Court mentioned earlier, namely, Barium Chemicals’ case and
Rohtas Industries case, it
was held that if the existence of
circumstances suggesting an inference of matters set out in clause (i), (ii) or
(iii) of section 237(b) was challenged, the existence of such circumstances had
to be proved at least prima facie, and it was not enough to assert that
circumstances existed and give no indication of what they were. But it was also
held, however, that formation of opinion by the Central Government was a
subjective process and could not be questioned. In this case the Central
Government came to a decision that a reference should be made under section
388B of the Act and the formation of the opinion by the Central Government or
the conclusion to which it came, namely, that such a reference ought to be made
is not open to review by the court. But, since there is a challenge on the
ground that circumstances did not exist to justify a reference under section
388B, I shall now proceed to examine if the materials on record in this case,
prima facie, fulfil the condition relating to existence of circumstances to
justify a reference under section 388B of the Act. Those circumstances have
been set out in the application filed before the Companies Tribunal, and to
them I will now refer.
On April 11, 1963, the
Central Government appointed an inspector under section 237(b) of the Act to
investigate the affairs of the company for the period, January 1, 1955, up to
January 1, 1965. The inspector was to report on the investigation on the
Central Government specifying irregularities and contraventions of the Act or
on any other law. This investigation, it is alleged, could not be made by the
inspector on account of obstructive and non-co-operative conduct of the
management intended to defeat a proper investigation of the company’s affairs.
The inspector was refused all information and documents necessary for and
relevant to a full investigation of the affairs of the company. It is alleged
that officers of the company were directed to avoid giving information to the
inspector and co-operate with him.
It is next alleged that a
representation was made by three senior officers of the company to the then
Prime Minister of India, in which it was stated that serious irregularities and
illegalities were committed in the management of the company and that
instructions were issued by the management of the company to destroy, as far as
possible, all important records of the company bearing evidence on
transactions, then being investigated, and untruthful and evasive answers were
to be given to the inspector. On November 3, 1963, two officers of the company
again wrote to the Prime Minister concerning wrongful and illegal management of
the company, particularly by Shanti Prasad Jain and P.K. Ray. These representations
are to be found at pages 87 and 89 of the paper book. In paragraph 12 of the
application it is alleged that Shanti Prasad Jain informed the officers of the
company that he was receiving money unaccounted for from the books of some
other companies under his management and that similar arrangements should be
made for him to receive unaccounted money from Bennett Coleman & Co. Ltd.
It is next alleged that S.P. Jain suggested that purchases made by the company
should be inflated both as to quantity and price, and so inflated, purchases
should be entered in the company’s books and the difference between actual
price and the inflated price should be paid to S.P. Jain. The officers of the
company pointed out that the main item of purchase was newsprint, the rate of
which was well-known, and any manipulation of price would be impossible. S.P.
Jain thereupon directed that the company’s sales should not be accounted for
truly or in full in the books of the company. S.P. Jain also directed that the
proceeds shown in the company’s books should be lower than those actually
received, and the difference should be paid to him. The items in respect of
which such operations were to be carried out were newsprint waste, machinery
and other miscellaneous items.
In accordance with this
suggested practice, full sale proceeds of newsprint wastes were not credited in
the company’s books, but only a part thereof was recorded and the balance was
handed over to S.P. Jain. This practice, it is alleged, continued up to September,
1968, when it was severely curtailed consequent upon an order of the Registrar
of Newspapers. It is alleged that during the period mentioned above cash sales
of newsprint wastes approximated to Rs. 21,94,620.69, but a sum of Rs.
4,80,995.34 only was credited in the company’s books and the balance of Rs.
17,13,625.30 was paid to S.P. Jain or to his order. It is next alleged that the
previous practice of sale of newsprint wastes, according to weight, was given
up, and the practice of sale by weight to two selected purchasers was
introduced. The records relating to these sales were not produced before the
inspector, who was falsely told that sale by weight had been given up in favour
of a system of sale by lots. It is alleged that regular account of sale of
newsprint wastes were maintained during the period distinctly showing the
amount misappropriated by the management, and these records have been partially
destroyed.
The next allegation relates
to sweeping wastes of the company. This type of waste was sold to a company
known as Bombay Vyapar Ltd.—a company owned by Gian Chand Jain and his
relations—at a price of Rs. 84,000 per year. It is alleged that the value of
this waste is much higher and offers from other parties to pay a higher price
were not accepted and were illegally removed from the records of the company.
The next allegation is
relating to misappropriation of part of the sale proceeds of the company’s
plant and machinery and it is alleged that between 1957 and 1961 a sum of
approximately Rs. 2,58,640 was not recorded in the company’s books and
misappropriated. There is a similar allegation of misappropriation of a sum of
Rs. l,06,108.06 from miscellaneous sales which were not credited in the
company’s books.
The next charge relates to
the payment of a sum of Rs. 2,20,802 to Crosswords Pvt. Ltd., Delhi. The case
of the management was that this payment was made in accordance with a
commitment already made. It is alleged, however, that there was no such
commitment. The alleged commitment was between S.P. Jain and the outgoing
chairman of the company, Ram Krishna Dalmia. It is alleged that in order to
justify the payment an antedated letter was obtained from the Crosswords Pvt.
Ltd. The payment is alleged to have been made for the benefit of S.P. Jain and
his relatives. It is also alleged that irregular payments of various sums,
namely, Rs. 6,000, Rs. 14,876, Rs. 1,000 and Rs. 57,600 were made to various
parties.
The next allegation relates
to payment of arrears of dividends on preference shares from 1948 to 1954
amounting to Rs. 26,63,710 to Bharat Union Agencies, on a mandate from Ram
Krishna Dalmia, the previous chairman of the company. It is alleged that the
company’s minute books show that it was decided on August 9, 1955, that as the
company’s profit for the year was not sufficient to declare dividend, no
dividend could be paid in the year ended December 31, 1954. Yet, on October 5,
1955, it was resolved to borrow Rs. 30 lakhs from Bharat Nidhi Ltd., a company
controlled by S.P. Jain and his associates, and a resolution was passed on
October 28, 1955, to pay out the aforesaid, amount representing arrears of
dividend on preference shares up to December 31, 1954. The payment of dividend
was made without compliance with the prescribed procedure for approval and
declaration of dividends.
It is next alleged that the
accounting practice followed by the company is in violation of section 209 and
section 211 read with Schedule VI, Parts (i) and (ii) of the Act. It is also
alleged that there has been a deliberate misrepresentation of the company’s
true position so as to suit the interest of the management or the persons
associated with them.
The next allegation relates
to payment of travelling allowance which was fixed at a very high rate bearing
no relation to actual expenditure. S.P. Jain is alleged to have been charging
travelling allowance from the company although he had drawn such allowance for
the same journeys from some of the companies under his control.
The charges mentioned above
are based on the materials which were available to the Central Government at
the time of taking a decision to make a reference under section 388B of the
Act. The question is: can it be said, having regard to the nature of the
charges, that there were no materials to justify the Central Government in
coming to a decision that a reference ought to be made under section 388B of
the Act? It is to be remembered that formation of an opinion is a subjective
process and cannot be questioned or challenged by a party who is aggrieved by action
taken on the basis of such opinion. It seems to us that, in the facts of this
case, it cannot be said that there were no materials to justify the opinion
which the Central Government formed in the matter of making a reference under
section 388B of the Act. Prima facie, it seems to us that there were enough
materials to justify a conclusion to which the Central Government arrived in
making the reference under section 388B of the Act. The charges enumerated
above appear to us to be sufficiently grave and serious, namely, fraud,
misappropriation, manipulation of accounts, diversion of company’s funds,
illegal declaration of dividends, irregular and unlawful payments to parties,
tampering of records and minute books of the company and unlawful payment of travelling
allowances. These are by no means vague and uncertain charges. Full particulars
with dates and amounts involved have been furnished, and wherever third parties
are involved their names have also been mentioned. The question being whether
an investigation under section 388B is justified, it is by no means necessary
at this stage that the charges should be proved beyond doubt. Such of the
persons against whom the investigation is directed, including the appellant,
have been fully apprised of the nature and extent of the charges and it is for
them to prove that the charges are unfounded or false or are such as not to
merit an investigation under section 388B of the Act. On the materials, such as
they are, we have no hesitation in holding that there were sufficient materials
in existence to enable the Central Government to form an opinion that an
investigation under section 388B of the Act is called for.
I now proceed to deal with
the next contention of counsel for the appellant that sections 388B to 388E
confer unanalyzed and uncontrolled discretion on the Central Government to pick
and choose between one person and another and, for that reason, powers to
discriminate between person and person have been created and conferred by those
sections, which, therefore, should be held to be violative of article 14 and
declared void. It was argued that in similar circumstances the Central
Government might pick and choose among several persons and might commence
proceedings under section 388B of the Act against a particular individual,
while ignoring same or similar charges against others. Secondly, it was argued
that after the Tribunal had found several individuals guilty of the charges
under section 388B, the Central Government might ignore the finding against a favoured
person, but proceed to take steps against one who was disliked by the Central
Government.
This question was raised
before the Supreme Court in Barium Chemicals Ltd. v. Company Law Board . In
that case it was held that similar powers conferred on the Central Government
by sections 235, 237(a) and 237(b) of the Act, which enabled the Central
Government to make an order appointing an inspector to investigate the affairs
of the company in different sets of circumstances, were not discriminatory and
violative of article 14. This position was reaffirmed by the Supreme Court in a
later decision in Rohtas Industries Ltd. v. S.D. Agarwal . In
this case it was held in paragraph 45 of the report that there must be a real
exercise of the discretion which is to be exercised honestly and not for
corrupt or ulterior purposes and that such opinion must be formed after applying
its mind to the relevant materials, and in forming the opinion the Central
Government must act reasonably and not capriciously or arbitrarily. The
challenge to the vires of section 237 of the Act was rejected on the ground
that the section did not authorise the Central Government to discriminate
between one company and another.
Counsel for the appellant
relied on a number of decisions in support of his contention that section 388B
of the Act was ultra vires article 14 of the Constitution and should, therefore,
be struck down. I shall now proceed to deal with those decisions. Reliance was
placed on a decision of the Supreme Court in P.J. Irani v. State of Madras .
Reliance was placed on this decision in support of the contention that the High
Court has power under article 226 to set aside ultra vires orders vitally
affecting a person’s right to statutory protection. It was held in that case
that immunity from interference by the court could not be sought for orders
which were plainly ultra vires, merely because they were passed bona fide in
the sense of being without indirect motive. I do not see how this decision
helps the appellant in this case, because this case does not deal with the
question of discrimination or lack of classification among different classes or
groups of persons likely to be affected by a statute. In that case the question
was whether the Punjab Forward Contract Tax Act, 1951, was ultra virus the
powers conferred upon the State Legislature. This decision was relied on for
the proposition that in a writ petition a declaration may be prayed for that an
Act or a particular section thereof is ultra virus the Constitution. In our
view, this contention of the counsel for the appellant that in an appropriate
case a declaration to the effect mentioned above may be prayed for and allowed
is sound. No doubt, in an appropriate case a declaration may be prayed for, and
the court, in exercise of its power under article 226, is competent to grant
such a prayer. But the question in this case is not merely whether a
declaration such as mentioned above should be granted but whether a writ should
be issued or an order made to stop the proceedings before the Bombay High
Court, where the proceedings now stand transferred by reason of the operation
of the statute.
The next case relied on was
also a decision of the Supreme Court in Kunnathat Thathunni Moopil Nair v.
State of Kerala . In
that case the question was whether a taxing statute, namely, the
Travancore-Cochin Land Tax Act, 1955, as amended by an Act of 1957, was
violative of article 14 of the Constitution. It was held that the provisions in
the Act were unconstitutional as they were discriminatory and imposed
unreasonable restrictions on holding of property and were confiscatory in
character. In effect certain provisions of the Act were also declared to offend
article 19(1)(f) of the Constitution. We do not see how this decision is of any
assistance to the appellant in this case, inasmuch as what was considered in
that case was the virus of a taxing statute and the competence of a State
Legislature to impose a tax and authorise collection thereof. It was held in
that case that there was no classification in the provisions of the Act and
that such lack of classification created inequality. To our mind the question
discussed in the case is of no relevance to the contentions canvassed in the
appeal before us. The provisions in section 388B lay down sufficient norms for
a reasonable classification of companies against whom proceedings under the
impugned section can be taken by the Central Government.
Reliance was next placed on
a decision of the Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam . In
that case the virus of the Assam Taxation (on goods carried by road or inland
waterways) Act was challenged. The High Court of Assam had dismissed the writ
petition and the majority of the Supreme Court in allowing the appeal held that
the impugned Act had put a direct restriction on freedom of trade, and in doing
so it did not comply with article 304(b) and therefore must be held to be void.
I do not see how this decision is of any assistance to the appellant because
the main question involved in that case was whether the impugned Act imposed
restrictions on inter-State trade, contrary to the provisions in the
Constitution.
The next case relied on was
also a decision of the Supreme Court in State of Madhya Pradesh v. Bhailal
Bhaai .
That was also a case in which the vires of a taxing statute, namely, the Madhya
Bharat Sales Tax Act, was questioned on the ground of non-compliance with
articles 301 and 304(a). This case was relied on for the proposition that when
a fundamental or a statutory right was infringed, complete relief could not be
granted merely by declaring the existence of the right or that the right had
been infringed and that the court would be justified in giving a consequential
relief by directing refund of taxes paid under a statutory provision which had
been struck down. This decision again is of no assistance to the appellant in
this case because we are in no doubt that if section 388B of the Act violated
article 14 and if the reference was pending before a Tribunal and not a High
Court, this court could not only have struck down the reference itself but would
have stayed, by injunction, further proceedings in that reference. As it is,
however, we are of the view that section 388B of the Act does not infringe
article 14 and also of the view that no writ or order can be issued by this
court to stay, stop or interfere with a proceeding before another High Court in
an application under article 226 of the Constitution.
Reliance was next placed on
a decision of the Supreme Court in Hari Chand Sarda v. Mizo District Council . In
that case certain regulations relating to tribals in Mizo Hills were held to be
void as they provided no principles on which the policy of safeguarding the
tribals from exploitation could be followed. It was held that the impugned
regulations contained no principle or criterion on which the licence could be
granted or renewed. The impugned regulation contained no provision on the basis
of which an applicant for a licence could know what he was to satisfy in order
to have a licence. This decision again is of no assistance to the appellant as
we have held that section 388B of the Act incorporated sufficient criterion and
guidelines for the Central Government to initiate proceeding under that
section. On the question of exercise of discretion by the Central Government
reliance was placed on another decision of the Supreme Court in S.G.
Jaisinghani v. Union af India . The passage
relied on in this decision is at page 1434 of the report and is to the effect
that in a system governed by rule of law discretion to be exercised by
authority must be confined within well-defined limits and decisions should be
made by the applicant on known principles and rules and also that if a decision
was taken without any principle it became unpredictable and such a decision was
the antithesis of a decision taken in accordance with the rule of law. This
decision again is of no assistance to the appellant because the impugned
section clearly lays down the conditions which must be fulfilled before action
can be taken by the Central Government under that section. As in this case
there is, prima facie, evidence of existence of these circumstances and the
conditions upon the fulfilment of which action can be initiated are satisfied,
it cannot, in our view, be said that the action of the Central Government is
arbitrary or discriminatory.
Mr. S. Banerjee, counsel
for the respondents, in repelling the contentions on behalf of the appellant,
submitted that in matters of the kind contemplated by section 388B of the Act
the Central Government had to act upon information available to it, and being
satisfied that circumstances existed for a reference under the impugned
section, initiated proceedings accordingly. He further argued that, if the
Central Government acted on material brought to its notice and bona fide came
to the conclusion that the affairs of the company were conducted in such a
manner that an investigation as contemplated by section 388B of the Act was
called for, to prevent recurrence of the evil, the act of the Central
Government in initiating proceedings could not be condemned as discriminatory
nor could the action be declared to be bad, on the ground that it was violative
of article 14. In support of this contention, counsel for the respondents
relied on a decision of the Supreme Court in Ram Krishna Dalmia v. Justice S.R.
Tendolkar .
Reliance was also placed by counsel for the respondents on another decision of
the Supreme Court, Basheshar Nath v. Commissioner of Income-tax.
Reliance was next also placed by counsel for the respondents on the decision of
the Supreme Court in Manohar Lal Bhogilal Shah v. State of Maharashtra . In
that case it was contended that for the offence of smuggling of goods a person
could either be dealt with by the customs authorities by proceeding under
section 167(8) of the Sea Customs Act, 1878, or in the alternative or in
addition to such proceedings, by instituting a prosecution in a criminal court
under section 187A read with section 167(81). It was contended that it was left
to the unfettered and unguided discretion of the customs authorities to proceed
against certain persons under section 167(8) and others under section 167(81)
or under both the sections. This contention on behalf of the appellant was
overruled and it was held that there were enough indications of policy or
guidelines in the object, purpose and scheme of the Act. It was further held
that in deciding whether a complaint should be instituted for an offence which
was covered by both items 8 and 81 of section 167 of the Act, the customs
officer must take into consideration the nature of the contravention and the
available evidence and that in certain cases the evidence might not be sufficient
for taking the matter to a criminal court and in such cases proceedings may be
taken departmentally. Relying on this decision it was contended that there was
sufficient indication of policy and guidelines with regard to cases in which
action was to be taken by the Central Government in the impugned section
itself.
In our opinion, the
contentions of counsel for the appellant that the powers have been conferred
upon the Central Government which are discriminatory in nature, because in
selecting persons against whom proceedings are to be taken, the Central
Government might act arbitrarily, and pick and choose between one person and
another at its sweet will cannot be accepted. Circumstances which call for
action, and conditions which are required to be fulfilled before proceedings
are initiated, have been sufficiently denned in the impugned section.
Furthermore, the materials disclosed in the application before the Tribunal in
this case leave no room for doubt in our mind that prima facie, at any rate, materials
did exist for formation of an opinion that the proceeding should be initiated
under the impugned section. Formation of opinion by the Central Government is a
subjective process and cannot be questioned or challenged by a party aggrieved
by the action taken by the Central Government. The only question that the court
can look into is the existence of materials to justify formation of such
opinion and on that question we are satisfied that materials did exist in this
case to enable the Central Government to form an opinion on the question
whether action should be taken against the appellant under the impugned
section. In our opinion the appellant’s contention that section 388B of the Act
is violative of article 14 must fail and is accordingly rejected.
I now turn to another
question canvassed before us by counsel for the appellant. It was argued that
the Central Government failed to apply its mind to the facts in coming to a
decision that action should be taken against the appellant under section 388B and
section 388E of the Act. In support of this contention, counsel for the
appellant relied on the averments in paragraph 8(a) of the affidavit affirmed
by Davinder Singh Dang on December 4, 1965, which is to be found at pages 80-81
of the supplementary paper book. In that paragraph of the affidavit it is
alleged that the appellant as a director of the company acted in violation of
section 240 of the Act by denying or directing denial by the company’s
employees of production of relevant books, and also denying assistance to the
inspector appointed to investigate into the company’s affairs. It is also
alleged that such denial embraced refusal to answer questions by the company’s
officers, and to produce books of the company before the inspector when
requested to do so. There are also allegations of destruction of and tampering
with relevant records, of suppression of evidence, of fraud and irregularities.
These allegations in the affidavit were denied by the appellant. In paragraph
11 of the affidavit affirmed by him on December 4, 1964, the appellant alleged
that the materials mentioned above were not considered by the Central
Government in forming its opinion as the allegations were not made in the
application before the Company’s Tribunal nor were they made in the
affidavit-in-opposition filed on behalf of the respondents in the writ
petition. I do not see how the materials contained in the affidavit of Davinder
Singh Dang mentioned above make out a case of non-application of mind by the
Central Government. At best it can be said that the additional materials were
sought to be introduced and that such materials were not incorporated either in
the application before the Companies Tribunal or before the trial court. The
question posed by counsel for the appellant is whether the Central Government
applied its mind to the materials in coming to a decision that a reference is
called for. The allegation that additional evidence was sought to be introduced
by the respondent does not support the contention that the Central Government
failed to apply its mind.
Our attention was drawn in
the course of the hearing to a judgment delivered by Mr. Justice Nain of the
Bombay High Court on August 28, 1969, on the petition filed by the Central
Government under section 398 of the Act. The charges against the existing and
former directors of the company included almost all the charges made in the
application before the Tribunal under section 388B; in addition to these,
however, there were other charges made in that petition. It appears from the
judgment that the prayers were that the respondents in that petition, who were
directors of the company, be removed from the board of directors of the
company, and that some of the other persons, among whom the appellant was one,
be restrained by an injunction from interfering with the affairs of the
company. We were told by counsel for the respondents that the evidence of the
first witness produced by the petitioner, the Union of India, was recorded for
about 52 working days. While the first witness was under examination, the
respondents in that application, among whom the appellant was one, submitted
that if without admitting the allegations against them in the petition, and if
without giving any finding on any of the issues framed, and also without
prejudice to the respondent’s rights and contentions in certain criminal
proceedings and proceedings under taxation laws, the court made any order with
a view to prevent or render impossible the affairs of the company being
conducted in a manner prejudicial to public interest or prejudicial to the
interest of the company, or with a view to nullifying the effect of any change
in the management and control of the company, they would submit to the orders
of the court without objection. The second respondent in that petition, namely,
S.P. Jain, further submitted that he would not only submit to the orders of the
court without objection but would consent to such orders being passed whatever
be the nature of the orders.
Thereafter, the court
invited learned counsel for the parties to make their submissions with regard
to the nature of the orders that the court should make. Upon this direction,
counsel for the 4th respondent in that petition (appellant in this appeal)
stated that his client submitted to the orders of the court. On these
submissions being made on behalf of the respondents in that petition, Nain J.
made certain orders to which I will presently refer. But before doing so I
should refer to some of the observations of the learned judge, as a good deal
of arguments were advanced on the question of admission by the respondents or a
finding against them.
The learned judge said:
“I have already made it
clear in my observations above that making of this order does not involve any
admission by any of the respondents of the allegations made against them in the
petition, nor my giving a finding on any of the issues framed by the Companies
Tribunal or in respect of the truth or correctness of the allegations in the
petition”.
After making these observations
the learned judge reconstituted the board of directors of the company, and
directed that the reconstitution of the board should be in operation for seven
years. For the purpose of this appeal it is not necessary for me to refer to
such reconstitution Thereafter, directions were given to alter the articles of
association of the company, and it was provided that these articles should
stand modified in the manner provided in the schedule to the order and that the
company should not have the power to alter the articles without leave of the
court. For the purpose of this appeal, however, the most material portion of
the order is as follows:
“The allegations of
malversation, misfeasance and embezzlement of the funds of the company made
against the past directors and Mrs. Rama Jain are indeed serious and I am of
the view that these persons should be disqualified from becoming directors of
the company again. I, therefore, hereby order and restrain by an injunction,
(1) Shanti Prasad Jain, (2) Gian Chand Jain, (3) Alok Prokash Jain, and (4)
Mrs. Rama Jain, from interfering with or intermeddling in the affairs of the
company and its conduct and management”.
The question of application
of mind by the Central Government apart, the judgment of the Bombay High Court
discussed above is of considerable importance so far as this appeal is
concerned. We were told by counsel for the appellant that an appeal had been
preferred to the Supreme Court against the judgment and order of the Bombay
High Court and that appeal is now pending. Our attention was drawn by counsel
for the appellant to the grounds of appeal and also to an application made by
the respondents in the petition before the Bombay High Court for speaking to
the minutes. We are told by counsel for the respondent that no stay of
operation of the order of the Bombay High Court had been obtained, so that the
order disqualifying that appellant from being a director of the company again,
and the injunction restraining the appellant from interfering with or intermeddling
with the affairs of the company remain in force and are binding. The
application for speaking to the minutes was disposed of by an order, dated
September 2, 1969. In that application it was contended on behalf of the
respondents in that application before the Bombay High Court that although it
was submitted by counsel on their behalf that an order should be made without
making a finding, a finding had, in fact, been made in so far as it was held
that some of the existing and former directors of the company were disqualified
from becoming directors again and in so far as the order of injunction was
issued restraining them from interfering or intermeddling with the affairs of
the company. In dealing with this contention that the order made amounts to a
finding, the learned judge observed as follows:
“I do not agree with the
contention that this amounts to a finding. The above passage starts with a part
of the sentence which begins like this: ‘the allegations of malversation and
misfeasance and embezzlement of the funds of the company made against the past
directors and Mrs. Rama Jain are indeed serious....’
In several places in my
order, I have made it amply clear that the order I was making was based on the
submission of the party and with a view to prevent recurrence of what was
alleged in the petition. The passage which according to the contention on
behalf of these respondents is a finding, is not, in my opinion, a finding at
all”.
It is on the facts
mentioned above, and in the events that have happened, that we are to determine
if the Central Government applied its mind to the question of making a
reference under section 388B of the Act. The Central Government, without a
doubt, came to the conclusion that the facts justified a petition under section
398 of the Act, and accordingly moved a petition before the Companies Tribunal
which was later transferred to the Bombay High Court. The charges in that
petition, in so far as they have been stated in the judgment by Nain J., appear
to us to be substantially the same as the charges laid in the petition under
section 388B of the Act, which is the subject-matter of this appeal. That
application under section 398 of the Act was prosecuted by the Central
Government with great diligence and the hearing of that petition occupied as
many as 52 hearing days. A witness on behalf of the Central Government was
being examined and a large volume of evidence was recorded by the Companies
Tribunal and the Bombay High Court. The hearing of the petition under section
398 of the Act would have been brought to a conclusion, but for the submissions
made by counsel on behalf of the respondents in that petition that they were
prepared to submit to any order that the court thought fit to make upon the
conditions to which I have referred earlier.
Apart from the proceedings
under section 398 of the Act, it is to be remembered that by an order dated
April 11, 1963, the Central Government in exercise of the powers conferred upon
it by section 237 of the Act had appointed an inspector to investigate the
affairs of the company. And the inspector so appointed proceeded to make the
investigation though, according to the respondents, this investigation was
frustrated by the. obstruction set up by the directors of the company and also
by lack of co-operation, suppression of material evidence and similar other
reasons. This was followed by an application before the Companies Tribunal on
September 17, 1964, under section 388B in which specific charges were made
against the directors of the company and also the appellant, according to whom
he had ceased to be a director on the day when the application was filed.
Whatever other grounds may
exist for assailing the order of reference, a charge of non-application of mind
or failure to apply its mind by the Central Government cannot, in our opinion,
be one of them. Failure to apply its mind implies indecisive conduct which is
singularly lacking in this case. Far from there being any evidence of
indecisive procrastination the Central Government appears to us to have been
extremely prompt, diligent and active in bringing to an end the mismanagement
in the affairs of the company. We have therefore no hesitation in rejecting the
contention of the counsel for the appellant that the order of reference is bad
on the ground of non-application of mind by the Central Government.
I now turn to the effect of
the judgment of the Bombay High Court so far as this appeal is concerned. It is
true that the appellant and the other directors of the company made it clear
that they were prepared to submit to an order without admitting any of the
allegations made in the petition and also on condition that no finding was made
against them; it is also true that Nain J., in his order dated September 2,
1969, made it amply clear that there was no finding against the appellant and
the other directors of the company in the order made on August 28, 1969. But
whether a finding was arrived at or not, it is clear that Nain J. was satisfied
that, prima facie, there were materials to justify the order disqualifying the
appellant and other directors of the company from acting as such directors
again and also an injunction restraining them from interfering with the
company’s affairs. The appellant and the other directors had agreed to submit
to any order that the court would make, and the court thought it fit to make
the order mentioned above. That order still remains in full force and effect,
with the result that the appellant is not only disqualified from becoming a
director of the company again in future, but is also restrained by an
injunction from interfering with the company’s affairs. The appellant
voluntarily and willingly agreed to submit to this order and submissions were
made on his behalf to that effect before Nain J. It was only after such
submissions were made on behalf of the appellant and other directors of the
company that the order dated August 28, 1969, was made by Nain J.
Keeping in mind the effect
of the order of the Bombay High Court mentioned above, it is to be seen if any
purpose would be served by the appellant’s efforts to stop or nullify the
proceedings pending against him in the Bombay High Court under section 388E of
the Act. That section provides for a reference to the High Court against
managerial personnel, and upon a reference being made by the Central Government
under that section, the High Court is to record a finding as to whether or not
the person against whom the reference is made, is a fit and proper person to
hold the office of a director or any other office connected with the management
of the company. Section 388E(1) of the Act provides that notwithstanding
anything contained in the Act the Central Government shall remove from office
any director or any other person concerned in the management of the affairs of
the company, against whom there is a decision of the High Court under Chapter
IV-A of the Act. Sub-section (3) of section 388E bars a person, against whom an
order of removal from office has been made, from holding the office of a
director or any other office connected with the management of the affairs of a
company for a period of 5 years from the date of order of removal. The combined
effect of section 388B and section 388E is that a director or other person
connected with the company’s management against whom a decision has been
recorded by the High Court, is to be removed, by an order of the Central
Government, from the office held by him, and he is barred from holding the
office for a term of 5 years from the date of the order. This is all that the appellant
will suffer in the event of the decision of the Bombay High Court going against
him in the proceedings under section 388B of the Act. But as I have noticed
earlier the judgment and order of the Bombay High Court, dated August 28, 1969,
imposes a very much more severe penalty upon the appellant, as he has been
disqualified from becoming a director of the company again. Whereas, in the
proceedings under section 388B of the Act, if the decision of the High Court
went against him, the appellant is liable to be removed from the directorship
of the company by the Central Government and remains disqualified from becoming
a director for a term of 5 years only, he has voluntarily and willingly
submitted to an order imposing a much greater penalty upon him, namely, a
disqualification from ever becoming a director of the company and has also
submitted to an injunction not to interfere with the affairs of the company.
This is the position in which the appellant has placed himself and we see no
justification in his efforts, in the events that have happened, to stultify the
pending proceedings before the Bombay High Court under section 388B of the Act.
I now proceed to deal
briefly with the contention of the counsel for the appellant that section 388E
as it stood before the amendment by substituting the word “shall” for the word
“may” was ultra virus article 14 of the Constitution, and this invalidity could
not be cured merely by the amendment but the section as a whole be re-enacted
by Parliament. It was argued that the word “may” in section 388E of the Act
enabled the Central Government to discriminate between one person and another,
although the decision of the High Court had gone against it. In order to avoid
such an attack on this section on the ground that it was discriminatory, it was
submitted, the amendment was effected by substituting the word “shall” for the
word “may”. Such substitution, it was argued, could not save the section which
should, according to the counsel for the appellant, have been re-enacted in its
entirety. We are unable to accept this contention on behalf of the appellant.
No court had declared or held section 388E of the Act to be void on the ground
that it was ultra virus article 14, nor has our attention been drawn to any
decision in which the constitutional validity of that section had been
questioned by a court of competent jurisdiction. There would have been a good
deal of force in the contention of the counsel for the appellant, if section
388E was held to be void on the ground that it violated article 14. But, since
that is not so, their is no substance in the contention that the section should
be held to be void merely because the amendment has been effected as mentioned
above. Parliament which made the enactment is competent to make the amendment
of the section, and the section so amended, must be held to be valid.
Before passing I should
refer to two decisions of the Supreme Court on which Mr. Deb relied in support
of his contentions on this point. First of these cases is Saghir Ahmad v. State
of U.P.
In that case the question of vires of the U.P. Road Transport Act, 1951, was
under consideration of the Supreme Court. By that Act, the State Government was
empowered to declare that road transport services on any route should be run by
the State Government exclusively and it was held that the impugned Act violated
article 19(1)(g) of the Constitution and was not protected by clause (6) of the
article as it stood at the time of enactment and before amendment of the
Constitution by the First Amendment Act of 1951. After amendment of article
19(b) of the Constitution in 1951, the State Government was given the power to
carry on any trade or business to the exclusion of private citizens wholly or
in part. The question was whether this amendment which came after the impugned
enactment could save the enactment from being void. It was held that the
amendment of the Constitution which came later could not be invoked to invalidate
an earlier legislation which must be regarded as unconstitutional when it was
passed.
This decision, to our mind,
is of no assistance to the appellant because the question considered and the
decision were on entirely different points altogether. The question before the
Supreme Court was not whether an amendment could be made in a section of the
Act without re-enactment of the whole section itself, but whether an enactment
which was void under the provisions of the Constitution as it stood at the time
when the enactment was made could be protected by a subsequent amendment of the
Constitution. The second case relied on by Mr. Deb was Deep Chand v. State of
U.P.
This decision reaffirmed the earlier decision of the Supreme Court in Saghir
Ahmad v. State of U.P. None
of these two decisions support the proposition canvassed by Mr. Deb before us,
and both of them dealt with a question which is entirely different from the
point urged by Mr. Deb.
I now turn to the
contention of the counsel for the appellant that the Central Government having
delegated its powers to the Board of Company Law Administration (hereinafter referred
to as “the Board”), could not make the reference under section 388B of the Act.
The Board was created under section 10E of the Act, which was introduced in the
Companies Act, 1956, by the Companies Amendment Act of 1963. Section 10E
provides that the Board is to exercise and discharge such powers and functions
conferred on the Central Government by the Act or any other law as may be
delegated to it by that Government. By a notification dated February 1, 1964,
the Central Government delegated to the Board all its powers and functions
under the Act except those under certain sections specified in the
notification. Therefore, it was argued by the counsel for the appellant that
the powers of the Central Government under section 388B of the Act were delegated
to the Board, and by virtue of such delegation the opinion contemplated by
section 388B(1) of the Act must be the opinion of the Board and not of the
Central Government. It was argued that by reason of the delegation there was a
complete divestiture of the powers of the Central Government which could be
exercised by the Board alone. The Central Government, it was further argued,
stood denuded of all its powers under section 388B of the Act.
The power of delegation was
exercised and a notification was issued by the Central Government in exercise
of its powers under section 637(1) of the Act. Sub-section (2) of that section
prescribes various sections, the powers under which cannot be delegated by the
Central Government. Section 388B of the Act is not mentioned in sub-section
(2). Sub-section (2A) provides that the Act shall apply in relation to the
Company Law Board as they applied in relation to the Central Government in
respect of any matter in relation to which the powers and functions of the
Central Government had been delegated to the Company Law Board. These are the
material provisions in the Act relating to delegation of powers by the Central
Government to the Board. Before proceeding to deal with Mr. Deb’s contentions,
I should refer to sub-section (6) of section 10E of the Act which is as
follows:
“(6) In the exercise of its
powers and discharge of its functions, the Company Law Board shall be subject
to the control of the Central Government”.
Relying on the provisions
mentioned above, Mr. Deb submitted that once having delegated its powers under
section 388B of the Act, the Central Government had completely divested itself
of the powers created and conferred by that section. The powers under that
section, it was argued, could be exercised by the Board alone by virtue of the
delegation made by the Central Government. Once having delegated the powers,
Mr. Deb argued, it was beyond the competence of the Central Government to make
the impugned order of reference, which must, therefore, be held to be void. In
support of this contention reliance was placed by the counsel for the appellant, firstly, on Barium
Chemicals Ltd. v. Company Law Board . As
we read that decision, we do not find any
support for this proposition in that case. Reliance was next placed on a
decision of the Judicial Committee in King Emperor v. Sibnath Banerji . In
that case the Judicial Committee considered the nature of delegation under two
different provisions of the Defence of India Act, 1939, namely, sub-section (5)
of section 2 and sub section (1) of section 49. It was held that in the case of
a delegation under section 2(5) of the Act, there was delegation in the strict
sense of the term and involved a transfer of power or duty to the officer
denned in the sub section with a corresponding divestiture of the Governor of
any responsibility in the matter, and in case of delegation under section 49(1)
the Governor remained responsible for the action of his subordinates taken in
his name. To my mind this decision is not an authority for the proposition that
in case of every delegation there is a complete divestiture of power to such an
extent, that the delegating authority could not exercise the power delegated by
him to the delegate. Reliance was next placed on Blackpool Corporation v.
Locker .
In that case the Minister of Health had, under the Defence Regulations,
delegated his powers to take possession of dwelling houses, to local
authorities. In exercise of this delegated power the local authority had taken
possession of certain premises. The owner of the property declined to make over
possession to the local authority on the ground that he wanted to occupy the
premises himself. The Minister thereafter purported to confirm the action taken
by the local authority and also ratified all the actions that were taken by the
local authority. In considering the question whether any of the powers remained
vested in the Minister after delegation, it was held that the Minister did not
retain general powers of supervision. It was held that in any area of local
Government if the Minister had by delegation transferred his powers to a local
authority, he stood divested of those powers and that out of the wide executive
powers which the primary delegated legislation contained in regulation 51(1)
and had been conferred upon him to be exercised at his discretion, he retained
only those powers which in his sub-delegated legislation he had expressly or
impliedly reserved to himself. This decision, to our mind, is easily
distinguishable from the facts in the appeal now before us because by virtue of
sub-section (6) of section 10E of the Act, which I have quoted earlier, the
Central Government retained the overall control over the Company Law Board in
exercise of its powers under the Act. The Central Government, therefore,
retained full control over the acts of the Board in discharge of its functions.
But, in the decision mentioned above the Minister by his delegation had
retained no power for himself and it was, therefore, held that he completely
stood divested of all his powers in the regulation.
It seems to us that having
regard to the provisions in the statute, namely, sub-section (6) of section
10E, it must be held that the contention of the counsel for the appellant
suffers from a fallacy. It is not a case of absolute delegation so as to hold
that the delegating authority stood divested of all its powers. Far from that
being the position, the delegating authority, namely, the Central Government,
retained full control over the Board under section 10E(6). Faced with this
statutory provision, counsel for the appellant argued that although the Central
Government retained control over the Board, that did not entitle the Central
Government to take the initiative in any matter covered by the delegation, nor
could it come to a decision ignoring the delegation altogether in favour of the
Board. Mr. Deb sought support for this contention, firstly, on the decision of
the Supreme Court in
Bombay Municipal Corporation v. Dhondu Narayan Chowdhary In that case the statute had authorised delegation of the
functions of the Commissioner subject to the Commissioner’s control and subject
to his revision. Construing this provision of delegation the Supreme Court held
that the Commissioner could control and exercise administratively as to the
kind of cases in which the delegate can take action or the period of time
during which the power might be exercised. But, the power to decide whether
action was to be taken or not in a particular case could not be under the
control or revision of the Commissioner. It seems to me that this decision is
against the contentions of the counsel for the appellant. The Central
Government in making the reference has done precisely what the Supreme Court
held the Commissioner could do, namely, select cases in which a reference
should be made but it did not take upon itself the power to decide the question
involved in the reference one way or the other. Reliance was next placed on
another decision of the Supreme Court in State of Punjab v. Hari Kishan Sharma. In
that case the Supreme Court considered the question whether the State
Government could deal with the applications for licence without having the same
dealt with by the licensing authority. It was held that the State Government
was not justified in assuming jurisdiction which had been conferred on the
licensing authority. The ratio of that decision was that the State Government
which was an appellate authority under the statute could not convert itself
into an original authority, and deal with the application for licence as an
original authority. This decision again does not support the contention of the
counsel for the appellant as the Supreme Court did not deal with the question
of delegation at all but with the question whether the State Government could
assume original jurisdiction in a matter under the statute by which it was
appointed an appellate authority. Reliance was next placed on a Bench decision
of this court in State of West Bengal v. Ruttonjee & Co., for
the proposition that the word “control” contemplated by section 8(1) of the
Bengal Excise Act meant control to be exercised by issuing general instructions
or directions, but that power could not authorise the State Government to issue
specific instructions about the disposal of a particular application. Quite
apart from the fact that words and terms used in a particular statute in one
context cannot be interpreted to have the same meaning used in a different
statute in a different context, I am of the opinion that the decision mentioned
above does not support the contention of the counsel for the appellant. No
instruction, in this case, was issued by the Central Government to the Board,
which was left free to decide the question raised by the applicant in the
reference under section 388B of the Act.
Counsel for the appellant
next relied on a decision in Imperial Hydropathic Hotel Company v. Hampson. That
was an action by some shareholders who were appointed directors of a company in
place of the existing directors. The newly appointed directors brought the
action against the existing directors to restrain them from acting. It was held
that the new directors were not duly appointed and the relief was refused. This
decision has nothing, whatsoever, to do with the question of delegation.
Reliance was also placed on a decision in In re Patent Invert Sugar Company. In
that case contrary to its regulations a company had passed a resolution to
reduce its capital and also another resolution inserting an article for power
to reduce the capital. It was held that the court could not confirm the
reduction of capital and no resolution could be passed authorising such
reduction until after the regulations of the company had been altered. This
decision again has no bearing at all on the question of delegation in support
of which it was cited. Reliance was also placed on another decision in In re
Bank of Hindustan, China and Japan . In
that case an agreement was entered into by two companies whereby one company
was to buy the business of the other and the consideration was to be paid in
the shares of the purchasing company. This decision again lends no support to
the contention in support of which it was cited.
Now to turn to this
decision on which Mr. Banerjee relied in support of his contention that there
was no complete divestiture of power by the Central Government to the Board. Reliance
was placed on a decision of the Supreme Court in Godavari S. Parulekar v. State of Maharashtra
.
The contention is that the State Government
having delegated the powers conferred upon it under rule 30 of the Defence of
India Rules, 1962, to all District Magistrates within the limits of their
jurisdiction, the State Government was competent to pass an order of detention
under rule 30. In that case counsel for the appellant relied on the decision of
the Judicial Committee in King Emperor v. Sibnath Banerji in support of his contention that once
delegation of powers having been made, the delegating authority stood divested
of all its powers. This contention was negatived by the Supreme Court and it
was held that by issuing the notification the State Government had not denuded
itself of the power to act under rule 30 of the Rules framed under the Defence
of India Act. The next decision relied on by Mr. Banerjee was Huth v. Clarke. It
was contended, on behalf of the appellant in that case, that delegation implied
abdication or denudation of power and the power so delegated could not be
resumed until the delegation had been specifically revoked. Lord Coleridge
C.J., in rejecting the contentions, held as follows:
“The word ‘delegation’
implies that powers are committed to another person or body which are, as a
rule, always subject to resumption by the power delegating, and many examples
of this might be given. Unless therefore, it is controlled by statute, the
delegating power can at any time resume its authority”.
In the same case Wills J. held
that delegation did not imply a parting with power by the person who granted
the delegation but pointed to the conferring of authority to do things which
otherwise that person would have to do himself. The next case relied on by Mr.
Banerjee was Metropolitan
Borough and Town Clerk of Lewisham v. Roberts.
Dealing with the question of delegation of
power by the Minister of Health, under regulation 51 of the Defence
Regulations, to a town clerk, Denning M.R. held that the Minister was not bound
to apply his mind personally to the question of requisitioning a property and
that it was sufficient if one official of the department brought his mind to
bear on the propriety of it and that delegation to the town clerk was simply
administrative machinery so as to enable the administrative function of
requisitioning to operate smoothly and efficiently. In expressing these views
Denning M.R. disagreed with the observations of Scott L.J. to the contrary in
Blackpool Corporation v. Locker. This
decision, to my mind, is not of any assistance to the respondents in this case as
the question before the court was the validity of a delegation made for
administrative convenience. But, in this case, we are concerned with the
question of a statutory delegation. The Board was created by the Act and the
State authorised the Central Government to delegate its powers, under the Act,
to the Board. Reliance was next placed on Gordon Dadds ,& Co. v. Morris. In
that case, following the dictum of Lord Coleridge in Huih v. Clarke, it
was held that the word “delegate” in regulation 51(5) of the Defence (General)
Regulations was used in its ordinary meaning and a delegation by a competent
authority of its powers under that Regulation did not divest that authority of
any of its powers under that regulation.
The statute in this case
clearly prescribes that in exercise of its powers and discharge of its
functions the Board shall be subject to the control of the Central Government.
This control does not, in our view, end with merely vesting a general
supervisory power to be exercised by the Central Government over the activities
of the Board. Section 637 of the Act which authorised the Central Government to
make the delegation does not indicate that a deligation made under that section
has the effect of a complete abdication or surrender of power by the Central
Government to the Board. In our view, the position of the Board is that by
virtue of the delegation it is enabled to exercise powers and discharge
functions, which, but for the delegation, it could not do. The Central
Government, in our view, does not, by virtue of the delegation, stand denuded
or divested of all its powers under section 388B of the Act. In that view of
the matter the contention of the counsel for the appellant on this point fails
and is accordingly rejected.
I now turn to the question
of the maintainability of the writ petition having regard to the amendment of
the Act, by which the Companies Tribunal was abolished and the High Court was
substituted in place of the Companies Tribunal and all proceedings pending
before the Tribunal stood transferred to the High Court. But, before doing so,
I will briefly refer to one other matter. The company involved in this case is
Bennett Coleman & Co. Ltd. The charges against the appellant relate to the
affairs and administration of this company. The registered office of this
company is at Bombay. The principal business of the company, namely, publication
of newspapers, journals, etc., is carried on in Bombay. The various acts of
misfeasance, fraud, maladministration, misappropriation, etc., alleged against
the appellant and other directors of the company, were committed in Bombay. The
court, having jurisdiction under the Companies Act, 1956, with regard to this
company, is the High Court of Bombay. Against the orders made by the Tribunal
in the application for particulars of pleadings and inspection of documents,
appeals were preferred to the High Court of Bombay and interim orders were also
obtained from the Bombay High Court for stay of proceedings in Case No. 1 of
1964. Yet, and in spite of the facts stated above, the writ petition was moved
before this court on the ground that copies of the applications filed before
the Companies Tribunal under section 388B and section 388C of the Act were
served upon the appellant in Calcutta within the jurisdiction of this court.
Service of the applications in Calcutta within the jurisdiction of this court
is one of the allegations made in the writ petition to attract the jurisdiction
of this court. The other allegations for this purpose are to be found in
paragraph 17 of the petition and these are that the petitioner (appellant)
resides in Calcutta, that he is a director of several companies, most of whom
have their registered office at Calcutta, that the impugned statute operates
all over India including Calcutta and that some of the acts alleged to have
been committed by the directors and officers of the company have been committed
in Calcutta, and it is on these allegations, it is alleged, that a material
part of the cause of action arose within the jurisdiction of this court. It is
significant that although the appellant’s father had already invoked the
jurisdiction of the High Court of Bombay in preferring appeals to that court
against the order of the Tribunal as mentioned above, and although the
appellant submitted to the jurisdiction of the Bombay High Court in an order
being made against him in the application under section 398 of the Act, the
writ petition was moved in this court and not in the High Court of Bombay.
I turn now to the amendment
of the Act by which the Tribunal was abolished and the High Court was
substituted in its place. By virtue of this amendment the respondents’
application before the Tribunal, now stands transferred to the High Court of
Bombay. The question is whether this court should issue a writ prohibiting the
High Court of Bombay to proceed further with the hearing of the application or
making an order quashing those proceedings, or making any other order which
will have the effect of interfering with the hearing of the application by the
Bombay High Court.
The word “tribunal” used in
Chapter IV-A of the Act was substituted by the words “High Court” by the
Companies Tribunal (Abolition) Act, 1967. The result of the amendment is that
all proceedings under Chapter IV-A are to be commenced before the High Court,
having jurisdiction in the matter, and all pending proceedings before the
Tribunal, stand transferred to the High Court. In this case, as I have noticed
earlier, the proceedings stand transferred to the Bombay High Court and is now
pending in that court. The amendment of the Act mentioned above, as I have
noticed earlier, was made after the judgment of the trial court and during
pendency of this appeal. In the petition, as it stands, no amendment has been
made for the purpose of removing the Companies Tribunal from the category of respondents,
nor has any amendment been made in the prayers of the petitioner. In prayer (a)
a declaration is prayed that sections 388B to 388E are ultra vires and void. In
prayer (b) a writ of mandamus or a writ of prohibition or other appropriate
writ or directions or orders have been prayed for prohibiting the respondents
from proceeding with the application, namely, Case No. 1 of 1964, and ordering
them to desist from proceeding with the said application. Prayer (c) is a
prayer for a writ or direction or order directing the respondent No. 1 (Union
of India) to withdraw or drop the proceedings initiated before the Tribunal.
Prayer (d) is a prayer for a direction or order prohibiting the respondents
from proceeding with Case No. 1 of 1964 pending the final disposal of the
petition. Prayer (g) is a prayer for injunction restraining the respondent No.
1, its servants, agents or officers from proceeding with or taking any further
steps in Case No. 1 of 1964 before the Tribunal. These are the prayers on the
basis of which the relief was sought from the court below and is sought for now
in this appeal.
Faced with the difficulty
that the Tribunal had ceased to exist, counsel for the appellant pressed before
us the prayer for a declaration in terms of prayer (a) and for an injunction
restraining the Union of India, its servants and agents from proceeding with
the hearing of the application any further. He argued that his client would be
content with a declaration and an injunction, and he was not pressing the
prayer for a writ of mandamus or prohibition or other appropriate writ as
prayed for in prayer (b) of the petition. In our view, the Tribunal before whom
the application was made by the first respondent, was a necessary party, and
was rightly made a party in the writ petition. If the Tribunal was not made a
party in the writ petition, no relief could have been granted to the petitioner
because any order made in the writ petition would not have been binding on the
Tribunal. If the Tribunal was not made a party in the writ petition, such
omission, by itself (apart from other grounds), would have been a ground for
rejecting the petition, as any relief that could be granted to the appellant
would have become infructuous.
Realising the difficulty
that a writ cannot be issued by this court against the Bombay High Court so as
to stop further hearing of the application, counsel for the appellant pressed
for a declaratory relief and also an injunction as mentioned above. It was not
contended by Mr. Deb that this court had jurisdiction to issue a writ against
the Bombay High Court so as to stop that court from proceeding with the hearing
of the pending application. Mr. Deb said that although a writ or order could
not be issued against the Bombay High Court, a declaratory relief as prayed for
and an injunction should be granted to the appellant. Keeping in mind the fact
that the application is now pending before the Bombay High Court, can such an
order be made? We think not. The effect of such an order would be plainly to
stultify the hearing of the application which is now pending before another
High Court. This would have the effect of doing indirectly what this court is
prevented by law from doing directly. Any attempt to prevent or prohibit the
hearing of the pending application before the Bombay High Court in exercise of
its statutory jurisdiction would plainly be an abuse of the process of the
court and if this court issues an injunction as prayed for restraining the
proceedings before the Bombay High Court, it would be acting in excess of its
jurisdiction under article 226 of the Constitution. In our view, the writ
jurisdiction of this court does not enable this court to issue writs or orders
which would have the effect of interfering with the proceedings before another
High Court. For these reasons the objections raised by the counsel for the
respondents must be upheld and it must be held that the petition is not
maintainable, after amendment of the Act mentioned above, having regard to the
abolition of the Companies Tribunal and the transfer of the application to the
High Court of Bombay.
I have dealt with all the
contentions raised by the counsel for the parties, and I see no reason to
interfere with the judgment and order of the trial court. This appeal is,
therefore, dismissed with costs assessed at twenty gold mohurs.
On the prayer of the
appellant, the operation of this judgment shall remain stayed till two weeks
after the holidays.