Delhi High Court
Sunair Hotels Limited vs Union Of India And Anr. on 26 April, 2017
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved On: 21.03.2017
Judgment Pronounced On: 26.04.2017
+ W.P.(C) 3444/2016, CMs 14719/2016, 23374/2016, 26642/2016
& 42075/2016
SUNAIR HOTELS LIMITED ... Petitioner
versus
UNION OF INDIA AND ANR. ... Respondents
Advocates who appeared in this case:
For the Petitioner: Mr. Suhail Dutt, Sr. Advocate with Mr. Atul
Sharma, Mr. Nitesh Jain and Mr. Amit
Dhaka, Advocates.
For the Respondents: Mr. Dev. P. Bhardwaj, CGSC for R-1/UOI
with
Mr. U.K. Sahu, JD, Ms. Anshu Tandon, DD,
Mr. D.K. Singh, STA and Mr. Sanjay
Chaubey, Law Consultant
Mr. Dayan Krishnan, Sr. Advocate with Ms.
Bina Gupta, Ms. Rakhi Ray and Ms. Akashi,
Advocates for R-2.
WP(C) No.3444/2016 Page 1 of 44
CORAM:
HON'BLE MR. JUSTICE SIDDHARTH MRIDUL
JUDGMENT
SIDDHARTH MRIDUL, J.
1. The present writ petition instituted under Article 226 of the
Constitution of India, seeks to assail the order dated 29.02.2016
(hereinafter referred to as the 'impugned order'), rendered by the
Ministry of Corporate Affairs, Union of India (hereinafter referred to as
'Respondent No.1'); whereby, they, whilst exercising power under the
provisions of Section 212(1)(c) of the Companies Act, 2013 (hereinafter
referred to as 'the 2013 Act') have ordered an investigation into the
affairs of the Petitioner Company, in the public interest, to be carried out
by the Serious Fraud Investigation Office (hereinafter referred to as
'SFIO').
2. The following reliefs have been sought by Sunair Hotels Limited
(hereinafter referred to as 'Petitioner Company') by way of the present
writ petition:
"(a) Issue a writ, order or direction in the nature of
mandamus, certiorari or any other appropriate writ, order or
directions for quashing of the order dated 29.02.2016 passed by
the respondent, ordering an investigation into the affairs of the
petitioner company, under section 212 (1) (c) of the Companies
Act, 2013, to be carried out by the Serious Fraud Investigation
Office, as being illegal, unjust, arbitrary, bad in law and in
contravention to the settled proposition of law and also contrary
to the stand taken by the respondent that the complaints made
against the petitioner are in the nature of a private dispute.
(b) Issue a writ, order or directions in the nature of
mandamus, certiorari or any other appropriate writ, order or
directions for quashing of any subsequent act done by the
respondents on the basis of the impugned order dated
29.02.2016 and to produce all record in connection with and on
the basis of which impugned order dated 29.02.2016 has been
passed."
3. For the sake of felicity, the impugned order dated 29.02.2016 is
reproduced hereinbelow:
" No.03/97/2009-CL II (NR)
Government of India
Ministry of Corporate Affairs
5th Floor "A" Wing, Shastri Bhawan
Dr. R.P. Road, New Delhi
Dated: 29th February, 2016
ORDER
Whereas the Central Government is empowered under
Section 212 of the Companies Act, 2013 to order investigation
into the affairs of any company in Public Interest and to appoint
one or more competent persons as inspectors to investigate the
affairs of the company.
2. AND whereas there are very Serious Complaints against
the affairs of the company i.e. M/s Sunair Hotels Limited.
3. Now, therefore, in exercise of powers conferred under
Section 212(1)(c) of the Act, the Central Government hereby
orders investigation into the affairs of M/s Sunair Hotels
Limited, to be carried out by the Serious Fraud Investigation
office.
4. The Inspectors appointed by Director, SFIO to
investigate into the affairs of the above mentioned company,
shall exercise all the powers available to them under the
Companies Act, 2013. The inspectors shall complete their
investigation and submit the report to the Central Government
within a period of Six (6) months from the date of issue of this
order.
4. Further, if any information is required during the course
of Investigation, you are requested to depute some officer to co-
ordinate with the Ministry for obtaining the desired
documents/information.
5. This order is issued for and on behalf of the Central
Government.
Sd./-
(Swadhin Barua)
Joint Director"
4. The facts as are necessary for the adjudication of the present writ
petition are adumbrated hereinbelow:
a) The Petitioner Company is a Public Limited Company
incorporated under the Companies Act, 1956 (hereinafter
referred to as 'the 1956 Act').
b) VLS Finance Limited/Respondent No.2 (hereinafter
referred to as 'VLS') is one of the shareholders of the
Petitioner Company.
c) By way of Letter No. 7/123/99-CL.II, dated 05.07.1999,
Respondent No.1 ordered the inspection of books of
account etc., of the Petitioner Company, under the
provisions of section 209A of the 1956 Act. Pursuant to the
said inspection, violations/contraventions under the
following provisions were found to have been committed
by the Petitioner Company, as per the Inspection Report.
i. Section 227 of the 1956 Act read with provisions
under The Manufacturing and other Companies
(Auditor's Report) Order, 1988;
ii. Section 299 of the 1956 Act;
iii. Section 383(a) of the 1956 Act;
iv. Section 77 of the 1956 Act;
v. Section 193 of the 1956 Act;
vi. Section 211 of the 1956 Act;
vii. Section 212 of the 1956 Act;
viii. Section 217 of the 1956 Act; and
ix. Section 372 of the 1956 Act.
d) An FIR bearing No.90/2000, dated 14.02.2000, was
registered at Police Station, Connaught Place, Delhi, at the
instance of VLS, against the promoters of the Petitioner
Company. A chargesheet for the offences punishable under
the provisions of sections 406, 409, 420, 467, 468, 471,
477A, 120B of the Indian Penal Code, 1860 (hereinafter
referred to as 'IPC'), has been filed before the concerned
Court.
An FIR bearing No.99/2002, dated 19.02.2002, was also
registered at Police Station, Connaught Place, Delhi, at the
instance of VLS, against the promoters of the Petitioner
Company. A chargesheet for the offences punishable under
the provisions of sections 406, 409, 420, 424, 467, 468,
471, 477A, 120-B of the IPC, has been filed before the
concerned Court.
e) Further, at the instance of VLS, an FIR bearing
No.148/2002, dated 28.02.2002, was registered at Police
Station, Defence Colony, Delhi, against the promoters of
the Petitioner Company. A chargesheet for the offences
punishable under the provisions of sections 384, 406, 409,
417, 422, 465, 468, 471, 500, 120-B of the IPC, has been
filed before the concerned Court.
f) A writ petition being W.P.(Crl.) 1300/2004 also came to be
instituted by VLS, praying for directions of this Court for
registration of an FIR, qua the factum of stealing of 21
original files, prepared by Respondent No.1, in relation to
the Petitioner Company.
By way of its order dated 24.08.2005, this Court
directed the registration of an FIR in this behalf.
Consequently, FIR No.315/2005 for the offences
punishable under the provisions of sections 380, 411, 120-B
of the IPC was registered at Police Station, Naraina, Delhi.
Pursuant thereto, a chargesheet came to be filed before the
concerned Court.
g) VLS instituted a company petition being
C.P.No.45(ND)/1998 seeking investigation into the affairs
of the Petitioner Company. The Company Law Board,
Delhi (hereinafter referred to as 'CLB') vide order dated
13.06.2001, dismissed C.P.No.45(ND)/1998 filed by VLS.
An appeal, being Co.A.(SB) No.11/2001, was
preferred by VLS before this Court against the said order of
dismissal dated 13.06.2001. The Company Appeal came to
be disposed of vide order dated 16.12.2005 and the matter
was remanded back to CLB.
Subsequent to the matter being remanded back to the
CLB, the said C.P. No.45(ND)/1998 was again dismissed
vide dated 04.09.2013.
An appeal, being Co.A.(SB) 41/2013, has been
instituted by VLS challenging the order of the CLB dated
04.09.2013 and the same is pending adjudication before this
Court.
h) However, on 25.08.2003, an application being C.A.
No.172/2003, came to be filed by VLS before the CLB in
the said C.P. No.45(ND)/1998, under the provisions of
section 340, Code of Criminal Procedure, 1973, seeking a
preliminary inquiry into the purported violation of the
provisions under Sections 193, 196, 199, 200, 465, 467,
468, 471 read with 120-B of the IPC alleged to have been
committed inter alia by the Petitioner Company.
i) An intervention application dated 18.12.2003, came to be
filed by Respondent No.1, in the said C.P.
No.45(ND)/1998, also seeking investigation into the affairs
of the Petitioner Company under the provisions of section
237(b) of the 1956 Act. The said intervention application
was converted into C.P. No.1(ND)/2004 under section
237(b) of the 1956 Act.
The said C.P. No.1(ND)/2004 and Company
Application No.172/2003 came to be dismissed by the CLB
by way of its order dated 16.05.2007.
The said order dated 16.05.2007 was challenged by
VLS by way of an appeal being Co.A. (SB) 16/2007.
This Court dismissed Co.A. (SB) 16/2007 by way of
the order dated 23.04.2012.
The said order dated 23.04.2012 came to challenged
by way of SLP No.27437/2012 filed on behalf of VLS. SLP
No.27437/2012, was however dismissed in limine, by way
of order dated 21.01.2013, whilst granting liberty to the Ld.
CLB to take up the issue with regard to prayer for
investigation, under the provisions of section 237(b) of the
1956 Act.
j) On 31.08.2005, a writ petition, being W.P. (C) No.
14300/2005, came to be filed by VLS against the Petitioner
Company and Respondent No.1, seeking a direction therein
to the effect that Respondent No.1 be directed to initiate
appropriate proceedings under section 401 of the 1956 Act
against the Petitioner Company.
The said W.P. (C) No. 14300/2005 also came to be
dismissed by this Court by way of its order dated
16.11.2007. Thereafter, a Letters Patent Appeal No.
149/2008 came to be instituted by VLS in order to assail the
said order of this Court dated 16.11.2007. The said LPA
also came to be dismissed by way of the order dated
29.09.2008.
A Special Leave Petition being SLP No.3317/2009
came to be instituted by VLS, in order to challenge the said
order dated 29.09.2008 passed by the Division Bench of
this Court.
In the said proceedings in SLP No.3317/2009, the
Hon'ble Supreme Court, on 22.01.2016 directed
Respondent No.1 to file an affidavit clarifying whether it
would be initiating any proceedings or undertaking any
action against the Petitioner Company, in accordance with
law.
An affidavit dated 12.02.2016 came to be filed by
Respondent No.1 stating that they would be taking action
against the Petitioner Company, under the provisions of
section 212(1)(c) of the 2013 Act. Thereafter, Respondent
No.1 rendered the impugned order on 29.02.2016.
The investigation carried out by the SFIO has since
been concluded. The final report of investigation came to
be submitted by the SFIO on 31.10.2016 (hereinafter
referred to as 'SFIO Report') and the same has been placed
before this Court.
5. Mr. Suhail Dutt, learned senior advocate, appearing on behalf of
the Petitioner Company would contend firstly that the impugned order
dated 29.02.2016 is illegal, unjust & arbitrary, inasmuch as, it has been
rendered contrary to settled principles of law, as enunciated in the
decisions of the Hon'ble Supreme Court in Barium Chemicals & anr. v.
Company Law Board, reported as (1966) Supp SCR 311; Rohtas
Industries v. S.D. Aggarwal, reported as (1969) 1 SCC 325; and
Parmeshwar Das Agarwal v. The Additional Director (Investigation)
Serious Fraud Investigation Office, Ministry of Corporate Affairs and
Ors. reported as 2016 SCCOnline Bom 9276.
6. Mr. Suhail Dutt, Ld. Senior Advocate, would then urge that the
impugned order has been based on extraneous considerations, and that
there is no or inadequate material warranting the formation of an opinion
to order an investigation into the affairs of the Petitioner Company, in
the public interest, under the provisions of section 212 (1) (c) of the
2013 Act.
7. In order to buttress this submission, reliance would be placed on
the decisions in S. L. Verma v. Delhi Flour Mills Co. Ltd., reported as
(1975) DLT 226; and Ram Das Motors Transport Ltd. v. Tadi
Adhinarayana Reddy, reported as (1997) 5 SCC 446; and Parmeshwar
Das Agarwal (supra).
8. It would then be urged that the impugned order is unsustainable in
law, since it does not reflect the basis for the formation of the opinion of
Respondent No.1, to order an investigation into the affairs of the
Petitioner Company; and further, that reasons/basis for the formation of
opinion must be contemporaneous and cannot be
introduced/supplemented at a later stage, by way of an affidavit or
otherwise, as is being sought to be done in the present petition.
9. In support of this submission, reliance would be placed on the
dicta of the Hon'ble Supreme Court in Mohinder Singh Gill & Anr. v.
The Chief Election Commissioner, New Delhi, reported as AIR 1978 SC
851 and Ravi Yashwant Bhoir v. District Collector, Raigad & Ors.,
reported as (2012) 4 SCC 407.
10. Challenge to the impugned order would also be sought to be made
on behalf of the Petitioner Company, on the ground that the impugned
order is based on preconceived notions of Respondent No.1, and
therefore tantamount to a colourable exercise of discretionary power
conferred by virtue of the provisions under Section 212(1)(c) of the
2013 Act.
11. In order to fortify this submission, learned senior advocate would
rely upon the decision rendered by the Hon'ble Supreme Court in
Collector (District Magistrate) Allahabad and Anr. v. Raj Ram Jaiswal,
reported as (1985) 3 SCC 1.
12. It would then be urged that the impugned order has been rendered
contrary to the principles of protection against double-jeopardy, since
various legal proceedings instituted assailing the conduct of affairs of
the Petitioner Company have either, already been adjudicated &
dismissed before various legal fora; or are sub-judice.
13. It would then be urged that the SFIO Report, cannot be looked at
by this Court in order to determine whether the impugned order is
sustainable in law or not.
14. In order to buttress this submission, learned Senior Counsel would
seek to place reliance upon the decision of the Hon'ble Supreme Court in
Ashok Kumar Aggarwal (supra). In order to further fortify this
contention, learned Senior Counsel would also seek to place reliance on
the principles of the doctrine of excluding the 'fruit of poisonous tree'
and the decision of the Hon'ble Supreme Court in Smt. Selvi v. State of
Karnataka, reported as (2010) 7 SCC 263.
15. Per contra, Mr. Bhardwaj, learned Central Government Standing
Counsel, appearing on behalf of Respondent No.1 would firstly urge that
the Petitioner Company has not approached the Court with clean hands
and that the present writ petition has been instituted in order to scuttle
the process of investigation directed by way of the impugned order.
16. In order to controvert the submissions of the Petitioner Company
that there was no fresh material available with the Respondent No.1 for
the formation of the opinion as found in the impugned order; it would be
urged that investigation has been directed into the affairs of the
Petitioner Company on the basis of fresh complaints received from
various stakeholders post the year 2013, and keeping in view the grave
allegations made therein qua offences punishable under the 1956 Act,
2013 Act and the IPC.
17. It would be strongly urged on behalf of the Petitioner Company
that the impugned order is the manifestation of judicious exercise of
power conferred by the provisions under Section 212(1) of the 2013 Act,
in public interest, which is prima facie being prejudiced by the acts of
commission by the Petitioner Company.
18. Mr. Dayan Krishnan, learned senior advocate, appearing on behalf
of VLS, would at the outset urge that in view of the circumstance that
investigation has already been concluded by the SFIO and a report dated
31.10.2016 in this behalf has already been rendered, the present writ
petition has been rendered infructuous.
Mr. Dayan Krishnan, learned senior advocate, would then invite
the attention of this Court to the orders passed by the Hon'ble Supreme
Court in SLP (C) No. 3317/2009, to further challenge the maintainability
of the present writ petition.
19. Mr. Dayan Krishnan, learned senior counsel, would next urge that
there was sufficient material before Respondent No.1 for them to form
an opinion that an investigation by the SFIO was required to be
conducted into the affairs of the Petitioner Company, in the public
interest.
20. It would then be submitted that the expression "is of the opinion"
under the provisions of section 212(1)(c) of the Companies Act, 2013, is
indicative of the requirement of a prima facie opinion and not
conclusive proof.
21. In this behalf, it would also be argued that the test laid down by
the Hon'ble Supreme Court in Rohtas Industries (supra) and Barium
Chemicals (supra) was rendered with respect to section 237 of the 1956
Act and the same has no application in the present case, inasmuch as, the
provisions of the two sections viz. Section 237 of the 1956 Act and
Section 212 of the 2013 Act, are not pari materia. Mr. Dayan Krishnan
would also urge that the ratio of the decision in Parmeshwar Das
Agarwal (supra) is not attracted to the factual matrix of the present case.
22. It would be also argued that, the report of the SFIO has unearthed
numerous violations committed by the Petitioner Company, punishable
under the 1956 Act, 2013 Act and the IPC; which fortify the opinion of
Respondent No.1, rendered by way of the impugned order.
23. Seeking to counter the submission made on behalf of the
Petitioner Company, it would be urged on behalf of VLS, that this Court
ought to consider the report of the SFIO placed before it, in terms of the
directions of the Hon'ble Supreme Court vide order dated 22.07.2016, in
order to effectively adjudicate the instant petition on its merits.
24. I have heard the rival contentions of the learned counsel appearing
on behalf of the parties, examined the documents, and perused the
official record placed before me in a sealed cover.
25. The main issue that arises for consideration in the present petition,
falls within a narrow compass. The main issue that arises for
consideration is, whether the formation of the opinion by Respondent
No.1/Ministry of Corporate Affairs, Union of India, to order an
investigation by the SFIO into the affairs of the Petitioner Company, in
the public interest, is bad in law on account of the
insufficiency/inadequacy of the material that forms the basis of the said
opinion.
26. It would first be pertinent to address the issue of maintainability
raised on behalf of VLS, qua the instant petition. It would also be
necessary and expedient to address the contention made on behalf of the
Petitioner Company, that this Court ought not to consider the final report
of the investigation (SFIO Report), in determining the present petition.
27. In this behalf, it would be relevant to refer to the directions of the
Hon'ble Supreme Court, rendered in the Interim Application No.5 of 2016
in Special Leave Petition (Civil) No.3317 of 2009, on 05.12.2016. The said
order dated 05.12.2016 is reproduced as hereunder:
"I.A. NO.5 OF 2016 IN SLP(C) NO.3317 OF 2009
I.A. No.5 of 2016 in Special Leave Petition (Civil)
No.3317 of 2009 is dismissed with the observation that
the High Court is free to decide the matter as it considers
appropriate in the light of the order dated 22nd July, 2016
passed by this Court in Special Leave Petition (Civil)
No.3317 of 2009, which is self explanatory."
28. The order dated 22.07.2016 rendered by the Hon'ble Supreme
Court in SLP(C) NO.3317 OF 2009, is reproduced hereinbelow for the
sake of convenience.
" Permission to file additional documents is granted.
Having heard the learned counsels for the parties and
on perusal of the material on record, we are of the view
that the following order should govern the matter for the
present :-
(i) The investigation by the Serious Fraud Investigation
Office (SFIO) which has already been ordered by the
Ministry of Corporate Affairs vide its Order dated 29th
February, 2016 shall be concluded on or before 31st
October, 2016.
(ii) The High Court is requested to dispose of the writ
petition challenging the order directing the aforesaid
investigation by the end of November, 2016 after the
report of investigation is placed before it, meaning
thereby if the report of investigation is in favour of
respondent No.2 (Sunair Hotels Ltd.), the High Court may
not have any occasion to go into the merits of the writ
petition.
(iii) We further direct that until appropriate final orders
are passed by the High Court in terms of the present
direction, the result of the investigation shall not be given
effect to.
List the matter again in the first week of December,
2016."
(Emphasis supplied.)
29. On a conjoint reading of the directions of the Hon'ble Supreme
Court in the above-extracted orders dated 22.07.2016 and 05.12.2016,
the following is abundantly clear:
a) This Court has been called upon to adjudicate the issues arising in
the present writ petition, as this Court considers appropriate, in
accordance with law, after the SFIO Report has been placed
before this Court; and
b) In the event the SFIO Report is rendered in favour of the
Petitioner Company herein (Sunair Hotels Limited), this Court
need not go into the merits of the present writ petition.
30. In other words, in the event the SFIO report is against the
Petitioner Company, the present writ petition has to be determined on its
merits; and after due consideration thereof, as this Court deems
appropriate.
31. In the alternative, the present writ petition would automatically be
rendered infructuous in the event the SFIO report is in favour of the
Petitioner Company.
32. Therefore, in my considered view, in keeping with the directions
of the Hon'ble Supreme Court, as contained in the orders dated
22.07.2016 and 05.12.2016; it would be necessary to consider the final
report of investigation dated 31.10.2016, submitted by the SFIO, whilst
adjudicating the present petition on its merits.
33. I would now proceed to deal with the main issue that arises for
consideration in the present writ petition.
34. For effective adjudication of the present petition, it would be
relevant to consider the principles of law enunciated with regard to the
provision of sub-section (1) of section 212, under Chapter XIV of the
2013 Act. The said provision is reproduced hereinbelow for the sake of
convenience:
"Section 212
Investigation into the affairs of the Company by
Serious Fraud Investigation Office.
(1) Without prejudice to the provisions of section 210,
where the Central Government is of the opinion, that it is
necessary to investigate into the affairs of a company by
the Serious Fraud Investigation Office-
(a) on receipt of a report of the Registrar or inspector
under section 208;
(b) on intimation of a special resolution passed by a
company that its affairs are required to be investigated;
(c) in the public interest; or
(d) on request from any Department of the Central
Government or a State Government,
the Central Government may, by order, assign the
investigation into the affairs of the said company to the
Serious Fraud Investigation Office and its Director, may
designate such number of inspectors, as he may consider
necessary for the purpose of such investigation."
35. Akin to the family of provisions under Chapter XIV of the 2013
Act, are the allied provisions under section 234 to section 251 of the
1956 Act.
36. A seemingly similar provision, to the provision under section 212
of the 2013 Act, is under section 237 of the 1956 Act. The provisions of
section 237 of the 1956 Act are reproduced hereinbelow for the sake of
convenience.
"Section 237.
Investigation of company's affairs in other cases.
Without prejudice to its powers under section 235, the Central
Government-
(a) shall appoint one or more competent persons as inspectors
to investigate the affairs of a company and to report thereon in
such manner as the Central Government may direct, if-
(i) the company, by special resolution; or
(ii) the Court, by order, declares that the affairs of the company
ought to be investigated by an inspector appointed by the
Central Government; and
(b) may do so if, in the opinion of the Company Law Board
there are circumstances suggesting--
(i) that the business of the company is being conducted with
intent to defraud its creditors, members or any other persons, or
otherwise for a fraudulent or unlawful purpose, or in a manner
oppressive of any of its members, or that the company was
formed for any fraudulent or unlawful purpose;
(ii) that persons concerned in the formation of the company or
the management of its affairs have in connection therewith
been guilty of fraud, misfeasance or other misconduct towards
the company or towards any of its members; or
(iii) that the members of the company have not been given all
the information with respect to its affairs which they might
reasonably expect, including information relating to the
calculation of the commission payable to a managing or other
director, or the manager, of the company."
37. In Parmeshwar Das (supra), the Hon'ble Supreme Court, whilst
deciding the issue with regard to the correctness of the order rendered by
the Central Government under the provisions of section 212(1)(c) of the
2013 Act, observed as hereinbelow:
"31. The Indian Companies Act, 1956 (for short "1956
Act") and The Companies Act, 2013 (for short "2013 Act")
are both enacted to consolidate and amend the law relating
to companies and certain other associations. As far as the
2013 Act is concerned, on its initial enactment and later on
its amendment, it has been clarified that the legislation
relating to incorporation and registration of companies had
to be consolidated and brought in tune with the current
situation prevailing in the country and abroad. Several
provisions had to be introduced which were hitherto not
introduced. As far as the power and referable to the
provisions of these two enactments are concerned, their
basic foundation remains the same."
(Emphasis supplied.)
38. A plain reading of the above-extracted paragraph of the report
makes it evident that the object and purpose of the enactment of sections
212 of the 2013 Act and 237 of the 1956 Act, was the same.
39. Broadly, akin to the object of enactment of section 237 of the
1956 Act, the aim and purpose of enactment of section 212 and other
allied sections under Chapter XIV of the 2013 Act, is to prevent a
company from acting in a manner prejudicial to the interests of the
shareholders, and further, to enable the Central Government to assume
power to step in where there is reason to suspect that a company may be
conducting its affairs in a manner prejudicial to the public interest at
large.
40. In view of the foregoing, the argument advanced on behalf of
VLS that since investigation has been ordered under section 212 of the
2013 Act, the decisions pertaining to section 237 of the 1956 Act, relied
upon by the Petitioner Company, would not apply to the facts of the
instant case, is found erroneous and thus, rejected.
41. The Hon'ble Supreme Court, has, on various occasions, rendered
observations on the vires & scope of the provision under section 237
under the 1956 Act and the ambit of powers of the Central Government
under the said provision. It would be profitable to refer to the rulings of
the Hon'ble Supreme Court in Rohtas Industries (supra) and Barium
Chemicals (supra).
42. Whilst upholding the challenge to the impugned order passed
under the provisions of section 237 of the 1956 Act, and relying on the
principles enunciated in the decision in Barium Chemicals (supra), the
Hon'ble Supreme Court, in Rohtas Industries (supra) observed as
hereinbelow:
"Hegde, J.
4. The Regional Director in his letter of 10th November,
1961, had given the market quotations for the ordinary shares
of Albion Plywoods Ltd., on some of the dates in May, 1960.
According to him those quotation were gathered from "Indian
Finance". Evidently as he was inquiring into the complaint
made against the New Central Jute Mills Go. Ltd., he did not
mention the market quotations for the shares in question either
on May 6, 1960, or immediately before that date. During the
hearing of these appeals an affidavit has been filed on behalf of
the appellant stating that the market quotation of the ordinary
share in the Albion Plywoods Ltd. on May 6, 1960, or
immediately before that date was Rs 11. Along with that
affidavit, the relevant copy of the Indian Finance was
produced. It was not disputed before us that the market
quotations for the ordinary shares of Albion Plywoods Ltd., on
or immediately before May 6, 1960, was Rs 11 per share. At
this stage it may be mentioned that though the Under Secretary
to the Government required the Regional Director to find out
the names of the partners of Bagla and Co. and whether the
brokers who dealt with the shares were actively associated with
Sahu Jain, it does not appear that the Regional Director
supplied those informations. Admittedly there was no material
before the Government when it issued the impugned order
from which it could have reasonably drawn the conclusion that
the transaction in favour of Bagla and Co. was either a nominal
transaction or was made with a view to profit the Directors of
the appellant-company or their relations. According to Mr
Attorney-General the only circumstance on the basis of which
the Government passed the impugned order was the sale of
3,000 preference shares of Albion Plywoods Ltd., held by the
appellant company though, according to him, the Government
viewed that circumstance in the background of the various
complaints received by it against Mr S.P. Jain who was at that
time one of the prominent Directors of the appellant company,
New Central Jute Mills Co. Ltd. and Albion Plywoods Ltd., as
well as the report made by the Vivian Base Commission which
inquired into the affairs of some of the companies with which
Mr S.P. Jain was connected. Admittedly Vivian Bose
Commission did not inquire into the affairs of the appellant-
company nor does its report contain anything about the
working of that company nor was there any complaint against
the appellant company excepting that made in Annexure "A".
On the basis of the above facts, we have now to see
whether the Government was competent to pass the impugned
order. Sections 235 to 237 of the Act are allied sections and
they form a scheme. They deal with the investigation of the
affairs of the company. To find out the true scope of Section
237(b), it is necessary to take into consideration the provisions
contained in Sections 235 as well as 236. They read:
**********
**********
The power conferred on the Central Government under
Section 235 as well as under Section 237(b) is a discretionary
power, whereas the Central Government is bound to appoint
one or more competent persons as Inspectors to investigate the
affairs of a company and to report thereon in such manner as
the Central Government may direct if the company by special
resolution or the court by order declares that that the affairs of
the company ought to be investigated by an Inspector
appointed by the Central Government [237(a)(i)(ii)]. It may be
noted that before the Central Government can take action under
Section 235, certain preconditions have to be satisfied. In the
case of an application by members of the company under
clause (a) or (b) of Section 235, the same will have to be
supported by such evidence as the Central Government may
require for the purpose of showing that the applicants have
good reasons for requiring the investigation, and the Central
Government may, before appointing an Inspector, require the
applicant to give security for such amount not exceeding Rs
1000, as it may think fit for payment of the costs of the
investigation. From the provisions contained in Sections 235
and 236, it is clear that the legislature considered that
investigation into the affairs of a company is a very serious
matter and it should not/ be ordered except on good grounds. It
is true that the investigation under Section 237(b) is of a fact-
finding nature. The report submitted by the Inspector does not
bind anybody. The Government is not required to act on the
basis of that report, the company has to be called upon to have
its say in the matter but yet the risk--it may be a grave one--is
that the appointment of an Inspector is likely to receive much
press publicity as a result of which the reputation and prospects
of the company may be adversely affected. It should not
therefore be ordered except on satiafactory grounds.
5. Before taking action under Section 237(b)(i) and (ii), the
Central Government has to form an opinion that there are
circumstances suggesting that the business of the company is
being conducted with intent to defraud its creditors, members
or any other persons, or otherwise for a fraudulent or unlawful
purpose or in a manner oppressive to any member or that the
company was formed for any fraudulent or unlawful purpose or
that the persons concerned in the formation or the management
of its affairs have in connection therewith been guilty of fraud,
misfeasance or other misconduct towards the company or
towards any of its members.
From the facts placed before us, it is clear that the
Government had not bestowed sufficient attention to the
material before it before passing the impugned order. It seems
to have been oppressed by the opinion that it had formed about
Shri S.P. Jain. From the arguments advanced by Mr Attorney,
it is clear that but for the association of Mr S.P. Jain with the
appellant company, the investigation in question, in all
probabilites would not have been ordered. Hence, it is clear
that in making the impugned order irrelevant considerations
have played an important part.
The power under Sections 235 to 237 has been conferred
on the Central Government on the faith that it will be exercised
in a reasonable manner. The department of the Central
Government which deals with companies is presumed to be an
expert body in company law matters. Therefore the standard
that is prescribed under Section 237(b) is not the standard
required of an ordinary citizen but that of an expert. The
learned Attorney did not/dispute the position that if we come to
the conclusion that no reasonable authority would have passed
the impugned order on the material before it, then the same is
liable to be struck down. This position is also clear from the
decision of this Court in Barium Chemicals v. Company Law
Board [(1966) Supp SCR 311] .
It was urged by Mr Setalvad, learned Counsel for the
appellant, that clause (b) of Section 237 prescribes two
requirements, i.e. (1) the requisite opinion of the Central
Government and (2) the existence of circumstances suggesting
that the company's business was being conducted as laid down
in sub-clause (1) or that the persons mentioned in sub-clause
(2) were guilty of fraud, misfeasance or misconduct towards
the company or any of its members. According to him though
the opinion to be formed by the Central Government is
subjective, the existence of circumstances set out in clause (b)
is a condition precedent to the formation of such opinion and
therefore the fact that the impugned order contains recitals of
the existence of those circumstances, does not preclude the
court from going behind those recitals and determining whether
they did in fact exist and further whether the Central
Government in making that order had taken into consideration
any extraneous consideration. But according to the learned
Attorney the power conferred on the Central Government
under clause (b) of Section 237 is a discretionary power and
the opinion formed, if in fact an opinion as required by that
section has been formed, as well as the basis on which that
opinion has been formed are not open to judicial review. In
other words according to the learned Attorney no part of
Section 237(6) is open to judicial review; the matter is
exclusively within the discretion of the Central Government
and the statement that the Central Government had formed the
required opinion is conclusive of the matter.
6. The decision of this Court in Barium Chemicals
case which considered the scope of Section 237(b) illustrates
that difficulty. In that case Hidayatullah, J., (our present Chief
Justice) and Shelat, J., came to the conclusion that though the
power under Section 237(b) is a discretionary power the first
requirement for its exercise is the honest formation of an
opinion that the investigation is necessary and the further
requirement is that "there are circumstances suggesting" the
inference set out in the section; an action not based on
circumstances suggesting an inference of the enumerated kind
will not be valid; the formation of the opinion is subjective but
the existence of the circumstances relevant to the inference as
the sine qua non for action must be demonstratable; if their
existence is questioned, it has to be proved at least prime facie;
it is not sufficient to assert that those circumstances exist and
give no clue to what they are, because the circumstances must
be such as to lead to conclusions of certain definiteness; the
conclusions must relate to an intent to defraud, a fradulent or
unlawful "purpose, fraud or misconduct. In other words they
held that although the formation of opinion by the Central
Government is a purely subjective process and such an opinion
cannot be challenged in a court on the ground of propriety,
reasonableness or sufficiency, the authority concerned is
nevertheless required to arrive at such an opinion from
circumstances suggesting the conclusion set out in sub-clauses
(i), (ii) and (iii) of Section 237(b) and the expression
"circumstances suggesting" cannot support the construction
that even the existence of circumstances is a matter of
subjective opinion. Shelat, J., further observed that it is hard to
contemplate that the legislature could have left to the
subjective process both the formation of opinion and also the
existence of circumstances on which it is to be founded; it is
also not reasonable to say that the clause permitted the
authority to say that it has formed the opinion on circumstances
which in its opinion exist and which in its opinion suggest an
intent to defraud or a fraudulent or unlawful purpose.
Courts both in this country as well as in other
Commonwealth countries had occasion to consider the scope of
provisions similar to Section 237(6). Judicial dicta found in
some of those decisions are difficult of reconciliation.
On the other hand Sarkar, C.J., and Mudholkar, J., held that
the power conferred on the Central Government under Section
237(a) is a discretionary power and no facet of that power is
open to judicial review. Our Brother Bachawat, J., the other
learned Judge in that Bench did not express any opinion on this
aspect of the case. Under these circumstances it has become
necessary for us to sort out the requirements of Section 237(b)
and to see which of the two contradictory conclusions reached
in Barium Chemical' case is in our judgment, according to law.
But before proceeding to analyse Section 237(b) we should like
to refer to certain decisions cited at the bar bearing on the
question under consideration.
*******
*******
The decision of the House of Lords in Badfields v. Minister
of Agriculture, Fisheries and Food, [(1968) 1 All ER 694] is of
considerable importance. Therein the material facts are these:
*******
*******
9. The appeal was allowed by the House of Lords (Lords
Morris of Borth-Y-Gest dissenting). Lord Reid and Lord
Pearce held that where a statute conferring a discretion on a
Minister to exercise or not to exercise a power did not
expressly limit or define the extent of his discretion and did not
require him to give reasons for declining to exercise the power,
his discretion might nevertheless be limited to the extent that it
must not be so used, whether by reason of misconstruction of
the statute or other reason, as to frustrate the object of the
statute which conferred it. Lord Hodson and Lord Upjohn held
that although the Minister had full or unfettered discretion
under Section 19(3) of the Agricultural Marketing Act, 1958,
he was bound to exercise it lawfully viz not to misdirect
himself in law, nor to take into account irrelevant matters, nor
to omit relevant matters from consideration.
In the course of his speech Lord Hodson made the
following observations:
"If the Minister has a complete discretion under the Act of
1958, as in my opinion, he has, the only question remaining is
whether he has exercised it lawfully. It is on this issue that
much difference of judicial opinion has emerged, although
there is no divergence of opinion on the relevant law. As Lord
Denning, M.R., said citing Lord Greene, M.R., in Associated
Provincial Picture Houses Ltd. v. Wednesbury
Corporation [(1947) 2 All ER 682] .
'a person entrusted with a discretion must direct himself
properly in law. He must call his own attention to the matters
which he is bound to consider. He must exclude from his
consideration matters which are irrelevant to the matter that he
has to consider'.
Lord Pearce in his speech observed:
"If all the prima facie reasons seem to point in favour of his
taking a certain course to carry out the intentions of Parliament
in respect of a power which it has given him in that regard, and
he gives no reason whatever for taking a contrary course, the
court may infer that he has no good reasons and that he is not
using the power given by Parliament to carry out its intentions.
In the present case however the Minister has given reasons
which show that he was not exercising his discretion in
accordance with the intentions of the Act of 1958.
In the present case it is clear that Parliament attached
considerable importance to the independent committee of
investigation as a means to censure that injustices were not
caused by the operation of a compulsory scheme."
Lord Upjohn observed:
"My Lords, on the basic principles of law to be applied
there was no real difference of opinion, the great question
being how they should be applied to this case. The Minister in
exercising his powers and duties conferred on him by statute
can only be controlled by a prerogative order which will only
issue if he acts unlawfully. Unlawful behaviour by the Minister
may be stated with sufficient accuracy for the purposes of the
present appeal (and here I adopt the classification of Lord
Parker, C.J., in the divisional court): (a) by an outright refusal
to consider the relevant matter; or (b) by misdirecting himself
in point of law, or (c) by taking into account some wholly
irrelevant or extraneous consideration, or (d) by wholly
omitting to take into account a relevant consideration. There is
ample authority for these propositions which were not
challenged in argument. In practice they merge into one
another and ultimately it becomes a question whether for one
reason or another the Minister has acted unlawfully in the sense
of misdirecting himself in law, that is, not merely in respect of
some point of law but by failing to observe the other headings
which I have mentioned."
11. Coming back to Section 237(b), in finding out its true
scope we have to bear in mind that that section is a part of the
scheme referred to earlier and therefore the said provision takes
its colour from Sections 235 and 236. In finding out the
legislative intent we cannot ignore the requirement of those
sections. In interpreting Section 237(b) we cannot ignore the
adverse effect of the investigation on the company. Finally we
must also remember that the section in question is an inroad on
the powers of the company to carry on its trade or business and
thereby an infraction of the fundamental right guaranteed to its
shareholders under Article 19(1)(g) and its validity cannot be
upheld unless it is considered that the power in question is a
reasonable restriction in the interest of the general public. In
fact the vires of that provision was upheld by majority of the
Judge s constituting the Bench in Barium Chemicals case
principally on the ground that the power conferred on the
Central Government is not an arbitrary power and the same has
to be exercised in accordance with the restraints imposed by
law. For the reasons stated earlier we agree with the conclusion
reached by Hidayatullah and Shelat, JJ. in Barium
Chemicals case that the existence of circumstances suggesting
that the company's business was being conducted as laid down
in sub-clause(1) or the persons mentioned in sub-clause (2)
were guilty of fraud or misfeasance or other misconduct
towards the company or towards any of its members is a
condition precedent for the Government to form the required
opinion and if the existence of those conditions is challenged,
the courts are entitled to examine whether those circumstances
were existing when the order was made. In other words, the
existence of the circumstances in question are open to judicial
review though the opinion formed by the Government is not
amenable to review by the courts. As held earlier the required
circumstances did not exist in this case.
Bachawat, J.
4. The law recognises certain well recognised principles
within which the discretionary power under Section 237(b)
must be exercised. There must be a real exercise of the
discretion. The authority must be exercised honestly and not
for corrupt or ulterior purposes. The authority must form the
requisite opinion honestly and after applying its mind to the
relevant materials before it. In exercising the discretion the
authority must have regard only to circumstances suggesting
one or more of the matters specified in sub-clauses (i),
(ii) and (iii). It must act reasonably and not capriciously or
arbitrarily. It will be an absurd exercise of discretion, if, for
example, the authority forms the requisite opinion on the
ground that the Director in charge of the company is a member
of a particular community. Within these narrow limits the
opinion is not conclusive and can be challenged in a court of
law. Had Section 237(b) made the opinion conclusive, it might
be open to challenge as violative of Articles 14 and 19 of the
Constitution, see Corporation of Calcutta v. Calcutta
Tramways Co. Ltd [(1964) 5 SCR 25] distinguishing Joseph
Kuruville Vellukunnel v. Reserve Bank of India [(1962) Supp 3
SCR 632] . Section 237(b) is not violative of Articles 14 and
19.
5. If it is established that there were no materials upon
which the authority could form the requisite opinion the court
may infer that the authority did not apply its mind to the
relevant facts. The requisite opinion is then lacking and the
condition precedent to the exercise of the power under Section
237(b) is not fulfilled. On this ground I interfered with the
order under Section 237(b) in Barium Chemicals v. Company
Law Board [(1966) Supp 3 SCR 949] .
6. Let me recall the words of Section 237(b): "If, in the
opinion of the Central Government, there are circumstances
suggesting...." The relevant matter is "the opinion of the
Central Government ". The condition precedent to the exercise
of power under Section 237(b) is the opinion of the
Government and not the existence of the circumstances
suggesting one or more of the specified matters. To hold that
the factual existence of such matters is a condition precedent to
the exercise of the power is to re-write the Section. Section
237(b) must be interpreted in the light of its own language and
subject-matter. We miss its real import if we begin by referring
to the construction put by other Judge s on other statutes
perhaps similar but not the same. The decisions are useful
when they lay down principles of interpretation or give the
meaning of the words which have become terms of Art."
43. Further, in Parmeshwar Das (supra) the Hon'ble Supreme Court,
whilst relying on the dictum in Rohtas Industries (supra) has also
observed as hereinbelow, in this behalf:
"32. As far as the 1956 Act is concerned, the same contains
provision enabling the Central Government to act upon a report
made by the Registrar under sub-section (6) of section 234 or sub-
section (7) of section 234 read with subsection (3) thereof and
appoint one or more competent persons as Inspectors to investigate
into the affairs of the company and to report thereon in such manner
as the Central Government may direct. The further powers in terms
of section 236 enables members of the company to approach the
Central Government for causing an investigation to be made. That is
a situation dealt with by section 236. Without prejudice to the
powers under section 235, the Central Government independently
can direct investigation, but that is in other cases. The said power is
to be found in section 237.
35. ... As far as these provisions are concerned, the Hon'ble
Supreme Court of India had an occasion to examine their ambit and
scope. The first decision that is referred to by Mr. Godbole is in the
case of Rohtas Industries (supra). Rohtas Industries was a case
where the company having its registered office at Dalmianagar in
Bihar was alleged to have conducted its affairs with intent to defraud
its creditors, members or other persons and the persons concerned in
the management of its affairs have in connection therewith been
guilty of fraud, misfeasance, or other misconduct towards the
company or its members. Therefore, the power under section 235
was exercised in relation to that company by the Central
Government. The argument before the Hon'ble Supreme Court was
that the Central Government had no material before it from which it
could have come to the conclusion that the business of the appellant-
company is being conducted with intent to defraud its creditors,
members or other persons or the persons concerned in the
management of its affairs having connection therewith being guilty
of fraud, misfeasance etc. The challenge was raised before the Patna
High Court. The Patna High Court dismissed the writ petition
holding that the opinion formed by the Central Government under
section 237(b) of the 1956 Act is not open to judicial review and that
is conclusive. It is that decision which was challenged in the Hon'ble
Supreme Court. After stating the facts in great details and the rival
contentions, the Hon'ble Supreme Court set out both the provisions,
namely, from section 235 to section 237 and held as under:
******
******
40. Thus, the principle is that there has to be an opinion formed.
That opinion may be subjective, but the existence of circumstances
relevant to the inference as to the sine qua non for action must be
demonstrable. It is not reasonable to hold that the clause permits the
Government to say that it has formed an opinion on circumstances
which it thinks exist. Since existence of circumstances is a condition
fundamental to the making of the opinion, when questioned the
existence of these circumstances have to be proved at least prima
facie.
******
******
46. A bare perusal of this order would indicate that the Central
Government has referred to the report dated 13th January, 2016, but
completely misread and misinterpreted it. It has not recommended
any investigations to be made under the Companies Act, 1956 or
2013. If at all the investigations are to be made in terms of this
recommendatory report, or suggestion therein, that is for the multiple
disciplinary authorities to find out misutilisation of bank finances
and other violations of law. The respondents ought be aware that
there is a difference in the language of the two relevant sections,
namely, section 210 and section 212.
47. Section 210 falling in the same Chapter XIV titled Inspection,
Inquiry and Investigation contains these two sections. Section 210
confers a discretion in the Central Government to order an
investigation into the affairs of the company and that power has to
be exercised if there is an order passed by a Court or a Tribunal in
any proceedings before it to the effect that the affairs of a company
ought to be investigated. Thus sub-section (1) of section 210 confers
a discretion while sub-section (2) is mandatory in terms. By sub-
section (3) and when the Central Government orders an investigation
into the affairs of the company, it may appoint one or more persons
as Inspectors so as to carry out this task and to report thereon in such
manner as the Central Government may direct. By section 212 the
seventeen sub-sections thereof enable investigation into the affairs of
a company by Serious Fraud Investigation Office. This power is
without prejudice to the provisions of section 210. This power is to
be exercised if the Central Government is of the opinion that it is
necessary to investigate into the affairs of a company by the SFIO.
Therefore, the power to investigate into the affairs of company is
common to both provisions. In the former there are three clauses (a)
to (c) in sub-section (1) of section 210 and the investigation is to be
carried out by the Central Government by appointing Inspectors and
there is a discretion in that behalf. This power is stated to be akin to
section 235 of the 1956 Act. The latter enables investigations into
the affairs of a company by the SFIO and there is one more clause
(d) in sub-section (1) of section 212 where the Central Government
can act on a request from any department of the Central Government
or a State Government. Therefore, in a given case there could be an
action initiated on the request of the Central Vigilance Commission
or based on its recommendations. However, by its very title, the
investigation under section 212 by the SFIO ought to be on the basis
of the opinion of the Central Government that it is necessary to
investigate into the affairs of the company by SFIO. That opinion
has to be based on the report of the Registrar or Inspector under
section 208; on intimation of a special resolution passed by a
company that its affairs are required to be investigated; in the public
interest or on the request from any department of the Central
Government or the State Government. By section 211, the SFIO is
established to investigate frauds relating to a company. It is a very
special office and headed by a Director and consists of such number
of experts from the fields enumerated in subsection (2) of section
211 to be appointed by the Central Government from amongst
persons of ability, integrity and experience. The wide powers that
this office enjoys, as is set out in various sub-sections of section 212,
would denote as to how its involvement comes after the
investigations are assigned to it by the Central Government. By their
very nature the investigations into frauds relating to a company have
to be assigned. They have to be of such magnitude and seriousness
demanding involvement of experts in the fields enumerated in sub-
section (2) of section 211. Therefore, while exercising the powers
under sub-section (1) of section 212, the Central Government ought
to be not only forming an opinion about the necessity to investigate
into the affairs of the company, but further that such investigations
have to be assigned to the SFIO.
48. We do not think that there were materials in the present case and
which can be termed as enough to warrant the exercise of power by
the Central Government by resorting to section 212(1) of the Act of
2013. The Central Government, in the order under challenge, did not
spell out any circumstances, except outlining its power under the
above sections to order investigation into the affairs of a company in
public interest. None disputes that power or its existence. In para 2
of the impugned order, however, a reference is made to the report of
the Registrar of Companies, West Bengal, dated 13th January, 2016.
We have already held that the findings in this report are not enough
for the Central Government to exercise the drastic power. Something
more was required and to be established as circumstances or material
enough for exercise of the power. That is clearly lacking in this case.
49. This is the only basis, namely, the report of the Registrar of
Companies, West Bengal, or its contents which has enabled the
Central Government to exercise its powers under section 212(1)(c).
It is, therefore, apparent that it has not necessarily acted in terms of
its power conferred by section 212 to direct investigation into the
affairs of the company in public interest. The foundation for
reaching the opinion or satisfaction is the report of the Registrar. We
have referred to the details in that report and we are of the firm
opinion that based on that the Central Government could not have
recorded a satisfaction or an opinion that investigation into the
affairs of the company are necessary. There is no element of public
interest which is projected, save and except some vague and general
references to certain allegations in matters of bank finance and
allotment of coal mines and alleged diversion of raw materials.
There has been absolutely no details furnished nor referred in the
report. Rather, the report proceeds on the basis that as far as these
issues are concerned nothing can be done by the Ministry of
Corporate Affairs or the Registrar of Companies. We fail to
understand, therefore, how in the present facts and circumstances
and based on allegations and counter allegations between two groups
of shareholders can it be even held that it is necessary in public
interest to direct an investigation into the affairs of the company.
Once we reach the conclusion that there is lack of requisite material
to arrive at the requisite opinion or record the necessary satisfaction,
then, in exercise of our powers of judicial review, we can safely
quash and set aside the impugned order. We find that the opinion
recorded or the satisfaction reached is vitiated by total non
application of mind. None of the factors which are germane and
relevant for forming the opinion have been referred. The opinion or
satisfaction is based only on the complaint of the Member of
Parliament to the CVC and with regard to which report was called
for from the Registrar. Even the contents of that report have been, as
held above, misread and totally misinterpreted. Based on that no
opinion could have been recorded that it is necessary to investigate
the affairs of the company in public interest."
44. On a conspectus of the aforesaid decisions, relevant paragraphs of
which have been extracted hereinabove; the following legal position
emerges:
i. Discretionary power has been conferred upon the Central
Government under the relevant provisions of the Act, to order an
investigation into the affairs of the company;
ii. The object of vesting such a power upon the Central Government,
under the Statute, is to enable the Central Government to assume
the power to step in where there is reason to suspect that a
company may be conducting its affairs in a manner prejudicial to
the interests of its shareholders or the public at large.
iii. However, the discretionary power must not be exercised by the
Central Government, in a manner that, by reason of
misconstruction of the statute or other reason, would lead to
frustrating the object of the statute conferring the discretion.
iv. In order to exercise this discretion reasonably and lawfully, the
Central Government is required to formulate an opinion that an
investigation into the affairs of the company is necessary;
v. The opinion must be an honest opinion, rendered after bestowing
sufficient attention to the relevant material/circumstances
available before the Central Government; and
vi. The opinion must not be based on a wholly irrelevant or
extraneous consideration.
vii. The materials/circumstances based on which the opinion to order
an investigation has been rendered, have to prima facie, show that
the inferences drawn from the facts in the materials/circumstances
led to conclusions of certain definiteness. In other words, the
existence of material for formation of an opinion is a sine qua non
and the same must be prima facie demonstrable, in case the
opinion is challenged before a Court of law.
viii. The opinion formulated is not required to be a conclusive proof of
the fact that the conduct of the affairs of the company is
prejudicial to the public interest, interest of the shareholders,
members or any other persons, or contrary to the provisions of
law.
ix. Investigation under the relevant provisions of the Act, is
exploratory in nature, and in the nature of a fact-finding, and must
be ordered only on satisfactory grounds.
x. Since investigation is an inroad into the functioning of a company,
it has to be ordered after the facts and circumstances in the
material available with the competent authority necessitate such
an investigation.
xi. Courts can consider the materials/circumstances on the basis of
which the opinion to order an investigation is rendered; to
ascertain whether the facts necessitating the investigation, in fact,
existed, or whether extraneous considerations have weighed on
the opinion formed by the Central Government.
xii. Whilst considering a challenge to an opinion of a competent
authority directing an investigation into the affairs of a company,
the Court has to exercise caution, inasmuch as, the Court cannot
sit in appeal over the opinion and cannot substitute its opinion for
that of the competent authority of the Central Government.
45. Having discussed the principles of law governing the exercise of
discretionary power under section 212(1) of the 2013 Act, it would now
be incumbent upon this Court to consider the material available at the
relevant time, with the Respondent No.1 on the basis of which the
impugned order has been rendered.
46. Upon a perusal of the official record, the facts and circumstances
that led to the formation of the subject opinion, are summarised
hereinbelow:
a) Various complaints alleging mismanagement of the Petitioner
Company, inter alia, made by VLS, in its capacity of a
shareholder of the Petitioner Company, and various Members of
Parliament at the relevant time.
b) The fraudulent allotment of shares of the Petitioner Company in
order to increase the shareholding and effective control of the
members of one family.
c) Fraudulently showing government-owned land taken on lease, as
a fixed asset in the balance sheet of the Petitioner Company. The
said land has been used for effecting wrongful personal gains to
the Chairman-cum-Managing Director of the Petitioner Company.
d) The fraudulent manner in which the rights to develop the land
were acquired by the Petitioner Company from M/s Sunaero
Limited, a 100% owned subsidiary of the former, for a
consideration of Rs.21 crores. The rights were initially transferred
to the latter, free of cost by the former, and subsequent upon
acquiring the rights back, the land under lease was shown as a
fixed asset in balance sheet of the Petitioner Company for the
financial year 1994-1995.
e) The manner in which the said liability in the sum of Rs.21 Crores,
qua the rights to develop the land under lease, was discharged i.e.,
by rotating a meagre sum of Rs.1 crore, twenty times, between
multiple companies and persons in a short span of 06 days.
f) Preparation of fabricated balance sheets in order to defraud the
shareholders, banks, financial institutions and the public at large.
g) Creation of two fictious assets that have been pledged as security
to the Bank in order to obtain loan.
h) Stealing of official files prepared by the Ministry of Corporate
Affairs pertaining to the Petitioner Company, in order to scuttle
the process of law and escape legal consequences.
i) The factum of recovery of the said official files from the residence
of the Financial Controller of the Petitioner Company pursuant to
the registration of FIR No.315/2005.
j) The Inspection Report, concluding the inspection conducted into
the affairs of the Petitioner Company under the provisions of
section 209A also, brought to light various contraventions and
violations committed by the Petitioner Company and its Directors,
punishable under the 1956 Act.
47. Coming now to the submissions made on behalf of the Petitioner
Company. Strong reliance has been placed on a decision of this Court,
in Ashok Kumar Aggarwal (supra) in support of its contentions qua the
impugned order being bad in law and unsustainable. In my view, the
decision is clearly distinguishable, inasmuch as, it pertained to the issue
whether an order framing charges was vitiated on account of non-
consideration of the relevant material at the time of grant of sanction for
the prosecution of an accused person. In the present case, the Petitioner
Company cannot be heard to say; and it cannot be the case of the
Petitioner Company that relevant material has not been considered by
the Respondent No.1 at the time of formation of the opinion, as is
evident from the contents of the preceding paragraph. Therefore, the
ratio in Ashok Kumar Aggarwal (supra) is not attracted to the facts and
circumstances of the present case.
48. In this behalf, it would be trite to state that a case is only an
authority for what it actually decides, and not what logically follows
from it. (Ref: Lord Halsbury in Quinn v. Leathem, 1901 AC 495).
49. Also, the reliance placed by the Petitioner Company on the
decision of the Hon'ble Supreme Court in Sri Ram Das Motor Transport
Ltd. (supra), is misplaced, inasmuch as, in that case the petitioner had
sought to mask his private interest in relation to the mismanagement of
the affairs of the company and the oppression of the minority
shareholders, as acts jeopardising public interest, by filing a writ petition
under article 226 of the Constitution of India. The Hon'ble Supreme
Court, in that case, categorically held that the petition did not disclose
any public interest warranting the institution of a writ petition under
Article 226 of the Constitution of India, in the public interest.
In the present case, viewed from the context of the material available
with the Respondent No.1, the submission of the Petitioner Company
that the opinion of the former is not warranted, in the public interest, in
my considered view, is untenable.
50. Similarly, the decision in S.L. Verma (supra), does not come to
the aid of the Petitioner Company, inasmuch as, in that case there was
no specific allegation qua the mismanagement of the affairs of the
company or the oppression of the interests of its shareholders and the
public at large.
As aforestated, the submission of the Petitioner Company that the
opinion of Respondent No.1 is without any basis, is misfounded, in view
of the material available on record with the latter, as elaborated
hereinabove.
51. Next, in order to deal with the submission advanced on behalf of
the Petitioner Company that the impugned order is unsustainable in law
on the ground of it being an unreasoned order, it would be profitable to
refer to the relevant portions of the decisions in Mohinder Singh Gill
(supra) and Ravi Yaswant Bhoir (supra).
52. In Mohinder Singh Gill (supra) the legal principle enunciated is
that the grounds, on which an order has been rendered, must be judged
by the reasons mentioned therein and cannot be supplemented by way of
fresh reasons by way of filing an affidavit or otherwise.
53. The relevant paragraphs of the report are reproduced as follows:
"8. The second equally relevant matter is that when a
statutory functionary makes an order based on certain
grounds, its validity must be judged by the reasons so
mentioned and cannot be supplemented by fresh reasons in
the shape of affidavit or otherwise. Otherwise, an order bad
in the beginning may, by the time it comes to court on
account of a challenge, get validated by additional grounds
later brought out. We may here draw attention to the
observations of Bose J. in Gordhandas Bhanji A.I.T. 1952
S.C. 16.
"Public orders, publicly made, in exercise of a
statutory authority cannot be construed in the
light of explanations subsequently given by the
officer making the order of what he meant, or of
what was in his mind, or what he intended to do.
Public orders made by public authorities are
meant to have public effect and are intended to
effect the acting and conduct of those to whom
they are addressed and must be construed
objectively with reference to the language used
in the order itself."
Orders are not like old wine becoming better as they grow
older."
54. In contrast, the principles laid down in Mohinder Singh Gill
(supra) have no application in the present case, inasmuch as, in the
present case, as is delineated hereinabove, the formation of the opinion
by Respondent No.1 was based on the material available before it at the
relevant time when the same was made. The present case is not a case
where the decision unsubstantiated at the relevant time, is being sought
to be supplemented by an affidavit or otherwise subsequently.
55. The relevant paragraph of the report in Ravi Yashwant Bhoir
(supra), is reproduced hereinbelow:
"The emphasis on recording reason is that if the decision
reveals the 'inscrutable face of the sphinx', it can be its silence,
render it virtually impossible for the courts to perform their
appellate function or exercise the power of judicial review in
adjudging the validity of the decision. Right to reason is an
indispensable part of a sound judicial system, reasons at least
sufficient to indicate an application of mind of the authority
before the court. Another rationale is that the affected party
can know why the decision has gone against him. One of the
salutary requirements of natural justice is spelling out reasons
for the order made. In other words, a speaking out, the
inscrutable face of the sphinx is ordinarily incongruous with a
judicial or quasi-judicial performance."
56. A perusal of the material on record, in the present case, would
show that the formation of the opinion cannot be assailed on the ground
of it having being rendered without proper application of mind or in a
casual manner. The opinion was formed based on cogent and
creditworthy material warranting investigation in the public interest. The
material justified the ordering of an investigation since the allegations
levelled constituted serious violations of various provisions under the
1956 Act, 2013 Act and the IPC.
57. Further, the bald assertion on behalf of the Petitioner Company to
the effect that the impugned order is a colourable exercise of power, has
been made to be rejected. Nothing has been brought on record in this
behalf, to show that the impugned order proceeded on preconceived
notions.
58. In this behalf, the following principles of law, laid down in
Collector v. Raja Ram Jaiswal (supra), are evidently not attracted to the
facts on record in the present case.
i. When power has been conferred to achieve a particular purpose,
then such power ought to be exercised in good faith, for legitimate
reasons and in order to effectuate that purpose; and
ii. If the exercise of such power is based on extraneous or irrelevant
considerations, it is unquestionably a colourable exercise of
power.
59. The contention made on behalf of the Petitioner Company in
relation to the application of the doctrine of excluding the 'fruits of the
poisonous tree', is untenable in the present case, inasmuch as, the same
is not attracted to the facts of the present case, on account of the
circumstance that it is nobody's case that the material available with
Respondent No.1 was obtained illegally by the latter; at the time of the
formation of the opinion.
60. Lastly, the submission made on behalf of the Petitioner Company
that the impugned order is tantamount to double jeopardy, cannot be
countenanced, inasmuch as, the formation of the opinion by the
Respondent No.1 was founded on fresh material received by them, post
the year 2013, from other sources as well.
61. From a perusal of the above, it is patently clear that the impugned
order is based upon material that has been prima facie demonstrable
before this Court. The facts and circumstances summarised in the
preceding paragraphs hereinabove, also reveal that the impugned order
cannot be said to have been based on any irrelevant or extraneous
considerations. In my view, Respondent No.1 has bestowed sufficient
attention to the ample material available before it, before passing the
impugned order.
62. The ground on which investigation was found to be warranted is
'public interest', within the meaning of the provisions of section 212 of
the 2013 Act. The Black's Law Dictionary, Sixth Edition, defines the
expression 'public interest' to mean something in which the public, the
community at large, has some pecuniary interest, or some interest by
which their legal rights or liabilities are affected.
63. In view of the facts and circumstances as have been elaborated in
the preceding paragraphs, the argument that the impugned order be set
aside, since no public interest has been made out, is baseless, devoid of
merit and thus rejected.
64. Therefore, the opinion formed by Respondent No.1, to order an
investigation by the SFIO into the affairs of the Petitioner Company, in
the public interest, does not warrant any interference.
65. In view of the foregoing discussion, the issue raised in the present
petition is answered in the negative and against the Petitioner Company.
In my view, the impugned order does not suffer from any infirmity,
much less a conclusion that it was bad in law on account of inadequacy
or insufficiency of material.
66. Before I part with this order, I consider it necessary to refer to the
report dated 31.10.2016, submitted by the SFIO. A bare reading of the
said report would show that the affairs of the Petitioner Company have
been conducted in a manner prejudicial to the public interest, in addition
to that of the shareholders.
67. In view of the findings of the SFIO, I am satisfied that the
recommendation contained therein, warranting prosecution for the
offences punishable under the relevant provisions of the 1956 Act, 2013
Act and the IPC, cannot be said to be without any justification.
68. The present writ petition is accordingly dismissed without any
order as to costs. All pending applications also stand disposed of.
69. The Registry is directed to reseal the official record and hand over
the same to Mr. Dev P. Bhardwaj, Learned CGSC, appearing on behalf
of Respondent No.1, forthwith, after obtaining a receipt therefor.
CRL.M.A. 11283/2016 (by the petitioner company u/s 340 Cr.P.C.)
The prayers sought by way of the present application have not
been pressed by the Petitioner Company.
The application is accordingly dismissed as not pressed.
SIDDHARTH MRIDUL, J
APRIL 26, 2017
dn/sb/ap
