Court quashes order due to natural justice violation & incorrect public trust assumption. Petitioners awarded costs.

The court quashed the impugned order dated 29-7-1957 due to the violation of principles of natural justice and the erroneous assumption by the Government regarding the third respondent being a public trust. The petitioners were granted costs from Respondent No. 3.

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Issues Involved:

1. Violation of principles of natural justice.
2. Competence of the Government to make the order after the expiry of the statutory period.
3. Vesting of rights conferred on ordinary shareholders.
4. Government's power to grant exemption after a previous order.
5. Validity of the order under Article 14 of the Constitution.
6. Basis for the Government's conclusion on public interest.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioners contended that the Government's order was passed without giving the ordinary shareholders an opportunity to be heard, violating the principles of natural justice. The court agreed, stating that the Government should have given the shareholders a chance to show that the managing agents' rights had not been transferred to a public trust. The failure to do so invalidated the order.

2. Competence of the Government to Make the Order After the Expiry of the Statutory Period:
The petitioners argued that the Government had no competence to make the order after the expiry of the one-year period mentioned in Section 89(1) of the Companies Act, 1956. The court did not find it necessary to decide on this issue as the relief was granted on other grounds.

3. Vesting of Rights Conferred on Ordinary Shareholders:
The petitioners claimed that the rights conferred on ordinary shareholders under Section 87 vested in them on 1-4-1957, and the Government had no competence to take away that right after that date. The court held that the action contemplated by Section 89(1) is a condition precedent for the application of the provisions contained in Section 87(1). Until that action is taken, the existing voting rights are not affected except to the extent provided in sub-section (2) of Section 89.

4. Government's Power to Grant Exemption After a Previous Order:
The petitioners argued that the Government's power to grant exemption under Section 89(4) ended after making an order on 30th March 1957. The court did not pronounce on this controversy, as the relief was granted on other grounds.

5. Validity of the Order Under Article 14 of the Constitution:
The petitioners contended that the impugned order was void as it violated Article 14 of the Constitution. The court found this issue inapplicable to the case, stating that exemptions under Section 89(4) can only be granted to individual companies.

6. Basis for the Government's Conclusion on Public Interest:
The Government granted the exemption on the assumption that the third respondent was a public trust, believing it was in the public interest. The court found that the trust was not a public trust, as the beneficiaries were five individuals. The Government's assumption was erroneous, and the exemption was granted based on a non-existing circumstance, which vitiated the exercise of its power.

Conclusion:
The court quashed the impugned order dated 29-7-1957, as it was passed without giving the ordinary shareholders an opportunity to be heard, and the Government's assumption that the third respondent was a public trust was erroneous. The petitioners were entitled to their costs from Respondent No. 3.

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