1969 (2) TMI 103 - HC - Companies Law

Court dismisses appeal, strikes down order due to lack of disclosed reasons and evidence

The appeal was dismissed with costs, and the impugned order was struck down due to the Central Government's refusal to disclose reasons for forming the ... Investigation of company’s affairs in other cases Issues Involved:1. Justification for refusal to disclose materials by the Central Government.2. Legality and validity of the investigation order and subsequent extensions.3. Allegations of mala fide, arbitrary, and unreasonable conduct by the Central Government.4. Compliance with statutory requirements under Section 237(b) of the Companies Act, 1956.5. Impact of delegation of powers to the Company Law Board.Detailed Analysis:1. Justification for Refusal to Disclose Materials:The primary issue in this appeal is whether the appellants were justified in refusing to disclose to the respondent the materials which led the Central Government to form the opinion as to matters set out in sub-clauses (i) and (ii) of clause (b) of section 237 of the Companies Act, 1956. The appellants contended that the opinion of the Central Government was a matter of subjective satisfaction and not justiciable. They argued that disclosing the materials at this stage would defeat the purpose of the investigation as evidence could be tampered with or destroyed.2. Legality and Validity of the Investigation Order and Subsequent Extensions:The investigation order was made on April 11, 1963, and was followed by several extensions. The respondent challenged the legality of these orders, arguing that the investigation was prolonged unreasonably, causing dislocation and loss to its business. The court noted that the investigation continued for nearly 15 months without completion, and the inspector initially appointed resigned, leading to the appointment of new inspectors and further extensions.3. Allegations of Mala Fide, Arbitrary, and Unreasonable Conduct:The respondent alleged that the impugned order was mala fide, illegal, arbitrary, capricious, without jurisdiction, and ultra vires the Companies Act, 1956. Specific instances of alleged mala fide conduct included refusal to grant import and industrial licenses, revocation of sanctions by the Reserve Bank of India, and arbitrary actions against companies managed by the respondent. The appellants, however, provided only a bare denial of these allegations and did not address the specific instances cited by the respondent.4. Compliance with Statutory Requirements under Section 237(b) of the Companies Act, 1956:The court referred to the Supreme Court's decision in Barium Chemicals Ltd. v. Company Law Board, which held that while the formation of the opinion by the Central Government was subjective, the existence of circumstances leading to such an opinion must be demonstrable. The court found that the appellants failed to disclose any materials to justify the formation of the opinion required by section 237(b). The appellants' refusal to disclose reasons and failure to prove the existence of circumstances led the court to conclude that the order directing the investigation and subsequent extensions were ultra vires section 237(b) of the Act.5. Impact of Delegation of Powers to the Company Law Board:The respondent argued that after the delegation of powers to the Company Law Board by the Companies (Amendment) Act, 1963, the Central Government had no authority to appoint new inspectors or extend the time for the investigation. The court below had rejected this contention, holding that investigations validly started by the Central Government did not become invalid due to subsequent delegation of powers. However, the court in this appeal refrained from expressing views on this issue, as the impugned order was struck down on other grounds.Conclusion:The appeal was dismissed with costs, and the impugned order was struck down due to the Central Government's refusal to disclose reasons for forming the opinion and failure to prove the existence of circumstances justifying the investigation. The court emphasized that existence of prima facie materials is necessary to justify the formation of an opinion under section 237(b) of the Companies Act, 1956.