TaxTMI 
TaxTMI 
2017 (4) TMI 1197
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....ct, 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 ....
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....nt 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 V....
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....he 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 aga....
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....er 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 S....
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....nishable 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 ....
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....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....
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....n (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 seem....
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.... 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 Petit....
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....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 appellantcompany 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 ....
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....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 prescri....
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....ormation 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 (....
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....ute 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....
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.... 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 requir....
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....xercise 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 subsection (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 ....
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....s 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 t....
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....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 subsection (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 powe....
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....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 ....
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....rinciples 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 Limi....
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.... 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 vi....
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....se, 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 sphi....
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.... 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 ....