| SooperKanoon Citation | sooperkanoon.com/866083 |
| Subject | Company;Constitution |
| Court | Kolkata High Court |
| Decided On | Sep-16-1971 |
| Case Number | A.F.O.O. No. 300 of 1966 |
| Judge | P.B. Mukharji, C.J. and ;B.C. Mitra, J. |
| Reported in | [1973]43CompCas68(Cal) |
| Acts | Constitution of India - Articles 14 and 226; ;Companies Act, 1956 - Sections 10E, 10E(6), 237, 388B to 388E and 398; ;Companies Tribunal (Abolition Act), 1967 |
| Appellant | Alak Prokash Jain |
| Respondent | Union of India (Uoi) and ors. |
| Appellant Advocate | R.C. Deb, ;Subrata Roy Choudhury, ;P.L. Khaitan and ;Mahabir Prosad Chowdhury, Advs. |
| Respondent Advocate | Sankardas Banerjee, ;Nirmal Kumar Sadhu, ;Bimal Kumar Basak and ;Dwijen Das, Advs. for respondent No. 1 |
| Disposition | Appeal dismissed |
| Cases Referred | Huth v. Clarke |
B.C. Mitra, J.
1. The appellant was a director of several joint stock companies incorporated in India, including a company known as BenettColeman and Co. Ltd. He claims to have resigned from the directorship of this company on September 13, 1964, but according to the respondent the resignation took effect from September 17, 1964.
2. On September 17, 1964, the Union of India (first respondent) filed an application before the Company's Tribunal (respondent No. 2) constituted under Section 10A of the Companies Act, 1956 (hereinafter referred to as ' the Act '), against the appellant under Sections 388B and 388E of the Act. The application was also directed against the appellant, his father, Shanti Prasad Jain, and two others, namely, Fian Chand Jain and P.K. Ray. In that application the Union of India prayed for a finding that the respondents in that application were not fit and proper persons to hold the office of directors or any other office connected with the conduct or management of Benett Coleman and Co. Ltd. and/or any other company. There was also a prayer for such further or other orders as the circumstances of the case might require.
3. The Tribunal admitted the application and numbered it as Case No. 1 of 1964. A second application was filed before the Tribunal by the first respondent, under Section 388C of the Act, asking for an interim direction upon the petitioner and some other persons not to discharge their duties as directors of Benett Coleman and Co. Ltd. until further orders of the Tribunal. On this application the Tribunal made an order by consent of parties and without prejudice to their rights and contentions and in particular to the respondents' contention that they had properly resigned from the board of directors on September 13, 1964, and September 8, 1964. In that order it was recorded that the appellant gave an undertaking to the Tribunal not to discharge his duties and functions as director of the said company until final disposal of the application under Section 388B of the Act. Two persons, namely, S.R. Bhakil and Dr. R.C. Cooper were appointed directors of the company. The appellant gave an undertaking to approach the shareholders for approval of the appointment of S.R. Bhakil and Dr. R.C. Cooper as directors, if necessary. It was also provided in that order that the application under Section 388C against P.K. Ray was to stand over until further orders of the Tribunal or until disposal of the application under Section 388B of the Act. There were certain further directions with regard to hearing of the application.
4. On October 12, 1964, the Union of India filed three applications before the Tribunal under Section 398 read with Section 401 of the Act. In that application allegations of mismanagement of the affairs of the company were made and prayers were made for interim orders pending disposal of Case No. 1 of 1964. One of the prayers for interim order was the appointment of an administrator to conduct the affairs of the company. On October 29, 1964, the second respondent made an order reconstituting theboard of directors of the company and one Dr. R.C. Cooper was appointed chairman of the board with power to veto any resolution of the board which did not meet with his approval. I shall refer to this application later in this judgment.
5. The appellant's father made several applications for particulars of pleadings and inspection of documents and challenged the maintainability of the application for interim order. Against the orders made in these applications the appellant's father preferred appeals before the Bombay High Court and obtained interim stay of further proceedings in Case No. 1 of 1964. This appeal, however, was withdrawn on July 12, 1965. By an order dated July 13, 1965, the Tribunal fixed August 13, 1965, as the date for filing the written statement and August 25, 1965, as the date for framing of issues.
6. On August 11, 1965, the appellant moved this court under Article 226 of the Conftitution praying for a declaration that Sections 388B to 388E of the Act were ultra vires the Constitution, and as such void, and for appropriate writs directing the respondents in this appeal not to proceed with Case No. 1 of 1964 and to withdraw the said proceedings. A rule nisi was issued along with an interim order restraining the respondent from proceeding in Case No. 1 of 1964, for a period of three weeks in the first instance and thereafter until disposal of the rule. By a judgment and order dated April 20, 1966, Banerjee J. discharged the rule and this appeal is directed against this judgment and order.
7. Before proceeding any further it is to be noticed that by Act 17 of 1967, Chapter IV of of the Companies Act, 1956, was extensively amended. The effect of the amending Act was that the Tribunal ceased to exist and all cases pending before the Tribunal stood transferred to the High Court which would have had jurisdiction in the matter. The result is that the pending application regarding the appellant before the Tribunal stood transferred to the High Court of Bombay and is now pending before that court. The amendment, it is to be noticed, came into force after the judgment of the trial court.
8. Mr. S. Banerjee, counsel for respondent No. 1, raised a preliminary objection to the maintainability of this appeal. He contended that having regard to the amendment of the Act this appeal has become infructuous because no relief could be granted as against the Tribunal, which ceased to exist and because the application was now pending before the High Court of Bombay. He argued that no writ or order could be issued against a Tribunal which was not in existence and no writ and order could be made with regard to the application as it was pending before the High Court of Bombay. In support of the contention that appropriate writs can be issued only against a court, which is subordinate to the High Court, and cannot beissued against a High Court, reliance was placed by Mr. Banerjee on a decision of the Andhra Pradesh High Court in Venkata Somaraju v. Principal Munsif-Magistrate, : AIR1968AP22 . and also another decision in Prabhakaran Nair v. State of Kerala, : (1970)ILLJ522Ker . Reliance was also placed by counsel for the appellant on Kavalappara Kottarathil Kochunni alias Moopil Nair v. State of Madra, : AIR1959SC725 . In that case, however, an application was made to the Supreme Court under Article 32 of the Constitution. As we are of the view that in an appropriate case the High Court can interfere by making a declaratory order I need not deal with the cases mentioned above at length.
9. Mr. R.C. Deb, counsel for the appellant, sought to repel this contention by referring to the prayers in the petition. The first prayer is for a declaration that Sections 388B to 388E are ultra vires and void. The next prayer relied on by Mr. Deb, is prayer ' G' which is a prayer for injunction restraining the respondent No. 1, its servants and agents or officers from proceeding with or taking any further steps in Case No. 1 of 1964. Referring to these prayers counsel for the appellant argued that this court was competent to issue any order or direction upon the first respondent alone, and he submitted that the appellant would be content with a declaration and an injunction as prayed. He next contended that a writ of mandamus could also be issued against the respondent No. 1, directing it not to proceed with the Case No. 1 of 1964, now pending before the Bombay High Court. He further argued that the powers of the High Court under Article 226 were wide enough to enable it to issue any writs, orders or directions, and, therefore, appropriate orders could be made restraining the respondents from proceeding with the Case No. 1 of 1964 now pending before the Bombay High Court. He submitted that his client was not disentitled to relief in the writ petition merely because the Tribunal ceased to exist by virtue of the amendment to the Act. These are the contentions of the parties on the question of relief to the appellant in this appeal having regard to the subsequent event, namely, the amendment to the Act, by which the Tribunal was abolished.
10. In order to appreciate the rival contentions of the parties it is necessary to refer to the relevant provisions in Act No. 17 of 1967. Section 2 provides that on the commencement of the Act the Companies Tribunal constituted under Section 10A of the Companies Act, 1956, shall stand abolished. Sub-section (3) of Section 3 runs as follows :
' (3) Save as otherwise provided in Sub-rsection (1) and Sub-rsection (2), every proceeding under the said Act, pending before the Tribunal immediately before its abolition, shall, on such abolition, stand transferred to the court having jurisdiction in relation to such proceeding, under Section 10 of the said Act, and every such court shall deal with such proceeding as if it were a proceeding instituted before itself and where the Tribunal has taken down, or made memorandum of any evidence in the proceeding, the court may proceed with the proceeding from the stage at which it was left by the Tribunal on its abolition ;
Provided that if the court is of opinion that further examination of any of the witnesses whose evidence has already been taken down by the Tribunal is necessary in the interests of justice, it may re-summon any such witness and after such further examination, cross-examination and re-examination, if any, as it may permit, the witness shall be discharged. '
11. The Schedule to the amending Act indicates the other amendments made to the Act and the substance of the amendment indicated in the Schedule is that the ' Tribunal ' is substituted by the ' High Court '. There is no dispute in this case that the High Court of Bombay is the appropriate court to deal with the matters of the company, and there is no dispute also that the application which was made before the Tribunal now stands transferred to the Bombay High Court. The question in these circumstances is whether the appellant is entitled to any relief under Article 226 of the Constitution, as the Tribunal has ceased to exist and the application pending before the Tribunal now stands transferred to the High Court of Bombay. I shall revert to this question later in this judgment.
12. Turning now to the merits of the appellant's case, the first question for consideration is whether circumstances existed to suggest any of the matters referred to in Clauses (a), (b), (c) and (d) of Sub-section (1) of Section 388B of the Act. The charges against the appellant under those clauses have been set out in paragraph 5 of the application, filed by the respondent No. 1 before the Tribunal, which is to be found at page 37 of the paper book. The first charge is that the respondent in that application is guilty of fraud, misfeasance, persistent negligence and default in carrying out his obligations in law and/or breaches of trust. This charge is covered by Clause (a) of Section 388B of the Act. The second charge is that the business of the company is not, and has not been, conducted by the respondent in that application in accordance with sound business principles. This charge is covered by Clause (b) of Section 388B(1) of the Act. The third charge is that the business of the company has been conducted and managed by the respondent in that application for a fraudulent or unlawful purpose or in a manner prejudicial to public interest. This charge is covered by Clause (d) of Section 388B(1) of the Act. In paragraph 31 it is stated that after due consideration of the facts presented to the applicant, the applicant is of opinion that there are circumstances suggesting the charges mentioned above and also an additional charge, namely, that therespondents in that application have been conducting and managing Benett Coleman and Co. Ltd. in a manner which has or is likely to cause serious injury and damage to the interest of the industry and business to which the company pertains. This charge is in conformity with Clause (c) of Section 388B(1) of the Act. It is to be noticed that this charge was not set out in paragraph 5 of the application. I shall refer to the particulars of the charges at greater length later in the judgment.
13. Mr. S. Banerjee, counsel for the respondents, contended that the appellant and other directors of the company were not fit and proper persons to hold the office of directors or any other office connected with the management of the company. Mr. R.C. Deb, counsel for the appellant, on the other hand, contended that the facts, as set out in the application before the Tribunal, did not disclose circumstances suggesting, so far as the appellant was concerned, the existence of any of the matters set out in Clauses (a), (b), (c) and (d) of Section 388B(1) of the Act. He argued that it was plain from the allegations in the application, that most of the allegations of misconduct, misfeasance, misappropriation, illegal payments and fraud, were committed at a time when the appellant was not a director of the company, and therefore the Central Government could not form any opinion against the appellant that he was in any way concerned with any of the matters set out in Clauses (a), (b), (c) and (d) of Section 388B(1). The argument was that the unlawful acts alleged to have been committed by the directors of the company were, according to the first respondent, committed before the appellant became a director and, therefore, in referring the matter to the Tribunal against the appellant, the Central Government failed to apply its mind to the questions and the reference was altogether illegal and ultra vires the powers of the Central Government. I shall deal with this last contention later in this judgment.
14. The foundation of the contention of the appellant is that he became a director of the company for the first time on April 13, 1963, and he resigned from the directorship on September 13, 1964, and ceased to be a director of the company with effect from that day. According to the respondent No. 1, however, the resignation became effective on September 17, 1964. The relevance of the difference between the two dates is that the application before the Tribunal was presented on September 17, 1964, and, therefore, according to the first respondent, the appellant was a director of the company on the day when the application was moved. But even assuming that the appellant resigned on September 13, 1964, that resignation by itself will not relieve him of his liability or accountability for acts done during the period he was a director of the company. Secondly, it is to be noticed that the first, second and third respondents in the application before the Tribunal are members of a family and the charge against themwas conspiracy, collusion and concert. Thirdly, the appellant was a director of the company, participated at board meetings which affirmed, acted upon and gave effect to the various resolutions of the board as well as those passed at the meeting of the company.
15. In support of his contention mentioned above Mr. Deb, firstly, relied on a decision of the Supreme Court Barium Chemicals Ltd. v. Company Law Board, : [1967]1SCR898 In that case the question that arose for decision of the court was whether the words ' If in the opinion of the Central Government' in Section 237(b) of the Act required that existence of circumstances suggesting inference of what has been set out in Sub-clause (i), (ii) or (iii) must be made out or whether those words merely required formation of opinion as a subjective process. The majority of the Supreme Court was of the opinion that though the formation of the opinion was subjective, the existence of circumstances relevant to the inference was the sine qua non to the formation of opinion and that that action must be demonstrable and that if the action was questioned on the ground that no circumstances leading to the inference of the kind contemplated by the section existed, the action might be exposed to interference, unless the existence of circumstances was made out. It was further held that since the existence of circumstances was a condition to the formation of an opinion, if the existence of the circumstances was questioned, the existence of such circumstances has to be proved at least prima facie, and that it was not enough to assert that circumstances exist and give no indication of what they were because the circumstances must be such as to lead to conclusions of certain definiteness. Hidayatullah J. (as he then was) then proceeded to say as follows, at page 309, of the report :
' We have to see whether the chairman in his affidavit has shown the existence of circumstances leading to such tentative conclusions. If he has, his action cannot be questioned because the inference is to be drawn subjectively and even if this court would not have drawn a similar inference that fact would be irrelevant. But if the circumstances pointed out are such that no inference of the kind stated in Section 237(b) can at all be drawn, the action would be ultra vires the Act and void. '
16. It is to be noticed that the minority took a different view on this question. The majority view of the Supreme Court was approved in a later decision, Rohtas Industries Ltd. v. S. D. Agarwal, : [1969]3SCR108 , where again the same question under Section 237(b) of the Act came up for consideration and it was held that the existence of circumstances which led to an inference of the kind set out under Section 237(b) was open to judicial review though the opinion formed by the Government was not so amenable.
17. Relying on the two decisions mentioned above, counsel for the appellant contended that the first respondent must satisfy the court that circumstances existed which suggested one or other of the matters set out under Section 388B(1) of the Act. In other words, it was argued that the first respondent was bound to show that, prima facie, at any rate, one or other of the circumstances existed to justify the application before the Tribunal. It was argued that on the materials disclosed in the affidavit-in-opposition filed in the writ petition and the application filed before the Tribunal, it could not be said that there were circumstances which would entitle the respondent No. 1, so far as the appellant was concerned, to file the application before the Tribunal for a report.
18. The above contention of counsel for the appellant is founded on the fact that the appellant became a director of the company some time after the events complained of had happened, and, therefore, the appellant could not have participated in the acts of misfeasance, fraud and corrupt practice. It was argued that since the appellant was not a director of the company at the time when the wrongful acts were alleged to have been committed there could be no occasion for investigation into the conduct of the appellant by an application under Section 388B of the Act.
19. Counsel for the appellant further contended that his client became a director of the company on April 13, 1963, but resigned the directorship on September 13, 1964. Before the appellant became a director of the company the Central Government in exercise of its power under Section 237 of the Act made an order on April 11, 1963, appointing one S. Prakash Chopra as an inspector to investigate the affairs of the company for a period prior to the time when the appellant became a director. Therefore, counsel for the appellant contended, there could be nothing against the appellant in the interim report submitted by the inspector. It was also argued that the allegations of fraud against the appellant, such as they were, were vague and entirely devoid of particulars and should, therefore, be ignored altogether. Furthermore, it was argued, that in proceeding against the appellant, the Central Government had proceeded entirely on irrelevant materials. In support of this contentien reliance was placed on paragraphs 6 to 8 of the affidavit-in-opposition affirmed by Divinder Singh Dang on September 3, 1965. It was, therefore, contended that no circumstances existed to justify action by the Central Government under Section 388B of the Act against the appellant. It was argued that, as in commencing proceeding under Section 388B against the appellant the Central Government failed to apply its mind to the circumstances and also failed to consider the relevant and material facts, the action against the appellant was illegal.
20. I do not think there is sufficient merit in this contention on behalf of the appellant to hold that the application before the Tribunal against the appellant was unwarranted or illegal or that no circumstances existed to justify the application. In paragraphs 5, 7, 14, 20, 21 and 32 of the application before the Tribunal materials supporting allegations of misfeasance and malpractices by the directors, including the appellant, have been set out. Furthermore, there are allegations that the directors of the company, including the appellant, withheld their co-operation from the inspector appointed under Section 237 of the Act. Then again serious allegations have been made in the memorandum dated September 17, 1963 (page 82 of the paper book), by the editor of The Times of India. This memorandum was addressed to the then Prime Minister of India at a time when the appellant was the director of the company, and the allegations are, to a large extent, against the management of the company as a whole. Besides, there is another memorandum, dated October 7, 1963, signed by the secretary, production manager and editor of The Economic Times (page 87 of the paper book), in which it is alleged that the allegations against the directors can only be substantiated if the top management, namely, general manager, upwards was removed even if for a temporary period. In this memorandum there is also an allegation of threatened destruction or removal of material evidence by the top management of the company.
21. Taking all these materials into consideration I do not think that there is any substance in the contention of counsel for the appellant that the action taken against the appellant under Section 388B of the Act was based on irrelevant materials or that the decision of the Central Government to commence proceedings was unjustified.
22. It was next argued that the word ' may ' used in the section should not be read as ' shall ' or ' must ' and should be construed to invest the Central Government with absolute discretion. It was further contended that there was nothing in Section 388E to hold that discretion was coupled with duty, so as to construe the word ' may ' to mean ' shall ' or ' must' (sic) in so far as the two sections invested the Central Government with absolute discretion to proceed against one individual under the penal Sections 388B and 388E, while leaving other individuals out, in similar circumstances. The law as stated in those two sections, it was submitted, was violative of Article 14 of the Constitution. It was next contended that discretion to proceed against particular individuals, to pick and choose among persons similarly situated, was left to the subjective satisfaction of the Central Government and that, it was argued, was not permissible under Article 14.
23. In support of this contention reliance was placed on a decision of the Supreme Court in Kalipada Choudhury v. Union of India, : (1963)ILLJ303SC .. In that case the Supreme Court considered the question whether the word ' may' read in the context of Section 12(1) of the Mines Act (1952) should be construed to mean ' shall '. It was held that in the context in which the word ' may ' was used in that Act, it could not mean 'shall ' and that a discretion was left to the Central Government to constitute a board for a group or class of mines, and that meant that for some groups or classes of mines no board need be constituted. Relying on this decision, counsel for the appellant argued that the word ' may' used in Section 237(b) of the Act left uncontrolled discretion to the Central Government. But, the Supreme Court also held that whether or not the word ' may ' means ' may ' or it means ' shall' would inevitably depend upon the context in which the said word occurred, and the context of Section 12(1) of the Mines Act (1952) was not in favour of the construction that the word ' may ' should be construed to mean ' shall '. This decision, therefore, is of no assistance to the appellant in this case because the word ' may ' in Section 388B of the Act is to be construed in the context in which it has been used in that section. Reliance was next placed on a decision of the House of Lords in Frederick Guilder Julius v. Lord Bishop of Oxford, [1880] 5 App. Cas. 214, 222 (H.L.). In dealing with the meaning of the phrase ' it shall be lawful', Lord Cairns L.C. held that these words merely made that legal and possible which there would otherwise be no right to do. It was, however, held that in certain circumstances a discretion may be coupled with a duty and when that is done it would be the duty of the person on whom the power is conferred to exercise that power when called upon to do so. I quote the words of the Lord Chancellor on this point :
' But, there may be something in the nature of the thing empowered to be done, something in the object for which it is to be done, something in the conditions under which it is to be done, something in the title of the person or persons for whose benefit the power is to be exercised, which may couple the power with a duty, and make it the duty of the person in whom the power is reposed, to exercise that power when called upon to do so.'
24. The next case relied on by counsel for the appellant was a decision of the House of Lords, Padfield v. Minister of Agriculture, Fisheries and Food, [1968] A.C. 997 (H.L.) , In that case a parliamentary statute contained provisions relating to the milk marketing scheme. The statute provided that if a complaint was made to the minister regarding the operation of any scheme, the Minister shall appoint a committee of investigation, which should report to the Minister on the complaint. The producers in one region made a complaint to the Minister but he refused to appoint a committee of investigation. Thereupon the complainants applied to the court for an order of mandamus. Following the decision in Frederick Guilder Julius v. LordBishop of Oxford, [1880] 5 App. Cas. 214 (H.L.) it was held that an order should be made directing the Minister to consider the complaint according to law.
25. The two decisions mentioned above make it clear that when the word ' may ' is used in a statute, the context in which it has been used may be sufficiently indicative of a mandate of the statute, that the word 'may' confers a duty which must be performed in certain circumstances. In our view, in the circumstances in which the word ' may ' has been used in Section 388B of the Act, a discretion, without a doubt, is coupled with a duty, and that duty must be performed by'the Central Government when certain circumstances exist.
26. Counsel for the respondents, on the other hand, argued that the word ' may ' meant ' shall ' because it imposed upon the Central Government a duty to make a reference to the Tribunal, if in its opinion there existed circumstances mentioned in Section 388B and to remov a person frome office, if the Tribunal found him guilty. There is good deal of force in this contention. Ordinarily, the word ' may' implies a discretion. It confers a power to do something which would otherwise be illegal, but there are other matters which are to be considered in construing the meaning of the word ' may ' such as the conditions under which the power is to be exercised, the claim or the right of the persons for whose benefit the power is to be exercised and the purpose of the statute for which the power is to be exercised. These are conditions which couple power with duty, and make it obligatory for persons in whom the power is vested to exercise that power when called upon to do so. These conditions, in my view, are indicated in Section 388B of the Act, keeping in mind the object for which and also the right or claim of the person for whose benefit the power is to be exercised. The fulfilment of the conditions or the existence of the circumstances set out in Section 388B couples power with duty and making it obligatory for the Central Government to make a reference whenever in its opinion circumstances existed suggesting that affairs of the company are being mismanaged in the manner indicated in that section. And if such a person is found guilty of the offences by the Tribunal, it is again the duty of the Central Government to remove him from office. It is the statutory duty of the Central Government to make a reference whenever circumstances indicated in the section exist, and, indeed, when such circumstances exist, the Central Government has got no choice or opinion in the matter but must make a reference as contemplated by the section.
27. I now proceed to deal with the question if circumstances existed to justify proceedings against the appellant under Sections 388B and 388E of the Act.
28. In the two decisions of the Supreme Court mentioned earlier, namely, Barium Chemicals' case and Rohtas Industries case, it was held that if the existence of circumstances suggesting an inference of matters set out in Clause (i), (ii) or (iii) of Section 237(b) was challenged, the existence of such circumstances had to be proved at least prima facie, and it was not enough to assert that circumstances existed and give no indication of what they were. But it was also held, however, that formation of opinion by the Central Government was a subjective process and could not be questioned. In this case the Central Government came to a decision that a reference should be made under Section 388B of the Act and the formation of the opinion by the Central Government or the conclusion to which it came, namely, that such a reference ought to be made is not open to review by the court. But, since there is a challenge on the ground that circumstances did not exist to justify a reference under Section 388B, I shall now proceed to examine, if the materials on record in this case, prima facie, fulfil the condition relating to existence of circumstances to justify a reference under Section 388B of the Act. Those circumstances have been set out in the application filed before the Companies Tribunal, and to them I will now refer.
29. On April 11, 1963, the Central Government appointed an inspector under Section 237(b) of the Act to investigate the affairs of the company for the period, January 1, 1955, up to January 1, 1965. The inspector was to report on the investigation on the Central Government specifying irregularities and contraventions of the Act or on any other law. This investigation, it is alleged, could not be made by the inspector on account of obstructive and non-co-operative conduct of the management intended to defeat a proper investigation of the company's affairs. The inspector was refused all information and documents necessary for and relevant to a full investigation of the affairs of the company. It is alleged that officers of the company were directed to avoid giving information to the inspector and co-operate with him.
30. It is next alleged that a representation was made by three senior officers of the company to the then Prime Minister of India, in which it was stated that serious irregularities and illegalities were committed in the management of the company and that instructions were issued by the management of the company to destroy, as far as possible, all important records of the company bearing evidence on transactions, then being investigated, and untruthful and evasive answers were to be given to the inspector. On November 3, 1963, two officers of the company again wrote to the Prime Minister concerning wrongful and illegal management of thecompany, particularly by Shanti Prasad Jain and P.K. Ray. These representations are to be found at pages 87 and 89 of the paper book. In paragraph 12 of the application it is alleged that Shanti Prasad Jain informed the officers of the company that he was receiving money unaccounted for from the books of some other companies under his management and that similar arrangements should be made for him to receive unaccounted money from Bennett Coleman & Co. Ltd. It is next alleged that S.P. Jain suggested that purchases made by the company should be inflated both as to quantity and price, and so inflated, purchases should be entered in the company's books and the difference between actual price and the inflated price should be paid to S.P. Jain. The officers of the company pointed out that the main item of purchase was newsprint, the rate of which was well-known, and any manipulation of price would be impossible. S.P. Jain thereupon directed that the company's sales should not be accounted for truly or in full in the books of the company. S.P. Jain also directed that the proceeds shown in the company's books should be lower than those actually received, and the difference should be paid to him. The items in respect of which such operations were to be carried out were newsprint waste, machinery and other miscellaneous items.
31. In accordance with this suggested practice, full sale proceeds of newsprint wastes were not credited in the company's books, but only a part thereof was recorded and the balance was handed over to S.P. Jain. This practice, it is alleged, continued up to September, 1968, when it was severely curtailed consequent upon an order of the Registrar of Newspapers. It is alleged that during the period mentioned above cash sales of newsprint wastes approximated to Rs, 21,94,620.69, but a sum of Rs. 4,80,995.34 only was credited in the company's books and the balance of Rs. 17,13,625.30 was paid to S.P. Jain or to his order. It is next alleged that the previous practice of sale of newsprint wastes, according to weight, was given up, and the practice of sale by weight to two selected purchasers was introduced. The records relating to these sales were not produced before the inspector, who was falsely told that sale by weight had been given up in favour of a system of sale by lots. It is alleged that regular account of sale of newsprint wastes were maintained during the period distinctly showing the amount misappropriated by the management, and these records have been partially destroyed.
32. The next allegation relates to sweeping wastes of the company. This type of waste was sold to a company known as Bombay Vyapar Ltd.--a company owned by Gian Chand Jain and his relations--at a price of Rs. 84,000 per year. It is alleged that the value of this waste is much higher and offers from other parties to pay a higher price were not accepted and were illegally removed from the records of the company.
33. The next allegation is relating to misappropriation of part of the sale proceeds of the company's plant and machinery and it is alleged that between 1957 and 1961 a sum of approximately Rs. 2,58,640 was not record-ed in the company's books and misappropriated. There is a similar allegation of misappropriation of a sum of Rs. 1,06,108.06 from miscellaneous sales which were not credited in the company's books.
34. The next charge relates to the payment of a sum of Rs. 2,20,802 to Crosswords Pvt. Ltd., Delhi. The case of the management was that this payment was made in accordance with a commitment already made. It is alleged, however, that there was no such commitment. The alleged commitment was between S.P. Jain and the outgoing chairman of the company. Ram Krishna Dalmia. It is alleged that in order to justify the payment an antedated letter was obtained from the Crosswords Pvt. Ltd. The payment is alleged to have been made for the benefit of S.P. Jain and his relatives. It is also alleged that irregular payments of various sums, namely, Rs. 6,000, Rs. 14,876, Rs. 1,000 and Rs. 57,600 were made to various parties.
35. The next allegation relates to payment of arrears of dividends on preference shares from 1948 to 1954 amounting to Rs. 26,63,710 to Bharat Union Agencies, on a mandate from Ram Krishna Dalmia, the previous chairman of the company. It is alleged that the company's minute books show that it was decided on August 9, 1955, that as the company's profit for the year was not sufficient to declare dividend, no dividend could be paid in the year ended December 31, 1954. Yet, on October 5, 1955, it was resolved to borrow Rs. 30 lakhs from Bharat Nidhi Ltd., a company controlled by S.P. Jain and his associates, and a resolution was passed on October 28, 1955, to pay out the aforesaid amount representing arrears of dividend on preference shares up to December 31, 1954. The payment of dividend was made without compliance with the prescribed procedure for approval and declaration of dividends.
36. It is next alleged that the accounting practice followed by the company is in violation of Section 209 and Section 211 read with Schedule VI, Parts (I) and (II) of the Act. It is also alleged that there has been a deliberate misrepresentation of the company's true position so as to suit the interest of the management or the persons associated with them.
37. The next allegation relates to payment of travelling allowance which was fixed at a very high rate bearing no relation to actual expenditure. S.P. Jain is alleged to have been charging travelling allowance from the company although he had drawn such allowance for the same journeys from some of the companies under his control.
38. The charges mentioned above are based on the materials which were available to the Central Government at the time of taking a decision tomake a reference under Section 388B of the Act. The question is : can it be said, having regard to the nature of the charges, that there were no materials to justify the Central Government in coming to a decision that a reference ought to be made under Section 388B of the Act? It is to be remembered that formation of an opinion is a subjective process and cannot be questioned or challenged by a party who is aggrieved by action taken on the basis of such opinion. It seems to us that, in the facts of this case, it cannot be said that there were no materials to justify the opinion which the Central Government formed in the matter of making a reference under Section 388B of the Act. Prima facie, it seems to us that there were enough materials to justify a conclusion to which the Central Government arrived in making the reference under Section 388B of the Act. The charges enumerated above appear to us to be sufficiently grave and serious, namely, fraud, misappropriation, manipulation of accounts, diversion of company's funds, illegal declaration of dividends, irregular and unlawful payments to parties, tampering of records and minute books of the company and unlawful payment of travelling allowances. These are by no means vague and uncertain charges. Full particulars with dates and amounts involved have been furnished, and wherever third parties are involved their names have also been mentioned. The question being whether an investigation under Section 388B is justified, it is by no means necessary at this stage that the charges should be proved beyond doubt. Such of the persons against whom the investigation is directed, including the appellant, have been fully apprised of the nature and extent of the charges and it is for them to prove that the charges are unfounded or false or are such as not to merit an investigation under Section 388B of the Act. On the materials, such as they are, we have no hesitation in holding that there Were sufficient materials in existence to enable the Central Government to form an opinion that an investigation under Section 388B of the Act is called for.
39. I now proceed to deal with the next contention of counsel for the appellant that Sections 388B to 388E confer uncanalized and uncontrolled discretion on the Central Government to pick and choose between one person and another and, for that reason, powers to discriminate between person and person have been created and conferred by those sections, which, therefore, should be held to be violative of Article 14 and declared void. It was argued that in similar circumstances the Central Government might pick and choose among several persons and might commence proceedings under Section 388B of the Act against a particular individual, while ignoring same or similar charges against others. Secondly, it was argued that after the Tribunal had found several individuals guilty of the charges under Section 388B, the Central Government might ignore thefinding against a favoured person, but proceed to take steps against one who was disliked by the Central Government.
40. This question was raised before the Supreme Court in Barium Chemicals Ltd. v. Company Law Board l. In that case it was held that similar powers conferred on the Central Government by Sections 235, 237(a) and 237(b) of the Act, which enabled the Central Government to make an order appointing an inspector to investigate the affairs of the company in different sets of circumstances, were not discriminatory and violative of Article 14. This position was reaffirmed by the Supreme Court in a later decision in Rohtas Industries Ltd. v. S.D. Agarwal. In this case it was held in paragraph 45 of the report that there must be a real exercise of the discretion which is to be exercised honestly and not for corrupt or ulterior purposes and that such opinion must be formed after applying its mind to the relevant materials, and in forming the opinion the Central Government must act reasonably and not capriciously or arbitrarily. The challenge to the vires of Section 237 of the Act was rejected on the ground that the section did not authorise the Central Government to discriminate between one company and another.
41. Counsel for the appellant relied on a number of decisions in support of his contention that Section 388B of the Act was ultra vires Article 14 of the Constitution and should, therefore, be struck down. I shall now proceed to deal with those decisions. Reliance was placed on a decision of the Supreme Court in P.J. Irani v. State of Madras, : [1962]2SCR169 . Reliance was placed on this decision in support of the contention that the High Court has power under Article 226 to set aside ultra vires orders vitally affecting a person's right to statutory protection. It was held in that case that immunity from interference by the court could not be sought for orders which were plainly ultra vires, merely becase they were passed bona fide in the sense of being without indirect motive. I do not see how this decision helps the appellant in this case, because this case does not deal with the question of discrimination or lack of classification among different classes or groups of persons likely to be affected by a statute. In that case the question was whether the Punjab Forward Contract Tax Act, 1951, was ultra vires the powers conferred upon the State Legislature. This decision was relied on for the proposition that in a writ petition a declaration may be prayed for that an Act or a particular section thereof is ultra vires the Constitution. In our view, this contention of the counsel for the appellant that in an appropriate case a declaration to the effect mentioned above may be prayed for and allowed is sound. No doubt, in an appropriate case a declarationmay be prayed for, and the court, in exercise of its power under Article 226, is competent to grant such a prayer. But the question in this case is not merely whether a declaration such as mentioned above should be granted but whether a writ should be issued or an order made to stop the proceedings before the Bombay High Court, where the proceedings now stand transferred by reason of the operation of the statute.
42. The next case relied on was also a decision of the Supreme Court in Kunnathat Thathunni Moopil Nair v. State of Keral : [1961]3SCR77 . In that case the question was whether a taxing statute, namely, the Travancore-Cochin Land Tax Act; 1955, as amended by an Act of 1957, was violative of Article 14 of the Constitution. It was held that the provisions in the Act were unconstitutional as they were discriminatory and imposed unreasonable restrictions on holding of property and were confiscatory in character. In effect certain provisions of the Act were also declared to offend Article 19(1)(f) of the Constitution. We do not see how this decision is of any assistance to the appellant in this case, inasmuch as what was considered in that case was the vires of a taxing statute and the competence of a State Legislature to impose a tax and authorise collection thereof. It was held in that case that there was no classification in the provisions of the Act and that such lack of classification created inequality. To our mind the question discussed in the case is of no relevance to the contentions canvassed in the appeal before us. The provisions in Section 388B lay down sufficient norms for a reasonable classification of companies against whom proceedings under the impugned section can be taken by the Central Government.
43. Reliance was next placed on a decision of the Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam, : [1961]1SCR809 . In that case the vires of the Assam Taxation (on goods carried by road or inland waterways) Act was challenged. The High Court of Assam had dismissed the writ petition and the majority of the Supreme Court in allowing the appeal held that the impugned Act had put a direct restriction on freedom of trade, and in doing so it did not comply with Article 304(b) and therefore must be held to be void. I do not see how this decision is of any assistance to the appellant because the main question involved in that case was whether the impugned Act imposed restrictions on inter-State trade, contrary to the provisions in the Constitution.
44. The next case relied on was also a decision of the Supreme Court in State of Madhya Pradesh v. Bhailal Bhai, : [1964]6SCR261 . That was also a case in which the vires of a taxing statute, namely, the Madhya Bharat Sales Tax Act, was questioned on the ground of non-compliance with Articles 301 and 304(a). This case was relied on for the proposition that when a fundamental or a statutory right was infringed, complete relief could not be granted merely by declaring the existence of the right or that the right had been infringed and that the court would be justified in giving a consequential relief by directing refund of taxes paid under a statutory provision which had been struck down. This decision again is of no assistance to the appellant in this case because we are in no doubt that if Section 388B of the Act violated Article 14 and if the reference was pending before a Tribunal and not a High Court, this court could not only have struck down the reference itself but would have stayed, by injunction, further proceedings in that reference. As it is, however, we are of the view that Section 388B of the Act does not infringe Article 14 and also of the view that no writ or order can be issued by this court to stay, stop or interfere with a proceeding before another High Court in an application under Article 226 of the Constitution.
45. Reliance was next placed on a decision of the Supreme Court in Hari Chand Sarda v. Mizo District Council, : [1967]1SCR1012 . In that case certain regulations relating to tribals in Mizo Hills were held to be void as they provided no principles on which the policy of safeguarding the tribals from exploitation could be followed. It was held that the impugned regulations contained no principle or criterion on which the licence could be granted or renewed. The impugned regulation contained no provision on the basis of which an applicant for a licence could know what he was to satisfy in order to have a licence. This decision again is of no assistance to the appellant as we have held that Section 388B of the Act incorporated sufficient criterion and guidelines for the Central Government to initiate proceeding under that section. On the question of exercise of discretion by the Central Government reliance was placed on another decision of the Supreme Court in S.G. Jaisinghani v. Union of India, : [1967]65ITR34(SC) . The passage relied on in this decision is at page 1434 of the report and is to the effect that in a system governed by rule of law discretion to be exercised by authority must be confined within well-defined limits and decisions should be made by the applicant on known principles and rules and also that if a decision was taken without any principle it became unpredictable and such a decision was the antithesis of a decision taken in accordance with the rule of law. This decision again is of no assistance to the appellant because the impugned section clearly lays down the conditions which must be fulfilled before action can be taken by the Central Government under that section, As in this case there is, prima facie, evidence of existence of these circumstances and the conditions upon the fulfilment of which action can be initiated are satisfied, it cannot, in our view, be said that the action of the Central Government is arbitrary or discriminatory.
46. Mr. S. Banerjee, counsel for the respondents, in repelling the contentions on behalf of the appellant, submitted that in matters of the kind contemplated by Section 388B of the Act the Central Government had to act upon information available to it, and being satisfied that circumstances existed for a reference under the impugned section, initiated proceedings accordingly. He further argued that, if the Central Government acted on material brought to its notice and bona fide came to the conclusion that the affairs of the company were conducted in such a manner that an investigation as contemplated by Section 388B of the Act was called for, to prevent recurrence of the evil, the act of the Central Government in initiating proceedings could not be condemned as discriminatory nor could the action be declared to be bad, on the ground that it was violative of Article 14. In support of this contention, counsel for the respondents relied on a decision of the Supreme Court in Ram Krishna. Dalmia v. Justice S.R. Tendolkar, : [1959]1SCR279 . Reliance was also placed by counsel for the respondents on another decision of the Supreme Court, Basheshar Nath v. Commissioner of Income-tax, : [1959]35ITR190(SC) . Reliance was next also placed by counsel for the respondents on the decision of the Supreme Court in Manohar Lal Bhogilal Shah v. State of Maharashtra, : 1971CriLJ1157 In that case it was contended that for the offence of smuggling of goods a person could either be dealt with by the customs authorities by proceeding under Section 167(8) of the Sea Customs Act, 1878, or in the alternative or in addition to such proceedings, by instituting a prosecution in a criminal court under Section 187A read with Section 167(81). It was contended that it was left to the unfettered and unguided discretion of the customs authorities to proceed against certain persons under Section 167(8) and others under Section 167(81) or under both the sections. This contention on behalf of the appellant was overruled and it was held that there were enough indications of policy or guidelines in the object, purpose and scheme of the Act. It was further held that in deciding whether a complaint should be instituted for an offence which was covered by both items 8 and 81 of Section 167 of the Act, the customs officer must take into consideration the nature of the contravention and the available evidence and that in certain cases the evidence might not be sufficient for taking the matter to a criminal court and in such cases proceedings may be taken departmentally. Relying on this decision it was contended that there was sufficient indication of policy and guidelines with regard to cases in which action was to be taken by the Central Government in the impugned section itself.
47. In our opinion, the contentions of counsel for the appellant that the powers have been conferred upon the Central Government which arediscriminatory in nature, because in selecting persons against whom proceedings are to be taken, the Central Government might act arbitrarily, and pick and choose between one person and another at its sweet will cannot be accepted. Circumstances which call for action, and conditions which are required to be fulfilled before proceedings are initiated, have been sufficiently denned in the impugned section. Furthermore, the materials disclosed in the application before the Tribunal in this case leave no room for doubt in our mind that prima facie, at any rate, materials did exist for formation of an opinion that the proceeding should be initiated under the impugned section. Formation of opinion by the Central Government is a subjective process and cannot be questioned or challenged by a party aggrieved by the action taken by the Central Government. The only question that the court can look into is the existence of materials to justify formation of such opinion and on that question we are satisfied that materials did exist in this case to enable the Central Government to form an opinion on the question whether action should be taken against the appellant under the impugned section. In our opinion the appellant's contention that Section 388B of the Act is violative of Article 14 must fail and is accordingly rejected.
48. I now turn to another question canvassed before us by counsel for the appellant. It was argued that the Central Government failed to apply its mind to the facts in coming to a decision that action should be taken against the appellant under Section 388B and Section 388E of the Act. In support of this contention, counsel for the appellant relied on the averments in paragraph 8(a) of the affidavit affirmed by Davinder Singh Dang on December 4, 1965, which is to be found at pages 80-81 of the supplementary paper book. In that paragraph of the affidavit it is alleged that the appellant as a director of the company acted in violation of Section 240 of the Act by denying or directing denial by the company's employees of production of relevant books, and also denying assistance to the inspector appointed to investigate into the company's affairs. It is also alleged that such denial embraced refusal to answer questions by the company's officers, and to produce books of the company before the inspector when requested to do so. There are also allegations of destruction of and tampering with relevant records, of suppression of evidence, of fraud and irregularities. These allegations in the affidavit were denied by the appellant. In paragraph 11 of the affidavit affirmed by him on December 4, 1964, the appellant alleged that the materials mentioned above were not considered by the Central Government in forming its opinion as the allegations were not made in the application before the Company's Tribunal nor were they made in the affidavit-in-opposition filed on behalf of the respondents in the writ petition. I do not see how the materials containedin the affidavit of Davinder Singh Dang mentioned above make out a case of non-application of mind by the Central Government. At best it can be said that the additional materials were sought to be introduced and that such materials were not incorporated either in the application before the Companies Tribunal or before the trial court. The question posed by counsel for the appellant is whether the Central Government applied its mind to the materials in coming to a decision that a reference is called for. The allegation that additional evidence was sought to be introduced by the respondent does not support the contention that the Central Government failed to apply its mind.
49. Our attention was drawn in the course of the hearing to a judgment delivered by Mr. Justice Nain of the Bombay High Court on August 28, 1969, on the petition filed by the Central Government under Section 398 of the Act. The charges against the existing and former directors of the company included almost all the charges made in the application before the Tribunal under Section 388B ; in addition to these, however, there were other charges made in that petition. It appears from the judgment that the prayers were that the respondents in that petition, who were directors of the company, be removed from the board of directors of the company, and that some of the other persons, among whom the appellant was one, be restrained by an injunction from interfering with the affairs of the company. We were told by counsel for the respondents that the evidence of the first witness produced by the petitioner, the Union of India, was recorded for about 52 working days. While the first witness was under examination, the respondents in that application, among whom the appellant was one, submitted that if without admitting the allegations against them in the petition, and if without giving any finding on any of the issues framed, and also without prejudice to the respondent's rights and contentions in certain criminal proceedings and proceedings under taxation laws, the court made any order with a view to prevent or render impossible the affairs of the company being conducted in a manner prejudicial to public interest or prejudicial to the interest of the company, or with a view to nullifying the effect of any change in the management and control of the company, they would submit to the orders of the court without objection. The second respondent in that petition, namely, S.P. Jain, further submitted that he would not only submit to the orders of the court without objection but would consent to such orders being passed whatever be the nature of the orders.
50. Thereafter, the court invited learned counsel for the parties to make their submissions with regard to the nature of the orders that the court should make. Upon this direction, counsel for the 4th respondent in that petition (appellant in this appeal) stated that his client submitted to theorders of the court. On these submissions being made on behalf of the respondents in that petition, Nain J. made certain orders to which I will presently refer. But before doing so I should refer to some of the observations of the learned judge, as a good deal of arguments were advanced on the question of admission by the respondents or a finding against them.
51. The learned judge said :
' I have already made it clear in my observations above that making of this order does not involve any admission by any of the respondents of the allegations made against them in the petition, nor my giving a finding on any of the issues framed by the Companies Tribunal or in respect of the truth or correctness of the allegations in the petition.'
52. After making these observations the learned judge reconstituted the board of directors of the company, and directed that the reconstitution of the board should be in operation for seven years. For the purpose of this appeal it is not necessary for me to refer to such reconstitution Thereafter, directions were given to alter the articles of association of the company, and it was provided that these articles should stand modified in the manner provided in the schedule to the order and that the company should not have the power to alter the articles without leave of the court. For the purpose of this appeal, however, the most material portion of the order is as follows :
' The allegations of malversation, misfeasance and embezzlement of the funds of the company made against the past directors and Mrs. Rama Jain are indeed serious and I am of the view that these persons should be disqualified from becoming directors of the company again. I, therefore, hereby order and restrain by an injunction, (1) Shanti Prasad Jain, (2) Gian Chand Jain, (3) Alok Prokash Jain, and (4) Mrs. Rama Jain, from interfering with or intermeddling in the affairs of the company and its conduct and management. '
53. The question of application of mind by the Central Government apart, the judgment of the Bombay High Court discussed above is of considerable importance so far as this appeal is concerned. We were told by counsel for the appellant that an appeal had been preferred to the Supreme Court against the judgment and order of the Bombay High Court and that appeal is now pending. Our attention was drawn by counsel for the appellant to the grounds of appeal and also to an application made by the respondents in the petition before the Bombay High Court for speaking to the minutes. We are told by counsel for the respondent that no stay of operation of the order of the Bombay High Court had been obtained, so that the order disqualifying that appellant from being a director of the company again, and the injunction restraining the appellant from interfering with or intermeddling with the affairs of the company remain in force and are binding. The application for speaking to the minutes was disposed of by an order, dated September 2, 1969. In that application it was contended on behalf of the respondents in that application before the Bombay High Court that although it was submitted by counsel on their behalf that an order should be made without making a finding, a finding had, in fact, been made in so far as it was held that some of the existing and former directors of the company were disqualified from becoming directors again and in so far as the order of injunction was issued restraining them from interfering or intermeddling with the affairs of the company. In dealing with this contention that the order made amounts to a finding, the learned judge observed as follows :
' I do not agree with the contention that this amounts to a finding. The above passage starts with a part of the sentence which begins like this : 'the allegations of malversation and misfeasance and embezzlement of the funds of the company made against the past directors and Mrs. Rama Jain are indeed serious . . . .'
In several places in my order, I have made it amply clear that the order I was making was based on the submission of the party and with a view to prevent recurrence of what was alleged in the petition. The passage which according to the contention on behalf of these respondents is a finding, is not, in my opinion, a finding at all. '
54. It is on the facts mentioned above, and in the events that have happened, that we are to determine if the Central Government applied its mind to the question of making a reference under Section 388B of the Act. The Central Government, without a doubt, came to the conclusion that the facts justified a petition under Section 398 of the Act, and accordingly moved a petition before the Companies Tribunal which was later transferred to the Bombay High Court. The charges in that petition, in so far as they have been stated in the judgment by Nain J., appear to us to be substantially the same as the charges laid in the petition under Section 388B of the Act, which is the subject-matter of this appeal. That application under Section 398 of the Act was prosecuted by the Central Government with great diligence and the hearing of that petition occupied as many as 52 hearing days. A witness on behalf of the Central Government was being examined and a large volume of evidence was recorded by the Companies Tribunal and the Bombay High Court. The hearing of the petition under Section 398 of the Act would have been brought to a conclusion, but for the submissions made by counsel on behalf of the respondents in that petition that they were prepared to submit to any order that the court thought fit to make upon the conditions to which I have referred earlier.
55. Apart from the proceedings under Section 398 of the Act, it is to be remembered that by an order dated April 11, 1963, the Central Governmentin exercise of the powers conferred upon it by Section 237 of the Act had appointed an inspector to investigate the affairs of the company. And the inspector so appointed proceeded to make the investigation though, according to the respondents, this investigation was frustrated by the obstruction set up by the directors of the company and also by lack of co-operation, suppression of material evidence and similar other reasons. This was followed by an application before the Companies Tribunal on September 17, 1964, under Section 388B in which specific charges were made against the directors of the company and also the appellant, according to whom he had ceased to be a director on the day when the application was filed.
56. Whatever other grounds may exist for assailing the order of reference, a charge of non-application of mind or failure to apply its mind by the Central Government cannot, in our opinion, be one of them. Failure to apply its mind implies indecisive conduct which is singularly lacking in this case. Far from there being any evidence of indecisive procrastination the Central Government appears to us to have been extremely prompt, diligent and active in bringing to an end the mismanagement in the affairs of the company. We have therefore no hesitation in rejecting the contention of the counsel for the appellant that the order of reference is bad on the ground of non-application of mind by the Central Government.
57. I now turn to the effect of the judgment of the Bombay High Court so far as this appeal is concerned. It is true that the appellant and the other directors of the company made it clear that they were prepared to submit to an order without admitting any of the allegations made in the petition and also on condition that no finding was made against them ; it is also true that Nain J., in his order dated September 2, 1969, made it amply clear that there was no finding against the appellant and the other directors of the company in the order made on August 28, 1969. But whether a finding was arrived at or not, it is clear that Nain J. was satisfied that, prima facie, there were materials to justify the order disqualifying the appellant and other directors of the company from acting as such directors again and also an injunction restraining them from interfering with the company's affairs. The appellant and the other directors had agreed to submit to any order that the court would make, and the court thought it fit to make the order mentioned above. That order still remains in full force and effect, with the result that the appellant is not only disqualified from becoming a director of the company again in future, but is also restrained by an injunction from interfering with the company's affairs. The appellant voluntarily and willingly agreed to submit to this order and submissions were made on his behalf to that effect before Nain J. It was only after such submissions were made on behalf of the appellantand other directors of the company that the order dated August 28, 1969, was made by Nain J.
58. Keeping in mind the effect of the order of the Bombay High Court mentioned above, it is to be seen if any purpose would be served by the appellant's efforts to stop or nullify the proceedings pending against him in the Bombay High Court under Section 388E of the Act, That section provides for a reference to the High Court against managerial personnel, and upon a reference being made by the Central Government under that section, the High Court is to record a finding as to whether or not the person against whom the reference is made, is a fit and proper person to hold the office of a director or any other office connected with the management of the company. Section 388E(1) of the Act provides that notwithstanding anything contained in the Act the Central Government shall remove from office any director or any other person concerned in the management of the affairs of the company, against whom there is a decision of the High Court under Chapter IV-A of the Act. Sub-section (3) of Section 388E bars a person, against whom an order of removal from office has been made, from holding the office of a director or any other office connected with the management of the affairs of a company for a period of 5 years from the date of order of removal. The combined effect of Section 388B and Section 388E is that a director or other person connected with the company's management against whom a decision has been recorded by the High Court, is to be removed, by an order of the Central Government, from the office held by him, and he is barred from holding the office for a term of 5 years from the date of the order. This is all that the appellant will suffer in the event of the decision of the Bombay High Court going against him in the proceedings under Section 388B of the Act. But as I have noticed earlier the judgment and order of the Bombay High Court, dated August 28, 1969, imposes a very much more severe penalty upon the appellant, as he has been disqualified from becoming a director of the company again. Whereas, in the proceedings under Section 388B of the Act, if the decision of the High Court went against him, the appellant is liable to be removed from the directorship of the company by the Central Government and remains disqualified from becoming a director for a term of 5 years only, he has voluntarily and willingly submitted to an order imposing a much greater penalty upon him, namely, a disqualification from ever becoming a director of the company and has also submitted to an injunction not to interfere with the affairs of the company. This is the position in which the appellant has placed himself and we see no justification in his efforts, in the events that have happened, to stultify the pending proceedings before the Bombay High Court under Section 388B of the Act.
59. I now proceed to deal briefly with, the contention of the counsel for the appellant that Section 388E as it stood before the amendment by substituting the word ' shall ' for the word 'may' was ultra vires Article 14 of the Constitution, and this invalidity could not be cured merely by the amendment but the section as a whole be re-enacted by Parliament. It was argued that the word 'may' in Section 388E of the Act enabled the Central Government to discriminate between one person and another, although the decision of the High Court had gone against it. In order to avoid such an attack on this section on the ground that it was discriminatory, it was submitted, the amendment was effected by substituting the word ' shall ' for the word ' may '. Such substitution, it was argued, could not save the section which should, according to the counsel for the appellant, have been re-enacted in its entirety. We are unable to accept this contention on behalf of the appellant. No court had declared or held Section 388E of the Act to be void on the ground that it was ultra vires Article 14, nor has our attention been drawn to any decision in which the constitutional validity of that section had been questioned by a court of competent jurisdiction. There would have been a good deal of force in the contention of the counsel for the appellant, if Section 388E was held to be void on the ground that it violated Article 14. But, since that is not so, there is no substance in the contention that the section should be held to be void merely because the amendment has been effected as mentioned above. Parliament which made the enactment is competent to make the amendment of the section, and the section so amended, must be held to be valid.
60. Before passing I should refer to two decisions of the Supreme Court on which Mr. Deb relied in support of his contentions on this point. First of these cases is Saghir Ahmad v. State of U.P., : [1955]1SCR707 In that case the question of vires of the U. P. Road Transport Act, 1951, was under consideration of the Supreme Court. By that Act, the State Government was empowered to declare that road transport services on any route should be run by the, State Government exclusively and it was held that the impugned Act violated Article 19(1)(g) of the Constitution and was not protected by Clause (6) of the article as it stood at the time of enactment and before amendment of the Constitution by the First Amendment Act of 1951. After amendment of Article 19(6) of the Constitution in 1951, the State Government was given the power to carry on any trade or business to the exclusion of private citizens wholly or in part. The question was whether this amendment which came after the impugned enactment could save the enactment from being void. It was held that the amendment of the Constitution which came later could not be invoked to invalidate an earlier legislation which must be regarded as unconstitutional when it was passed. This decision, to our mind, is of no assistance to the appellant because the question considered and the decision were on entirely different points altogether. The question before the Supreme Court was not whether an amendment could be made in a section of the Act without re-enactment of the whole section itself, but whether an enactment which was void under the provisions of the Constitution as it stood at the time when the enactment was made could be protected by a subsequent amendment of the Constitution. The second case relied on by Mr. Deb was Deep Chand v. State of U.P., : AIR1959SC648 This decision reaffirmed the earlier decision of the Supreme Court in Saghir Ahmad v. State of U.P., : [1955]1SCR707 None of these two decisions support the proposition canvassed by Mr. Deb before us, and both of them dealt with a question which is entirely different from the point urged by Mr. Deb.
61. I now turn to the contention of the counsel for the appellant that the Central Government having delegated its powers to the Board of Company Law Administration (hereinafter referred to as ' the Board '), could not make the reference under Section 388B of the Act. The Board was created under Section 10E of the Act, which was introduced in the Companies Act, 1956, by the Companies Amendment Act of 1963. Section 10E provides that the Board is to exercise and discharge such powers and functions conferred on the Central Government by the Act or any other law as may be delegated to it by that Goverment. By a notification dated February 1, 1964, the Central Government delegated to the Board all its powers and functions under the Act except those under certain sections specified in the notification. Therefore, it was argued by the counsel for the appellant that the powers of the Central Government under Section 388B of the Act were delegated to the Board, and by virtue of such delegation the opinion contemplated by Section 388B(1) of the Act must be the opinion of the Board and not of the Central Government. It was argued that by reason of the delegation there was a complete divestiture of the powers of the Central Government which could be exercised by the Board alone. The Central Government, it was further argued, stood denuded of all its powers under Section 388B of the Act.
62. The power of delegation was exercised and a notification was issued by the Central Government in exercise of its powers under Section 637(1) of the Act. Sub-section (2) of that section prescribes various sections, the powers under which cannot be delegated by the Central Government. Section 388B of the Act is not mentioned in Sub-section (2). Sub-section (2A) provides that the Act shall apply in relation to the Company Law Board as they applied in relation to the Central Government in respect of any matter in relation to which the powers and functions of the Central Government had been delegated to the Company Law Board. These are the materialprovisions in the Act relating to delegation of powers by the Central Government to the Board. Before proceeding to deal with Mr. Deb's contentions, I should refer to Sub-section (6) of Section 10E of the Act which is as follows :
' (6) In the exercise of its powers and discharge of its functions, the Company Law Board shall be subject to the control of the Central Government. '
63. Relying on the provisions mentioned above, Mr. Deb submitted that once having delegated its powers under Section 388B of the Act, the Central Government had completely divested itself of the powers created and conferred by that section. The powers under that section, it was argued, could be exercised by the Board alone by virtue of the delegation made by the Central Government. Once having delegated the powers, Mr. Deb argued, it was beyond the competence of the Central Government to make the impugned order of reference, which must, therefore, be held to be void. In support of this contention reliance was placed by the counsel for the appellant, firstly, on Barium Chemicals Ltd. v. Company Law Board, : [1967]1SCR898 As we read that decision, we do not find any support for this proposition in that case. Reliance was next placed on a decision of the Judicial Committee in King Emperor v. Sibnath Banerji, A.I.R. 1945 P.C. 156. In that case the Judicial Committee considered the nature of delegation under two different provisions of the Defence of India Act, 1939, namely, Sub-section (5) of Section 2 and Sub-section (1) of Section 49. It was held that in the case of a delegation under Section 2(5) of the Act, there was delegation in the strict sense of the term and involved a transfer of power or duty to the officer defined in the Sub-section with a corresponding divestiture of the Governor of any responsibility in the matter, and in case of delegation under Section 49(1) the Governor remained responsible for the action of his subordinates taken in his name. To my mind this decision is not an authority for the proposition that in case of every delegation there is a complete divestiture of power to such an extent, that the delegating authority could not exercise the power delegated by him to the delegate. Reliance was next placed on Blackpool Corporation v. Locker, [1948] 1 All E.R. 85 (C.A.). In that case the Minister of Health had, under the Defence Regulations, delegated his powers to take possession of dwelling houses, to local authorities. In exercise of this delegated power the local authority had taken possession of certain premises. The owner of the property declined to make over possession to the local authority on the ground that he wanted to occupy the premises himself. The Minister thereafter purported to confirm the action taken by the local authority and also ratified all the actions that were taken by the local authority. Inconsidering the question whether any of the powers remained vested in the Minister after delegation, it was held that the Minister did not retain general powers of supervision. It was held that in any area of local Government if the Minister had by delegation transferred his powers to a local authority, he stood divested of those powers and that out of the wide executive powers which the primary delegated legislation contained in Regulation 51(1) and had been conferred upon him to be exercised at his discretion, he retained only those powers which in his sub-delegated legislation he had expressly or impliedly reserved to himself. This decision, to our mind, is easily distinguishable from the facts in the appeal now before us because by virtue of Sub-section (6) of Section 10E of the Act, which I have quoted earlier, the Central Government retained the overall control over the Company Law Board in exercise of its powers under the Act. The Central Government, therefore, retained full control over the acts of the Board in discharge of its functions. But, in the decision mentioned above the Minister by his delegation had retained no power for himself and it was, therefore, held that he completely stood divested of all his powers in the regulation.
64. It seems to us that having regard to the provisions in the statute, namely, Sub-section (6) of Section 10E, it must be held that the contention of the counsel for the appellant suffers from a fallacy. It is not a case of absolute delegation so as to hold that the delegating authority stood divested of all its powers. Far from that being the position, the delegating authority, namely, the Central Government, retained full control over the Board under Section 10E(6). Faced with this statutory provision, counsel for the appellant argued that although the Central Government retained control over the Board, that did not entitle the Central Government to take the initiative in any matter covered by the delegation, nor could it come to a decision ignoring the delegation altogether in favour of the Board. Mr. Deb sought support for this contention, firstly, on the decision of the Supreme Court in Bombay Municipal Corporation v. Dhondu Narayan Chowdhary, : [1965]2SCR929 In that case the statute had authorised delegation of the functions of the Commissioner subject to the Commissioner's control and subject to his revision. Construing this provision of delegation the Supreme Court held that the Commissioner could control and exercise administratively as to the kind of cases in which the delegate can take action or the period of time during which the power might be exercised. But, the power to decide whether action was to be taken or not in a particular case could not be under the control or revision of the Commissioner. It seems to me that this decision is against the contentions of the counsel for the appellant. The Central Government in making the reference has done precisely whatthe Supreme Court held the Commissioner could do, namely, select cases in which a reference should be made but it did not take upon itself the power to decide the question involved in the reference one way or the other. Reliance was next placed on another decision of the Supreme Court in State of Punjab v. Hari Kishan Sharma, : [1966]2SCR982 . In that case the Supreme Court considered the question whether the State Government could deal with the applications for licence without having the same dealt with by the licensing authority. It was held that the State Government was not justified in assuming jurisdiction which had been conferred on the licensing authority. The ratio of that decision was that the State Government which was an appellate authority under the statute could not convert itself into an original authority, and deal with the application for licence as an original authority. This decision again does not support the contention of the counsel for the appellant as the Supreme Court did not deal with the question of delegation at all but with the question whether the State Government could assume original jurisdiction in a matter under the statute by which it was appointed an appellate authority. Reliance was next placed on a Bench decision of this court in State of West Bengal v. Ruttonjee & Co., : AIR1970Cal548 , for the proposition that the word ' control' contemplated by Section 8(1) of the Bengal Excise Act meant control to be exercised by issuing general instructions or directions, but that power could not authorise the State Government to issue specific instructions about the disposal of a particular application. Quite apart from the fact that words and terms used in a particular statute in one context cannot be interpreted to have the same meaning used in a different statute in a different context, I am of the opinion that the decision mentioned above does not support the contention of the counsel for the appellant. No instruction, in this case, was issued by the Central Government to the Board, which was left free to decide the question raised by the applicant in the reference under Section 388B of the Act.
65. Counsel for the appellant next relied on a decision in Imperial Hydropathic Hotel Company v. Hampson, [1883] 23 Ch. D. 1. (C.A.). That was an action by some shareholders who were appointed directors of a company in place of the existing directors. The newly appointed directors brought the action against the existing directors to restrain them from acting. It was held that the new directors were not duly appointed and the relief was refused. This decision has nothing, whatsoever, to do with the question of delegation. Reliance was also placed on a decision in In re Patent Invert Sugar Company, [1886] 31 Ch. D. 166 (C.A.). In that case contrary to its regulations a company had passed a resolution to reduce its capital and also another resolution inserting an article for power to reducethe capital. It was held that the court could not confirm the reduction of capital and no resolution could be passed authorising such reduction until after the regulations of the company had been altered. This decision again has no bearing at all on the question of delegation in support of which it was cited. Reliance was also placed on another decision in In re Bank of Hindustan, China and Japan, [1873] 9 Ch. App. 1. . In that case an agreement was entered into by two companies whereby one company was to buy the business of the other and the consideration was to be paid in the shares of the purchasing company. This decision again lends no support to the contention in support of which it was cited.
66. Now to turn to this decision on which Mr. Banerjee relied in support of his contention that there was no complete divestiture of power by the Central Government to the Board. Reliance was placed on a decision of the Supreme Court in Godavari S. Parulekar v. State of Maharashtra, : 1966CriLJ1067 . The contention is that the State Government having delegated the powers conferred upon it under Rule 30 of the Defence of India Rules, 1962, to all District Magistrates within the limits of their jurisdiction, the State Government was competent to pass an order of detention under Rule 30. In that case counsel for the appellant relied on the decision of the Judicial Committee in King Emperor v. Sibnath Banerji, A.I.R. 1945 P.C. 156. in support of his contention that once delegation of powers having been made, the delegating authority stood divested of all its powers. This contention was negatived by the Supreme Court and it was held that by issuing the notification the State Government had not denuded itself of the power to act under Rule 30 of the Rules framed under the Defence of India Act. The next decision relied on by Mr. Banerjee was Huth v. Clarke, [1890] 25 Q.B.D. 391 (Q.B.).. It was contended, on behalf of the appellant in that case, that delegation implied abdication or denudation of power and the power so delegated could not be resumed until the delegation had been specifically revoked. Lord Coleridge C.J., in rejecting the contentions, held as follows :
' The word ' delegation ' implies that powers are committed to another person or body which are, as a Rule, always subject to resumption by the power delegating, and many examples of this might be given. Unless therefore, it is controlled by statute, the delegating power can at any time resume its authority. '
67. In the same case Wills J. held that delegation did not imply a parting with power by the person who granted the delegation but pointed to the conferring of authority to do things which otherwise that person would have to do himself. The next case relied on by Mr. Banerjee was Metropolitan Borough and Town Clerk of Lewisham v. Roberts, [1949] 2 K.B. 608 (C.A.).. Dealing with the question of delegation of power by the Minister of Health, under Regulation 51 of the Defence Regulations, to a town clerk, Denning M.R. held that the Minister was not bound to apply his mind personally to the question of requisitioning a property and that it was sufficient if one official of the department brought his mind to bear on the propriety of it and that delegation to the town clerk was simply administrative machinery so as to enable the administrative function of requisitioning to operate smoothly and efficiently. In expressing these views Denning M. R. disagreed with the observations of Scott L.J. to the contrary in Blackpool Corporation v. Locker, [1948] 1 A11E.R. 85.. This decision, to my mind, is not of any assistance to the respondents in this case as the question before the court was the validity of a delegation made for administrative convenience. But, in this case, we are concerned with the question of a statutory delegation. The Board was created by the Act and the State authorised the Central Government to delegate its powers, under the Act, to the Board. Reliance was next placed on Gordon Dadds & Co. v. Morris, [1945] 2 A11 E.R. 616 (Ch.D.).. In that case, following the dictum of Lord Coleridge in Huth v. Clarke, [1890] 25 Q.B D. 391 (Q.B.). it was held that the word ' delegate ' in Regulation 51(5) of the Defence (General) Regulations was used in its ordinary meaning and a delegation by a competent authority of its powers under that Regulation did not divest that authority of any of its powers under that regulation.
68. The statute in this case clearly prescribes that in exercise of its powers and discharge of its functions the Board shall be subject to the control of the Central Government. This control does not, in our view, end with merely vesting a general supervisory power to be exercised by the Central Government over the activities of the Board. Section 637 of the Act which authorised the Central Government to make the delegation does not indicate that a deligation made under that section has the effect of a complete abdication or surrender of power by the Central Government to the Board. In our view, the position of the Board is that by virtue of the delegation it is enabled to exercise powers and discharge functions, which, but for the delegation, it could not do. The Central Government, in our view, does not, by virtue of the delegation, stand denuded or divested of all its powers under Section 388B of the Act. In that view of the matter the contention of the counsel for the appellant on this point fails and is accordingly rejected.
69. I now turn to the question of the maintainability of the writ petition having regard to the amendment of the Act, by which the Companies Tribunal was abolished and the High Court was substituted in place of the Companies Tribunal and all proceedings pending before the Tribunal stood transferred to the High Court. But, before doing so, I will briefly refer to one other matter. The company involved in this case is Bennett Coleman & Co. Ltd. The charges against the appellant relate to the affairs and administration of this company. The registered office of this company is at Bombay. The principal business of the company, namely, publication of newspapers, journals, etc., is carried on in Bombay. The various acts of misfeasance, fraud, maladministration, misappropriation, etc., alleged against the appellant and other directors of the company, were committed in Bombay. The court, having jurisdiction under the Companies Act, 1956, with regard to this company, is the High Court of Bombay. Against the orders made by the Tribunal in the application for particulars of pleadings and inspection of documents, appeals were preferred to the High Court of Bombay and interim orders were also obtained from the Bombay High Court for stay of proceedings in Case No. 1 of 1964. Yet, and in spite of the facts stated above, the writ petition was moved before this court on the ground that copies of the applications filed before the Companies Tribunal under Section 388B and Section 388C of the Act were served upon the appellant in Calcutta within the jurisdiction of this court. Service of the applications in Calcutta within the jurisdiction of this court is one of the allegations made in the writ petition to attract the jurisdiction of this court. The other allegations for this purpose are to be found in paragraph 17 of the petition and these are that the petitioner (appellant) resides in Calcutta, that he is a director of several companies, most of whom have their registered office at Calcutta, that the impugned statute operates all over India including Calcutta and that some of the acts alleged to have been committed by the directors and officers of the company have been committed in Calcutta, and it is on these allegations, it is alleged, that a material part of the cause of action arose within the jurisdiction of this court. It is significant that although the appellant's father had already invoked the jurisdiction of the High Court of Bombay in preferring appeals to that court against the order of the Tribunal as mentioned above, and although the appellant submitted to the jurisdiction of the Bombay High Court in an order being made against him in the application under Section 398 of the Act, the writ petition was moved in this court and not in the High Court of Bombay.
70. I turn now to the amendment of the Act by which the Tribunal was abolished and the High Court was substituted in its place. By virtue of this amendment the respondents' application before the Tribunal, now stands transferred to the High Court of Bombay. The question is whether this court should issue a writ prohibiting the High Court of Bombay to proceed further with the hearing of the application or making an order quashing those proceedings, or making any other order which will have theeffect of interfering with the hearing of the application by the Bombay High Court.
71. The word ' tribunal ' used in Chapter IV-A of the Act was substituted by the words ' High Court ' by the Companies Tribunal (Abolition) Act, 1967. The result of the amendment is that all proceedings under Chapter IV-A are to be commenced before the High Court, having jurisdiction in the matter, and all pending proceedings before the Tribunal, stand transferred to the High Court. In this case, as I have noticed earlier, the proceedings stand transferred to the Bombay High Court and is now pending in that court. The amendment of the Act mentioned above, as I have noticed earlier, was made after the judgment of the trial court and during pendency of this appeal. In the petition, as it stands, no amendment has been made for the purpose of removing the Companies Tribunal from the category of respondents, nor has any amendment been made in the prayers of the petitioner. In prayer (a) a declaration is prayed that Sections 388B to 388E are ultra vires and void. In prayer (b) a writ of mandamus or a writ of prohibition or other appropriate writ or directions or orders have been prayed for prohibiting tbe respondents from proceeding with the application, namely. Case No. 1 of 1964, and ordering them to desist from proceeding with the said application. Prayer (c) is a prayer for a writ or direction or order directing the respondent No. 1 (Union of India) to withdraw or drop the proceedings initiated before the Tribunal. Prayer (d) is a prayer for a direction or order prohibiting the respondents from proceeding with Case No. 1 of 1964 pending the final disposal of the petition. Prayer (g) is a prayer for injunction restraining the respondent No. 1, its servants, agents or officers from proceeding with or taking any further steps in Case No. 1 of 1964 before the Tribunal. These are the prayers on the basis of which the relief was sought from the court below and is sought for now in this appeal.
72. Faced with the difficulty that the Tribunal had ceased to exist, counsel for the appellant pressed before us the prayer for a declaration in terms of prayer (a) and for an injunction restraining the Union of India, its servants and agents from proceeding with the hearing of the application any further. He argued that his client would be content with a declaration and an injunction, and he was not pressing the prayer for a writ of mandamus or prohibition or other appropriate writ as prayed for in prayer (b) of the petition. In our view, the Tribunal before whom the application was made by the first respondent, was a necessary party, and was rightly made a party in the writ petition. If the Tribunal was not made a party in the writ petition, no relief could have been granted to the petitioner because any order made in the writ petition would not have been binding on the Tribunal. If the Tribunal was not made a party in the writ petition,such omission, by itself (apart from other grounds), would have been a ground for rejecting the petition, as any relief that could be granted to the appellant would have become infructuous.
73. Realising the difficulty that a writ cannot be issued by this court against the Bombay High Court so as to stop further hearing of the application, counsel for the appellant pressed for a declaratory relief and also an injunction as mentioned above. It was not contended by Mr. Deb that this court had jurisdiction to issue a writ against the Bombay High Court so as to stop that court from proceeding with the hearing of the pending application. Mr. Deb said that although a writ or order could not be issued against the Bombay High Court, a declaratory relief as prayed for and an injunction should be granted to the appellant. Keeping in mind the fact that the application is now pending before the Bombay High Court, can such an order be made We think not. The effect of such an order would be plainly to stultify the hearing of the application which is now pending before another High Court. This would have the effect of doing indirectly what this court is prevented by law from doing directly. Any attempt to prevent or prohibit the hearing of the pending application before the Bombay High Court in exercise of its statutory jurisdiction would plainly be an abuse of the process of the court and if this court issues an injunction as prayed for restraining the proceedings before the Bombay High Court, it would be acting in excess of its jurisdiction under Article 226 of the Constitution. In our view, the writ jurisdiction of this court does not enable this court to issue writs or orders which would have the effect of interfering with the proceedings before another High Court. For these reasons the objections raised by the counsel for the respondents must be upheld and it must be held that the petition is not maintainable, after amendment of the Act mentioned above, having regard to the abolition of the Companies Tribunal and the transfer of the application to the High Court of Bombay.
74. I have dealt with all the contentions raised by the counsel for the parties, and I see no reason to interfere with the judgment and order of the trial court. This appeal is, therefore, dismissed with costs assessed at twenty gold mohurs.
75. On the prayer of the appellant, the operation of this judgment shall remain stayed till two weeks after the Puja holidays.
P.B. Mukharji, C.J.
I agree