Sections 238 to 242

Investigation : Other matters

[1971] 41 COMP. CAS. 268 (CC)

CENTRAL CRIMINAL COURT

Regina

Harris (Richard)

MACKENNA, J.

JUNE 9, 1970

The first defendent, Richard Reader Harris, and the second defendant, Malcolm Gerald Cass, were directors of Rolls Razor Ltd. and they were tried at the Central Criminal Court on an indictment containing four counts. The first count alleged that both defendants had been guilty of fraudulent trading, contrary to section 332(3) of the Companies Act, 1948, in that between May 6, 1963, and July 1, 1964, they were knowingly parties to the carrying on of the business of Bylock Electric Ltd. with intent to defraud its creditors. The second count alleged that the first defendant as a director of a public company had concurred in making a false written statement of account, contrary to section 84 of the Larceny Act, 1861 ; the account was the balance sheet of Rolls Razor Ltd. as at December 31, 1963, and it was alleged that the first defendant knew that it was false in that the value of subsidiary companies was stated to be in excess of £213,000. Count 3 alleged a similar offence to count 2 against the second defendant. Count 4 alleged that both defendants had attempted fraudulently to induce persons to offer to enter into agreements for subscribing for securities, contrary to section 13(1)(a) of the Prevention of Fraud (Investments) Act, 1958; the securities being non-voting “A” ordinary shares of 1s. each in Bylock Electric Ltd.

The trial before MacKenna J. and a jury began on April 9, 1970, and both defendants were acquitted on all charges. During the trial, the prosecution sought to prove the first defendant’s answers made when examined under section 167(2) of the Companies Act, 1948, in 1964. The judge granted leave but reserved his reasons for doing so until June 9, 1970. The case is reported solely on the question whether the first defendant’s answers were admissible in evidence.,

Jeremy Hutchinson Q.C. and John Wood for the first defendant.

Michael Easi’mm Q.C. and John Lloyd-Eley Q.C. for the second defendant.

D.P. Croom-Johnson Q.C, Michael Corkery and Michal Neligan for the Crown.

June 9. MacKenna J. read the following ruling.In 1964 Mr. Harris was examined under section 167 (2) of the Companies Act, 1948, by inspectors appointed by the Board of Trade to investigate the affairs of Rolls Razor Ltd., a company of which he had been a director between May, 1963, and July, 1964. At his trial before me six years later in 1970, the prosecution asked leave to prove the answers given by him in this examination as tending to establish his guilt on criminal charges connected with thee affairs of that company and of its subsidiary, Bylock Electric Ltd. I gave them leave, reserving the statement of my reasons for a later occasion. Though Mr. Harris has since been acquitted, I think it right that I should give those reasons now.

I shall begin by citing the principal statutory provisions bearing on the question. Section 165 of the Companies Act, 1948, states three cases in which the Board of Trade may appoint inspectors. These are :

“...(b) if it appears to the board that there are circumstances suggesting—(i) that its business is being conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive of any part of its members or that it was formed for any fraudulent or unlawful purpose ; or (ii) that persons concerned with its formation or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards its members; or (iii) that its members have not been given all the information with respect to its affairs which they might reasonably expect”.

Section 167(2), one of the subsections denning the inspectors’ powers and the principal provision for my purpose, provides :

“(2) An inspector may examine on oath the officers and agents of the company or other body corporate in relation to its business, and may administer an oath accordingly”.

It will be observed that the subsection contains no provision dealing in any way with the use of answers given by the person examined in subsequent proceedings, civil or criminal. Section 167(3) provides for the case of the officer or agent’s refusing to produce books or documents or to answer questions : the inspector may certify the refusal to the High Court which may inquire into the case and punish the offender in like manner as if he had been guilty of contempt of court. Subsection (4) dealing with the examination of other persons than officers or agents of the company is in these terms :

“(4) If an inspector thinks it necessary for the purpose of his investigation that a person whom he has no power to examine on oath should be so examined, he may apply to the court and the court may if it sees fit order that person to attend and be examined on oath before it on any matter relevant to the investigation, and on any such examination—(a) the inspector may take part therein either personally or by solicitor or counsel; (b) the court may put such questions to the person examined as the court thinks fit ; (c) the person examined shall answer all such questions as the court may put or allow to be put to him, but may at his own cost employ a solicitor with or without counsel, who shall be at liberty to put to him such question;; as the court may deem just for the purpose of enabling him to explain or qualify any answers given by him ; and notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined, and may thereafter be used in evidence against him”.

I omit the proviso to this subsection which is immaterial.

Before 1967 the question of the admissibility of answers given under section 167(2) had been raised in at least three cases, but no uniform practice had been developed and no authoritative ruling had been given. In 1954 the shorthand notes of the examination, proved by the shorthand writer, had been admitted in evidence in the committal proceedings, but had not been tendered at the trial In 1959 in a trial before Judge Aarvold at the Central Criminal Court evidence of the accused’s answers had been admitted by consent. In 1965 a magistrate had ruled the evidence to be inadmissible, and the evidence had not been tendered at the trial.

In 1967, by section 50 of the Companies Act, 1967, it was provided as follows: “An answer given by a person to a question put to him in exercise of powers conferred by—(a) section 167 of the principal Act...may be used in evidence against him..”.

It was argued for Mr. Harris, (i) that before the Act of 1967 was passed answers given in examination under section 167(2) were inadmissible in subsequent criminal proceedings ; (ii). that section 50 of the Act of 1967 did not apply to examinations held in 1964, before that Act was passed ; and (iii) that even if the answers were admissible, whether under the unamended Act or the Act as amended, I should exclude the evidence in the exercise of my discretion.

The prosecution argued that answers given under the unamended Act were admissible ; in the alternative that if they were admissible only under the amended Act, that Act applied to all trials held after its provisions came into force and made admissible answers given in examinations before that date; and lastly that the discretionary grounds for their exclusion urged by the defence were insufficient ;

In my judgment the prosecution’s first argument was right ; if they needed to rely on the Act of 1967 I would have upheld their second argument that that Act makes admissible answers given in examinations held before the Act was passed. I found no sufficient reasons in the exercise of my discretion for excluding the evidence.

Statutory provisions like those which I have cited are found in one form or another in the Bankruptcy Acts as far back as 1849, from which they have found their way into the modern Companies Acts. Some of the bankruptcy provisions have been the subject of judicial interpretation, notably section 17 of the Bankrupt Law Consolidation Act, 1849, considered by the Court of Criminal Appeal in 1856 in Reg. v. Scott. As the judgments of the majority of the court in that case are my principal reason for accepting the prosecution’s first argument ‘in the present case, I shall deal with them at a little length, first quoting the relevant statutory provision.

Section 117 of the Act of 1849 was in these terms :

“That the court may summon any bankrupt before it,...and upon the appearance of such bankrupt, or if such bankrupt be present at any sitting of the court, it shall be lawful for the court to examine such bankrupt after he shall have made and signed the declaration contained in the schedule W. to this Act annexed, either by word of mouth or on interrogatories in writing, touching all matters relating to his trade, dealings, or estate, or which may tend to disclose any secret grant, conveyance, or concealment of his lands, tenements, goods, money, or debts, and to reduce his answers into writing, which examination so reduced into writing the said bankrupt shall sign and subscribe”.

It was held by the Court of Criminal Appeal, Lord Campbell C.J., Alderson B., Willes J. and Bramwell B., Coleridge J. dissenting, that the answers given by the bankrupt on such examination might afterwards be given in evidence against him upon a criminal charge. In support of the majority view two judgments were given, a shorter one by Alderson B., and a longer one by Lord Campbell C.J. I shall begin with the judgment of Alderson B., at page 67 :

“...my judgment proceeds upon the ground, that if you make a thing lawful to be done, it is lawful in all its consequences; and one of its consequences is, that what may be stated by a person in a lawful examination, may be received in evidence against him. That is quite settled and conformable to a most important maxim of English law”.

Lord Campbell C.J. began, at page 55, by stating the view of the majority that as the questions put to the accused on his examination related to his trade etc., he could not refuse to answer them, although by his answers he might incriminate himself. He dismissed very shortly the objection that the accused’s answers given upon a declaration tantamount to an oath were for that reason inadmissible. The next objection was that a confession, to be admissible in evidence, must be voluntary, and that this examination was compulsory. It was answered by saying that “voluntary” in this connection means “not induced by threats or promises”. “Such an objection” it was said, at page 58, “cannot apply to a lawful examination in the course of a judicial proceeding”. The judge went on to consider the accused’s principal objection, and I shall cite this part of his judgment in full :

“Finally, the defendant’s counsel relies upon the great maxim of English law ‘nemo tenetur se ipsum aceusare.’ So undoubtedly says the common law of England. But Parliament may take away this privilege, and enact that a party may be bound to accuse himself ; that is, that he must answer questions by answering which he may be incriminated. This Act of Parliament, 12 & 13 Vict. c. 106, creates felonies and misdemeanours, and compels the bankrupt to answer questions which may show that he has been guilty of some of those ielonies or misdemeanours. The maxim of the common law therefore has been overruled by the legislature, and the defendant has been actually compelled to give and has given answers showing that he is guilty of the misdemeanour with which he is charged. The accusation of himself was an accomplished fact, and at the trial he was not called upon to accuse himself. The maxim relied upon applies to the time when the question is put, not to the use which the prosecutor seeks to make of the answer when the answer has been given. If the party has been unlawfully compelled to answer the question, he shall be protected against any prejudice from the answer thus illegally extorted ; but a similar protection cannot be demanded where the question was lawful and the party examined was bound by law to answer it. At the trial the defendant’s written examination, signed by himself, was in court, and the reading of it as evidence against him could be no violation of the maxim relied upon. The only argument, as we conceive, that can plausibly be put for the defendant is that there is an implied proviso to be subjoined to section 117, viz. ‘that the examination shall not be used as evidence against the bankrupt on any criminal charge.’ To make it evidence there could be no necessity for any express enactment for that purpose, and an implied proviso appears all that can be contended for. But by this interpolation we may be more likely to defeat than to further the intention of the legislature. Considering the enormous frauds practised by bankrupts upon their creditors, the object may have been, in an exceptional instance, to allow a procedure in England universally allowed in many highly civilised countries. Suppose section 117 had begun with a preamble reciting the frauds of bankrupts, and the importance of having these frauds detected and punished, it would be difficult to say that the legislature intended that no use should be made of the examination except for civil purposes. When the legislature compels parties to give evidence accusing themselves, and means to protect them from the consequences of giving such evidence, the course of legislation has been to do so by express enactment, as in 6 Geo. IV, c. 129, s. 6 and the five other instances adduced in the argument on behalf of the prosecution. We therefore think we are bound to suppose that in this instance, in which no such protection is provided, it was the intention of the legislature to compel the bankrupt to answer interrogatories respecting his dealings and conduct as a trader, although he might thereby accuse himself and to permit his answers to be used against him for criminal as well as civil purposes”.

Reg. v. Scott has often been cited, and so far as I know always followed ; see, for example, Reg. v. Widdop and Reg. v. Erdheim.

I find it as difficult to imply a proviso to section 167(2), that the examination shall not be used as evidence against the officer or agent of the company in any criminal case, as Lord Campbell C.J. did to the section with which he was dealing. Reference to section 165(6) of the Act of 1948 shows that at least one of the purposes of this part of the Act is to facilitate the detection and punishment of fraud. To interpolate a proviso of the kind argued for by the accused would, to use Lord Campbell’s words, be “more likely to defeat than to further the intention of the legislature”.

Mr. Hutchinson founded an argument for Mr. Harris on the provisions of section 167(4). It will be recollected that that subsection expressly provides that the written notes of the examination of a person other than an officer or agent may be used in evidence against that person. As there is no similar provision in section 167(2) dealing with the examination of officers or agents, the natural inference is, it was argued, that the legislature did not intend that answers given by officers or agents should be admissible against them. The history of section 167(2) and (4) makes it difficult to attribute this odd intention to the legislature. I say odd, for it would be surprising if the legislature wished to make it easier for the fraudulent officer or agent to escape conviction than for other persons.

Section 109 of the Companies Act, 1908, is a predecessor of section 167 of the Act of 1948. Section 109(4) gives inspectors the same power of examining officers and agents of a company on oath as they have under section 167(2) of the later Act. But there is no provision in section 109 or elsewhere in the Act of 1908, for the examination of persons other than officers or agents. There is no provision such as Section 167(4). The case is the same in the Companies Act, 1929. Section 135(4) of that Act reproduces section 109(4) of the earlier Act, but again the Act makes no provision for the examination of other persons. That provision is made for the first time in section 42(4) of the Companies Act, 1947, which is in the same words as section 167(4) of the Act of 1948. On this history I would argue thus : I must give the same meaning to section 167(4) of the Act of 1948 as I would have given to its identically worded predecessors, section 135(4) of the Act of 1929 and section 109(4) of the Act of 1908. But in construing these provisions of the earlier Acts their natural meaning—that given by Lord Campbell C.J. to similar words in Scott’s case—could not have been cut down by any argument based on provisions like those of section 167(4) which did not come into the Act until 1947. Therefore, I would disregard section 167(4) in construing section 167(2).

I would not in any case have read section 167(4) as affecting in any way the application of Alderson B.’s principle, that what may be stated by a person in a lawful examination may be received in evidence against him, either in the case of the officer or agent examined under section 167(2) or of the other persons examined under section 167(4). Let me recall its relevant provision :

“........and notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined, and may thereafter be used against him”.

I read those words as providing that the evidence may be given by producing the notes of evidence without calling the person who made them—a form of evidence which would not otherwise have been permissible. Read in this way the words cannot be construed as excluding proof of the examined person’s answers in the ordinary way by oral evidence, whether he is an officer or agent being examined under section 167(2) or any other person under subsection (4). A similar question arose under the Bankruptcy Acts in Reg. v. Erdheim, and I find support for the view which I have just expressed in the judgment of Lord Russell of Killowen C.J. in that case. That was a decision on the Bankruptcy Act, 1883. By this time the provisions of section 117 of the Bankruptcy Act, 1849—the section considered in Scott’s case—had been amended, and the new section 17(8) now provided in words resembling section 167(4) that :

“The debtor shall be examined upon oath, and it shall be his duty to answer all such questions as the court may put or allow to be put to him. Such notes of the examination as the court thinks proper shall be taken down in writing, and shall be read over to and signed by the debtor, and may thereafter be used in evidence against him...”

In Erdheim’s case the notes of examination had not been read over to or signed by the debtor, and therefore could not be used in evidence against him at his subsequent trial. Instead the shorthand writer was called to give oral evidence of the debtor’s answers, and the question was whether that evidence was admissible, or whether section 17(8) excluded the ordinary mode of proof. It was held that it did not, and that the evidence was admissible. This was the reason given by Lord Russell of Killowen C.J., at page 269 :

“I regard the statutory provision, therefore, as one intended to provide only for the most authentic way of presenting to the court the statements made, but not at all as intending to exclude all other modes of giving evidence of statements made by the defendant in the course of his examination. We cannot give effect to the objection made without construing the statute as if it had said—which it does not—that the authenticated examination shall alone be received as evidence of the statements so made. If, then, this view is correct, is there any rule of law by which this evidence should be excluded ? I know of none. I take the general rule to be (apart from any express statutory exceptions) that any statement made by a party relevant to the matter in hand may be given in evidence against him in any civil case, and also in any criminal case, except where such statement is made upon oath improperly administered, or where such statement is not voluntary within the principle to which I have already referred”.

I find support in this reason for my view that answers under section 167(2) are, notwithstanding subsection (4), admissible in evidence against the officer or agent who gave them. I regret that it is a different view from that expressed obiter in a judgment of the Court of Criminal Appeal by Salmon L.J. in 1968. The case is Reg. v. Savundra. The relevant passage which I cite is at page 644 :

“The Act of 1948 provides for information to be given in many instances. Whenever it intends such information to be admissible in evidence against the person who gives it, it says so in express terms (see, for example, section 167(4) and section 270(7)). Accordingly, when it makes provision for information to be given without expressing that it should be admissible in evidence against him who gave it (see, for example, section 167(2)) the true inference probably is that the legislature did not intend the information to be so admissible ; otherwise it would not have been necessary for the legislature to provide as it did in section 50 of the Act of 1967 ..”.

I have said why I do not think that the inference can be drawn from section 167(4). As to the later Act, I prefer to suppose that it was passed for the removal of doubts and not as an implied legislative declaration that the evidence would otherwise have been inadmissible.

I conclude this part of my judgment by a short reference to two passages in the speech of Lord Reid in Reg. v. Harz : Reg. v. Power and to a passage in Cross an Evidence, 3rd ed. (1967), page 233. In Harz’s case the accused had been compelled by customs officers to answer oral questions in the nature of cross examination relating to a possible evasion of purchase tax. Under the Purchase Tax Act, 1963, the customs officers had power to require information relating to the goods but no power to put oral questions or to demand answers on the spot. It was held in these circumstances that the answers were inadmissible. This is the first passage in Lord Reid’s speech, at page 816 :

“If a demand for information is made in the proper manner, the trader is bound to answer the demand within the time and in the form required, whether or not the answer may tend to incriminate him, and, if he fails to comply with the demand, he can be prosecuted. If he answers falsely he can be prosecuted for that and if he answers in such a manner as to incriminate himself I can see no reason why his answer should not be used against him. Some statutes expressly provide that incriminating answers may be used against the person who gives them and some statutes expressly provide that they may not. Where, as here, there is no such express provision the question whether such answers are admissible evidence must depend on the proper construction of the particular statute. Although I need not decide the point, it seems to me to be reasonably clear that incriminating answers to a proper demand under this section must be admissible if the statutory provision is to achieve its obvious purpose”.

Professor Cross says much the same in his book, at page 233:

“It seems that, if information has been lawfully obtained pursuant to statutory provisions and there is no express restriction on the use which can be made of the information, the person giving it cannot object to its being used in evidence against him either on the ground that such use would infringe his privilege against self-incrimination or because the information would not have been given voluntarily”.

This is the second passage from Lord Reid’s speech in Harz’s case, at page 817 :

“The Solicitor-General was asked whether he was aware of any other case in which a government department claimed the right to send a representative to interrogate a person for hours on end under the sanction that he would be prosecuted if he failed to answer any question and that any incriminating answer which he might give under threat of prosecution for failing to answer could be used in evidence against him. But he was unable to cite any parallel case. I am not to be taken as saying that every inquisitional procedure is inherently objectionable : this case may indicate the contrary. But if any such procedure were introduced it would certainly contain safeguards which are absent from the procedure which the appellants”—the Commissioners of Customs and Excise—”support in this case”.

Whether section 167(2) is the parallel case which Lord Reid was seeking, or whether the inspectors are not the Board of Trade’s representatives and so the case is distinguishable, I do not know. The fact remains that section 167(2) provides no safeguards for the officer or agent such as section 167(4) provides for other persons ; questions put only by the court or with the court’s permission and the right to have counsel and a solicitor present and to be re-examined by them. For my part I see no reason why the safeguards should be given in the one case and withheld in the other, but that is the form of the section. Perhaps some day its provisions will be reconsidered.

If I were wrong in holding that the answers were admissible under the unamended subsection, I should have held that they were admissible under section 50 of the Act of 1967, though that section was enacted after the examination had taken place. In this matter our courts have always distinguished between statutes altering the substantive law and those altering rules of procedure or the law of evidence. Where the trial is held after the substantive law is changed, they apply the old law to transactions taking place before the change was made and the new law only to subsequent transactions. But where the change is in the rules of procedure or the law of evidence, the new law is applied in both cases.

Whether this is to give statutes about procedure and evidence retrospective effect, as Lord Blackburn said in Gardner v. Lucas or whether these statutes are construed as giving directions to the court about its mode of hearing all future cases and are in that sense not retrospective at all, as Harman L.J. said in Blyth v. Blyth and Pugh is a difference of words only. However the matter is expressed, we have Lord Blackburn’s authority in Gardner’s case for holding that the rule is the same both for criminal and civil cases, at page 603 :

“...where alterations are made in matters of evidence, certainly upon the reason of the thing, and I think upon the authorities also, those are retrospective, whether civil or criminal”.

I have been referred to criminal cases since Lord Blackburn’s time, none of them very like the present case, in which the rule was applied as he stated it. No doubt the rule, like most of our rules, is subject to exceptions where they are required by the justice of the case, and the real question is whether there is any good ground for treating the present case as exceptional. Mr. Hutchinson argued that there was. His argument can be stated in three propositions: (i) If Mr. Harris had been examined after the Act of 1967 had been passed, he could, on the true construction of that Act, have objected to answering questions on the ground that his answers might incriminate him, that is to say, might be used against him in criminal proceedings, (ii) He could not have made that objection at his examination in 1964 because ex hypothesi his answers could not then have been used against him. (iii) If the first proposition is right, Parliament cannot have intended in 1967 that the new law should be applied except in cases where the examined person had a right of objection. As persons examined before the Act was passed had according to the second proposition no such right, Parliament cannot have intended that the Act should apply to them, or, to put it in other words, the justice of the case requires that they should be treated as exceptional cases and kept outside the Act.

In my judgment the first proposition is wrong, and therefore the argument collapses. The first proposition is inconsistent with the reasoning of Lord Campbell C.J. in Scott’s case and with that of Lord Reid in Harz’s case. It would be surprising, though not logically impossible, if Parliament had provided that a man’s evidence might be used against him, while giving him at the same time a right to withhold that evidence. I do not think that Parliament has done so in the Act of 1967.

On this part of the case I have had the assistance of a judgment of Judge Gillis on the separate trial of Mr. Harris’s co-defendants, Mr. Sowley and Mr. Collins. Assuming for the purposes of his judgment that the unamended Act did not enable the evidence to be given, he held—as I would also have been prepared to hold if I had made the same assumption—that the Act of 1967 made admissible the answers which they gave in examination held before that Act was passed.

It was argued that the evidence, even if admissible in law, should be excluded by the court in the exercise of its discretion. As Mr. Harris has since been acquitted, it would be useless to state my reasons for rejecting this argument.

[1972] 42 COMP. CAS. 438 (CH.D)

CHANCERY DIVISION

Karak Rubber Co Ltd.

Burden and Others

BRIGHTMAN, J.

JUNE 15, 16, 1971.

JUDGMENT

Brigtman J— The short question with which I must now deal is whether the answers given by two officers of Barclyas Bank Ltd. to the Board of Trade inspectors in the course of an investigation into the affairs of certain companies are admissible in evidence in this action against Barclays Bank Ltd. The material statutory enactments are sections 165 and 167(1), (2) and (5) of the Companies Act, 1948 and section 50 of the Companies Act, 1967, all of which I shall treat as having been read.

The answers fall into two parts. First, the answers of Mr. Hockley and Mr. Copper, officers of Barclays Bank Ltd., which appear in the transcript no. 3 and were elicited on July 18, 1960. The companies then being investigated were Tremelbye (Selangor) Rubber Co Ltd., Anglo-Sumataw Rubber Co Ltd. and Val D’Or Rubber Estate Ltd. Those anwers were not given on oath. The second set of answers were those of Mr. Cooper appearing in transcript no. 18,elicited on February 22, 1961. The companies being investigated included the Karak Rubber Co Ltd. the plaintiffs in this action and the answers were given on oath.

I will deal with the answers in transcript no. 18 first. Section 167(2) of the Companies Act, 1948, read with sub-section(5), empowers the Board of Trade inspectors to examine the company’s bankers oath. Obviously this includes power to examine an agent of the company’s bankers, at any rate if such bankers are a corporation, as they normally will be. The point taken on behalf of Barclays Bank Ltd. — not, I was told, with any attempt to conceal facts, (for I have in fact read the answers) but as a procedural point—is that Mr. Cooper was not an agent authorised by the bank to answer questions under section 167 with the result, it is said, that his answers are not admissible in evidence in these proceedings against the bank.

On October 20,1960, the Board of Trade inspectors informed Barclays Bank that an order had been made for an investigation into the affairs of Mocasin Shomakers Ltd and that under section 166 the investigation would be carried into the affairs of the Karak Rubber Co. Ltd. was in fact made on November 14. On January 18, 1961, in a letter addressed to the Board of Trade inspectors and headed, In the matter of three companies, including the Kartak Rubber Co Ltd., Barclays Ltd. enclosed copies of three reports which had been given to the bank by Mr. Cooper. On January 24, 1961, the Board of Trade inspectors wrote a letter in the following terms to Barclays Bank Ltd.

“Thank you for your letter of January 18 enclosing Mr. Cooper’s recollections of the meetings referred to. I t may be that we shall require to see Mr. Cooper, in which case we shall, of course, get in touch with our department first.”

“As I have said, Mr. Copper was, at the time of investigation, an officer of the company’s bankers. On my reading of the correspondence of Barclays Bank Ltd. were invited to tender him for examination under section 167. Mr. Copper did so attend. I infer, in the absence of any evidence the contrary, that he attended with the authority of Barclays Bank Ltd. His answers, therefore, are, in my judgment, admissible— in fact of course, to weight— in evidence against the bank under section 50 of Act of 1967.

Somewhat different considerations apply in the case of the answers contained in transcript no. 3 The only answers which are admissible in reference under the Act of 1967 are those given by a person t questions put to him in exercise, so far as relevant, of the powers under section 167. The answers so admissible clearly include answers on oath which the inspectors elicited as a result of the examination to which section 167(2) refers.

In my judgement the answers so admissible in evidence do not include unsworn answers given as a result of what I might term informal questioning by the Board of Trade inspectors. There is, of course, nothing whatever improper in the inspectors so questioning a person informally, but it does seem to me that unsworn answers given in those circumstances are outside the ambit of section 50 on any fair reading of that section with section 167 of the Act of 1948. The Board of Trade inspectors have not got, and do not require, any statutory authority to put a series of oral questions to a person as a preliminary to their investigation into the affairs of the company, but I do not think answers given in those circumstances, unsworn, are really the sort of anwers which section 50 of the Act of 1967 has in mind.

In those circumstances I reach the conclusion that the answers in transcript no. 18 to which I have referred are admissible in evidence against the bank, but not the answers in transcript no. 3.

[1971] 41 COMP CAS 268 (CA)

IN THE CENTRAL CRIMINAL COURT

Regina

Harris (Richard)

MACKENNA J.

JUNE 9, 1970

Jeremy Hutchinson Q.C. and John Wood for the first defendant.

Michael Eastham Q.C. and John Lloyd-Eley Q.C. for the second defendant.

D.P. Croom-Johnson Q.C. Michael Corkery and Michal Neligan for the Crown.

June 9. MacKenna J. read the following ruling. In 1964 Mr. Harris was examined under section 167 (2) of the Companies Act, 1948, by inspectors appointed by the Board of Trade to investigate the affairs of Rolls Razor Ltd., a company of which he had been a director between May, 1963, and July, 1964. At his trial before me six years later in 1970, the prosecution asked leave to prove the answers given by him in this examination as tending to establish his guilt on criminal charges connected with the affairs of that company and of its subsidiary, Bylock Electric Ltd. I gave them leave, reserving the statement of my reasons for a later occasion. Though Mr. Harris has since been acquitted, I think it right that I should give those reasons now.

" ...(b) if it appears to the board that there are circumstances suggesting-(i) that its business is being conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive of any part of its members or that it was formed for any fraudulent or unlawful purpose ; or (ii) that persons concerned with its formation or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards its members; or (iii) that its members have not been given all the information with respect to its affairs which they might reasonably expect."

Section 167 (2), one of the subsections defining the inspectors' powers and the principal provision for my purpose, provides:

"(2) An inspector may examine on oath the officers and agents of the company or other body corporate in relation to its business, and may administer an oath accordingly."

It will be observed that the subsection contains no provision dealing in any way with the use of answers given by the person examined in subsequent proceedings, civil or criminal. Section 167 (3) provides for the case of the officer or agent's refusing to produce books or documents or to answer questions : the inspector may certify the refusal to the High Court which may inquire into the case and punish the offender in like manner as if he had been guilty of contempt of court. Subsection (4) dealing with the examination of other persons than officers or agents of the company is in these terms:

"(4) If an inspector thinks it necessary for the purpose of his investigation that a person whom he has no power to examine on oath should be so examined, he may apply to the court and the court may if it sees fit order that person to attend and be examined on oath before it on any matter relevant to the investigation, and on any such examination ‑ (a) the inspector may take part therein either personally or by solicitor or counsel; (b) the court may put such questions to the person examined as the court thinks fit; (c) the person examined shall answer all such questions as the court may put or allow to be put to him, but may at his own cost employ a solicitor with or without counsel, who shall be at liberty to put to him such questions as the court may deem just for the purpose of enabling him to explain or qualify any answers given by him; and notes of the examination shall be taken down in writing; and shall be read over to or by, and signed by, the person examined, and may thereafter be used in evidence :

I omit the proviso to this subsection which is immaterial.

Before 1967 the question of the admissibility of answers given under section 167(2) had been raised in at least three cases, but no uniform practice had been developed and no authoritative ruling had been given. In 1954 the shorthand notes of the examination, proved by the shorthand writer, had been admitted in evidence in the committal proceedings, but had been tendered at the trial. In 1959 in a trial before Judge Aarvold at the Central Criminal Court evidence of the accused's answers had been Admitted by consent. In 1965 a magistrate had ruled the evidence to be inadmissible, and the evidence had not been tendered at the trial.

In 1967, by section 50 of the Companies Act, 1967, it was provided as follows: "An answer given by a person to a question put to him in exercise of powers conferred by‑(a) section 167 of the principal Act...may be used in evidence against him..."

It was argued for Mr. Harris, (i) that before the Act of 1967 was passed answers given in examination under section 167 (2) were inadmissible in sub-sequent criminal proceedings; (ii) that section 50 of the Act of 1967 did not apply to examinations held in 1964, before that Act was passed; and (iii) that even if the answers were admissible, whether under the unamended Actor the Act as amended, I should exclude the evidence in the exercise of my discretion.

The prosecution argued that answers given under the unamended Act were admissible; in the alternative that if they were admissible only under the amended Act, that Act applied to all trials held after its provisions came into force and made admissible answers given in examinations before that date; and lastly that the discretionary grounds for their exclusion urged by the defence were insufficient.

In my judgment the prosecution's first argument was right; if they needed to rely on the Act of 1967 I would have upheld their second argument that that Act makes admissible answers given in examinations held before the Act was passed. I found no sufficient reasons in the exercise of my discretion for excluding the evidence.

Statutory provisions like these are found in one form or another in the Bankruptcy Acts as far back as 1849, from which they have found their way into the modern Companies Acts. Some of the bankruptcy provisions have been the subject of judicial interpretation, suitably action 117 of the Bankrupt Law Consolidation Act, 1849, considered by the Court of Criminal Appeal in 1856 in Reg. v. Scoll. As the judgments of the majority of the court in that case are my principal reason for accepting the prosecution's first argument in the present case, I shall deal with them at a little length, first quoting the relevant statutory provision.

Section 117 of the Act of 1849 was in these terms:

"That the court may summon any bankrupt before it,...and upon the appearance of such bankrupt, or if such bankrupt be present at any sitting of the court, it shall be lawful for the court to examine such bankrupt after he shall have made and signed the declaration contained in the schedule W. to this Act annexed, either by word of mouth or on interrogatories in writing, touching all matters relating to his trade, dealings, or estate, or which may tend to disclose any secret grant, conveyance, or concealment of his lands, tenements, goods, money, or debts, and to reduce his answers into writing, which examination so reduced into writing the said bankrupt shall sign and subscribe."

It was held by the Court of Criminal Appeal, Lord Campbell C.J., Alderson B., Willes J. and Bramwell B., Coleridge J. dissenting, that the answers given by the bankrupt on such examination might afterwards be given in evidence against him upon a criminal charge. In support of the majority view two judgments were given, a shorter one by Alderson B., and a longer one by Lord Campbell CJ. I shall begin with the judgment of Alderson B., at page 67 :

"...my judgment proceeds upon the ground, that if you make a thing lawful to be done, it is lawful in all its consequences; and one of its consequences is, that what may be stated by a person in a lawful examination, may be received in evidence against him. That is quite settled and conformable to a most important maxim of English law."

Lord Campbell C. J. began, at page 55, by stating the view of the majority that as the questions put to the accused on his examination related to his trade etc., he could not refuse to answer them, although by his answers he might incriminate himself. He dismissed very shortly the objection that the accused's answers given upon a declaration tantamount to an oath were for that reason inadmissible. The next objection was that a confession, to be admissible in evidence, must be voluntary, and that this examination was compulsory. It was answered by saying that "voluntary" in this connection means "not induced by threats or promises." "Such an objection" it said, at page 58, "cannot apply to a lawful examination in the course of judicial proceeding." The judge went on to consider the accused's objection, and I shall cite this part of his judgment in full:

"Finally, the defendant's counsel relies upon the great maxim of English law 'nemo tenetur se ipsum accusare.' So undoubtedly says the common law of England. But Parliament may take away this privilege, and enact that a party may be bound to accuse himself; that is, that he must answer questions by answering which he may be incriminated. The maxim of the common law therefore has been overruled by the legislature, and the defendant has been actually compelled to give and has given answers showing that he is guilty of the misdemeanour with which he is charged. The accusation of himself was an accomplished fact, and at the trial he was not called upon to accuse himself. The maxim relied upon applies to the time when the question is put, not to the use which the prosecutor seeks to make of the answer when the answer has been given. If the party has been unlawfully compelled to answer the question, he shall be protected against any prejudice from the answer thus illegally extorted; but a similar protection cannot be demanded where the question was lawful and the party examined was bound by law to answer it. At the trial the defendant's written ' examination, signed by himself, was in court, and the reading of it as evidence against him could be no violation of the maxim relied upon. The only argument, as we conceive, that can plausibly be put for the defendant is that there is an implied proviso to be subjoined to section 117, viz. 'that the examination shall not be used as evidence against the bankrupt on any criminal charge.' To make it evidence there could be no necessity for any express enactment for that purpose, and an implied proviso appears all that can be contended for. But by this interpolation we may be more likely to defeat than to further the intention of the legislature. Considering the enormous frauds practised by bankrupts upon their creditors, the object may have been, in an exceptional instance, to allow a procedure in England universally allowed in many highly civilised countries. Suppose section 117 had begun with a preamble reciting the frauds of bankrupts, and the importance of having these frauds detected and punished, it would be difficult to say that the legislature intended that no use should be made of the examination except for civil purposes. When the legislature compels parties to give evidence accusing themselves, and means to protect them from the consequences of giving such evidence, the course of legislation has been to do so by express enactment, as in 6 Geo. IV, c. 129, s. 6 and the five other instances adduced in the argument on behalf of the prosecution. We therefore think we are bound to suppose that in this instance, in which no such protection is provided, it was the intention of the legislature to compel the bankrupt to answer interrogatories respecting his dealings and conduct as a trader, although he might thereby accuse himself and to permit his answers to be used against him for criminal as well as civil purposes."

Reg. v. Scott has often been cited, and so far as I know always followed ; see, for example; Reg. v. Widdop and Reg. v. Erdheim.

I find it is difficult to imply a proviso to section 167(2), that the examination shall not be used as evidence against the officer or agent of the company in any criminal case as Lord Campbell C.J. did to the section with which he was dealing. Reference to section 165(6) of the Act of 1948 shows that at least.

Section 109 of the Companies Act, 1908, is a predecessor of section 167 of the Act of 1948. Section 109(4) gives inspectors the same power of examining officers and agents of a company on oath as they have under section 167(2) of the later Act. But there is no provision in section 109 or elsewhere in the Act of 1908, for the examination of persons other than officers or agents. There is no provision such as section 167(4). The case is the same in the Companies Act, 1929. Section 135(4) of that Act reproduces section 109(4) of the earlier Act, but again the Act makes no provision for the examination of other persons. That provision is made for the first time in section 42(4) of the Companies Act, 1947, which is in the same words as section 167(4) of the Act of 1948. On this history I would argue thus: I must give the same meaning to section 167(4) of the Act of 1948 as I would| have given to its identically worded predecessors, section 135(4) of the Act of 1929 and section 109(4) of the Act of 1908. But in construing these provisions of the earlier Acts their natural meaning ‑ that given by Lord Campbell C.J. to similar words in Scott's case ‑ could not have been cut down by any argument based on provisions like those of section 167(4) which did not come into the Act until 1947. Therefore, I would disregard section 167(4), in construing section 167(2).

I would not in any case have read section 167(4) as affecting in any way the application of Alderson B.'s principle, that what may be stated by a person in a lawful examination may be received in evidence against him, either in the case of the officer or agent examined under section 167(2) or of the other persons examined under section 167(4). Let me recall its relevant provision:

"...and notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined, and may thereafter be used against him."

I read those words as providing that the evidence may be given by producing the notes of evidence without calling the person who made them-a form of evidence which would not otherwise have been permissible. Read in this way the words cannot be construed as excluding proof of the examined person's answers in the ordinary way by oral evidence, whether he is an officer or agent being examined under section 167(2) or any other person under subsection (4). A similar question arose under the Bankruptcy Acts in Reg. v. Erdheim and I find support for the view which I have just expressed, in the judgment of Lord Russell of Killowen C.J. in that case. That was a decision on the Bankruptcy Act, 1883. By this time the provisions of section 117 of the Bankruptcy Act, 1849 the section considered in Scott's case‑had been amended, and the new section 17(8) now provided in words resembling section 167(4) that:

"The debtor shall be examined upon oath, and it shall be his duty to answer all such questions as the court may put or allow to be put to him. Such notes of the examination as the court thinks proper shall be taken down in writing, and shall be read over to and signed by the debtor, and may thereafter be used in evidence against him..."

In Erdheim's case the notes of examination had not been read over to or signed by the debtor, and therefore could not be used in evidence against him at his subsequent trial. Instead the shorthand writer was called to give oral evidence of the debtor's answers, and the question was whether that evidence was admissible, or whether section 17(8) excluded the ordinary mode of proof. It was held that it did not, and that the evidence was admissible. This was the reason given by Lord Russell of Killowen C.J., at page 269:

“I regard the statutory provision, therefore, as one intended to provide Only for the most authentic way of presenting to the court the statements made, but not at all as intending to exclude all other modes of giving evidence of statements made by the defendant in the course of his examination. We cannot give effect to the objection made without construing the statute it had said‑which it does not‑that the authenticated examination shall alone be received as evidence of the statements so made. If, then, this view is correct, is there any rule of law by which this evidence should be excluded? I know of none. I take the general rule to be (apart from any express statutory exceptions) that any statement made by a party relevant to the matter in hand may be given in evidence against him in any civil case, and also in any criminal case, except where such statement is made upon oath improperly administered, or where such statement is not voluntary within the principle to which I have already referred."

"The Act of 1948 provides for information to be given in many instances. Whenever it intends such information to be admissible in evidence against the person who gives it, it says so in express terms (see, for example, section 167(4) and section 270(7)). Accordingly, when it makes provision for information to be given without expressing that it should be - admissible in evidence against him who gave it (see, for example, section 167(2)) the true inference probably is that the legislature did not intend the information to be so admissible; otherwise it would not have been necessary for the legislature to provide as it did in section 50 of the Act of 1967... "

I conclude this part of my judgment by a short reference to two passages in the speech of Lord Reid in Reg. v. Harz: Reg. v. Power and to a passage in Cross on Evidence, 3rd ed. (1967), page 233. In Harz's case the accused had been compelled by customs officers to answer oral questions in the nature of cross examination relating to a possible evasion of purchase tax. Under the Purchase Tax Act, 1963, the customs officers had power to require information relating to the goods but no power to put I oral questions or to demand answers on the spot. It was held in these circumstances that the answers were inadmissible. This is the first passage in Lord Reid's speech, at page 816:

"If a demand for information is made in the proper manner, the trader is bound to answer the demand within the time and in the form required, whether or not the answer may tend to incriminate him, and, if fails to comply with the demand, he can be prosecuted. If he answers falsely he can be prosecuted for that and if he answers in such a manner as to incriminate himself I can see no reason why his answer should not be used against him. Some statutes expressly provide that incriminating answers may be used against the person who gives them and some statutes expressly provide that they may not. Where, as here, there is no such express provision the question whether such answers are admissible evidence must depend on the proper construction of the particular statute. Although I need not decide the point-, it seems to me to be reasonably clear that incriminating answers to a proper demand under this section must be admissible if the statutory provision is to achieve its obvious purpose."

Professor Cross says much the same in his book, at page 233:

"It seems that, if information has been lawfully obtained pursuant to statutory provisions and there is no express restriction on the use which can be made of the information, the person giving it cannot object to its being used in evidence against him either on the ground that such use would infringe his privilege against self-incrimination or because the information would not have been given voluntarily."

This is the second passage from Lord Reid's speech in Harz's case, at page 817:

"The Solicitor-General was asked whether he was aware of any other case in which a government department claimed the right to send a representative to interrogate a person for hours on end under the sanction that he would be prosecuted if he failed to answer any question and that any incriminating answer which he might give under threat of prosecution for failing to answer could be used in evidence against him. But he was unable to cite any parallel case. I am not to be taken as saying that every inquisitional procedure is inherently objectionable: this case may indicate the contrary. But if any such procedure were introduced it would certainly contain safeguards which are absent from the procedure which the appellants"—the Commissioners of Customs and Excise—"support in this case."

Whether section 167(2) is the parallel case which Lord Reid was seeking, or whether the inspectors are not the Board of Trade's representatives and so the case is distinguishable, I do not know. The fact remains that section 167(2) provides no safeguards for the officer or agent such as section 167(4) provides for other persons; questions put only by the court or with the court's permission and the right to have counsel and a solicitor Present and to be re-examined by them. For my part I see no reason why the safeguards should be given in the one case and withheld in the other, but that is the form of the section. Perhaps some day its provisions will be reconsidered.

Whether this is to give statutes about procedure and evidence retrospective effect, as Lord Blackburn said in Gardner v. Lucas or whether these statutes are construed as giving directions to the court about its mode of hearing all future cases and are in that sense not retrospective at all, as Harman L.J. said in Blyth v. Blyth and Pugh is a difference of words only. However the matter is expressed, we have Lord Blackburn's in authority in Gardner's case for holding that the rule is the same both for criminal and civil cases, at page 603:

"... where alterations are made in matters of evidence, certainly upon the reason of the thing, and I think upon the authorities also, are retrospective, whether civil or criminal."

I have been referred to criminal cases since Lord Blackburn's time, none of them very like the present case, in which the rule was applied as he stated it. No doubt the rule, like most of our rules, is subject to exceptions where they are required by the justice of the case, and the real question is whether there is any good ground for treating the present case as exceptional. Mr. Hutchinson argued that there was. His argument can be stated in three propositions: (i) If Mr. Harris had been examined after the of 1967 had been passed, he could, on the true construction of that Act have objected to answering questions on the ground that his answers n incriminate him, that is to say, might be used against him in criminal proceedings. (ii) He could not have made that objection at his examination in 1964 because ex hypothesi his answers could not then have been used against him; (iii) If the first proposition is right, Parliament cannot have intended in 1967 that the new law should be applied except in cases where the examined person had a right of objection. As persons examined before the Act was passed had according to the second proposition no such right, Parliament cannot have intended that the Act should apply to them, put it in other words, the justice of the case requires that they should be treated as exceptional cases and kept outside the Act.

In my judgment the first proposition is wrong, and therefore the argument collapses. The first proposition is inconsistent with the reasoning of Lord Campbell C.J. in Scott's case, and with that of Lord Reid in Harz's case. It would be surprising, though not logically impossible, if Parliament had provided that a man's evidence might be used against him, while giving him at the same time a right to withhold that evidence. I do not think that Parliament has done so in the Act of 1967.

On this part of the case I have had the assistance of a judgment of Judge Gillis on the separate trial of Mr. Harris's co-defendants, Mr. Sowley and Mr. Collins. Assuming for the purposes of his judgment that the unamended Act did not enable the evidence to be given, he held-as I would also have been prepared to hold if I had made the same assumption-that the Act of 1967 made admissible the answers which they gave in examination held before that Act was passed.

[1971] 41 COMP. CAS. 769 (SC)

COURT OF APPEAL

Pergamon Press Ltd., In Re

LORD DENNING M.R., SACHS AND BUCKLEY L., JJ.

APPEALS FROM PLOWMAN, J.

JULY 7, 8, 9, 10, 13, 1970

Morris Finer Q.C. and Samuel Stamler for the appellant, Robert Maxwell.

Michael Sherrard Q.C. and Alexander Irvine for the appellant, Cecil Thomas Clark.

Patrick Phillips for the appellant, Edwin Sidney Street.

E.S. Fay Q.C. and J.P. Warner for the inspectors.

Lord Denning M.R.— In the middle of 1969 there was an upset in the City of London. It concerned Pergamon Press Ltd., a public company of which, the leading figure was Mr. Robert Maxwell, M.C., M.P. In June, 1969, an American corporation corporation called Leasco made a take over bid for the shares of Pergamon Press Ltd. They bought many of the shares in Pergamon and made an offer to buy the rest, but on August 21, 1969, they withdrew the offer. The price of shares slumped. Dealings were suspended. The City Panel looked into the happenings. They had misgivings, and made them known. In consequence, on September 9, 1969, the Board of Trade ordered an investigation under section 165(b) of the Companies Act, 1948. They appointed two inspectors. One of them was eminent counsel; the other a distinguished accountant.

It was important in the public interest that the investigation should be completed as speedily as possible. Time was of the essence. Only thus could confidence be restored. At once Mr. Robert Maxwell, the most prominent member of the Pergamon Board, assured the inspectors of his full co-operation. He sent a memorandum saying:

“In the interests of clearing the company’s good name and reputation and in the interests of getting the inquiry completed as soon as possible, we promise the inspectors full co-operation.”

So far so good. Soon afterwards, however, things happened which considerably affected the attitude of Mr. Maxwell and his colleagues. On October 10, 1969, the Leasco Corporation, who had a sufficient holding for the purpose, removed Mr. Maxwell and some of the others from the board and appointed new directors in their stead. These new directors were Leasco men. On Novembers 3, 1969, Leasco filed a suit in New York against Mr. Maxwell and some of his companies, charging them with fraud and deceit in connection with the sale of shares in Pergamon. The claim was for $22 million.

These events made Mr. Maxwell and his colleagues apprehensive about the Boards of Trade investigation. They were afraid that the inspectors might make an interim report, which would find its way into the hands of Leasco and be used against them in the American litigation. They were also fearful lest allegations should be made which would reflection their conduct.

In November, 1969, the inspectors told each of the directors that they would like to hear evidence from them. They said that their hearings would be in private at the offices of the accountants. They added:

“It is our intention to permit any witness, who desires it; to be represented. Whilst information which you may, give us may be reflected in our report, it is right to tell you that any information which we receive will be treated as confidential save for the purpose of reporting to the Board of Trade, Trade, who may publish our report.”

The inspectors also said that they would allow any witness to obtain a copy of his own evidence and give him an opportunity of supplementing it, if he desired.

This did not satisfy Mr. Maxwell and his colleagues. They decided to ask the inspectors for further assurances about the conduct of the inquiry. They wanted to be assured that, incase allegations were made against them, they should be given an opportunity to read the transcripts of the evidence and of meeting the allegations by evidence or-by written or oral submissions.

The inspectors replied on December 1, 1969, that they were

“most anxious that no one affected by our; inquiries should feel that he has been unjustly treated at our hands and neither of us would be a party to acting under the provisions of section 41 in respect of anyone or criticising anyone in either an interim report or a final report without first giving the person concerned an opportunity of giving us his explanation, which implicitly involves that he should be told in general terms of the allegation. We cannot, however, agree to allowing you a right to peruse the transcripts.”

I will hot read the letter in full. It was, to my mind, a very proper letter, giving every reasonable assurance.

But these assurances did not satisfy Mr. Maxwell and his colleagues. They demanded even more assurances. The inspectors declined to give them.

A little later the inspectors called on the directors to give evidence. Each of them refused. Typical was the attitude of Mr. Robert Maxwell himself. He came with his solicitor, Mr. Freeman, to the place where the inspectors were meeting. He gave his name and address and said that he was the holder of the Military Cross and a member of Parliament. Then Mr. Stable, a Queen’s Counsel, one of the inspectors, asked him this simple question, “When did you first become associated with Pergamon Press Ltd.?” to which Mr. Maxwell replied: “Mr. Stable, in view of the submissions made on my behalf by Mr. Freeman, I respectfully refuse to answer any further questions unless I am ordered to do so by the court.” This attitude left the inspectors with no alternative but to report the refusal to the court.

Accordingly, they gave a certificate under section 167(3) of the Companies Act, 1948, and made an affidavit setting out the facts. The matter came before Plowman J. [1970] 1 W.L.R. 1075, on April 24, 1970. He held that the objections taken by the directors were premature; they were not justified in their refusal to answer the questions. He made no order against them save that they pay the costs of the application.

The directors appeal to this court. Mr. Morris Finer on behalf of Mr. Maxwell, claimed that they had a right to see the transcripts; of the evidence of the witnesses adverse to them. Mr. Sherrard, on behalf of Mr. Clark, claimed a right to cross-examine the witnesses. Mr. Phillips, on behalf of Mr. Street, claimed that they ought to see any proposed finding against them before it was included finally in the report. In short, the directors claimed that the inspectors should conduct the inquiry much as if it: were a judicial inquiry in a court of law in which Mr. Maxwell and his colleagues were being charged with an offence.

It seems to me that this claim on their part went too far. This inquiry was not a court of law. It was an investigation in the public interest, in which all should surely co-operate, as they promised to do. But if the directors went too far on their side, I am afraid that Mr. Fay, for the inspectors, went too far on the other. He did it very tactfully, but he did suggest that in point of law, the inspectors were not bound by the rules of natural justice-He said that in all the cases where natural justice had been applied hitherto, the tribunal was under a duty to come to a determination or decision of some kind or other. He submitted that when there was no determination or decision but only an investigation or inquiry, the rules of natural justice did not apply. He cited Parry-Jones v. Law Society to support his proposition.

I cannot accept Mr. Fay’s submission. It is true, of course, that the inspectors are not a court of law. Their proceedings are not judicial proceedings : see In re Grosvenor & West-End Railway Terminus Hold Co. Ltd. They are not even quasi-judicial, for they decide nothing; they determine nothing. They only investigate and report. They sit in private and are hot entitled to admit-the public to their meetings; see Hearts, of Oak Assurance Co. Ltd. v. Attorney-General. They do not even decide whether there is a prima facie case, as was done in Wiseman v. Borneman.

But this should not lead us to minimise the significance of their task. They have to make a report which may have wide repercussions. They may, if they think fit, make findings of fact which are very damaging to those whom they name. They may accuse some; they may condemn others; they may ruin reputations or careers. Their report may lead to judicial proceedings. It may expose persons to criminal prosecutions or to civil actions. It may bring about the winding up of the company, and be used itself as material for the winding up: see In re S. B. A. Properties Ltd. Even before the inspectors make their report, they may inform the Board of Trade of facts which tend to show that an offence has been committed: see section 41 of the Act of 1967. When they do make their report, the board are bound to send a copy of it to the company ; and the board may, in their discretion, publish it, if they think fit, to the public at large.

Seeing that their work and their report may lead to such consequences, I am clearly of the opinion that the inspectors must act fairly. This is a duty which rests on them, as on many other bodies, even though they are not judicial, nor quasi-judicial, but only administrative: see Reg. v. Gaming Board for Great Britain, Ex parte Benaim and Khaida. The inspectors can obtain information in any way they think best, but before they condemn or criticise a man, they must give him a fair opportunity for correcting or contradicting what is said against him. They need not quote chapter and verse. An outline of the charge will usually suffice.

That is what the inspectors here propose to do, but the directors of the company want more. They want to see the transcripts of the witnesses who speak adversely of them, and to see any documents which may be used against them. They, or some of them, even claim to cross-examine the witnesses.

In all this the directors go too far. This investigation is ordered in the public interest. It should not be impeded by measures of this kind. Witnesses should be encouraged to come forward and not hold back. Remember, this not being a judicial proceeding, the witnesses are not protected by an absolute privilege, but only by a qualified privilege: see O’Connor v. Waldron It is easy to imagine a situation in which, if the name of a witness were disclosed, he might have an action brought against him, and this might deter him from telling all he knew. No one likes to have an action brought against him, however unfounded. Every witness must, therefore, be protected. He must be encouraged to be frank. This is done by giving every, witness an assurance that his evidence will be regarded as confidential and will not be used except for the purpose of the report. This assurance must be honoured. It does not mean that his name and his evidence will never be disclosed to anyone. It will often have to be used for the purpose of the report, not only ‘in the report itself, but also by putting it in general terms to other witnesses for their comments. But if does mean that the inspectors will exercise a wise discretion in the use of it so as to safeguard, the fitness himself and any others affected by it. His evidence may sometimes, though rarely; be so confidential that it cannot be put to those affected by it; even in general terms. If so, it should be ignored so far as they are concerned. For I take it to be axiomatic that the inspectors must not use the evidence of a witness so as to make it the basis of an adverse finding unless they give the party affected sufficient information to enable him to deal with it.

It was suggested before us that whenever the inspectors thought of deciding a conflict of evidence or of making adverse criticism of someone, they should draft the proposed passage of their report and put it before the party for his comments before including it. But I think this also is going too far. This sort of thing should be left to the discretion of the inspectors. They must be masters of their own procedure. They should be subject to no rules save this : They must be fair. This being done, they should make their report with courage and frankness, keeping nothing back. The public interest demands it. They need have no fear because their report, so far as I can judge, is protected by an absolute privilege : see Home v. Bentinck per Lord Ellenborough and Chatterton v. Secretary’ of State for India in Council per Lord Esher M.R.

On reading through the evidence in this case, I think the inspectors acted perfectly properly. They made it quite clear that they intended to act fairly. They gave every assurance which the directors could reasonably require. Yet the directors were not satisfied. They demanded further assurances. They had no, colour of right to demand them. They knew that speed was essential. They had promised full co-operation, yet when asked the simple question : “When did you first become associated with Pergamon Press Ltd.?” each of them refused to answer. No wonder the inspectors certified their refusal to the court. No wonder the court held their refusal to be unjustified. The judge was merciful to them. He did no more than order them to pay the costs of the application. If they should seek to take again such unwarranted points, they can expect no mercy. They will be treated in like manner as if they had been guilty of contempt of court.

The matter will be remitted to the inspectors, who should proceed with it with the utmost expedition. They should brook no further delay.

Sachs L.J.—The proceedings that ensue from an appointment of inspectors made under section 165 of the Companies Act, 1948, are of a somewhat special nature by reason of a combination of attributes. Of these the first to be noted is that the inspectors’ function is in essence to conduct an investigation designed to discover whether there are facts which may result in others taking action: It is no part of their function to take a decision as to whether action be taken and a fortiori it is not for them finally to determine such issues as may emerge if some action eventuates. On the other hand, at any rate when the appointment is made under section 165(b)—that is to say, “if it appears to the Board of Trade that there are circumstances suggesting” the possibility of fraudulent and criminal conduct or a lack of compliance with the obligations imposed by the Companies Act—then the appointment itself involves, at least in the eyes of the business world, proceedings of an accusatory nature. That aspect finds support from those provisions of section 170 of the Companies Act, 1948, and sections 37, 41 and, 50 of the Act of 1967 which point to the type of action which can be taken as the result of the report.

Next, the report is made by the inspectors in their “statutory fact-finding capacity,” to quote the phrase of Pennycuick J. in In re Travel & Holiday Clubs Ltd., accepted by Mr. Fay as apt. Its findings can thus be used as prima facie evidence to support a winding up petition, though not, so far as counsel could suggest, for any other purpose.

Then it is to be observed that when the proceedings commence, the inspectors is a rule have initially no material whatsoever to work on and may thus have to gather information, often on a confidential basis, before being in any position to assess whether facts exist which could give rise either to criticism of any of the company’s officers or agents, or a fortiori whether there is any prima facie case fit to be considered by the Board of Trade for action. Such matters can usually only be uncovered and examined by the aid of those books and such evidence as the inspectors are entitled to demand by virtue of the provisions of section 167 of the Act of 1948.

Next is the factor that it may be vital for the protection of the general public or for the protection of members of the company in question that the inquiry produces at least an interim report with the utmost practicable speed, otherwise a main purpose of the proceedings may fail. The present case is one in which such speed was essential.

Last but not least it is necessary to say something as to what may be contained in the reports and the extent to which they are published. I have had the advantage of seeing a number of these, and in particular some that have been published by the Stationery Office and put on sale to “the general public at Varying prices. Naturally, the contents and styles of such reports vary to a considerable degree according to the precise nature of the matter under examination and the individual approach of the inspectors to the problem in hand. It is, however, by no means uncommon to find in these reports criticisms, sometimes stringent, of the way in which individual directors or agents of the company have acted in its affairs; and in that behalf one can in some of the reports come upon j specific assessments of the reliability or the reverse of witnesses who gave evidence. The contents of a report may thus in certain cases prove highly defamatory of persons who manage the affairs of the company, even if it does not disclose facts which are prima facie evidence of some criminal offence.

As regards publication, the report is, of course, itself made direct to the Board of Trade: but publication to the company is enjoined by section 168(2)(a) of the Act of 1948. In addition, publication to members of the company and to certain creditors is obviously contemplated by section 168(2)(b). Moreover, many reports, as already indicated, are put on sale to the public.

To some of these attributes I will later return, but it has seemed best to mention them at the outset to emphasise the special nature of the proceedings, because it was at one stage suggested that this court might formulate some set of general rules for all investigatory proceedings which might lead to some further action by a third party. For my part, I would underline that there are a great many forms of investigatory procedure, which are utilised in highly varying circumstances, and that, accordingly, I would wish my own observations to be read as applying only to those we have under consideration. The researches of experienced counsel before us have, indeed, failed to discover any other investigatory proceedings which has all the attributes that have been recited.

The nature of the proceeding, the purposes for which the reports may be used, the matter which may be found in them and the extent of the publication being respectively as described, it seems to me, as well as to Lord Denning M. R., very clear that in the conduct of the proceedings there must be displayed that measure of natural justice which Lord Reid in Ridge v. Baldwin described as “insusceptible of exact definition, but what a reasonable man would regard as fair procedure in particular circumstances......” To come to that conclusion it is, as recent: decisions have shown, not necessary to label the proceedings “judicial,” “quasi-judicial,” “administrative” or “investigatory”: it is the characteristics of the proceeding that matter, not the precise compartment or compartments” into which it fails—and one of the principal characteristics of the proceedings” under consideration is to be found in the inspectors’ duty, in their statutory, fact-finding capacity, to produce a report which may be made public and may thus cause severe injury to an individual by its findings. That characteristic is of itself sufficient to distinguish the position in the present case from that to which Lord Reid referred in Wiseman v. Borneman when he said :

“Every public officer who has to decide whether to prosecute or raise proceedings ought first to decide whether there is a prima facie case, but no one supposes that justice requires that he should first seek the comments of the accused or the defendant on the material before him. So there is nothing inherently unjust in reaching such a decision in. the absence of the other party.”

The reports of such officers are, of course, neither intended to be nor in fact are made public.

To conclude that there must be an appropriate measure of natural justice, or as it is often nowadays styled “fair play in action,” in the present case is thus easy. That was, indeed, something which was well recognised by the inspectors, who expressly so stated more ‘than once in the course of the proceedings. The real issue, however, is whether that measure should in relation to section 165 investigations’ generally, or, alternatively, as regards this particular investigation, be reduced’ by the courts to some set of rules, or whether it should be left to the inspectors, who are men of high professional qualifications, in their discretion to proceed with that fairness of procedure that is appropriate to the particular circumstances” of the case as it may develop.

In the application of the concept of fair play, there must be real flexibility, so that very different situations may be met without producing procedures unsuitable to the object in hand. That need for flexibility has been emphasised in a number of authoritative passages in the judgments cited to this court. In the forefront was that of Tucker L.J. in Russell v. Duke of Norfolk and the general effect of his views has been once again echoed recently by Lord Guest, Lord Donovan and Lord Wilberforce in Wiseman v. Borneman.

It is only too easy to frame a precise set of rules which may appear impeccable, on paper and which may yet unduly hamper, lengthen and, indeed, perhaps even frustrate (see per Lord Reid in Wiseman v. Borneman, at page 710) the activities of those engaged in investigating or otherwise dealing, with matters that fall within their proper sphere. In each case careful regard must be had to the scope of the proceeding, the source of its jurisdiction (statutory in the present case), the way in which it normally falls to be conducted and its objective.

Accordingly, it is convenient to say just a brief word as to how inspectors, appointed under section 165 in general have set about their tasks. This has already been touched upon by Lord Denning M.R., and he has emphasised, as I would emphasise, that for this purpose, starting very often with a blank sheet of knowledge, they have to call for information in whatever way it can best be obtained. That may be by interviews, it may be from statements obtained in writing, it may be from accounts and other documents, or it may be by their exercising their powers under section 167(3) to put questions to individuals, either on oath or not on oath.

One way or another it may be a considerable time before the inspectors lave before them sufficient information to see any pattern in the affairs of a Company. Even when this pattern commences to take shape, they may need further material before the possibility emerges of any criticism attaching to individuals. Moreover, that possibility may derive from documentary evidence which is in substance uncontested, or it may derive from a matter on which there may be a conflict of evidence between some witness and the person to whom blame may be attributed. In the latter case there may come the stage when the inspectors have to decide whether simply to record that conflict or whether to seek to resolve it. The more complex the affairs of the company and the greater the number of subsidiary companies, the longer it may take before those respective stages are reached.

In the course of that investigation confidential information may have to be sought and may have to be examined. In such a case the inspectors are entitled to take into account that many men have deep-seated fears of becoming involved as defendants in defamation actions, for which, there is no legal aid, at the suit of somebody with a long purse who may wish to stifle criticism. That is a general observation and is not intended to refer to any person concerned in the present case : it is simply something which has to be taken into account in view of the fact that statements made by witnesses to these inspectors are not the subject of absolute privilege. It is often difficult enough to persuade a citizen to give evidence in road accident cases. How much more reluctant may they well be to risk becoming them selves involved in litigation as the result of coming forward in the course of their public duty at an investigation unless they can be given protection. It can be in the public interest that such account be taken of the fears of potential witnesses. If authority is needed for so self-evident a proposition, it can be found in the judgment of Lord Hanworth M.R. in the Hearts of Oak Assurance Co. Ltd. v. Attorney-General case.

Two things follow : First, that it may well only emerge at quite a late stage in the investigation whether there may be ground for criticising a director or other witness ; secondly, that at all stages, and particularly at the stage of potential criticisms, the inspectors may be faced with difficult and delicate problems as to how to hold the balance between the public interest and that of an individual who may in due course, be criticised. As regards the former, the need to preserve confidentiality unless and until court proceedings eventuate and the need for speed are amongst the factors which the inspectors must prominently keep in mind.

So many are the permutations and combinations which may arise in an investigation that it seems to me quite plain that it is impracticable and, indeed, ill-advised to attempt to lay down a set of rules applicable to all witnesses at all times. In general, I fully endorse the view expressed by Mr. Stable when he said:

“We are not prepared to deal with hypothetical matters which have not yet arisen, nor are we prepared to tie ourselves down to a particular course in advance of a matter crystallising and ceasing to be hypothetical.”

Is there then anything about this particular case that renders it different to the normal run of cases ? Mr. Finer submitted that there was a special factor, and he referred to the proceedings in the United States. In this behalf it is not necessary for me to go over the same ground as to the course of events as has already been covered by Lord Denning M.R. This was a company in which the capital as valued on the London Stock Exchange ran into many millions of pounds. The take-over or merger bid involved £25 million. The dealings on the London Stock Exchange were suspended and, what is more, we were informed in this court that they remain suspended. That is a matter that must be of grave; importance to a large number of individual shareholders in this company. Accordingly, the situation was one which called for as much speed as practicable in the investigation. The fact that Mr. Maxwell is being sued-for heavy damages in New York by the American company and that the latter have now got control of Pergamon is not in point in relation to the interest of the many shareholders to whom I have referred or to the public interest in a matter of great importance to the City of London. In particular, it did not affect the need for speed in the inspectors’ investigation.

The investigation was, however, halted at the outset by the raising of the issues with which we are concerned on the present appeal. No questions at all were answered by the appellants. Nothing could have been clearer to the appellants than that at the stage they refused to answer all questions, the inspectors could not possibly have come to a conclusion as to what issues would emerge or whether there would be anybody to whom blame might be attributable. The proceedings were thus brought to an abrupt halt, despite the inspectors having made it plain.

“that if after we have listened to the evidence and studied all the documents supplied to us we came to the conclusion that there were certain matters on which we thought certain individuals were at fault, it would be right to recall those individuals before us, put to them broadly what the criticism is and ask them if there is an explanation. I think that natural justice require that.’’

They went on to refer to providing such individuals with the purport of evidence arid documents.

To my mind, inspectors, especially of the calibre of those concerned in his instance, ought not to be asked at the outset whether they will provide fair play in action.” It should be assumed that they will. Moreover the above-cited passage shows that they were going to do exactly what was; right to give at the appropriate later stage to anyone in danger of being criticised notice of the potential criticism in general terms sufficient to enable him to know what the allegation was and to enable him to give such explanation as he might wish. The precise form and manner of attaining this objective may vary greatly according to the circumstances and is a matter for the discretion of the inspectors.

The appellants had no cause to over-step the boundary between legitimate inquiry as to the general procedure contemplated by the inspectors and that of in effect seeking to cross-examine them as to what exact course they would take in circumstances which might never arise and in which they surely could be trusted in their discretion to act fairly. It is a notable fact that although such investigations have been taking place fox the best part of a century under varying conditions, there is no trace of any complaint ever having been pursued against the fairness of inspectors’ procedure, and we were informed that there was no trace of any such complaint in the reports which were presented by the committees, presided over by Lord Greene, Lord Cohen and Lord Jenkins in 1926 (Gmd. 2057/1926), 1945 (Cmd 5659/1945) and 1962 (Cmnd. 1749/1962) respectively.

As to the various procedural claims raised in the notices of appeal, being in agreement with what Lord Denning M.R. has said, I see .no need to refer to them individually. I might perhaps add, however, that as to the claim to cross-examiae witnesses, it is quite apparent from the contents of section 167(3), that this was hopelessly ill-founded.

I would only add this, that having noted the professions on the part of the appellants in general, and Mr. Maxwell in particular, as to the need for speed in the investigation, and as to their desire to co-operate in it, I am in sympathy with one observation of Mr. Stable to which Mr. Finer objected. Mr. Stable referred to witnesses who

“tend to come along and assure us that what is absolutely uppermost in their minds is giving us assistance and then put forward a method of con ducting this inquiry which, if adopted, would probably result-in its lasting for a matter of years instead of, months.”

a matter to which he reverted again later, when he said, in relation to the demands made, that their acceptance

“would make bur task quite impossible; It would-lengthen our inquiry to such an extent as to make our report quite useless, and it would also involve—and this we are not prepared to do—giving witnesses undertakings touching hypothetical matters which have not arisen and may not arise.”

The result of the course adopted by the appellants, who declined to answer any questions at all, has been to cause many months’ delay in an investigation which they knew needed all practicable expedition. It would have been far more seemly for the appellants, as men in high positions in by submitting in the normal way to a procedure well tried over several generations, instead of raising at the earliest possible moment a whole series of points which were at best clearly premature and which, moreover, on examination, can be seen to be clearly ill-founded.

I, too, would dismiss this appeal, with a view to the appellants promptly fulfilling their manifest duty in this investigation into a complex situation to uncover all those facts of which they, and perhaps they alone, are fully aware.

Buckley L.J.—The function of an inspector appointed under section 165 of the Companies Act, 1948, is an inquisitorial function. His duty is to investigate the affairs of the company and to report on them to the Board of Trade. It is not a judicial function. But having regard to the circumstances which may lead to the appointment of an inspector under section 165, paragraph (b) which is the paragraph with which we are concerned in the present case, and to the company, a need for due regard to fair treatment may arise if inspectors propose to report adversely on the conduct of any director or officer. If it is found that a director or officer has made some default or acted improperly in relation to the conduct of the company’s affairs, this may well prompt the company to institute proceedings against him, or it may prompt others to institute proceedings against him. In those proceedings the person proceeded against would have the full protection of a judicial process, but, particularly since the company is entitled to a copy of the report, he should not be exposed to the risk of such proceedings without being given a fair opportunity by the inspectors to forestall an adverse report. If inspectors are disposed to report on the conduct of anyone in such a way that he may in consequence be proceeded against, either in criminal or civil proceedings, the inspectors should give him, if he has not already had it, such information of the complaint or criticism which they may make of him in their report and of their reasons for doing so, including such information as to the nature and effect of the evidence which disposes them so to report, as is necessary to give the person concerned a fair opportunity of dealing with the matter, and they should give him such an opportunity.

What disclosure will be necessary for this purpose must depend upon the circumstances of the particular case. It may not, and I think often would not, in an ordinary case involve disclosing the identity of witnesses or the disclosure of transcripts. It certainly would not normally involve offering an opportunity to cross-examine any other witnesses, and, indeed, it seems that inspectors could not compel a witness to submit to cross-examination. Whether it would involve confronting: the director or officer concerned with any documentary evidence would depend on the circumstances of the case. Until an inspector has reached a stage at which he thinks that he will, or, at least, may have to report adversely on a director or officer, it will be premature for him to decide what, if anything, he should do to give the director or officer a fair chance of explaining the matter.

The appellants in the present case were, I think; quite unjustified in their attempt to obtain undertakings or assurances; from the inspectors about the way in which they would conduct the inquiry at its outset. The right of any of them to any information about the course of the investigation is dependent upon the inspectors being disposed to criticise them in their report, and in this event the nature of the protection to which any of them will be entitled as a matter of fairness will depend upon the nature of the possible adverse comment and of the evidence relating to it which the inspectors have received.

These are matters which I think rest in the discretion of the inspectors, a discretion which they must exercise with due regard for fair treatment of anyone likely to be adversely affected by their report. The inspectors in the present case, in my judgment, have adopted an entirely correct attitude.

I agree that the appeal should be Dismissed.

[1940] 10 COMP CAS 250 (CH. D)

CHANCERY DIVISION

Gaumont British Picture Corporation, Ltd., In re.

CROSSMAN, J.

APRIL 8, 1940

Sir Donald Somervell, K.C. and Andrewes Uthwatt, for the Applicant.

Harman, K.C, and H.C. Marks, for the Respondent.

JUDGMENT

Crossman, J.—This is a motion by Mr. Russell Kettle, the person appointed inspector to investigate the affairs of Gaumont-British Picture Corporation, Ltd., pursuant to Section 135 of the Companies Act, 1929, asking "That the Court may inquire into the refusal of the respondent Mark Ostrer, an officer of the company, to answer any questions put to him by the applicant as such inspector and otherwise may inquire into the case and that such order may be made with reference thereto as to this honourable Court shall seem meet and that the respondent Mark Ostrer may be ordered to pay the costs of this application".

The section under which these proceedings are taking place is Section 135, sub-section (1) of which provides: "The Board of Trade may appoint one or more competent inspectors to investigate the affairs of a company and to report thereon in such manner as the Board direct." Then there is provision as to what proportion of the shareholders of the company have the right to apply to the Board of Trade, which I need not read. Sub-section (3) is: "It shall be the duty of all officers and agents of the company to produce to the inspectors all books and documents in their custody or power." Sub-section (4) is: "An inspector may examine on oath the officers and agents of the company in relation to its business, and may administer an oath accordingly." Then sub-section (5) is: "If any officer or agent of the company refuses to produce to the inspectors any book or document which it is his duty under this section so to produce, or refuses to answer any question which is put to him by the inspectors with respect to the affairs of the company, the inspectors may certify the refusal under their hand to the Court, and the Court may thereupon inquire into the case, and after hearing any witnesses who may be produced against or on behalf of the alleged offender and after hearing any statement which may be offered in defence, punish the offender in like manner as if he bad been guilty of contempt of the Court." Sub-section (6) is: "On the conclusion of the investigation the inspectors shall report their opinion to the Board of Trade, and a copy of the report shall be forwarded by the Board to the registered office of the company, and a further copy shall, at the request of the applicants for the investigation, be delivered to them. The report shall be written or printed, as the Board direct." The inspector was appointed by the Board of Trade on an application by the necessary proportion of the shareholders of the company on July 31, 1939. On January 10, 1940, he summoned Mr. Ostrer, the respondent to the present motion, before him for examination, and the examination was thereupon commenced. The result of that was embodied in his report, which was made on February 5, 1940, as follows: "I, Russell Kettle, of 5 London Wall Buildings, Finsbury Circus, in the City of London, Chartered Accountant, being the inspector appointed by Order of the Board of Trade dated July 31, 1939, to investigate the affairs of the above-named company and to report thereon in such manner as the Board may direct hereby certify to this Court as follows: (1) As such inspector I arranged pursuant to Section 135 of the Companies Act, 1929, for the examination on January 10, 1940, at the company's offices of Mr. Mark Ostrer of 142-150 Wardour Street, London, W. 1, the managing director of the company. (2) On that day Mr. Mark Ostrer, accompanied by Mr. W.B. Robinson, the secretary of the company (who had been summoned for examination under the same section) attended at the companies offices for examination. In accordance with arrangements made by me a representative of Messrs. Cherer & Co. shorthand writers, was present with the object of taking for my use a shorthand note of the proceedings and of supplying me with a transcript thereof. (3) Mr. Mark Ostrer objected to the presence of a shorthand writer and said that neither he nor Mr. Robinsons was prepared to be examined if anyone was in the room besides myself. He gave two reasons for his objection: first, that under section 135 there was no authority for the presence of a shorthand writer, and, second, that as the examination would involve the disclosure of private information concerning the company's private affairs, he was not prepared for the information to be divulged to a third party. I asked Mr. Ostrer how he suggested the proceedings should be recorded and he said that I would have to write them out in longhand. I told him that in my opinion his attitude was unreasonable, in that such a course was impracticable in view of the extent and nature of my proposed examination and not in accord with ordinary business procedure. I added that even assuming I myself made the notes they would subsequently be typed in my own office. He refused, however, to proceed with the examination if I insisted that a shorthand writer should be present. I told him he left me no alternative but to withdraw and report the matter to the Court. (4) It was also my intention, as I explained to Mr. Mark Ostrer, for my representative in charge of the investigation to be present, solely for the purpose of facilitating my reference to papers and thus expedite the examination, and I told him that my representative would, in any event, become acquainted with the proceedings. Mr. Ostrer, however, said he could not agree and I did not press for my representative's attendance." That is the report and, as I understand the effect of the evidence which has been filed on this application—there is an affidavit of Mr. Russell Kettle, the applicant, and also an affidavit of Mr. Ostrer—that report is accepted and represents the facts. I do not think really what Mr. Ostrer says in any way contradicts anything there; all he does is to point out his view of what would be the result of what occurred. I think I must accept it that Mr. Ostrer refused to answer a question as long as any person other than the applicant, Mr. Russell Kettle, was in the room. The question is whether he was justified in doing that. Counsel for Mr. Ostrer really makes his answer solely upon the basis of the proposition that Mr. Kettle had no righttohavea shorthand writer in the roomduring the examination held under Section 135. In that contention I am quite unable to agree with him. It seems to me perfectly plain, in view of the decision which I will refer to in a moment, there is no reason why Mr. Kettle should not have in the room any person whose presence is reasonably necessary for the proper performance of his duty as inspector. If it is a fact that a shorthand writer to take down the proceedings as a record for Mr. Kettle's own use in preparing his report is necessary, then it seems to me there is no question but that he is entitled to have the shorthand writer present.

Conveniently in this case I have the decision of the House of Lords in Hearts of Oak Assurance Co. v. Attorney-General to assist me. That was a decision under a different Act of Parliament and not in the same language, but fortunately for me the House of Lords dealt with it by reference to this very Section 136 of the Companies Act, 1929. I am able, I think, to use that as a parallel case which shows what is the meaning of the proviso with regard to such examination as took place under this section. What was decided in that case was that an examination under the. Friendly Societies Act and the Industrial Assurance Act, 1923, is not a legal proceeding and ought to be held in private. The House, of Lords in coming to that conclusion and in reversing the decision Of the Court of Appeal said (101 L. J. Ch., at p. 179 ; [1932] A. C , at p. 398): "The nearest analogy to the present case" that is the Hearts of Oak Case—" is to be found in Section 135 of the Companies Act, 1929, under which the Board of Trade is entitled to appoint inspectors to investigate affairs of a company and to report thereon; the provisions are very similar, except that the Board of Trade can only so act on the application of a prescribed number of shareholders, and that if the Board, on receipt of the report, are of opinion that an offence has been committed they are to refer the matter to the criminal authorities. It has been held that an investigation under the corresponding provisions of the Companies Act, 1862, is not a judicial proceeding : See Grosvenor and West End Railway Terminus Hotel Co., In re. The reasons against publicity in such an investigation would be equally strong in my opinion." On that the House came to the conclusion that it was not right to hold an inquiry under the Industrial Assurance Act in public, and that it ought to be held in private, but they accepted and made part of the judgment of the House the following declaration set out at page 406 of the report: "Declared that an inspector appointed by the Industrial Assurance Commissioner under Section 17 (1) of the Industrial Assurance Act, 1923, for the purpose of examining and reporting on the affairs of the plaintiffs is not entitled to conduct the inspection in public, but this shall not prevent him from admitting from time to time any persons the presence of whom is reasonably necessary to enable him properly to carry out his duty under the statute." It seems to me that exactly the same thing applies here and that that covers this case. What I have to consider is simply the question whether the presence of the shorthand writer is something which is reasonably necessary to enable the inspector properly to carry out his duty under the statute. I come to the conclusion here without any hesitation that it is necessary to enable him to do it. It is not for the purpose of recording it and publishing it or doing anything of that kind; it is for the purpose of enabling him to prepare his report. When he comes to prepare his report he wants a record of what has occurred and the shorthand note is for that purpose. The fact that he has a shorthand writer in his room for his own purposes, and not as a public shorthand writer, to enable him to have a record and to bear in mind what has been said in fact and what the evidence is, is in my view reasonably necessary to enable him properly to carry out his duty under the statute. In these circumstances it seems to me there is no more to be said in the matter. In this case Mr. Ostrer refused to answer any questions simply because of the presence of the shorthand writer who, in my view, was entitled to be present. He therefore was completely unjustified in refusing to answer the questions and he is in effect in the same position as if he had been guilty of contempt of Court, having regard to sub-section (5) of Section 135. In those circumstances, having regard to the fact that he has in his evidence and by his counsel apologised for what amounts to a contempt of Court, conditional upon it being held that he is in fact wrong, I do not think I ought to take any step in the nature of punishment beyond the step of ordering him to pay the costs of the proceedings, which I think I ought to do.

[1971] 41 COMP. CAS. 769 (SC)

COURT OF APPEAL

Pergamon Press Ltd., In Re

LORD DENNING M.R., SACHS AND BUCKLEY L., JJ.

APPEALS FROM PLOWMAN, J.

JULY 7, 8, 9, 10, 13, 1970

Morris Finer Q.C. and Samuel Stamler for the appellant, Robert Maxwell.

Michael Sherrard Q.C. and Alexander Irvine for the appellant, Cecil Thomas Clark.

Patrick Phillips for the appellant, Edwin Sidney Street.

E.S. Fay Q.C. and J.P. Warner for the inspectors.

“In the interests of clearing the company’s good name and reputation and in the interests of getting the inquiry completed as soon as possible, we promise the inspectors full co-operation.”

The inspectors also said that they would allow any witness to obtain a copy of his own evidence and give him an opportunity of supplementing it, if he desired.

The inspectors replied on December 1, 1969, that they were

I will hot read the letter in full. It was, to my mind, a very proper letter, giving every reasonable assurance.

But these assurances did not satisfy Mr. Maxwell and his colleagues. They demanded even more assurances. The inspectors declined to give them.

The matter will be remitted to the inspectors, who should proceed with it with the utmost expedition. They should brook no further delay.

The reports of such officers are, of course, neither intended to be nor in fact are made public.

They went on to refer to providing such individuals with the purport of evidence arid documents.

a matter to which he reverted again later, when he said, in relation to the demands made, that their acceptance

I agree that the appeal should be Dismissed.

[1986] 59 COMP. CAS. 94 (CAL.)

HIGH COURT OF CALCUTTA

Titagarh Paper Mills Co. Ltd.

Union of India

G.N. RAY, J.

C.O. NO. 11100 (W) OF 1982.

MARCH 16, 1984

S.R. Banerjee, S.N. Mukherjee, D.C. Nandi, S.K. Kundu, S.B. Mukherjee and S.N. Chaudhury for the Appearing party.

JUDGMENT

G.N. Ray, J.—On this writ petition, no rule has been issued but the petition has been directed to be heard as a contested application upon notice to the respondents and such notice has been served and the respondents including respondent No. 5, Sri Amal Chandra Chakraborty, have entered appearance and contested the writ petition. This writ petition is directed against the order of the Government of India dated August 10, 1977, under cl. (b) of s. 237 of the Companies Act, 1956, and notification of the Government of India in the Department of Company Affairs, No. G.S.R. 443(E), dated October 18, 1972, and the decision of the Company Law Board to appoint an inspector to investigate into the affairs of the company and to report thereon and also against appointment of respondent No. 5, Sri Amal Chandra Chakraborty, chartered accountant of M/s. S.R. Batliboi & Co., to carry on the investigation and report to the Company Law Board and also against the report submitted by the said inspector to the Under Secretary to the Company Law Board, Government of India, and also against the alleged violation of the provisions of s. 241(2)(a) by the Central Government in not furnishing the company with a copy of the entire report of the inspector. The petitioners have also challenged withholding of the approval regarding reappointment of three wholetime directors and the decision reached by the Company Law Board, Government of India, to launch criminal complaints before the Chief Metropolitan Magistrate, Calcutta, and also against filing of separate complaint petitions before the learned Chief Metropolitan Magistrate, Calcutta, under s. 89(3) read with s. 87 of the Companies Act, registered as Case No. 1966 of 1982 and also under s. 209(5) of the Companies Act, registered as Case No. 2051 of 1982 and under s. 420 read with s. 418 of the said Act, registered as Case No. 2051 of 1982 and under s. 297/299 and 301 of the Companies Act, registered as Case No. 1880 of 1982.

The petitioners are Titagarh Paper Mills Co. Ltd., Sri Kanak Ghosh and Sri Pinaki Sengupta. The other petitioner, Sri Souren Biswas, had died during the pendency of the writ petition. It may be noted that the said Sri Souren Biswas was the managing director and principal officer of the Titagarh Paper Mills Co. Ltd. and his case for reappointment as managing director of the Titagarh Paper Mills Co. Ltd. was pending before the Company Law Board at the time of presenting the writ petition. The other two petitioners, namely, Sri Kanak Ghosh and Sri Pinaki Sengupta, are respectively the director and chief accountant of the Titagarh Paper Mills Co. Ltd. It is contended by the petitioners in the writ petition that the Titagarh Paper Mills Co. Ltd. is being managed and administered very efficiently and due to such efficient management there has been gradual increase in the sales and the total quantity produced, in the net profits earned and in the building up of impregnable reserves. The board of directors of the petitioner company is made up of eleven directors, of whom five represent financial institutions, namely, the Industrial Development Bank of India, the Industrial Finance Corporation of India, the Life Insurance Corporation and the Industrial Credit and Investment Corporation of India, two from the professional management personnel in the employment of the company, two industrialists and one representing the share broker. At the relevant time, the chairman of the board of directors was Mr. S.P. Puri, formerly the managing director of the State Bank of India. It has also been contended in the writ petition that at the material time, the shareholding of public undertakings in the equity share capital of the petitioner company was made up of ;

(i) The LIC	20.65%
(ii) The IUB1	9.11%
(iii) The ICICI	2.40%
(iv) The IFC	1.20%
(v) The Unit Trust	5.20%
(vi) The nationalised banks and the nationalised insurance companies	11.00%
Total	49.56%

It has been further contended in the writ petition that the management of the petitioner company has been maintaining internal audit system through the independent agency of a professional firm of auditors, Messrs Lovelock & Lewes, in addition to the statutory audit being conducted by another independent firm of auditors, Messrs Price Waterhouse Peat & Co. The petitioners have contended that either in the internal audit or in the statutory audit, no allegation of mismanagement and/or misfeasance and/or misconduct has been made.

It is contended by the petitioners that the petitioner company was subjected to a proceeding of inspection of books of account by the officers appointed by respondent No. 1, namely, the Union of India, in accordance with section 209A of the Companies Act. Such proceeding of inspection went on for about three months, but in the absence of any communication from the inspection authorities, the petitioners believed in good faith that no irregularity was found in the said proceeding of inspection. The petitioners, however, were shocked and surprised at the publication of an order of the Government of India dated August 10, 1977, a copy whereof has been annexed to the writ petition being marked as Annexure 'C'. It has been alleged in the said order that the chairman of the Company Law Board had formed an opinion that there were circumstances suggesting that the persons concerned in the management of the affairs of the petitioner company were guilty of fraud, misfeasance and other misconduct towards the company and its members and the business of the company had been conducted with intent to defraud the members of the company and respondent No. 2 considered it necessary to appoint an inspector to investigate into the affairs of the company and to report. It is alleged that the Under Secretary to the Company Law Board assumed jurisdiction and exercised the authority conferred by clause (b) of section 237 of the Companies Act read with section 10E(1) of the said Act and Sri Amal Chandra Chakraborty was appointed to investigate into the affairs of the petitioner company in respect of years 1969 onwards and to report thereon to the Company Law Board regarding the irregularities and contraventions of the provisions of the Companies Act or any other law and/or person or persons responsible for such irregularities or contraventions. The petitioner company moved an application under article 226 of the Constitution of India against the formation of opinion by the Central Government about the alleged irregularities and appointment of inspector before this court, whereupon Writ Application No. 5101(W) of 1977 was registered. The petitioner company in the said writ proceeding challenged the inherent vires, validity and propriety of the opinion formed by the Company Law Board and consequential appointment of the inspector and launching of proceeding of investigation through the inspector under clause (b) of section 237 of the Companies Act. The petitioners contend that thereafter on the ground of commercial expediency, the petitioners had to succumb to the persuasion of the leading financial institutions at the instance of the Union of India not to press further the said writ proceeding and the rule nisi issued on the said petition was thereafter not proceeded with by the petitioner company and the rule was discharged for non-prosecution on April 19, 1978.

The petitioners also contend that around the date of the order discharging the said rule nisi, respondent No. 5 commenced his proceeding of investigation for about 36 months and the said respondent No. 5 thereafter submitted his report to the Under Secretary to the Central Government, Department of Law, Justice and Company Affairs. The petitioners have alleged that the said respondent No. 5 virtually seized large volumes of documents, records, registers and papers of the company in one room in the head office of the company and made his own inspection and/or notings therefrom entirely behind the back of or without communicating even the substance thereof to the wholetime directors, principal executive officers of the petitioner company, although such officers had extended all possible co-operation and assistance to the said respondent No. 5. It is contended that the said respondent No. 5 chose to employ one Sri Swadesh Gupta, since deceased, who was a senior employee of the firm of auditors to which respondent No. 5 belonged, M/s. Batliboi & Co., to do the work of interrogation and recording evidence, statements and/or depositions of various persons.

The petitioners have contended that respondent No. 5 and the said Sri Swadesh Gupta all throughout and entirely behind the back of the wholetime directors and/or other directors and/or principal executive officers of the petitioner company carried on such investigation, interrogation, etc., and they did not even communicate the substance of such information, statements, depositions, etc., recorded by them. It is also alleged that respondent No. 5 similarly inspected the records of other companies and gathered statements and depositions of several numerous persons and/or information behind the back of the members of the board of directors and principal executive officers of the petitioner company and he also examined and recorded statements of petitioners Nos. 2 and 3, the chief accountant, the mill manager, the forest manager and several other officers in spite of the repeated demands for copies of such recorded statements of the executive officers and senior officers of the petitioner company. The petitioners; have also contended that the petitioner company obtained opinion from a reputed and experienced firm of solicitors and advocates in Calcutta and made representations to respondent No. 4 refuting the allegation of alleged violation of section 89(1) read with section 87(1) of the Companies Act by the petitionors. Although the petitioners reasonably believed that respondent No. 4, namely, the Registrar of Companies, had been fully satisfied about the explanation offered by the petitioner company, the said respondent No. 4 chose to pursue the proceeding of inspection and finally confronted the petitioner company with queries about (i) unauthorised perquisites to Mr. K.C. Mitra ; (ii) violation of section 297/299/301 of the Act; (iii) discrepancy in the overall cost; (iv) sales through M/s. George Salter (India) Ltd. ; (v) dealing with Lyons Range Agency Private Ltd. (vi) payment of cutting and packing charges, and (vii) the basis for purchase of bamboos.

The petitioners have also contended that in the meantime prior to the expiry of the tenure of appointment of petitioners Nos. 2, 3 and one Sri A.B. Majumdar as wholetime director of the petitioner company, a formal application upon payment of the requisite fees and in compliance with all the formalities for approval of reappointment of petitioner No. 2 as whole-time director for a term of 5 years with effect from April 1, 1981, was made. Such application was made after previous approval by the board of directors and the shareholders at their general meeting. In respect of petitioner No. 3, a similar formal application was made for approval of the reappointment of the said Sri Ghosh as the wholetime director for a term of 5 years with effect from January 1, 1980. In respect of another whole-time director, Sri Anil Bandhu Majumdar, a similar application had also been made for approval of the reappointment as a wholetime director for a term of 3 years with effect from January 1, 1981.

The petitioner company also by its letter dated December 18, 1981, addressed to respondent No. 1 requested him to furnish the petitioner company with the copy of the report made by the said inspector in accordance with the mandatory provisions of the Companies Act. Thereafter, petitioner No. 2 was furnished with an investigation report. It is the case of the petitioners that the copy of the investigation report furnished to petitioner No. 2 does not contain statements of evidence gathered and collected by respondent No. 5 and in spite of repeated requests and demands made by petitioner No. 1 to furnish the statements of evidence forming the report, such statements have not been furnished to the petitioners. The Director (Inspection and Investigation) of the Department of Law, Justice and Company Affairs of the Government of India, by his letter dated February 9, 1982, addressed to petitioner No. 2, Sri Souren Biswas, since deceased, refused to furnish the petitioner with the sets of evidence recorded by the inspector and informed the said petitioner No. 2 that he was at liberty to offer his comments, if any, on the findings of the inspector, without prejudice to the action already initiated by the Company Law Board. The said letter dated February 9, 1982, has been annexed to the writ petition as annexure 'I'. The petitioners acting through the said Souren Biswas, who was the then managing director of the petitioner company had again asked for a complete report with the statements of witnesses alleged to have been examined by the inspector and also requested the authority concerned not to initiate any proceeding on the alleged report of the inspector. Such request was also followed up by subsequent request and it was pointed out that the principles of natural justice and fairness required that the company and the managing director should be furnished with the entire report and any denial of access to such report would amount to denial of the right of reasonable opportunity of being heard. While the petitioners had been anxiously waiting for the copies of the statements and for an opportunity to defend themselves and to submit proper explanation against the report of the inspector, the Under Secretary to the Government of India, Ministry of Law, Justice and Company Affairs, confronted the petitioner company with separate charges of malpractices and irregularities found in the investigation under section 237(b) of the Companies Act. The petitioner company, however, wrote to the Secretary to the Government of India, Ministry of Law, Justice and Company Affairs, explaining the allegations made against the company and its directors and the petitioner company contended in the said letter that the said allegations were baseless, unwarranted and irresponsible. The petitioners contend that petitioner No. 1 made further representation to respondent No. 1 and despite the serious difficulty of the petitioners to give proper defence in the absence of complete set of evidence collected by the inspector, the petitioners submitted explanations and/or comments on the inspector's report reserving their right to furnish further comments after getting statements of evidence collected by the inspector. The petitioners contend that the Company Law Board has not only failed to accord approval of reappointment of the wholetime directors as prayed for but also directed the Registrar of Companies to lodge complaints against the petitioner company and its directors for alleged violation of various provisions of the Companies Act and for alleged misappropriation, misfeasance of the company's funds and separate complaints have been filed by the Registrar of Companies at the instance of the Company Law Board before the Chief Metropolitan Magistrate, Calcutta, against the petitioners. In the aforesaid circumstances, the instant writ petition was moved by the petitioners.

Mr. Banerjee, the learned counsel appearing for the petitioners, has submitted that the opinion formed by the Central Government as contained in the Notification dated August 10, 1977 (annexure "C"), for appointing an inspector to investigate into the affairs of the company was made contrary to the overwhelming basic material and relevant facts and circumstances readily available to respondents Nos. 1, 2 and 3 and their officers. Mr. Banerjee has contended that in view of the all round progress of the company, it was not possible to form any opinion about the maladministration of the company and in the context of statistics of gradually progressive performance being made by the petitioner-company, the alleged opinion that the company had not been running efficiently and/or there had been maladministration and/or diversion of funds of the company must have been made on clear non-application of the mind to the relevant facts and/or on consideration of extraneous matters. Mr. Banerjee has contended that such formation of opinion has been made in a colourable exercise of power resulting in gross abuse of the responsibility reposed on the Company Law Board. Mr. Banerjee has also contended that the Department of the Central Government which deals with companies is presumed to be an expert body on company law matters and the standard which is prescribed under section 237(b) of the Companies Act is not the standard required of or by an ordinary citizen but of an expert. For this contention, Mr. Banerjee has referred to a decision of the Supreme Court made in the case of Rohtas Industries Ltd. v. S.D. Agarwal [1969] 39 Comp Cas 781; AIR 1969 SC 707. Mr. Banerjee has also contended that the existence of circumstances made in section 237(b) of the Companies Act is a condition precedent for the formation of opinion and for the said proposition, Mr. Banerjee has referred to the decision of the Supreme Court made in the case of Barium Chemicals Ltd. v. Company Law Board [1966] 36 Comp Cas 639; AIR 1967 SC 295. Mr. Banerjee has also contended that under sections 235 to 237 of the Companies Act, power has been conferred on the Central Government on the faith that the Central Government will exercise the power in a reasonable manner, but the alleged opinion formed by respondents Nos. 1, 2 and 3 has not been done honestly and bona fide and on a proper, reasonable and fair appreciation of relevant materials, facts, statistics and circumstances showing gradual progressive performance and achievements of the petitioner company. Mr. Banerjee has also contended that it is well-settled law that the discretion under section 237(b) of the Companies Act is to be exercised after formation of opinion objectively as distinguished from purely subjective consideration. Accordingly, such formation of opinion objectively amounts to a judicial decision. He has contended that a judicial act is an act done by the competent authority upon consideration of facts and circumstances imposing liability or affecting the rights of others and if a body is empowered by law to enquire into the facts, acts of such body involving such consequences would be judicial acts. For this contention, Mr. Banerjee has referred to an English decision made in the Irish case of Reg (John M'Evoy) v. Dublin Corporation [1878] 2 LR Ir 371. Such definition of judicial decision in its wider sense has been cited with approval by Atkinson L. J. in the case of Frome United Breweries Co. Ltd. v. Keepers of the Peace and Justices for County Borough of Bath [1926] AC 586 (HL) and also by the Supreme Court in the judgment made in the case of Province of Bombay v. Khushaldas S. Advani, AIR 1950 SC 222. Mr. Banerjee has contended that the respondents flagrantly violated the norms of a quasi-judicial or a judicial decision in not disclosing the fact of reaching the fateful decision in launching the complaint against petitioner No. 1 and/or its directors and not granting any one of them any reasonable or adequate opportunity to show cause against the propriety/validity of the alleged decision and/or launching of four complaints. Mr. Banerjee has also contended that the report of the inspector cannot be treated as a valid report because the inspector has not conducted the said enquiry himself and he deputed some other persons to do the inspection on his behalf and on the basis of such alleged investigation made by other persons over a long stretch of years, the inspector submitted the alleged report. Mr. Banerjee has contended that under the Companies Act, the inspector has been authorised to cause inspection and make a report, but he cannot rely on investigation carried out by others at his instance and treat the same as his own investigation report. In the aforesaid circumstances, such report must be deemed to be of no consequence in the eye of law and no action can be taken on the basis of this report. Mr. Banerjee has also submitted that it will appear from the report itself that six sets of evidence had been collected by the inspector and/or assistants and the inspection report is based on a consideration of that evidence but excepting the report itself the evidence was not disclosed to the petitioners despite repeated requests made for the same. He has submitted that it is a mandatory obligation on the part of the Company Law Board to furnish the entire report to the petitioners and to give them reasonable opportunity of being heard. But such mandatory provisions have been deliberately flouted and mala fide actions in withholding approval of the reappointment of wholetime directors and launching of complaints before the learned Chief Metropolitan Magistrate, Calcutta, has been taken. In the aforesaid circumstances, the said illegal actions must be quashed by this court and the Company Law Board should immediately accord approval to the reappointment of the directors and to withdraw or cancel all orders and notifications issued in the matter of appointment of the inspector and actions taken pursuant to such report of the inspector. Mr. Banerjee has also contended that in the aforesaid facts, this court should quash the complaints lodged against the petitioners before the Chief Metropolitan Magistrate. Mr. Banerjee contends that even before giving the petitioner reasonable opportunity to show cause against the report, the Company Law Board had already formed an opinion against the petitioners and had taken the fateful decision of launching four sets of criminal complaints against petitioners Nos. 1, 2 and 3 and other directors entirely behind the back of the petitioners. He has contended that it is quite apparent that the respondents were bent upon taking actions against the petitioners without giving them any opportunity of being heard and the opportunity to submit explanation to the incomplete report of the inspector made available to the petitioners was nothing but a pretext. Mr. Banerjee submits that the actions of the respondents are glaring examples of public authorities playing fast and loose with the powers vested in them but such actions are highly reprehensible and have been condemned in various decisions of the Supreme Court and different High Courts. Mr. Banerjee has referred to a number of decisions of the Supreme Court and other High Courts where the courts have condemned the public authorities failing to maintain proper standards of justice and fair play, but it is not necessary to refer to the said cases in detail because it is well-settled law that public authorities cannot act arbitrarily and capriciously and in violation of the principles of natural justice and they are bound to act fairly, bona fide and reasonably. Mr. Banerjee has also submitted that the complaint lodged by the Registrar of Companies in the Court of the Chief Metropolitan Magistrate, Calcutta, is not the complaint made by the Registrar of Companies on an independent consideration of the facts of the case but such complaint has, been made at the instance of the Company Law Board. Hence, the said complaint should not be treated as a proper complaint made by the Registrar of Companies. Mr. Banerjee has contended that the Company Law Board has dictated to the Registrar to launch complaint in the criminal court and the Registrar of Companies also cannot file any complaint under section 242 of the Companies Act. Only the secretary of the Company Law Board will have to file a complaint under section 242. Mr. Banerjee has also contended that even for taking a decision by the Central Government to launch a. prosecution, a hearing is contemplated and no ex parte decision can be taken in launching a proceeding under section 242.

Mr. Mukherjee, the learned counsel appearing for the respondents, has submitted that on August 10, 1977, a decision was taken to hold an enquiry into the affairs of the company after forming a prima facie opinion that the affairs of the company had not been managed properly. Such enquiry proceeding is a fact-finding proceeding and not a judicial or quasi-judicial determination. Such formation of an opinion by the Company Law Board to cause enquiry into the affairs of the company by appointing inspectors was challenged by the petitioners in a writ petition before this court, but the petitioner company admittedly did not press the said writ petition and the rule was discharged for non-prosecution. He has contended that thereafter the inspector proceeded with the inspection work and seized various documents for the purpose of causing inspection and the said inspection continued for about three years. The petitioners have admitted in the instant writ petition that the petitioner company, their directors and principal officers had rendered all assistance and co-operation to the inspector in conducting the said enquiry. In such circumstances, the petitioners are not permitted to contend at this belated stage that the sine qua non for formation of opinion was not fulfilled and/or the inspector had no jurisdiction to conduct the enquiry and/or such enquiry was conducted by him in violation of the principles of natural justice. Mr. Mukherjee has also contended that it has been alleged in the instant writ petition that at the instance of financial institutions, the earlier writ proceeding was withdrawn by the petitioner company. On the petitioners' own showing that the leading institutions are major shareholders of the petitioner company and they desired that the enquiry should be held, the petitioners should not be permitted to contend that the enquiry was illegal and should not be allowed to be held. Mr. Mukherjee has also contended that the petitioners have failed to produce any contemporaneous document showing that any protest about the investigation being carried out by the inspector was made on the allegation that such investigation was carried on behind the back of the petitioners. On the other hand, it has been specifically stated in the writ petition that the petitioners had rendered co-operation to the work of the inspector. Mr. Mukherjee has submitted that it is not physically possible for the inspector to scrutinise each and every document and for conducting investigation into the affairs of the company over a long stretch of years, it is necessary to take the assistance of other persons. Simply because the inspector had appointed some assistants to assist him in the enquiry, it cannot be held that the work performed by the assistants have rendered the enquiry proceeding void because they were not inspectors appointed by the Company Law Board. Mr. Mukherjee has submitted that such argument is void of any substance and is an argument in despair. Mr. Mukherjee has also submitted that before starting any investigation into the affairs of the company, no hearing is contemplated and, as such, there has not been any violation of any statutory provision or the principles of natural justice in taking an executive decision that an enquiry into the affairs of the company should be made. In this connection, Mr. Mukherjee has referred to an English decision made in the case of Norwest Holst Ltd. v. Secretary of State for Trade [1978] 3 All ER 280. He has also referred to a decision of the Supreme Court made in the case of Raja Narayan Bansilal v. Maneck Phiroz Mistry [1960] 30 Comp Cas 644 ; AIR 1961 SC 29, wherein it has been held that the proceeding under section 240 of the Companies Act is a fact-finding proceeding. Mr. Mukherjee has also submitted that the report of the inspector which has been forwarded to the petitioners is a comprehensive report and evidence has been quoted in the said report. On the face of the said detailed report, the petitioners cannot suffer any prejudice for want of evidence recorded by the inspector. He has submitted that the evidences are not the report but they are documents supporting the report. In law, the report is required to be furnished and the evidence on the basis of which the report had been made has been quoted in ex-tenso. As such, there has been no occasion to suffer any prejudice for not getting the statements recorded by the inspector in the usual course of his investigation. In this connection, Mr. Mukherjee has referred to the report of the inspector and it appears that the statements recorded by the inspector have been quoted extensively for the purpose of arriving at the finding made by him. Mr. Mukherjee has also contended that under section 621 of the Companies Act, the Registrar is to take action against the company for lapses and irregularities made against the company. It has been provided in the said section that no court shall take cognizance of the said offence against any act which is alleged to be committed by the company or its officers unless the shareholders or the Registrar in writing makes a complaint. He has submitted that it will appear from the writ petition that the Central Government had decided that action should be taken against the company by lodging a complaint and the Registrar of Companies was intimated of such decisions of the Central Government. The Registrar thereafter made the complaints before the Chief Metropolitan Magistrate, Calcutta. Accordingly, no illegality has been committed. Mr. Mukherjee has also contended that the petitioners will be free to raise the question of maintainability of the criminal proceedings before the learned Chief Metropolitan Magistrate and, in the facts and circumstances of the case, the writ court should not interfere at this stage.

In reply to the aforesaid contentions made on behalf of the respondents, Mr. Banerjee has contended that the earlier writ proceeding was not pressed by the petitioners and was allowed to be dismissed for default. As the controversy raised in the writ petition has not been decided by this court, the said writ proceeding will not operate as res judicata. Mr. Banerjee has contended that the petitioners have explained as to why the earlier writ petition has not been pressed. Accordingly, no exception can be taken for presenting the instant writ petition challenging the initiation of the enquiry proceeding illegally and mala fide. He has also contended that the instant writ petition is more comprehensive and in the instant writ petition, challenge has been thrown to subsequent actions also. In this connection, Mr. Banerjee has referred to a decision of the Supreme Court made in the case of Daryao v. State of Uttar Pradesh, AIR 1961 SC 1457, wherein it has been held that if a proceeding is dismissed summarily, it will not be res judicata. Similar view has been taken in other decisions of different courts and Mr. Banerjee has referred to a Bench decision of this court made in the case of Rolls Print and Co. Ltd. v. B.M. Singh and Sen, AIR 1977 Cal 303, and the decision made in the case of Anand Mohan Boral v. Bilas Bihari Lal, AIR 1979 Pat 36. In the said decisions, it has been held that if a decision on merits is not given, dismissal of a proceeding for other reasons will not operate as a bar on account of res judicata. Mr. Banerjee has submitted on behalf of the petitioners that the formation of opinion was made mala fide and in utter disregard of the existing material and the appointment of the inspector was made in flagrant violation of the principles of natural justice and also in abuse of the powers conferred by the Companies Act. The inspector has also conducted enquiries arbitrarily, capriciously and he has also not caused enquiries by himself. In the facts of the case, mere delay will not matter much. When there is patent lack of jurisdiction and the officer is guilty of laches, delay will not operate as a bar in entertaining the writ petition. For this contention Mr. Banerjee has referred to a decision made in the case of Shivratan G. Mohatta v. State of Rajasthan [1980] 45 STC 354 (Raj). He has also referred to a decision of the Supreme Court made in the case of Aflatoon v. Lt. Governor of Delhi, AIR 1 974 SC 2077. In the said case, a notice under section 4(1) of the Land Acquisition Act was issued in 1959 and a declaration under section 6 was published in 1966. Notice under section 9(1) of the Land Acquisition Act was issued in 1970. Thereafter, validity of the acquisition proceeding was challenged. The Supreme Court held that in the special facts of the case, the writ petition was not liable to be rejected on the ground of delay. Mr. Banerjee has contended that the Registrar has statutory duties and obligations under the Companies Act and in an appropriate case, if he is satisfied that the provisions of the Companies Act have been violated by a company, he can lodge a complaint, but such complaint should be lodged by him on independent scrutiny by himself and not at the dictates of any other authority. In the instant case, the Central Government has directed the Registrar to lodge a complaint. Hence, it cannot be held that a proper complaint was made by the Registrar. In the aforesaid facts, Mr. Banerjee has submitted that the facts and circumstances of the case clearly demonstrate that flagrant violation of all principles of natural justice have been made by the authorities of the Company Law Board and the actions have been taken by the respondents illegally and mala fide. Hence, the writ petition should be allowed and the reliefs prayed for in the writ petition should be granted.

After considering the respective submissions of the learned counsel appearing for the parties, it appears to me that the Company Law Board had taken the decision to investigate into the affairs of the petitioner company by appointing an inspector in 1977. It also appears that the petitioner company felt aggrieved by such a decision of the Company Law Board and a writ petition was moved challenging the said decision of the Company Law Board. The rule nisi issued on such application was not proceeded with by the petitioner company and the same was allowed to be discharged for non-prosecution. It is also the case of the petitioners in the writ petition itself that the petitioner company and its senior officers had rendered all co-operation to the inspector appointed by the Company Law Board to probe into the affairs of the company. It is also an admitted fact that the said inspector and other persons engaged to assist him had conducted the enquiry and looked into the various documents and registers of the company over a long stretch of time. At no point of time any objection was raised by the petitioner company about the legality of such enquiry being held pursuant to the decision of appointment of an inspector by the Company Law Board. In the aforesaid circumstances, the petitioner company and the other petitioners cannot be permitted to challenge the decision of the Company Law Board to enquire into the affairs of the company by appointing an inspector. The petitioners have contended that as the earlier writ petition was allowed to be discharged on the ground of non-prosecution, there was no occasion for the court to decide any of the issues raised in the writ petition. Accordingly, there cannot be any question of constructive res judicata so far as the issues raised in the earlier writ petition are concerned. In my view, the petitioners should not be permitted to challenge the decision of the Company Law Board to appoint an inspector for enquiring into the affairs of the company at a belated stage not on the score of any bar on the principle of res judicata but on the score that the petitioner had an opportunity to challenge the same when such a decision was taken by the Company Law Board and as a matter of fact such challenge had also been made by the petitioners by presenting a writ petition. But the petitioner company on its own had withdrawn the same and allowed the said inspection to be conducted by the said inspector. Even assuming that the initial decision of the Company Law Board was not taken lawfully in appointing the inspector, the petitioners having allowed the said inspector to function over a long stretch of time cannot be permitted in a writ court to challenge the appointment of an inspector for causing enquiry. It should be noted in this connection that the writ court is also a court of equity and interference by the writ court is not always a must. If a party stands by and allows certain actions to be taken by other persons pursuant to a decision made against the party, such party should not be permitted to challenge the decision and the consequential actions taken on such decision at a latter stage thereby nullifying and frustrating all the actions taken in the meantime with full knowledge and consent of the other party. In that view of the matter, it is not necessary to go into the question agitated by the petitioners that the Company Law Board had acted improperly in deciding to appoint an inspector for the purpose of probing into the affairs of the company.

The petitioners have seriously contended that the Company Law Board have not afforded reasonable opportunity to the petitioners to make their submissions against the report of the inspector in view of the fact that despite repeated requests, copies of evidence collected by the inspector and his assistants have not been forwarded to the petitioners. The petitioners have contended that the report of the inspector having been based on the materials including the materials collected by him, copies of such evidence and the documents should be furnished to the petitioners so as to afford them real opportunity to defend themselves against the report obtained by the Company Law Board. There is no manner of doubt that a company and/or its officers and/or its directors who are likely to be prejudiced by any adverse report of the inspector appointed by the Company Law Board should be given all reasonable opportunities to defend themselves against an adverse report made by the inspector and it is the mandatory provision that the report of the inspector should be made available to the company for making effective representation against such report. The report is expected to be based on various materials collected by the inspector including oral statements recorded by him, if any. No precise formula can be laid down as to what should be the documents that would be forwarded to the company against whom an adverse report has been made by the inspector before the Company Law Board and the nature of documents required to be furnished to the delinquent company must depend on the facts of each case and the nature of the report submitted by the inspector. It is to be ensured that the delinquent company gets all reasonable opportunities to defend itself against the report made by the inspector. In the instant case, the inspector has given a very lengthy report and the material on which he had based his report has been elaborately indicated in the report. The relevant statements of the witnesses on the basis of which the report was based have been quoted in extenso. In the aforesaid circumstances, the petitioners got all reasonable opportunities to explain and/or to defend against the report of the inspector on perusal of the said lengthy report itself containing relevant extracts from the evidence. In the facts of the case, it cannot be contended reasonably that the copies of the evidence must be furnished to the petitioners so as to afford them reasonable opportunity to defend. Accordingly, in my view, no injustice has been caused to the petitioners by not forwarding the copies of the statements of different witnessess recorded by the inspector and his assistants for the purpose of making the report. In the facts of the case not only has there been compliance with the statutory provision by forwarding the report but the basic principle of reasonable opportunity to defend against the report of the inspector has also been given to the petitioners by forwarding the report which is self-explanatory and self-contained.

I am also unable to accept the contention of the petitioners that the report made by the inspector cannot be accepted because the inspector has not, for all intents and purposes conducted the enquiry himself, but he has relied on the reports and the materials collected by a number of persons engaged by him. In my view, section 237(b) of the Companies Act does not debar an inspector from taking the help of other persons in causing inspection. It can be reasonably accepted that for the purpose of probing into the affairs of a big company, it may not be possible for any single individual appointed as inspector to conduct all details of enquiry (by himself) including the inspection of various documents and registers and interrogation of different persons. There is no manner of doubt that for an effective enquiry, the inspector is bound to take the assistance of a number of persons. It will be sufficient if the inspector himself considers the materials collected by the assistants engaged by him for the said purpose and thereafter prepares his report. There are no materials to suggest that the other persons engaged by the inspector have not acted according to the direction of the inspector and the inspector has not considered the findings of such assistants.

I am also unable to accept the contention made by Mr. Banerjee on behalf of the petitioners that the Company Law Board having taken a decision to file complaints against the petitioners before the Chief Metropolitan Magistrate, Calcutta, for various lapses on the part of the petitioners before the petitioners were given an opportunity to make their submissions against the report of the inspector, it must be held that the Company Law Board had already made up its mind about the complicity of the petitioner company and the other petitioners and the opportunity of hearing afforded to the petitioners is nothing but a pretence and a purposeless formality. In my view, if the Company Law Board comes to know of serious lapses and irregularities on the part of a company and its officers for which such company and its officers are liable to be prosecuted in a criminal court, then the concerned authorities under the Companies Act will be justified in making complaints for initiating prosecution against the company and its delinquent officers. It is not imperative to wait for a hearing to be given to the company and its delinquent officers before making a complaint in a criminal court. It should be noted that apart from making complaints in a criminal court, the Company Law Board has powers to take other measures against a delinquent company but such power cannot be exercised unless the hearing before the Company Law Board is completed and the Company Law Board finally takes a decision. It should be borne in mind that when a case is presented in a court of law, the party against whom such proceeding is brought will get all opportunities to defend itself in accordance with the law of the land in a court of law. The criminal proceedings which have been instituted against the petitioners before the Chief Metropolitan Magistrate will be decided by the criminal court and not by the Company Law Board. Accordingly, the petitioners are not likely to suffer any real prejudice in the criminal proceedings instituted against the petitioners before the Chief Metropolitan Magistrate.

Mr. Banerjee, the learned counsel for the petitioners, has contended that the Company Law Board had withheld the formal approval of appointment as managing director and as wholetime directors of some of the petitioners without any just cause. He has submitted that in the board of directors of the petitioner company, there are representatives from various public financial institutions and such board of directors had approved the appointment of the said persons as managing director and wholetime directors. In my view, simply because in the board of directors there are representatives from the public institutions which are agencies of the Central Government, it cannot be contended that the Company Law Board is bound to accord approval of the decision of the board for appointment of managing director or wholetime directors. The Company Law Board has a statutory duty to consider about the reasonableness and/or suitability of the personnel to be appointed as managing director and wholetime directors of the concerned company and it is only proper and desirable that the Company Law Board should give its anxious consideration about the suitability of such personnel in the matter of appointment to the board of directors. In the instant case, it appears that the Company Law Board had received information that the petitioner company and some of its officers were guilty of various lapses of serious nature relating to the affairs of the company. As a matter of fact, a decision has been taken by the Company Law Board to cause enquiry into the affairs of the company by appointing an inspector. In the aforesaid circumstances, it cannot be held that the Company Law Board was unjustified in not according approval to the appointment of some of the petitioners as managing director and wholetime directors of the company before such enquiry is concluded and the extent of their alleged complicity is investigated. It may be noted in this connection that the persons who have been appointed by the board of directors as managing director and wholetime directors of the company continue to hold such offices unless the question of their approval by the Company Law Board is finally determined. In the instant case, some of the petitioners who had been appointed as managing director and/or wholetime directors have in fact been holding their respective offices in the absence of implementing the final decision of the Company Law Board. Accordingly, the company and the said persons have not suffered any real prejudice by the delay in disposing of the cases of approval.

I am also unable to accept the contention of Mr. Banerjee appearing for the petitioners that the Registrar of the company not having taken any independent decision in making complaints before the Chief Metropolitan Magistrate against the petitioners, but such complaints having been made at the instance of the Central Government and/or the Company Law Board, the said complaints must be held to be illegal and void. It appears that the Company Law Board, on a consideration of the material available before it, has taken a decision to institute criminal proceedings against the petitioners and such decision of the Company Law Board was communicated to the Registrar of Companies to follow up the proposed action to institute criminal cases. The Registrar of Companies on the basis of such intimation has lodged complaints before the Chief Metropolitan Magistrate, Calcutta, and criminal cases have been started against the petitioners. Prima facie, it therefore does not appear that initiation of proceedings against the petitioners is void and without jurisdiction. However, it is not necessary to decide the said contention in the instant writ proceeding because the petitioners will be entitled to take all objections including the objection about maintainability of the criminal cases against them before the learned Magistrate. The said contention is, therefore, kept open and is not decided by this court. In the aforesaid facts and circum stances, no interference is called for in the instant writ proceeding and the writ petition is, therefore, dismissed but there will be no order as to costs. All interim orders passed in his proceeding stand vacated.

The learned counsel appearing for the petitioner for the petitioner prays for stay of operation of this judgment for a period of three weeks from today. Let the operation of the judgment remain stayed for a period of two weeks from date.

[1959] 29 COMP. CAS. 97 (MAD.)

HIGH COURT OF MADRAS

Coimbatore spg. & wvg. Co.Ltd.

M. S. Srinivasan

BALAKRISHNA AYYAR, J.

WRIT PETITION NO. 428 OF 1957

JULY 24, 1958

BALAKRISHNA AYYAR, J. - This is a petition for the issue of a writ prohibiting the first respondent Mr. M. S. Srinivasan from holding an enquiry and conducting an investigation into the affairs of the Coimbatore Spinning and Weaving Co. Ltd., in pursuance of an order dated April 4, 1957, made by the Government of India.

The relevant facts are these. In May, 1956, one Parameswara Iyer, a shareholder in the Coimbatore Spinning and Weaving Company Ltd. wrote to the Registrar of Companies in which he made various allegations against the management. He said that the managing agents "have since their assumption of office been acting most selfishly jeopardising the interests of the company and have by frauds, misfeasance, misconduct, misappropriation and falsification of accounts and various other acts in contravention of law unduly enriched themselves at the expense and loss of the company causing loss not only to members but also to the Government by suppressing the true income and defrauding the taxes legitimately due."

He then proceeded to enumerate what he called a few of the major items of fraud and misconduct of the managing agents.

(1) The managing agents of the company are firm consisting of two partners, viz., V. Gopal Naidu and A. V. Srinivasalu Naidu. Between the years 1944 and 1952 three bungalows were constructed in Coimbatore, one for each of the three sons of Gopal Naidu, at a cost of more than Rs. 8,99,000. Every pie of this money was taken out of the funds of the company.

(2) A sum of Rs. 70,000, was paid out of the company's funds to the G.E.C. (India) Ltd., Coimbatore, for the work of electrification they did on the three bungalows built for the sons of Gopal Naidu.

(3) In 1951 Amirthammal, a granddaughter of Gopal Naidu, was married and in connection with that event a sum of over a lakh of rupees was expended. About Rs. 91,800 of the money thus spent came out of the funds of the mills, the amount being debited to various items such as purchases of mill stores, cotton waste, etc.

(4) In spite of the fact that the mills turned out large quantities of the cotton waste which were available for sale, a sum of Rs. 70,000 was shown to have been expended on the purchase of cotton waste from one Arumugham Chettiar of Kinathukadavu. This transaction is a bogus one.

(5) Various expenses incurred by the managing agents and their friends for their personal and private needs were debited to the accounts of the mills.

"A debit note of Rs. 36,840 in N. Ramaswami Naidu's account, credit given to him in the succeeding year will show the fictitiousness of the transactions and accounts."

On 7th June, 1956, the Registrar of Companies, Madras, wrote to the Coimbatore Spinning and Weaving Co. Ltd., enclosing extracts from the letter of Parameswara Iyer and asking for "very urgent and detailed remarks." On 21st June, 1956, the company replied that the allegations were false and irrelevant and absolutely without evidentiary value and suggested that the complaint might be lodged.

On 6th July, 1956, the Registrar of Companies again wrote to the company asking it to send its detailed remarks on each of the specific allegations within 15 days. The company's attention was also drawn to section 234 of the Companies Act, 1956, and it was told that in the absence of a detailed answer it would be presumed that it had no explanation to give. To this the company replied by a letter dated 19th July,1956, asking for a month's time in order that it might examine the several allegations and give its explanation.

On 6th August, 1956, the manager of the company and Mr. Srinivasa Aiyar, an advocate of the company, filed before the Registrar a written explanation dated 5th August, 1956. On 23rd August, 1956, the company wrote that Messrs. V. Rajagopalachari and V. Srinivasa Aiyar, advocates, had been authorised to represent the company and requested that they be heard on behalf of the company with reference to the statement that had been filed on 6th August, 1956. On 24th August, 1956, Messrs V. Rajagopalachari and V. Srinivasa Aiyar explained the various allegations that had been made and they stated that the ledgers and vouchers would be produced on 6th September, 1956, for inspection. On 19th October, 1956, Mr. Rajagopalachari again appeared and furnished to the Registrar typed copies of certain accounts and vouchers. He also appears to have addressed certain legal arguments and contended that it was not a fit case either on the facts or in law for the Registrar to find that the affairs of the company were in an unsatisfactory state, that there was no bona fides in the complaint and that it was a fit and proper case wherein the Registrar should find that the complaint was frivolous and vexatious and that he should disclose the indentity of the informant to the company.

On 27th November, 1956, the Registrar submitted his report to the Government of India.

On 10th April, 1957, the Government of India appointed Mr. M. S. Srinivasan, a Chartered Accountant of Coimbatore, as an inspector, :

"to investigate into the affairs of the company and to point out all irregularities and contraventions in respect of the provisions of the Companies Act or of any other law for the time being in force."

On 12th April, 1956, Mr. Srinivasan called at the office of the company and tendered a letter he had himself written pointing out that he had been appointed by the Central Government as an inspector to investigate the affairs of the company and asking that various books be delivered to him. The company telegraphed and also wrote to the Government of India requesting that some person other than Mr. Srinivasan be appointed as inspector. On 20th/22nd April, 1957, the Government of India wrote to the company to say that they saw no grounds for changing the inspector and adding,

"In case, however, you experience any difficulties during the investigation, you can always represent them to the Regional Director of this Department, who has been instructed to look into them."

In these circumstances the present writ petition has been filed by the company.

It was stated that holders of some 31,000 shares assembled in meeting and passed a resolution appointing Mr. T. T. R. Pillai to intervene on their behalf and represent their view to the Central Government. On behalf of these shareholders Mr. Thyagarajan sought leave to intervene in the present proceedings and he was permitted to do so.

Mr. T. M. Krishnaswami Aiyar, the learned advocate for the company, as also Mr. Thyagarajan raised certain objections based on sub-section (7) of section 234 of the Companies Act, 1956, which runs as follows :

"If it is represented to the Registrar on materials placed before him by any contributory or creditor or any other person interested that the business of a company is being carried on in fraud of its creditors or of persons dealing with the company or otherwise for a fraudulent or unlawful purpose, he may, after giving the company an opportunity of being heard, by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order, within such time as he may specify therein; and the provisions of sub-sections (2), (3), (4) and (6) of this section shall apply to such order.

If upon inquiry the Registrar is satisfied that any representation on which he took action under this sub-section was frivolous or vexatious, he shall disclose the identity of his informant to the company."

The first objection was this. This sub-section requires the Registrar to conform to a certain procedure. When it is represented to him that the business of company is being carried on in the manner specified in the sub-section it is open to him to ignore the representation and take no action on it. But, if he decides to act on it, he must first of all give the company "an opportunity of being heard". Thereafter he must issue a written order calling upon the company to furnish in writing any information or explanation on matters which the Registrar may specify in the order. In the present case no written order has been made conforming to the requirements of the sub-section. This deviation from the procedure prescribed by the sub-section is fatal to the entire proceedings. The result is that the report which ultimately followed must be treated as one having no existence in law; for all legal purposes it is non est. The order of the Central Government based on such a report must also fall.

I am unable to accept this objection. On 7th June 1956, the Registrar of Companies did write a letter to the Coimbatore Spinning and Weaving Company Ltd., enclosing extracts from the complaint which he had received from Parameswara Iyer and calling for very urgent and detailed remarks from the company. I cannot therefore accept the objection that there was no written order calling on the company to furnish its explanation. The omission of the Registrar was not in respect of this but in respect of another matter. What he failed to do was to give the company "an opportunity of being heard" before he made his written order. The company was undoubtedly heard through advocates on at least two days, viz., 24th August, 1956, and 19th October, 1956, though it was subsequent to the written order. As a matter of substance, therefore, the company cannot complain either that it was not heard or that it was not given an opportunity to present its case in writing. The mistake made by the Registrar was in omitting to give the company an opportunity of being heard before he made his written order. This irregularity does not appear to me to be of any importance in the circumstances of the present case. What is the object of prescribing that the company should be given an opportunity of being heard ? Obviously in order that the company may satisfy the Registrar that the allegations are so frivolous or vexatious or that for some other reason there is no justification at all for taking further action on the representations that were made. The object of the written order is to enable the company to know the substance of the allegations made against it and which it is required to meet. The entire purpose of this portion of the sub-section is to enable the company to gives its explanation and present its case to the Registrar; and, that opportunity it had in ample measure. It was given full facilities for submitting its written explanation and its advocates were heard, and, as I said before, on two occasions.

Be it remembered that here we are concerned with a procedural matter and its is not every deviation from the prescribed procedure that would vitiate the result. It will be wrong to assimilate the procedure prescribed in a matter of this kind to the procedure which attaches to religious rituals. There has been, in my opinion, substantial compliance with the requirements of the statute, and, in any case, the company has not suffered any prejudice. I greatly doubt whether if an irregularity of this nature is shown to have occurred in the course of a criminal trail an appellate court would have set aside a conviction which followed. Even supposing that the Registrar did commit an irregularity, I do not see how it affects the jurisdiction of the Central Government to pass what order they thought proper. The learned Advocate-General also pointed out that this objection has not been taken in the writ petition itself; and that objection appears to me to be correct.

Another objection based on sub-section (7) of section 234 was this. That sub-section requires that it should be represented to the Registrar that the business of a company is being carried on in fraud of its creditors or of persons dealing with the company, or otherwise for a fraudulent or of unlawful purpose. The representation itself must allege that the business of the company is being carried on in the manner specified. It is not sufficient that the representation should contain allegations that there had been fraud or misfeasance or malfeasance or unlawful or fraudulent activities in the past. The allegations must be that such is the present state of affairs. The complaint which Parameswara Iyer sent to the Registrar contains only allegations of what according to him took place between 1944 and 1952. Those allegations are not equivalent to an allegation "that the business of the company is being carried on in frand of its creditors," etc.

Besides, mere representation to that effect will not do. The sub-section requires that the Registrar, after giving the company an opportunity of being heard, should make a written order calling upon it to furnish its explanation in writing. When the stage is reached the provisions of sub-sections (2), (3), (4), (5), and (6) of section 234 would apply.

Now, sub-section (6) runs as follows :

"If such information or explanation is not furnished within the specified time, or if after perusal of such information or explanation the Registrar is of opinion that the document in question discloses an unsatisfactory state of affairs, or that it does not disclose a full and fair statement of the matter to which it purports to relate, the Registrar shall report in writing the circumstances of the case to the Central Government."

It will be noticed that according to this sub-section the duty of the Registrar to report to the Central Government would arise only when he "is of opinion that the document in question discloses an unsatisfactory state of affairs, or that it does not disclose a full and fair statement of the matter to which it purports to relate."

There was some argument as to the effect of this sub-section in relation to sub-section (7) and the facts of this case. At one stage it was suggested that to enable the Registrar to report to the Government it would be sufficient if he was satisfied after examining the explanation of the company that it disclosed "an unsatisfactory state of affairs." At another stage it was suggested that since proceedings under sub-section (7) are initiated by a representation that the business of the company "is being carried on in fraud of the creditors" etc., the Registrar must be of opinion that the representation is true and that the business of the company "is being carried on" in the manner alleged.

Now, the allegations of Parameswara Iyer related to what he said happened between 1944 and 1952 and, even if it supposed that his allegations are true, they will not show that the business of the company is being carried on in fraud of its creditors etc. What happened between 1944 and 1952 can in no circumstances justify the view that "an unsatisfactory state of affairs" is disclosed at present. The allegations of Parameswara Iyer are not sufficient and cannot be regarded by any reasonable person as sufficient to show either that the present state of affairs of the company is unsatisfactory or that the affairs of the company are being carried on in the manner specified in sub-section (7).

To support the argument that the expression "is being carried on" refers to a present state of affairs and not to what happened in the past reference was made to the case reported in Southern Railway v. Railway Rates Tribunal.

I agree with both Mr. Krishnaswami Aiyar and with Mr. Thyagarajan that the expression "is being carried on" occurring in sub-section (7) relates to the state of affairs at the time the representation to the Registrar is made and not to something which is a matter of past history. But it does not appear to me to be correct to say that in his letter to the Registrar, Parameswara Iyer did not make any allegation about "the present state" of affair of the company. In one paragraph of his letter - I have quoted it above and I quote it again now - Parameswara Iyer expressly said :

"The said managing agents have since their assumption of office been acting most selfishly jeopardising the interests of the company and have by frauds, misfeasance, misconduct, misappropriation and falsification of accounts and various other acts in contravention of law unduly enriched themselves at the expenses and loss of the company causing loss not only to members but also to the Government by suppressing the true income and defrauding the taxes legitimately due."

This passage can be fairly read as meaning that ever since the time the managing agents entered on their duties they have been committing acts of fraud, misfeasance and misappropriation and that state of affairs continues. It will not, therefore, be right to say that there was no representation at all before the Registrar of Companies as required by sub-section (7).

It was very strongly argued that even if it be that between 1944 and 1952 there had been acts of fraud or misfeasance or malversation that is not sufficient to show that the same state of things continues.

To this argument the learned Advocate-General replied by referring to certain provisions of the Criminal Procedure Code. He remarked that before a person can be required to furnish security for his good behaviour under section 110 of the Criminal Procedure Code it must be shown that he is by habit a thief, a robber, a receiver of stolen properties etc. Ordinarily this is done by giving evidence of his conduct in the past. What he is now and what he is likely to do now can be proved by a reference to what he had been doing in the recent past. No doubt the requirements of section 110 of the Criminal Procedure Code are usually satisfied in the manner indicated by the learned Advocate-General. But, I do not want to press the analogy too far. Certain facts, however, must be remembered. If the persons who manage the affairs of a company commit acts of fraud or misappropriation or malversation the only persons who are likely to know about it at the time the wrongful acts are being committed are the wrong-doers themselves, and, unless they fall out amongst themselves immediately, information as to what has taken place will not ordinarily be forthcoming at once. Before a shareholder or a creditor or any one else dealing with the company gets an inkling about what has been taking place there must be an interval of time. This is inevitable. Now if the arguments of Mr. Krishnaswami Aiyar and of Mr. Thyagarajan were right what result will follow ? Since of necessity the representation made to the Registrar must relate to something that had taken place in the past - even though it is the proximate past - it cannot relate to a state of things at present. In such a case there can be no representation under sub-section (7) that would justify action by the Registrar; the sub-section would be reduced to a set of idle words. It seems to me, as the learned Advocate-General contended, that the proper way to look at the matter is this : You study the allegation and put yourself various questions. Do the allegation suggest a scheme or continuous set of operations ? Are the persons who initiated or who operated the scheme still in a position to carry on as they had been doing in the past ? If that is so, it will be reasonable to infer that they continue their past mode of conduct and are enriching themselves in the same manner that they had been doing in the past.

I want to make on thing clear; I am expressing no opinion whatever on the truth or otherwise of the allegations made by Parameswara Iyer in his letter to the Registrar of Companies. Nor am I offering any comment on the explanation which the company offered. It will suffice for present purposes to say that on the allegation of Parameswara Iyer, the Registrar was entitled to take action under section 234 of the Act and make a report to the Central Government.

Parameswara Iyer did not merely allege that there had been one act of misappropriation. According to him, the managing agents of the company had been continuously siphoning off the resources of the company for their private benefit. The specific charges he made indicate not merely the magnitude of the defalcation which he attributed to the managing agents; if believed they would cogent evidence of a systematic course of dishonest or fraudulent dealing. As I said before, if the Registrar was persuaded that the allegations of Parameswara Iyer were prima facie true, he would have been within his rights in taking the view that the old modus operandi continued.

The next remark I would make here is that neither sub-section (6) nor sub-section (7) requires that the Registrar of Companies should record any finding. Nor do either of the sub-sections say that the Registrar has to be satisfied that the representations are true; it is enough if he is of opinion that the affairs of the company are being carried on in the manner specified in sub-section (7). "Opinion", it will be realised, does not denote the same state of mind as is indicated by the word "finding" or "satisfaction". The three words indicate varying stages of the intellectual process.

It must not be overlooked that the present writ petition is directed not against the report of the Registrar, but against the order of the Central Government. The Central Government are by no means bound to accept the views or opinions of the Registrar. He makes his report and the decision is the decision not of the Registrar but of the Government.

Yet another argument was advanced. It was said that the provisions of sub-section (7) of section 234 do not apply to the present case because even if the allegations of Parameswara Iyer are assumed to be true it cannot be said that the business of the company is being carried on in fraud of its creditors because no creditors has been defrauded or even complains that he has not been paid. Nor can it be said that it is being carried on in fraud of persons dealing with the company because there is no such allegation. And so, all that remains in that sub-section is the requirements that there must be representation that the business of the company is being carried on for a fraudulent or unlawful purpose. Assuming for a moment that there was misappropriation of the funds of the company by the managing agents, that does not show that the business of the company was being carried on "for a fraudulent or unlawful purpose". The argument was that, before we can say such a thing, it must be shown that the primary purpose of the operations of the company is fraudulent or unlawful.

In assessing the validity of this argument one must bear in mind the purpose of this and other similar provisions in the Act. They are intended, if I may use the analogy, to enable medicinal or surgical treatment to be administered to the company before it becomes necessary to do a post-mortem examination. There are various provisions in the Act - not all of them very effective, however formidable they may appear to be on page - which enable delinquent directors or office bearers of the company to be proceeded against. There are also various other provisions which enable further investigation and further pursuit to be made after the company has gone into the hands of the official liquidator. The provisions relating to information and investigation are intended to enable the Government to remedy things even at the outset. Therefore, if it appears that the managing agents of the company have been misappropriating its funds then it will not be an answer to say that no creditor or person dealing with the company has yet been defrauded. That will be the inevitable consequence if the matter is allowed to develop along the lines the managing agents are alleged to be following. In any case, it seems to me, that the allegations that the managing agents of the company are misappropriating its funds can be brought within the ambit of the expression "or otherwise for a fraudulent or unlawful purpose". It is unnecessary that the sole object of the operations which the managing agents carry on should be fraudulent or unlawful. It is not even necessary that it should be the dominant object. It would be sufficient if it is one of their objects. I am not prepared to accept the argument that the managing agents of the company can stave off an enquiry by alleging that the income of the company amounts to say - Rs. 10,00,000, and that they have been misappropriating only one lakh of rupees.

All the arguments based on sub-sections (6) and (7) of section 234 must, it seems to me, fail.

I would here refer to a case reported in In re Grosvenor and West-End Railway Terminus Hotel Co. That was a case in which the Board of Trade appointed an inspector to investigate and report on the affairs of the Grosvenor and West-End Railway Terminus Hotel Co. The company took out summons for the issue of a writ of prohibition to the board and to the inspector, to prohibit them from further proceeding with the enquiry. The writ was refused by LAWRENCE J. The company appealed. That appeal was also dismissed.

Sections 56 and 59 of the Companies Act, 1862, of England provided as follows :

"56. The Board of Trade may appoint one or more competent inspectors to examine into the affairs of any company under this Act, and to report thereon, in such manner as the Board may direct, upon the applications following, that is to say ..................

59. Upon the conclusion of the examination the inspectors shall report their opinion to the Board of Trade."

In the course of his judgment LORD ESHER M.R. observed :

"The inquiry held by the inspector is not a judicial inquiry, and has nothing in the nature of a judicial determination. Now, there are certain preliminaries to be observed before the Board of Trade has power to appoint an inspector under section 56. Even in a case in which the Board had assumed to appoint an inspector without those preliminaries being observed, it seems to me that no writ of prohibition could be issued against them."

In the present case one point sought to be made is that there has been an irregularity in the procedure of the Registrar. If the court was justified in refusing to issue a writ where the preliminaries were not observed at all as in the English case just referred to, I do not see how an irregularity in observing the preliminaries will justify the issue of a writ.

Another argument was based on the terms of section 235 of the Act. That section opens as follows :

"The Central Government may appoint one or more competent persons as inspectors to investigate the affairs of any company and to report thereon in such manner as the Central Government may direct."

The duties of an inspector appointed under this section, said Mr. Krishnaswami Aiyar, are of a quasi-judicial nature. In order therefore to be competent within the meaning of the section it is not sufficient that he has got the requisite skill to do the work assigned to him. He must also be free from any bias which would disqualify. In the present case Mr. Srinivasan, whom the Central Government have appointed as inspector, is, by reason of his bias, wholly disqualified for holding the enquiry. Mr. Srinivasan was auditor of the Kadri Mills Ltd. in Coimbatore. In his audit report he pointed out various irregularities suggesting misconduct on the part of Gopal Naidu and his sons. On the strength of his report criminal proceedings were instituted against Gopal Naidu and his three sons in C.C. No. 531 of 1953, on the file of the Additional First Class Magistrate of Coimbatore. Mr. Srinivasan's report was the principal document for the prosecution and he was also their principal witness. When he was cross-examined he was compelled to admit that his report was incorrect and the charges were groundless. In one portion of his evidence he stated :

"that he took full responsibility for his report for finalising which he alone took about a month, but in the later portion of his evidence after a admitting that his report was incorrect in material particulars, blamed his assistants for the errors of omission and commission. The trying magistrate acquitted the accused, but in his judgment made certain strong observations against the conduct of the first respondent."

(Vide paragraph II of the affidavit in support of the petition). Mr. Krishnaswami Aiyar very strongly argued that in these circumstances Mr. Srinivasan is disqualified for the office of inspector to which he has been appointed by the Central Government because that office is a quasi-judicial office. The inspector, said Mr. Krishnaswami Aiyar, has very large powers. In order to investigate the affairs of one company he may, if he thinks it necessary to do so, investigate the affairs of any other company or individual as set out in section 239 of the Act. He can compel the production of all the documents he wants. He can examine on oath any of the persons referred to in sub-section (1) of section 240, and, if any person refuses to obey his direction to produce any document or to answer questions put to him the inspector may certify the refusal to the court and the court may after hearing the matter punish the offender as if he had been guilty of contempt of court. The inspector is also entitled to invoke the assistance of the court under sub-section (4) of section 240 on various matters. He is required to take down in writing notes of examination of witnesses and these have to be signed by the deponent thereafter. Such notes may be used in evidence against the deponent. On the report which the inspector makes the Government of India may institute a prosecution under section 242. Section 246 of the Act provides that the report of the inspector "shall be admissible in any legal proceeding as evidence of the opinion of the inspector ...... in relation to any matter contained in the report."

In spite of all this, I am unable to take the view that the duties of an inspector appointed by the Central Government under section 235 or under section 237 of the Act are quasi-judicial in their nature. The words of the section themselves make it plain that his duty is to investigate the affairs of a company and to report thereon. His position is analogous to that of a sub-inspector of police who goes out to investigate a crime which has been reported at his station. That the inspector appointed under the Companies Act has got powers to take evidence on oath while a sub-inspector of police has no such powers does not make any real difference. To carry out his duties the inspector appointed under the Act is given certain facilities and powers in the same manner as a sub-inspector of police is given facilities and powers under the Criminal Procedure Code.

Continuing his argument on this part of the case Mr. Krishnaswami Aiyar said that an inspector appointed under the Act has to make certain decisions and that this makes his duties quasi-judicial in nature. But then, that is also the position of an inspector or sub-inspector of police. He too has to take decisions on various matters. Will he search a particular house ? Will he seize particular papers ? Will he arrest a particular person ? That decisions have to be taken on various matters during the course of an investigation does not make the investigation a quasi-judicial proceeding. Revenue officers are from time to time called upon by the Board of Revenue or the Government to investigate and report on various administrative matters, during the course of which they may take evidence on oath; as for example the condition of affairs in a municipality or a panchayat or other body working in a district. But so far as I am aware such duties have never been held to be quasi-judicial in character. The position of an inspector under section 235 of the Act appears to me to be very similar to that of a revenue officer enquiring into matters of the kind mentioned above and on which he has been called upon to report by the Board of Revenue or the Government. In this particular case I find it hard to see how we can properly describe the duties of the inspector as quasi-judicial. He has no parties before him. The Central Government is not in the position of a plaintiff or complainant before him. Nor even Parameswara Iyer, the original petitioner to the Registrar. Parameswara Iyer cannot go before the inspector and insist that he has a right to be present during the enquiry. Nor can Parameswara Iyer claim that the inspector should examine witnesses in his presence and give him an opportunity to cross-examine them. Likewise, the managing agents of the company cannot insist that the inspector should examine all the witnesses in their presence and that they should be given an opportunity to cross-examine them. Nor can they insist that he should take all or even any part or the evidence that they may tender. No doubt the inspector would in proper cases give the person who has made his representation to the Registrar and the managing agents opportunity to be present and facilities to put questions to the witnesses. But, the important thing is that they have no right to do so. What evidence he will take, whom all he will examine, in what order he will examine them, what line of enquiry he will pursue, are all matters in the obsolete discretion of the inspector. And finally, he is not required to give any decision on the matter, no report that he may make is binding on the Government or the company or the managing agents or the person at whose instance the Registrar took action.

Mr. Krishnaswami Aiyar referred to Venkatasubba Reddi v. Registrar of Co-operative Societies where it was held that the functions of the Registrar of Co-operative Societies in considering the question of registration under-section 12(2) of the Co-operative Societies Act, are undoubtedly quasi-judicial. I do not think that this case helps Mr. Krishnaswami Aiyar because a Registrar has to make an order and before doing so he has to be satisfied that there has been no contravention of the Act or the Rules. Besides, the direction that he gives conclusively determines certain rights and is tantamount to an adjudication.

Mr. Krishnaswami Aiyar also referred to Southern Railway v. Railway Rates Tribunal. But that case deals with Railways Rates Tribunals whose duties are very different indeed from those of an inspector.

The decision in Thangal Kunju Musaliar v. Venkatachalam Potti, on which Mr. Krishnaswami Aiyar placed some reliance dealt with the powers of an officer appointed by the Indian Income-tax Investigation Commission to investigate into certain allegations of tax evasion by a Thangal of Travancore. But I am unable to see anything in the report that helps Mr. Krishnaswami Aiyar.

The case in Bharat Bank v. Employees of Bharat Bank, which Mr. Krishnaswami Aiyar cited relates to an industrial tribunal whose position, again, is entirely different from that of an inspector appointed under the Companies Act.

Much nearer in point are the cases referred to by the learned Advocate-General. Of these one is In re Grosvenor and West End Railway Terminus Hotel Co. which has been already referred to. The views of LORD ESHER M.R. have already been quoted. CHITTY L.J. was of the same opinion :

"The beginning and the end of the duty of an inspector appointed under section 56 is to examine and report. He does not occupy a quasi-judicial position. The proceedings before him are not judicial in any proper sense of the term. There is no court, and no judge, nor anyone assuming to constitute a court, or exercising a jurisdiction which he does not possess, or exceeding any jurisdiction which he has. As has been pointed out, the whole business begins and ends with the enquiry and report. The report cannot be made the foundation of any subsequent action, it is merely evidence of the opinion of the inspector. He is nothing more than an inspector as he is described in the Act."

The case of Hearts of Oak Assurance Co. v. Attorney-General, dealt with an inspector appointed by the Industrial Assurance Commissioner under section 17, sub-section (1), of the Industrial Assurance Act, 1923, for the purpose of examining into the reporting on the affairs of an industrial assurance company. The court observed :

"It appears to me to be clear that the object of the examination is merely to recover information as to the company's affairs and that it is in no sense a judicial proceeding for the purpose of trial of an offence; it is enough to point out that there are no parties before the inspector, that he alone conducts the inquiry, and that the power to examine on oath is confined to the officers, members, agents and servants of the company."

It is well settled that where the duties of an officer are not judicial or quasi-judicial the question of bias becomes irrelevant and does not disqualify. See Franklin v. Minister of Town and Country Planning. LORD THANKERTON observed :

"..... I could wish that the use of the word 'bias' should be confined to its proper sphere. Its proper significance, in my opinion, is to denote a departure from the standard of even-handed justice which the law requires from those who occupy judicial office, or those who are commonly regarded as holding a quasi-judicial office, such as an arbitrator. The reason for this clearly is that, having to adjudicate as between two or more parties, he must come to his adjudication with an independent mind, without any inclination or bias towards one side or other in the dispute ....... But, in the present case, the respondent having no judicial duty, the only question is what the respondent actually did, that it, whether in fact he did genuinely consider the report and the objections."

I may also usefully quote here the head-note to the case :

"In considering the report of the person who has held a public local inquiry under sch. I, para. 3 of the New Towns Act, 1946, after objections have been made to an order under s. 1, sub-s. (1) of the Act, the Minister of Town and Country Planning has no judicial or quasi-judicial duty imposed on him, so that considerations of bias in the execution of such a duty are irrelevant, the sole question being whether or not he genuinely considered the report and the objections."

All the objections taken before me fail. This writ petition is therefore dismissed with costs of the second respondent. Advocate's fee Rs. 250.

Petition dismissed.

[1986] 59 COMP. CAS. 94 (CAL.)

HIGH COURT OF CALCUTTA

Titagarh Paper Mills Co. Ltd.

Union of India

G.N. RAY, J.

C.O. NO. 11100 (W) OF 1982.

MARCH 16, 1984

S.R. Banerjee, S.N. Mukherjee, D.C. Nandi, S.K. Kundu, S.B. Mukherjee and S.N. Chaudhury for the Appearing party.

JUDGMENT

(i) The LIC	20.65%
(ii) The IUB1	9.11%
(iii) The ICICI	2.40%
(iv) The IFC	1.20%
(v) The Unit Trust	5.20%
(vi) The nationalised banks and the nationalised insurance companies	11.00%
Total	49.56%

[1972] 42 COMP. CAS. 338 (DELHI)

HIGH COURT OF DELHI

B.M. Bajoria

Union of India

H.R. KHANNA, C.J.

AND P.N. KHANNA, J.

CIVIL WRIT NO. 1082 OF 1969

MAY 14, 1971

V.M. Tarkunde, H.L. Anand and T.M. Chandwani, for the Petitioner.

Jagadish Swarup, Dipak Chaudhry, (A.K. Marwah, and R.L. Mehta, for the Respondents:

JUDGMENT

Khanna, C.J.—This is a petition under articles 226 and 227 of the Constitution of India by B.M. Bajoria of Calcutta against (1) the Union of India, (2) the Company Law Board, (3) S.S. Singh, Under Secretary, Company Law Board and (4) the Director, Special Police Establishment, CBI, New Delhi.

The facts giving rise to the petition are as below:

The petitioner has been associated with a number of firms and joint stock companies including Ouchterlony Valley Estates (1958) Ltd. (hereinafter referred to as “the company”). The company was incorporated in the year 1938 with an authorised capital of Rs. 40 lakhs. The issued and paid-up capital of the company in 1967 was over Rs. 19 lakhs. The company was incorporated with the object of carrying on business of tea andcoffee plantations, and owns a number of tea and coffee estates in District Nilgiris. Its shares are quoted on the Madras Stock Exchange. According to the petitioner, he was the managing director 6f the said company between 1966 and 1969. Since June, 1969, the petitioner claims to have severed his connections with the company and to have sold his entire holdings in it. 0a November 10, 1968, Shri G. Srinivasan, Assistant Inspecting Officer, Company Law Board, visited the office of the company and carried out an inspection of the books of accounts and other records of the company by virtue of authority conferred by section 209 of the Companies Act, 1956. Shri Srinivasan made a report of the outcome of the inspection to the Company Law Board. The Company Law Board considered the report. On January 25, 1969, Shri S.S. Singh, respondent No. 3, addressed the following letter to the Director, Special Police Establishment, CBI, New Delhi, respondent No. 4:

“M/s. Ouchterlony Valley Estates (1938) is a public limited company situated at New Hope, New Hope (P.O.), Nilgiris District. The company is cultivating and selling tea and coffee. This company is managed by the board of directors with a managing director and the present directors are Shri B.M. Bajoria, managing director, Bakishore Bajoria, B.P. Pittle, K.N. Jalan, and G.K. Tuberewala.

During the course of a routine inspection under section 209(4) under the Companies Act by Shri G. Srinivasan, Assistant Inspecting Officer of this department, it has come to light that the properties of the company have been dishonestly disposed of and the proceeds thereof were not credited in the accounts of the company. Timber from the reserved area land of the company, viz., Lauriston Estate, New Hope Estate, Kelly Division, Glermans Estate, Suppolk Division, Tullous Division, etc., have been dishonestly cut and removed and its proceeds amounting to over Rs. 6 lakhs were not credited to the accounts of the company but have been dishonestly misappropriated. This has been done between January, 1967, and February, 1968, as presently seen. It has further come to light that certain properties of the company were sold at high price but in the books of the company lesser amounts were credited and the difference was dishonestly misappropriated. Another mode of dishonest misappropriation of the funds of the company has been found, inasmuch as the actual expenses incurred by or on behalf of the company were inflated and the inflated amount was claimed from the company between the period February, 1966, to January, 1967. The difference between the inflated amount charged and the actual amount spent was dishonestly misappropriated. It is further learnt reliably that the above dishonest misappropriations from, the funds of the company were committed by the management in connivance with certain employees and; that the company was dishonestly deprived of its lawful property and moneys.

As there is reasonable ground for believing that the management along with other employees have committed the above acts of dishonest misappropriation of the company’s money and have further dishonestly or fraudulently falsified the records, it is requested that a case under sections 120B (read with 409), Indian Penal Code, 409, 467, 471 and 477-A, Indian Penal Cods, may kindly be registered and investigated.

The details of the various alleged misappropriations are given in the annexure.

This may please be registered for investigation and the offenders brought to book.”

Respondent No. 4 then took cognizance and had a case registered on the basis of the above letter. Copy of the first information report was forwarded by the police to the Magistrate having jurisdiction.

On November 6, 1969, the petitioner filed the present writ petition for the issuance of a writ to quash :

“(a) the report of the Assistant Inspecting Officer of the Company Law Board;

(b) the reports and proceedings of the Company Law Board subsequent to the report of the Assistant Inspecting Officer aforesaid;

(d) the reference of the matter by the Board to the Central Bureau of Investigation and the communication of the Under Secretary of the Company Law Board dated January 25, 1969, and the proceedings now being taken by the Central Bureau of Investigation in pursuance thereof.”

The petitioner has also prayed for a direction restraining the respondents from in any manner taking steps in relation to the said allegations in pursuance of the report or in relation to the conduct and affairs of the company.

The petition has been resisted by the respondents and the affidavit of Shri Sadho Saran Singh, Under-Secretary of the Company Law Board, has been filed in opposition to the petition.

The first contention, which has been advanced on behalf of the petitioner, is that the officers of the Delhi Special Police Establishment have no power to investigate into the offences alleged to have been committed in the State of Tamil Nadu, because no consent to such investigation had been given by the Government of that State. This contention, in our opinion, is not well founded. The Delhi Special! Police Establishment has been constituted by the Central Government by virtue of the power conferred by section 2 of the Delhi Special Police Establishment Act, 1946 (XXV of 1946). Section 3 of that Act empowers the Central Government to specify by notification in the official gazette the offences or classes of offences, which are to be investigated-; by the Delhi Special Police Establishment. The Central Government issued, a notification under the above provision on November 6,1956. The offences; under sections 409, 467, 471, 477A as well as conspiracies in relation to or in; connection with those offences are mentioned besides other offences in that notification. Section 5 of the Act gives power? (to the Central Government to extend the powers and jurisdiction of Special Police Establishment to area other than a Union territory. According to section 6, nothing contained in section 5 shall be deemed to enable any member of the Delhi Special Police Establishment to exercise powers and jurisdiction in any area in a State not: being a Union territory or railway area, without the consent of the Government of that State. As the investigation in the present case has been-carried on by the Special Police Establishment in areas now forming part of Tamil Nadu, the question arises whether the Government of Tamil Nadu has given its: consent to the members of the Delhi Special Police Establishment to exercise powers and jurisdiction in Tamil Nadu. In this connection we find that Shri G.P. Kalra, Section Officer, Department of Personnel, Cabinet Secretariat, has filed his affidavit and along with that has produced a copy of the letter dated January 23, 1957, which was sent on behalf of the Home Department of the Madras (now Tamil Nadu) Government to the Ministry of Home Affairs, Government of India. According to that letter, the Madras Government agreed to the members of the Delhi Special Police Establishment exercising powers and jurisdiction within the Madras State with regard to the offences mentioned in the notification dated November 6, 1956. Affidavit has also been filed by Shri A.T. Sathianathan, Deputy Secretary to the Government: of Tamil Nadu. It is stated by Shri Sathianathan in that affidavit “that proper sanction was accorded by the State of Tamil Nadu in letter No. 188-Home, dated January 23, 1957, for the functioning of the Delhi Special Police Establishment exercising powers and jurisdiction within the State of Tamil Nadu with regard to offences mentioned in the notification of the Government of India”. According further to the affidavit, the file was dealt with at proper level in accordance with the Tamil Nadu Government Business Rules and Secreatriat Instructions then in force. Shri Sathianathan has added that the final orders for according sanction for the functioning of the Delhi Special Police Establishment in the State of Tamil Nadu were approved by the then Chief Minister, Shri Kamaraj. The material brought on record, in our opinion, clearly shows that the State of Tamil Nadu has given its consent to the members of the Delhi Special Police Establishment exercising powers and jurisdiction within the State of Tamil Nadu with regard to offences mentioned in the notification dated November 6, 1956. The argument that there is nothing to show that according to the Rules of Business the Chief Minister was authorised to give the approval, is not convincing, because there is a presumption of regularity of official acts. Apart from that, the affidavit of Shri Sathianathan shows that the file Was dealt with at proper level in accordance with the Tamil Nadu Government Business Rules and Secretariat Instructions then in force. A similar contention was raised, in tine case of Management of Advance Insurance Co, Ltd. v. Gurudasmal and, was repelled by the court in the fallowing words:

“A doubt raised in the High Court and before us that the Government of Maharashtra had not considered the matter or that the consent was not properly given, is sufficiently answered by the affidavit of the Undersecretary to the Government of Maharashtra dated July 18, 1968, in which it is clearly stated that the Chief Minister had considered the matter and given his consent and that under the Rules of Business he was quite competent to do so. No argument has been advanced before us which entitled the appellant to go behind the memorandum and the affidavit. There is a presumption of regularity of official acts and even apart from it, the memorandum and the affidavit clearly establish that the consent was given.”

Before dealing with the other contention advanced on behalf of the petitioner, it may be useful to refer to some of the provisions of the Companies Act. Section 209 of the Act relates to books of account to be kept by a company. Sub-section (4) of that section provides for the inspection of books of account and reads:

“(4)

(a) The books of accounts and other books and papers shall be open to inspection by any director during business hours.

(b) The hooks of account and other books and papers shall be open to inspection during business hours—

(i) by the Registrar,

(ii) by any officer of Government authorised by the Central Government in this behalf:

Provided that such inspection may be made without giving any previous notice to the company or any officer thereof.

(i) make or cause to be made copies of the books of account and other books and papers,

(ii) place or cause to be placed any marks of identification thereon in token of the inspection haying been made.

(d) In order to enable the Registrar or such officer to make an inspection of the books of account and other books and papers of the company it shall be the duty of the company—

(i) to produce to the Registrar or such officer such books of account and other books and papers of the company as the Registrar or such officer may require,

(ii) otherwise to give to the Registrar or such officer all assistance in connection with the inspection which the company is reasonably able to give.”

Sections 235 to 251 pertain to investigation of the affairs of a company. Section 235 provides for investigation of affairs of a company on application by members or report by Registrar. Section 237 deals with investigation of the affairs of a company in other cases and reads as under:

“237. Without prejudice to its powers under section 235, the Central Government—

(a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if—

(i) the company, by special resolution; or

(ii) the court, by order, declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government; and

(b) may do so if, in the opinion of the Central Government, there are circumstances, suggesting—

(i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose;

(ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or

(iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect; including information relating to the calculation of the commission payable to a managing or other director, the managing agent, the secretaries and treasurers, or the manager, of the company,”

Section 239 gives power to inspectors to carry on investigation into affairs of related companies or of managing agents. Section 240 provides that it shall be the duty of all officers, employees and agents of a company to preserve and to produce to an inspector or a person authorised all books and papers relating to the company and otherwise to give assistance in connection with the investigation. Section 240A empowers the inspector, where he has reasonable ground- to believe that the books and papers of, o? relating to, a, company may be destroyed, mutilated or altered, to apply to a Magistrate for seizure of such books and papers. Section 241 makes provision for the submission of the inspector’s report to the Government. The Central Government is required to forward a copy of the final report made by the inspectors to the company at its registered office and other persons specified in the section. Section 242 empowers the Central Government to launch prosecution if from any report made under the preceding section, it appears to the Central Government that any person has; in relation to the company, been guilty of an offence. Sub-section (1) of that section- reads as under:

“242. (1) If, from any report made under section 241, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate, managing agent, secretaries «ad treasurers, or associate of a managing agent or secretaries and treasurers, whose affairs have been investigated by victual of section 23 been guilty, of any offence for which he is criminally liable, the Central Government may, after taking such legal advice as it thinks fit, prosecute such person for the offence; and it shall be the duty of all officers and other employees and agents of the company, body corporate, managing agent, secretaries and treasurers, or associate, as the case may be, (other than the accused in the proceedings), to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give.”

Section 243 makes provision for an application: for winding up of a company or for an order under sections 397 or 398, if it appears to the Central Government from the inspectors report that it is expedient to do so. Section 244 authorises the Central (Government to initiate proceedings in the name of a company for the recovery of damages of property if, from a perusal of the report, it appears to the Central Government that such proceedings ought in the public interest to be brought by the company. It is not necessary for the purpose of this case to refer to the other provisions relating to investigation into the affairs of the company.

It is argued by Mr. Tarkunde on behalf of the petitioner that if it is intended to prosecute a director of the company in. respect of some act of embezzlement or malfeasance concerning the affairs of the company the only way to do so is by directing investigation into the affairs of the company under section 237 of the Companies. Act. After a report under section 241 of the Act is received as a result of that investigation, a copy of that report should be supplied to the company The Government may in that event, after taking legal advice, launch prosecution in accordance with section 242. To lodge a report with the police ; on the basis of a report submitted by an official of the Company Law Board after inspection of account books under section 209(4) of the Act without supplying a copy of the report of that official to the company would result, according to the learned counsel, in such procedural discrimination as would-be violative of article 14 of the Constitution. The above argument, though ostensibly attractive, on closer examination, incur opinion, would be found to be not tenable. An investigation into the affairs of a company is ordered in a variety of circumstances which have been mentioned in sections 235 and 237 (a) the Companies Act. In cases covered by section 237(a) the Government is bound to appoint one or more competent persons as inspectors to investigate the affairs of a company. As against that, if a-case is governed by clause (b) of section 237 or in case it is governed by section 235, the Government has, a discretion in the matter. An investigation into the affairs of a company under the above provisions of law from the point of view of; general reputation of a company is a very serious matter. It can result in a number of consequences, viz., prosecution, vide section 242 ; winding up of the company or an order under sections 397 or 398 of the Act, vide section 243 or initiation of proceedings by the Central Government in the name of the company for recovery of damages or property, vide section 244 of the Act. It is also manifest that investigation is ordered into the affairs of a company when there is some aspect of those affairs regarding which the Government is not in possession of full facts and the circumstances exist as are referred to in section 235 or 237 of the Act. In such an event, the Government orders probe into these aspects to apprise itself of the correct facts. It is only after that probe, when further facts come to the notice of the Government, that the Government has to decide about the next step, i.e., whether it should drop the matter Or proceed in any of the ways mentioned in sections 242 to 244 of the Act. There is, however, nothing in section 237 which makes it imperative for the Government to order investigation into the affairs of the company when the Government does not consider the necessity of further probe and is already in possession of facts which, in its opinion, show the commission of an offence by an officer of the company or other person in respect of the assets of the company. There is, in such an event, no legal bar to the officer of the Company Law Board or other Government officer concerned making a report to the police. A report to the police in the very nature of things is directed against one or more than one individual. Although the records of the company may have to be examined and produced during the course of police investigation or in evidence during the course of prosecution following that investigation so far as the existence and continued functioning of the company are concerned they would not be affected by such investigation or prosecution of the individuals.

The question of supply of copy of inspectors’ report under section 241 of the Companies Act arises when the investigation into the affairs of a company is made as contemplated by sections 235 and 237 of the Act. The “affairs of a company” have been held to mean its business affairs—its goodwill, profits or losses, contracts and assets, including its control over subsidiaries and it makes no difference who is conducting those affairs. (See page 606 of the Principles of Modern Company Law by Gower, third edition). Section 241 of the Companies Act contemplates supply of a copy of the report when investigation is made. When, however, there is no such investigation, no occasion can arise for the supply of such a copy. An inspection of the account books of a company under section 209(4) is something quite distinct from an investigation into the affairs of a company as envisaged in sections 235 and 237 of the Act. The fact that in the case of such an investigation a provision is made for the supply of a copy of the report of the persons making the investigation while there is no provision for the supply of a copy of the report of the person making the inspection, would not, in our opinion, show discrimination violative of article 14 of the Constitution.

We are not impressed by the argument advanced on behalf of the petitioner that section 242 alone prescribes the mode of launching prosecution against officers of the company and other individuals who appeal to have been guilty of embezzlement and other acts of malfeasance in respect of the assets of a company. There is neither an express provision nor any other provision which by necessary implication warrants this conclusion. There are some provisions of the Companies Act like section 621(1A), 624, 624A and 624B wherein the words used are “Notwithstanding anything contained in the Code of Criminal Procedure”, thus indicating that those provisions would have an overriding effect. There is, however, nothing in section 242 or the other provisions of the Companies Act to point to the conclusion that no prosecution can be launched or no report can be made to the police in respect of an alleged act of embezzlement or malfeasance by an individual connected with the company without recourse to an investigation under sections 235 or 237 of the Act. In the case of M. Vaidyanathan v. Sub-divisional Magistrate, Erode, the question arose whether the provisions of section 630 of the:Companies Act constituted a bar to the exercise of the jurisdiction vested in a police officer under sections 154 and 157 of the Code of Criminal Procedure. The question was answered in the negative by Rajagopalan J. The above decision was affirmed on appeal by a Division Bench of the Madras High Court (Rajamannar C.J. and Panchapakesa Ayyar J.) in In re M. Vaidyanathan.

It has been argued on behalf of the petitioner that a company or the individual concerned may have a complete answer to offer regarding the allegation of embezzlement or malfeasance based upon the result of an inspection under section 209(4) of the Act. To initiate proceedings for prosecution without affording the company or the individual the opportunity of giving a reply to such allegations would be oppressive and be tantamount to persecution. In this respect we are of the view that mere registration of a case does not necessarily mean that it would result in prosecution. If during investigation by police following such registration of the case facts come to light either in course of examination of the individual concerned or otherwise that no case for embezzlement or malfeasance has been made; the police in such a case can proceed in accordance with section 169 of the Code of Criminal Procedure. It cannot; therefore, be said that the individual concerned has no opportunity what so ever of showing cause before the challan is put in court that the allegations against him of embezzlement or malfeasance are not well-founded. It is no doubt true that the police after registration of a case does not normally drop the matter as contemplated by “section 169 of the Code of Criminal Procedure, but this is so in all cases registered by the police. The above circumstance cannot, in our opinion, lend material assistance to the case of the petitioner

It may also be mentioned that no ground has been taken by the petitioner in the petition about any violation of article 14 o£ the Constitution. Apart from that, we are of the opinion that there has been no such violation of that article. Reference has been made on behalf of the petitioner to the case of Northern India Caterers Private Ltd. v. State of Punjab. Their Lordships in that case dealt with section 5 of the Punjab Public Premises and Land (Eviction and Rent Recovery) Act. It was held by the majority that the section provided two alternative remedies to the Government and left it to the unguided discretion of the Collector to resort to one or the other and to pick and choose some of those in occupation of public properties and premises for the application of the more drastic procedure under section 5. The impugned section was consequently held to be violative of article 14 of the Constitution. The dictum land down in the above case, in our opinion, cannot be of much assistance to the petitioner because we are not dealing here with two available procedures one more drastic or prejudicial to the party concerned than the other to be applied at the arbitrary will of the authority. An investigation under sections 235 and 237 of the Companies Act as mentioned earlier is not the same as inspection of account book under section 209(4). No inference of contravention of article 14 can be drawn from the procedural difference between the aforesaid investigation and inspection of records. The fact that information derived as a result of the above-mentioned investigation or inspection can give rise prosecution would not attract article 14 of the Constitution. The said article does not postulate that information, which may be the basis for making report to the police, must be derived in one particular way and no other way.

Reference has also been made on behalf of the petitioner to the case of Nazir Ahmad v. King Emperor wherein, while dealing with a confession recorded by a Magistrate, their Lordships held that where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. The above dictum could have been attracted to the present ease if the Government had resorted to investigation into the affairs of the company without complying with the provisions of section 235 and the subsequent sections of the Companies Act. T; he present is not a case where a power is: given to do a certain thing in a certain way and the thing has been done in some other way.

Another case to which reference has been made is Rohtas Industries Ltd. v. S.D. Agarwal. It has been held in that case that action under section 235 of the Companies Act can be taken provided certain preconditions including those mentioned in section 236 are fulfilled. It has been further held that such investigation is a serious matter and should not be ordered except on good grounds. This case too cannot be of much avail to the petitioner because no order for investigation into the affairs of the company has been made in the instant case.

The matter can also be looked at from another angle. Any one who has information of the commission of a cognizable Offence can make a report about the commission of such offence to the police. The police after registration of the case on the basis of that report, in accordance with section 154 of the Code of Criminal procedure, can investigate the matter. If the investigation reveals that such an offence has been committed, the police has to put in challan in court, where after the trial of Me Code would commence in the criminal court. There’ are certain offences wherein the police cannot put in challan without observing some formality such as obtaining consent in cases covered by section 196A(2) of the Code of Criminal Procedure or Requisite sanction in cases covered by section 197 of the code or; section 6 of the Prevention of Corruption Act. Their is however .no provision of law, at least none has been cited at the bar which makes it imperative to obtain such consent or sanction or to go through other formality before the police can put in challan for a cognizable offence relating to the assets of a company. The plain effect of the acceptance of the submission made on behalf of the petitioner would be to place a procedural restriction on the prosecution of officers of a company or other individuals in respect of offences relating; to the assets of a company. It is our opinion not permissible to read such a restriction in the statue when none exists.

Reference has been made by Mr. Tarkunde, to. the report, of a committee which preceded the enactment of the Companies Act. The petitioner in our opinion cannot derive much assistance from the report of that committee in the matter of the construction of the .provisions of the Companies Act. Even in .respect of the statement of objects _;and reasons for introducing a particular piece of legislation the court can refer to the statement only for the purpose of ascertaining the circumstances which led to the legislation in order to find out what was the mischief which the legislature aimed at. The statement of objects and reasons for introducing a particular piece of legislation cannot be used for interpreting the legislation if the words used therein are clear enough. (See in this connection S.C. Prashar v. Vasantsen Dwarkadas). A report of a committee can obviously not stand on a higher footing than the statement of objects and reasons.

As a result of the above, the petition fails and is dismissed, but in the circumstances without costs.

[1986] 59 COMP. CAS. 94 (CAL.)

HIGH COURT OF CALCUTTA

Titagarh Paper Mills Co. Ltd.

Union of India

G.N. RAY, J.

C.O. NO. 11100 (W) OF 1982.

MARCH 16, 1984

S.R. Banerjee, S.N. Mukherjee, D.C. Nandi, S.K. Kundu, S.B. Mukherjee and S.N. Chaudhury for the Appearing party.

JUDGMENT

(i) The LIC	20.65%
(ii) The IUB1	9.11%
(iii) The ICICI	2.40%
(iv) The IFC	1.20%
(v) The Unit Trust	5.20%
(vi) The nationalised banks and the nationalised insurance companies	11.00%
Total	49.56%

[1982] 52 COMP. CAS. 483 (ALL)

HIGH COURT OF ALLAHABAD

Swadeshi Cotton Mills Ltd.

Swadeshi Polytex

A. BANERJI, J.

COMPANY PETITION NO. 21 OF 1976

SEPTEMBER 15, 1980

V.K. Burman and Raja Ram Agarwal for the petitioner-company.

JUDGMENT

A. Banerji, J.—The Swadeshi Cotton Mills Ltd., hereinafter referred to as the "petitioner-company", made an application, A/83, for summoning certain documents including the "report of the Company Law Board on Swadeshi Polytex, Ghaziabad, on the investigation made by them under s. 239 of the Companies Act and all papers connected therewith". By an order dated 1st August, 1979, this court had directed that the report of the inspector made under s. 239 of the" Companies Act, submitted to the Company Law Board may be summoned from the Board. Thereupon, Mr. V.K. Burman, learned chief standing counsel for the Central Govt., claimed privilege in respect of the above document and filed the affidavit of Shri S. Balaraman, Under-Secretary to the Company Law Board. In this affidavit, A/199, it was stated:

"2. I have carefully considered the said document and have come to the conclusion that it contains communications made in official confidence and I consider that public interest would suffer by their disclosure for the reasons stated hereinafter.

3. In this connection, it is respectfully submitted that the inspection report represents only the inspector's views without reference to any possible explanations of the company concerned and are therefore one-sided. Further the opinion given in the report are neither binding on the Government nor on companies and such reports are treated as confidential. The inspector's report is not even evidence of authoritative opinion, has no evidentiary value except for what the inspector might have stated and to make it public may also affect the follow-up action by the department. Moreover, if the inspection reports are made public, it will result in a situation where the inspectors will not express their free and frank opinion and the inspection will not be effective or purposeful.

4. I, therefore, claim privilege under section 124 of the Indian Evidence Act, 1872."

I have heard Mr. V.K. Burman and Mr. Raja Ram Agarwal, counsel for the petitioner-company. They had addressed the court on the scope of s. 124 of the Evidence Act as well as on the maintainability of the claim of privilege. It will, therefore, be relevant to refer to s. 124 of the Evidence Act. It reads as follows:

"124. Official communications.—No public officer shall be compelled to disclose communications made to him in official confidence, when he considers that the public interests would suffer by the disclosure."

The above section makes it clear that a public officer cannot be compelled to disclose communications made to him in official confidence when the public officer is of the opinion that public interest would suffer by the disclosure. If public interest suffers, the public officer cannot be compelled to disclose the communication or the matter in the document concerned. It is also settled that it is for the public officer to satisfy himself that the matter, the production of which is claimed, is one the disclosure whereof would affect the public interest. If this is so, the court shall not compel that public officer to produce that document or paper. A duty is cast on the court also to satisfy itself that the plea raised by the public officer is tenable.

Privilege can also be claimed in respect of a document or official record under s. 123 of the Evidence Act where it relates to any affairs of the State. In such a case, it is incumbent on the court to come to a conclusion that the document in respect of which privilege is claimed are official records relating to the affairs of the State. It has been laid down in the case of State of Punjab v. Sodhi Sukhdev Singh, AIR 1961 SC 493, that the court is competent, and indeed is bound, to hold a preliminary enquiry and determine the validity of the objections to the production of the documents and that necessarily involves an enquiry into the question as to whether the evidence relates to an affair of the State under s. 123 or not. The Supreme Court has also ruled that in holding an enquiry into the validity of the objections under s. 123, the court cannot permit any evidence about the contents of the document, on the question whether the court has the power to inspect the document or not, there is a conflict of decisions. In the case of Robinson v. State of South Australia, AIR 1931 PC 264, it was held that the court has power to inspect the document in appropriate cases. In the case of S. B. Choudhury v. J. P. Changkakati, AIR 1960 Assam 210, it was ruled that the court has no power to inspect the document if it refers to the affairs of the State but should decide the matter by looking into the other circumstances and before ordering production of the document. But the same is not the position in respect of a document in respect of which privilege is claimed under s. 124 of the Evidence Act. Here the document can be inspected by the court to find out if the disclosure thereof would affect public interest. Mr. V. K. Burman has submitted to the court the report of the inspection under s. 239 of the Companies Act in a sealed envelope.

Before the court looks into that document it will be necessary to consider a few facts. The petitioner-company has filed the present application under ss. 397/398 of the Companies Act praying for an investigation into the affairs of the respondent-company and for passing appropriate orders so that the affairs of the respondent-company be conducted in accordance with law. The Company Law Board was also seized of a proceeding under s. 408 of the Companies Act. It appears that an inspector was appointed to carry on investigation into the affairs of the respondent-company under s. 239. The inspector submitted his report. In the present petition under s. 397/398 the petitioner-company seeks the production of the report of the inspector in support of its case of mismanagement of the affairs of the respondent-company by the respondents. An order was passed for the production of that report but the Company Law Board has, through its Under-Secretary, claimed the privilege and objected to the production of the report.

Shri S. Balaraman in his affidavit has stated, firstly, that public interest would suffer by the disclosure of the contents of the report; secondly, that the report of the inspector represents only an inspector's views without any explanation by the company concerned and is, therefore, one-sided; thirdly, that the report is confidential in nature; fourthly, that the report is not of evidentiary value, and, lastly, that if such reports are made public, the inspectors will not be able to express their free and frank opinion and such inspection will not be effective or purposeful. It appears to me that the plea raised by Sri S. Balaraman has substance and force. An investigation into the affairs of a company under s. 239 of the Act is made in pursuance of an order of the Central Govt. passed under s. 236 or s. 237. Under s. 237, the Central Govt. may appoint an inspector if in the opinion of the Central Govt. there are circumstances suggesting that the business of the company is being conducted with intent to defraud its creditors, members or any other person, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose or that the persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members or that the members of the company have not been given all the information with respect to its affairs. This shows that the scope of the inspector's enquiry can be very wide and his report may relate to every affair in the management and conduct of the affairs of the company. Such a report is based on the personal views of the inspector conducting the investigation. Such a report may not be on the basis of the accepted position. There may be serious objections to the contents of the report by the company concerned. It may be that the report is not accepted by the Central Govt. Such a report does not become evidence in a case until the inspector is examined. At best it is only an expression of opinion by a particular inspector. It is true that the investigations are done by the inspector in pursuance of an order of the Central Govt. and in the course of his duty, but that does not make the contents of the report to be gospel truth. It has to be sifted, examined and put to the officials of the company and then the Government may make use of it. Such a report will certainly include particulars of one or more transactions entered into by the company. It is possible that the Central Govt. may launch proceedings against the company and its officials based on the report of the inspector after corroboration. It is possible for the Central Govt. to direct the inspector to carry out a further investigation based on his report. It is also possible for the Central Govt. to direct further investigation in relation to such transactions from other sources. To reveal the contents of such a document to the public before its acceptance by the Central Govt. would not be conducive to public interest as it may thwart further proceedings and investigations. Public interest demands that matters reported to the Central Govt. should first be considered by the Central Govt. If the contents of such reports were made public before its consideration by the Central Govt. or being accepted by the Central Govt. it may lead to a dangerous precedent where the result of the investigation would have to be disclosed at a premature stage. Further, there may be comments on the correctness of the report and this may preclude the inspector from making a free and frank report, still further, the premature disclosure of the contents of the report may stifle further enquiries and proceedings. I am, therefore, of the opinion that a report of the inspector made under s. 239 of the Companies Act, is not to be disclosed to the public before its acceptance by the Government. If the Government were to pass further orders against a company or its officials based on the report it may raise an occasion for the production of the document. However, if it is found that the document contains revelations which affect the public interest then in that event the public officer cannot be compelled to produce the document or disclose its contents once privilege is claimed on this count. In the present case, such a privilege has been claimed.

Mr. Raja Ram Agarwal strenuously argued that there is nothing in the provisions of the Companies Act which make the document sacrosanct and beyond the reach of the court. His contention further was that a document which is on the record of the proceedings before the Company Law Board is a document about which no privilege can be claimed. In other words, his argument was that such a document is the basis of the governmental action and, therefore, it cannot be kept confidential. In support of his contention, he referred to three decisions of the Supreme Court, State of Punjab v. Sodhi Sukhdev Singh, AIR 1961 SC 493, Amur Chand Butail v. Union of India, AIR 1964 SC 1658, and Slate of U.P. v. Raj Narain, AIR 1975 SC 865. In the case of State of Punjab v. Sodhi Sukhdev Singh, privilege was claimed under s. 123 of the Evidence Act. Section 123 relates to the character or class of the document. If the document relates to the affairs of the State the court has to leave it to the head of the department to decide whether he should permit its production or not, and, only if it is found that it does not relate to an affair of the State then the claim of privilege has to be rejected.

In the case of Amur Chand Butail v. Union of India, the court was considering the claim of privilege under s. 123 of the Evidence Act, for a document relating to the affairs of the State and the nature and the extent of enquiry which the court could hold. The claim was rejected on the ground that the affidavit in support of the claim of privilege failed to satisfy that the disclosure of the document would lead to public injury. In my opinion, therefore, this decision is also of no assistance in the present case.

In the case of State of U.P. v. Raj Narain, AIR 1975 SC 865, the Supreme Court was also considering a case under ss. 123 and 162 of the Evidence Act. The court laid down the foundation of the law behind ss. 123 and 162 of the Evidence Act in the following words (p. 875):

"It is that injury to public interest is the reason for the exclusion from disclosure of documents whose contents if disclosed would injure public and national interest. Public interest which demands that evidence be withheld is to be weighed against the public interest in the administration of justice that courts should have the fullest possible access to all relevant materials. When public interest outweighs the latter, the evidence cannot be admitted. The court will proprio motu exclude evidence the production of which is contrary to public interest. It is in public interest that confidentiality shall be safeguarded. The reason is that such documents become subject to privilege by reason of their contents. Confidentiality is not a head of privilege. It is a consideration to bear in mind. It is not that the contents contain material which it would be damaging to the national interest to divulge but rather that the documents would be of a class which demand protection."

In this case, the court was considering the order by the High Court that no privilege can be claimed by the State of Uttar Pradesh under ss. 123 of the Evidence Act in respect of a Blue Book summoned from the Govt. of Uttar Pradesh. The privilege was claimed under s. 123. In the case, it was also held that the affidavit filed in support of the claim of privilege was defective and the High Court was given a direction that it could direct a further affidavit to be filed on behalf of the State. It was further laid down that if the court in respect of the affidavit wishes to inspect the document, the court may do so. Although, strictly speaking, s. 123 of the Evidence Act is not applicable to the facts of the present case, yet the principle laid down in respect of public interest would be applicable.

Applying the above principles, I am satisfied that public interest would be affected by the disclosure of the contents of the document.

For the reasons indicated above, I am satisfied that the claim for privilege under s. 124 of the Evidence Act is well founded and must be upheld. Accordingly, the objection is sustained and the prayer for the summoning and production of the inspector's report is refused.

[1960] 30 COMP. CAS. 644 (SC)

Raja Narayan Bansilal

Maneck Phiroz Mistry

SINHA, C.J.

GAJENDRAGADKAR, WANCHOO, K C DAS GUPTA AND J C SHAH, JJ.

CIVIL APPEAL NO. 268 OF 1959

AUGUST 31, 1960

GAJENDRAGADKAR, J. - The appellant, Raja Narayanlal Bansilal of Bombay, is the managing agent of a limited company named the Harinagar Sugar Mills Limited. By virtue of the power conferred on him by section 137 of the Indian Companies Act, 1913 (VII of 1913), the Registrar wrote to the mills on November 15, 1954, that it had been represented to him under section 137(6) that the business of the company was carried on in fraud, and so he called upon the company to furnish the information which he required as set out in part of his letter (exhibit A). On April 15, 1955, the Registrar made a report (exhibit AA) to the Central Government under section 137(5) of the said Act. THis report showed that according to the Registrar the affairs of the company were carried on in fraud of contributories and they disclosed an unsatisfactory state of affairs. The report pointed out that the appellant was the managing agent of the company as well as its promoter, and that it was suspected that under a fictitious name of Bansilal Uchant account the company was advancing money to the several firms owned by the appellant which were ostensibly purchased form the company's funds. The report further stated that between the years ending in September, 1942 and 1951, about Rs. 19,200 were paid for Harpur Farm and Rs. 39,300 for Bhavanipur Farm, and accounts disclosed that the Uchant account was chiefly operated upon for purchasing such lands out of the funds of the company though the purchase in fact was for and on behalf of the appellant. The Registrar also added that he had reason to believe that the managing agent was utilising the property of the company in some cases for his personal gain, and concluded that, in his opinion, a case had been made out for an investigation under section 138.

On receiving this report, on November 1, 1955, the Central Government passed an order under section 138(4) of the said Act (exhibit B) appointing the first respondent, Maneck P. Mistry, who is a chartered accountant, as an inspector to investigate the affairs of the company from the date of its incorporation. The said inspector was asked to point out all irregularities and contraventions of the provisions of the said Act or any other law, and make a full report as indicated in a communication which was separately sent to him. This separate communication (exhibit BB) prescribes the mode of enquiry which should be adopted by inspectors. It requires that while investigating the affairs of companies the inspectors should bear in mind that for a successful prosecution the evidence in support of a charge must be clear, tangible and cogent, and that their reports should specify with reference to the evidence collected during the investigations the points specified under paragraph 2(a) to (e). In the course of their investigation the inspectors are asked to make use of the powers available to them under section 140 of the said Act including the right to examine a person on oath. The investigation should be conducted in private and the inspectors are not entitled to make public the information received by them during the course of the investigation.

Pursuant to the powers conferred on him by the said order respondent No. 1 wrote to the appellant intimating to him that he would examine him on oath in relation to the business of the company under section 140(2) of the said Act (exhibit C). Meanwhile on April 1, 1956, the COmpanies Act of 1913 (VII of 1913), was repealed by the COmpanies Act of 1956 (1 of 1956). For the sake of convenience we would hereafter refer to the repealed Act as the old Act and the Act which came into force on APril 1, 1956, as the new Act. On JUly 26, 1956, the Central Government purported to exercise its power under section 239(2) of the new Act and accorded approval to respondent No. 1 exercising his powers of investigating into, and reporting on, the affairs of the appellant including his personal books of accounts as well as the affairs of the three concerns specified in the order. These three concerns are Messrs. Narayanlal Bansilal, who are the managing agents of Harinagar Sugar Mills, the Shangrila Food Products Limited and Harinagar Cane Farm. It appears that the appellant is the proprietor of the firm of Narayanlal Bansilal. After this order was passed respondent No. 1 served upon the appellant the four impugned notices (exhibit E collectively) on May 9, 1957, May 16, 1957, May 29, 1957, and June 29, 1957, respectively. These notices are substantially identical in terms, and so it would be sufficient for our purpose to set out the purport of one of them. The first notice called upon the appellant to attend the office of respondent No. 1 on the date and at the time specified for the purpose of being examined on oath in relation to the affairs of the company, and to produce before respondent No. 1 all the books of accounts and papers relating to the said company as mentioned in the notice. The appellant was further told that in default of compliance with the requisition aforesaid necessary legal steps would be taken without further reference to him. THe notice contains a list of twelve items describing the several documents which the appellant was required to produce before respondent No. 1.

After these notices were served on the appellant he filed a petition (No. 201 of 1957) in the Bombay High COurt and prayed that the High Court should issue a writ of certiorari or any other appropriate direction, order or writ under article 226 of the COnstitution calling upon respondent No. 1 to produce the records of the case relating to the notice in question and to set aside the said notices, the proposed examination of the appellant and the interim report made by him . It further prayed for a writ of prohibition or any other appropriate direction, order or writ restraining respondent No. 1 from making any investigation under the said notices and from exercising any powers of investigation under section 239 and/or section 240 of the new Act and/ or from investigating into the affairs of any persons or concerns specified in the petition. The petitioner claimed these writs mainly on two grounds. He first alleged that since respondent No. 1 had been appointed under the old Act he had no jurisdiction to exercise powers referable to the relevant provisions of the new Act. This ground assumed that the said relevant provisions of the new Act are valid, but it is urged that the powers referable to the said provisions are not available to respondent No. 1 since he was appointed under the Old Act. The other ground on which the writs were claimed challenges the vires of sections 239 and 240 of the new Act. This challenge assumed an alternative form . It is argued that section 240 offends against the constitutional guarantee provided by article 20(3) of the Constitution and it is also urged that certain portions of sections 239 and 240 offend against another constitutional guarantee provided by article 14 of the Constitution. It is thus on these three contentions that the petitioner claimed appropriate writs by his petition before the Bombay High Court. These pleas were resisted by the Union of India which had been joined to the proceedings as respondent No. 2. Mr. JUSTICE K.T. DESAI, who heard the petition, rejected the contentions raised by the petitioner, and held that no case had been made out for the issue of any writ. This decision was challenged by the appellant before the court of appeal in the Bombay High COurt; the court of appeal agreed with the view taken by DESAI J., and dismissed the appeal. Thereupon the appellant applied for and obtained a certificate from the High court, and it is with the said certificate that he had come to this court by his present appeal. On his behalf Mr. Viswnantha Sastri has raised the same three points for our decision.

Let us first examine the question whether or not the first responded has jurisdiction to exercise the powers under the relevant provisions of the new Act. It is common ground that if respondent No. 1's powers to hold the investigation in question are to be found in the relevant provisions of the old Act and not those of the new Act the impunged notices issued by him would be without authority and jurisdiction. In dealing with this question it is necessary to examine the board features of the relevant sections of the two Acts.

We will begin with the old Act. Section 137 of the old Act deals with investigation by the Registrar. Section 137(1) provides that where the Registrar on perusal of any document which a company is required to submit to him is of opinion that any information or explanation is necessary in order that such document may afford full particulars of the matter to which if purports to relate he may, by a written order, call on the company to furnish in writing the necessary information or explanation within the time to be specified in the order. Section 137(5) requires the Registrar to make a report in writing to the Central Government if no information is supplied to him within the specified time, or if the information supplied to him appears to him to disclose an unsatisfactory state of affairs, or does not disclose a full and fair statement of the relevant matters. Thus section 137(1) to (5) deal with the investigation which the Registrar is empowered to make on persual of the document submitted to him by a company under the provisions of this Act. Section 137(6) deals with a case where if it is represented to the Registrar on materials placed before him by any contributory or creditor that the business of a company is carried on in fraud or in fraud of its creditors or in fraud of persons dealing with the company or for a fraudulent purpose, he may, after following the procedure prescribed in that behalf, call for information or explanation on matters to be specified in his order within such time as he may fix, and when such an order is passed the provisions of section 137 (2) to (5) would be applicable. This sub-section provides that if at the end of the investigation the Registrar is satisfied that the representation on which he took action was frivolous or vexatious he shall disclose the identity of the informant to the company. This provisions is obviously intended as a safeguard against frivolous or vexatious representations in respect of the affairs of any company. The provisions of this section are substantially similar to the provisions of section 234 of the new Act.

Section 138 which deals with investigation of affairs of companies by inspectors, authorises the Central Government to appoint one or more competent inspectors to investigate the affairs of any company and report thereon in such manner as the said Government may direct. The appointment of competent inspectors can be made by the Central Government in four classes of cases as specified in section 138(I) to (4). it would be relevant to refer to two of these cases. Under section 138 (I) a competent inspector can be appointed in the case of a banking company having a share capital on the application of members holding not less than one -fifth of the shares issued, and under section 138(4) in the case of any company on a report by the Registrar under section 137(5). This section substantially corresponds to section 235 of the new Act.

The other sections of the old Act to which reference must be made are sections 140, 141 and 141A. Section 140(I) imposes upon all persons who are or have been officers of the company an obligation to produce before the inspectors all books and documents in their custody or power relating to the company. Section 140(2) empowers the inspector to examine on oath any such person, meaning a person who is or has been an officer of the company in relation to the business of the company and to administer on oath to him. Section 140(3) provides that if a person refuses to produce a book or a document or to answer any question he shall be liable to a fine not exceeding Rs. 50 in respect of each offence. Section 141 provides that on the conclusion of an investigation the inspectors shall report their opinion to the Central Government, and shall forward a copy of their report to the registered office of the company; and it also provides that a copy of the said report can be delivered at their request to the applicants for the investigation. Then we have section 141A which deals with the institution of prosecutions. Section 141A(I) provides that if from any report made under section 138 it appears to the Central Government that any person has been guilty of any offence in relation to the company for which he is criminally liable the Central Government shall refer the matter to the Advocate-General or the public prosecutor. Section 141A(2) lays down that if the law officer who is consulted under section (I) considers that there is a case in which prosecution ought to be instituted he shall cause proceedings to be instituted accordingly. That in brief is the scheme of the relevant provisions of the old Act.

We will now examine the scheme of the relevant provisions of the new Act. It has already been noticed that sections 234 and 235 of the new Act are substantially similar to sections 137 and 138 of the old Act. Section 239 of the new Act provides for the powers of the inspectors to carry on investigation into the affairs of related companies or of a managing agent or an associate. The sweep of the enquiry authorised by this section is very much wider than that under the corresponding section of the old Act. Sub- section (I) of this section authorises an inspector to investigate the affairs of a company and also the affairs of any other body corporate or person specified in clauses (a) to (d) if he thinks it necessary so to do. These clauses include several cases of body corporate which may have any connection, direct or indirect, immediate or remote, with the affairs of the company whose affairs are under investigation. It is unnecessary for our purpose in the present appeal to enumerate the said cases serially or exhaustively. It is conceded that three other persons who have been called upon by respondent No. 1 to produce documents and give evidence fall within the purview of section 239. As a result of the provisions of section 239 (I) the inspector has to report not only on the affairs of the company under investigation but also on the affairs of other bodies or persons who have been compelled to give evidence and produce documents during the course of the enquiry. The only safeguard provided against a possible abuse of these extensive powers is that in the case of any body corporate or person referred to in clauses (b)(ii), b(iii), (c) or (d) of sub-sections (I) the inspector shall not exercise his relevant power without first having obtained the prior approval of the Central Government thereto.

Section 240 of the new Act imposes an obligation on the corporate bodies and persons in respect of which or whom investigation is authorised by section 239 to produce all books and papers and to give all assistance in connection with the said investigation; that is the result of section 240(1). Section 240(2) empowers the inspector to examine on oath any of the persons referred to in sub-sections (1) in relation to the relevant matters as specified. Section 240(3) deals with a case where a person refuses to comply with the obligation imposed on him by section 240(1) or (2); and it provides that in such a case the inspector may certify the refusal under his hand to the court, and the court may thereupon enquire into the case, hear witnesses who may be produced against or on behalf of the alleged offender, consider any statement which may be offered in defence, and punish the offender as if he had been guilty of contempt of the court. Section 240(4) deals with a case where the inspector thinks it necessary for the purpose of his investigation that a person whom he has no power to examine on oath should be examined, and it provides that in such a case he may apply to the court, and the court may, if it thinks fir, order that person to attend and be examined on oath before it on any matter relevant to the investigation. This sub-section provides for the procedure to be followed in examining such a witness. Section 240(5) lays down that notes of any examination under sub-section (2) or (4) shall be taken down in writing, and shall be read over to or by, and signed by, the person examined,and may thereafter be used as evidence against him. Having thus made elaborate provisions for the production of documents and evidence in the course of the investigation by the inspectors, section 241 deals with the inspector's report, and provides that the inspectors may, and if so directed by the Central Government shall, make interim reports to that Government, and on the conclusion of the investigation shall make a final report to it. Section 241(2) provides for the supply of the copy of the said report to the several parties concerned as specified in clauses (a) to (e).

That takes us to section 242 which deals with prosecution. Section 242(I) provides inter alia that if from any report made under section 241 it appears to the Central Government that any person has in relation to the company been guilty of any offence for which he is criminally liable, the Central Government may, after taking such legal advice as it thinks fit, prosecute such person for the offence, and it imposes on all officers and agents of the company, except those prosecuted, to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give. That broadly stated is the position with regard to the relevant provisions of the new Act.

Mr. Sastri has drawn our pointed attention to the fact that the scope and nature of the enquiry authorised by the new Act are very much wider than under the old Act, and he has characterised the relevant powers conferred on the investigating inspectors as draconian. He, therefore, contends that unless it is established that these powers are available to the inspector appointed under the relevant provisions of the old Act the impugned notices must be set aside; and his argument is that these powers are not available to the inspector appointed under the old Act. The decision of this question will depend mainly on the construction of section 645 and 646 of the new Act.

Section 644 provides for the repeal of the enactments mentioned in Schedule XII; the old Act is one of the enactments thus repealed. Ordinarily the effect of the repeal of the old act would have been governed by the provisions of section 6 of the general Clauses Act (10 of 1897) but in the case of the new Act the application of the said section is subject to the provisions of section 645 to 657 of the Act; that is the effect of section 658 which provides that the mention of particulars in sections 645 to 657 or in any other provisions of this Act shall not prejudice the general application of section 6 of the general Clauses Act, 1897, with respect to the effect of repeals. In other words , though section 6 of the General Clauses Act will generally apply, its application will be subject to the provisions contained in sections 645 to 657; this position is not disputed.

It is now necessary to consider section 645. it reads thus :

"Nothing in this Act shall affect any order, rule, regulation, appointment, conveyance, mortgage, deed, document or agreement made, fee directed, resolution passed, direction given, proceeding taken, instrument executed or issued, or thing done, under or in pursuance of any previous companies law; but any such order, rule, regulation, appointment, conveyance, mortgage, deed, document, agreement, fee, resolution, direction, proceeding, instrument or thing shall, if in force at the commencement of this Act,continue to be in force, and so far as it could have been made, directed, passed, given, taken, executed, issued or done under or in pursuance of this Act, shall have effect as if made, directed, passed, given, taken , executed, issued or done under or in pursuance of this Act."

The effect of this section is clear. If an inspector has been appointed under the relevant section of the old Act, on repeal of the old Act and on coming into force of the new act, his appointment shall have effect as if it was made under or in pursuance of the new Act. Indeed it is common ground that if section 645 had stood alone and had not been followed by section 646 there would have been no difficulty in holding that the inspector appointed under the old Act could exercise his powers and authority under the relevant provisions of the new Act, and the impugned notices would then be perfectly valid. Incidentally we may refer to the provisions of section 652 in this connection. Under this section any person appointed to any office. under or by virtue of any previous company law shall be deemed to have been appointed to that office under this Act.

It is, however, urged that the authority of the inspector, which is in dispute in governed by section 646. This section provides :

"Nothing in this Act shall affect the operation of section 138 of the Indian Companies Act, 1913 (VII of 1913), as respects inspectors, or as respects the continuation of an inspection begun by inspectors, appointed before the commencement of this act; and the provisions of this Act shall apply to or in relation to a report of inspectors appointed under the said section 138 as they apply to or in relation to a report of inspectors appointed under section 235 or 237 of this Act."

The argument is that the expression "nothing in this Act" includes sections 645 and so section 646 should be read as an exception or proviso to section 645; and if that is so, all matters covered by section 138 of the old Act must continue to be governed by the said Act and not by any of the provisions of the new Act. We are unable to accept this argument. In appreciating the effect of the provisions of section 646 it is necessary to bear in mind that it occurs in that part of the new Act which deals with repeals and savings. Section 645 to 648 are the saving sections, and ordinarily and in the absence of any indication to the contrary these saving clauses should be read as independent of, and in addition to, and not as providing exceptions to one another. it is significant that whereas section 646 provides for the continuance of the operation of section 138 it does not make a corresponding provision for the continuance of the operation of section 140 of the old Act which deals with the powers of the inspector to call for books and to examine parties. Besides, it may perhaps not be accurate to suggest that having regard to the provisions of section 645, section 646 is wholly redundant. It would be possible to take the view that cases falling under section 138(I) of the old Act are intended to be covered by section 646 as they would not be covered by section 645. In regard to the case of a banking company covered by section 138 (I) section 646 will come into operation and that may be one of the reasons for which section 646 was enacted. It may be that the case of the banking company may also be covered by section 35 of the Banking Companies Act (10 of 1949), but since section 138(I) applied to the said case until the old Act was repealed the Legislature may have, as a matter of caution, thought it necessary to provide for the continuance of the operation of section 138 by enacting section 646. However that may be, we feel no difficulty in holding that section 646 should not be construed as a proviso to section 645 but as an additional saving provision. The words used in section 645 are so clear, and the policy and object of enacting the said provision are in our opinion so emphatically expressed, that it would be unreasonable to hold that section 646 was intended to provide for such a redical exception to section 645. Where the Legislature enacts a saving section as a matter of abundant caution the argument that the enactment of the said section was not wholly necessary cannot be treated as decisive or even effective. Therefore, in our opinion, the High Court was right in coming to the conclusion that the inspector appointed under section 138(4) of the old Act must by the legal fiction, which is authorised by section 645, be deemed to have been appointed under section 235 of the new Act, and if that is so, respondent No. 1 had authority and power to issue the impugned notices under section 240 of the new Act. the challenge to the validity of the impugned notices on the ground that respondent No. 1 had no authority to issue the said notices must, therefore, fail.

That takes us to the question as to whether the relevant provisions of section 240, which empower respondent No. 1 to issue the relevant notices by which the appellant was called upon to give evidence and to produce documents, offend against the fundamental constitutional right guaranteed by article 20(3). It has been strenuously urged before us that the main object of the present investigation is to discover whether the appellant has committed any offences, and so by compelling him to give evidence and produce documents he is denied the constitutional protection against self- incrimination.

Article 20(3) provides that "no person accused of any offence shall be compelled to be a witness against himself". it may be assumed that the appellant is being compelled to be witness against himself in the present proceedings; but even so the question which arises for our decision is whether the appellant can be said to be a person who is accused of any offence as required by article 20(3). Mr. Sastri has contended that the words "person accused of any offence" should not receive a narrow or literal construction; they should be liberally interpreted because the clause in which they occur enshrines a fundamental constitutional right and the scope and reach of the said right should not be unduly narrowed down. In support of this general argument Mr. Sastri has naturally relied on the historical background of the doctrine of protection against self-incrimination; and he has strongly pressed into service the decisions of the Supreme Court of the United States of America dealing with the fifth Amendment to the Constitution of the United States. The said Amendment inter alia provides that " no person shall be compelled in any criminal case to a witness against himself. it would be noticed that in terms the amendment refer to a criminal case, and yet it has received a very broad and liberal interpretation at the hands of the Supreme Court of the United States of America. It has been held that the said constitutional protection is not confined only to criminal cases but it extends even to civil proceedings (vide McCarthy v. Arndstein 69 law Ed. 158. As observed by Mr. Justice BLATCHFORD in Charles Counselman v. Frank Hitchcock 35 Law Ed. 1110, " it is impossible that the meaning of the constitutional provision can only be that a person shall not be compelled to be a witness against himself in a criminal prosecution against himself. it would doubtless cover such cases but it is not limited to them. The object was to insure that a person should not be compelled, when acting as a witness in any investigation, to give testimony which might tend to shown that he himself had committed a crime. The privilege is limited to criminal matters, but it as broad as the mischief against which it seeks to guard."

In support of his plea that a liberal interpretation should be put on an article which enshrines a fundamental constitutional right Mr. Sastri has also invited our attention to the observation made by Mr. Justice BRADLEY in Edward A Boyd and George H. Boyd v. United States 29 Law Ed. 746 at p. 752. Says BRADLEY J., "illegitimate and unconstitutional practices get their first footing in that way, namely by silent approaches and slight deviations from legal modes of procedure. This can only be obviated by adhering to the rule that constitutional provisions for the security of persons and property should be liberally construed." The learned judge has also added that any compulsory discovery by extorting the party's oath, or compelling the production of his private books and papers, to convict him of crime or to forfeit his property, is contrary to the principles of a free government, and is abhorrent to the instincts of an American. It may suit the purposes of despotic power; but it cannot abide the pure atmosphere of political liberty and personal freedom ." In regard to this eloquent statement of the law it may,however, be permissible to state that under the English law the doctrine of protection against self-incrimination has never been applied in the departments of company law and insolvency law. There is no doubt that under section 15 of the English Bankruptcy Act when a public examination of a debtor is held he is compelled to answer all questions as the court may put, or allow to be put to him, and that the answers given have to be signed by him and can be used against him in evidence (vide In re Atherton (1) [1912] 2 K.B. 251; similar is the position under section 270 of the English Companies Act. However, the general argument for the appellant is that in construing article 20(3) we may take some assistance from the broad and liberal construction which has been placed on the apparently narrow and limited words used in the Fifth Amendment to the Constitution of the united States of America.

Thus presented the argument is no doubt attractive, and its validity and effectiveness would have had to be fully and carefully examined if the question raised in the present appeal had been a matter of first impression; but the construction of article 20 in general and article 20(2) and (3)in particular has been the subject-matter of some decisions of this court, and naturally it is in the light of the previous decisions that we have to deal with the merits of the appellant's case in the present appeal. In Maqbool Hussain v. State of Bombay (2) [1953] S.C.R. 730., this court had occasion to consider the scope and effect of the constitutional guarantee provided by article 20(2). A person against whom proceedings had been taken by the sea customs authorities under section 167 of the Sea Customs Act and an order for confiscation of goods had been passed was subsequently prosecuted before the Presidency Magistrate for an offence under section 23 of the foreign Exchange Regulations Act in respect of the same act. it was urged on his behalf that the proceedings taken against him before the sea customs authorities was a prosecution and the order of confiscation passed in the said proceedings was a punishment, and so it was argued that the constitutional guarantee afforded by article 20(2) made his subsequent prosecution under section 23 of the Foreign Exchange Regulation Act invalid. This plea was rejected. In dealing with the merits of the plea this court had to consider the meaning of the words "prosecuted and punished " used in article 20(2). Article 20(2) provides that no person shall be prosecuted and punished for the same offence more than once, and the question raised was whether the proceedings before the sea customs authorities constituted prosecution, and whether the order of confiscation was punishment under article 20(2). In construing article 20(2) this court considered article 20 as a whole and examined the inter-relation of the relevant terms used in the three clauses of the said-article "The very wording of article 20", observed BHAGWATI J. (1) [1953] S.C.R. 730, 738, and the words used therein :- 'convicted', 'commission of the,charged as an offence’ be subjected to a penalty’, commission of the offence 'prosecuted and punished', accused of any offence', would indicate that the proceedings therein contemplated are of the nature of criminal proceedings before a court of law or a judicial tribunal and the prosecution in this context would mean an initiation or starting of proceedings of a criminal nature before a court of law or a judicial tribunal in accordance with the procedure prescribed in the statute which creates the offence and regulates the procedure." Having thus construed article 20(2) in the light of the relevant words used in the different clauses of the said article, this court naturally proceeded to enquire whether the sea customs authorities acted as a judicial tribunal in holding proceedings against the person. The scheme of the relevant provisions of the Act was then examined, and it was held that the said authorities are not a judicial tribunal with the result that the "adjudging increased rate of duty or penalty and confiscation" under the provisions of the said Act did not constitute a judgment or order of a court or judicial tribunal necessary for the purpose of supporting the plea of double jeopardy. In the result the conclusion of this court was that when the customs authorities confiscated the gold in question the proceedings taken did not amount to a prosecution of the party nor did the order of confiscation a punishment as contemplated by article 20(2).

This decision has been affirmed by this court in the case of S.A. Venkataraman v. Union of India (20 [1954] S.c.R. 1150 . In that case an enquiry had been made against the appellant, Venkataraman, under the Public Servants (Inquiries) Act, 1850 (XXXVII of 18500. On receiving the report of the enquiry commissioner opportunity was given to the appellant under article 311(2) to show cause, and ultimately after consultation withe the Union Public Service Commission the appellant was dismissed by an order passed by the President. The order of dismissal was passed on September 17, 1953. Soon thereafter on February 23, 1954, the police submitted a charge-sheet against his charging him with having committed offenses under sections 161/165 of the indian Penal Code and section 5(2) of the Prevention of Corruption Act. The validity of the subsequent prosecution was challenged by the appellant on the ground that it contravened the constitutional guarantee enshrined in article 20(2). The appellant's plea was, however, rejected on the ground that the proceedings taken against him before the commissioner under the Inquiries Act did not amount to a prosecution. The relevant provisions of the said /act were examined, and it was held that in an inquiry under the said Act there is neither any question of investigating an offence in the sense of an act or omission punishable ny any law for the time being in force nor is there any question of imposing punishment prescribe by the law which makes that act or omission an offence. MUKHERJEA J., as he then was, who delivered the judgment of the court, has referred to the earlier decision in the case of Maqbool Hussain [1953] S.c.r. 730, and has observed that the effect of the said decision was "that the proceedings in connection with the prosecution and punishment of a person must be in the nature of a criminal proceeding before a court of law or a judicial tribunal, and not before a tribunal which entertains a departmental or an administrative enquiry even though set up by a statute but which is not required by law to try a matter judicially and on legal evidence." Thus these two decisions can be said to have considered incidentally the general scope of article 20 though both of them were concerned directly with the construction and application of article 20(2) alone.

Article 20(3) was considered by the Full Court in M.P. Sharma v. Satish Chandra (2) [1954] S.C.r. 1077. The question about the scope and effect of article 20(3) was raised in that case by a petition filed under article 32 of the Constitution. It appears that the Registrar of the Joint Stock Companies, Delhi State, lodged information with the Inspector-General, Delhi special Police Establishment , against the petitioners alleging that they had committed several offences punishable under the Indian Penal Code. the lodging of this information was preceded by an investigation into the affairs of the petitioner's company which had been ordered by the Central Government under section 138 of the old Act , and the report received at the end of the said investigation indicated that a well-planned and organised attempt had been made by the petitioners to misappropriate and embezzle the funds of the company by adopting several ingenious methods. On receipt of the said first information report the District Magistrate ordered investigation into the offences and issued warrants for simultaneous searches at as many as thirty- four places. By their petitions the petitioners contended that the search warrants were illegal and they prayed that the same may be quashed as being in violation of article 20(3).the plea thus raised by the petitioners was ultimately rejected on the ground that the impugned searches did not violate the said constitutional guarantee. JAGANNADHADAS J., who spoke for the court, observed that "since article 20(3)provides for a constitutional guarantee against testimonial compulsion its words should be liberally construed, and that there was no reason to confine the content of the said guarantee to its barely literal import." He, therefore, held that the phrase " to be a witness" means nothing more than to furnish evidence, and such evidence can be furnished through the lips or by production of a thing or of a document or in other modes. He also pointed out that the phrase was " to be a witness" and not " to appear as a witness", and so the protection afforded was not merely in respect of testimonial compulsion in the court room but may well extend to compel testimony previously obtained from him. The conclusion of the court on this part of the construction was thus stated. The constitutional guarantee ' is available to a persons against whom a formal accusation relating to the commission of an offence has been levelled which in the normal course may result in prosecution; whether it is available to other persons in other situations does not call for a decision in this case." Since the first information report had been recorded against the petitioners in that case it followed that the first test that a formal accusation relating to the commission of an offence must have been levelled was satisfied. The question which was then considered was whether there was any basis in the Indian law for the assumption that a search or seizure of a thing or document is in itself to be treated as compelled production of the same; and it was held that there would be no justification for treating the said search or seizure as compelled production; that is why the challenge to the validity of the search warrants issued against the petitioners was repelled. The effect of this decision thus appears to be that one of the essential conditions for invoking the constitutional guarantee enshrined in article 20(3) is that a formal accusation relating to the commission of an offence, which would normally lead to his prosecution, must have been levelled against the party who is being compelled to give evidence against himself; and this conclusion, in our opinion, is fully consistent with the two other decisions of this court to which we have already referred.

There are two other subsequent decisions of this court to which reference may be made. In Thomas Dana v. State of Punjab [1959] Supp. (1) S.C.r. 274. according to the majority decision "prosecution" in article 20(2) means a proceeding either by way of indictment or information in a criminal court in order to put an offender upon his trial. It would be noticed that this conclusion is wholly consistent with the view taken by this court in the case of Maqbool Hussain (2) [1953] S.C.R. 730 and S.A. Venkataraman (3) [1954] S.C.R. 1150. In Mohammed Dastagir v. State of Madras (1) A.I.R. 1960 S.C. 756, this court had to consider article 20(3). The appellant in that case had gone to the bungalow of the Deputy Superintendent of police to offer him a bribe which was covered in a closed envelope with a request that he might drop the action registered against him. The police officer threw the envelope at the appellant who took it up. While the appellant was still in the bungalow he was asked by the police officer to produce the envelope and he took out from his pocket some currency notes and placed them on the table without the envelope. The notes were then seized by the police officer and a rubber stamp of his offence was placed on them. On these facts it was urged that in relying upon the evidence of compelled production of notes the prosecution had violated the provisions of article 20(3). In support of this contention the general observations made by this court in the case of M.P. Sharma (1) A.I.R. 1960 S.C. 756, were strongly pressed into service. This court, however, rejected the appellant's arguments and held that the prosecution did not suffer from any infirmity. On the facts it was found that though the offence had in fact been already committed by the appellant, he had not been accused of it at the state when the currency notes were produced by him; it was also held that it could not be said that he was compelled to produce the said currency notes, because he might easily have refused to produce them, and so there was no occasion for him to invoke the constitutional protection against self-incrimination.

What then is the result of these decisions ? They show that in determining the complexion and reach of its respective sub-clauses the general scheme of article 20 as a whole must be considered, and the effect of the interaction of the relevant words used in them must be properly appreciated. Thus considered the constitutional right guaranteed by article 20(2) against double jeopardy can be successfully invoked only where the prior proceedings on which reliance is placed must be of a criminal nature instituted or continued before a court of law or a judicial tribunal in accordance with the procedure prescribed in the statute which creates the offence and regulates the procedure. It would be noticed that the character of the said proceedings as well as the character of the forum before which the proceedings are initiated or conducted are treated as decisive in the matter. Similarly, for invoking the constitutional right against testimonial compulsion guaranteed under article 20(3) it must appear that a formal accusation has been made against the party pleading the guarantee and that it relates to the commission of an offence which in the normal course may result in prosecution. Here again, the nature of the accusation and its probable sequel or consequence are regarded as important.

Thus, we go back to the question which we have already posed : Was the appellant accused of any offence at the time when the impugned notices were served on him ? In answering this question in the light of the tests to which we have just referred it will be necessary to determine the scope and nature of the enquiry which the inspector undertakes under section 240; for, unless it is shown that an accusation of a crime can be made in such an enquiry, the appellant's plea under article 20(3) cannot succeed. Section 240 shows that the enquiry which the inspector undertakes is in substance an enquiry into the affairs of the company concerned. Certain documents are required to be furnished by a company to the registrar under the provisions of the new Act. If, on examining the said documents, the Registrar thinks it necessary to call for information or explanation he is empowered to take the necessary action under section 234(1). Similarly, under section 234(7) if it is represented to the Registrar on materials placed before him by any contributory or creditor or any other person interested that the business of the company is carried on in the manner specified in the said sub-section the registrar proceeds to make the enquiry. Thus the scope of the enquiry contemplated by section 234 is clear; wherever the Registrar has reason to believe that the affairs of the company are not properly carried on he is empowered to make an enquiry into the said affairs. Similarly under section 235 inspectors are appointed to investigate the affairs of any company and report thereon. The investigation carried on by the inspectors is no more than the work of a fact-finding commission. It is true that as a result of the investigation made by the inspectors it may be discovered that the affairs of the company disclose not only irregularities and malpractices but also commission of offences, and in such a case the report would specify the relevant particulars prescribed by the circular in that behalf. if, after receiving the report, the Central government is satisfied that any person is guilty of an offence for which he is criminally liable, it may, after taking legal advice, institute criminal proceedings against the offending person under section 242(1); but the fact that a prosecution may ultimately be launched against the alleged offender will not retrospectively change the complexion or character of the proceedings held by the inspector when he makes the investigation. Have irregularities been committed in managing the affairs of the company; if yes, what is the nature of the irregularities? Do they amount to the commission of an offence punishable under the criminal law? if they do, who is liable for the said offence? These and such other questions fall within the purview of the inspector's investigation. The scheme of the relevant sections is that the investigation begins broadly with a view to examine the management of the affairs of the company to find out whether any irregularities have been committed or not. in such a case there is no accusation, either formal or otherwise, against any specified individual; there may be a general allegation that the affairs are irregularly, improperly or illegally managed,; but who would be responsible for the affairs which are reported to be irregularly managed is a matter which would be determined at the end of the enquiry. At the commencement of the enquiry and indeed throughout its proceedings there is no accused person, no accuser and no accusation against anyone that he has committed an offence. In our opinion a general enquiry and investigation into the affairs of the company thus contemplated cannot be regarded as an investigation which starts with an accusation contemplated in article 20(3) of the Constitution. in this connection it is necessary to remember that the relevant section of the Act appear in part VI which generally deals with management and administration of the companies.

It is well-known that the provisions of the Act are modelled on the corresponding provisions of the English Companies Act. It would, therefore, be useful to refer to the observations made by the House of Lords in describing the character of the enquiry held under the corresponding provisions of the English Act in the case of Hearts of Oak Assurance Co. v. Attorney-general (1) [1932] A.C. 392.. In that case LORD THANKERTON said "it appears to me to be clear that the object of the examination is merely to recover information as to the company's affairs and that it is in no sense a judicial proceeding for the purpose of trial of an offence; it is enough to point out that there are no parties before the inspector, that he alone conducts the enquiry, and that the power to examine on oath is confined to the officers, members, agents and servants of the company". We ought, however, to add that the last observations is no longer true about the inspector's powers under section 240 of the new Act. In the same case LORD MACMILLAN observed that " the object of the enquiry manifestly is that the Commissioner may either by himself directly or through the medium of a delegate obtain the information necessary to enable him to decide what action, if any, he should take. The cardinal words of the section are those which empower the Commissioner or his inspector to examine into and report of the affairs of the society." Thus it is clear that the examination of, or investigation into, the affairs of the company cannot be regarded as a proceeding started against any individual after framing an accusation against him. Besides it is quite likely that in some cases investigation may disclose that there are no irregularities or if they are, they do not amount to the commission of any offence; in such cases there would obviously be no occasion for the Central Government to institute criminal proceedings under section 242(1). Therefore, in our opinion, the High Court was right in holding that when the inspector issued the impugned notices against the appellant he cannot be said to have been accused of any offence; and so the first essential condition for the application of article 20(3) is absent. We ought to add that in the present case the same conclusion would follow even if the clause ' accused of any offence " is interpreted more liberally than was done in the case of M.P. Sharma (1) [1959] S.C.R. 297 , because even if the expression " accused of any offence" is interpreted in a very broad and liberal way it is clear that at the relevant stage the appellant has not been, and in law cannot be, accused of any offence. Thus the tests about the character of the proceedings and the forum where the proceedings are initiated are intended to be taken are also not satisfied; but, as we have already indicated, such a broad and liberal interpretation of the relevant expression does not appear to be consistent with the tenor and effect of the previous decisions of this court.

It is true that in his report the Registrar has made certain allegations on which Mr. Sastri has relied. he contends that the statements in the report do amount to allegations of commission of offences by the appellant. What the Registrar has stated in his report in this particular case cannot be relevant or material in deciding the vires of the impugned section. The vires of the section can be determined only by examining the relevant scheme of the Act, and we have already seen that such an examination does not assist the appellant's contention that article 20(3) is contravened. Besides,what the registrar has stated in his report can hardly amount to an accusation against the appellant; it is a report submitted by him to the Central Government and it is only intended to enable the Central Government to decide whether it should appoint an inspector. It is not as if the investigation before the inspector begins on the basis that the Registrar is the complainant who has made an accusation against the appellant, or that the function of the investigation is to find out whether the said accusation is proved or not. As we have already seen an enquiry under section 240 may require a large number of persons to give evidence or produce documents but it cannot be said that any accusation is made against any of the said persons. In fact three persons have been served with similar notices in the present enquiry which shows that the inspector desires to obtain relevant evidence from them as from the appellant. How can it be said that an accusation has been made against the said three persons, and that incidentally helps to bring out the real character and scope of the enquiry. Therefore we do not think that the statements made in the registrar's report on which Mr. Sastri relies can really assist us in deciding the question of the vires of section 240. It is also significant that the appellant has not challenged the validity of the impugned notices on any ground relatable to, or based on, the said report. The challenge is founded on the broad and general ground that section 240 offends against article 20(3).

We may incidentally add that it was in support of his argument based on the Registrar's report that Mr. Sastri sought to rely on the decision of the Calcutta High Court in Collector of Customs v. Calcutta Motor and Cycle Co. (1958) A.I.R. 1958 Cal. 682 , In that case certain notices had been issued under section 171A of the Sea Customs Act to certain persons to appear before the customs officials and to produce certain documents. The High Court took the view that 'it appeared from the accusations made in the search warrants at the instance of the customs authorities and those made in one of the notices by the customs authorities themselves, that the accusations of criminal offences could not be excluded"; and so it was held that the requirements of article 20(3) were satisfied and the protection under the said article was available to the persons concerned. In our opinion this decision does not assist the appellant. It proceeded on the finding that accusations of criminal offences could be held in substance to have been made against the persons concerned, and it dealt with the other points of law on that assumption. That being so, we think it unnecessary to discuss or consider the said decision. Our conclusion, therefore, is that section 240 does not offend against article 20(3) of the Constitution.

That still leaves the challenge to the vires of the said section under article 14 of the Constitution, though we ought to add that Mr. Sastri did not seriously press his case under article 14, and we think rightly. The argument under article 14 proceeds on familiar lines. it is urged that the ordinary protection afforded to witnesses under section 132 of the Indian Evidence Act as well as the protection afforded to accused persons under section 161(I) or (2) of the Criminal Procedure Code have been denied to the appellant in the investigation which respondent No. 1 is carrying on in regard to the affairs of the company, and that violates equality before the law. The scope and effect of article 14 have been considered by this court frequently. It has been repeatedly held that what article 14 prohibits is class legislation; it does not, however, forbid reasonable classification for the purpose of legislation . If the classification on which legislation is based is founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and if the differentia has a rational relation to the object sought to be achieved, then the classification does not offend article 14 (vide Shri Ram Krishna Dalmia v. Justice Tendolkar) (1) [1954] S.C.R. 1077. Now in the light of this test how can it be said that the classification made by section 239 and 240 offends article 14 of the Constitution ? A company is a creature of the statute. There can be no doubt that one of the objects of the Companies Act is to throw open to all citizens the privilege of carrying on business with limited liability. Inevitably the business of the company has to be carried on through human agency, and that sometimes gives rise to irregularities and malpractices in the mangement of the affairs of the company. If persons in charge of the management of companies abuse their position and make personal profit at the cost of the creditors, contributories and others interested in the company, that raises a problem which is very much different from the problem of ordinary mis-appropriation or breach of trust. The interest of the company is the interest of several persons who constitute the company, and thus persons in management of the affairs of such companies can be classed by themselves as distinct from other individual citizens. A citizen can and may protect his own interest, but where the financial interest of a large number of citizens is left in charge of persons who manage the affairs of the companies it would be legitimate to treat such companies and their mangers as a class by themselves and to provide for necessary safeguards and checks against a possible abuse of power vesting in the managers. if the relevant provisions of the Act dealing with enquiries and investigations of the affairs of the companies are considered from this point of view there would be no difficulty in holding that article 14 is not violated either by section 239 or section 240 of the new Act.

The result is the appeal fails and is dismissed with costs.

Appeal dismissed.

[1960] 30 COMP. CAS. 644 (SC)

Raja Narayan Bansilal

Maneck Phiroz Mistry

SINHA, C.J.

GAJENDRAGADKAR, WANCHOO, K C DAS GUPTA AND J C SHAH, JJ.

CIVIL APPEAL NO. 268 OF 1959

AUGUST 31, 1960

It is now necessary to consider section 645. it reads thus :

It is, however, urged that the authority of the inspector, which is in dispute in governed by section 646. This section provides :

The result is the appeal fails and is dismissed with costs.

Appeal dismissed.

[1957] 27 COMP. CAS. 97 (MAD.)

HIGH COURT OF MADRAS

M Vaidyanathan

Sub-divisional Magistrate Erode

RAJAGOPALAN, J.

Writ Petition No. 394 of 1956

AUGUST 3,1956

RAJAGOPALAN, J. - The Agricultural and Industrial Corporation Ltd. was incorporated in 1947 under the provisions of the Indian Companies Act, 1913. At the meeting of the general body of the shareholders held on 5th March, 1949, the petitioner was elected the managing director of the company in the place of one Narayana Rao who had been the managing director up to then. The petitioner claimed that on 17th July, 1949, at another meeting of the general body of the shareholders, one A.S. Venkata Rao was elected the managing director, and the petitioner handed over charge of the affairs of the company to Venkata Rao. The claim in the counter affidavit of the second respondent was that the petitioner functioned along with A.S.Venkata Rao till 4th may, 1950, though Venkata Rao had been elected as director in charge on 17th July, 1949. The petitioner further claimed that after 4th May, 1950, he ceased to have anything to do with the management of the company. He was employed thereafter at Kozhikode and later at Bombay.

From the averments in the counter affidavit of the second respondent it appears that in the balance sheet of the company, filed with the Assistant Registrar of Companies at Erode on 7th March, 1949, tangible assets of the company to the extent of nearly Rs. 49,000 were disclosed. It was alleged that no balance sheet was filed with the Registrar of Companies subsequent to that. There were charges and counter charges as between the directors and ex-directors of the company. On 8th June, 1955, the Registrar of Companies addressed a letter to the Inspector-General of Police, Madras. A copy of that letter was filed as Exhibit A, annexed to the counter affidavit filed by the second respondent. In that letter the Registrar referred to the enquiries conducted by the officers of his department and to the advice of the Public Prosecutor, Cuddalore, in whose opinion "there was a prima facie good case for police investigation and charging the officers of the company for offences under sections 406, 409 and 477A of the Indian Penal Code." The Registrar requested the Inspector- General of Police to cause a thorough investigation to be made in the matter.

The letter of the Registrar dated 8th June, 1955, was treated as a complaint to the police, and it was eventually registered at Kanjanur police station in South Arcot District as Cr. No. 48 of 1955, under sections 406, 409 and 477A of the Indian Penal Code. In November, 1955, the further investigation was transferred to the police officers in charge of the Erode police station. It was registered as Cr. No. 892 of 1955, and a copy of the complaint was lodged as the first information report with the Sub-Divisional Magistrate, Erode. Further investigation into the complaint was eventually taken over by the Criminal Investigation Department, Madras, and from the affidavit of the third respondent it appeared that the third respondent, an Inspector of Police of the Criminal Investigation Department, was placed in charge of the investigation. The investigation has not yet been completed.

The petitioner averred in the affidavit he filed in support of the petition that he was arrested at Bombay on 29th October, 1955, without a warrant and he was subsequently released on bail by the Additional Presidency Magistrate, Esplanade, Bombay. The petitioner appeared before the Sub-Divisional Magistrate, Erode, on 24th November, 1955, but what happened further in that court he did not say.

In March, 1956, the petitioner applied under article 226 of the Constitution impleading the sub-Divisional Magistrate, Erode, and the Registrar of Joint Stock Exchange, Madras, as respondents 1 and 2 respectively. The relief asked for was "the issue of a writ of prohibition prohibiting all further proceedings in Cr. No. 892 of 1955 before the Sub-Divisional Magistrate, Erode........."

Though he had not been impleaded as a party to these proceedings at that stage, the Inspector of Police, Criminal Investigation Department, who was in charge of the investigation, swore to an affidavit on 9th July, 1956, to explain what further proceedings were taken after the investigation was taken over by the Criminal Investigation Department. Subsequent to that the petitioner was permitted in C.M.P. No. 5646 of 1956 to implied the Inspector of Police as the third respondent in these proceedings, and also to amend the prayer in W.P. No. 394 of 1956. The relief that the petitioner asked for after that amendment was the issue of a writ of prohibition "prohibiting all further investigation by the third respondent in so far as the petitioner is concerned in respect of the affairs of the Agricultural and Industrial Credit Corporation Ltd."

The petitioner's claim was that he was arrested at Bombay on 29th October, 1955, and that he was subsequently released released on bail. The truth of that was not challenged. The petitioner himself apparently did not know on what charges he was arrested. The arrest was without a warrant. Even in the counter affidavit filed by respondents Nos. 1 and 3 there was nothing to show what led to the arrest of the petitioner on 29th October, 1955. Nor even was there anything to indicate that the arrest was effected on the basis of the letter dated 8th June, 1955, which was treated as a complaint for the purpose of investigation by the police. When the petitioner appeared before the Sub-Divisional Magistrate, Erode, the petitioner was apparently under the impression, that he had been arrested in the course of investigation into the complaint report in Cr. No. 892 of 1955 of the Erode police station. It may not be necessary to refer further to the arrest or the circumstances under which that arrest was effected for the disposal of this petition.

I shall proceed on the basis, that the letter of the Registrar dated 8th June, 1955, was a complaint to the police within the scope of the provisions of the Criminal Procedure Code. The offences the petitioner, among others, was alleged to have committed were specified as those punishable under section 406, 409 and 477A of the Indian Penal Code. Of these, offences punishable under sections 406 and 409 of the Indian Penal Code are cognizable offences. These are cases in which the person accused of having committed those offences could be arrested by the police without a warrant by a Magistrate. Section 154 of the Criminal Procedure Code runs :

"Every information relating to the commission of a cognizable offence if given orally to an officer in charge of a police station shall be reduced to writing by him or under his direction and be read over to the informant ; and every such information, whether given in whether or reduced to writing as aforesaid, shall be signed by the person giving it, and the substance thereof shall be entered in a book to be kept by such officer in such form as the State Government may prescribe in this behalf."

The letter dated 8th June, 1955, though addressed to the Inspector- General of Police, satisfied the requirements of section 154 of the Criminal Procedure Code. It was eventually registered apparently under the provisions of section 154 by the officer in charge of the police station at Kanjanur. Section 156(1) authorises any officer in charge of a police station to investigate any cognizable case without the order of a Magistrate. Under section 157(1) even without a complaint in writing, if "from the information received or otherwise" an officer in charge of a police station has reason to suspect the commission of a cognizable offence, he could send a report of the same to a Magistrate empowered to take cognizance of such an offence upon a police report and thereafter arrange for the investigation of the case.

I have referred to the provisions of the Criminal Procedure Code to explain what the statutory duties of a police officer are, when he is informed by a complaint in writing or even otherwise that a cognizable offence has been committed. At that stage even the disclosure of the name of the person suspected to have committed the offence may not be necessary to authorise an investigation by the police officer.

The relief that the petitioner eventually asked for in these proceedings before me under articles 226 of the Constitution was, that a writ of prohibition should issue to restrain the third respondent from investigating into the charges against the petitioner, the charges the he was suspected of having committed offences punishable under sections 406, 409 and 407A of the Indian Penal Code. If the third respondent, who is now in charge of the conduct of the investigation, has jurisdiction to investigate the charges against the accused, then obviously no writ of prohibition can issue. The complaint of the learned counsel for the petitioner was that the addressed the letter dated 8th June, 1955, to the Inspector-General of Police asking for an investigation. I shall deal with that contention a little later. Even if the Registrar acted in contravention of any statutory provisions in preferring a complaint to the police, that in my opinion, may not affect the jurisdiction of the police officer to investigate into a complaint of the commission of cognizable offences like those punishable under sections 406 and 409 of the Indian Penal Code. Even if any irregularity tainted the complaint dated 8th June, 1955, section 157(1) of the Criminal Procedure Code is sufficient to clothe the police officer with jurisdiction to investigate. Even on information received, from whatever source that information was received, or even otherwise, if the police officer in charge of a police station has reason to suspect that a cognizable offence has been committed, he has jurisdiction to investigate, under section 157(1) of the Criminal Procedure Code. In fact it would be his statutory duty to investigate.

The Criminal Procedure Code itself does not provide for any statutory bar to such an investigation. Whether there is any other statutory bar to the investigation entrusted to the third respondent is the next question.

The learned counsel for the petitioner relied on section 620 of the Companies Act (1 of 1956) and urged that barred an investigation by the police even into charges of the commission of cognizable offences if the acts on which these charges were founded were in relation to the affairs of a company incorporated under the Companies Act. The Companies Act (1 of 1956) replaced the earlier enactment, the Indian Companies Act, 1913. It should be more convenient to refer to the statutory provisions as they stand numbered in the Companies Act of 1956 without any need to quote the corresponding provisions of the earlier Act, the Indian Companies Act, 1913. In the rest of this judgment I shall refer to the Companies Act (1 of 1956) as the Act.

Section 620 of the Act runs :

"Penalty for wrongful withholding of property :- (1) If any officer or employee of a company -

(a) wrongfully obtains possession of any property of a company ; or

(b) having any such property in his possession, wrongfully withholds it or knowingly applied it to purposes other than those expressed or directed in the articles and authorised by this Act ; he shall, on the complaint of the company or any creditor or contributory thereof, be punishable with fine which may extend to one thousand rupees.

(2) The court trying the offence may also order such officer or employee to deliver up or refund, within a time to be fixed by the court, any such property wrongfully obtained or wrongfully withheld or knowingly misapplied, or in default, to suffer imprisonment for a term which may extend to two years."

The learned Advocate-General pointed out that there was no statutory provision in the English Companies Act to correspond to section 630 of the Act. Section 630 of the Act is really based on and is analogous to section 16 of the Friendly Societies Act, 1875 of England. The scope of the summary procedure provided for by section 16 of the Friendly Friendly Societies Act and that of the reliefs that could be claimed or granted under that section were explained by the Court of Appeal in Vernon v. Watson 1. LORD HALSBURY L.C. observed :

"If the operation of the statute had been confined to criminal proceedings I should have entertained no doubt that imprisonment for the criminal offence afforded no answer to a civil claim for the debt."

After pointing out that in section 16 two different proceedings were mixed up together, the Lord Chancellor observed :

"We must apply the ordinary principles of law to each part of the procedure. In fact the legislation itself points in that direction, because one part of the section provides that the criminal proceedings taken under it shall not interfere with the right to indict....That was based on the statutory provision that `nothing herein contained prevents any such person from being proceeded against by way of indictment, if not previously convicted of the same offence under the provisions of this Act'."

It is true that there is no such saving clause in section 630 of the Act. But that, in my opinion, makes no real difference to the application of the principles laid down with reference to section 16 of the Friendly Societies Act, 1875.

Section 630 of the Act by itself imposes no bar of the initiation of proceedings in a criminal court even with reference to acts committed in relation to that affairs of a company, if those acts amount to offences like those punishable under sections 406 and 409 of the Indian Penal Code. Section 630 of the Act provides for a summary procedure. It authorises an officer or an employee of the company, and only these two, to apply under section 630. The acts specified in clauses (a) and (b) of section 630(1) of the Act may not by themselves and with nothing more amount to criminal misappropriation as defined by the Indian Penal Code and made punishable under section 406 or 409 of the Indian Penal Code. For example, knowingly applying any property of the company to purposes other than those expressed or directed in the articles and authorised by the Act fails within section 630(1)(b). There might be nothing criminal punishable under section 406 of the Indian Penal Code in such an application. Yet it would fall under section 630 of the Act. I have referred to these at some length only to explain the scope of section 630 of the Act. It provides a summary remedy and the persons who are entitled to ask for that remedy are specified. It is confined to an officer or an employee of the company. Whether, when in proceedings initiated under section 630(1) of the Act a punishment follows, that would bar a conviction under section 406 or 409 of the Indian Penal Code, I am not called upon to decide in these proceedings and I express no opinion. We are still at the stage of initiation of proceedings. The Registrar of Companies could not himself invoke section 630 of the Act. He complained to the police that offences punishable under sections 406 and 409 of the Indian Penal Code appeared to have been committed. Those are offences against the State. In the prosecution of a person suspected of having committed such offences, it is that State representing society as a whole that is interested. The benefits conferred by section 630 of the Act are confined to the company, to its representatives specified by section 630 itself. It is a little difficult to see any real basis for the contention of the learned counsel for the petitioner, that section 630 of the Act bars an investigation or prosecution for offences punishable under sections 406 and 409 of the Indian Penal Code. Section 630 of the Act provides no statutory bar to the exercise of the jurisdiction vested in a police officer by section 154, 156(1) and 157(1) of the Criminal Procedure Code.

The learned counsel for the petitioner next referred to the provisions of the Act dealing with the powers of the Registrar and the Central Government, and in particular to sections 234 and 242 of the Act. Section 242(1) is only an enabling provision, as the use of the word "may" in the passage "the Central Government may after taking such legal advice as it thinks fit prosecute such a person for the offence" indicates. By itself section 242(1) does not divest a police officer of the jurisdiction conferred upon him either under section 154, 156 or 157 of the Criminal Procedure Code. No more than section 630 of the Act does section 242 bar the exercise of the jurisdiction of the third respondent to investigate into a complaint of the commission of cognisable offences punishable under sections 406 and 409 of the Indian Penal Code.

I pointed out earlier than even if there was any irregularity or even illegality attendant on the letter dated 8th June, 1955, which was treated as a complaint by the police for purposes of investigation, neither the jurisdiction to investigate nor the exercise thereof by the police officer could be effected. The learned Advocate-General pointed out that it was not in the discharge of any statutory duties imposed upon him that the Registrar sent the letter dated 8th June, 1955, asking for an investigation by the police. Even as a citizen he had the right to bring to the notice of the police that one or more cognisable offences had been committed. He set the machinery of law in motion, and that he was entitled to do. It may not be necessary to discuss this aspect further for the disposal of this application. I am unable to accept the contention of the learned counsel for the petitioner, that the Registrar did something illegal, something prohibiting by the act, when he addressed the letter on 8th June, 1955, without availing himself of the powers vested in him by section 234 and other relevant provisions of the Act. True, nothing in the Act specifically authorised him to prefer a complaint to the police. But the, there was no prohibition in the Act against asking the police to investigate into a case, where congnizable offences punishable under section 406 and 409 of the Indian Penal Code were suspected to have been committed. There was nothing illegal about the letter dated 8th June, 1955, which was eventually treated as a complaint in writing to a police officer within the meaning of section 154(1) of the Criminal Procedure Code.

The learned counsel for the petitioner referred to Rishbud v. State of Delhi 1, where the learned Judges laid down that where the cognisance of the case has in fact been taken and the case has proceeded to termination, the invalidity of the precedent investigation does not vitiate the results, unless miscarriage of justice has been caused thereby. Their Lordships laid down further :

"When such a breach is brought to the notice of the court at an early stage of the trial the court will have to consider the nature and extent of the violation and pass appropriate orders for such investigation as may be called for, wholly or partly, and by such officer as it considers appropriate........."

Apparently the learned counsel relied upon this principle to support his contention that he was entitled to a writ to prohibition. But, as I have held, he failed to establish that the third respondent was doing anything illegal, anything prohibited by the statute in conducting the investigation with which he has been entrusted. The writ asked for is one of prohibition. If the third respondent had jurisdiction to undertake and continue the investigation, the writ asked for cannot issue the third respondent has that jurisdiction. This application fails.

The rule is discharged and this petition is dismissed. There will be no order as to costs.

Petition dismissed.

[1974] 44 COMP. CAS. 106 (MADRAS)

high court of madras

Indian Express (Madurai) Private Ltd.

Chief Presidency Magistrate

VeerasWami, C.J.

and Paul, J.

WRIT APPEAL NOS. 554 AND 555 OF 1971

AND 69 TO 72 OF 1972 AND C.M.P. NOS. 4262, 4263, 4029

AND 4030 OF 1972

March 20, 1973

M. K. Nambiar, A. R. Ratnanathan and K. C. Rajappa for the Appellants.

Sivam for Habibulla Badsha, F. S. Nariman and K. Parasaran for the Respondents.

JUDGMENT

Writ Appeals Nos. 554/71, 69/72 and 70/72 are directed against the judgment of Ramaprasada Rao J. dismissing the Writ Petitions Nos. 1916/71, 1917/71 and 1918/71 preferred under article 226 of the Constitution of India for the issue of writs of certiorari calling for the records in RC. No. 2/71-SIV relating to the warrants issued by the Chief Presidency Magistrate, Egmore, Madras, dated June 7, 1971, and to quash the said warrants, while writ Appeals Nos. 555/71, 71/72 and 72/72 are directed against the judgment of Ramaprasada Rao J. dismissing Writ Petitions Nos. 2394, 2395 and 2396 of 1971 preferred under article 226 of the Constitution of India for the issue of writs of mandamus directing the first respondent therein, the Company Law Board, to withdraw the complaint lodged by it with the Central Bureau of Investigation and to refrain from prosecuting their investigation or taking any further action in the matter of the alleged violation of sections 420, 477 and 120-B of the Indian Penal Code in relation to the appellant-companies.

The first appellants in these writ appeals, namely, the Indian Express (Madurai) Private Ltd., the Express Newspapers Private Ltd. and the Andhra Prabha Private Ltd., are the subsidiaries of the Indian Express Newspapers (Bombay) Private Ltd. The aforesaid group of companies owns, prints and publishes newspapers and periodicals from different centres in India, such as Madras, Madurai, Vijayawada, etc. The second appellant in these writ appeals is R. N. Goenka, who at all material times was and is still connected with the aforesaid companies as managing director, director or shareholder.

During August-September, 1969, one Mr. N. H. Iyer, an officer of the Company Law Board, inspected the books of accounts of the Express Newspapers Private Ltd., Madras, and the Indian Express (Madurai) Private Ltd., under section 209(4) of the Companies Act. He is said to have examined all the ledgers, excepting one volume which was not available and perused the minutes book kept by the company and also the accounts of brokers who had commercial dealings with the company and had visited the registered office of the Indian Express (Madurai) Private Ltd., inspected the investments and the ledger accounts pertaining thereto and took relevant copies of accounts and extracts therefrom. Subsequently about a year later, between August 14, 1970, and August 21, 1970, one Mr. Puri, an officer authorised to act under section 209 of the Companies Act of 1956, inspected the records of the Andhra Prabha Ltd. at Vijayawada, including the minutes book, bank files, accounts, etc. On September 19, 1970, Mr. Puri submitted an elaborate inspection report under section 209(4) of the Companies Act in respect of M/s. Andhra Prabha Ltd., Vijayawada. In his report Mr. Puri had stated that during the course of his inspection he noticed certain transactions carried out by the company which were very shady in character and questionable. He felt that there was a fictitious transaction of purchase of Indian printing paper booked in 1967-68 and consequent inflation of stock of newsprint of the company with intent to defraud the Punjab National Bank on the one hand and with a view to camouflage the heavy debit in the account of and due from M/s. Gopikishan Ramkishan in the books of M/s. Express Newspapers Private Ltd., at the time of their annual closing of accounts as at March 31, 1968, on the other hand, and a fictitious loan to M/s. Radhakrishna Dalmia & Co., the firm of share-brokers, and false statements had been made to the Indian Bank Ltd. for procuring overdraft facility against pledge of shares and misappropriation of shares in the Indian Iron and Steel Company and there were also instances of suppression of facts and of otherwise incorrect statements in the audited balance-sheet and profit and loss account of the company with intent to defraud the public. In those circumstances, Mr. Puri concluded his report by saying that in view of the several transactions involving intent to defraud which had come to his notice during the course of his inspection, it was felt that a thorough investigation into the affairs of that company and its sister companies would be much more revealing and that the transactions quoted in the report satisfied the requirements of section 237(b) of the Companies Act for ordering an investigation. After considering that report, the Company Law Board, instead of ordering an investigation under section 237(b) of the Companies Act, preferred on April 2, 1971, a complaint to the Director of the Central Bureau of Investigation and that complaint was registered on April 19, 1971, by the Central Bureau of Investigation for offences under sections 120-B, 420 and 477-A of the Indian Penal Code. On June 7, 1971, on the application of Sri Charanjiv Lall, Deputy-Superiadent of Police, CBI/SPE/STU, North Block, New Delhi, camping at Madras, praying for the issue of search warrants under section 96, Criminal Procedure Code, for searching various places including the office of Andhra Prabha Private Ltd., Express Estates, Mount Road, Madras, the office of M/s. Express Newspapers Private Ltd., Express Estates, Mount Road, Madras, the office of M/s. Express Newspapers (Bombay) Private Ltd., at Express Estates, Mount Road, Madras, and the office of the Indian Express (Madurai) Private Ltd., at the Express Estates, Mount Road, Madras, the Chief Presidency Magistrate of Madras, who is the first respondent in Writ Appeals Nos. 554/71, 69/72 and 70/72, after perusing the application for the issue of the warrants which contained also the list of documents to be seized from the various premises, and after examining on oath, Sri Charanjiv Lall, issued search warrants as required; and under those search warrants the Central Bureau of Investigation simultaneously conducted searches of various premises on June 8, 1971, and June 9, 1971, and seized certain records handed over by the appellants. Thereupon, the Indian Express (Madurai) Private Ltd., the Express Newspapers Private Ltd. and the Andhra Prabha Ltd., along with Mr. R. N. Goenka who was connected with those companies in the capacity of managing director, director or shareholder, filed on June 18, 1971, Writ Petitions Nos. 1916 to 1918 of 1971 for the issue of writs of certiorari to quash the aforesaid search warrants and subsequently on July 26, 1971, they filed Writ Petitions Nos. 2394 to 2396 of 1971 for the issue of writs of mandamus directing the Company Law Board to withdraw the complaint which they had laid before the Central Bureau of Investigation on April 2, 1971.

It was contended in these first batch of writ petitions that owing to mala fide, perverse and unreasonable political motives and on extraneous and irrelevant considerations, this group of newspapers has been discriminated against and singled out for hostile and unequal treatment as compared to other newspapers and the petitioners were being prosecuted by the Government because of the attitude of the ruling party against the group of the newspapers owned by the group companies and in this process the Company Law Board, the Central Bureau of Investigation and its officers were being used as instruments of oppression against the petitioners and there were no grounds at all for searching the premises of the petitioners or for seizing the documents. The main contention raised in the second batch of writ petitions was that the Companies Act of 1956 is a code the intrinsic nature of which is that it is exhaustive in regard to matters specifically provided for therein and as such the specific procedure prescribed therein on receipt of the report under section 209(4) of the Companies Act has to be followed and the Company Law Board cannot invoke the provisions of the Criminal Procedure Code and resort to the agency of the police for making an investigation under the provisions of the Criminal Procedure Code, and prosecuting the offenders for offences committed by the officers of the company in relation to the affairs of the company, even though those offences would also be offences under the Indian Penal Code, and in laying the information before the police for them to investigate and prosecute, the Company Law Board had acted illegally or without jurisdiction in the sense that it had done an act which was impliedly prohibited and consequently the information laid before the Central Bureau of Investigation should be considered as non est and as a result thereof the registering of that information as a First Information Report by the Special Police Establishment and the subsequent action taken by the police during the course of their investigation such as the applying for and obtaining search warrants and searching the premises of the appellants, should be held to be without jurisdiction. These contentions did not find acceptance at the hands of the learned judge, Ramaprasada Rao J.

Mr. M. K. Nambiar, on behalf of the appellants, has contended before us that the Companies Act being a self-contained Code and a consolidating and amending Act, prescribing in detail the mode of investigation into and prosecution by the Company Law Board, in respect of any offences committed in relation to the companies' affairs, recourse to any investigation or prosecution by the police under the Code of Criminal Procedure is by necessary intendment prohibited and the Company Law Board being a creature of the statute, it can, as a statutory authority, exercise only such powers as are vested in it by the Companies Act and when the Companies Act has conferred no powers on the Company Law Board to prefer a complaint to the police for investigation and prosecution under the Code of Criminal Procedure, any complaint laid by the Company Law Board with the police for such investigation and prosecution in respect of any offences which appear to have been committed in relation to the companies' affairs, would be ultra vires its powers and would be wholly void and consequently the investigation and prosecution by the Central Bureau of Investigation in pursuance of such a complaint would be illegal, void and wholly without jurisdiction and even if the finding of Ramaprasada Rao J. that the Company Law Board had the power to make a complaint to the police like any other citizen under the Criminal Procedure Code is correct, it would follow that the Company Law Board would have the choice of two procedures in respect of persons similarly situate, one procedure being more advantageous to the persons involved than the other, the act of the Company Law Board in choosing the procedure which is less advantageous to the persons involved would be violative of article 14 of the Constitution and further the Central Bureau of Investigation has no jurisdiction to investigate into the complaint, since section 3 of the Delhi Special Police Establishment Act is void by reason of excessive delegation and there is no proof of consent accorded by the Madras Government for the investigation by the Central Bureau of Investigation as required by entry 8, List I, of the Constitution. It must be stated at this juncture that the last mentioned proposition was not pressed before Ramaprasada Rao J., as the learned judge himself has observed in his judgment. Hence the appellants in Writ Appeals Nos. 554 and 555/71 have filed C.M.Ps. Nos. 4262 and 4263/72 for permission to raise that ground as an additional ground, in these appeals. But in view of the fact that this ground was not pressed before the learned judge, we are not permitting the appellants to raise that ground before us and C.M.Ps. Nos, 4262 and 4263/72 are, therefore, dismissed. The contention that the act of the Company Law Board in laying a complaint to the police is violative of article 14 of the Constitution was also not raised before the learned judge; but C.M.Ps. Nos. 4029 and 4030 of 1972 have been filed before us, seeking permission to raise that ground as an additional ground of appeal. Mr. Nambiar, the learned counsel for the appellants, has contended that this ground being a pure question of law can be raised at a late stage, even in appeal and where such a question of law is raised as an additional ground, it is in the discretion of the High Court either to allow it or not. In support of that contention of his, he has cited the decision of the Supreme Court in Chittoori Subbanna v. Kudappa Sublanna . There it was held by the Supreme Court:

"A pure question of law not dependent on the determination of any question of fact should be allowed to be raised for the first time in the grounds of appeal by the first appellate court. Such pure questions of law are allowed for the first time at later stages also. Where a new point not taken in the grounds of appeal is sought to be raised as an additional ground by a substantive application for that purpose, the High Court has discretion to allow the application or refuse it. But the discretion exercised by the High Court will not be interfered with except for good reasons, for example, where the court acts capriciously or in disregard of any legal principle".

The Supreme Court has, in that decision, referred to the following observations of Lord Watson in Connecticut Fire Insurance Co. v. Kavanagh :

"'When a question of law is raised for the first time in a court of last resort upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient in the interests of justice to entertain the plea. The expediency of adopting that course may be doubted, when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below'".

It has been pointed out by Mr. Nambiar that this additional ground has arisen because of the finding of the learned judge that there are two procedures allowed by law for the Company Law Board to adopt in the matter of investigation into and prosecution of the offenders in regard to offences committed by the officers of the company in relation to the affairs of the company and as such in the interests of justice the appellants should be allowed to raise that additional ground as a pure question of law. In the circumstances, we are inclined to allow this additional ground of appeal to be urged before us. C.M.Ps. Nos. 4029 and 4030 of 1972 are ordered accordingly.

The learned Additional Solicitor-General appearing on behalf of the Company Law Board has, however, urged before us that section 5(1) of the Code of Criminal Procedure is not subject to or controlled by any other law and all offences under the Indian Penal Code have to be investigated into and tried only under the provisions of the Code of Criminal Procedure and there is also no explicit provision in the Companies Act that offences under the Indian Penal Code in relation to companies shall be investigated only under the provisions of the Companies Act and there is also no provision in the Companies Act relating to laying of information to the police and as such the laying of the complaint to the Central Bureau of Investigation by the Company Law Board was within the competence of the Company Law Board and was in accordance with law. He has pointed out that there is a vital difference between laying of the information before the police by the Company Law Board, followed by an investigation under the Criminal Procedure Code and an investigation into the affairs of a company by the Company Law Board under the provisions of the Companies Act followed by a prosecution under section 242 of the Companies Act and has argued that the scope of the aforesaid two procedures are different and, in the circumstances of this case, if thought fit, the Company Law Board was well within its right in laying the information before the police and the police who have not only a statutory right, but are also statutorily bound, to investigate into the information so received, have rightly carried on the investigation under the provisions of the Code of Criminal Procedure and the issue of the search warrants by the learned Chief Presidency Magistrate, on the facts placed before him by means of the application filed by Mr. Charanjiv Lall and by his statement on oath before the learned Chief Presidency Magistrate, and after applying his mind to those facts and on being satisfied, is in accordance with law. He has futher argued that there is nothing in the Companies Act to indicate that section 5(1) of the Code of Criminal Procedure would be applicable to all offences committed in relation to the affairs of a company, nor is there anything in the Companies Act to indicate that the Central Government is prevented from laying a First Information Report, if an offence is disclosed on the report of an inspection made under section 209(4) of the Companies Act or otherwise and there is no obligation cast on the Company Law Board to follow the procedure starting with an inspection under section 209(4) of the Act and ending with the inspector's report under section 241 of the Act and that in fact there is no obligation cast on the Company Law Board to order an investigation under section 235 of the Act, after an inspection under section 209(4) of the Act and actually there is no link between an inspection under section 209(4) and an investigation under section 235 and that section 242 of the Companies Act is merely an enabling provision and it does not restrict or control either complaints filed by third persons or the power of the police to investigate under the provisions of the Code of Criminal Procedure. He has further argued that assuming that section 242 of the Companies Act is exhaustive of the subject with which it deals, the subject so dealt with is prosecution for criminal offences disclosed in an inspection report of an investigating officer under section 235 or 237 of the Companies Act and it does not control or affect or provide for the laying of information before the police in respect of cognizable offences under the Indian Penal Code disclosed as a result of an inspection under section 209(b) of the Companies Act or otherwise. He has lastly urged that executive action taken under valid provisions cannot be violative of article 14 of the Constitution of India, especially when neither section 242 of the Companies Act nor the provisions of the Code of Criminal Procedure are contended to be violative of article 14 of the Constitution of India.

Undoubtedly, the inherent nature of a Code is that it is exhaustive in regard to the matters specifically provided for in it. The Indian Companies Act is an Act to consolidate and amend the law relating to companies and certain other associations.

"The purpose of a consolidating statute is to present the whole body of the statutory law on a subject in complete form, repealing the former statutes". (Halsbury's Laws of England, third edition, volume 36, page 366).

The essence of a code is to be exhaustive on the matters in respect of which it declares the law and it is not the province of a judge to disregard or go outside the letter of the enactment according to its true construction. The whole scheme of the Companies Act is to ensure proper conduct of the affairs of companies in public interest, and the preservation of the image of the company in the eyes of the public, and in the interests of the members of the company and also the creditors to ensure that the affairs of the company are conducted in a proper manner and its transactions are above suspicion. It is to ensure this that the various provisions under the Companies Act have been devised and returns have been prescribed for the purpose of enabling a close watch to be kept in regard to the transactions of the company and in regard to the manner in which its affairs are conducted. Section 209(4) of the Companies Act enjoins the books of account and other books and papers to be kept open to inspection by any director during business hours and also to be kept open for inspection during business hours,—

(i) by the Registrar, and

(ii) by any officer of Government authorised by the Central Government in this behalf.

Under section 233A, powers have been given to the Central Government to direct special audit of the accounts in certain cases and powers have been granted under other provisions for the Registrar of Companies to call for information and explanation when he thinks that any such information or explanation is necessary on perusing any document which a company is required to submit under the provisions of the Act and a duty is cast on all persons who are officers of the company to furnish such information or explanation to the best of their power to the Registrar and if no information or explanation is furnished within the time specified or if the information or explanation furnished is, in the opinion of the Registrar, inadequate, the Registrar may by order in writing call on the company to produce before him for his inspection such books and papers as he considers necessary within such time as he may specify in the order and a duty is cast on the company and all persons who are officers of the company to produce such books and papers; and the refusal or neglect to furnish any such information or explanation or to produce any such books and papers is made an offence punishable with a fine and power is given to the court trying that offence to make an order on the company for production before the Registrar of such books and papers as in the opinion of the court may reasonably be required by the Registrar for the purpose as referred to above on the application of the Registrar and on receiving any writing containing the information or explanation or any book or paper, the Registrar may annex that writing, book or paper and if such information or explanation is not furnished within the specified time or if on perusing such information or explanation or the books and papers produced, the Registrar is of opinion that the document referred to above together with such information or explanation or such books and papers discloses an unsatisfactory state of affairs or does not disclose a full and fair statement of any matter to which the document purports to relate, the Registrar shall report in writing the circumstances of the case to the Central Government. Sub-section (7) of section 234 further confers power on the Registrar to call on the company to furnish in writing any information or explanation on matters specified in the order, within such time as he may specify therein, if it is represented to the Registrar on materials placed before him by any contributory or creditor or any other persons interested, that the business of the company is being carried on in fraud of its creditors or of persons dealing with the company or otherwise for a fraudulent or unlawful purpose.

Then under section 235 of the Companies Act the Central Government is given the power and discretion to appoint one or more persons as inspectors to investigate the affairs of any company and to report thereon in such manner as the Central Government may direct,—

(a) in the case of a company having a share capital, on the application either of not less than two hundred members or of members holding not less than one-tenth of the total voting power therein;

(b) in the case of a company not having a share capital, on the application of not less than one-fifth in number of the persons on the company's register of members;

(c) in the case of any company, on a report by the Registrar under sub-section (6), or sub-section (7) read with sub-section (6), of section 234.

Then section 237 of the Act says that, without prejudice to its powers under section 235, the Central Government—

"(a) shall appoint one or more competent persons as Inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if—

(i) the company, by special resolution; or

(ii) the court, by order, declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government; and

(b) may do so if, in the opinion of the Central Government, there are circumstances suggesting—

(i) that the business of the company is being conducted with intent to defraud its creditors, members, or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose; or

(iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, the managing agent, the secretaries and treasurers, or the manager, of the company".

Section 239 says :

"(1) If an inspector appointed under section 235 or 237 to investigate the affairs of a company thinks it necessary for the purposes of his investigation to investigate also the affairs of —

(a) any other body corporate which is, or has at any relevant time been, the company's subsidiary or holding company, or a subsidiary of its holding company, or a holding company of its subsidiary;

(b) any other body corporate which is, or has at any relevant time been, managed—

(i) by any person as managing agent or as secretaries and treasurers or as managing director or as manager, who is, or was at the relevant time, either the managing agent or the secretaries and treasurers or the managing director or the manager of the company; or

(ii) by any person who is, or was at the relevant time, an associate of the managing agent or secretaries and treasurers of the company; or

(iii) by any person of whom the managing agent or secretaries and treasurers of the company is, or was at the relevant time, an associate;

(c) any other body corporate which is, or has at any relevant time been, managed by the company or whose board of directors comprises of nominees of the company or is accustomed to act in accordance with the directions or instructions of—

(i) the company; or

(ii) any of the directors of the company; or

(iii) any company any of whose directorships is held by the employees or nominees of those having the control and management of the first mentioned company; or

(d) any person who is or has at any relevant time been the company's managing agent or secretaries and treasurers or managing director or manager or an associate of such managing agent or secretaries and treasurers, the inspector shall, subject to the provisions of sub-section (2), have power so to do and shall report on the affairs of the other body corporate or of the managing agent, secretaries and treasurers, managing director, manager or associate of the managing agent or secretaries and treasurers, so far as he thinks that the result of his investigation thereof are relevant to the investigation of the affairs of the first mentioned company.

(2) In the case of any body corporate or person referred to in clause (b)(ii), b(iii), (c) or (d) of sub-section (1), the inspector shall not exercise his power of investigating into, and reporting on, its or his affairs without first having obtained the prior approval of the Central Government thereto:

Provided that before according approval under this sub-section, the Central Government shall give the body corporate or person a reasonable opportunity to show cause why such approval should not be accorded".

Section 240 makes provision for the production of documents and evidence before the inspector so appointed and casts a duty on all officers and other employees and agents of the company, and where the company is or was managed by a managing agent or secretaries and treasurers, on all officers and other employees and agents of the managing agent or secretaries and treasurers, and where the affairs of any other body corporate or of a managing agent or secretaries and treasurers, or of an associate of a managing agent or secretaries and treasurers, are investigated by virtue of section 239, on all officers and other employees and agents of such body corporate, managing agent, secretaries and treasurers, or associate, and where such managing agent, secretaries and treasurers or associate is or was a firm, on all the partners in the firm, to preserve and to produce to an inspector or any person authorised by him in this behalf with the previous approval of the Central Government, all books and papers of, or relating to, the company or, as the case may be, of or relating to the other body corporate, managing agent, secretaries and treasurers or associate, which are in their custody or power and otherwise to give to the inspector all assistance in connection with the investigation which they are reasonably able to give. That section gives power to the inspector to examine on oath any of the persons referred to above and any other person with the previous approval of the Central Government in relation to the affairs of the company, etc. Power is conferred also by means of section 240A for the seizure of documents by the inspector. Then, under section 241, provision is made for making a report by the inspector on the conclusion of the investigation made under section 239. These provisions have been devised to enable the Central Government to keep a close watch over the affairs of the companies in the interests of the members of the company, the creditors, etc. Section 242 provides for the prosecution of any person who has, in relation to the company or in relation to any other body corporate, managing agent, secretaries and treasurers, or associate of a managing agent or secretaries and treasurers whose affairs have been investigated by virtue of section 239, been guilty of any offence for which he is criminally liable. The section says that on a consideration of the report made under section 241, the Central Government may, after taking such legal advice as it thinks fit, prosecute such person for the offence; and it shall be the duty of all officers and other employees and agents of the company, body corporate, etc., to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give.

It is contended by Mr. Narabiar on behalf of the appellants that by reason of the incorporation of the above provisions, recourse to the laying of information before the police for their investigating under the provisions of the Code of Criminal Procedure into offences under the Indian Penal Code appearing to have been committed in relation to the affairs of the company is impliedly barred and the Company Law Board is bound to carry on investigation under the aforesaid provisions of the Companies Act and, eventually, under section 242, prosecute the person against whom offences have been disclosed as a result of such inspection or investigation by an inspector made under the provisions referred to above. But, then, it should be noted that even assuming that section 242 of the Companies Act is exhaustive of the subject with which it deals, that is, prosecution for criminal offences disclosed on a report of an investigation made under section 235 or 237, there is no provision in regard to the laying of information before the police for the police to investigate under the provisions of the Code of Criminal Procedure where cognizable offences under the Indian Penal Code are disclosed on an inspection under section 209(4) of the Companies Act and as such in our view section 242 of the Act does not control or affect the laying of information before the police in respect of cognizable offences under the Indian Penal Code disclosed as a result of an inspection under section 209(4) of the Act or otherwise. Section 242 is the culmination of an investigation started under section 235 or 237 of the Act. Where no such investigation has been started under section 235 or 237, there is no question of section 242 coming into operation. Now, in the case before us, no investigation under section 237 had been started. It was only as a result of a report of an inspection made under section 209(4) by Mr. Puri that the Central Government laid the information before the police for investigation under the provisions of the Code of Criminal Procedure in regard to the cognizable offences under the Indian Penal Code which there were grounds to believe had been committed in relation to the affairs of the company. It may be noted that there is no provision for a report to be sent on an inspection of the books of account, etc., of the company made under section 209(4). The report made by Mr. Puri after his inspection of the accounts, etc., under section 209(4) is, therefore, only an administrative report to apprise the Central Government of the state of affairs of the company. Mr. Puri, no doubt, recommended investigation under section 237; but the Central Government thought it fit and expedient to lay information before the police so that the police may investigate under the provisions of the Code of Criminal Procedure inasmuch as cognizable offences under the Indian Penal Code were disclosed, presumably because such an investigation by the police under the provisions of the Code of Criminal Procedure would be more effective. We can see nothing in the provisions of the Companies Act which would even by implication bar a recourse to the laying of the information before the police for the purpose of investigation and action under the Code of Criminal Procedure when there are reasonable grounds for believing that cognizable offences under the Indian Penal Code had been committed in relation to the affairs of the company. It cannot be said that the Companies Act is exhaustive even in the matter of investigation into cognizable offences under the Indian Penal Code committed in relation to the affairs of a company. In fact, the Act does not touch that aspect at all.

Nevertheless, Mr. Nambiar contends that what the statute does not expressly or impliedly authorise is to be taken to be prohibited. No doubt, " statutory corporations have such rights and can do such acts only as are authorised directly or indirectly by the statutes creating them", while " non-statutory corporations, speaking generally, can do everything that an ordinary individual can do unless restricted directly or indirectly by statute".

"The powers of a corporation created by statute are limited and circumscribed by the statutes which regulate it, and extend no further than is expressly stated therein, or is necessarily and properly required for carrying into effect the purposes of its incorporation, or may be fairly regarded as incidental to, or consequential upon, those things which the legislature has authorised. What the statute does not expressly or impliedly authorise is to be taken to be prohibited". (Vide Halsbury's Laws of England, third edition, volume 9, pages 59, 62 and 63).

But, then, we are of the opinion that the laying of information before the police by the Company Law Board on a perusal of the inspection report under section 209(4) of the Companies Act is necessarily and properly required for carrying into effect the purpose of the information of the Board and may be fairly regarded as incidental to or consequential upon those things which the legislature has authorised. We do not think that the laying of information before the police in this case contravenes the principles in Taylor v. Taylor that where power is given to do a thing in a certain way the thing must be done in that way or not at all and that the other methods of performance are necessarily forbidden. It has been recognised in Rohtas Industries Ltd. v. S. D. Agarwal that the power conferred on the Central Government under section 235 as well as under section 237(b) is a discretionary power. Consequently, it is left to the Central Government to refrain from ordering an investigation into the affairs of a company under section 237(b). Only if it chooses to order an investigation under section 237(b) then that investigation would culminate in action being taken under section 242. There is nothing in the Companies Act which would either expressly or impliedly prohibit the Central Government from laying information to the police in lieu of ordering an investigation under section 237(b). Mr. Nambiar admitted that there is no express prohibition regarding investigation by police; but he contended that according to the principles of interpretation of statues there is an implied prohibition. We are unable to see any such implied prohibition on an interpretation of the relevant provisions of the Companies Act.

In M. Vaidyanathan v. Sub-Divisional Magistrate, Erode , a similar argument appears to have been advanced while challenging the act of the Registrar of Companies in making a complaint to the police against the officers of the company without availing himself of the powers vested in him by section 234 and other relevant provisions of the Act. It was observed in that decision that:

"Section 242(1) of the Companies Act is only an enabling provision as the use of the word 'may' in the passage 'the Central Government may, after taking such legal advice as it thinks fit, prosecute such a person for the offence' indicates. By itself section 242(1) does not divest a police officer of the jurisdiction conferred upon him either under section 154, 156 or 157, Criminal Procedure Code. No more than section 630 of the Act, does section 242 bar the exercise of the jurisdiction of the police to investigate into a complaint of the commission of cognizable offences punishable under sections 406 and 409, Indian Penal Code".

Another argument advanced by the learned counsel for the appellants is that the source of the power of the police to investigate is the statute itself, namely, the Criminal Procedure Code, but the statute itself may limit that power, as for example section 195, and equally so another statute may limit that power. We are, however, unable to accept this argument, for, in our view, there is nothing in the Companies Act which limits the power of the police to investigate under the Criminal Procedure Code.

In B. M. Bajoria v. Union of India it was held that :

"There is nothing in section 237 of the Companies Act, 1956, which makes it imperative for the Government to order investigation into the affairs of the company when the Government does not consider the necessity of further probe and is already in possession of facts which in its opinion show the commission of an offence by an officer of the company or other person in respect of the assets of the company. There is, in such an event, no legal bar to the officer of the Company Law Board or other Government officer concerned making a report to the police.......

There is nothing in section 242 or the other provisions of the Companies Act, 1956, to point to the conclusion that no prosecution can be launched or no report can be made to the police in respect of an alleged act of embezzlement or malfeasance by an individual connected with a company without recourse to an investigation under section 235 or section 237".

We are in respectful agreement with these observations.

It must also be noted that under section 237(b) of the Companies Act it is not mandatory on the part of the Central Government to order an investigation into the affairs of a company and to call for a report thereon even if, in the opinion of the Central Government, the circumstances mentioned under sub-section (b) of section 237 exist. The section says that the Central Government may appoint one or more competent persons to investigate the affairs of a company and to report thereon if, in the opinion of the Central Government, there are circumstances suggesting fraud, misconduct, etc., in the affairs of the company. No obligation is, therefore, cast on the Central Government to follow the procedure starting with an investigation under section 237 and culminating in a prosecution under the provisions of section 242 and there is no provision which would prevent the Central Government from laying the information before the police if a cognizable offence under the Indian Penal Code is disclosed on an inspection made under section 209(4) or otherwise.

The provisions of the Companies Act do not exclude any of the provisions of the Criminal Procedure Code in respect of laying of information before the police in regard to any investigation by the police into cognizable offences under the Indian Penal Code where such cognizable offences were committed in relation to the affairs of a company. In the absence of clear and unambiguous language, intention to alter the existing law should not be imputed to the legislature (vide Craies on Statute Law, fifth edition, at pages 114 and 115). The law does not favour repeal of statute by implication and, therefore, a later statute should not be construed as repealing an earlier one without express words or by necessary implication. (Vide Maxwell on the Interpretation of Statutes, tenth edition, page 170 and Craies on Statute Law, fifth edition, page 337).

"Unless two statutes are so plainly repugnant to each other, that effect cannot be given to both at the same time, a repeal will not be implied,..". (Vide Kutner v. Phillips ).

There are no provisions in the Companies Act and in the Criminal Procedure Code which can be said to be so plainly repugnant to each other that effect cannot be given to both at the same time. In our view, there is no provision in the Companies Act which would by necessary implication exclude the provisions of the Criminal Procedure Code relating to laying of information to the police in regard to an investigation by the police into cognizable offences under the Indian Penal Code committed in relation to the affairs of a company.

In Daltnia Jain Airways Ltd. v. Union of India it was held :

"Investigation under section 137 of the Indian Companies Act, 1913, is very different in scope from the investigation under the Code of Criminal Procedure and it is difficult to hold that by enactment of sections 137 to 141 A, the legislature intended to abrogate the provisions contained in Chapter XIV of the Criminal Procedure Code when offences have been committed in relation to the companies. It is not possible to say that the provisions of the Criminal Procedure Code cannot stand together with the provisions relating to investigation in the Companies Act and the proceedings under the Companies Act do not necessarily conflict with those under the Criminal Procedure Code. The proceedings started under section 137 onwards are not exclusively or primarily criminal. The investigation under these provisions is only into the affairs of the company which may disclose several liabilities of the officers of the company or may disclose commission of criminal offences".

In Northern India Caterers (Private) Ltd. v. State of Punjab it has been observed by the Supreme Court that :

"The rule of construction is that where a statute provides in express terms that its enactment will repeal an earlier Act by reason of its inconsistency with such earlier Act, the latter may be treated as repealed. Even where the later Act does not contain such express words, if the co-existence of the two sets of provisions is destructive of the object with which the later Act was passed, the court would treat the earlier provision as impliedly repealed.........But repeal by implication is not generally favoured by courts".

Under section 5(1) of the Code of Criminal Procedure, all offences under the Indian Penal Code shall be investigated, inquired into, tried and otherwise dealt with according to the provisions of the Criminal Procedure Code. Section 5(2) states that all offences under any other law shall be investigated, inquired into, tried and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiring into, trying or otherwise dealing with such offences. Therefore, if, in relation to the affairs of a company, offences under the Indian Penal Code are disclosed, they shall be investigated, inquired into, tried and otherwise dealt with according to the provisions of the Criminal Procedure Code while offences under the Companies Act disclosed in relation to the affairs of a company could be investigated, inquired into, tried and otherwise dealt with according to the Criminal Procedure Code, but subject to the provisions in the Companies Act regulating the laying or place of investigating, inquiring into, trying or otherwise dealing with such offences.

In Emperor v. Khwaja Nazir Ahmed the Privy Council has observed:

"Just as it is essential that every one accused of a crime should have free access to a court of justice so that he may be duly acquitted if found not guilty of the offence with which he is charged, so it is of the utmost importance that the judiciary should not interfere with the police in matters which are within their province and into which the law imposes upon them the duty of enquiry. In India.... there is a statutory right on the part of the police, under sections 154 and 156, to investigate the circumstances of an alleged cognizable crime without requiring any authority from the judicial authorities, and it would............be an unfortunate result if it should be held possible to interfere with those statutory rights by an exercise of the inherent jurisdiction of the court........"

Even assuming that the Company Law Board acted outside its powers when it laid information before the police to investigate and if necessary prosecute the persons involved in the commission of cognizable offences under the Indian Penal Code in relation to the affairs of the company, that would not in any way detract from the power of the police to act on that information and commence investigation and carry it through to its logical conclusion. The Criminal Procedure Code is not concerned with the personality of the person who lays the first information report; and it is only concerned with the quality of the information. In M. Vaidyanathan v. Sub-Divisional Magistrate, Erode , it was held that even if there was any irregularity or any illegality attendant on the letter of the Registrar of Companies which laid the information before the police and which was treated as a complaint by the police for the purpose of investigation, neither the jurisdiction to investigate nor the exercise thereof by the police officer could be affected.

Any person can lay information before the police and if such information could be believed to be authentic and discloses cognizable offences, the police are bound to investigate into the same. Any individual can set the law in motion by laying information before the police or by preferring a complaint to the court. In the present case before us, the information laid before the police was signed by the Under-Secretary to the Government of India and on receipt of the information the police have registered the case and took up investigation into the case as they are empowered to do. When any individual can lay information before the police in respect of the commission of cognizable offences for the police to investigate, we are not able to see how any disability could attach to the information laid in this case, merely because under the provisions of the Companies Act no power is conferred on the Company Law Board or the Central Government to lay such information before the police.

Mr. Nambiar has argued that, assuming that two courses were open to the Central Government or the Company Law Board,

(1) to order an investigation into the affairs of the company under the provisions of section 237, or

(2) lay information before the police,

the action of the Central Government or the Company Law Board in choosing the latter course is violative of article 14 of the Constitution of India. This ground was not urged before Ramaprasada Rao J., but we have permitted this additional ground to be raised before us, even though in our opinion this ground is untenable as we shall later show. Mr. Nambiar, while enlarging on the aforesaid argument of his, has pointed out that the procedure of ordering an investigation into the affairs of a company under section 237 of the Companies Act and then proceeding under section 242 of the Act is a procedure more advantageous to the persons involved than the procedure of laying information before the police and thereby entrusting the investigation and further action thereon to the police and as such the choosing of the latter procedure is discriminatory. Mr. Nambiar has pointed out that as between the aforesaid two procedures there are six vital differences :

(1) Under the provisions of the Companies Act, only competent persons would be ordered to investigate into the matter whereas under the Criminal Procedure Code any police officer could investigate into the same;

(2) Under the provisions of the Companies Act even the order of the Government directing investigation under section 237 is subject to judicial review as has been held in Rohtas Industries Ltd. v. S. D. Agarwal whereas the laying of information before the police is not an act that is subject to judicial review;

(3) When an investigation is conducted under the provisions of the Companies Act, under the orders of the Government, a report of the investigation has to be given to the party, but there is no provision under the Criminal Procedure Code for the accused to be given a copy of any report of the investigation;

(4) The Company Law Board, which consists of experts, reviews such a report made after an investigation into the affairs of a company and that itself is a guarantee that the matter would be properly considered before a prosecution is launched against the persons involved;

(5) The Company Law Board is bound to take legal advice after the report is submitted; and

(6) The Company Law Board being a wing of the Central Government is the highest authority in the land and, as such, if it prosecutes under the provisions of section 242, such a prosecution would be on adequate grounds and for proper reasons.

But then, in our opinion, the provisions of the Criminal Procedure Code provide ample safeguards for a fair investigation to be carried on. Though the Company Law Board may consist of experts in regard to company matters, so far as investigations into offences under the Indian Penal Code are concerned, we are unable to see how police officers could not be equated to the position, though not of experts, at least of persons well experienced in the matter of investigation into offences. Further, the provision under section 242 of the Companies Act enabling the Central Government to take legal advice is only an enabling provision and it gives a discretion to the Central Government to take legal advice or not before prosecuting offenders. There is no duty cast on the Central Government to take legal advice after reviewing the report of investigation before prosecuting the offenders. In the case of an investigation by the police after the police sends the final report and the court takes cognizance of the offences disclosed in the final report, copies of all the statements recorded during the investigation as also documents on which the prosecution proposed to rely have to be furnished to the accused persons before the commencement of the enquiry or trial. We do not agree that the procedure laid down under the Companies Act is more advantageous to the persons involved than the procedure laid down by the Criminal Procedure Code. In our view, the scope of the two procedures is entirely different and would apply to different sets of circumstances and cannot even be construed as parallel to each other. Therefore, we are of the view that the act of the Central Government or the Company Law Board in laying the information to the police is not violative of article 14 of the Constitution.

The net result is that we find that there are no grounds at all to issue a writ in the nature of mandamus or any suitable direction directing the department of company affairs to withdraw the complaint lodged by it with the Central Bureau of Investigation or to refrain from prosecuting such investigation or taking further action in respect of the information so laid. Consequently, Writ Appeals Nos. 555/71, 71/72 and 72/72 are dismissed with costs.

In the other batch of writ appeals, we have to straightaway state that there is no lack of bona fides on the part of the Central Government or the police in setting the process of investigation into motion. The argument that the warrants issued by the first respondent, the learned Chief Presidency Magistrate, were not in accordance with law cannot be accepted. The first respondent had examined Mr. Charanjiv Lall on oath and only after being satisfied that the documents called for were necessary for the purpose of investigation and would not, as asserted by Mr. Charanjiv Lall, be produced by the company if called upon so to do, the learned Chief Presidency Magistrate issued the search warrant after applying his judicial mind to the question. The learned Magistrate was not bound to record his reasons in writing. All that section 96 of the Criminal Procedure Code requires is that the Magistrate must have reason to believe that such is the state of affairs or, in other words, the Magistrate must be satisfied that there is necessity for the search warrant to be issued, as otherwise the thing would not be produced. The Criminal Procedure Code gives power to a police officer to request for the issue of a search warrant if he has reasonable grounds for believing that such search was required for the purposes of investigation into the offence which he is authorised to investigate; and Mr. Charanjiv Lall who applied for the search warrant appraised the learned Chief Presidency Magistrate of the necessary materials on the basis of which a search warrant was required and the Magistrate was satisfied as to the necessity for such a warrant and then issued it. That being so, the act of the Magistrate in so issuing the search warrant would not be open to judicial review under article 226 of the Constitution. Further, as pointed out by the learned judge Ramaprasada Rao J., the search warrants have already been executed. It would be futile now to issue a writ quashing the issuance of the warrant. Therefore, we see no grounds at all to issue a writ of certiorari to quash the search warrants dated June 7, 1971. Consequently, Writ Appeals Nos. 554/71, 69/72 and 70/72 are dismissed with costs. Counsel's fee Rs. 500 in the first of the appeals. No fee in the others.

[1986] 59 COMP. CAS. 94 (CAL.)

HIGH COURT OF CALCUTTA

Titagarh Paper Mills Co. Ltd.

Union of India

G.N. RAY, J.

C.O. NO. 11100 (W) OF 1982.

MARCH 16, 1984

S.R. Banerjee, S.N. Mukherjee, D.C. Nandi, S.K. Kundu, S.B. Mukherjee and S.N. Chaudhury for the Appearing party.

JUDGMENT

(i) The LIC	20.65%
(ii) The IUB1	9.11%
(iii) The ICICI	2.40%
(iv) The IFC	1.20%
(v) The Unit Trust	5.20%
(vi) The nationalised banks and the nationalised insurance companies	11.00%
Total	49.56%

DELHI HIGH COURT

[2005] 61 SCL 121 (Delhi)

High Court of Delhi

S.P. Gupta

State (NCT of Delhi)

O.P. Dwivedi, J.

WP (Crl.) No. 1163 of 2003

and Crl. M. No. 995 of 2003

March 24, 2005

Section 235 of the Companies Act, 1956 - Investigation of affairs of a company - Whether provisions of sections 235 to 242 do not create any bar against an investigation by police officer if cognizable offences punishable under Indian Penal Code, 1860 are suspected to have been committed in connection with affairs of company - Held, yes

FACTS

The complainant-company, holding 25 per cent equity shares of ‘S’ Ltd., lodged a complaint with the Deputy Commissioner of Police against the petitioners, who were chairman-cum-managing director, chartered accountants and finance controller of ‘S’ Ltd., alleging that they had fraudulently and illegally got allotted and issued equity shares in the names of themselves, relatives and family members without having contributed any cash and had manipulated accounts of ‘S’ Ltd. by making false documents, fabricating valuable securities with a view to illegally siphon off the funds of the ‘S’ Ltd. The Metropolitan Magistrate directed investigation in the matter under section 156 of the Code of Criminal Procedure, 1973. On the basis of the said order, an FIR was registered under sections 409/411/424/467/477A, read with section 120B, of the IPC.

On writ, the petitioners contended that the Act under sections 235 to 242 provides efficacious redress regarding investigation into the affairs of the company and, therefore, the FIR was liable to be quashed.

Held

The nature and scope of investigation to be conducted under sections 235 to 242 is vastly different from the nature and scope of the investigation to be conducted by the police. An investigation under sections 235 to 242 is not an investigation of a criminal case. The purpose of investigation under the provisions of the Act is only to streamline the working of the company. Such investigations may reveal violation of rules and regulations by the office bearers or even commission of technical offences, which are punishable under the Act for which investigation under the Cr.PC may be uncalled for. But if such investigations reveal the commission of offences under the IPC, section 242 enacts an enabling provision under which the Government can also launch prosecution. On the other hand, an investigation by the police officer is launched on receipt of an information of the commission of a cognizable offence. Under section 157 of the Cr.PC, it is obligatory on the part of the police officer to launch investigation if he suspects commission of cognizable offence or if the commission of such an offence is brought to his notice. Even if there is no specific report and police officer has only a suspicion, may be on the basis of an anonymous complaint, he is duty bound to investigate the same. Every citizen has constitutional rights to approach police and the Court when commission of cognizable offence is suspected. Various High Courts and the Apex Court have taken consistent view that the provisions of sections 235 to 242 do not have the effect of abrogating or repealing the provisions of the Cr.PC, which deal with the powers of the police officer to investigate report about the commission of the cognizable offence. [Para 10]

Thus, a settled proposition of law is that if there is a specific information about the suspected commission of a cognizable offence under the IPC, may be in connection with the affairs of the company, anybody can approach the police which then is obliged to carry out the investigation. Every citizen has constitutional right to approach police officer or the Court for the investigation into the commission of the cognizable offence. In the instant case, FIR was lodged under the Court orders, which had not been challenged in any proceedings. While considering the question of quashing of the FIR in a writ petition or in a petition filed under section 482, Cr.PC, the Court is not supposed to minutely examine the veracity/truthfulness of the evidence or the probative value thereof. It could not be said at the instant stage that the allegations in the complaint even if taken on their face value did not make out an offence. [Para 13]

In the instant case, FIR had been registered under order of the Court which order had not been challenged so far. The investigation was still in progress and at the instant stage, it was not possible to say that the allegations were totally groundless or on the face of it, they did not make out any offence under the IPC. The provisions of sections 235 to 242 do not create any bar against an investigation by police officer if cognizable offences punishable under the IPC are suspected to have been committed in connection with the affairs of the company. [Para 15]

In the result, the writ petition failed and was to be dismissed. [Para 16]

JUDICIAL ANALYSIS

Observations of the Supreme Court in the case of Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy [1997] 13 SCL 118 cannot be read to mean that police investigation into suspected commission of cognizable offence in relation to the affairs of the company is ruled out in view of sections 235 to 242. The Supreme Court has repeatedly observed in the said judgment (paras 6 and 10) that main grievance of the respondent in the writ petition related to the mismanagement of the affairs of the appellant-company and then taking into consideration sections 235 to 242, the Supreme Court proceeded to hold that these sections adequately take care of such type of situations. In that case, there was no compliance of provisions of section 235. Under the circumstances, the Supreme Court felt that ordering an investigation at the instance of single shareholder was uncalled for. [Para 9]

CASES REFERRED TO

State of Haryana v. Ch. Bhajan Lal [1990] 4 SC 650 (para 6), Rohtas Industries Ltd. v. S.D. Aggarwal AIR 1969 SC 707 (para 8), Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy [1997] 13 SCL 118 (SC) (para 8), M. Vaidyanathan v. Sub-Divisional Magistrate AIR 1957 Mad. 65 (para 10), Indian Express (Madura) (P.) Ltd. v. Chief Presidency Magistrate [1974] 44 Comp. Cas. 108 (Mad.) (para 10), B.N. Bajoria v. Union of India ILR 1971 Delhi 715 (para 10), Radhey Shyam Khemka v. State of Bihar 1993 Crl. LJ 2888 (SC) (para 10), M. Narayandas v. State of Karnataka 2003 (Suppl. 1) JT 412 (para 13), State of West Bengal v. Narayan K. Patodia AIR 2000 SC 1405 (para 14) and Surendra Nath Sarkar v. Kali Pada Das AIR 1940 Cal. 232 (para 14).

N.K. Kaul and Anil Sharma for the Petitioner. D.C. Mathur, Mohit Mathur and V.S. Panwar for the Respondent.

Judgment

1. The moot point for consideration in this writ petition is whether recourse to investigation in the affairs of company under sections 235 to 242 of the Companies Act, 1956 (‘the Act’) is the only way to launch prosecution in respect of alleged/suspected commission of cognizable offences under the Indian Penal Code (‘IPC’) by the office bearers of the company or the police can investigate such allegations of its own or under orders of Court, if approached by the aggrieved person/shareholder.

2. Through this petition under section 482 of the Code of Criminal Procedure, 1973 (‘Cr.PC’) read with article 226/227 of the Constitution of India, the petitioners seek quashing of FIR bearing No. 99/2002, PS Connaught Place, New Delhi under sections 406/409/420/424/467/477A read with section 120B of the IPC. The said FIR was registered in pursuance of order dated 19th February, 2002 passed by learned Metropolitan Magistrate, New Delhi on a criminal complaint filed by the respondent against the petitioners who are chairman-cum-managing director, director, chartered accountants and finance controller respectively of Sunair Hotels Ltd. It was alleged in the complaint that in or around December 1994, petitioner Nos. 1 to 3 approached respondent company and requested it to subscribe to the equity share capital of Sunair Hotels Ltd., to the tune of 25 per cent equity share capital amounting to 70 lakh equity shares @ Rs. 10 per share aggregating to Rs. 7 crores. Induced by the assurances of the accused, the complainant-company made payment of Rs. 7 crores for the allotment of shares of Sunair Hotels Ltd., which in turn allotted and issued 70 lakh shares to the respondent-company. Apart from that 25,94,824 fully paid up equity shares of Rs. 10 each aggregating to 2,59,84,240 were also issued to the respondent-company. Thus, at the time of filing of complaint, respondent-company was holding 95,94,824 fully paid-up equity shares of Sunair Hotels Ltd. Besides, on the request of petitioner Nos. 1 to 3, the respondent-company also provided interest bearing security deposit of Rs. 8 crores, on the premise that its deposit was safe and the same would help in the early completion of the hotel project. After taking huge money from the respondent-company, Sunair Hotels Ltd. also approached the financial institutions and banks for loan for the construction of hotel. Sunair Hotels Ltd., thus, raised a sum of Rs. 42 crores as term loans from the financial institutions and banks, viz., Industrial Development Bank of India (Rs. 10.5 crores), Tourism Financial Corporation of India (Rs. 21 crores) and Oriental Bank of Commerce (Rs. 10.5 crores). It was alleged in the complaint that petitioners had fraudulently and illegally got allotted and issued equity shares worth Rs. 21 crores of Sunair Hotels Ltd. in the name of themselves, relatives and family members without having contributed any cash, for which the complainant has lodged a complaint with the Deputy Commissioner of Police (Crimes and Railway) and a case was registered vide FIR No. 90/2000 with the police station, Connaught Place, New Delhi under sections 406/409/420/424/467/477A read with section 120B of the IPC. On further inquiry the complainant-company came to know that the petitioners have manipulated the accounts of Sunair Hotels Ltd. by making false documents, fabricating valuable securities and have used the said forged and fabricated documents and the books of account of Sunair Hotels Ltd. with a view to illegally siphon off the funds of Sunair Hotels Ltd., borrowed by it from various agencies for the construction of the hotel. The funds illegally siphoned off from Sunair Hotels Ltd. were later on dishonestly used/utilized by the accused for subscribing to the additional share capital worth Rs. 10.75 crores in Sunair Hotels Ltd. through bogus benami companies. The money received by these benami companies from Sunair Hotels Ltd. were allegedly shown to have been paid further on to various sub-contractors. When inquiries were made from the sub-contractors it was revealed that they had never carried out any construction work for Sunair Hotels Ltd. In fact many of the so-called/alleged sub-contractors were employees of the petitioners or Sunair Hotels Ltd. and were earning meagre salaries. In para 15 of the complaint, the respondent gave details of certain companies, namely, Bansal Estate (P.) Ltd., Isha Metal (P.) Ltd., Atul Constructions & Finvest (P.) Ltd. It was alleged that huge amounts were shown to have been paid to these companies, which were controlled by either of the petitioners. Various instances of bogus expenditure shown in the books of account of Sunair Hotels Ltd. were also given in para 16 of the complaint. It was alleged that modus operandi adopted by the accused was that during the construction of the hotel project, the accused persons misappropriated the funds of Sunair Hotels Ltd. by creating false documents, fabricating valuable securities and falsifying the books of account of Sunair Hotels Ltd. Other instances of alleged misdeeds of the petitioner were also given in paras 18, 19 and 20 of the complaint.

3. On receipt of this complaint, learned Metropolitan Magistrate passed the following order dated 19th February, 2002 -

“...Heard. File perused. The material on record contains allegation of breach of trust, forgery falsification of account, etc., against the respondents. SHO Police Station, Connaught Place, is directed to investigate the matter under section 156, Cr.PC in accordance with the law and submit his report by 27th March, 2002. Copy of the order, complaint and the annexed documents be sent to the SHO, complainant counsel to file the same today itself....”

4. On the basis of said order, FIR No. 99/2002 was registered under sections 409/411/424/467/477A read with section 120B of the IPC. During investigation, the police has submitted status reports from time-to-time. A perusal of status reports indicates that police has found some substance in the allegations regarding bogus entries showing payments to some companies and sub-contractors. It may be that after investigation is over, the police may file challan or final report for closure of the case depending upon the nature of the evidence they gather during investigation but at this stage, it appears that allegations made in the complaint regarding these alleged bogus payments and falsification of accounts are not entirely groundless.

5. Mr. N.K. Kaul, learned senior counsel appearing for the petitioner, vehemently contended that the respondent has already approached the Company Law Board (‘CLB’) and, vide order dated 13th June, 2001, the CLB rejected the application filed under section 397/398 of the Companies Act filed by the respondent, therefore, a parallel investigation by police into the same allegation is not permissible. A perusal of the said order dated 13th June, 2001 passed by the CLB shows that it deals mainly with the allegation of fraudulent allotment of shares amongst petitioners without actual payment of money. The CLB was of the view that no fraud appears to have been committed in the said allotment. The criminal complaint filed in the Court of the learned Metropolitan Magistrate was not confined to alleged fraudulent allotment of shares by the petitioners. The alleged fraudulent allotment of shares by the petitioners among themselves was subject-matter of earlier FIR being No. 90/2002 registered at P.S. Connaught Place, New Delhi. The present FIR No. 99/2002 was registered at P.S. Connaught Place, New Delhi, mainly on the allegations regarding siphoning off the company’s funds by the petitioners by making bogus entries in the account books in the name of benami companies who in turn made payment to fictitious sub-contractors. Thus, subject-matter of the criminal complaint on the basis of which present FIR has been registered is different from that of application under section 397/398 filed by the respondent before the CLB, although to some extent it may be overlapping.

6. Learned counsel for the petitioner next contended that sections 235 to 242 of the Act provide a complete machinery for investigation into the affairs of the company and resultant prosecution under section 242 of the Act. Therefore, resort to police investigation under the provisions of the Cr.PC is impliedly barred and as such the FIR is liable to be quashed. Reference was made to the decision of the Supreme Court in the case of State of Haryana v. Ch. Bhajan Lal [1990] 4 SC 650, wherein it was held that FIR is liable to be quashed if the Act provides efficacious redress for the grievance of the parties. In para 107, Apex Court has observed as under :

“107. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this court in a series of decisions relating to the exercise of the extraordinary power under article 226 or the inherent powers under section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guidelines or rigid formulate and to give an exhaustive list of myriad kinds of cases wherein such power should be exercised :

1. Where the allegations made in the first information report (‘FIR’) or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.

2. Where the allegations in the FIR and other materials, if any accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under section 156(1) of the Code except under an order of a magistrate within the purview of section 155(2) of the Code.

3. Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.

4. Where the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a magistrate as contemplated under section 155(2) of the Code.

5. Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.

6. Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act providing efficacious redress for the grievance of the aggrieved party.

7. Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.”

7. According to the learned counsel for the petitioner, the case in hand falls in the category (6) above. The Companies Act under sections 235 to 242 thereof provides efficacious redress regarding investigation into the affairs of the company and the present FIR is, therefore, liable to be quashed. In the very next paragraph. Supreme Court cautioned the High Courts, while dealing with the question of quashing of FIR, in the following words :

“108. We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an inquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice.”

8. Reliance was also placed on the decision of the Apex Court in the case of Rohtas Industries Ltd. v. S.D. Aggarwal AIR 1969 SC 707, wherein it was held that investigations under sections 235 to 242 of the Act is a serious matter. Such investigation should not be ordered routinely. Reliance was also placed on a later decision of the Supreme Court in the case of Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy [1997] 13 SCL 118. In that case, facts were that there was some dispute between managing director of the appellant-company and his son-in-law who was a former director of the company and also a M.P. At the instance of son-in-law eight shareholders of the company filed a company petition under sections 397 and 398 of the Act before the CLB on the ground of oppression of minority shareholders and mismanagement of the affairs of the company. The CLB declined to grant interim order therein. Thereafter, son-in-law filed another company petition under section 397/398 of the Act on the similar ground. Again third company petition was filed for the appointment of the Administrator. During the pendency of the proceedings, one of the shareholders filed a writ petition under article 226 of the Constitution of India alleging financial mismanagement of the company and misappropriation of funds before Andhra Pradesh High Court praying for mandamus directing Union of India to forthwith prosecute the appellant in accordance with law. It was alleged that there was misappropriation of the funds of the appellant and CBI inquiry was also prayed for. Writ petition was dismissed by the learned Single Judge of the Andhra Pradesh High Court but in appeal, the Division Bench of the Andhra Pradesh reversed the order of the Single Judge and issued a direction to the Central Government to make its own verification of the allegations in the writ petition thus indirectly ordering an inquiry into the affairs of the company bypassing the detailed provisions with in-built safeguards under the Act. In these circumstances, the Apex Court followed the observations made in the case of Rohtas Industries Ltd. (supra) and observed that the allegations basically deal with mismanagement of the affairs of the company and oppression of the minority shareholders. Its shareholding was very closely held. The fact that the company had borrowed moneys from public institutions, is no ground for not availing of the statutory remedies provided under the Act before the appropriate statutory Forums which are designed for this very purpose. In para 9 of the judgment, the Apex Court has observed as under :

“9. The power, therefore, to appoint an inspector to investigate the affairs of a company has to be exercised by the Central Government after a proper preliminary scrutiny by the Registrar, or by the CLB as the case may be. It cannot be instituted simply on the basis of allegations made by one shareholder. Under section 237, there is a further power given to the Central Government to appoint inspectors to investigate the affairs of a company if the company, by a special resolution, or the court, by order declares that such investigation is necessary. Similarly, this may be done if in the opinion of the CLB there are circumstances suggesting that the business of the company is being conducted with the intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in the manner oppressive of any of its members or that the company was formed for any fraudulent or unlawful purpose. The CLB may also come to a conclusion that there are circumstances suggesting that the persons concerned in the formation of the company or management of its affairs have been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect. In these circumstances, on the basis of the opinion so framed by the CLB, the Central Government nor the CLB has been moved by the first respondent in accordance with law for this purpose. In the case of Rohtas Industries v. S.D. Agarwal, this court examined the nature of the power conferred on the Central Government under section 235 as well as section 237(b) and held that the scheme of these sections makes it clear that unless proper grounds exist for investigation of the affairs of a company, such investigation will not be lightly undertaken. An investigation may seriously damage a company and should not be ordered without proper material gathered in the manner provided in the Companies Act. The power of investigation has been conferred on the Central Government on the faith that it will be exercised in a reasonable manner. The department of the Central Government which deals with companies is presumed to be an expert body in company law matters. Therefore, the standard that is prescribed under section 237(b) is not the standard required of an ordinary citizen but that of an expert.”

9. Having given my thoughtful consideration to submissions made by learned counsel for the parties, in the light of material on record and the case law cited at the bar, I am of the view that the observation of the Apex Court in the case of Sri Ramdas Motor Transport Ltd. (supra) cannot be read to mean that police investigation into suspected commission of cognizable offence in relation to the affairs of the company is ruled out in view of sections 235 to 242 of the Act. It is important to note that the Supreme Court has repeatedly observed in the said judgment (paras 6 and 10) that main grievance of the respondent in the writ petition relates to the mismanagement of the affairs of the appellant-company and then taking into consideration sections 235 to 242 of the Act, Supreme Court proceeded to hold that these sections adequately take care of such type of situations. Under section 235 of the Act, investigation can be ordered if report has been made by the Registrar under section 234(6) and 234(7). Further under sub-section (2) of section 235, the CLB will also order investigation if (a) in the case of a company having a share capital, an application has been received from not less than two hundred members or from members holding not less than one-tenth of the total voting power therein, and (b) in the case of a company having no share capital, an application has been received from not less than one-fifth of the persons on the company’s register of members. In that case, there was no compliance of provisions of section 235. Under the circumstances, Supreme Court felt that ordering an investigation at the instance of single shareholder is uncalled for. If there are general allegations regarding mismanagement of the affairs of the company or oppression of the minority shareholders, the aggrieved party shall approach Registrar/CLB/Government to take proper steps under section 235 onwards of the Act. In such cases, Government is not supposed to order investigation as a matter of routine - Rohtas Industries Ltd.’s case (supra).

10. In the present case, the scenario is different. The FIR has already been registered and the investigation/prosecution has already been launched. The nature and scope of investigation to be conducted under sections 235 to 242 is vastly different from the nature and scope of the investigation to be conducted by the police. An investigation under sections 235 to 242 is not an investigation of a criminal case. The purpose of investigation under the provisions of the Companies Act is only to streamline the working of the company. Such investigations may reveal violation of rules and regulations by the office bearers or even commission of technical offences, which are punishable under the Act for which investigation under the Cr.PC may be uncalled for. But if such investigations reveal the commission of offences under IPC. Section 242 enacts an enabling provision under which the Government can also launch prosecution - M. Vaidyanathan v. Sub Divisional Magistrate AIR 1957 Mad. 65 and Indian Express (Madura) (P.) Ltd. v. Chief Presidency Magistrate [1974] 44 Comp. Cas. 108 (Mad.). On the other hand, an investigation by the police officer is launched on receipt of an information of the commission of a cognizable offence. Under section 157 of Cr.PC, it is obligatory on the part of police officer to launch investigation if he suspects commission of cognizable offence or if the commission of such an offence is brought to his notice. Even if there is no specific report and police officer has only a suspicion, may be on the basis of an anonymous complaint, he is duty bound to investigate the same. Every citizen has constitutional rights to approach police and the Court when commission of cognizable offence is suspected. Various High Courts and the Apex Court have taken consistent view that the provisions of sections 235 to 242 do not have the effect of abrogating or repealing the provisions of the Cr.PC which deal with the powers of the police officer to investigate report about the commission of the cognizable offence. In support of his contention Mr. Dinesh Mathur, learned senior counsel for respondent and Ms. Mukta Gupta, learned counsel for State referred to B.N. Bajoria v. Union of India ILR 1971 Delhi 715; M. Vaidynathan’s case (supra); Indian Express (Madura) (P.) Ltd.’s case (supra) and Radhey Shyam Khemka v. State of Bihar 1993 Crl. LJ 2888 (SC). A Division Bench of this Court in the case of B. N. Bajoria (supra), had expressly repelled the argument that the only way to prosecute an office bearer of the company in respect of some act of embezzlement or misappropriation of funds concerning the affairs of the company is to direct investigation into the affairs of the company under section 235. While dealing with this argument, the Division Bench has observed as under :

“An investigation into the affairs of a company is ordered in a variety of circumstances which have been mentioned in sections 235 and 237 of the Companies Act. In cases covered by section 237(a) the Government is bound to appoint one or more competent persons as inspectors to investigate the affairs of a company. As against that, if a case is governed by clause (b) of section 237 or in case it is governed by section 235, the Government has a discretion in the matter. An investigation into the affairs of a company under the above provisions of law from the point of view of general reputation of a company is a very serious matter. It can result in a number of consequences, viz., prosecution, vide section 242, winding up of the company or an order under section 397 or 398 of the Act, vide section 243 or initiation of proceedings by the Central Government in the name of the company for recovery of damages or property vide section 244 of the Act. It is also manifest that investigation is ordered into the affairs of a company when there is some aspect of those affairs regarding which the Government is not in possession of full facts and the circumstances exist as are referred to in section 235 or 237 of the Act. In such an event, the Government orders probe into those aspects to apprise itself of the correct facts. It is only after that probe, when further facts come to the notice of the Government, that the Government has to decide about the next step, i.e., whether it should drop the matter or proceed in any of the ways mentioned in sections 242 to 244 of the Act. There is, however, nothing in section 237 which makes it imperative for the Government to order investigation into the affairs of the company when the Government does not consider the necessity of further probe and is already in possession of facts which, in its opinion, show the commission of an offence by an officer of the company or other person in respect of the assets of the company. There is, in such an event, no legal bar to the officer of the CLB or other Government officer concerned making a report to the police. A report to the police in the very nature of things is directed against one or more than one individuals. Although the records of the company may have to be examined and produced during the course of police investigation or in evidence during the course of prosecution following that investigation, so far as the existence and continued functioning of the company are concerned, they would not be affected by such investigation or prosecution of the individuals.” (p. 723)

11. Again the Division Bench has observed as under :

“We are not impressed by the argument advanced on behalf of the petitioner that section 242 alone prescribes mode of launching prosecution against officers of the company and other individuals who appear to have been guilty of embezzlement and other acts of malfeasance in respect of the assets of a company. There is neither an express provision nor any other provision, which by necessary implication warrants this conclusion. There are some provisions of the Companies Act like sections 621(1A), 624, 624A and 624B wherein the words used are ‘Notwithstanding any contained in the Code of Criminal Procedure’, thus indicating that those provisions would have an overriding effect. There is, however, nothing in section 242 or other provisions of the Companies Act to point to the conclusion that no prosecution can be launched or no report can be made to the police in respect of an alleged act of embezzlement or malfeasance by an individual connected with the company without recourse to an investigation under section 235 or 237 of the Act. In the case of M. Vaidyanathan v. Sub-Divisional Magistrate Erode AIR 1957 Mad. 65, question arose whether the provisions of section 630 of the Companies Act constituted a bar to the exercise of the jurisdiction vested in a police officer under sections 154, 156 and 157 of the Code of Criminal Procedure. The question was answered in the negative by Rajagopalan, J. The above decision was affirmed on appeal by a Division Bench of Madras High Court (Rajamannar, CJ. and Panchapakesa, J.) in M. Vaidyanathan, In re AIR 1957 Mad. 432.” (p. 724)

12. The Division Bench further observed as under :

“The matter can also be looked at from another angle. Any one who has information of the commission of a cognizable offence can make a report about the commission of such offence to the police. The police after registration of the case on the basis of that report in accordance with section 154 of the Code of Criminal Procedure can investigate the matter. If the investigation reveals that such an offence has been committed the police has to put in challan in court, where after the trial of the case would commence in the criminal court. There are certain offences wherein the police cannot put in challan without observing some formality such as obtaining consent in cases covered by section 196A(2) of the Code of Criminal Procedure or requisite sanction in cases covered by section 197 of the Code or section 6 of the Prevention of Corruption Act. There is, however, no provision of law, at least none has been cited at the bar which makes it imperative to obtain such consent or sanction or to go though other formality before the police can put in challan for a cognizable offence relating to the assets of a company. The plain effect of the acceptance of the submission made on behalf of the petitioner would be to place a procedural restriction on the prosecution of officers of a company or other individuals in respect of offence relating to the assets of a company. It is in our opinion not permission to read such a restriction in the statute when none exists. Reference has been made by Mr. Tarkunde to the report of a committee which preceded the enactment of the Companies Act. The petitioner in our opinion cannot derive much assistance from the report of that Committee in the matter of the construction of the provisions of the Companies Act. Even in respect of the statement of objects and reasons for introducing a particular piece of legislation the court can refer to the statement only for the purpose of ascertaining the circumstances, which led to the legislation in order to find out what was the mischief which the Legislature aimed at. The Statement of Objects and Reasons for introducing a particular piece of legislation cannot be used for interpreting the legislation if the words used therein are clear enough. (see in this connection S.C. Prashar v. Vasantsen Dwarkadas AIR 1963 SC 1956). A report of a Committee can obviously not stand on a higher footing than the Statement of Objects and Reasons.” (p. 726)

13. In view of my discussion above, a settled proposition of law emerges is that if there is a specific information about the suspected commission of a cognizable offence under IPC, may be in connection with the affairs of the company anybody can approach the police which then is obliged to carry but the investigation. Every citizen has constitutional right to approach police officer or the Court for the investigation into the commission of the cognizable offence. In the present case, FIR was lodged under the Court orders, which has not been challenged in any proceedings. While considering the question of quashing of the FIR in a writ petition or in a petition filed under section 482, Cr.PC, the Court is not supposed to minutely examine the veracity/truthfulness of the evidence or the probative value thereof - M. Narayandas v. State of Karnataka 2003 (Suppl. 1) JT 412. It cannot be said at this stage that the allegation in the complaint even if taken on their face value do not make out an offence. In the case of Radhey Shyam Khemka (supra), the Supreme Court repelled the contention that the police investigation in the alleged/suspected cognizable offence is barred in view of the provision of Companies Act. In that case, the appellants who were directors of the company had issued prospectus inviting public subscriptions of 42,000 equity shares and 3,000 preference shares. It was given out by the appellants to the investors that application was being made to the Calcutta Stock Exchange for enlisting the shares of the company for official quotation. Such application, which was made on behalf of the company, was rejected by the stock exchange. In spite of the rejection the share money collected from different investors was held by the appellants and none of the shareholders were either informed or were repaid. On that basis, CBI registered a case and filed challan under section 409 of the IPC. The appellant sought quashing of the FIR on the ground that there are adequate provisions in the Act which can take care of the alleged offences and, therefore, a launching of the prosecution without taking recourse to the provisions of the Act amounted to abuse of the process of Court. The Apex Court observed that in a situation like this where FIR has been registered and charge sheet has been filed, quashing of the prosecution pending against the appellant only on the ground that it was open to the applicants to take recourse to the provisions of the Act cannot be accepted. It would be open to the trial court to examine whether on the basis of material produced on behalf of the prosecution it is established that the appellant had issued the prospectus inviting applications in respect of shares of the company aforesaid with a dishonest intention or having received the money from the applicants they had dishonestly retained or misappropriated the same. That exercise cannot be performed either by the High Court or by the Apex Court.

14. In the case of State of West Bengal v. Narayan K. Patodia AIR 2000 SC 1405, the Supreme Court observed that availability of an alternative investigation, per se, cannot be a ground to quash FIR. In the case of Surendra Nath Sarkar v. Kali Pada Das AIR 1940 Cal. 232, it was held that private complaint in respect of offence committed in the affairs of the company is not barred either under the Act or under the Cr.PC. There is no warrant for the preposition that a single shareholder cannot lodge a criminal complaint or police report in respect of commission of the cognizable offence in connection with the affairs of the company.

15. As observed earlier, in the present case, FIR has been registered under order of the Court which order has not been challenged so far. The investigation is still in progress and at this stage, it is not possible to say that the allegations are totally groundless or on the face of it they do not make out any offence under the IPC. The provisions of sections 235 to 242 of the Act do not create any bar against an investigation by police officer if cognisable offence punishable under the IPC are suspected to have been committed in connection with the affairs of the company.

16. In the result, this writ petition fails and is hereby dismissed.