1984 (3) TMI 322 - HC - Companies Law

Power of inspectors to carry investigation into affairs of related companies Production Managing director - Approval of Government for appointment

Issues Involved:
1. Legality of the Government of India's order and notification under the Companies Act.
2. Appointment of an inspector to investigate the affairs of the company.
3. Alleged violation of the provisions of section 241(2)(a) by the Central Government.
4. Withholding of approval regarding reappointment of whole-time directors.
5. Decision to launch criminal complaints before the Chief Metropolitan Magistrate, Calcutta.
6. Filing of separate complaint petitions under various sections of the Companies Act.

Detailed Analysis:

1. Legality of the Government of India's Order and Notification:
The petitioners challenged the Government of India's order dated August 10, 1977, and the notification dated October 18, 1972, under clause (b) of section 237 of the Companies Act, 1956. They argued that the opinion formed by the Central Government was contrary to the overwhelming basic material and relevant facts. The court noted that the Company Law Board had taken the decision to investigate the affairs of the petitioner company in 1977, and the petitioner company had initially challenged this decision but later withdrew their writ petition, allowing the inspection to proceed. The court held that the petitioners could not challenge the decision at a belated stage, having already allowed the inspection to be conducted.

2. Appointment of an Inspector:
The petitioners contested the appointment of Sri Amal Chandra Chakraborty as the inspector to investigate the company's affairs. They argued that the inspector did not conduct the enquiry himself but relied on assistants. The court found no merit in this argument, stating that section 237(b) of the Companies Act does not debar an inspector from taking help from others. It was reasonable for the inspector to take assistance due to the extensive nature of the investigation required.

3. Alleged Violation of Section 241(2)(a):
The petitioners contended that the Central Government violated section 241(2)(a) by not furnishing the company with a copy of the entire report of the inspector. The court noted that the inspector's report was comprehensive and contained relevant extracts from the evidence. The court held that the petitioners had been given reasonable opportunities to defend themselves against the report, and no injustice was caused by not forwarding the complete set of evidence.

4. Withholding of Approval for Reappointment of Whole-Time Directors:
The petitioners argued that the Company Law Board unjustly withheld approval for the reappointment of whole-time directors. The court held that the Company Law Board had a statutory duty to consider the reasonableness and suitability of the personnel for such appointments. Given the ongoing investigation into serious lapses by the company, the Board was justified in withholding approval until the enquiry was concluded.

5. Decision to Launch Criminal Complaints:
The petitioners contended that the Company Law Board had already made up its mind against them and that the opportunity to defend themselves was a mere formality. The court disagreed, stating that if the Company Law Board found serious lapses, it was justified in making complaints to initiate prosecution. The criminal proceedings would be decided by the court, ensuring the petitioners had the opportunity to defend themselves.

6. Filing of Separate Complaint Petitions:
The petitioners argued that the complaints lodged by the Registrar of Companies were not made independently but at the instance of the Company Law Board. The court found that the Company Law Board had taken a decision based on available material and communicated it to the Registrar, who then lodged the complaints. The court held that the petitioners could raise objections about the maintainability of the criminal cases before the learned Magistrate.

Conclusion:
The court dismissed the writ petition, stating that the petitioners had been given reasonable opportunities to defend themselves and that the actions taken by the Company Law Board were justified. The petitioners could not challenge the decision to appoint an inspector or the subsequent actions at a belated stage, having initially allowed the inspection to proceed. The court also noted that the criminal proceedings would provide the petitioners with the opportunity to defend themselves in accordance with the law.

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