TMI Blog1960 (8) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... le 20(3) of the Constitution. 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. - 268 OF 1959 - - - Dated:- 31-8-1960 - SINHA, GAJENDRAGADKAR, WANCHOO, K.C. DAS GUPTA AND J.C. SHAH, JJ. II Section 646 of the Companies Act, 1956 - Savings of operation of section 138 of Act 7 of 1913 A.V. Viswanatha Sastri, Ganpat Rai and I.N. Shroff for the Appellant. M.C. Setalvad and B. Sen for the Respondent. JUDGEMENT 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Meanwhile on April 1, 1956, the Companies Act of 1913 (VII of 1913), was repealed by the Companies Act of 1956 (I of 1956). For the sake of convenience we would hereafter refer to the repealed Act as the old Act and the Act which came into force on April 1, 1956, as the new Act.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 conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 provision 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(1) to (4). It would be relevant to refer to two of these cases. Under section 138(1) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spector 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 the 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(1) 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-section (1) the inspector shall not exercise his relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 is 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 section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 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 agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 person 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered 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. [1953] SCR 730, 738 , "and the words used therein: 'convicted', 'commission of the act 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 authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 [1954] SCR 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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) SCR 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 cases of Maqbool Hussain [1953] SCR 730 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sections 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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(1) and (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 his 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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