TMI Blog2017 (4) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument that the impugned order be set aside, since no public interest has been made out, is baseless, devoid of merit and thus rejected. The opinion formed by Respondent No.1, to order an investigation by the SFIO into the affairs of the Petitioner Company, in the public interest, does not warrant any interference. In view of the foregoing discussion, the issue raised in the present petition is answered in the negative and against the Petitioner Company. It is necessary to refer to the report dated 31.10.2016, submitted by the SFIO. A bare reading of the said report would show that the affairs of the Petitioner Company have been conducted in a manner prejudicial to the public interest, in addition to that of the shareholders. In view of the findings of the SFIO, as satisfied that the recommendation contained therein, warranting prosecution for the offences punishable under the relevant provisions of the 1956 Act, 2013 Act and the IPC, cannot be said to be without any justification. - W.P.(C) 3444/2016, CMs 14719/2016, 23374/2016, 26642/2016 & 42075/2016 - - - Dated:- 26-4-2017 - MR. SIDDHARTH MRIDUL J. Advocates who appeared in this case: For the Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistry of Corporate Affairs 5th Floor A Wing, Shastri Bhawan Dr. R.P. Road, New Delhi Dated: 29th February, 2016 ORDER Whereas the Central Government is empowered under Section 212 of the Companies Act, 2013 to order investigation into the affairs of any company in Public Interest and to appoint one or more competent persons as inspectors to investigate the affairs of the company. 2. AND whereas there are very Serious Complaints against the affairs of the company i.e. M/s Sunair Hotels Limited. 3. Now, therefore, in exercise of powers conferred under Section 212(1)(c) of the Act, the Central Government hereby orders investigation into the affairs of M/s Sunair Hotels Limited, to be carried out by the Serious Fraud Investigation office. 4. The Inspectors appointed by Director, SFIO to investigate into the affairs of the above mentioned company, shall exercise all the powers available to them under the Companies Act, 2013. The inspectors shall complete their investigation and submit the report to the Central Government within a period of Six (6) months from the date of issue of this order. 4. Further, if any information is required du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Station, Defence Colony, Delhi, against the promoters of the Petitioner Company. A chargesheet for the offences punishable under the provisions of sections 384, 406, 409, 417, 422, 465, 468, 471, 500, 120-B of the IPC, has been filed before the concerned Court. f) A writ petition being W.P.(Crl.) 1300/2004 also came to be instituted by VLS, praying for directions of this Court for registration of an FIR, qua the factum of stealing of 21 original files, prepared by Respondent No.1, in relation to the Petitioner Company. By way of its order dated 24.08.2005, this Court directed the registration of an FIR in this behalf. Consequently, FIR No.315/2005 for the offences punishable under the provisions of sections 380, 411, 120-B of the IPC was registered at Police Station, Naraina, Delhi. Pursuant thereto, a chargesheet came to be filed before the concerned Court. g) VLS instituted a company petition being C.P.No.45(ND)/1998 seeking investigation into the affairs of the Petitioner Company. The Company Law Board, Delhi (hereinafter referred to as CLB ) vide order dated 13.06.2001, dismissed C.P.No.45(ND)/1998 filed by VLS. An appeal, being Co.A.(SB) No.11/2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of its order dated 16.11.2007. Thereafter, a Letters Patent Appeal No. 149/2008 came to be instituted by VLS in order to assail the said order of this Court dated 16.11.2007. The said LPA also came to be dismissed by way of the order dated 29.09.2008. A Special Leave Petition being SLP No.3317/2009 came to be instituted by VLS, in order to challenge the said order dated 29.09.2008 passed by the Division Bench of this Court. In the said proceedings in SLP No.3317/2009, the Hon ble Supreme Court, on 22.01.2016 directed Respondent No.1 to file an affidavit clarifying whether it would be initiating any proceedings or undertaking any action against the Petitioner Company, in accordance with law. An affidavit dated 12.02.2016 came to be filed by Respondent No.1 stating that they would be taking action against the Petitioner Company, under the provisions of section 212(1)(c) of the 2013 Act. Thereafter, Respondent No.1 rendered the impugned order on 29.02.2016. The investigation carried out by the SFIO has since been concluded. The final report of investigation came to be submitted by the SFIO on 31.10.2016 (hereinafter referred to as SFIO Report ) and the same has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by virtue of the provisions under Section 212(1)(c) of the 2013 Act. 11. In order to fortify this submission, learned senior advocate would rely upon the decision rendered by the Hon'ble Supreme Court in Collector (District Magistrate) Allahabad and Anr. v. Raj Ram Jaiswal, reported as (1985) 3 SCC 1. 12. It would then be urged that the impugned order has been rendered contrary to the principles of protection against double-jeopardy, since various legal proceedings instituted assailing the conduct of affairs of the Petitioner Company have either, already been adjudicated dismissed before various legal fora; or are sub-judice. 13. It would then be urged that the SFIO Report, cannot be looked at by this Court in order to determine whether the impugned order is sustainable in law or not. 14. In order to buttress this submission, learned Senior Counsel would seek to place reliance upon the decision of the Hon'ble Supreme Court in Ashok Kumar Aggarwal (supra). In order to further fortify this contention, learned Senior Counsel would also seek to place reliance on the principles of the doctrine of excluding the 'fruit of poisonous tree' and the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would also be argued that the test laid down by the Hon ble Supreme Court in Rohtas Industries (supra) and Barium Chemicals (supra) was rendered with respect to section 237 of the 1956 Act and the same has no application in the present case, inasmuch as, the provisions of the two sections viz. Section 237 of the 1956 Act and Section 212 of the 2013 Act, are not pari materia. Mr. Dayan Krishnan would also urge that the ratio of the decision in Parmeshwar Das Agarwal (supra) is not attracted to the factual matrix of the present case. 22. It would be also argued that, the report of the SFIO has unearthed numerous violations committed by the Petitioner Company, punishable under the 1956 Act, 2013 Act and the IPC; which fortify the opinion of Respondent No.1, rendered by way of the impugned order. 23. Seeking to counter the submission made on behalf of the Petitioner Company, it would be urged on behalf of VLS, that this Court ought to consider the report of the SFIO placed before it, in terms of the directions of the Hon'ble Supreme Court vide order dated 22.07.2016, in order to effectively adjudicate the instant petition on its merits. 24. I have heard the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid investigation by the end of November, 2016 after the report of investigation is placed before it, meaning thereby if the report of investigation is in favour of respondent No.2 (Sunair Hotels Ltd.), the High Court may not have any occasion to go into the merits of the writ petition. (iii) We further direct that until appropriate final ordersare passed by the High Court in terms of the present direction, the result of the investigation shall not be given effect to. List the matter again in the first week of December, 2016. (Emphasis supplied.) 29. On a conjoint reading of the directions of the Hon ble Supreme Court in the above-extracted orders dated 22.07.2016 and 05.12.2016, the following is abundantly clear: a) This Court has been called upon to adjudicate the issues arising in the present writ petition, as this Court considers appropriate, in accordance with law, after the SFIO Report has been placed before this Court; and b) In the event the SFIO Report is rendered in favour of the Petitioner Company herein (Sunair Hotels Limited), this Court need not go into the merits of the present writ petition. 30. In other words, in the event th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 237. Investigation of company s affairs in other cases. 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 Company Law Board there are circumstances suggesting-- (i) that the business of the company is being conducted within tent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision under section 237 under the 1956 Act and the ambit of powers of the Central Government under the said provision. It would be profitable to refer to the rulings of the Hon ble Supreme Court in Rohtas Industries (supra) and Barium Chemicals (supra). 42. Whilst upholding the challenge to the impugned order passed under the provisions of section 237 of the 1956 Act, and relying on the principles enunciated in the decision in Barium Chemicals (supra), the Hon ble Supreme Court, in Rohtas Industries (supra) observed as hereinbelow: Hegde, J. 4. The Regional Director in his letter of 10th November, 1961, had given the market quotations for the ordinary shares of Albion Plywoods Ltd., on some of the dates in May, 1960. According to him those quotation were gathered from Indian Finance . Evidently as he was inquiring into the complaint made against the New Central Jute Mills Go. Ltd., he did not mention the market quotations for the shares in question either on May 6, 1960, or immediately before that date. During the hearing of these appeals an affidavit has been filed on behalf of the appellant stating that the market quotation of the ordinary share in the Alb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 235 as well as under Section 237(b) is a discretionary power, whereas the Central Government is bound to 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 the company by special resolution or the court by order declares that that the affairs of the company ought to be investigated by an Inspector appointed by the Central Government [237(a)(i)(ii)]. It may be noted that before the Central Government can take action under Section 235, certain preconditions have to be satisfied. In the case of an application by members of the company under clause (a) or (b) of Section 235, the same will have to be supported by such evidence as the Central Government may require for the purpose of showing that the applicants have good reasons for requiring the investigation, and the Central Government may, before appointing an Inspector, require the applicant to give security for such amount not exceeding ₹ 1000, as it may think fit for payment of the costs of the investigation. From the provisions contained in Sections 235 and 236, it is clear that the legislature consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that no reasonable authority would have passed the impugned order on the material before it, then the same is liable to be struck down. This position is also clear from the decision of this Court in Barium Chemicals v. Company Law Board [(1966) Supp SCR 311] . It was urged by Mr. Setalvad, learned Counsel for the appellant, that clause (b) of Section 237 prescribes two requirements, i.e. (1) the requisite opinion of the Central Government and (2) the existence of circumstances suggesting that the company's business was being conducted as laid down in sub-clause (1) or that the persons mentioned in sub-clause (2) were guilty of fraud, misfeasance or misconduct towards the company or any of its members. According to him though the opinion to be formed by the Central Government is subjective, the existence of circumstances set out in clause (b) is a condition precedent to the formation of such opinion and therefore the fact that the impugned order contains recitals of the existence of those circumstances, does not preclude the court from going behind those recitals and determining whether they did in fact exist and further whether the Central Government in making that ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shelat, J., further observed that it is hard to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded; it is also not reasonable to say that the clause permitted the authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose. Courts both in this country as well as in other Commonwealth countries had occasion to consider the scope of provisions similar to Section 237(6). Judicial dicta found in some of those decisions are difficult of reconciliation. On the other hand Sarkar, C.J., and Mudholkar, J., held that the power conferred on the Central Government under Section 237(a) is a discretionary power and no facet of that power is open to judicial review. Our Brother Bachawat, J., the other learned Judge in that Bench did not express any opinion on this aspect of the case. Under these circumstances it has become necessary for us to sort out the requirements of Section 237(b) and to see which of the two contradictory conclusions reac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, and he gives no reason whatever for taking a contrary course, the court may infer that he has no good reasons and that he is not using the power given by Parliament to carry out its intentions. In the present case however the Minister has given reasons which show that he was not exercising his discretion in accordance with the intentions of the Act of 1958. In the present case it is clear that Parliament attached considerable importance to the independent committee of investigation as a means to censure that injustices were not caused by the operation of a compulsory scheme. Lord Upjohn observed: My Lords, on the basic principles of law to be applied there was no real difference of opinion, the great question being how they should be applied to this case. The Minister in exercising his powers and duties conferred on him by statute can only be controlled by a prerogative order which will only issue if he acts unlawfully. Unlawful behaviour by the Minister may be stated with sufficient accuracy for the purposes of the present appeal (and here I adopt the classification of Lord Parker, C.J., in the divisional court): (a) by an outright refusal to consider th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existence of the circumstances in question are open to judicial review though the opinion formed by the Government is not amenable to review by the courts. As held earlier the required circumstances did not exist in this case. Bachawat, J. 4. The law recognises certain well recognised principles within which the discretionary power under Section 237(b) must be exercised. There must be a real exercise of the discretion. The authority must be exercised honestly and not for corrupt or ulterior purposes. The authority must form the requisite opinion honestly and after applying its mind to the relevant materials before it. In exercising the discretion the authority must have regard only to circumstances suggesting one or more of the matters specified in sub-clauses (i), (ii) and (iii). It must act reasonably and not capriciously or arbitrarily. It will be an absurd exercise of discretion, if, for example, the authority forms the requisite opinion on the ground that the Director in charge of the company is a member of a particular community. Within these narrow limits the opinion is not conclusive and can be challenged in a court of law. Had Section 237(b) made the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment for causing an investigation to be made. That is a situation dealt with by section 236. Without prejudice to the powers under section 235, the Central Government independently can direct investigation, but that is in other cases. The said power is to be found in section 237. 35. As far as these provisions are concerned, the Hon'ble Supreme Court of India had an occasion to examine their ambit and scope. The first decision that is referred to by Mr. Godbole is in the case of Rohtas Industries (supra). Rohtas Industries was a case where the company having its registered office at Dalmianagar in Bihar was alleged to have conducted its affairs with intent to defraud its creditors, members or other persons and the persons concerned in the management of its affairs have in connection therewith been guilty of fraud, misfeasance, or other misconduct towards the company or its members. Therefore, the power under section 235 was exercised in relation to that company by the Central Government. The argument before the Hon'ble Supreme Court was that the Central Government had no material before it from which it could have come to the conclusion that the business of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igated. Thus sub-section (1) of section 210 confers a discretion while sub-section (2) is mandatory in terms. By subsection (3) and when the Central Government orders an investigation into the affairs of the company, it may appoint one or more persons as Inspectors so as to carry out this task and to report thereon in such manner as the Central Government may direct. By section 212 the seventeen sub-sections thereof enable investigation into the affairs of a company by Serious Fraud Investigation Office. This power is without prejudice to the provisions of section 210. This power is to be exercised if the Central Government is of the opinion that it is necessary to investigate into the affairs of a company by the SFIO. Therefore, the power to investigate into the affairs of company is common to both provisions. In the former there are three clauses (a) to (c) in sub-section (1) of section 210 and the investigation is to be carried out by the Central Government by appointing Inspectors and there is a discretion in that behalf. This power is stated to be akin to section 235 of the 1956 Act. The latter enables investigations into the affairs of a company by the SFIO and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order, however, a reference is made to the report of the Registrar of Companies, West Bengal, dated 13th January, 2016. We have already held that the findings in this report are not enough for the Central Government to exercise the drastic power. Something more was required and to be established as circumstances or material enough for exercise of the power. That is clearly lacking in this case. 49. This is the only basis, namely, the report of the Registrar of Companies, West Bengal, or its contents which has enabled the Central Government to exercise its powers under section 212(1)(c). It is, therefore, apparent that it has not necessarily acted in terms of its power conferred by section 212 to direct investigation into the affairs of the company in public interest. The foundation for reaching the opinion or satisfaction is the report of the Registrar. We have referred to the details in that report and we are of the firm opinion that based on that the Central Government could not have recorded a satisfaction or an opinion that investigation into the affairs of the company are necessary. There is no element of public interest which is projected, save and except s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erring the discretion. iv. In order to exercise this discretion reasonably and lawfully, the Central Government is required to formulate an opinion that an investigation into the affairs of the company is necessary; v. The opinion must be an honest opinion, rendered after bestowing sufficient attention to the relevant material/circumstances available before the Central Government; and vi. The opinion must not be based on a wholly irrelevant or extraneous consideration. vii. The materials/circumstances based on which the opinion to order an investigation has been rendered, have to prima facie, show that the inferences drawn from the facts in the materials/circumstances led to conclusions of certain definiteness. In other words, the existence of material for formation of an opinion is a sine qua non and the same must be prima facie demonstrable, in case the opinion is challenged before a Court of law. viii. The opinion formulated is not required to be a conclusive proof of the fact that the conduct of the affairs of the company is prejudicial to the public interest, interest of the shareholders, members or any other persons, or contrary to the provisions of law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the latter, free of cost by the former, and subsequent upon acquiring the rights back, the land under lease was shown as a fixed asset in balance sheet of the Petitioner Company for the financial year 1994-1995. e) The manner in which the said liability in the sum of ₹ 21 Crores, qua the rights to develop the land under lease, was discharged i.e., by rotating a meagre sum of ₹ 1 crore, twenty times, between multiple companies and persons in a short span of 06 days. f) Preparation of fabricated balance sheets in order to defraud the shareholders, banks, financial institutions and the public at large. g) Creation of two fictious assets that have been pledged as security to the Bank in order to obtain loan. h) Stealing of official files prepared by the Ministry of Corporate Affairs pertaining to the Petitioner Company, in order to scuttle the process of law and escape legal consequences. i) The factum of recovery of the said official files from the residence of the Financial Controller of the Petitioner Company pursuant to the registration of FIR No.315/2005. j) The Inspection Report, concluding the inspection conducted into the affairs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Petitioner Company, inasmuch as, in that case there was no specific allegation qua the mismanagement of the affairs of the company or the oppression of the interests of its shareholders and the public at large. As aforestated, the submission of the Petitioner Company that the opinion of Respondent No.1 is without any basis, is misfounded, in view of the material available on record with the latter, as elaborated hereinabove. 51. Next, in order to deal with the submission advanced on behalf of the Petitioner Company that the impugned order is unsustainable in law on the ground of it being an unreasoned order, it would be profitable to refer to the relevant portions of the decisions in Mohinder Singh Gill (supra) and Ravi Yaswant Bhoir (supra). 52. In Mohinder Singh Gill (supra) the legal principle enunciated is that the grounds, on which an order has been rendered, must be judged by the reasons mentioned therein and cannot be supplemented by way of fresh reasons by way of filing an affidavit or otherwise. 53. The relevant paragraphs of the report are reproduced as follows: 8. The second equally relevant matter is that when a statutory functionary makes an orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the material on record, in the present case, would show that the formation of the opinion cannot be assailed on the ground of it having being rendered without proper application of mind or in a casual manner. The opinion was formed based on cogent and creditworthy material warranting investigation in the public interest. The material justified the ordering of an investigation since the allegations levelled constituted serious violations of various provisions under the 1956 Act, 2013 Act and the IPC. 57. Further, the bald assertion on behalf of the Petitioner Company to the effect that the impugned order is a colourable exercise of power, has been made to be rejected. Nothing has been brought on record in this behalf, to show that the impugned order proceeded on preconceived notions. 58. In this behalf, the following principles of law, laid down in Collector v. Raja Ram Jaiswal (supra), are evidently not attracted to the facts on record in the present case. i. When power has been conferred to achieve a particular purpose, then such power ought to be exercised in good faith, for legitimate reasons and in order to effectuate that purpose; and ii. If the exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In my view, the impugned order does not suffer from any infirmity, much less a conclusion that it was bad in law on account of inadequacy or insufficiency of material. 66. Before I part with this order, I consider it necessary to refer to the report dated 31.10.2016, submitted by the SFIO. A bare reading of the said report would show that the affairs of the Petitioner Company have been conducted in a manner prejudicial to the public interest, in addition to that of the shareholders. 67. In view of the findings of the SFIO, I am satisfied that the recommendation contained therein, warranting prosecution for the offences punishable under the relevant provisions of the 1956 Act, 2013 Act and the IPC, cannot be said to be without any justification. 68. The present writ petition is accordingly dismissed without any order as to costs. All pending applications also stand disposed of. 69. The Registry is directed to reseal the official record and hand over the same to Mr. Dev P. Bhardwaj, Learned CGSC, appearing on behalf of Respondent No.1, forthwith, after obtaining a receipt therefor. CRL.M.A. 11283/2016 (by the petitioner company u/s 340 Cr.P.C.) The prayers sought ..... X X X X Extracts X X X X X X X X Extracts X X X X
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