BARIUM CHEMICALS LIMITED Vs. A J RANA

JUDGEMENT

(1.) This judgment would dispose of two Civil Appeals Nos. 1452 and 1453 of 1971 which have been filed by special leave by the Barium Chemicals Ltd. and its Managing Director, Shri P. N. Balasubramanian. Appeal No. 1452 is directed against the judgment of the Andhra Pradesh High Court whereby the appellants' petition under Art. 226 of the Constitution of India for the issuance of a writ to quash order dated May 22, 1966 under section 19 (2) of the Foreign Exchange Regulation Act, 1947 (Act VII of 1947) (hereinafter referred to as the Act) and other consequential reliefs was dismissed. The other appeal is directed against the order of the High Court refusing to certify the case to be fit for appeal to the Supreme Court under Articles 132 and 133 of the Constitution against the aforesaid judgment. The respondents impleaded are (1) Shri A. J. Rana, Deputy Director, Enforcement Directorate, Ministry of Finance, (2) Shri R. C. Dutt, Secretary to the Government of India, Ministry of Finance, (3) Shri M. L. Wadhwa, Enforcement Officer, Enforcement Directorate and (4) Union of India, through the Secretary of Finance.

(2.) The first appellant was registered as a public limited company in 1961 with its registered office at Ramavaram in Andhra Pradesh. The second appellant, who is the sole proprietor of a concern named Transworld Trades, was appointed the Managing Director of the appellant company. On May 19, 1965, an order was issued on behalf of the Company Law Board under clause (b) of section 237 of the Companies Act, 1956 appointing four persons as inspectors to investigate the affairs of the appellant company on the ground that the Board was of the opinion that there were circumstances suggesting that the business of the appellant company was being conducted with intent to defraud its creditors, members or other persons and that the persons concerned in the management of the affairs of the company had in connection therewith been guilty of fraud, misfeasance and other misconduct towards the company or its members. The above order was made on behalf of the Borad by Shri Dutt respondent, who was at that time the Chairman of the Company Law Board.

(3.) In pursuance of the above order, searches were conducted at Hyderabad, Ramavaram, New Delhi and Wellington and a number of documents were seized. The appellants challenged the legality of the above order of the Company Law Board by means of a petition under Art. 226 of the Constitution of India in the Punjab High Court. One of the grounds taken by the appellants in that petition was that the impugned order had been issued mala fide at the instance of Shri T. T. Krishnamachari, who was then Finance Minister and who, according to the appellants, had a bias against appellant No. 2. The second ground on which the order of the Company Law Board was assailed was that there was no material on the basis of which such an order could have been made. Some other grounds were also taken but we are not concerned with them. The above petition was dismissed by the Punjab High Court and thereupon the appellants came up in appeal to this Court. It was held by this Court that the appellants had failed to show that the impugned order had been passed mala fide. The impugned order, however, was set aside by the majority on the ground that the facts mentioned in the affidavit filed on behalf of the respondents could not reasonably suggest that the business of the appellant company was being conducted to defraud the creditors, members or other persons or that the management was guilty of fraud towards the company or any of its members. As the facts mentioned in the said affidavit were found to be extraneous to the matters mentioned in clause (b) of section 237 of the Companies Act, the impugned order was held to be ultra vires that section.