Bhagabati Prasad Banerjee, J. - (1.) The petitioners in this writ application challenged the validity of the show-cause notice dated March 13, 1987, and June 24, 1987, as also the order dated November 13, 1987, passed by the Company Law. Board, Ministry of Industry, Government of India, New Delhi, under Section 408 of the Companies Act, 1956 (referred to as "the said Act"). By the show-cause notice dated March 13, 1987, which is annexure "A" to the petition, the petitioner, Peerless General Finance and Investment Co, Ltd., was directed to show cause why the Government directors should not be appointed in the company under Section 408(1) of the Companies Act, 1956, on the ground that it had come to the notice of the board that the Hon'ble Supreme Court of India, in their judgment in Civil Appeal No. 3563 of 1986, Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd., [1987] 61 Comp Cas 663 had made some observations for which the action under Section 408 of the said Act were to be taken by appointing Government directors in the company. The said observations were as follows (at pages 667 and 668 of 61 Comp Cas) : "(a) the yield will be very much lower than the 6 per cent. compound interest or 7 per cent, simple interest that we mentioned earlier. The subscriber is always at the losing end. (b) . . . the company advertises its schemes widely in beguiling terms. (c) This field staff appears to be chosen for their social, political or official connections . . . the first subscription is literally shared between the company and its agents. (d) The majority of the subscribers commit default after the first year and only a few of the depositors continue their subscriptions and keep alive the certificates. This gives us an indication as to the class of depositors who are principally contacted and are perhaps intended to be so contacted. Having regard to the class of depositors and the incentives offered to agents for securing fresh business, neglect and default of renewal subscriptions is an inevitable result. The agents are interested in securing fresh business because of the high rate of commission in regard to fresh business and are loathe to waste their time on collecting subsequent years' subscriptions fetching far less commission."
(2.) The other ground on which the action was proposed to be taken in this behalf was that it had come to the notice of the Company Law Board that "the present managing director of the company, Shri P. C. Sen, who enjoys substantial powers of management in the company has, on January 10, 1987, been dismissed from service under Rule 23(g) of the Burn Standard Company Limited Conduct, Discipline and Appeal Rules, 1976, for charges such as exercising financial powers in excess of his competence, and other acts of misconduct, and that it would appear prima facie that the appointment of Shri P. C. Sen, as above, may not be in the interest of the company and public interest.
(3.) The petitioner-company submitted a reply to the said show-cause notice on March 31, 1987, disclosing the reasons and/or grounds for which the proposed action was challenged. In the said reply, it was specifically pointed out that no action could be taken on the alleged ground of Shri P. C. Sen's termination from service from Burn Standard Co. Ltd. inasmuch as it was stated that there had been an injunction granted by the Division Bench of this court in F.M.A.T. No. 173-76 of 1987, by which the Union of India and the officers of Burn Standard Co. were restrained from taking further action pursuant to the purported order of dismissal passed against Shri P. C. Sen until disposal of all the appeals and until further orders of the Hon'ble High Court and that the said appeal was still pending. After the petitioner-company had pointed out to the respondents about the interim order of injunction with regard to Mr. P. C. Sen, managing director of the company, the Company Law Board, by its letter dated June 8, 1987, informed the petitioners that, in view of the observation made by the Division Bench of this court in the said appeal, the Company Law Board would not proceed v/ith the grounds relating to Shri P. C. Sen and the relevant passage in the show-cause notice dated March 13, 1987, was accordingly dropped.;