Sinha, C.J. - (1.) The appellant in this case is Messrs. New Central Jute Mills Co. Ltd. which is a public limited company incorporated under the Indian Companies Act, 1913 (hereinafter referred to as the "appellant") and is an existing company under the Companies Act, 1956 (hereinafter referred to as the "said Act") having its registered office at 11, Clive Row, Calcutta. It carries on business inter alia as manufacturers of Jute goods, chemicals and fertilizers. It owns two jute mills called Albion Jute Mills and Lothian Jute Mills situate at Budge Budge, West Bengal. It owns a factory at Varanasi known as Sahu Chemicals & Fertilizers in which soda ash and ammonium chloride are produced.
(2.) Messrs. Sahu Jain Ltd. of 11 Clive Row, Calcutta was at all material times and still are the managing agents of the appellant. The authorised capital of the appellant is rupees five crores divided into 30,00,000 ordinary shares of Rs. 10/-each and 20,00,000 preference snares of Rs. 100/- each. The paid-up capital of the appellant is Rs. 2,89,00,000/- divided into 33,000 preference shares of Rs. 100/- each fully called-up and 25,60,000 ordinary shares of Rs. 10/- each fully called-up. The capital of the appellant was increased by Rs. 42,75,000/- in 1958 and further by Rs. 42,75,000/- in 1959 and again by Rs. 85,00,000/- in 1961. These figures are mentioned to show that the appellant is a substantial company. In the petition it is stated that at all material times the business of the appellant was run on sound principles resulting in substantial profits, declaration of good dividends and provision for sufficient reserve. For example it is stated that the appellant made a net profit of Rs. 1,32,55,724/- for the year ended 31st March 1963 after meeting all expenses and interest, charges and after providing Rs. 53,55,584/- for depreciation. The appellant declared as dividend a sum of Rs. 28,60,000/- in addition to payment of interim dividend of Rs. 12,80,000/- for the year ended 31st March 1963. In other words, during the said year the appellant declared 15 % dividend on ordinary shares and 9.1% on preference shares. On or about 11th April 1963, the Central Government purported to pass an order under Sub-clauses (i) and (ii) of Clause (b) of Section 237 of the said Act. The relevant part of Section 237 of the said Act runs as follows:-- 237. 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 Central Government, there are circumstances suggesting -- (i) that the business of the company is being conducted with intent 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; or (ii) that the 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." It would be interesting to relate here shortly how provisions as to inspection and investigation of the affairs of companies came to be incorporated in the said Act. The Indian Companies Act, 1913 was extensively amended in 1936 and thereafter further amended from time to time. After the World War II, there was a demand for its drastic revision. In the report of the Company Law Committee, 1952 it was stated: "No law, however well conceived or well drafted can be altogether fool and knave proof and it is impossible for any law to protect the fool from the consequences of his acts and omissions. Nevertheless, we consider that it is the function of law to prevent dishonest and unscrupulous people from creating conditions and circumstances, which will enable them to make fools of others. The powers of inspection and investigation into the affairs of a company, which the Companies Acts of most countries confer on Government or a quasi-independent authority are intended primarily as a check on the activities of such people. We recognise that, in some cases, the use of the powers of inspection and investigation may initially tend to shake the credit of a company and thereby adversely affect its competitive position, although the allegations against the company may in the end be found to have been largely unfounded. It is therefore, necessary that the investigation provisions of the Act should be so conceived as to reduce this threat to the credit of companies to a minimum. This risk should not, however, defer us from considering the desirability of conferring adequate powers on an appropriate authority to investigate the affairs of a company where such investigation is prima facie called for. On the contrary we consider it to be in the long term interest of the trade and industry of this country that such powers should be vested in a competent authority and exercised energetically albeit with due caution and fairness in all cases which require investigation". (Report of the Company Law Committee, 1952 p. 133).
(3.) The demand for drastic action was sought to be made by enacting the Companies Act, 1956 which came into operation from April 1, 1956. The said Act has been amended several times. Section 209 (4) of the said Act contains provisions for inspection and Sections 235 to 251 contain provisions for investigation. I have already mentioned that on or about the 11th April, 1963 an order was passed under Sub-clauses (i) and (ii) of Clause (b) of Section 237 of the said Act upon the appellant. The relevant part of the said order runs as follows:-- "Whereas the Central Government is of the opinion that there are circumstances suggesting that the business of the New Central Jute Mills Ltd., a company having its Registered Office at 11, Clive Row, Calcutta (hereinafter referred to as the said Company) is being conducted 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 said company or its members; And whereas the Central Government consider it desirable that an Inspector should be appointed to investigate the affairs of the said company and to report thereon; Now therefore, in exercise of the several powers conferred by Sub-clauses (i) and (ii) of Clause (b) of Section 237 of the Companies Act, 1956 (Act 1 of 1956), the Central Government hereby appointed Shri S. Prakash Chopra of M/s. S.P. Chopra and Co., Chartered Accountants, 31-F Connaught Place, New Delhi as Inspector to investigate the affairs of the said Company for the period from 1-4-58 to date and should the Inspectors so consider it necessary also for the period prior to 1-4-58 and to report thereon to the Central Government pointing out inter alia irregularities and contraventions in respect of the provisions of the Companies Act 1956 or of the Indian Companies Act, 1913 or any other law for the time being in force and person or persons who are responsible for such irregularities and contraventions. The Inspector shall complete the Investigation and submit six copies of his final report to the Central Government not later than four months from the date of issue of this order unless time in that behalf is extended by the Central Government. A separate order will issue with regard to the remuneration and other incidental expenses of the Inspector".;