Back
1978 Supreme(Del) 84
High Court Of Delhi
KRISHNA TILES AND POTTERIES (MADRAS) PRIVATE LIMITED - Appellant
Versus
COMPANY LAW BOARD - Respondent
Civil 329 of 1977
Decided On : 05/26/1978
CHARANJIT TALVAR, D.N.Mishra, J.L.Nain, K.J.JOHN, R.K.P.SHANKAR DAS
The power exercised by the Company Law Board in granting authorisation under Section 399(4) of the Companies Act is administrative and not quasi-judicial. The principles of natural justice do not apply to the grant of authorisation under Section 399(4) of the Companies Act.
Headnote:
COMPANY LAW - Section 399(4) - Authorisation to apply under Sections 397 and 398 - Company Law Board's power to grant authorisation - Nature of power - Whether quasi-judicial or administrative - Principles of natural justice - Applicability.
Fact of the Case:
The petitioner, a private limited company, challenged the authorisation granted by the Company Law Board to one Arunachalam, a member of the company, to apply to the court under Sections 397 and 398 of the Companies Act, 1956. The petitioner contended that the Company Law Board was required to give notice to and hear the petitioner before granting the authorisation and that the impugned order should have been a speaking order.
Finding of the Court:
The court held that the power exercised by the Company Law Board as a delegate of the Central Government in issuing the impugned authorisation was an administrative power and not a quasi-judicial power. The court further held that the principles of natural justice did not apply to the grant of authorisation under Section 399(4) of the Companies Act and that the Company Law Board was not required to give notice to or hear the petitioner before granting the authorisation.
Issues: 1. Whether the power exercised by the Company Law Board in granting authorisation under Section 399(4) of the Companies Act was quasi-judicial or administrative? 2. Whether the principles of natural justice applied to the grant of authorisation under Section 399(4) of the Companies Act?
Ratio Decidendi: 1. The court held that the power exercised by the Company Law Board in granting authorisation under Section 399(4) of the Companies Act was administrative and not quasi-judicial. The court reasoned that the formation of the opinion postulated by sub-section (4) of Section 399 was a subjective process and that all that was required was that the circumstances must exist for the formation of the opinion and that there must be material before the Company Law Board to form its opinion that circumstances existed which made it just and equitable to give the authorisation. 2. The court held that the principles of natural justice did not apply to the grant of authorisation under Section 399(4) of the Companies Act. The court reasoned that the grant of authorisation was an administrative act and that the Company Law Board was not required to act judicially in granting the authorisation.
Final Decision: The court discharged the rule and dismissed the petition with costs.
( 1 ) THE important point which arises for determination in this petition under Article 226 of the Constitution of India, and I am told for the first time, is the construction of sub-section (4) of Section 399 of the Companies Act, 1956. This provision empowers the Central Government to authorise any member or members of a company to apply to the court under Section 397 or section 398 of the Companies Act notwithstanding that the said member or members do not have either the prescribed holding or numerical strength postulated by clauses (a) and (b) of sub-section (1) of Section 399 which alone gives the right to a member or members to apply to the court under Sections 397 or 398 of the Companies Act. Section 397 confers powers on the court to grant relief in cases of oppression and Section 398 empowers the court to grant relief in cases of mismanagement of a company. The right to move the court under either of the two sections or both of them, as far as members are concerned, is restricted to those having either the prescribed numerical strength or the prescribed shareholding. The conferment of this right by authorisation of the Central Government despite not having the prescribed numerical strength or prescribed shareholding after hearing the company or without hearing it is the moot question
( 2 ) THE petitioner before me is a company which was incorporated in 1946 under the Companies Act, 1913. It has its registered office at 80, Royapettah High Road, Mylapore, Madras. It carries on the business of manufacturers of and dealers in tiles, bricks and other allied products. The petitioner is a private limited company with an authorised capital of Rs. 12 lakhs divided into 3000 5 per cent Preference Shares of Rs. 100 each, 2000 7 per cent Preference Shares of Rs. 100 each and 70,000 Equity Shares of Rs. 10 each. The paid up capital of the company is said to be Rs. 7 lakhs made up of 70,000 Equity Shares of Rs. 10 each. The company has, in all, 50 members. The management of the company is vested in whole-time Directors including the Managing Director who carry on the affairs of the company under the overall superintendence and control and directions of the Board of Directors.
( 3 ) THE respondents before me are the Company Law Board, established under Section IOE of the Companies Act, the Union of India, the Central Government and one Mr. A. M. P. Arunachalam of Madras, who is cited as a third respondent. Arunachalam has been authorised by the Company Law Board to apply to the court under Sections 397 and 398 of the Companies Act in relation to the affairs of the petitioner-company by virtue of the powers vested in the Central Government under sub-section (4) of Section 399 of the Companies Act. This fact has been communicated to the petitioner by a communication from the Department of Company Affairs (Company Law Board) bearing Reference No. 17/31/75-CI. I dated April 13, 1977. The petitioner challenges this authorisation given in favour of Arunachalam.
( 4 ) ACCORDING to the petitioner Arunachalam is the lone shareholder out of the members of the company and does not have support of the remaining 49 members. He holds only 3015 equity shares which is obviously less than 10 per cent of the paid up share capital of the company. It is contended that Arunachalam is ill-disposed towards the management of the company and has secured the impugned authorisation under section 399 (4) of the Companies Act with mala fide intent and without any opportunity being granted to the petitioner to show to the Company Law Board that circumstances did no exist for grant of the impugned authorisation. The point that arises for consideration is whether before granting the authorisation under sub-section (4) of Section 399 of the Companies Act in favour of Arunachalam the Company Law Board was bound to give notice to and hear the petitioner-company. Incidentally a question also arises as to whether the Company Law Board was required t
