1986 Supreme(Bom) 336

IN THE HIGH COURT OF BOMBAY
(NAGPUR BENCH)
S.W. Puranik G.G. Loney, JJ.
Hariganga Cement Limited.... Petitioner.
Versus
Company Law Board, Govt. of India another.... Respondents.
Writ Petition No. 1629 of 1986, decided on 17-12-1986.
Advocates appeared :
V.R. Manohar, for petitioner.
Ramesh Darda, for respondent.

Headnote:COMPANIES ACT, 1956

       Section 237 (b)-Exercising of discretionary powers vested in Company Law Board under-Said powers to be exercised with great conception and retrospection in a judicial manner.

       It is well settled that the discretionary powers under Section 237 (b) of the Companies Act 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. It 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) of Section 237 (b) of the Companies Act. It must act reasonably and not capriciously or arbitrarily. It will be an absured exercise of descretion, 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, (refere paragraph-45 of the Rohtas Industries Ltd., case, AIR 1969 SC 707). The Supreme Court has also observed in the above case at paragraph-46, that. "If it is established that there were no materials upon which the authority could form the requisite opinion the Court may infer that the authority did not apply its mind to the relevant facts. The requisite opinion is then lacking and the condition precedent to the exercise of the power under Section 237 (b) is not fulfilled."

       On perusal of the records and papers, the High Court find that the applications of Shri Batra and Arora have been rejected and could not be considered as they were not supported by affidavits However, the Company Law Board seems to have relied upon the so called documents or statements of some villagers from Haryana inter alia contending that they had never applied for the shares of the petitioner-company nor had they contributed any amount. The true copies of the said documents are at Annexures E. F. G. and G to this petition. A scrutiny of the said documents show that the affidavits are not by the shareholders themselves, but by some of the relatives of the recorded share-holders. Some of the affidavits are not even sworn and are mere chits bearing thumb impressions or signatures of the villagers. Such documents cannot form the basis of even purported existence of any material before the Company Law Board.

       In the return filed on behalf of the respondent-No. 1, the Company Law Board, it has been sought to be contended that apart from the documents purporting to be the statements of the banami villaged shareholders two applications of S/Shri Batra and Arora were also before the Board, which contained serious allegations regarding the mis-management of the affairs of the petitioners company. Shri Darda, the Counsel for the respondents, has also taken the same stand during his arguments.

       Court does not find that such contention can be accepted at all, for the simple reason that the speaking order passed by the Board at Annexure-A clearly brushes aside the "applications filed by Batra and Arora, and they have cotegorically concluded that most of the allegations in the applications were not substantiated, whereas the remaining allegations have been duly explained by the Company. The only material on the basis of which the impugned order is based, is the statement of the villagers from Haryana and if that is the only circumstance which was in existence at the time of passing of the opinion by the Board, then no additional circumstance can be placed now during the arguments or to the return. The opinion formed by the Board is squarely based only on the statements of the alleged villagers from Haryana, and Court has already found that the said statements have no nexus with the mis-management of the affairs of the petitioner-company. In fact, even if the allegations in the villagers statement may be true, it may amount to an offence by the individual person concerned, who has secured the benami share, in the name of the said villagers. It does not reflect the management of the affairs of the company. For Such an act of holding unauthorised benami shares, there are independent provisions under the Companies Act for taking action against such shareholder who has secured benami shares.

       The discretionary powers vested in the Company Law Board under Section 237 (b) of the Companies Act are of a very wide nature and the said powers have to be exercised with great conception and retrospection in a judicious manner. The powers under Section 237 have been conferred on the Central Government on the faith that it will be exercised in a reasonable manner. The department of the Central Government which deals with companies is presumed to be an expert body in company law matters. Therefore, the standard that is prescribed under Section 237 (b) is not the standard required of any ordinary citizen but that of an export. Hence, if the Court comes to the conclusion that no reasonable authority would have passed the impugned order on the material before it, then the same is liable to be struck down.

       The formation of the opinion under Section 237 of the Companies Act by the Central Government is subjective, but the existence of circumstances relevant to the informance as to the sine qua non for action must be demonstrable. It is not reasonable to say that the clause permits the Government to say that it has formed the opinion on circumstances which it thinks exist. Since the existence of "circumstances" is a condition fundamental to the making of an opinion, the existence of the circumstances, if question in Court, has to be proved at least prima facie. It is not sufficient to say that the circumstances exist and give no clue to what they are, because the circumstances must be such as to lead to conclusion of certain definiteness. When it is challenged that the opinion has been formed mala fide or upon extraneous or irrelevant matters, the respondent must disclose before the Court, the circumstances which will indicate that his action was within the four corners of his own powers.