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PETITIONER: ROHTAS  INDUSTRIES LTD.

       Vs.

RESPONDENT: S.D. AGARWAL & ANR.

DATE OF JUDGMENT: 16/12/1968

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SIKRI, S.M. BACHAWAT, R.S.

CITATION:  1969 AIR  707            1969 SCR  (3) 108  1969 SCC  (1) 325  CITATOR INFO :  D          1970 SC 564  (26,228,229,231)  R          1970 SC1789  (14)  RF         1972 SC1816  (18)  RF         1974 SC2249  (10)  D          1976 SC1913  (18)  R          1978 SC 597  (86,222)  D          1982 SC 149  (1245)  C          1984 SC1271  (26)  RF         1987 SC1109  (26)

ACT: Indian  Companies Act (1 of 1956), s. 237 (b)(i)  and  (ii)- Circumstances  suggesting  fraud-Existence  of-If  condition precedent to action under section.

HEADNOTE: On May 20, 1960, Albion Plywoods Ltd. resolved at a  general meeting  to  convert  its preference  shares  into  ordinary shares.   M/s.  Sahu Jains were its managing  agents.   Some time before, in April 1960, New Central Jute Mills Co.  Ltd. had  sold the preference shares of Albion Plywoods which  it was  holding.  One S. P. Jain, against whom  proceedings  in criminal  courts  were pending for acts of  misfeasance  and malfeasance in relation to other companies, was  controlling both  the New Central Jute Mills Co. and Sahu  Jains.   With respect to this sale there was a complaint to the Department of Company Affairs, Government of India, that the management of  New Central Jute Mills knew that the  preference  shares would be converted into ordinary shares and so the sale  was effected  at  an  undervalue so  that,  on  conversion  into ordinary.  shares they would fetch a higher price, and  that the transaction was effected for the benefit of the managing agents,  their  friends and brokers, at the expense  of  the shareholders.   In  the course of  investigation  into  this charge,  it  was discovered that the  appellant-company  had also  ’sold 3000 preference shares of Albion Plywoods  which it  was holding, on May 6, 1960.  The appellant-company  was also  controlled  by  S. P. Jain.  On  April  11,  1963  the Central  Government passed an order under s. 237(b) (i)  and (ii) of the Companies Act, 1956, appointing an inspector  to

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investigate into the affairs of the appellant-company and to report thereon to the Central Government, on the basis  that the  sale of preference shares was a fraudulent  transaction considered  in  the background of the association of  S.  P. Jain  with the appellant-company and other  companies.   The appellant,company  filed  a writ  petition  challenging  the order.   The High Court dismissed it on the ground that  the opinion  of the Central Government was not open to  judicial review  and that the declaration of the Government  that  it formed the required opinion was conclusive. In  appeal  to this Court, it was contended that  under  the section,  an  inspector  may be appointed only  if,  in  the opinion of the Government there are circumstances suggesting that  the business of the company was being  conducted  with intent  to defraud its creditors. members or other  persons, or  for  a fraudulent or unlawful purpose, or  in  a  manner oppressive  of any of its members, or that the  company  was formed for a fraudulent or unlawful purpose, or that persons concerned   in  its  formation  ,or  management   have,   in connection  therewith, been guilty of fraud, misfeasance  or other  misconduct towards the company or its  members;  that is, though the opinion of the Government is subjective,  the existence  of the circumstances is a condition precedent  to the  formation of the opinion and therefore, the  Court  was not  precluded  from  going  behind  the  recitals  of   the existence  of  such circumstances in the  order,  but  could determine, whether the circumstances did in fact exist,  and whether the Central Government took extraneous matters  into consideration. HELD  (per Sikri and Hegde, JJ.) : Sections 235 to  237  are allied sections and form a scheme for investigation into the affairs of a company. 109 The  investigation  under  s. 237(b) is of  a  fact  finding nature  which does not bind anybody.  The Government is  not required to act on it and the company has to be called  upon to have its say in the matter.  But, s. 237 takes its colour from  the  other two sections and those sections  show  that such  an investigation is a very serious matter  and  should not  be ordered except on good grounds.  The appointment  of an  inspector is likely to receive publicity as a result  of which  the  company’s reputation and prospects  may  suffer. The power to appoint an inspector is an inroad on the rights of  the company to carry on its business and  would  violate the  fundamental  right  of  its  shareholders  under   Art. 19(1)(f),  unless  the power is so interpreted as  to  be  a reasonable  restriction in the interest of  general  public, and  not  as an arbitrary power.  It would be  a  reasonable restriction  if circumstances suggesting that the  company’s business  was being conducted as laid down in s. 237(b)  (i) or that the persons mentioned in s. 237(b) (ii) were  guilty of  -fraud  or misfeasance or other misconduct  towards  the company  or its members, exist as a condition precedent  for the  Government two form the required opinion, and,  if  the existence of those circumstances is challenged, the Court is entitled to examine whether those circumstances existed when the order was made.  Further, the Department of the  Central Government  which deals with companies is a body, expert  in company  law matters, and the standard prescribed  under  s. 237(b)  is not the standard required of an ordinary  citizen but that of an expert who would take into consideration only relevant material. [ 1 17 F; 11 8 G-H; 1 19 B, E; 128 H; 129 A-E] Observations  of  Hidayatullah  and Shelat,  JJ.  in  Barium Chemicals  v. Company Law Board, [1966] Supp.   S.C.R.  311,

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followed. Padfield v. Minister of Agriculture, [1968] 1 All E.R.  694, Commissioner  of  Customs & Excise v. Cure and  Deeley  Ltd. [1962] 1 Q. B. 340, Roncarelli v. Duplessis,. [1959]  S.C.R. (Canada)  121  and  Read v. Smith, [1959]  New  Zealand  Law Reports, 996, applied. Susannah  Sharp  v.  Wakefield, [1891]  A.C.  173,  179  and Nakkuda  Ali v. M. F. De S. Jayaratne, [1951] A.C.  66,  77, referred to. State  of Madras v. C. P. Sarathy & Anr. [1953] S.C.R.  334, Joseph Kuruvilla Vellukunnel v. The Reserve Bank of India  & Ors. [1962] 3 supp.  S.C.R. 632, Hubli Electricity Co. Ltd.- v. Province of Bombay, L.R. Vol.  LXXVI I.A. 1948-49 p.  57, Robinson v. Minister of Town and Country Planning, [1947]  1 K.B. p. 702 and Point of Avr Collieries Ltd. v.Lloyd George, [1943] 2 All E.R. p. 546, not applicable. In the present case, the only material on the basis of which the  impugned order was made was the transaction of sale  of preference shares of Albion Plywoods.  But at the time  when the  Government made the impugned order it did not know  the market  quotations for the shares, and in fact,  the  market price  showed that no fraud was involved in the sale of  the shares.   No  Reasonable person, much less an  expert  body, could  have  come  to  the conclusion  that  any  fraud  was involved.  if  the Government had any  suspicion  about  the transaction  it should have probed further into  the  matter since  the  order  could not be justified  on  the  material before  it.  The fact that one of the leading  directors  of the  appellant-company  was  a suspect in  the  eye  of  the Government  because  of his antecedents was not  a  relevant circumstance  and  should not have been  taken  into  consi- deration  by  the Government which was  entrusted  with  the responsibility  of forming a bona fide opinion on the  basis of relevant material. [129 F-H; 130 A-D] (Per  Bachawat, J.) : The object of investigation  under  s. 237(b)  is  to find out whether in fact any fraud  has  been committed.  The section con- 110 fers  an  administrative  and  not  a  judicial  power.   is discertionary  and no appeal is provided against  an  order. Such discretionary power must be exercised honestly and  not capriciously  or arbitrarily or for Ulterior purposes.   The section must be interpreted in the light of its own language and subject matter and not by reference to other sections or other statutes.  So interpreted, the condition precedent for making  the  order under the section is the opinion  of  the Central  Government that there are circumstances  suggesting fraud  and  not the existence of the circumstances.  If  the opinion  of  an  administrative  agency  is  the   condition precedent  to the exercise of the power the relevant  matter is  the opinion of the agency and not the grounds  on  which the opinion is founded.  The authority must form the opinion honestly  and  after  applying  its  mind  to  the  relevant materials  before it.  If it is established that there  were no materials at all upon which the authority could form  the requisite  opinion, the Court may infer that  the  authority passed  the  order without applying its mind, that  is,  the requisite  opinion  is lacking and therefore  the  condition precedent to the exercise of the power under the section  is not  fulfilled.   The  opinion is displaced  as  a  relevant opinion if it could not be formed by any sensible person  on the  material before him, the reason being, that  the  Court may  then infer that the authority either did  not  honestly form the opinion or that in forming it, it did not apply its mind.  Within these narrow limits the opinion of the Central

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Government  is  not conclusive and can be  challenged  in  a Court, but the Court has no power to review the facts as  an appellate body nor can it substitute its opinion for that of the  Government.  Had the opinion been conclusive  it  would have been open to challenge as violative of Arts. 14 and  19 of the Constitution. [131 E-H; 132 A-F; 133 E] Corporation of Calcutta v. Calcutta Tramways Co. Ltd. [1964] 5 S.C.R. 25, Joseph Kuruville Vellukunnel v. Reserve Bank of India,  [1962] Supp. 3 S.C.R. 632, Hubli Electricity Co.  v. Province  of  Bombay,  L.R.  76  I.A.  57,  Ross-Clunis   v. Papadopoullos  &  Ors.,  [1958]  2 All  E.R.  23,  State  of Maharashtra  v. B. K. Takkamore, [1967] 2 S.C.R.  583,  585, 588, Province of Bombay v. K. S. Advani, [1950] S.C.R.  621, Nakkuda.  Ali v. M. E. De, S. Jayaratne, [1951] A.C. 66, 77, State  of  Madras v. C. P. Sarathy and Anr.,  [1953]  S.C.R. 334, Swadeshi Cotton Mills Co. Ltd. v. State of U.P. & Ors., [1962] 1 S.C.R. 422 and State of Bombay v. K. P.  Krishnan,& Ors. [1961]1S.C.R 227, referred. The learned Judge’s own observations in Barium Chemicals  v. Company Law Board, [1966] Supp.  S.C.R. 311, 343, explained. In  the  present  case,  no complaint  with  regard  to  the impropriety  of  the  sale of preference  shares  of  Albion Plywoods  was made to the Central Government.  There was  no material  suggesting that the purchasers were benamidars  of M/s.  Sahu Jains or their friends.  The market price of  the ,shares of Albion Plywoods on or about the date of sale  was not known to the Central Government when the order was  made and does not show that the transaction was fraudulent.   The charge that the sale was fraudulent was not communicated  to the  appellant-company  nor were they asked  to  give  their explanation on the subject.  The Government did not seem  to rely  on  the transaction of sale of  preference  shares  as suggesting  fraud.  Therefore, there was no material  before the Government on which it could form the opinion that there were  circumstances suggesting fraud, and hence the  opinion was formed without applying its mind to the materials before it and was in excess of its powers under s. 237(b). [135  E, G; 136 H; 137 A-B, D]

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  2274  to 2276 of 1966. 111 Appeals  by  special leave from the  judgments  and  orders, dated January 20, July 4, and July 5, 1966 of the Patna High Court  in C.W.J.C., Nos. 18 of 1966, 910 of 1965 and 397  of 1966 respectively. M.   C.  Setalvad, M. C. Chagla, R. K. Garg, S.  C.  Agarwal and S.    Chakravarti,   for  the  appellant  (in  all   the appeals). Niren De, Attorney-General, V. C. Mahajan and S. P. Nayar, for the respondents (in all the appeals). The  Judgment  of  S.  M. SIKRI and K.  S.  HEGDE,  JJ.  was delivered  by  HEGDE,  J. R. S.  BACHAWAT,  J.  delivered  a separate Opinion. Hegde J. The only question that arises for decision in these appeals  by special leave, is whether the order made by  the Central Government in No. 2(4)-CL.1/63, Government of India, Ministry of Commerce and Industry, Department of Company Law Administration on April 11, 1963 is liable to be struck down as not having been made in accordance with law. The  appellant  in these appeals is a  company  incorporated under  the Indian Companies Act, 1913 having its  registered

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office  at Dalmia Nagar, Shahbad District, Bihar State.   It is  manufacturing paper, cement, sugar, vanaspati and  other articles.   Its authorised capital is rupees 15  crores  and the  paid  up capital little more than six crores.   It  was incorporated in the year 1933. The impugned order reads               "No. 2(4)-CL.1/63               Government of India,               Ministry of Commerce and Industry,               Department of Company Law Administration.                                   ORDER               Whereas  the  Central  Government  is  of  the               opinion    that   there   are    circumstances               suggesting   that  the  business   of   Rohtas               Industries   Limited  a  company  having   its               registered   office  at   Dalmianagar,   Bihar               (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, 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.               112               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  appoint  Shri  S.  Prakash               Chopra   of  Messrs.   S.  P.  Chopra  &   Co.               Chartered  Accountants, 31,  Connaught  Place,               New  Delhi  as Inspector  to  investigate  the               affairs  of  the said company for  the  period               1-4-1958  to date and should the Inspector  so               consider  it  necessary -also for  the  period               prior to 1-4-1958 and to report thereon to the               Central  Government  pointing out  inter  alia               irregularities and contravention in respect of               the  provisions of the Companies Act, 1956  or               of  the Indian Companies Act, 1913 or  of  any               other  law  for the time being  in  force  and               person or persons who are responsible for such               irregularities and contravention.               (2)   The   Inspector   shall   complete   the               investigation  and  submit six copies  of  his               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.               3.    A separate order will issue with  regard               to  the  remuneration  and  other   incidental               expenses of the Inspector.               The Eleventh day of April, 1963.               By order and in the name of the               President of India               Sd/-   D.S.  Dang  Deputy  Secretary  to   the               Government of India" The  time granted to the Inspector has been  repeatedly  ex- tended.   For  one  reason or the  other  the  investigation directed  is  still  in  its  initial  stage.   The  various extensions  given for completing the investigation are  also

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challenged in some of the appeals.  But that contention  was not  debated  before  us.   Hence it  is  not  necessary  to consider that question. The contention of the appellant is that the Central  Govern- ment had no material before it from which it could have come to the conclusion that the business of the appellant company is  being  conducted with intent to defraud  its  creditors, members  or  other persons or 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.                             113 In response to the rule issued by the Patna High Court  Shri Rabindra Chandra Dutt, the then Secretary to the  Government of India, Ministry of Finance, Department of Company Affairs and  Insurance  and Chairman, Company Law Board,  New  Delhi filed   an  affidavit  in  opposition  on  behalf   of   the respondents.    Therein  various  objections  to  the   writ petition were taken but the pleas raised by him in paragraph 5(a)  and (b) of his affidavit are the only  pleas  relevant for our present purpose.  This is what is stated therein :               "I say that the true facts are -as under-               (a)   Shri  S.  P.  Jain  together  with   his               friends,    relations   and   associates    is               principally in charge of the management of the               petitioner  company.   Over  a  long   period,               several  complaints had been received  by  the               Deptt.  as to the misconduct of the said  Shri               S. P. Jain towards companies under his control               and  management.  Some of these were  referred               to  and  inquired  into  by  a  commission  of               Inquiry  headed by Mr. Justice Vivian Bose  of               the  Supreme  Court  of India,  which  in  its               report,  dated 15-6-62 made  adverse  findings               and  observations  against Shri  S.  P.  Jain.               Shri  Jain  is being prosecuted in  the  Court               District Magistrate, Delhi under sections 120B               read  with sections 409, 465, 467 and  477  of               the  Indian  Penal  Code  in  regard  to   his               misconduct in the management of what are known               as  the  Dalmia Jain group of  companies,  and               most  of the material upon the basis of  which               this prosecution was launched was available to               the Central Government on 11-4-63.  Shri  Jain               is  also  being  prosecuted  in  Calcutta  for               misconduct  in the management of Messrs.   New               Central Jute Mills Co., Ltd., a company  under                             the  same management as the petitioner , on  the               basis  of an F.I.R. lodged by  the  Department               with  the Special Judge, Police  Establishment               just  before the 1 1 th April 1963, Shri  Jain               is  also  being proceeded against  before  the               Companies Tribunal under sections 388B and 398               for misconduct in managing the affairs of M/s.               Bennett Coleman & Co., Ltd. and details as  to               Shri  Jain’s misconduct were with the  Central               Government as on 11th April, 1963.               (b)   Complaints had also been received by the               Department    before    11th    April,    1963               specifically as to the misconduct on the  part               of the manage-               114               ment of the petitioner company in the  conduct               of its affairs."

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The High Court dismissed the writ petition holding that  the ,opinion formed by the Central Government under s. 237(b) of the  Companies’  Act 1956 (hereinafter to be called  as  the Act)  is  not open to judicial review;  the  impugned  order declares that the Central Government had formed the required opinion and the same is conclusive.  That conclusion of  the High Court is ,challenged in this Court. When this appeal came up for hearing on 17-9-1968 this Court directed the respondents to file a further affidavit placing ,on record the complaints mentioned in paragraph 5(b) of the aforementioned affidavit of Shri Robindra Chandra Dutt.  The said  affidavit was directed to be filed within a  fortnight from  that date and the appellants were permitted to file  a reply affidavit within a week thereafter. In  pursuance  of  the above order Shri  Sisir  Kumar  Datta Secretary to the Government of India, Ministry of Industrial Development  and  Company Affairs.   Department  of  Company Affairs  New Delhi filed his affidavit on October  4,  1968. Along  with  that  affidavit he produced  into  Court  three complaints  received by the Government which are  marked  as Annexures ’A’ to ’C’.  Shri Datta does not claim to have any personal knowledge of the facts of this case.  Therefore the only  additional material that is placed before us  are  the three annexures marked as Annexures ’A’ to ’C’.  Shri  Niren De,  learned  Attorney stated before us that  the  Union  of India had placed before the Court all the relevant  material it possessed bearing on the subject. Annexure  ’A’ is said to have been submitted in June,  1960. Most  of  the  allegations contained therein  are  of  vague character.   It  was conceded by the learned  Attorney  that those  allegations could not have been the basis for  making the impugned order.  ’Therefore it is not necessary to refer to  them in extension One of the concrete  allegations  made therein-on which allegation alone some half hearted reliance was  placed  at  the hearing-is that  though  the  appellant company had a debenture capital of Rs. 48,50,000, on  31-12- 39, Shreeram Harjimal, a father concern of Dalmia Jain Group had  pledged in various Banks debentures of  the  appellant- company of the value of Rs. 1,07,47,000 and-raised a loan of nearly  rupees one crore.  According to the  complaint  this must  have  been  done  by  forging  some  documents.    The complaint  further  stated that  the  appellant-company  has facilitated  that  fraud by paying interest  on  the  entire loans borrowed.  The above allegation has been denied by the appellant  in the reply affidavit filed on its behalf.   Mr. Attorney  conceded that the impugned order -could  not  have been made on the basis of this alle-                             115 gation as it directed an inquiry into the company’s  affairs primarily  for  the period subsequent to  1-4-1958  and  the allegation  in  question relates to transactions  that  took place  in  about  the  year 1939 but at  the  same  time  he contended  that  the  allegation in  question  afforded  the necessary  background  in assessing the  other  allegations. Some of the allegations contained in that complaint such  as the levy of Rs. 50 lacs fine on S. P. Jain should have  been known  to  the  Government to be incorrect in  view  of  the various proceedings that had taken place earlier which  were within the knowledge of the Government. In  Annexure  ’B’ there are no  specific  allegations.   The learned  Attorney  did not rely on any  of  the  allegations contained therein as having formed the basis for issuing the impugned order. Annexure  ’C’ is a complaint relating to the working of  New Central  Jute Mills Co., Ltd. it makes no reference  to  the

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appellant-company.   We were told that the New Central  Jute Mills Co. Ltd. is a sister concern of the appellant-company. In paragraph 4 of that complaint following allegations  were made :               "The investments of the Company in Albion Ply-               Woods   Ltd.  and  their  variations  by   the               Company’s Managing Agents appear to have  been               done  to  benefit the Managing  Agents,  their               friends  and  brokers, at the expense  of  the               shareholders.  It appears that the  preference               shares in this company were sold at the market               rate  of  Rs.  100 each when  these  could  be               converted into ordinary shares of Rs. 10  each               which were then quoting at Rs. 15 in the stock               market.   This  and  various  other  acts   of               deliberate commissions and omissions require a               thorough investigation so that shareholders in               general may have a feeling of security in  the               company." It  appears that Albion Plywoods Ltd. at the  relevant  time had  a subscribed capital of rupees ten lacs made up of  Rs. 50,000 ordinary shares of the face value of Rs. 10 each  and Rs.  5,000  preference shares of the face value of  Rs.  100 each.   Though  the  preference shares  were  not  by  right convertible  into ordinary shares, it appears in  about  the end of April or beginning of May, 1960, the Albion  Plywoods Ltd.  gave  notice  of a special resolution  to  permit  the conversion of the preference shares into ordinary shares and the said resolution was passed by the General Meeting on May 20,  1960.  On May 6, 1960 the appellant-company which  held 3,000 preference shares of the Albion Plywoods Ltd. sold the same to M/s.  Bagla & Co. for the face value.  Annexure  ’C’ was   forwarded  to  the  Regional  Director,  Company   Law Administration,  Calcutta for inquiry and report.   At  this stage  it  may  be noted that the inquiry  in  question  was directed  against the New Central Jute Mills Co.,  Ltd.  and not against the appel- 116 lant company.  The Regional Director submitted his report on November  1  0,  1961.  In his report  he  opined  that  the transaction  complained  of is of a doubtful  character  and therefore  further  inquiry  is  desirable.   Thereafter  on December  2,  1961 the UnderSecretary to the  Government  of India wrote to the Regional Director asking for some further information.   One  of the points on which  information  was called  for  was whether Sahu Jain’s Co’s  (other  than  New Central  Jute Mills Co. Ltd.) who were holding 3,000  shares of Albion Plywoods Ltd. had also transferred their shares to Bagla & Co./Podar and Sons and to give full details thereof. The  Regional Director was also asked to report whether  the preference  shares of the Albion Plywoods Ltd.  carried  any voting  rights  before conversion.  In that  letter  it  was further observed :               "In this regard it is suggested that  discreet               enquiries may be made to find out the names of               the  partners of Bagla and Company and  Poddar               Sons  and also whether, the said brokers  were               actively  associated with the Sahu Jains.   If               considered necessary, the help of the  Officer               of  the Stock Exchange Division of the  E.  A.               Department recently posted at Calcutta may  be               sought in this regard." On  January 29, 1962, the Regional Director replied to  that letter. In his reply he stated :               "I  have  been able to  gather  the  following

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             information  regarding  the  3,000  preference               shares of Rs. 100 each of Albion Plywoods Ltd.               The preference shares were acquired by  Rohtas               Industries  Ltd.  (A  Sahu  Jain  Company)  on               allotment  by the Albion Plywood Ltd. of  such               shares on 15th June, 1951.  These 3,000 prefe-               rence shares were sold to M/s Bagla & Co.,               on  6th May, 1960 at par for Rs. 3  lacs.   It               would  appear  that  these  shares  were  sold               before  20th May, 1960 the date on  which  the               preference shares were converted into ordinary               shares." The Regional Director in his letter of 10th November,  1961, had  given the market quotations for the ordinary shares  of Albion  Plywoods  Ltd. on some of the dates  in  May,  1960. According to him those quotations were gathered from ’Indian Finance’.  Evidently as he was inquiring into the  complaint made against the New Central Jute Mills Co. Ltd. he did  not mention  the  market quotation for the  shares  in  question either  on  May  6, 1960 or immediately  before  that  date. During  the hearing of these appeals an affidavit  has  been filed  on  behalf of the appellant stating that  the  market quotation of the ordinary share in the Albion Plywoods  Ltd. on May 6, 1960 or immediately before that date was Rs. 1 1.                             117 Alongwith  that affidavit, the relevant copy of  the  Indian Finance  was produced.’ It was not disputed before  us  that the  market  quotation  for the ordinary  shares  of  Albion Plywoods  Ltd. on or immediately before May 6, 1960 was  Rs. 11 per share.  At this stage it may be mentioned that though the Under Secretary to the Government required the  Regional Director  to find out the names of the partners of  Bagla  & Co. and whether, the brokers who dealt with the shares  were actively associated with Sahu Jain, it does not appear  that the   Regional   Director   supplied   those    information. Admittedly there was no material before the Government  when it  issued  the  impugned order from  which  it  could  have reasonably  drawn  the conclusion that  the  transaction  in favour  of Bagla & Co. was either a nominal  transaction  or was  made  with  a  view to  profit  the  Directors  of  the appellant-company  or  their relations.   According  to  Mr. Attorney  the  only circumstance on the basis of  which  the Government  passed the impugned order was the sale of  3,000 preference  shares  of  Albion Plywoods  Ltd.  held  by  the appellant-company  though, according to him, the  Government viewed  that circumstance in the background of  the  various complaints received by it against Mr. S. P. Jain who was  at that  time one of the prominent Directors of the  appellant- company, New Central Jute Mills Co. Ltd. and Albion Plywoods Ltd.,  as  well  as  the report  made  by  the  Vivian  Bose Commission  which inquired into the affairs of some  of  the companies   with  which  Mr.  S.  P.  Jain  was   connected. Admittedly  Vivian Bose Commission did not inquire into  the affairs of the appellant-company nor does its report contain anything about the working of that company nor was there any complaint against the appellant-company excepting that  made in Annexure ’A’. On  the basis of the above facts we have now to see  whether the  Government  was competent to pass the  impugned  order. Sections 235 to 237 of the Act are allied sections and  they form  a  scheme.  They deal with the  investigation  of  the affairs  of the company.  To find out the true scope  of  S. 237  (b),  it is necessary to take  into  consideration  the provisions contained in S. 235 as well as 236.  They read :               "235.  Investigation of affairs of company  on

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             application   by   members   or   report    by               Registrar.-The Central Government may  appoint               one or more competent persons as inspectors to               investigate the affairs of any company and  to               report  thereon in such manner as the  Central               Government may direct,-               (a)   in the case of a company having a  share               capital, on the application either of not less               than two hundred members or of members holding               not  less than one-tenth of the  total  voting               power therein;               118               (2)in the case of a company not having a share               capital,  on the application of not less  than               one-fifth  in  number of the  persons  on  the               company’s register of members;               (c)   in the case of any company, on a  report               by  the  Registrar under sub-section  (6),  or               sub-section (7) read with sub-section (6),  of               section 234.               236.  Application  by members to be  supported               by evidence and power to call for  security-An               application  by  members of  a  company  under               clause  (a)  or (b) of section  235  shall  be               supported  by  such evidence  as  the  Central               Government  may  require for  the  purpose  of               showing  that the applicants have good  reason               for  requiring  the  investigation;  and   the               Central  Government may, before appointing  an               inspector,  require  the  applicants  to  give               security,  for such amount not  exceeding  one               thousand  rupees  as  it may  think  fit,  for               payment of the costs of the investigation." The  power conferred on the Central Government under S.  235 as well as under s. 237(b) is a discretionary power  whereas the  Central  Government  is bound to 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 the  company  by  special resolution  or the Court by order declares that the  affairs of  the  company ought to be investigated  by  an  Inspector appointed by the Central Government [237 (a) (i) (ii) ].  It may  be  noted that before the Central Government  can  take action  under  s.  235 certain  pre-conditions  have  to  be satisfied.  In the case of an application by members of  the company  under cl. (a) or (b) of S. 235, the same will  have to  be supported by such evidence as the Central  Government may  require for the purpose of showing that the  applicants have  good reasons for requiring the investigation, and  the Central  Government  may, before  appointing  an  Inspector, require  the applicant to give security for such amount  not exceeding  Rs. 1,000 as it may think fit for payment of  the costs  of the investigation.  From the provisions  contained in ss. 235 and 236 it is clear that the legislature  consid- ered  that investigation into the affairs of a company is  a very  serious matter and it should not be ordered except  on good  grounds.  It is true that the investigation  under  s. 237(b) is of a fact finding nature.  The report submitted by the Inspector does not bind anybody.  The Government is  not required to act on the basis of that report, the company has to be called upon to have its say in the matter but yet  the risk-it  may  be a grave one-is that the appointment  of  an Inspector  is  likely to receive much press publicity  as  a result of which the reputation and prospects of the com-                             119

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pany may be adversely affected.  It should not therefore  be ordered except on satisfactory grounds. Before taking action under S. 237(b)(i) and (ii), the  Cent- ral Government has to form an opinion that there are circum- stances suggesting 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 to any member or that  the company was formed for any fraudulent or unlawful purpose or that   the  persons  concerned  in  the  formation  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. From  the  facts  placed before us, it  is  clear  that  the Government  had  not bestowed sufficient  attention  to  the material  before it before passing the impugned  order.   It seems  to  have been oppressed by the opinion  that  it  had formed  about Shri S. P. Jain.  From the arguments  advanced by Mr. Attorney, it is clear that but for the association of Mr. S. P. Jain with the appellant-company, the investigation in  question,  in  all probabilities  would  not  have  been ordered.   Hence,  it is clear that in making  the  impugned order  irrelevant  considerations have played  an  important part. The  power  under ss. 235 to 237 has 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 S. 237(b) is  not  the  standard required of an ordinary citizen but that of an expert.   The learned  Attorney  did not dispute the position that  if  we come  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.  This position is also  clear  from  the  decision of  this  Court  in  Barium Chemicals and Anr. v. Company Law Board and Anr.(1). It was urged by Mr. Setalvad, learned Counsel for the appel- lant that cl. (b) of S. 237 prescribes two requirements i.e. (1) the requisite opinion of the Central Government and  (2) the existence of circumstances suggesting that the company’s business was being conducted as laid down in sub-cl. (1)  or that  the  persons mentioned in sub-cl. (2) were  guilty  of fraud, misfeasance or misconduct towards the company or  any of  its members.  According to him though the opinion to  be formed   by  the  Central  Government  is  subjective,   the existence of circumstances set out in cl. (b) is a condition precedent to the formation of such opinion and therefore the fact that the impugned order contains recitals of (1) [1966] Supp. S.C.R.311 120 the existence of those circumstances, does not preclude  the court  from  going  behind those  recitals  and  determining whether  they  did  in fact exist and  further  whether  the Central  Government  in  making that order  had  taken  into consideration  any extraneous consideration.  But  according to  the learned Attorney the power conferred on the  Central Government under cl. (b) of s. 237 is a discretionary  power and the opinion formed, if in fact an opinion as required by that section has been formed, as well as the basis on  which that  opinion  has  been formed are  not  open  to  judicial review.  In other words according to the learned Attorney no part of s. 237(b) is open to judicial review, the matter  is exclusively within the discretion of the Central  Government and the statement that the Central Government had formed the

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required opinion is conclusive of the matter. Courts both in this country as well as in other Commonwealth countries  had occasion to consider the scope of  provisions similar  to  s. 237 (b).  Judicial dicta found  in  some  of those decisions are difficult of reconciliation. The  decision  of this Court in  Barium  Chemicals’  case(1) which  considered  the scope of s. 237(b)  illustrates  that difficulty In that case Hidayatullah, J. (our present  Chief Justice)  and Shelat, J. came to the conclusion that  though the power under s. 237(b) is a discretionary power the first requirement  for its exercise is the honest formation of  an opinion that the investigation is necessary and the  further requirement is that "there are circumstances suggesting" the inference  set  out in the section; an action not  based  on circumstances suggesting an inference of the enumerated kind will  not  be  valid;  the  formation  of  the  opinion   is subjective  but the existence of the circumstances  relevant to  the  inference as the sine qua non for  action  must  be demonstratable; if their existence is questioned, it has  to be  proved  at least prima facie; it is  not  sufficient  to assert  that those circumstances exist and give no  clue  to what they are, because the circumstances must be such -as to lead to conclusions of certain definiteness; the conclusions must  relate  to  an  intent to  defraud,  a  fraudulent  or unlawful purpose, fraud or misconduct.  In other words  they held  that although the formation of opinion by the  Central Government  is  a  purely subjective  process  and  such  an opinion  cannot  be challenged in a court on the  ground  of propriety,  reasonableness.  or sufficiency,  the  authority concerned  is  nevertheless required to arrive  at  such  an opinion from circumstances suggesting the conclusion set out in  sub-cls.  (i),  (ii)  and (iii) of  S.  237(b)  and  the expression  "circumstances  suggesting" cannot  support  the construction  that even the existence of circumstances is  a matter  of subjective opinion.  Shelat, J. further  observed that  it is hard to contemplate that the  Legislature  could have left to the subjective (1) [1966] Supp. S.C.R. 311                             121 process both the formation of opinion and also the existence of  circumstances on which it is to be founded; it  is  also not  reasonable  to  say  that  the  clause  permitted   the Authority  to  say  that  it  has  formed  the  opinion   on circumstances  which in its opinion exist and which  in  its opinion  suggest  an intent to defraud or  a  fraudulent  or unlawful purpose. On  the other hand Sarkar, C.J. and Mudholkar, J. held  that the  power  conferred  on the Central  Government  under  S. 237(b)  is a discretionary power and no facet of that  power is  open to judicial review.  Our brother Bachawat, J.,  the other  learned  Judge  in that Bench  did  not  express  any opinion   on   this  aspect  of  the  case.    Under   these circumstances it has become necessary for us to sort out the requirements  of  s.  237(b) and to see  which  of  the  two contradictory  conclusions  reached  in  Barium   Chemicals’ case(1) is in our judgment, is according to law.  But before proceeding  to analyse s. 237(b) we should like to refer  to certain  decisions cited at the bar bearing on the  question under consideration. We  shall  first  take up the decisions read to  us  by  the learned Attorney. In  State  of Madras v. C. P. Sarathy  and  Another(2)  this Court  was called upon to consider the scope of S. 10(1)  of the  Industrial Disputes Act, 1947.  There the question  for decision  was  whether  the  opinion  formed  by  the  State

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Government that there existed an industrial dispute is  open to  judicial review.  While dealing with that question  this Court observed               "But  it must be remembered that in  making  a               reference  under  S. 10(1) the  Government  is               doing an administrative act and the fact  that               it  has to form ail opinion as to the  factual               existence  of  an  industrial  dispute  as   a               preliminary  step  to  the  discharge  of  its               function  does  not  make  it  any  the   less               administrative   in  character.   The   Court,               cannot,   therefore,  canvass  the  order   of               reference  closely  to see if  there  was  any               material before the Government to support  its               conclusion, as if it was a judicial or  quasi-               judicial  determination no doubt, it  Will  be               open   to  a  party  seeking  to  impugn   the               resulting award to show that what was referred               by the     Government  was not  an  industrial               dispute  within  the meaning of the  Act,  and               that,   therefore,   the   Tribunal   had   no               jurisdiction  to make the award.  But, if  the               dispute  was an industrial dispute as  defined               in  the  Act, its factual  existence  and  the               expediency  of  making  a  reference  in   the               circumstances of a particular case are matters                             entirely for the Government to decide upon, (1)  [1966] Supp.  S.C.R. 31 1. 7Sup.CI/69-9                    (2) [1953] S.C.R. 334 122               and it will not be competent for the Court  to               hold   the   reference  bad  and   quash   the               proceedings  for want of  jurisdiction  merely               because there was, in its opinion, no material               before  the Government on which it could  have               come  to  an affirmative conclusion  on  those               matters." This interpretation of s. 10(1) is based on the language  of that provision as well as the purpose for which the power in question  was  given and the effect of  a  reference.   That decision  cannot  be  considered as  an  authority  for  the proposition that whenever a provision of law confers certain power  on an authority on its forming a certain  opinion  on the  basis  of certain facts the courts are  precluded  from examining  whether the relevant facts on the basis of  which the opinion is said to have been formed had in fact existed. Reliance  was next placed on the decision of this  Court  in Joseph  Kuruvilla Vellukunnel v. The Reserve Bank  of  India and  Ors.(1) wherein this Court was called upon  to  examine the  vires -of s. 3 8 ( 1 ) and 3 (b) (iii) of  the  Banking Companies  Act,  1949.  Kapur, and Shah, JJ. held  that  the provisions  in question are ultra vires the Constitution  as the  power  conferred on the Reserve Bank is  an  arbitrary, power  whereas  the  majority  consisting  of  Sinha,  C.J., Hidayatullah  and Mudholkar, JJ. upheld the validity of  the provisions  on  the ground that the power conferred  on  the Reserve   Bank  is  a  reasonable  restraint   taking   into consideration  the interests of the public and the  position occupied by the Reserve Bank in the financial system of this country  We  do not think that this decision  bears  on  the point under consideration. In  Hubli Electricity Company Ltd. v. Province of  Bombay(2) the  Judicial  Committee  came to the  conclusion  that  the

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opinion  to be formed by the Provincial Government under  s. 4(1)  of  the Indian Electricity Act, 1910 is  a  subjective opinion  and  the  same  ,cannot  be  adjudged  by  applying objective tests.  The relevant portion of section 4(1) reads :               "The  Provincial  Government may,  if  in  its               opinion  the  public  interest  so   requires,               revoke  a  licence  in any  of  the  following               cases, namely --               (a)   where the licensee in the opinion of the               Provincial   Government   makes   wilful   and               unreasonably   prolonged  default   in   doing               anything  required  of him by  or  under  this               Act. . . . "               Dealing with the scope of that provision their               Lordships observed               "Their Lordships are unable to see that  there               is any-               thing in the language of the sub-section or in               the subject               (1) [1962] Supp.3,S.C.R.632.               (2) L.R. (1948-49) 76.  I.A. 57.               matter  to which it relates on which to  found               the   suggestion  that  the  opinion  of   the               Government  is  to  be  subject  to  objective               tests.   In terms the relevant matter  is  the               opinion of the government--not the grounds  on               which  the  opinion is  based.   The  language               leaves no room for the relevance of a judicial               examination  as  to  the  sufficiency  of  the               grounds  on  which  the  government  acted  in               forming  an opinion.  Further the question  on               which   the  opinion  of  the  government   is               relevant  is  not whether a default  has  been               wilful and unreasonably prolonged but  whether               there has been a wilful and unreasonably  pro-               longed default.  On that point the opinion  is               the  determining matter, and-if it is not  for               good cause displaced as a relevant  opinion-it               is conclusive." It  may be remembered that therein the,  Judicial  Committee was considering a pre-constitutional provision which was not subject  to the mandate of Art. 1 9 (1) (g).  Further  their Lordships were careful enough to observe :               "that  they  are unable to see that  there  is               anything in the language of the sub-section or               in  the subject matter to which it relates  on               which to found the suggestion that the opinion               of  the government is to be subject to  objec-               tive tests." In  other  words  in their Lordship’s  opinion  the  subject matter  of  a legislation has an important  bearing  in  the interpretation of a provision.  We may also add that s. 4(1) of  the Electricity Act 1910 stood by itself and in  finding out  its scope no assistance could have been taken from  any other provision in that Act. In Rabinson v. Minister of Town  and Country Planning(1) the declaratory order made by the Minister that he was satisfied that  the  area comprised in the order should be  ’laid  out afresh  and  re-developed as a whole’ was held not  open  to judicial  review.   The  order  in  question  to  an  extent depended on questions of policy.  It is not open for  courts to decide questions of policy. In Point of Ayr Collieries Ltd. v. Lloyd George(2) the Court of  -Appeal upheld the contention that - the order  made  by

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the  Minister of Fuel and Power under the defence  (General) Regulations  No.  55  (4)  assuming  the  management  of  an undertaking was not open to judicial review.  In arriving at the  decision it is clear that the court was  influenced  by the  decision  of  the  House  of  Lords  in  Liversidge  v. Anderson(,’)  and  Greene  v.  Home  Secretary  (4  )  which considered the validity of detentions during war time.   The decisions  cannot serve as real guide for  interpreting  the provision of law with which we are concerned. (1)  [1947] 1 K.B. 702. (3)   [1941] 3 All E.R. 338. (2)  [1943] 2 All E.R. 546. (4)    [1941] 3 All E.R. 388. 124 We shall now refer to the decisions relied on by the  appel- lant. As  long back as 1891 the House of Lords was called upon  to consider  the  scope  of  some  of  the  provisions  of  the Licensing Act 1872 which gave discretion to the  Magistrates in granting certain licenses.  The question for decision was as  to the nature of the discretion granted.  Lord  Halsbury L. C. speaking for the House observed, in Susannah Sharp  v. Wakefield and Ors. (1).               "  ’discretion’  means when it  is  said  that               something is to be done within the  discretion               of  the authorities that that something is  to               be  done according to the rules of reason  and               justice,  not according to private  opinion  :               Rooke’s  case;  according  to  law,  and   not               humour.  It is to be, not arbitrary, vague and               fanciful, but legal and regular." In Nakkuda Ali v. M. F. De S. Jayaratna(2) the Judicial Com- mittee  in interpreting the words "where the Controller  has reasonable grounds to believe that any dealer is unfit to be allowed  to continue as a dealer" found in Regulation 62  of the Defence (Control of Textiles) Regulations, 1945 observed :               "After  all, words such as these are  commonly               found   when  a  legislature   or   law-making               authority  confers  powers on  a  minister  or               official.  However read, they must be intended               to serve in some sense as a condition limiting               the exercise of an otherwise arbitrary  power.               But if the question whether the condition  has               been  satisfied is to be conclusively  decided               by  the man who wields the power the value  of               the  intended restraint is in effect  nothing.               No doubt he must not exercise the power in bad               faith  : but the field in which this  kind  of               question  arises is such that the  reservation               for the case of bad faith is hardly more  than               a formality.  Their Lordships therefore  treat               the  words in reg. 62, ’where  the  Controller               has  reasonable  grounds to believe  that  any               dealer is unfit to be allowed to continue as a               dealer’  as  imposing a condition  that  there               must  in fact exist such  reasonable  grounds,               known to the Controller before he can  validly               exercise the power of cancellation." The  decision of the House of Lords in Padfield and Ors.  v. Minister  of Agriculture, Fisheries and Food and Ors.(3)  is of considerable importance.  Therein the material facts  are these : The  appellants  in that appeal, members of the  south  east regional committee of the Milk Marketing Board, made a com- (3)  [1968] 1 All E.R. 694.                             125

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plaint  to the Minister of Agriculture, Fisheries and  Food, pursuant  to  S. 19(3) of the  Agricultural  Marketing  Act, 1958, asking that the complaint be referred to the committee of  investigation  established under  that  enactment.   The complaint was that the board’s terms and prices for the sale of  milk  to  the  board did not  take  fully  into  account variations  between producers and the cost of bringing  milk to  a liquid market.  In effect the complaint was  that  the price differential worked unfairly against the producers  in the popular south east region, where milk was more valuable, the  cost  of transport was less and the price of  land  was higher.  There had been many previous requests to the board, but  these had failed to get the board, in which  the  south east producers were in a minority, to do anything about  the matter.   The Minister declined to refer the-matter  to  the committee.  By letters of May 1, 1964 and March 23, 1965, he gave  reasons which included that (in effect) his main  duty had been to decide the suitability of the complaint for such investigation  but that it was one which raised wide  issues and  which  he did not consider suitable for  such  investi- gation,   as  it  could  be  settled  through   arrangements available  to  producers  and  the  board  within  the  milk marketing  scheme;  that he had unfettered  discretion,  and that,  if  the complaint were upheld by  the  committee,  he might  be expected to make a statutory order to give  effect to  the committee’s recommendations.  Section 19(3)  (b)  of the Agricultural Marketing Act, 1958 read               "A committee of investigation shall be charged               with the duty, if the Minister in any case  so               directs, of considering, and reporting to  the               Minister, on any report made by the consumers’               committee  and  any  complaint  made  to   the               Minister  as  to the operation of  any  scheme               which,  in the opinion of the Minister,  could               not  be considered by a  consumers’  committee               under the last foregoing subsection." The appeal was allowed by the House of Lords (Lord Morris of Borth-Y-Gest  dissenting).  Lord Reid and Lord  Pearce  held that  where a statute conferring a discretion on a  Minister to  exercise  or not to exercise a power did  not  expressly limit  or  define the extent of his discretion and  did  not require  him to give reasons for declining to  exercise  the power,  his discretion might nevertheless be limited to  the extent  that  it must not be so used, whether by  reason  of misconstruction  of  the  statute or  other  reason,  as  to frustrate  the  object of the statute  which  conferred  it. Lord Hodson and Lord Upjohn held that although the  Minister had  full  or unfettered discretion under s.  19(3)  of  the Agricultural  Marketing Act, 1958, he was bound to  exercise it  lawfully  viz. not to misdirect himself in law,  nor  to take  into account irrelevant matters, nor to omit  relevant matters from consideration. 126               In  the course of his speech Lord Hodson  made               the following observations :               "If  the  Minister has a  complete  discretion               under  the Act of 1958, as in my  opinion,  he               has, the only question remaining is whether he               has  exercised  it lawfully.  It  is  on  this               issue that much difference of Judicial opinion               has  emerged, although there is no  divergence               of  opinion  on  the relevant  law.   As  Lord               Denning  M.R. said citing Lord Greene M.R.  in               Associated  Provincial Picture Houses Ltd.  v.               Wednesbury Corpn. (1).

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             "  a person entrusted with a  discretion  must               direct himself properly in law.  He must  call               his  own attention to the matters which he  is               bound  to consider.  He must exclude from  his               consideration matters which are irrelevant  to               the -matter that he has to consider’               Lord Pearce in his speech observed :               "If all the prima facie reasons seem to  point               in  favour of his taking a certain  course  to               carry  out  the intentions  of  Parliament  in               respect  of a power which it has given him  in               that  regard, and he gives no reason  whatever               for  taking a contrary course, the  court  may               infer that he has no good reasons and that  he               is not using the power given by Parliament  to               carry out its intentions.  In the present case               however  the Minister has given reasons  which               show that he was not exercising his discretion               in  accordance with the intentions of the  Act               of 1958.               In   the  present  case  it  is   clear   that               Parliament attached considerable importance to               the independent committee of investigation  as               a  means to censure that injustices  were  not               caused  by  the  operation  of  a   compulsory               scheme."               Lord Upjohn observed               "My  Lords, on the basic principles of law  to               be  applied  there was no real  difference  of               opinion,  the  great question being  how  they               should be applied to this case.  The  Minister               in exercising his powers and duties  conferred               on him by statute can only be controlled by  a               prerogative order which will only issue if  he               acts  unlawfully.  Unlawful behaviour  by  the               Minister   may  be  stated   with   sufficient               accuracy  for  the  purposes  of  the  present               appeal (and here I adopt the classification of               Lord Parker C.J. in the divisional court): (a)               by an               (1)   [1947] 2, All E.R. 682.                                    127               outright  refusal  to  consider  the  relevant               matter;  or  (b) by  misdirecting  himself  in               point  of law, or (c) by taking  into  account               some  wholly  irrelevant  or  extraneous  con-               sideration, or (d) by wholly omitting to  take               into account a relevant consideration.   There               is  ample  authority  for  these  propositions               which  were  not challenged in  argument.   In               practice  they  merge  into  one  another  and               ultimately  it becomes a question whether  for               one  reason or another the Minister has  acted               unlawfully   in  the  sense  of   misdirecting               himself in law, that is, not merely in respect               of some point of law but by failing to observe               the other headings which I have mentioned." In  Commissioners of Customs and Excise v. Cure  and  Deeley Ltd.(1) the power given to the Commissioners under S.  33(1) of the Finance Act, 1940 "to make regulations providing  for any  matter  for  which  provision appears  to  them  to  be necessary for the purpose of giving effect to the provisions of  this Part of the Act and of enabling them  to  discharge their  functions  thereunder . . . . . . " was held  not  to make  that authority the sole judge of what its powers  were

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as  well  as  the sole judge of the way in  which  it  could exercise such powers as it might have.  Sachs, J. who  spoke for the Court observed the legal position thus :                "In  the first place I reject the  view  that               the words appear to them to be necessary’ when               used  in  a  statute conferring  powers  on  a               competent  authority,  necessarily  make  that               authority  the  sole  judge of  what  are  its               powers as well as the sole judge of the way in               which  it can exercise such powers as  it  may               have.   It  is axiomatic that, to  follow  the               words  used by Lord Radcliffe in the  Canadian               case  ’the paramount rule remains  that  every               statute  is to be expounded according  to  its               manifest  or expressed intention’.  It  is  no               less  axiomatic that the application  of  that               rule  may  result  in  phrases  identical   in               wording   or  in  substance  receiving   quite               different  interpretations  according  to  the               tenor of the legislation under  consideration.               As an apt illustration of such a result it  is               not necessary to go further than Liversidge v.               Anderson(2)  and Nakkuda Ali  v.  Jayaratne(3)               which  cases  the words ’reasonable  cause  to               believe’  and ’reasonable grounds to  believe’               received quite different interpretations.               To my mind a court is bound before reaching  a               decision on the question whether a  regulation               is intra vires to examine the nature, objects,               and scheme of the (1) [1962] 1 Q.B. 340. (3) [1951] A.C.66. (2) [1942] A.C. 206 128 .lm15 piece  of  legislation as a whole and in the light  of  that examination to consider exactly what is the area over  which powers  art given by the section under which  the  competent authority is purporting to act." In  Roncarelli  v.  Duplessis(1),  while  dealing  with  the discretionary  power  of  the Quebec  Liquor  Commission  to cancel a liquor licence this is what Rand, J. observed : "A  decision to deny or cancel such a privilege lies  within the  ’discretion’  of the Commission; but  that  means  that decision  is to be based upon a weighing  of  considerations pertinent to the object of the administration. In public regulation of this sort there is no such thing  as absolute  and untrammeled ’discretion’ that is  that  action can  be  taken on any ground or for any reason that  can  be suggested  to mind of the administrator; no legislative  Act can,  without express language, be taken to  contemplate  an unlimited  arbitrary  power  exercisable  for  any  purpose, however  capricious or irrelevant, regardless of the  nature or  purpose  of the statute.  Fraud and  corruption  in  the Commission  may not be mentioned in such statutes  but  they are always implied as exceptions.  ’Discretion’  necessarily implies good faith in discharging public duty; there is  al- ways  a  perspective within which a statute is  intended  to operate;  and any clear departure from its lines or  objects is  just as objectionable as fraud or corruption.  Could  an applicant  be refused a permit because he had been  born  in another province, or because of the colour of his hair?  The ordinary   language   of  the  legislature  cannot   be   so distorted." In  particular  we would like to emphasize  the  observation

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that  "there is always a perspective within which a  statute is intended to operate". In Read v. Smith (2) it was held that the Governor-General’s power under the-Education Act to make such regulations as he "thinks  necessary to secure the due administration" of  the Act  has  been  held invalidly exercised in so  far  as  his opinion  as  to the necessity for such  regulation  was  not reasonably tenable. Coming  back to s. 237(b), in finding out its true scope  we have  to  bear in mind that that section is a  part  of  the scheme referred to earlier and therefore the said  provision takes  its colour from ss. 235 and 236.  In finding out  the legislative intent we (1)  [1959] S.C.R. (Canada Law Reports) 121. (2)  [1959] New Zealand Law Reports 996.                             129 cannot  ignore  the  requirements  of  those  sections.   ln interpreting  S. 237(b) we cannot ignore the adverse  effect of  the investigation on the company.  Finally we must  also remember  that the section in question is an inroad  on  the powers of the company to carry on its trade or business  and thereby an infraction of the fundamental right guaranteed to its shareholders under Art. 1 9 (1 ) (g)     and         its validity  cannot be upheld unless it is considered that  the power  in  question  is  a  reasonable  restriction  in  the interest of the     general  public.  In fact the  vires  of that  provision  was  upheld  by  majority  of  the   Judges constituting   the  Bench  in  Barium   Chemicals’   case(1) principally  on the ground that the power conferred  on  the Central  Government is not an arbitrary power and  the  same has  to be exercised in accordance with the  restraints  im- posed by law.  For the reasons stated earlier we agree  with the  conclusion reached by Hidayatullah, and Shelat, JJ.  in Barium   Chemicals’(1)   case   that   the   existence    of circumstances  suggesting  that the company’s  business  was being  conducted as laid down in sub-cl.(1) or  the  persons mentioned in sub-cl.(2) were guilty of fraud or  misfeasance or  other misconduct towards the company or towards  any  of its  members is a condition precedent for the Government  to form  the  required opinion and if the  existence  of  those conditions is challenged, the courts are entitled to examine whether those circumstances were existing when the order was made.  In other words, the existence of the circumstances in question  are  open to judicial review  though  the  opinion formed  by the Government is not amenable to review  by  the courts.  As held earlier the required circumstances did  not exist in this case. Next question is whether any reasonable authority much  less expert   body  like  the  Central  Government   could   have reasonably  made  the  impugned order on the  basis  of  the material  before it.  Admittedly the only relevant  material on the basis of which the impugned order can be said to have been made is the transaction of sale of preference shares of Albion  Plywoods Ltd.  At the time when the Government  made the impugned order, it did not know the market quotation for the  ordinary  share of that company as on the date  of  the sale of those shares or immediately before that date.   They did not care to find out that information.  Hence there  was no  material  before them showing that they  were  sold  for inadequate  consideration.   If as is now  proved  that  the market  price  of those shares on or about May 6,  1960  was only  Rs.   11 per share then the  transaction  in  question could  not have afforded any basis for forming  the  opinion required  by S. 237(b).  If the market price of an  ordinary share of that company on or about May 6, 1960 was only Rs. 1

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1 it was quite reasonable for the Directors to conclude that the  price  of the ordinary shares is likely to go  down  in view of the company’s proposal to put on the mar- (1)  [1966] Supp.  S.C.R. 311. 130 ket  another 50,000 shares as a result of the conversion  of the preference shares into ordinary shares.  We do not think that  any reasonable person much less any expert  body  like the Government, on the material before it, could have jumped to  the conclusion that there was any fraud involved in  the sale  of the shares in question.  If the Government had  any suspicion about that transaction it should have probed  into the  matter further before directing any investigation.   We are  convinced  that the precipitate, action  taken  by  the Government was not called for nor could be justified-on  the basis of the material before it.  The opinion formed by  the Government  was a wholly irrational opinion.  The fact  that one of the leading Directors of the appellant company was  a suspect  in  the  eye  of  the  Government  because  of  his antecedents, assuming without deciding, that the allegations against him are true, was not a relevant circumstance.  That circumstance  should  not  have been allowed  to  cloud  the opinion  of the Government.  The Government is charged  with the responsibility to form a bona fide opinion on the  basis of  relevant  material.   The opinion formed  in  this  case cannot be held to have been formed in accordance with law. In  the  result  we allow these appeals and  set  aside  the impugned order.  The respondents shall pay the costs of  the appellant  both in this Court as well as in the  High  Court (Hearing fee one set). Bachawat, J. The Central Government is authorized to appoint an  inspector to investigate the affairs of a company  under s. 235 clauses (a) and (b) of the Companies Act, 1956 on the applications of its members, under s. 235 clause (a) on  the report of the Registrar, under s. 237 clause (a)  sub-clause (i)  if  required by a special resolution  of  the  company, under  s. 237 clause (a) sub-clause (ii) if directed by  the court  and under s. 237 clause (b) if the Government  is  of the   opinion  that  there  -are  circumstances   suggesting malpractices  in  relation to the  company’s  affairs.   The investigation is mandatory under s. 235 clause (a) if it  is required  by  the company’s special resolution,  see  R.  v. Board of Trade Exp.  St. Martin Preserving Co. Ltd.(2) or if the Court so directs.  The Court has a discretion to  direct the investigation on being satisfied that the affairs of the company  should  be investigated, Re Miles  Aircrafts  Ltd., (No. 2)(2).  The investigation is a fact finding inquiry and its object is to ascertain whether in fact malpractices have been  committed  in relation to the company’s  affairs,  see Raja  Narayanlal Bansilal v. Manak Phiroz Mistry &  Anr.(3). On a consideration of the inspector’s report, the Government can  take appropriate action against the  delinquents  under ss. 242, 243 and 244. [1955] 1 Q.B,693,515.      (2) [1948] W.N.178. (3)  [1961] 1 S.C.R.417,430-6.                             131 Section  237(b)  provides that the  Central  Government  may appoint  one  or  more competent persons  as  inspectors  to investigate the affairs of the company and to report thereon in such manner as the Central Government may direct, "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,

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or in a manner oppressive of any of its members or that  the company was formed for any fraudulent or unlawful purpose; (ii) that 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 member; or (iii)     that  the  members of the company  have  not  been given, all the information with respect to its affairs which they might reasonably expect, including information relating to  the calculation of the commission payable to a  managing or  other director, the managing agent, the secretaries  and treasurers or the manager,. of the company." The  conditions for the exercise of the statutory power  are clearly  stated in s. 237(b).  It is well to bear  in  mind, firstly, that: v. 237(b) confers an administrative and not a judicial  power; secondly, that the power is  discretionary; thirdly, that the object of the investigation is to find out whether  in fact fraud etc., have been committed by  persons in  relation  to the company’s affairs; fourthly,  that  the condition  for  making  the order is the  opinion;,  of  the Central  Government that there are circumstances  suggesting fraud  etc.,  and lastly that there is no appeal  from  such opinion to the Court. The law recognises certain well recognised principles within which the discretionary power under s. 237(b) must be  exer- cised.   There  must be a real exercise of  the  discretion. The authority 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.   In 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).  It must act reasonably and not capriciously or   arbitrarily.   It  will  be  an  absurd   exercise   of discretion,  if,  for example, the authority forms  the  re- quisite 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.  Had  s.  237(b)  made  the opinion,  conclusive,  it  might be  open  to  challenge  as violative of Arts. 14 and 19 of’ 132 the Constitution, see : Corporation of Calcutta v.  Calcutta Tramways   Co.  Ltd.,(1)  distinguishing  Joseph   Kuruville Veilukunnel v. The Reserve Bank of India(2).  Section 237(b) is not violative ,of Arts. 14 and 19. 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 s.  23 7 (b) is not fulfilled.  On this ground I  interfered with  the  order  under s. 237 (b) in  Barium  Chemicals  v. Company Law Board(3). Let  me recall the words of s. 237(b) : "If, in the  opinion of   the   Central  Government,  there   are   circumstances suggesting...... The relevant matter is "the opinion of  the Central   Government".   The  condition  precedent  to   the exercise  of  power under S. 237(b) is the  opinion  of  the Government  and  not  the  existence  of  the  circumstances suggesting  one or more of the specified matters.   To  hold that  the factual existence of such matters is  a  condition precedent  to the exercise of the power is to  re-write  the section.  Section 237(b) must be interpreted in the light of

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its  own  language  and subject-matter.  We  miss  its  real import  if we begin by referring to the construction put  by other  judges on other statutes perhaps similar but not  the same.    The  decisions  are  useful  when  they  lay   down principles  of  interpretation or give the  meaning  of  the words which have become terms of art. The  decided cases show that normally, if the opinion of  an administrative  agency  is the condition  precedent  to  the exercise  ,of the power, the relevant matter is the  opinion of  the agency and -not the grounds on which the opinion  is founded.   In  Hubli  Electricity  Company  v.  Province  of Bombay(4) the Privy Council had occasion to construe S. 4(1) (a) of the Indian Electricity Act (TX of 1910) which read : "The Provincial Government may, if in its opinion the public interest  so  requires,  revoke  a licence  in  any  of  the following cases, namely, (a)  where  the  licensee in the opinion of  the  Provincial Government  makes wilful and unreasonably prolonged  default in doing anything required of him by or under this Act." The Government acting under S. 4(1)(a) revoked the  licence. The  licensee filed a suit for a declaration that the  order was invalid.  The Government pleaded that it had formed  the opinion as mentioned in S. 4 (1 ) (a), and contended that on the true construction of the Act the Court was not  entitled to go behind its (1)  [1964] 5S.C.R.25. (3)  [1966] ’Supp.  S.C.R. 311, 343. (2)  [1962] Supp. 3 S.C.R. 632. (4)  L.R.76 I.A. 57.                             133 opinion.  The appellant submitted that the opinion  referred to in s.  4(1)  (a)  was not the subjective opinion  of  the Government but an   opinion  subject  to  objective,  tests. Lord Uthwatt said .-               "Their  Lordships now turn to the question  of               construction  of s. 4, sub-s.  1  (a).   Their               Lordships  are  unable to see  that  there  is               anything in the language of the sub-section or               in  the subject-matter to which it relates  on               which to found the suggestion that the opinion               of   the  Government  is  to  be  subject   to               objective tests.  In terms the relevant matter               is  the  opinion  of the  Government  not  the               grounds  on which the opinion is  based.   The               language leaves no -room for the relevance  of               a  judicial examination as to the  sufficiency               of  the grounds on which the Government  acted               in forming an opinion.  Further, the  question               on  which  the opinion of  the  Government  is               relevant  is  not whether a default  has  been               wilful and unreasonably prolonged but  whether               there  has  been a  wilful  -and  unreasonably               prolonged default.  On that point the  opinion               is  the determining matter, -and-if it is  not               for   good  cause  displaced  as  a   relevant               opinion-it is conclusive." The  opinion is displaced as a relevant opinion if it  could not be formed by any sensible person on the material  before him.   The reason is that the Court may then infer that  the authority  either did not honestly form the opinion or  that in  forming  it, it did not apply its mind to  the  relevant facts.   In  Ross-Clunis  V.  Papadopoullos  &  Ors.(1)  the commissioner of Limassol imposed a fine on the Greek Cypriot inhabitants  in  the  area after holding  an  inquiry  under regulation  5  of the Cyprus  Emergency  Powers  (Collective

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Punishment)  Regulations,  1955  which  provided  that   "in holding inquiries under these regulations, the  commissioner shall satisfy himself that the inhabitants of the said  area are given adequate opportunity of understanding the subject- matter  of the inquiry and making representations  thereon." The  Privy Council upheld the commissioner’s order  and  set aside the order, of certiorari quashing it.  With regard  to the  contention of the commissioner that the only duty  cast on him was to satisfy himself of those facts, that the  test was  a subjective one and that in the absence of  bad  faith his statement that he was so satisfied was a complete answer to  the argument that he had failed to comply with  reg.  5. Lord  Morton said :-"Their Lordships feel the force of  this argument,  but  they think that if it could be  shown  there were no grounds on which the appellant could be satisfied, a court might infer either that he did not honestly form  that view  or that, in forming it, he could not have applied  his mind to the (1)  [1958] 2 All E.R. 23. 134 relevant  facts.  In the present case, however,  there  were ample grounds on which -the appellant could feel ’satisfied’ of the matters mentioned in reg. 5 (2)" see -also : State of Maharashtra v. B. K.Takkamore(1). The other decisions cited at the bar are not helpful on  the construction   of  s.  237(b).   In   construing   statutory provisions  of this description, the actual words  used  and their subject-matter are of the utmost importance.  Thus  if the  statute  provides  that  "if  in  the  opinion  of  the Provincial Government it is necessary or expedient to do  so the   Provincial  Government  may,  by  order   in   writing requisition any land for any public purpose", the  existence of the public purpose but not its necessity or expediency is justiciable,  see : Province of Bombay v. K.  S.  Advani(2). The  reason  is  that the factual existence  of  the  public purpose  is  by  the language of  the  section  a  condition precedent of the requisition; and now in view of Art.  31(2) of  the Constitution, this is a  constitutional  requirement irrespective  of  the language of the  section.   Where  the statute   authorises  the  executive  action  "if   AB   has reasonable  grounds to believe" the certain circumstance  or thing,  it  means  what  it says.   AB  must  in  fact  have reasonable grounds for believing a circumstance or a  thing, see  : Nakkuda Ali v. M. F. De S. Jawaratne(3).  But  in  an emergency legislation, such a phrase was construed to impose only   the  condition  that  AB  honestly  thought  he   had reasonable grounds for belief, see : Liversidge v. Sir  John Anderson(4)  but such a construction need not invariably  be given, see King Emperor v. Vimlabai(5).  In Carltona Ltd. v. Commissioner  of Works(6) the Court held -that an  emergency legislation  authorising  requisition of  premises,  "if  it appears to that authority to be necessary or expedient so to do in the interest of public safety, etc.", the court  could not  investigate  the  grounds  or  reasonableness  of the decision  in  the  absence of an allegation  of  bad  faith. These decisions on emergency legislation stand on a peculiar footing.   ’Me courts are not inclined to  fetter  executive action when the country is being raided by the enemy.   They show  that the subject-matter of the statute has a  material bearing  on its construction.  To give another example,  the courts  are  not  inclined  to  interfere  with  orders   of reference  of industrial disputes, see : State of Madras  v. C. p. Sarathy and another(7). Swadeshi Cotton Mills Co. Ltd. v.  State of U.P. & Ors. (8) but even such orders  -are  not immune  from judicial review, see State of Bombay v.  K.  P.

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Krishnan & Ors.      (1) [1967] 2S.C.R.583,585,588.(2) [1950] S.C.R.621.      (3) [1951] A.C.66,77.    (4) [1942] A.C. 206.      (5) L.R. 73. I.A. 144.   (6) [1943] All E.R. 560.      (7) [1953] S.C.R. 334, 346-47.(8)  [1962] 1 S.C.R. 422. (9)  [1961] 1 S.C.R. 227.                             135 Let  us  now  turn to the facts of the  present  case.   The Central  Government passed the impugned order under  S.  237 (b) on April 11, 1963.  The order recited "Whereas the Central Government is of the opinion that there are  circumstances  suggesting that the business  of  Rohtas Industries Limited,, a company having its registered  office at Dalmianagar, Bihar, (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." The  order  then  stated  that in  exercise  of  the  powers conferred  by  s. 237 (b) sub-clauses (i) and  (ii)  of  the Companies Act, 1956 the Central Government appointed Shri S. Prakash  Chopra as inspector to investigate the  affairs  of the said company for the period April 1, 1958 up to date and should he consider it    necessary also for the period prior to April 1, 1958. Learned  Attorney-General conceded that the affidavit of  R. C.  Dutt  affirmed  on  August  25,  1965  and  the  further affidavit of   Sisir Kumar Datta on October 4, 1968 pursuant to the order of this Court dated September 9, 1968 disclosed all  the materials which were before the Central  Government when  it passed the order dated April 11, 1963.  He  further conceded  that the only circumstance suggesting fraud  etc., in relation to the company’s affairs after April 1, 1958 was the  transaction  relating  to 3,000  preference  shares  in Albion  Plywoods Ltd., on May 6, 1960 and that but for  this transaction  the  Government  would  not  have  passed   the impugned  order.  The materials before the  Government  with regard to the transaction were as follows : Albion  Plywoods Ltd., had issued 50,000 ordinary shares of Rs. 10 and  5,000 5-1/2%  cumulative redeemable preference shares of Rs.  100. 2,000 preference shares were held by New Central Jute  Mills Company  Ltd.,  and  2,000 preference shares  were  held  by Rohtas Industries Ltd.  New Central Jute Mills Co. Ltd.  and the Rohtas Industries Ltd., were both controlled by the Sahu Jains  or  Sri  S.  P. Jain.   The  preference  shares  were redeemable at the option of the Albion Plywoods Ltd., at any time  after  10  years  from the  date  of  their  issue  on September  7,  1957.  In April 1960 New Central  Jute  Mills Co.,  Ltd., sold 2,000 preference shares held by it to  M/s. Bagla  &  Co., and M/s.  Poddar Sons at Rs.  100  per  share against  cash  payment.  On May 6,  1950  Rohtas  Industries Ltd., sold 3,000 preference shares held by it to M/s.  Bagla &  Co., at Rs. 100 per share.  On the dates when  the  sales were  effected the management of New Central Jute Mills  Co. Ltd.,  and Rohtas Industries Ltd., knew that the  preference shares would be converted into ordinary shares.  As a matter of fact Albion Plywoods Ltd., by a special resolution passed on May 20, 1960 converted 5,000 136 preference shares into 50,000 ordinary shares and M/s.  Sahu Jains  were  appointed as its managing agents.   The  market price  of an ordinary share as shown in the  Indian  Finance was  Rs. 14 on May 13, 1960, Rs. 15-44 on May 20, 1960,  Rs. 17  on May 27, 1960, Rs. 17 on June 10, 1960 and Rs.  14  on

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June 17, 1960.  The charge is that the management of  Rohtas Industries  Ltd.,  sold the preference shares  at  an  under value  with  a view to benefit the  managing  agents,  their friends  and brokers knowing fully well that  on  conversion into  ordinary shares they would fetch a much higher  price. The  charge was originally made with regard to the  sale  of 2,000  preference shares held by New Central Jute Mills  Co. Ltd., in a letter dated January 27, 1961 addressed by a com- plainant  to  the  Secretary to  the  Government  of  India, department  of  company law administration.   In  course  of investigation  into  this  charge,  the  regional  director, company law administration, Calcutta, discovered that Rohtas Industries  Ltd., also had sold 3,000 preference  shares  to M/s.  Bagla & Co., on May 6, 1960.  The annual return  filed by Albion Plywoods Ltd., on May 30, 1960 showed that  32,000 ordinary shares in the company were then held by the members of the Bagla family.  These materials are to be found in the complaint dated January 27, 1961 with regard to the sale  of 2,000 preference shares by New Central Jute Mills Co.  Ltd., and  the correspondence passed between the Secretary to  the Government  of  India, ministry of  commerce  and  industry, department of company law administration, New Delhi and  the regional director, company law administration, Calcutta.  On the  subject of the sale of preference shares there  was  no other  material  before the Government when  it  passed  the order dated April 11, 1963. Several  things  are to be noticed in this  connection.   No complaint with regard to the impropriety of the sale of  the preference shares held by Rohtas Industries Ltd. was made to the  Central Government by any of its creditors or  members. There   was  no  material  before  the  Central   Government suggesting  that  M/s.   Bagla & Co.,  held  the  preference shares  as benamidars of M/s.  Sahu Jains or their  friends. On May 30, 1960 M/s.  Bagla & Co., continued to hold  32,000 ordinary shares in Albion Plywoods Ltd. it is not  suggested that  the market price of preference shares on May  6,  1960 was  more  than Rs. 100.  The market price of  the  ordinary shares  fluctuated between Rs. 14 and Rs. 17 between May  13 and  June 17, 1960.  But there was no material showing  that the  huge  block  of  50,000  ordinary  shares  issuable  on conversion  of 5,000 preference shares could be sold in  the market for more than Rs. 10 per share.  No attempt was  made to  find out the market price of ordinary shares on  May  6, 1960.  It now transpires that on that date the price was Rs. 11.   The charge that the sale of the Preference shares  was fraudulent or improper was not corn- 137 municated to the Rohtas Industries Ltd., nor were they asked to give their explanation on the subject. I think it is a border line case.  The Court has no power to review the facts as an appellate body nor can it  substitute its  opinion  for that of the Government.  But  the  curious feature of the case is that on reading the affidavits we are left with the impression that the Government did not rely on the  transaction  relating to the sale of  3,000  preference shares  of  Albion Plywoods Ltd., as suggesting  fraud.   It appears that the Government passed an order under S.  237(b) appointing  an inspector to investigate the affairs  of  New Central Jute Mills Co. Ltd. but it seems that the Government did  not rely on the sale of 2,000 preference shares by  the management  of  this  company as  a  relevant  material  for passing the order, see the report of New Central Jute  Mills v.  Finance Ministry(1) at pages 160-1.  On the whole, I  am inclined  to  think that there was no  material  before  the Government  on  which it could form the opinion  that  there

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were  circumstances suggesting fraud etc., as  mentioned  in the  impugned order dated April 11, 1963. 1 -am,  therefore, constrained  to  hold  that it formed  the  opinion  without applying  its mind to the materials before it.  The  opinion so formed is in excess of its powers and cannot support  the order under S. 237(b). In the result, I agree to the order proposed by Hegde, J. V.P.S.                        Appeals allowed.. (1) A.I.R. 1966 Cal. 151. 7 Sup C1169-10 138