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PETITIONER: THE BARIUM CHEMICALS LTD.  AND ANR.

       Vs.

RESPONDENT: THE COMPANY LAW BOARD AND OTHERS

DATE OF JUDGMENT: 04/05/1966

BENCH: MUDHOLKAR, J.R. BENCH: MUDHOLKAR, J.R. SARKAR, A.K. (CJ) HIDAYATULLAH, M. BACHAWAT, R.S. SHELAT, J.M.

CITATION:  1967 AIR  295            1966 SCR  311  CITATOR INFO :  R          1969 SC 707  (16,19,20,39,46)  RF         1970 SC 564  (26,228,229,235)  R          1970 SC1789  (14)  RF         1972 SC1816  (18)  F          1974 SC1957  (12)  R          1974 SC2105  (10)  RF         1977 SC 183  (26)  R          1978 SC 597  (222)  D          1982 SC 149  (1245)  E          1984 SC 273  (45)  F          1984 SC1182  (11)  C          1984 SC1271  (26)  R          1986 SC 872  (119)  R          1986 SC2173  (12)  R          1986 SC2177  (45)  E&D        1987 SC 294  (38)  R          1990 SC 334  (105)  RF         1990 SC1277  (51)  RF         1991 SC1557  (21)  RF         1992 SC1020  (26)

ACT: Companies Act, 1956, ss. 10E, 234, 235, 236 and 237-scope of Whether s. 237(b) violative of Articles 14 and 19(1) (g)  of the Constitution.

HEADNOTE: The  Company Law Board was constituted under Section 10E  of the   Companies  Act,  1956,  and  the  Central   Government delegated some of its powers under the Act, including  those under Section 237, to the Board.  The Government also framed rules  under Section 642(1) read with Section 10E(5)  called the  Company  Law Board (Procedure) Rules 1964,  Rule  3  of which empowered the Chairman of the Board to distribute  the business  of  the Board among himself and  other  member  or members  and to specify the cases or classes of cases  which were to be considered jointly by the Board.  On February  6, 1954,  under the power vested in him by Rule 3 the  Chairman passed  an  order  specifying  the  cases  that  had  to  be

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considered  jointly by himself and the only other member  of the  Board and distributing the remaining  business  between himself  and the member.  Under this order the  business  of ordering  investigations  under  Sections 235  and  237  was allotted to himself to be performed by him singly. On May 19, 1965 an order was issued on behalf of the Company Law  Board  under  Section  237(b)  of  the  Companies  Act. appointing four inspectors to investigate the affairs of the appellant  company, on the ground that the Board was of  the opinion  that there were circumstances suggesting  that  the business  of the appellant company was being conducted  with intent  to  defraud  its creditors,  members  or  any  other persons and that the persons concerned in the management  of the affairs of the company had in connection therewith  been guilty  of fraud, misfeasence and other misconduct  towards the company and its members. Soon afterwards the appellants filed a petition under  Art. 226 of the Constitution for the issue of a writ quashing the order  of  the Board on the grounds, inter  alia,  that  the order  had been issued mala fide that there was no  material on which such an order could have been made, etc. One of the affidavits filed in reply to the petition was by the  ,Chairman  of the Company Law Board, in  which  it  was contended, inter alia, that there was material on the  basis of  which the impugned order was issued and he  had  himself examined  this  material and formed  the  necessary  opinion within  the meaning of sec. 237(b) before the issue of  the order;  and  that it was not competent for the court  to  go into  the  question  of the adequacy or  otherwise  of  such material.   In  the  course  of  replying  to  some  of  the allegations in the petition it was stated in paragraph 14 of the  affidavit, however, that from memoranda  received  from some  ex-directors of the company and other  examination  it appeared,  inter alia, that there had been  delay,  bungling and faulty planning of the company’s main project ,resulting in  double expenditure; that the company had  incurred  huge losses;  there had been a sharp fall in the price  of  the company’s SCI-22 312 shares; and some eminent persons had resigned from the Board of Directors of the company because of differences with  the Managing  Director  on account of the manner  in  which  the affairs of the company were being conducted. The appellant’s petition was dismissed by the High Court. In  the appeal to this Court it was contended on  behalf  of the appellants: (1)  That  the  order was made made fide on account  of  the competing  interests  of  a firm in which  the  Minister  in charge of the department was interested and also because  of his personal hostility against the second petitioner who was the  managing director of the company; that the  High  Court had  erred in deciding the petition on the footing that  the first respondent Board was an independent authority and that it was its Chairman who on his own had formed the  requisite opinion and passed the order and therefore the motive or the evil eye of the Minister was irrelevant; the High Court also erred in failing to appreciate that even though the impugned order  was  by the Chairman, as under s. 10E(6)  it  had  to receive  and in fact received the Minister’s  agreement,  if the  Minister’s  mala  fides were  established,  that  would vitiate the order; furthermore, in the circumstances of  the case. the High Court ought to have allowed the appellants an opportunity  to  establish their case of mala  fide  by  the cross-examination of the Minister and the Chairman, both  of

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whom had filed affidavits. (2)  That clause (b) of Section 237 required two things: (i) the  requisite  opinion of the Central  Government,  in  the present  case,  of  the Board, and  (ii)  the  existence  of circumstances  suggesting  that the company’s  business  was being  conducted as laid down in sub-clause (i) or that  the persons  mentioned in sub-clause (ii) were guilty of  fraud, misfeasance or misconduct towards the company or any of  its members; though the opinion to be formed is subjective,  the existence of circumstances set out in cl. (b) is a condition precedent  to  the formation of such opinion  and  therefore even if the impugned order were to contain a recital of  the existence  of those circumstances, the court can  go  behind that  recital and determine whether they did in fact  exist, that  even taking the circumstances said to have been  found by the respondent Board, they were extraneous to see. 237(b) and could not constitute a basis for the impugned order. (3)  That  the impugned order was in fact made on the  basis of allegations contained in memoranda submitted by four  ex- directors  of the company who continued to be  shareholders; and  by  ordering  an  investigation  under  s.  237(b)  the respondent Board had in effect enabled these shareholders to circumvent  the  provisions of s. 235 and S. 236.   On  this ground also the impugned order was therefore made mala  fide or was otherwise invalid. (4)  That  the impugned order was in any case bad as it  was passed by the Chairman of the Respondent Board alone  acting under  rules  under  which such a  power  was  conferred  in contravention  of the provisions of Section 10E.  The  power under s. 237 was delegated by the Central Government to  the Board  as a whole and could not in turn be sub-delegated  to the  Chairman  alone in the absence of a provision  such  as sub-sec. (4A) added to sec. 10E after the impugned order was issued, and which now enabled the solidarity of the Board to be  broken.   Such  sub-delegation  could  not  be  done  in accordance  with  rules made under s.  10E(5)  which  merely enabled the procedure of the Board to be regulated. 313 (5)  That the impugned order was bad because Section  237(b) itself  was bad as offending against Arts. 14 and 19 of  the Constitution. HELD:     (By  Hidayatullah.   Bachawat  and  Shelat,   JJ., Sarkar C.J. and Mudholkar J. dissenting): The impugned order must be set aside. (1)  (By the Court): The respondents had failed to show that the  impugned order was passed mala fide.  L330 E; 335  B-C; 342 F; 354 F-G]. (Per  Sarkar C.J. and Mudholkar J.3: The decision  to  order the   investigation  was  taken  by  the  Chairman  of   the respondent  Board and there was nothing to indicate that  in arriving at that decision he was influenced by the Minister. If   the  decision  arrived  at  by  the  Chairman  was   an independent one, it could not be said to have been  rendered mala  fide  because it was later approved by  the  Minister. [320 D]. In  a  proceeding under Art. 226 of  the  Constitution,  the normal rule is, as pointed out by this Court in The State of Bombay  v. Purshottam Jog Naik [1952] S.C.R. 674, to  decide disputed questions on the basis of affidavits and that it is within  the discretion of the High Court whether to allow  a person  who  has sworn an affidavit before it to  be  cross- examined  or not.  The High Court having refused  permission for  the cross-examination, it would not be appropriate  for this  Court, while hearing an appeal. by special  leave,  to interfere lightly with the exercise of its discretion.  [320

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G-H; 321 A]. (Per  Shelat  J.):  The allegations of  mala  fides  in  the petition  were  not grounded on any knowledge  but  only  on "reasons  to believe".  Even for their reasons  to  believe, the  appellants had not disclosed any information  on  which they  were founded.  No particulars of the main  allegations were  given.   Although in a case of this kind it  would  be difficult  for  a petitioner to have personal  knowledge  in regard to an averment of mala fides, where such knowledge is wanting, he must disclose his source of information so  that the  other side gets a fair chance to verify it and make  an effective answer.  In the absence of tangible materials, the only  answer which the respondents could array  against  the allegations as to mala fides would be one of general denial. [352 D-H]. In  a  petition under Art. 226, there is  undoubtedly  ample power in the High Court to order attendance of a deponent in court  for being cross-examined.  Where it is  not  possible for the court to arrive at a definite conclusion on  account of   there  being  affidavits  on  either  side   containing allegations  and counter-allegations, it would not  only  be desirable  but in the interest of justice the duty  also  of the  court  to summon a deponent  for  cross-examination  in order  to arrive at the truth.  However, the High Court  was rightly of the view that in the present case even if the two deponents  were  to be called  for  cross-examination,  they could  in the absence of particulars of allegations of  mala fides  and the other circumstances of the case, only  repeat their  denials in the affidavits of the allegations  in  the petition and therefore such cross-examination would not take the court any further than the affidavits. [353 D-H].      (2) (Per Hidayatullah, Bachawat and Shelat   JJ. Sarkar, C. J.  and     Mudholkar     J.     dissenting,):The circumstances  disclosed  in paragraph 14 of  the  affidavit must be regarded as the  only  materials  on  the  basis  of which  the  respondent  Board  formed  the  opinion   before ordering  an  investigation  under  Section  237(b).   These circumstances could not reasonably suggest that the business of the company was being conducted to defraud the creditors, members or other L/S5SCI-22(a) 314 persons  or that the management was guilty of fraud  towards the   company   and  its  members;  they   were   therefore, -extraneous  to the matters mentioned in s. 237(b)  and  the impugned  order was ultra vires the Section. [339 A-D,  G-H; 340 A; 342 G-H; 343 AC; 365 D-E; 367 A-C]. (Per  Hidayatullah J.): The power-under Section 237(b) in  a discretionary  power  and the first  requirement  for  its exercise  is  the ’honest formation of an opinion that  an investigation  is necessary. ,The next requirement  is  that "there are circumstances suggesting" the inferences stout in the Section.   An  action,  not  based  on   circumstances suggesting  an  inference of the enumerated kind  will  not be valid.  No doubt the formation of opinion is subjective but the existence of circumstances relevant to the inference as  the sine qua non for action must be  demonstrable.   If their existence is questioned, it has to be proved at  least prima  facie.   It  is not sufficient to  assert,  that  the 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  or  the   withholding   of information of a particular kind. [335 F-H; 336 G-H]

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An examination of the affidavit filed by the Chairman of the respondent  Board showed that the material examined  by  the Chairman merely indicated the need for a deeper probe.  This was  not  sufficient.   The material  must  suggest  certain inferences  and  not  the need for "a  deeper  probe".   The former  is a definite conclusion the ’latter a mere  fishing expedition. [338 E-H]. (Per Shelat J.): Althouugh the formation of opinion by  cen- tral  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 what is set  out  in sub-clauses  (i), (ii) or (iii) of s. 237 (b).  The  expres- sion   "circumstances   suggesting"   cannot   support   the construction  that even the existence of circumstances is  a matter  of  subjective opinion.  It is hard  to  contemplate that  the  legislature  could have left  to  the  subjective 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.  If it is shown that the circumstances do not  exist or that they are such that it is  impossible  for any  one  to  form an opinion therefrom  suggestive  of  the matters   enumerated   in  s.  237  (b)   the   opinion   is challengeable  on the ground ’of non-application of mind  or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute. [362 H; 363 A-G]. (Per Sarkar C.J., and Mudholkar J.. dissenting): An examina- tion of section 237 would show that cl. (b) thereof confers a  discretion  upon the ’Board to appoint  an  Inspector  to investigate  the  affairs of a company.  The words  "in  the opinion  of"  govern  the  word  "there  are   circumstances suggesting"  and  not  the words "may  do  so".   The  words ’circumstances’  and  ’suggesting’  cannot  be   dissociated without making it   impossible  for  the Board  to  form  an ’opinion’ at all.  The formation   of   an   opinion   must, ’therefore, be as to whether there are  circumstances suggesting the existence of one or more of ’the matters  in sub-cls.  (i)  to (iii) and not about  anything  else.   The opinion  must of course not have been arrived at mala  fide. To  say  that the, opinion to be formed must be as  to  the necessity                             315 of making an investigation would be making a clear departure from the language in which s. 237(b) is couched.  It is only after the formation of certain opinion by the Board that the stage  for  exercising  the  discretion  conferred  by   the provision is reached.  The discretion conferred to order  an investigation  is administrative and not judicial since  its exercise one way or the other does not affect the rights  of a  company nor does it lead to any serious consequences  as, for instance, hampering the business of the company.  As has been pointed out by this Court in Raja Narayanalal  Bansilal v.  Maneck Phiroz Mistry and Anr. [1961] 1 S.C.R.  412,  the investigation   undertaken  under  this  provision  is   for ascertaining  facts  and is thus  merely  exploratory.   The scope  for judicial review of the action of the Board  must, therefore be strictly limited.  If it can be shown that  the Board  had in fact not formed an opinion its order could  be successfully challenged.  There is a difference between  not

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forming  an  opinion  at all and  forming  an  opinion  upon grounds,  which, if a court could go into that  question  at all,   could  be  regarded  as  inapt  or  insufficient   or irrelevant. The  circumstances set out in paragraph 14 of the  affidavit of  the Chairman of the respondent Board were  nothing  more than certain conclusions drawn by the Board from some of the material  which it had before it.  Moreover, the  expression "inter  alia"  used  by the Chairman  would  show  that  the conclusions  set out by him specifically were not  the  only ones  which  could  be drawn from the  material  before  the Board.   It  would not therefore be right  to  construe  the affidavit  to mean that the only conclusions  emerging  from the  material  before  the  Board  were  those  set  out  in paragraph 14. [352 A-E]. (3)  (Per Sarkar C. J. and Mudholkar J.): As it could not be said  that the investigation had been ordered either at  the instance  of  4 ex-directors of the company or on  the  sole basis  of  the  memoranda submitted by them,  there  was  no contravention  of the provisions of Sections 235 and 236  of the Act. [328 C, E]. (4)  (Per   Sarkar  C.  J.,  Mudholkar  and  Bachawat   JJ., Hidayatullah  and  Shelat JJ., dissenting): Rule  3  of  the Company  Law  Board (Procedure) Rules, 1964, and  the  order dated  April 6, 1964 made pursuant thereto distributing  the business of the Board, were both valid.  The impugned  order was  not  therefore  invalid  because it  was  made  by  the Chairman alone and not by the Board. [330 C. D; 342 B-C]. (Per Sarkar C.J. and Mudholkar J.): Bearing in mind the fact that  the  power  conferred  by  Section  237(b)  is  merely administrative, the allocation of the business of the  Board relating to the exercise of such power must be regarded as a matter of procedure.  Strictly speaking the Chairman to whom the  business  of the Board is allocated does not  become  a delegate  of the Board at all.  He acts in the name  of  the Board  and  is no more than its agent.  But even  if  he  is looked upon as a delegate of the Board and, therefore,  sub- delegate  vis-avis  the Central Government, he would  be  as much subject to the control of the Central Government as the Board  itself,  for sub-s. (6) of s. 10E provides  that  the Board shall, in the exercise of the powers delegated to  it, be subject to the control of the Central Government and  the order distributing the business was made with permission  of the  Central  Government.  Bearing in mind  that  the  maxim delegates  non protest delegable sets out what is  merely  a rule  of  construction, subdelegation can  be  sustained  if permitted   by   an  express  provision  or   by   necessary implication.   Where, as here, what is sub-delegated  is  an administrative  power  and  control  over  its  exercise  is retained  by  the nominee of Parliament, that is,  here  the Central  Government, the power to make a delegation  may  be inferred, [329 F-H; 330 A-C]. 316 (Per Bachwat J.): The function under s. 237(b) involves  the exercise  of a discretion.  Prima facie all the  members  of the  Board acting together were required to  discharge  this function  and  they  could not delegate their  duty  to  the Chairman.  However, under ss. 10E(5) and 642(1), the Central Government  may frame rules regulating the procedure of  the Board and generally to carry out the purpose of the Act.  In the  context  of  s. 10E, the rule making  power  should  be construed  liberally.  The Central Government has  power  to constitute  the Company Law Board, to delegate its  function to the Board and to control the Board in the exercise of its delegated  functions.  In this background, by conferring  on

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the Central Government the additional power of framing rules regulating the procedure of the Board and generally to carry out  the  purposes of s. 10E Parliament must  have  intended that the internal Organisation of the Board and the mode and manner  of  transacting  its business  should  be  regulated entirely by rules framed by the Government.  The  Government had,  therefore,  power  to  frame  the  Company  Law  Board (Procedure)   Rules.  1964  authorising  the   Chairman   to distribute  the business of the Board.  In the  exercise  of the power conferred by this rule, the Chairman assioned  the business under s. 237 to himself.  The Chairman alone could, therefore, pass the impugned order. [341 F-H; 342 A-C]. (Per  Hidayatullah  J.): The new sub-section 4A  of  Section 10E,  which was not there when the impugned order was  made. enables  the  work  of the Board  to  be  distributed  among members,  while sub-s. (5) merely enables the  procedure  of the  Board  to be regulated.  These are two  very  different things.  One provides for distribution of work in such a way that  each  constituent part of the Board,  properly  autho- rised.  becomes  the  Board.  The  other  provides  for  the procedure of the Board.  What is the Board is not a question which  admits  of solution by procedural rules  but  by  the enactment   of  a  substantive  provision  allowing  for   a different delegation.  Such an enactment has been framed  in relation  to the Tribunal constituted under s. 10B  and  has now  been  framed under s. 10E also.   The  new  sub-section involves   a  delegation  of  the  powers  of  the   Central Government to a member of the Board which the Act previously allowed  to be made to the Board only.  The statute,  as  it was  formerly, gave no authority to delegate if  differently or to another person or persons.  When it spoke of procedure in sub-section (5) it spoke of the procedure of the Board As constitlited.   The  lacuna  in  the  Act  must  have  felt; otherwise there was no need to enact sub-section (4A),  [334 B-E]. (Per Shelat T.): The statute having permitted the delegation of  powers to the Board only as the statutory Authority  the powers  so delegated have to be exercised by the  Board  and not  by its components.  To authorise its Chairman  to  hand over  those functions and powers to the.  Board only as  the statutory  Authority, the powers so by the Act.  The  effect of  r.  3  and the order of distribution  of  work  made  in pursuance  thereof was not laying down a procedure  but  au- thorising  and,  making a sub-delegation in  favour  of  the members.   The  only procedure which  the  Government  could prescribe was the procedure in relation to Board the  manner in which it should discharge and exercise the functions  and Powers  delegated to it, but it could not make  a  provision which   under  the  cloak  of  procedure   authorised   sub- delegation. [369 F-H; 370 A, B]. (5)  (By  the Court): The provisions of Section 237(b)  were not  violative  of Articles 14 and 19 of  the  Constitution. [328 F-G; 342 D-F; 371 H]. Sections  234, 235, 236 and 237(b) gave power  to  different authorities i.e. the Registrar and the Government,  provided powers which                             317 are  different in extent and nature, exercisable in sets  of circumstances  and in a manner different from  one  another. Therefore,  there  is no question  of  discriminatory  power having been vested in the Government under these Sections to pick and choose between (one company and the other. [370  G, H]. When investigation is ordered, there would be  inconvenience in the carrying on of the business of the company.  It might

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also  perhaps  shake  the  credit  of  a  company.   But  an investigation  directed under section 237(b) is  essentially of  an  exploratory  character  and it  is  not  as  if  any restriction is placed on the right of the concerned  company to carry on its business and no restrictions are imposed  on those  who  carry on the company’s affairs.  Even if  it  is regarded as a restriction, it is not possible to say that it is not protected as a reasonable restriction under Clause  6 of Art. 19(1). [371 B-D]. Case law referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 381 of 1966. Appeal  by special leave from the judgment and  order  dated October 7, 1965 of the Punjab High Court (Circuit Bench)  at Delhi in Civil Writ No. 1626-C of 1965. M.   C.  Setalvad,  R. K. Garg and S. C. Agarwala,  for  the appellants. C.   K. Daphtary, Attorney-General, B. R. L. Iyengar, R.  K. P. Shankardass and R. H. Dhebar, for respondents Nos.  1 and 3 to 7. S.   Mohan Kumaramangalam, C. Ramakrishna and A. V. V. Nair, for respondent No. 2. The  dissenting Opinion Of SARKAR, C.J. and  MUDHOLKAR.,  J. was  delivered by MUDHOLKAR, J HIDAYATULLAH.   BACHAWAT  and SHELAT JJ. delivered separate judgments allowing the Appeal. Mudholkar,  J. On May 19, 1965 Mr. D. S. Dang, Secretary  of the  Company  Law  Board issued an order on  behalf  of  the Company  Law  Board made under s. 237 (b) of  the  Companies Act,   1956   appointing  4  persons   as   Inspectors   for investigating  the  affairs of the  Barium  Chemicals  Ltd., appellant  No. I before us, since its incorporation  in  the year 1961 and to report to the Company Law Board inter  alia "all the irregularities and contravention in respect of  the provisions  of the Companies Act, 1956 or of any  other  law for  the  time  being in force and  the  person  or  persons responsible for such irregularities and contravention."  The order was made by the Chairman of the Board, Mr.. R. C. Dutt on behalf of the Board by virtue of the powers conferred  on him by certain rules to which we shall refer later.  On June 4, 1965 the Company preferred a writ petition under Art. 226 of  the Constitution in the Punjab High Court for the  issue of  a writ of mandamus or other appropriate writ,  direction or order quashing the order of the Board dated May 19, 1965. The  Managing  Director, Mr. Balasubramanian joined  in  the petition as petitioner No. 2. The writ petition is  directed against 7 respondents, the first of which is the 318 Company  Law  Board.   The second respondent is  Mr.  T.  T. Krishnamachari, who was at that time Minister for Finance in the  Government  of India.  The  Inspectors:  appointed  are respondents  3  to  6 and Mr. Dang is  the  7th  respondent. Apart from the relief of quashing- the order of May 19, 1965 the  appellants sought the’ issue of a writ restraining  the Company  Law Board and the Inspectors from giving effect  to the  order  dated May 19, 1965 and also  sought  some  other incidental  reliefs.  The order of the Board was  challenged on 5 grounds which are briefly as follows:               (1)   that the order was made mala fide;               (2)   that  in making the order the Board  had               acted  on  material extraneous to the  matters               mentioned in s. 237(b) of the Companies Act;               (3)   that the order having in fact been  made

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             at the instance of the shareholders is invalid               and  on  a true construction of  s.  237  this               could not be done;               (4)   that  the order was invalid  because  it               was made by the Chairman of the Board and  not               by the Board; and               (5)   that  the  provisions of S.  237(b)  are               void  as offending Arts. 14 and 19(1)  (g)  of               the Constitution. The  allegations of mala fides were denied on behalf of  the respondents.   They disputed the validity of all  the  other grounds raised by the petitioners.  The High Court  rejected the contentions urged before it on behalf of the  appellants and dismissed the writ petition.  The appellants  thereafter sought to obtain a certificate of fitness for appeal to this Court;   but  the  High  Court  refused  to  grant  such   a certificate.  They have now come up to this Court by special leave. In  order to appreciate the arguments addressed before us  a brief  statement of the relevant facts would  be  necessary. The  Company  was  registered in the year 1961  and  had  an authorised  capital  of Rs. 1 crore  divided  into  1,00,000 shares of Rs. 100 each.  Its primary object was to carry  on business  of  manufacturing all types of  barium  compounds. Appellant  No.  2  was appointed Managing  Director  of  the Company  from  December  5, 1961  and  his  appointment  and remuneration were approved by the Central Government on July 30, 1962.  The erection of the plant was undertaken by  M/s. L.  A.  Mitchell  Ltd.,  of Manchester  in  pursuance  of  a collaboration  agreement between it and the company  entered in  October, 1961 and approved by the Central Government  in November  of that year.  Thereafter a permit  for  importing the  requisite  machinery was granted to the  Company.   The issued  capital  of the Company was Rs. 50, 00,000  and  the public  was invited to subscribe for shares in the  Company. It  is said that the issue was oversubscribed by  March  12, 1962.                             319 It would see that soon after the collaboration agreement was entered into M/s.  L. A. Mitchell Ltd., was taken over by  a financial  group  (M/s.  Pearwn, & Co. Ltd.),  to  which  a. person  named Lord Poole belonged.  It would appear that  as the  work of setting up of the plant was being  delayed  the Company  sent a notice- to M/s Mitchell Ltd.., on  April  2, 1965  in which the Company stated that if the plant was  not completely  installed and got into running order by June  1, 1965 the Company will have to make alternative  arrangements and that it would hold M/s.  L. A. Mitchell Ltd., liable  to pay damages to the Company for the loss suffered by it.   As a  result  of  the  notice  Lord  Poole  visited  India   in April/May, 1965.  In his opinion the design of the plant was defective.   Certain  negotiations took  place  between  the Company and Lord Poole in the course of which an undertaking was  given by Lord Poole on at behalf of  the  collaborators that the work would be completed with necessary  alterations and  modifications  in accordance with the  report  of  M/s. Humphrey  & Co., and that the collaborators would  spend  an additional amount upto pound 250,000 as may be required  for the  purpose.  It is said that the plaint was  producing  at that  time  only 25 per cent of its installed  capacity  but that according to the assurance given by Lord Poole it would yield full production by April, 1966. According   to  the  appellants,  before  entering  into   a collaboration agreement with M/s.  L. A. Mitchell Ltd.,  the appellant  No.  2  Balasubramanian was  negotiating  with  a

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German firm named Kali Chemie A. G. of Hanover for obtaining their  collaboration.  It is said that the firm of M/s.   T. T. Krishnamachari & Sons were and still are the sole  agents in India for some of the products of Kali Chemie.  The  firm of  T. T. Krishnamachari & Sons approached appellant  No.  2 for the grant of sole selling, agency of the products of the plant  to be established in collaboration with Kali  Chemie. Appellant  No. 2 did not agree to this with the result  that the company’s negotiations with Kali Chemie broke down.  The appellants also say that T. T. Krishnamachari & Sonswere later a so     granted  a  licence  to set up  a  plant  for manufacturing barium     chemicals but that on appellant No. 2 bringing certainfacts:  to the notice of Mr.  Nehru  the licence  in  favour  of  T. T.  Krishnamachari  &  Sons  was revoked.  The relevance of these facts is in connection with the  plea  of  mala fides.  On this part  of  the  case  the appellant’s  contention is that the Chairman of the  Company Law  Board Mr. R. C. Dutt made the order  for  investigation into  the affairs of appellant No. 1 at the instance of  Mr. T.  T.  Krishnamachari, the then Finance Minister  and  also because of his bias against appellant No. 2. The  suggestion is that as the licence of M/s.  T. T. Krishnamachari &  Sons was  revoked  and as they were not even given  sole  selling agency for the sale of the products of barium chemicals  Mr. T.  T. Krishnaniachari wanted action to be taken under  this provision either for penalising appellant No.  1 or  putting pressure on it. 320 A  lengthy argument was addressed before us by Mr.  Setalvad bearing on the question of mala fides in the course of which he  referred us to certain documents.  He also wanted us  to bear  in mind the sequence in which certain events  occurred and  said that these would indicate that the former  Finance Minister  must  have been instrumental in  having  an  order under S. 237(b) made by the Chairman of the Board.  We were, however,  not  impressed  by  this  argument.   Our  learned brother  Shelat  has dealt with this aspect  of  the  matter fully  in  his judgment and as we agree with him it  is  not necessary to say much on the point.  We would, however, like to refer to and deal with one aspect of the argument bearing on the question of mala fides.  Mr. Setalvad points out that the  Company Law Board had decided in December 1964 to  take action  against  appellant  No. I under s.  237(b)  and  had actually  obtained approval of Mr. T. T.  Krishnamachari  to the  proposed action.  Therefore, according to him the  real order  is  of Mr. Krishnamachari even though  the  order  is expressed in the name of the Board.  We find no substance in the argument.  The decision to take action was already taken by  the  Chairman and there is nothing to indicate  that  in arriving  at that decision he was influenced by the  Finance Minister.  If the decision arrived at by the Chairman was an independent one it cannot be said to have been rendered mala fide  because  it was later approved by  Mr.  Krishnamachari whose  sons undoubtedly constitute the partnership  firm  of M/s.  T. T. Krishnamachari & Sons.  It is also suggested  by Mr.  Setalvad that the action approved of in December,  1964 was  delayed  till May, 1965 because in  the  interval  some negotiations with Kali Chemie had been started and had  they ended fruitfully M/s.  T.T. Krishnamachari & Sons would have got  the  sole  selling agency of  the  products  of  barium chemicals.  Now it does seem from ,certain material  brought to  our  notice  that negotiations  with  Kali  Chemie  were revived by appellant No. 2 because of the difficulties which were  being experienced in the working of the  collaboration agreement  with  M/s.   L. A. Mitchell  Ltd.   No  material,

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however,  is  placed  before  us  from  which  it  could  be reasonably  inferred  that had the  negotiations  with  Kali Chemie  fructified M/s.  T. T. Krishnamachari &  Sons  would have  secured the sole monopoly for sale of the products  of barium  chemicals.  One more point was urged  in  connection with  this  aspect  of  the argument  and  it  is  that  the appellants  were not given an opportunity  to  cross-examine Mr. T. T. Krishnamachari and Mr. Dutt.  In our opinion, in a proceedingunder Art. 226 of the Constitution the normal rule is, as pointedout by this Court in The State of Bombay v. Purshottam Jog Naik   to decide disputed questions on the basis of affidavits and that it is within the discretion  of the  High Court whether to allow a person who has  sworn  an affidavit  before  it-as indeed Mr. Krishnamachari  and  Mr. Dutt  have-to  be cross-examined or not to  permit  it.   In exercise of. its discretion the High Court has re-                             321 fused  permission to cross-examine them.  In such a case  it would  not  be appropriate for this Court while  hearing  an appeal  by  special  leave to  interfere  lightly  with  the exercise of that discretion. Mr.  Setalvad  said that as the appellants had  made  out  a prima  facie case of mala fides in their affidavits, and  as these  allegations had been denied by the  respondents,  the High  Court  was  in error in  refusing  permission  to  the appellants  to  cross-examine  the  persons  who  swore  the affidavits on the side of the respondents.  We are not aware of  the rule on which Mr. Setalvad bases himself.  There  is nothing  to  show that the High Court thought that  a  prima facie case of mala fides had been made out.  Even in such  a case a court might well hold that it has been demolished  by the  affidavits in answer.  The court has to find the  facts and if it finds that it can do so without  cross-examination it is not compelled to permit cross-examination.  We have no reason  to  think  that  the  High  Court  could  not   have ascertained the facts on the affidavits themselves. Coming to the second point, it would be desirable to  repro- duce s. 237 which reads thus:               "Without prejudice to its powers under section               235 the Central Government-               (a)   shall  appoint  one  or  more  competent               persons  as  inspectors  to  investigate   the               affairs of a company and to report thereon  in               such  manner  as the  Central  Government  may               direct, if-               (i)   the company, by special resolution, or               (ii)  the Court, by order, declares  that  the  affairs  of the  company  ought  to  be investigated  by  an  inspector  appointed  by  the  Central Government; and               (b)   may  do  so if, in the  opinion  of  the               Central  Government, there  are  circumstances               suggesting-               (i)   that  the  business of  the  company  is               being  conducted  with intent to  defraud  its               creditors,  members or any other  persons,  or               otherwise   for  a  fraudulent   or   unlawful               purpose,  or in a manner oppressive of any  of               its  members, or that the company  was  formed               for any fraudulent or unlawful purpose; or               (ii)  that 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

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             of its members; or               (iii) that the members of the company have not               been given all the information with respect to               its               322               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." In  view of the fact that the Central Government, by  virtue of  the powers conferred by ss. 10-E and 637  delegated  its powers under s. 237 to them Company Law Board we shall  read S.  237  as if in place of the  words  "Central  Government" there  are  the  words "Company Law Board"  or  for  brevity ’Board’.   According  to  Mr. Setalvad, cl. (b)  of  s.  237 requires  two things: (1) the opinion of the Board  and  (2) the existence of circumstances suggesting one or more of the matters.  specified in sub-cls. (i) to (iii).   He  contends that  though  the  opinion of the Board  is  subjective  the existence  of circumstances set out in the sub-cls.  (i)  to (iii)  is  a  condition precedent to the  formation  of  the opinion.  Therefore, according to him, the Court is entitled to  ascertain  whether in fact any  of  those  circumstances exists.  The Attorney-General disputes this construction and contends  that  the clause is incapable of a  dichotomy  and that  the  subjective process embraces the formation  of  an opinion that circumstances suggestive of any of the  matters comprised in sub-cls. (i) to (iii) exist. Once it is conceded that the formation of an opinion by  the Board  is intended to be subjective-and if the provision  is constitutional  which in our view it is-the  question  would arise:  what  is that about which the Board is  entitled  to form  an opinion?  The opinion must necessarily concern  the existence  or non-existence of facts suggesting  the  things mentioned  in  the  several  sub-clauses  of  cl.  (b).   An examination  of the section would show that cl. (b)  thereof confers, a discretion upon the Board to appoint an Inspector to investigate the affairs of a company.  The words "in  the opinion  of"  govern  the  words  "there  are  circumstances suggesting"  and  not  the words "may  do  so".   The  words ’circumstances’  and  ’suggesting’  cannot  be   dissociated without  making  it  impossible for the  Board  to  form  an ’opinion’  at  all.   The  formation  of  an  opinion  must, therefore,   be  as  to  whether  there  are   circumstances suggesting  the existence of one or more of- the matters  in sub-cls.  (D  to (iii) and not about  any-thing  else.   The opinion  must of course not have been arrived at mala  fide. To  say  that  the opinion to be formed must be  as  to  the necessity of making an investigation would be making a clear departure  from the language in which s. 237(b) is  couched. It  is only after the, formation of, certain opinion by  the Board that the stage for exercising the discretion conferred by  the provision is reached.  The discretion  conferred  to order  an investigation is administrative and  not  judicial since                             323 its exercise one way or the other does not affect the rights of  a company nor does it lead to any  serious  consequences as, for instance, hampering the business of the company.  As has  been  pointed  out by this Court  in  Raja  Narayanalal Bansilal v. Maneck Phiroz Mistry & Anr.(1) the investigation undertaken  under this provision is for  ascertaining  facts and  is  thus merely exploratory.  The  scope  for  judicial

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review  of  the  action of the Board  must,  therefore,  be strictly  limited.  Now, if it can be shown that the  ’Board had  in  fact  not  formed an opinion  its  order  could  be successfully  challenged.   This  is what was  said  by  the Federal  Court  in  Emperor  v.  Shibnath Banerjee(2)  and approved  later by the Privy Council. Quite obviously  there is  a difference between not forming an opinion at all  and forming an opinion upon grounds, which, if a court could  go into  that question at all, could be regarded as  inapt  or insufficient or irrelevant.  It is not disputed that a court can,not  go into the question of the aptness or  sufficiency of the grounds ,upon which the subjective satisfaction of an authority  is  based.   But, Mr. Setalvad  says,  since  the grounds have in fact been disclosed in the affidavit of  Mr. Dutt upon which his subjective satisfaction was based it  is open  to  the court to consider whether those  grounds  are relevant  or are irrelevant because they are  extraneous  to the question as to the existence or otherwise of any of  the matters referred to in sub-cls. (i) to (iii). Let  us now examine the affidavit of Mr. Dutt.   Since  this affidavit  is in answer to the allegations made in the  writ petition  the  two  ;should  be  considered  together.    In paragraphs  1 to 19 of the writ petition certain  facts  and figures  concerning the formation, registration etc. of  the company,  the  activities of the company and  other  related matters have been set out.  These were admitted by Mr.  Dutt in  paragraph  14 of the  counter-affidavit.   Paragraph  20 onwards of the writ petition deals with the action taken  by the Board and the various grounds on which according to  the appellants  the  action of the Board is open  to  challenge. The  first 4 paragraphs of the counter-affidavit  deal  with certain formal matters.  In paragraph 5 Mr. Dutt has set out that the petition is liable to be dismissed summarily  being grounded on facts which are, false, speculative and  lacking in  material particulars.  Thereafter he has set  out  what, according to him, are the true facts.  In paragraphs 6 to  8 he  has dealt with the legal aspects of the case.   The  8th paragraph is the most important amongst them.  Here Mr. Dutt has stated that it was not competent to the Court to go into the question of adequacy or otherwise of the material on the basis  of  which orders under s. 237(b) are  passed  by  the Board.   Then he stated: ’However, if in spite of  what  has been  stated  and contrary to the  submissions  above,  this Han’ble  Court  still holds that  it is  necessary  for  the Court to examine the relevant material in (1)[1961] I S.C.R. 417. (2)[1944] F.C.R. 1. 324 order to do justice, then the Board would have no  objection to producing the same for the Court’s perusal provided it is not shown to the petitioners." It may be mentioned that  the Court  did  not call for this material at all  nor  did  the appellants seek its production.  In paragraph 9 Mr. Dutt has categorically  stated  that the order of May  19,  1965  was passed  after  careful and independent  examination  of  the material  by the Chairman and that it was issued  in  proper exercise   of  the  powers  conferred  upon  it.    He   has specifically  denied that it was issued at the  instance  of the  second respondent.  In paragraph 10 Mr. Dutt has  taken the plea that the petition was liable to be dismissed as  it had  not been made bona fide but for extraneous reasons  and to  create  prejudice  with  a  view  to  thwart   statutory investigation.   Then he has set out the circumstances  upon which  his  contention  is based.  In paragraph  13  he  has stated  that  without prejudice to his  submissions  in  the

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earlier  paragraphs he would reply to allegations  contained in  the  various  paragraphs of  the  writ  petition.   Then follows paragraph 14 upon which Mr. Setalvad has founded  an argument that the grounds disclosed therein being extraneous the order is invalid.  In this paragraph Mr. Dutt        has admitted some of the facts stated in paragraphs 1 to 19.  He has also said that the Board was aware of the fact that  the company  had  entered into collaboration with  M/s.   L.  A. Mitchell  Ltd.   He has then added:........ but  it  has  no information of any of the other matters and/or  negotiations with  M/s.  L. A. Mitchell Ltd., Manchester.  However,  from the Memoranda received by the Board referred to in paragraph 5 and other examination it appeared inter alia that:               (i)   that there had been delay, bungling  and               faulty planning of this project, resulting  in               double    expenditure.    for    which     the               ’collaborators had put the responsibility upon               the Managing Director, Petitioner No. 2:               (ii)  Since its flotation the company has been               continuously  showing losses and nearly  1/3rd               of its share capital has been wiped off;               (iii)that  the shares of the company which  to               start with were at a premium were being quoted               on  the  Stock  Exchange at  half  their  face               value; and               (iv)some  eminent  persons who  had  initially               accepted  seats on the Board of  Directors  of               the  company  had subsequently  severed               their  connections with it due to  differences               with Petitioner No. 2 on account of the manner               in which the affairs-of the company were being               conducted.  " In  paragraph 5 it may be recalled Mr. Dutt has set out  the grounds on which the writ petition deserved to be summarily 325 rejected.  It will thus be clear that what are characterised by  Mr. Setalvad as the grounds upon which the order of  the Board  is  based are nothing more than  certain  conclusions drawn  by the Boar& from some of the material which  it  had before it.  Moreover the expression "inter alia" used by Mr. Dutt  would  show  that  the  conclusions  set  out  by  him specifically are not the only ones which could be drawn from the  material  referred  to by, him in paragraph  5  of  his affidavit. Turning  to paragraph 16 of the affidavit we find  that  Mr. Dutt  has clearly reiterated that there was  ample  material before the Board on which it could and did form the  opinion that  there were circumstances suggesting that as stated  in the order of May, 19, 1965, the business of the company  was being  conducted with intent to defraud  creditors,  members and other persons and further that the persons concerned  in the  management  of  the  affairs  of  the  company  had  in connection  therewith been guilty of fraud, misfeasance  and other misconduct towards the company and its members.   This paragraph is in answer to paragraph 21 of the writ petition. It  is  in  that paragraph alone  that  the  appellants  had specifically  raised the contention that the recital in  the order  as  to the existence of material is not  correct  and that in point of fact there was no material before the Board to  form  the said opinion.  In this state of  pleadings  it would not be right to construe the affidavit of Mr. Dutt  to mean  that the only conclusions emerging from  the  material before the Board are those that are set out in paragraph  14 of his affidavit. Apart from this we do not think that the conclusions set out

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in  paragraph 14 are extraneous to the matters indicated  in the  order  of May 19, 1965.  What is said therein  is  that there are circumstances suggesting that the business of  the appellants  is  being conducted with intent to  defraud  its creditors,  members  and  others,  and  that.  the   persons concerned with the management of the affairs of the  company have been guilty of fraud, misfeasance and other  misconduct towards  the company and its members. it has to be borne  in mind that what the Board is to be satisfied about is whether the  circumstances  suggest  any of  these  things  and  not whether they establish any of these things.  Now, the  first of  its conclusion is to the effect that the materials  show that  there  was delay , bungling, faulty  planning  of  the project  and  that this resulted in double  expenditure  for which the collaborators had put the responsibility upon  the Managing  Director,  that is, appellant No. 2. Would  it  be farfetched to say that these circumstances could  reasonably suggest  to  the Board that these happenings were  not  just pieces  of  careless  conduct but were  deliberate  acts  or omissions  of appellant No. 2 done with the ulterior  motive of earning profit for himself ? Similarly could not the fact that  the company was continuously showing losses since  its flotation and that 1/ 3rd of its 326 share  :-capital  had  ,been  wiped  out  could  have   been suggestive of fraud to the Board. In ’this connection, we think it right to point out that the spirit  of the section must be kept in mind  in  determining its  interpretation. The section was enacted to prevent  the Management of a company from acting in a manner  prejudicial to  the  interests  of  the shareholders  for  whom  it  was difficult,to get together and take steps for the  protection of  their  interests jointly.  It was this difculty  of  the shareholders-which  is  a  reality-which  had  led  to   the enactment of the section.  There is no doubt that few share- holders  have  the  means  or ability  to  act  against  the Management.  It  would  furthermore  be  difficult  for  the shareholders  to  find  out the facts leading  to  the  poor financial condition of a company.  The Government thought it right  to  take power to step in where there was  reason  to suspect that the Management may not have been acting in  the interests of the shareholders-who would not be able to  take the steps against a powerful body like the Managementand  to take  steps  for protection of such interests.  As  we  have said,  the  section gives the exploratory power  only.   Its object  is to find out the facts., a suspicion  having  been entertained  that  all was not well with the  company.   The powers are exercised for ascertaining  facts and, therefore, before they are finally known, all that is necessary for the exercise  of  the powers is the opinion ,of the  Board  that there  are circumstances which suggest to it that fraud  and other  kinds of mismanagement mentioned in sub-cls.  (i)  to (iii) of cl. (b) of the section may have been committed.  If the  facts do reasonably suggest any of these things to  the Board, the     power   can  be   exercised,though   another. individual  might think that :-the ;facts suggest  otherwise It  cannot  be  said that from a huge  loss  incurred  by  a company and the working of the company in a disorganised and un-businegslike  way, the only conclusion  possible is  that it  was  due  to  lack  of  capability.   It  is  reasonably ,conceivable that the result had been produced by fraud  and other  varieties  of dishonesty or misfeasance.   The  order does  not amount to a finding of fraud.  It is to  find  out what kind of wrong ,action has led to,the company’s ill-fate that the powers under the sectional given.  The enquiry  may

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reveal   that.the  renovation  or  other  similar  kind   of malfeasance.    It  would  be  destroying   the   beneficial effective use of the powers given by the section to say that the  Board must first show that a fraud can clearly be  said to  have.been committed.  It is enough that the  facts  show that  it  can  be  reasonably  thought  that  the  company’s unfortunate  position  might have been caused by  fraud  and other   species  of  dishonest  action.   In  our   opinion, therefore,   the   argument  of  Mr.  Setalvad   about   the circumstances being extraneous cannot be accepted. Coming  to the third point of Mr. Setalvad pointed out  that four ex-Directors of the Company who had resigned  submitted a 327 memorandum to Mr. T. T. Krishnamachari while he was  holding the  office of Finance Minister in which  grave  allegations were  made  concerning the affairs of the  Company  and  the management  of  the Company by the  second  appellant.   The investigation, according to Mr. Setalvad. was the outcome of this  memorandum  and that by ordering it the Board  has  in effect   enabled  the  ex-Directors  who  continue   to   be shareholders to circumvent the provisions of ss. 235 and 236 of the Companies Act.  Section 235 deals with "Investigation of affairs of company on application by members or report by Registrar".  Clause (a) of this section provides that in the case  of a company having a share capital the  investigation can  be ordered either on the application of not  less  than 200 members or of members holding not less than one-tenth of the  total voting power therein.  We are not concerned  with cls. (b) and (c).  Apparently the four ex-Directors were not holding 10% of the voting power of the Company.  At any rate the  case was argued on this footing.  Section 236  provides that  such application has to be supported by such  evidence as the Board (reading ’Board’ for ’Central Government’)  may require.   It  also  empowers  the  Board  to  require   the applicants   to  furnish  security  for  such  amount,   not exceeding  one thousand rupees as it may think fit, for  the payment  of the costs of the investigation.  The  contention is that though the Board acted upon the memorandum submitted by four ex-Directors it did not even require them to  comply with  the provisions of s. 236.  The contention is that  the order  of  the Board appointing Inspectors is  invalid.   In other words the argument amounts to this that the provisions of s. 237(b) have been utilised by the Board as a cloak  for taking  action  under the provisions of s.  235.   In  other words this is an argument that the order was made mala fide. It  is true that a memorandum was presented to Mr.  Krishna- machari  by four ex-Directors containing  grave  allegations against  the two appellants.  But it was not solely  on  the basis of this memorandum that action was taken by the Board. It  is  clear  from the counter-affidavit of  Mr.  Dutt  and particularly  from  paragraph 5 thereof that the  Board  had before it not only two sets of memoranda dated May 30,  1964 and July 9, 1964 respectively from four ex-Directors of  the Company alleging serious irregularities and illegalities  in the  conduct  of the affairs of the Company but  also  other materials.   The  Board points out that over a  long  period beginning  from  September  1961  the  Department  had  been receiving various complaints in regard to the conduct of the affairs  of  the  Company.   One  complaint  had  also  been received  by the Special Police Establishment and  forwarded by  it to the Department in November, 1963.  The matter  was enquired  into  by  the Regional Director of  the  Board  at Madras and he, in his report, sent to the Board in September 1964  suggested  an urgent and  comprehensive  investigation

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into the affairs of the Company.  In his /S5SCI-23 328 affidavit  the  Chairman of the Board Mr.  Dutt  has  stated further in paragraph 5(b) as follows:-               "The material on the file was further examined               in  the  light  of  the  Regional   Director’s               recommendation by the two Under Secretaries of               the  Board (Sarvashri M. K. Banerjee C. S.  S.               and  K.  C.  Chand,  I. R.  S.  at  the  head.               quarters of the Board in New Delhi and both of               them   endorsed  the  recommendation  of   the               Regional  Director to order an  investigation.               The   matter  was  then  considered   by   the               Secretary  of the Company Law Board in  charge               of investigation (Shri D. S. Dang, I.A.S.) and               he also expressed his agreement that there was               need  for a deeper probe into the  affairs  of               the company."               Then again in paragraph 5(c) he has stated  as               follows:-               "Accordingly, the matter was put up to me at the               end  of November 1964 and after  consideration               of  all the material on record, I  formed  the               opinion   that   there   were    circumstances               suggesting  the need for action under  section                             237(b) of the Companies Act, 1956". It is abundantly clear from all this that the  investigation cannot  be said to have been ordered either at the  instance of  the  four  ex-Directors  or on the  sole  basis  of  the memoranda  submitted  by  them.   There  is,  therefore,  no contravention  of the provisions of SS. 235 and 236  of  the Act.  As a corollary to this it would follow that the  order was not made mala fide or is otherwise invalid. As   already  stated  the  appellant  had   challenged   the provisions  of  S.  237(b)  on  the  ground  that  they  are violative  of  the  fundamental rights under  Arts.  14  and 19(1)(g) of the Constitution.  Our brother Shelat has  dealt with  this  attack  on the provisions  fully  and  we  agree generally  with  what  he has said while  dealing  with  the contentions.   We would, however, like to add that the  com- pany  being  an artificial legal person cannot, as  held  by this  Court in The State Trading Corporation of India  Ltd., v. Commercial Tax Officer Visakhapatnam & Ors.(1),claim  the benefit of the provisions of Art. 19(1)(g) though  appellant No. 2 Balasubramanian can do so.  We agree with our  learned brother  that  the  action proposed under  S.  237(b)  being merely,  exploratory in character the fundamental  right  of Balasubramanian  to  carry  on  business  is  not   affected thereby.   Since that is so, the question whether  the  pro- visions   of   the  aforesaid  section  are   a   reasonable restriction on the exercise of the right under Art. 19(1)(g) does  not  arise for consideration.  In  the  circumstances, therefore, we do not think that there is anything more  that we need say. The  last  question is whether it was not competent  to  Mr. Dutt  alone  to take the decision that an  investigation  be ordered  against  the company.  In taking the  decision  Mr. Dutt acted under a rule 1964]  4 S.C.R. 99. 329 of procedure prescribed in the order dated February 6, 1964. The validity of this rule is challenged, by Mr. Setalvad  on the  ground  that  this  amounts  to  sub-delegation  of   a delegated  power and is ultra vires the Act.  Clause (a)  of

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sub-s.  (1)  of  s. 637 read with s.  10(E)(1)  empower  the Central  Government to delegate its powers under s.  237  to the  Company Law Board.  By notification dated  February  1, 1964  the  Central Government has delegated,  amongst  other powers and functions, those conferred upon it by s. 237 upon the Company Law Board.  By another notification of the  same date  the  Central Government has made and  published  rules made  by it in exercise of its powers under s.  642(1)  read with S.   10E(5) rule 3 of which reads thus:-               "Distribution  of business;-The Chairman  may,               with  the  previous approval  of  the  Central               Government,  by order in  writing,  distribute               the  business of the Board, among himself  and               the  other member or members, and specify  the               cases  or  classes  of cases  which  shall  be               considered jointly by the Board." By order dated February 6, 1964 the Chairman of the  Company Law  Board  specified the cases and classes of cases  to  be considered   jointly  by  the  Board  and  distributed   the remaining business between himself and other members of  the Board.  Amongst the matters allocated to the Chairman is the appointment of an Inspector under s. 237 to investigate  the affairs of a company.  This, Mr. Setalvad says" could not be done in the absence of an express provision in the Act.   In this  connection he has referred us to sub-s. 4A of  s.  10E which  was subsequently added-but not made  retrospective-by an  amendment of the Act which confers an express  power  on the Central Government to enable the Chairman to  distribute the  powers  and functions of the Board.  According  to  the learned Attorney-General this provision was enacted only  to make  what  was implicit in s. 10E(5) read  with  S.  642(1) clear  and  that the distribution of the work of  the  Board being merely a matter of procedure the order of the Chairman allocating  the  power under s. 237(b) to  himself  did  not amount to sub-delegation of the power of the Board. Bearing  in  mind the fact that the power  conferred  by  s. 237(b)   is  merely  administrative  it  is   difficult   to appreciate  how  the  allocation of business  of  the  Board relating to the exercise of such power can be anything other than a matter of procedure.  Strictly speaking the  Chairman to  whom  the business of the Board is  allocated  does  not become a delegate of the Board at all.  He acts in the  name of the Board and is no more than its agent But even if he is looked  upon  as a delegate of the Board and,  therefore,  a sub-delegate vis-a-vis the Central Government he would be as much subject to the control of the Central Government as the Board  itself.  For sub-s. (6) of s. 10E provides  that  the Board shall, in S5SCI-23(a) 330 the  exercise of the powers delegated to it, be  subject  to the  control  of  the  Central  Government  and  the   order distributing  the business was made with the  permission  of the  Central  Government.  Bearing in mind  that  the  maxim delegatus non potest delegare sets out what is merely a rule of   construction,  sub-delegation  can  be   sustained   if permitted  by  an express provision or by  necessary  impli- cation.   Where,  as  here,  what  is  sub-delegated  is  an administrative  power  and  control  over  its  exercise  is retained  by  the nominee of Parliament, that is,  here  the Central  Government, the power to make a delegation  may  be inferred.   We  are, therefore, of the view that  the  order made by the Chairman on behalf of the Board is not invalid. To  sum up, then, our conclusions may be stated  thus:-  The discretion conferred on the Central Government by s.  237(b)

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to order an investigation and delegated by it to the Company Law  Board  is  administrative, that  it  could  be  validly exercised  by the Chairman of the Board by an order made  in pursuance of a rule enacted by the Central Government  under S.  642(1)  read with s. 10E(5), that the  exercise  of  the power does not violate any fundamental right of the company, that the opinion to be formed under S. 237(b) is  subjective and that if the grounds are disclosed by the Board the Court can examine them for considering whether they are  relevant. In  the  case before us they appear to be  relevant  in  the context of the matter mentioned in sub-cls. (i) to (iii)  of s.   237(b).   Though  the  order  could   successfully   be challenged if it were made mala fide, it has not been  shown to  have been so made.  The attack on the order  thus  fails and the appeal is dismissed with costs. Hidayatullah,  J. We are concerned in this appeal  with  the legality of an order of the Chairman, Company Law Board, May 19, 1965, (purporting to be under S. 237(b) of the Companies Act,  1956)  declaring  that  the  affairs  of  the   Barium Chemicals Ltd. be investigated.  As a consequence Inspectors have  been  appointed  and searches  have  been  made.   The Company  and  its Managing Director filed a  petition  under Art.  226  of the Constitution in the High Court  of  Punjab seeking to quash the order and on failure there, have  filed this  appeal by special leave of this Court.  The action  of the  Chairman was and is challenged on diverse  grounds  but those which were presented before us were few and clear cut. The action is challenged as without jurisdiction because not the Board but the Chairman alone acted, as mala fide because no honest opinion was formed on the matters which under  the section  give  rise  to  the power  but  on  irrelevant  and extraneous  material,  and  further because  the  order  was passed  under  the  influence and malice of  a  Minister  of Cabinet  who was interested in another Company belonging  to his sons and sought this means to oust a rival. The  facts  have been stated already in some  detail  by  my brother  Shelat and I need not take time in restating  them. My 331 order  proposed  by him but as I view the  matter  a  little differently  on some of the aspects of the case, I  wish  to record my reasons briefly. Under  the  Companies Act 1956, a power  of  superintendence over  the  affairs of Companies is retained by  the  Central Government  in  much the same way as the Board of  Trade  in England exercise over Companies in that country.  This power is  of two kinds (a) calling for information or  explanation from the Company and (b) ordering an investigation into  the affairs  of  the Company by appointment  of  Inspectors  for inspection, investigation and report.  The power is not only varied  but  is capable of being exercised  variously.   The power  to call for information is conferred on the  Regisrar in  two different ways.  Firstly, jurisdiction is  conferred on  the  Registrar  by s. 234 to  call  for  information  or explanation  in relation to any document submitted  to  him, which  information or explanation must be furnished on  pain of  penalties.   If the information or  explanation  is  not furnished  or is unsatisfactory the Registrar can report  to the   Central  Government  for  action.   Secondly,   if   a contributory,  creditor ’or other person  interested  places materials before the Registrar (a) that the business of  the Company is being carried on in fraud of its creditors or  of persons  dealing  with the Company or (b)  otherwise  for  a fraudulent  or  unlawful purpose, the Registrar  can,  after hearing the Company, call upon it to furnish any information

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or explanation.  A further power is conferred after December 28, 1960, on the Registrar, who may, after being  authorised by  a  Presidency Magistrate or a  Magistrate  First  Class, enter  any place, search and seize any document relating  to the  Company,  its  managing  agents,  or  Secretaries   and treasurers or managing director or manager, if be has reason to believe that it may be destroyed or tampered with. Sections 235-251 provide for investigation of the affairs of a   company   and  for  sundry  matters  related   to   such investigations.   They follow the scheme of ss.  164-175  of the  English Act of 1948.  Section 235 enables  the  Central Government  to  appoint  inspectors  for  investigation  and report  generally if the Registrar reports under s. 234  and also  if  a stated number of  shareholders  or  shareholders possessing a stated voting power apply.  When’ members apply they  must  support their application by evidence  and  give security for costs of investigation.  In the present case no action under any of the sections noted so far was taken  but it  was taken under s. 237.  This section is in  two  parts. The  first part which is (a) compels the Central  Government to  appoint  inspectors  to investigate and  report  if  the company  by  a  special resolution or  the  court  by  order declares that the affairs be investigated.  The second  part which is (b) gives a discretionary power, As this dis- 332 cretionary power was in fact exercised this is a  convenient place to read part (b) of s. 237.  It reads:-               "237.   Without prejudice to its powers  under               section 235, the Central Government-               (a)               (b)   may  do  so (i.e. appoint  one  or  more               competent persons as inspectors to investigate               etc.)  if,  in  the  opinion  of  the  Central               Government,     there    are     circumstances               suggesting-               (i)   that  the  business of  the  company  is               being  conducted  with intent to  defraud  its               creditors,  members or any other  persons,  or               otherwise   for  a  fraudulent   or   unlawful               purpose,  or in a manner oppressive of any  of               its  members, or that the company  was  formed               for any fraudulent or unlawful purpose;               (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 members; 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. By  s.  237(b)  the  power  is  conferred  on  the   Central Government  but under the Companies (Amendment) Act, 1963  a Board  of  Company  Law,,  Administration  consisting  of  a Chairman  and  a  member has been set  up.   This  Board  is constituted  under s. 10E which has been introduced  in  the parent Act.  The section may be read here:-               "10E.   Constitution of Board of  Company  Law               Administration.               (1)   As soon as may be after the commencement

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             of  the Companies (Amendment) Act,  1963,  the               Central  Government shall, by notification  in               the Official Gazette, constitute a Board to be                             called the Board of Company Law  Admin istration               to  exercise  and discharge  such  powers  and               functions conferred on the Central  Government               by  or under this Act or any other law as  may               be delegated to it by that Government.               333               (2)   The  Company Law Board shall consist  of               such number of members, not exceeding five, as               the  Central  Government  deems  fit,  to   be               appointed  by that Government by  notification               in the Official Gazette.               (3)   One of the members shall be appointed by               the  Central Government to be the chairman  of               the Company Law Board.               (4)   No  act  done by the Company  Law  Board               shall be called in question on the ground only               of  any defect in the constitution of, or  the               existence  of any vacancy in, the Company  Law               Board.               (5)   The  procedure of the Company Law  Board               shall be such as may be prescribed.               (6)   In  the  exercise  of  its  powers   and               discharge  of its functions, the  Company  Law               Board  shall be subject to the control of  the               Central Government. The  Board  was  constituted  on  February  1,  1964  by   a notification and by a notification of even, date in exercise of  the powers conferred by cl. (a) of sub-s. (1) of s.  637 read  with  sub-s. (1) of s. 10E of the Companies  Act,  the Central Government delegated its powers and functions to the Board  under s. 237(b) among others.  Simultaneously  acting in exercise of the powers conferred by sub-s. (1) of s.  642 read  with sub-s. (5) of s. 10E the Central Government  made the  Company Law Board (Procedure) Rules, 1964 and one  such rule  dealt with distribution of business to  the  following effect:-               "3. Distribution of business-The Chairman may,               with  the  previous approval  of  the  Central               Government,  by order in  writing,  distribute               the  business of the Board among  himself  and               the  other member or members, and specify  the               cases  or  classes  of cases  which  shall  be               considered jointly by the Board." The  Chairman by an order dated February 6,  1964  specified the  cases  or classes of cases which are to  be  considered jointly by the Board and distributed the remaining  business of the Board between the Chairman and the member each acting individually.   The power under s. 237 was placed among  the powers  exercisable  by the Chairman singly.   That  is  how action  was  taken  in  the name of the  Board  but  by  the Chairman and is the subject of challenge for the reason that a  power  delegated  to  the Board  as  a  whole  cannot  be delegated  to  an  individual member in  the  absence  of  a provision  such  as  sub-s. (4A) added recently  to  s.  10E enabling  the  solidarity of the Board to be  broken.   Sub- section (4A) of s. 10E, which has been added by an  amending Act of 1965, after the events in this case, reads:-               "10E.  (4A).   The Board.  with  the  previous               approval  of the Central Government,  may,  by               order in writing,               334

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             authorise  the  chairman or any of  its  other               members  or  its  principal  officer  (whether               known  as secretary or by any other  name)  to               exercise   and  discharge,  subject  to   such               conditions and limitations, if any, as may  be               specified in the order, such of its powers and               functions as it may think fit; and every order               made  or  act  done in the  exercise  of  such               powers or discharge of such functions shall be               deemed to be the order or act, as the case may               be, of the Board." This  sub-section  enables  the  work of  the  Board  to  be distributed  among members while sub-s. (5)  merely  enables the  procedure of the Board to be regulated.  These are  two very  different  things.  One provides for  distribution  of work  in such a way that each constituent part of the  Board properly authorised, becomes the Board.  The other  provides for the procedure of the Board.  What is the Board, is not a question which admits of solution by procedural rules but by the  enactment  of a substantive provision  allowing  for  a different delegation.  Such an enactment has been framed  in relation  to the Tribunal constituted under s. 10B  and  has now  been  framed under s. 10E also.   The  new  sub-section involves   a  delegation  of  the  powers  of  the   Central Government to a member of the Board which the Act previously allowed  to be made to the Board only.  The statute,  as  it was  formerly, gave no authority to delegate it  differently or to another person or persons.  When it spoke of procedure in sub-section (5) it spoke of the procedure of the Board as constituted.   The  lacuna in the Act must have  been  felt, otherwise there was no need to enact sub-section (4A).   The argument  of the learned Attorney-General that  sub-s.  (4A) was ?lot needed at all, does not appeal to me.  It is  quite clear  that  its  absence would give rise  to  the  argument accepted  by  me,  which argument  is  unanswerable  in  the absence  of  a provision such as the  new  sub-section.   My brother Shelat has dealt with this aspect of the case  fully and  I  cannot add anything useful to what he has  said.   I agree with him entirely on this point. I  shall  now  consider the question of  mala  fides.   This arises  in  two different ways.  There is first  mala  fides attributed to the chairman because he is said to have  acted under  the  behest of a Minister of  Cabinet  interested  in another  rival Company.  It is not necessary to go into  it. The  Chairman  obtained the opinion of quite a  few  of  his assistants (perhaps more than was altogether necessary)  and this fact is stated to establish his fairness to and  honest dealing  with  the Company.  There is nothing to  show  that this was done on purpose to cover up a conspiracy to do harm to  the  Company.  On the other hand I cannot  overlook  the fact that the rival Company itself had obtained a licence to manufacture  Barium  Chemicals which it  allowed  to  lapse. This  shows that rivalry between two manufacturing  concerns was not the prime 335 motive.  No doubt the rival Company had tried to obtain  the sole  selling rights of, and even a share in, this  Company. This  might have weighed with me but for the fact  that  the Company  itself  had  done nothing even  before  action  was taken, to establish itself.  The whole project had hung fire and  capital was eaten into a rapid rate because there  were technical  defects  in  the  setting up  of  the  plant  and machinery.   There  was not much hope of profits as  a  sole selling agent or even as a partner.  In these circumstances, I cannot go by the allegations made against the Chairman  of

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the Board personally or those made against the Minister, and I  find no evidence to hold that dishonesty on the  part  of the one or malice on the part of the other lies at the  root of this action. This  brings me to the third and the last question,  namely, whether  mala fides or the ultra vires nature of the  action has  been established in this case to merit interference  at our  hands.   In  view of my decision  on  the  question  of delegation  it is hardly necessary to decide  this  question but  since contradictory opinions have been expressed on  it by  my brethren Mudholkar and Shelat.  I must give my  views on this matter.  The question naturally divides itself  into two  parts.   The first is whether there  was  any  personal bias,  oblique motive or ulterior purpose in the act of  the chairman.  The second is what are the powers of the Board in this behalf and whether they have been exercised contrary to the  requirements of the Act.  The first ground has  already been  dealt  with in part when I considered the  malice  and influence  of  the Minister.  It may be said at  once,  that apart   from   that  allegation,  nothing  has   been   said attributing  to  the  Chairman any  personal  bias,  grudge, oblique  motive or ulterior purpose.  Even in the  arguments it  was not suggested that the Chairman acted from  improper motives.  Therefore, all that I have to consider is  whether the action of the Chairman can be challenged as done  either contrary  to the provisions empowering him or  beyond  those provisions. In  dealing with this problem the first point to  notice  is that  the  power is discretionary and its  exercise  depends upon   the   honest  formation  of  an   opinion   that   an investigation  is necessary.  The words "in the  opinion  of the  Central Government" indicate that the opinion  must  be formed  by  the  Central  Government and  it  is  of  course implicit  that the opinion must be an honest  opinion.   The next requirement is that "there are circumstances suggesting etc."   These  words  indicate  that  before   the   Central Government  forms  its  opinion  it  must  have  before   it circumstances   suggesting   certain   inferences.     These inferences are of many kinds and it will be useful to make a mention of them here in a tabular form:-               (a)   that  the  business is  being  conducted               with intent to defraud-               (i)   creditors   of  the  company,  or   (ii)               members,               336               or (iii) any other person;               (b)   that the business is being conducted-               (i)  for a fraudulent purpose or (ii)  for  an               unlawful purpose;               (c)   that  persons who formed the company  or               manage its affairs have been guilty of-               (i) fraud               or  (ii) misfeasance or other misconduct--  to               wards  the  company  or  towards  any  of  its               members.               (d)   That information has been withheld  from               the  members  about its  affairs  which  might               reasonably  be expected including  calculation               of commission payable to-               (i)   managing or other director,               (ii)  managing agent,               (iii) the secretaries and treasurers,               (iv)  the managers. These grounds limit the jurisdiction of the Central  Govern- ment.   No jurisdiction, outside the section which  empowers

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the  initiation  of  investigation,  can  be  exercised.  An action,  not based on circumstances suggesting an  inference of  the enumerated kind will not be valid.  In other  words, the  enumeration of the inferences which may be  drawn  from the  circumstances,  postulates  the absence  of  a  general discretion  to go on a fishing expedition to find  evidence. No  doubt  the formation of opinion is  subjective  but  the existence of circumstances relevant to the inference as  the sine qua non for action must be demonstrable.  If the action is questioned on the ground that no circumstance leading  to an inference of the kind contemplated by the section exists, the  action  might  be exposed to  interference  unless  the existence  of the circumstances is made out.  As my  brother Shelat has put it trenchantly:-               "It  is not reasonable to say that the  clause               permitted  the government to say that  it  has               formed  the opinion on circumstances which  it               thinks exist..................... Since  the  existence  of  "circumstances"  is  a  condition fundamental  to the making of an opinion, the  existence  of the circumstances. if questioned, has to be proved at  least prima  facie.   It  is not sufficient  to  assert  that  the 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  or  the   withholding   of information  of a particular kind.  We have to  see  whether the  Chairman  in his affidavit has shown the  existence  of circumstances leading to such tentative 337 conclusions.   If  he has, his action cannot  be  questioned because  the  in reference is to be drawn  subjectively  and even if this Court would not have drawn a similar  inference that  fact  would be irrelevant.  But if  the  circumstances pointed out are such that no inference of the kind stated in s.  237(b)  can at all be drawn the action  would  be  ultra vires the Act and void. Now the Chairman in his affidavit referred to two  memoranda dated May 30, 1964 and July 4, 1964 presented by certain ex- directors   and  also  stated  that  from   September   1961 complaints  were being received in regard to the conduct  of the  affairs  of  the Company, and one  such  complaint  was received from Special Police Establishment in November 1963. The  nature  of  the complaints was  not  disclosed  but  in reference   to   the   memoranda   it   was   stated    that "irregularities"  and "illegalities" in the conduct  of  the affairs  of  the Company was alleged therein.  It  was  also stated  that  the memoranda "were supported  by  documentary evidence  and details of the impugned transactions  and  the signatories  offered to produce witnesses with knowledge  of these transactions".  This was followed by an enquiry by the Regional  Director  of  the  Board at  Madras  (Shri  R.  S. Ramamurthi,  I.A.S.)  who made a report in  September  1964. The report was next considered by two Under Secretaries arid by  the  Secretary of the Company Law board who  all  agreed "that there was need for a deeper probe into the affairs  of the  Company".   The  matter  was  then  placed  before  the Chairman  who  formed the opinion that  there  were  circum- stances  suggesting  the need for action  under  s.  237(b). None  of  the  reports  was produced.   Nor  was  there  any indication in the affidavit what their drift was.  There was considerable  delay  in taking up the matter  and  this  was explained  as  occasioned by the language riots,  and  other more pressing occupation.  It appears that in the High Court

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an offer was made to place the reports etc. in the hands  of the  Court provided they were not shown to the  other  side, but  no such offer was made in this Court.  The  High  Court did not look into the documents. Had  the matter rested there it would have been  a  question whether  this  Court  should  interfere  with  a  subjective opinion, when the affidavit showed that there were materials for  consideration.   It  would then have  been  a  question whether this Court could or should go behind the  affidavit. I leave that question to be decided in another case where it arises.   In  this  case it is not necessary  to  decide  it because the affidavit goes on to state:-               "...........   However  from   the   Memoranda               received by the Board referred to in paragraph               5 and other examination it appeared inter alia               that:-               (i)   there  had  been  delay,  bungling   and               faulty planning of this project, resulting  in               double    expenditure,    for    which     the               collaborators had put the responsibility  upon               the Managing Director, Petitioner No. 2,               338               (ii)  Since  its  floatation the  company  has               been  continuously showing losses  and  nearly               1/3rd of its share capital has been wiped off;               (iii) that the shares of the company which  to               start with were at a premium were being quoted                             on the Stock Exchange at half their fa ce value;               and               (iv)  some  eminent persons who had  initially               accepted  seats on the Board of  directors  of               the  company  had subsequently  severed  their               connections  with it due to  differences  with               Petitioner  No. 2 on account of the manner  in               which  the affairs of the company  were  being               conducted."               Paragraph 14  of the affidavit). It  may be mentioned that in paragraph 16 of  the  affidavit the Chairman also stated:-               "With   reference  to  paragraph  21  of   the               petition,  I  have already stated  above  that               there  was ample material before the Board  on               which  it could and did form the opinion  that               there  were circumstances suggesting that  the               business  of the company was  being  conducted               with intent to defraud its creditors,  members               and other persons and further that the persons               concerned in the management of the affairs  of               the  company had in connection therewith  been               guilty   of  fraud,  misfeasance   and   other               misconduct   towards  the  company   and   its               members." The question thus arises what has the Chairman placed before the  Court to indicate that his action was within  the  four corners  of  his own powers?  Here it must be  noticed  that members  are  ordinarily expected to take  recourse  to  the Registrar because there they have to be in a certain  number or  command a certain proportion of the voting power.   They are  also required to give evidence and the Company gets  an opportunity to explain its actions.  If s. 237(b) is used by members,  as  an alternative to s. 236,  the  evidence  must unerringly point to the grounds on which alone action can be founded.   In my opinion there is nothing to show that  the, reports  which were being received from September  1961,  or

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the  report  of the Special Police  Establishment  indicated fraud.  illegality  or  action or  actions  with  intent  to defraud,  as  contemplated by the  section.   The  affidavit merely  says  that these reports indicated the  need  for  a deeper  probe.  This is not sufficient.  The  material  must suggest  certain inferences and not the need for  "a  deeper probe".   The former is a definite conclusion the  latter  a mere fishing expedition.  A straight-forward affidavit  that there were circumstances suggesting any of these  inferences was at least necessary.  There is no such affidavit and  the reason is that the Chairman completely misunderstood his own powers.   This is indicated by the enumeration of  the  four circumstances,  I  have extracted from his affidavit  and  I proceed to analyse them. 339 The first circumstance is "delay, bungling and faulty  plan- ning"  resulting  in  "double  expenditure"  for  which  the collaborators  had  put  the responsibility  on  the  second appellant.   None  of these shows an intent  to  defraud  by which phrase is meant something to induce another to act  to his   disadvantage.    The  circumstances   mentioned   show mismanagement  and inefficiency which is not the same  thing as   fraud  or  misconduct.   The  second  and   the   third circumstance merely establish that there was loss in  making this project work and that a part of capital had been  lost. This  was  admitted by the appellants who pointed  out  that after considerable negotiations they induced Lord Poole, the President of the collaborating firm, to invest a further sum of  pound 25,000.  This shows that the appellants were in  a position to dictate to the collaborating company which  they would  not  have  been able to do if  they  were  guilty  of fraudulent  conduct.   The last circumstance does  not  also bear upon the subject of fraud and acts done with intend  to defraud.   that  some  directors  have  resigned  does   not establish  fraud or misconduct.  There may be other  reasons for the resignation. In  the other part of the affidavit the Chairman has  merely repeated  s.  237(b) but has not stated how he came  to  the conclusion and on what material.  In other words, he has not disclosed  anything  from  which it can  be  said  that  the inference  which  he has drawn that the  Company  was  being conducted with intent to defraud its creditors, members  and other persons or persons concerned in the management of  the affairs of the Company were guilty of fraud, misfeasance and misconduct towards the company and its members was based  on circumstances present before him.  In fact, paragraph 16  is no  more  than a mechanical repetition of the words  of  the section. Coming  now  to  the affidavit of Mr. Dang I  find  that  he merely  repeats  what  was stated in the  affidavit  of  the Chairman.   He  also said that he had seen  the  papers  and agreed  with  his  two Under Secretaries  and  the  Regional Director  that a "deeper probe" was necessary’ There  is  no hint even in this affidavit that the circumstances were such as  to suggest fraud, intent to defraud or misconduct,  this is  to say, circumstances under which investigation  can  be ordered.  The other affidavits also run the same way and  it is  not,  therefore,  necessary to refer to  them.   We  are concerned really with the affidavits of the Chairman and Mr. Dang  in relation to the exercise of the power conferred  by s.  237(b).  Neither proves the existence  of  circumstances under  which the power could be exercised.  In  my  opinion, therefore,  the action has not been proved to be  justified. No  doubt, the section confers a discretion but it sets  its own limits upon the discretion by stating clearly what  must

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be  looked for in the shape of evidence before  the  drastic act  of investigation into the affairs of a company  can  be taken.   The  affidavits which were filed in answer  to  the petition do not disclose 340 even  the prima facie existence of these circumstances.   On the   other  hand,  they  emphasise  only  that  there   was mismanagement  and  losses  which  necessitated  a   "deeper probe".  In other words, the act of the Chairman was in  the nature  of, a fishing expedition and not after  satisfaction that  the affairs of the Company were being carried on  even prima  facie with the intent to defraud or that the  persons incharge  were guilty of fraud or other misconduct.   As  to the constitutionality of s. 237(b) I agree with my  brethren Bachawat  and Shelat and have nothing to add. 1,  therefore. agree  with  my  brother  Shelat that  the  appeal  must  be allowed.  There will be no order about costs. Bachawat, J. The order dated May 19, 1965 was passed by  the Chairman  of  the Company Law Board Mr.  Setalvad  submitted that  only the Board could pass an order under s.  237,  the Central Government could delegate its function under s.  237 to  the Board but it had no power to authorise the  Chairman to  sub-delegate this function to himself and  consequently, the  Company Law Board (Procedure) Rules, 1964 made  by  the Central  Government on February 1, 1964 and  the  Chairman’s order  of  distribution of business dated February  6,  1964 delegating  the  function of the Board under s. 237  to  the Chairman are ultra vires the Companies Act and the  impugned order  is  invalid.  The learned  Attorney-General  disputed these submissions. As  a  general  rule,  whatever a person  has  power  to  do himself, he may do by means of an agent.  This broad rule is limited  by the operation of the principle that a  delegated authority  cannot  be  redelegate,  delegates  non   protest delegate.  The naming of I delegate to, do an act  involving a  discretion  indicates  that  the  delegate  was  selected because of his peculiar skill and the confidence reposed  in him,  and there is a presumption that he is required  to  do the  act himself and cannot redelegate his authority.  As  a general  rule,  "if the, statute directs that  certain  acts shall  be done in a specified manner or by certain  persons, their performance in any other manner than that specified or by  any  other person than one of those  name  is  impliedly prohibited."  See Crawford on statutory  Construction,  1940 Edn., art. 195, p. 335:- Normally, a discretion entrusted by Parliament to an administrative organ must be exercised  by. that organ itself.  If a statute entrusts an  administrative function  involving the exercise of a discretion to a  Board consisting of two or more persons it is to be presumed  that each  member  of the Board should  exercise  his  individual judgment  on  the matter and all, the members of  the  Board should  act together and arrive at a joint decision.   Prima facie, the Board must act as a whole and cannot delegate its function to one of its members. The  learned Attorney-General submitted that a  distribution of  business among the members of the Company Law  Board  is not  a  delegation of its authority, and the  maxim  has  no application in 341 such  a case.  I cannot accept this submission.  In Cook  v. Ward(1),  the  Court  held  that  where  a  drainage   board constituted by an Act of Parliament was authorised by it  to delegate its powers to a committee, the powers so  delegated to the committee must be exercised by them acting in concert and  it was not competent to them to apportion those  powers

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amongst  themselves and one of them acting, alone,  pursuant to such apportionment, could not justify his acts under  the statute.  Lord Coleridge, C. J. said at p. 262:- "It was not competent  to  them to delegate powers, which  required  the united action of the three, to be exercised according to the unaided judgment of one of them." Again, in Vine v. National Dock Labour Board(1), the House of Lords, held that a  local board  set up, under the scheme embodied in the schedule  to the Dock Workers (Regulation of Employment) Order, 1947  had no  power  to assign its disciplinary  function  under  cls. 15(4)  and  16(2)  of  the scheme to  a  committee  and  the purported  dismissal  of  a worker by the  committee  was  a nullity.  In my opinion, the distribution of the business of the  Board  among  its  members  is  a  delegation  of   its authority. But  the maxim "delegatus non potest delegare" must  not  be pushed  too far.  The maxim does not embody a rule  of  law. It  indicates a rule of construction of a statute  or  other instrument   conferring  an  authority.   Prima   facie,   a discretion  conferred  by  a statute, on  any  authority  is intended  to  be  exercised by that authority,  and.  by  no other.   But the intention may be negatived by any  contrary indications in the language, scope or object of the statute. The  construction  that would best achieve the  purpose  and object of the statute should be adopted. Under ss.  10E(1) and 637(1)(a), the Central Government  has power to constitute a Company, Law Board and to delegate its functions  to  the  Board.  The Board can  consist  of  such number  of  persons  not exceeding five  as  the  Government thinks  fit.   One  of the members of the Board  has  to  be appointed  a Chairman and this necessarily implies that  the Board shall consist of at least two members.  As a matter of fact,  the Government constituted a Board consisting of  two members  and  appointed one of them as  Chairman.   To  this Board  the Government delegated its function under  s.  237. Section  637  shows that the function under s.  237  can  be delegated  to  the  Board and to no  other  authority.   The function  under  s.  237(b)  involves  the  exercise  of   a discretion.   Prima  facie,  all the members  of  the  Board acting together were required to discharge this function and they  could  not  delegate  their  duty  to  the   Chairman. However, under ss. 10E(5) and 642(1), the Central Government may  frame rules regulating the procedure of the  Board  and generally  to  carry out the purposes of the  Act.   In  the context  of  s. 10E, I am inclined to  construe  this  rule- making  power liberally The Central Government has power  to constitute the Company Law Board, to delegate its  functions to the Board and to control (1) [1877] L.R. 2 C.P.D. 255. (2) [1957] A.C. 488. 342 the  Board in the exercise of its delegated  functions.   In this background, by conferring on the Central Government the additional  power of framing rules regulating the  procedure of  the Board and generally to carry out the purposes of  s. 10E,  the  Parliament must have intended that  the  internal Organisation  of  the  Board  and the  mode  and  manner  of transacting  its  business should be regulated  entirely  by rules  framed  by  the  Government.   The  Government   had, therefore, power to frame the Company Law Board  (Procedure) Rules,  1964  authorising  the Chairman  to  distribute  the business  of  the  Board.   In the  exercise  of  the  power conferred  by this rule, the Chairman assigned the  business under  s.  237  to  himself.   The  Chairman  alone   could, therefore, pass the impugned order.  Act No. 31 of 1965  has

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now inserted sub-s. (4A) in s. 10E authorising the Board  to delegate  its powers and functions to its Chairman or  other members  or principal officer.  The power under sub-s.  (4A) may  be  exercised by the Board independently of  any  rules framed  by the Central Government.  We find,  however,  that the Central Government had under ss. 10E(5) and 642(1) ample power to frame rules authorising the Chairman to  distribute the  business  of the Board.  The wide ambit of  this  rule- making power is not cut down by the subsequent insertion  of sub-s. (4A) in s. 10E. Sections  235, 237(a) and 237(b) enable the Central  Govern- ment to make an order appointing an inspector to investigate the affairs of a company in different sets of circumstances, and  the contention that s. 237(b) is discriminatory and  is violative of Art. 14 must fail.  I also think that s. 237(b) is  not  violative  of Arts. 19(1)(f) and  19(1)(g)  of  the Constitution.   The  company  is not a citizen  and  has  no fundamental right under Art. 19.  Appellant No. 2 who is the managing director of the company is not a citizen, but  even assuming that s. 237(b) imposes restrictions on his right of property or his right to carry on his occupation as managing director, those restrictions are reasonable and are  imposed in the interests of the general public. On  the question of mala fides, I am inclined to think  that the   Chairman   passed  the  order  dated  May   19,   1965 independently of and without any pressure from the Minister. I  am  all  the more persuaded to come  to  this  conclusion having  regard  to  the fact that in  paragraph  14  of  his affidavit the Chairman has disclosed the circumstances which he took into account in passing the order.  In paragraphs 5, 8  and 16 of his affidavit, the Chairman stated that he  had various materials on the basis of which he passed the order. But, on reading this affidavit as a whole and the  affidavit of  Mr.  Dang, I am satisfied that in paragraph  14  of  his affidavit  the  Chairman  has  set  out  all  the   material circumstances  which  bad emerged on an examination  of  the various   materials   before  him.    Briefly   put,   those circumstances are delay, bungling and faulty planning by the management  resulting  in double expenditure,  huge  losses, sharp  fall  in the price of the Company’s  shares  and  the resignation   of  some  of  the  directors  on  account   of differences in opinion with 343 the  managing director.  I think that  these  circumstances, without more, cannot reasonably suggest that the business of the  company was being conducted to defraud  the  creditors, members and other persons or that the management was  guilty of fraud towards the company and its members.  No reasonable person   who  had  given  proper  consideration   to   these circumstances  could  have  formed  the  opinion  that  they suggested any fraud as mentioned in the order dated May  19, 1965.   Had  the Chairman applied his mind to  the  relevant facts, he could not have formed this opinion.  I am,  there- fore,  inclined to think that he formed the opinion  without applying his mind to the facts.  An opinion so formed by him is in excess of his powers and cannot support an order under s. 237(b).  The appeal is allowed, and the impugned order is set aside.  I concur in the order which Shelat, J.  proposes to pass. Shelat J. The  appellant company is a public limited company registered on July 28, 1961 having its registered office  at Ramavaram in Andhra Pradesh and the second appellant was  at all material times and is still its managing director. On  August 25, 1959 and September 23, 1960 appellant  No.  2 obtained  two licences for the manufacture of 2500 and  1900

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tonnes  of  barium  chemicals  per  year  in  the  name   of Transworld Traders of which lie was the proprietor.  He then started  negotiations  with Kali Cliemle of  Hannover,  West Germany  to  collaborate  with him in setting  up  a  plant. While he was so negotiating, M/s., ,T.  T. Krishnamachari  & Co.,  who  were the sole selling agents of the  said  German Company,  approached the 2nd appellant for the sole  selling agency of barium products of the plant proposed to be put up by the 2nd appellant.  The 2nd appellant did not agree.   On December 5, 1960 M/s.  T. T. K. & Co., applied for a licence for  manufacture of barium chemicals.  On December 23,  1960 the 2nd appellant wrote a letter to the Minister of Commerce and Industry objecting to the grant of a licence to M/s.  T. T. K. & Co. Both were considered by the Licensing Committee. The  Committee rejected the application of M/s.  T. T. K.  & Co., but advised them to apply again after six months.  On a representation  by  M  / s. T. T. K.  &.Co.,  the  Committee reconsidered the matter and recommended the grant of licence to  M/s.   T. T. K. Chemicals Private Limited.   The  second appellant  once  more  protested, this  time  to  the  Prime Minister but that was rejected. On July 28, 1961. an agreement between the appellant company and L.A. Mitchell Ltd., of Manchester was signed where under the  latter  agreed  to put up the plant  on  the  appellant company agreeing to pay them pound 184,500.  On November 27, 1961,  the Government granted a licence to the  company  for the import of machinery., In the mean time, respondent No. 2 was appointed a, Minister without portfolio and rejoined the Cabinet  which  lie  had  left’  earlier  owing  to  certain circumstances which are not relevant for the present.   From January, 1962 to March, 1963, he continued as a L/S5SCI-24 344 Minister   without  portfolio  but  from  March,   1963   to September,  1963,  he became the Minister  for  Defence  and Economic Co-ordination and thereafter the Finance  Minister. On  August 30, 1962, the licence granted to M / S. T. T.  K. Chemicals  Ltd.  was revoked as the company had  decided  to surrender it. It  would seem that the appellant company was not faring  as well  as  was hoped and though it had been  incorporated  as early  as  July, 1961 production had not  commenced.   There arose  also disputes among its directors.  On May  30,  1964 and  July  9,  1964  four of  its  directors  submitted  two memoranda  alleging irregularities and even illegalities  in the  conduct  of the company’s affairs to  the  Company  Law Board.    According  to  the  second  appellant,  the   four directors were disgruntled directors, hostile to him and the Company.   The  company was not able to start work  in  full capacity  not because of any irregularities but  because  of the faulty planning and designing by the collaborators.  The company  realised  this  fact only in  June,  1964  when  it received  a survey report after the breakdown of  the  plant during   that  month  from  M/s.   Humphreys   and   Glascow (Overseas) Ltd., Bombay.  In September, 1964, a meeting  was affanged in London between the company’s representatives and the  representatives  of L.A. Mitchell Ltd., of  which  Lord Poole  was the Chairman.  It was agreed that L. A.  Mitchell Ltd.,  should  depute  M/s.   Humphreys  and  Glascow  Ltd., London,to go through the designs etc., and to make a  report showing the causes of the repeated failures of the plant and suggesting remedies there for.  Lord Poole also agreed  that the factory would be commissioned without any further  delay and  that L.A. Mitchell Ltd., would carry out the  necessary repairs at their cost.  While these negotiations were  going

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on, representatives of M/s.  Kali Chemie of Hannover arrived in  India  to negotiate a collaboration agreement  with  the company.   On  April  4, 1965, a meeting  of  the  company’s directors  was held in New Delhi which was attended  by  one Kriegstein, a representative of Kali Chemie and also by  the General  Manager of M/s.  T. T. K. & Co.  Certain  proposals were  discussed and it was decided that the  company  should give  notice to L. A. Mitchell Ltd. canceling the  agreement with them.  Accordingly, by a notice dated April 2. 1965 the agreement with the said L. A. Mitchell Ltd., was  cancelled. On May 7, 1965 representatives of the appellant company  and of  Kali  Chemie  met at Stuttgart  when  proposals  for  an agreement  were discussed.  One of these proposals was  that the  company  should be reorganised and  its  share  capital should be distributed in the following proportions:- 49  per cent  to the appellant company, 26 per cent to  Kali  Chemie and 25 per cent to M/s.  T. T. K. & Co. It was also proposed that Kali Chemie should take over the responsibility on  the production side, the appellant company would be  responsible for  the management and M/s.  T.T.K. & Co. should take  over sales  promotion.  Before however these  negotiations  could take concrete shape, Lord Poole came over to India.  A meet- ing  was held on May 10, 1965 between him and the  directors of the                             345 appellant  company.   Lord  Poole agreed  that  the  British company would put in pound 250,000 in addition to the amount already  invested by it and that production  would  commence from June, 1965.  On May It 1965 another meeting took  place when  it  was  decided that without prejudice  to  what  was stated in the notice of April 4, 1965, the appellant company should withdraw para 9 thereof whereby the agreement between them  was  terminated.   By  May  11,  1965,  the   position therefore  was that the collaboration agreement between  the company  and L. A. Mitchell Ltd. was agreed to be  continued and  consequently the negotiations with the  German  company and M/s. T.    T. K. & Co., were not to proceed further. On  May  19 1965 the first respondent  passed  the  impugned order which inter alia stated:-               "In the opinion of the Company Law Board there               are circumstances suggesting that the business               of M/s Barium Chemicals Ltd is being conducted               with intent to defraud its creditors,  members               and  other  persons;  and  further  that   the               persons  concerned  in the management  of  the               affairs  of  the company  have  in  connection               therewith  been guilty of  fraud,  misfeasance               and  other misconduct towards the company  and               its members.               Therefore, in exercise of the powers vested by               clause (b) of section 237 of the Companies Act               1.956   (Act,  1  of  1956,  read   with   the               Government  of  India, Department  of  Revenue               Notification   No.  GSR  178  dated  the   1st               February  1964, the Company Law  Board  hereby               appoint   .................. as Inspectors  to               investigate  the affairs of the company  since               its              incorporation              in               1961..........................." On May 25, 1965 search warrants were obtained by respondents 3 to 10 and accordingly search was carried out at the office of  the  company at Ramavaram and at the  residence  of  the second  appellant  and  several  documents  and  files  were seized.   On May 28, 1965, the second appellant submitted  a representation  to  the  chairman of  the  first  respondent

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Board.   He  explained  that out of the  company’s  paid  up capital of Rs. 50 lacs, shares of the value of about Rs.  47 lacs  were owned by members of the public, that the  company was  the  first of its kind in India, that it could  not  go into  production soon because of the defective  planning  by the collaborators, that as a result of recent  negotiations, the  collaborators had agreed to invest pound 2,50,000  more and that the company’s factory had now commenced  production from  April 1964, that the Board appeaired to have acted  on the complaints filed by the said four directors who resented the second appellant’s refusal to purchase their holdings at a  price  above  par demanded by  them;  that  though  those complaints were lodged some two years ago and were not acted L/S5SCI-24(a) 346 upon,  they  were  sought now to be made the  basis  of  the impugned  order  on  account of trade  rivalry  between  the company  and M/s.  T. T. K. & Co., that the order  was  mala