NARAYANLAL BANSILAL Vs. MANECK PHI ROZE MISTRY

JUDGEMENT

(1.) THIS appeal raises several important questions concerning the provisions of the new Companies Act of 1956. The facts which are necessary to state are very few. The appellant, who is also the petitioner, is the managing agent of a limited company called the Harinagar Sugar Mills Ltd. On 15-11-1954 the Registrar of Companies called for an explanation from the Harinagar Sugar Mills Ltd. , and the Registrar stated in his letter that it had been represented to him under S. 137 (6) of the Indian Companies Act that the business of the company was carried on in fraud and he had therefore to call upon the company to furnish the information which he required which was set out in the latter part of the letter. On 15-4-1955 the Registrar made a report to the Central Government. This report was made under S. 137 (5) of the old Companies Act and the report was that the affairs of the company were carried out in fraud of contri-butories and he was of the opinion that the affairs of the company disclosed an unsatisfactory state of affairs. He pointed out that the appellant as the managing agent of the company was also the promoter of the company. He stated in his report that under a fictitious name of Bansilal Uchant Account the company was advancing money to the several farms owned by the appellant but ostensibly purchased from the company's funds. He also recorded that between the years ending September 1942 and 1951 about Rs. 19,200/- were paid for Harpur Farm and Rs. 39,300/- were paid for Bhawanipur Farm, which showed that Uchant Account was mainly operated for purchasing such lands out of the funds of the company but for and on behalf of the appellant. The Registrar also further stated in this report that the managing agents were interested in Harinagar Cane Farm which is the principal property of the appellant, and there was no doubt that the managing agents were utilising the property of the company for their personal gain. On this report the Central Government passed an order on 1-11-1955 appointing the first respondent as an Inspector to investigate into the affairs of the company under S. 138 (iv ). In the operative part of this order it is stated that the Central Government, in exercise of the powers conferred by sub-s. (iv) of S. 138 of the said Act, is hereby pleased to appoint Shri Maneck P. Mistry (i. e. the first respondent), F. S. A. A. , F. C. A. , Chartered Accountant, Bombay, as an Inspector to investigate into the affairs of the company from the date of incorporation and point out all irregularities and contraventions in respect of the provisions of the Indian Companies Act, 1913, or any other law and report in the manner indicated in a separate communication sent to him. This separate communication dealt with the mode of inquiry and the memorandum states:

(2.) TURNING to the first point which deals with the powers of the appellant, it is necessary in the first place to look at the relevant provisions of the old Act of 1913 and the new Act of 1956. Under the old Act, under S. 137 power was conferred upon the Registrar to call for information or explanation from a company in respect of the affairs of the company, and sub-s. (5) of that section provided that on the receipt of the necessary information if it disclosed an unsatisfactory state of affairs as far as the company was concerned, it was made incumbent upon the Registrar to report the. circumstances of the case to the Central Government. Then S. 138 conferred upon the Central Government the power to appoint one or more competent inspectors to investigate the affairs of any company, and the case with which we are concerned is sub-clause (iv)-

(3.) TURNING to the new Act of 1956, certain important alterations were made in the provisions with regard to inspection and we will now proceed to point out what the main alterations were. Section 234 substantially corresponded to S. 137. Section 235 also substantially corresponded to S. 138. Then we have S. 237 which confers power upon the Central Government to appoint Inspectors in cases other than covered by S. 235 and without prejudice to the powers of the Central Government under that section, and it is made incumbent upon the Government to appoint Inspectors to investigate the affairs of the company if the company by special resolution or the Court by order declares that the affairs of the company ought to be investigated by an Inspector appointed by the Central Government. So that the power that was given under the old Act to the company under S. 142 to appoint Inspectors who were to report to the company itself was taken away and instead of that S. 237 made it obligatory upon the Government to appoint inspectors if the company itself by special resolution declared that the affairs of the company should be investigated, and an important power was conferred upon the Court that the Court could also direct the Government to appoint an Inspector or Inspectors. Then we come to S. 239 and this provision considerably enlarges the power of the Inspector with regard to inspection. It will be remembered that S. 140 confined the power of the Inspector with regard to investigation within certain definite bounds. Section 239 extended the power of the Inspector not only to investigate into the affairs of the company concerned, but also into the affairs of related companies or of managing agents or associates as defined by the Companies Act. It is under this section that the first respondent is purporting, under the notices issued and which are impugned, to call upon the appellant to submit to an investigation of his affairs both as managing agents and also of his individual business. But while conferring this very extensive power upon the Inspector, the Legislature was careful to provide that this examination was to be held if an Inspector appointed under S. 235' or S. 237 to investigate the affairs of the company thinks it necessary for the purposes of this investigation. So that it was not as if the Inspector was at large and ho could call upon a managing agent to disclose his private books of account or the books of account of his private business or to indulge in a roving inquiry. The Inspector had to be satisfied that such inspection of books or such inquiry was necessary for the main purpose for which he was appointed an Inspector and for which the inquiry was ordered and that was to investigate into the affairs of the company. In other words, what the Inspector had constantly to keep in mind was that his primary function and duty was to investigate the affairs of the company. It is in order to discharge that primary function that he was empowered to go further on what he could do under S. 140 and to examine the managing agent and also examine his personal books of account and the books of account of his own personal business. Sub-section (2) of S. 239 provides: