S.U. Kamdar, J.
1. Economic progress usher with it economic perversity such as the land scam, Petrol Pump scam, import export scam, Hawala scam, security scam, shares and stocks scam, bank scam etc. With the passage of time the method of committing these scams has been more involved and more complex and are woven into various webs. Thus as a collary thereto investigations into such scams are also required to be more scientific, more intrinsic and more detailed with the help of the experts. Corporate frauds and corporate misconduct are also another facet of such scams. Companies are being floated and are disappearing into thin air making the common man poorer and poorer by thousands of crores of rupees. These 16 appeals are challenging an order passed by the company law board under which it has ordered an investigation into one of such alleged scams under section 237(b)(i) of the companies Act which is being known as Ketan Parekh - stock scam of 2001.
2. Few facts dealing with the complex question of law which have been raised by the appellant in the present proceedings are briefly narrated as under :
3. In 2001 there was a sudden crash in the stock market i.e. the sudden increase in the prices over the board securities in the period 1999-2000 and then sudden crash of the stock market is attributed and alleged to one Mr. Ketan Parekh. It is alleged that he by his conduct through his various entities and companies has committed fraud which led to the said crash in the stock market. It is also alleged that the 14 companies in the present appeals are entities which are controlled and owned directly or indirectly by the said Ketan Parekh, who is the alleged King-player in the stock exchange scam of 2001. There are also allegations that with the crash of the stock market, there has simultaneously been a crash of the Madhavpura Co-operative Bank, Global Trust Bank and UTI and thousands of crores of rupees have been siphoned off from the system. With a hue and cry from the public the lok Sabha on 26.4.2001 constituted the parliamentary committee as fact finding committee to investigate the said 2001 Stock Exchange crash. The terms of reference of the said joint parliamentary committee have been enlarged on 3.8.2001 and inquiries pertaining to the crash of UTI were also made part of the said joint parliamentary committee. The joint parliamentary committee has given their report and has inter-alia recommended in para 11 to 35 of the report that the investigations must be carried out in respect of 6 corporate groups belonging to Ketan Parekh and that the department of company affairs has been informed that 6 out 0f 10 corporate groups have transferred huge amount to entities and associates of Ketan Parekh and this aspect requires investigation. Joint parliamentary committee has also simultaneously directed SEBI to carry out investigations to take appropriate action within the provisions of Security Exchange Board India Act, 1992 as amended from time to time (hereinafter referred to as 'the SEBI act').
4. On 25.6.2001 the respondents issued a letter to the appellants seeking inspection of the books of accounts of the appellant in exercise of power conferred under section 209(A) of the companies Act. After carrying out certain initial investigations on the reference of the company on 25/11/2001 a preliminary finding report was filed by the respondent with the central government. On 19.11.2004 the respondents set out various details and inquiries with the appellant company seeking various information. This inspection under section 209(A) of the companies Act has been partly carried out and is still in progress.
5. On 2.5.2003 the company petition No. 39 of 2003 was filed by the respondent with the company law board seeking permission to investigate the affairs of the company in exercise of power conferred under section 237(b)(i) of the companies Act. The application is inter-alia based on the interim report of the various irregularities of the SEBI as well as certain irregularities which came to the light by virtue of inspection under section 209(A) of the Companies Act. The said petition is also based on a report of the joint parliamentary committee. Thus in nutshell the application which has been initiated under section 237(b)(i) is based on the material gathered from three basic sources namely, the report of the Joint parliamentary committee, the interim report of the SEBI investigation and thirdly the reports pursuant to the investigation under section 209(A) of the companies Act. The petition which is filed on 2.5.2003 by the respondent in detail sets out the various findings on the aforesaid three reports and the material gathered by the said authorities as required for the purpose of carrying out investigation under section 237(b)(i), This petition dated 2.5.2003 was served on the company on 16.5.2003. It is the case of the petitioner that on 20.7.2003 they applied to the company law board for a certified true copy of the SEBI report and other documents which are relied upon by the respondent in the said company petition before the company law board. On 12.7.2003 the appellant herein sought a transfer of the proceedings from the principal bench of the company law board, New Delhi to the western region bench of the company law board at Mumbai. Simultaneously they have also applied for inspection of the various documents which are referred to and/ or relied upon by the respondent in the said company petition. On 24.11.2003 the appellant company filed a reply inter-alia opposing the petition which was filed under section 37(b)(i) of the Companies Act. It was inter-alia alleged that the powers sought to be exercised by the company law board are likely to seriously affect the interest of the company. The various allegations made in the company petition were denied. It was contended that the stock market crash which took place some time in or about 2001 was not due to acts on the part of Ketan Parekh but in fact he alongwith his entitles have suffered losses in the range of about Rs.3,000 crores to Rs.4,000/- crores. It was further contended that if there was any evidence regarding misuse of funds of banks and financial institutions then the appellant cannot be penalised for the same but it is infact the duty of the Reserve Bank of India to regulate and over see the functions of the banks and financial institutions affecting the financial matters and that the consequence of the failure on the part of the RBI cannot be attributed to the appellant herein. In so far as the allegation that there is intention of the company to conduct its business with an intention to defraud its creditors, members and other members or for a fraudulent or unlawful purpose is concerned, the appellant has contended that the word 'intention' would mean that the someone was deceived by the respondents deliberately and in preplanned events to their advantage and it assumes a guilty mind and there has to be an unlawful gain by such an evil design on the part of the appellant herein. It was contended that the crash of the stock market in 2001 was merely a drastic melt down of the share prices due to a declining trend in global share market which has also inflicted heavy financial lossess to the appellant companies. It is further contended that the drastic fall in the share prices cannot be foreseen by the appellant and they themselves are the victims of melt down and not the beneficiaries of the same. Thus the allegation of carrying on business for defrauding the creditors and/or for fraudulent or unlawful purpose were denied. It has been further contended that the purpose and object of investigation has already been achieved by carrying out investigations by the authorities such as SEBI, CBI and Department of company affairs under section 209(A) of the Companies Act and therefore a further investigation in the matter by the said investigating authorities appointed by the Central Government under section 237(b)(i) is neither necessary nor efficacious and it would only affect the interest of the appellant company prejudicially. The respondents on the other hand in their rejoinder have placed extensive reliance upon the inspection report of the CBI and Joint Parliamentary Committee and also the inspection carried out by the department of company affairs under section 209(A). Even a certain extract of the JPC report has been annexed to the said rejoinder.
6. After hearing the parties the company law board has passed an impugned order on 27.9.2004. By the impugned order the company law board has inter-alia held that there is a ground made out for carrying out investigation under section 237(b)(i). It has been further held that there are serious allegations of fraud and scams by these corporate entities and there is substantive material in support of the said allegations to conduct support the investigation under section 237(b)(i) of the Companies Act. Thus the company law board allowed the company petition and permitted the department of company affairs to carry out investigation under section 237(b)(i) in the affairs of each of the appellant companies. This order dated 22.9.2004 which is a common order passed in respect of all of the sixteen appeals before me is the subject matter of challenge before me. These are the appeals filed under s. 10F on the ground that certain substantive questions of law arise in the present case and require determination of this court.
7. Learned counsel for the appellant has framed three substantial questions of law in support of his argument which are briefly enumerated as under :
1. Whether it is a condition precedent for exercise of power under section 237(b)(i) of the companies act that the business of the company should be in operation as on the date when the power is sought to be exercised by the respondent or that once the business of the company has ceased to be in operation for any reason whatsoever voluntarily or otherwise, then the respondents have no jurisdiction to initiate and or exercise jurisdiction vested in them by virtue of the proceedings under section 237(b)(i) ?
ii). Whether on the facts of the present case the respondents have made out prima-facie case for investigation or alternatively there is a material available for exercising jurisdiction by the respondent under section 237(b)(i) ?
iii). Whether in view of simultaneous investigations carried out by SEBI, CBI and department of company affairs under section 209(A) the respondent ought not be permitted to launch a fresh investigation in exercise of power under section 237(b)(i) of the Companies Act on same material and on same facts ?
8. Before I deal with the aforesaid substantial questions of law as framed by the learned counsel for the appellant I feel that it is necessary that the relevant provisions of the Act which are germaine to the aforesaid questions of law must be set out. Some of the relevant provisions are reproduced as under :
"209A. Inspection of books of account, etc. of companies.
(1) The books of account and other books and papers of every company shall be open to inspection during business hours
(i) by the registrar, or
(ii) by such officer of the government as may be authorised by the Central Government in this behalf;
(iii) by such officers of the Securities and Exchange Board of India as may be authorised by it:
Provided that such inspection may be made without giving any previous notice to the company or any officer thereof;
Provided further that the inspection by the securities and Exchange Board of India shall be made in respect of matters covered under sections referred to in section 55A]
(2) It shall be the duty of every director, other officer or employee of the company to produce to the person making inspection under sub-section (1), all such books of account and other books and paper of the company in his custody or control and to furnish him with any statement, information or explanation relating to the affairs of the company as the said person may require of him within such time and at such place as he may specify.
(3) It shall also be the duty of every director, other officer of employee of the company to give to the person making inspection under this section all assistance in connection with the inspection which the company may be reasonably expected to give.
(4) The person making the inspection under this section may, during the courts of inspection,-
(i)make or cause to be made copies of books of account and other books and papers, or
(ii) place or cause to be placed any marks of identification thereon in token of the inspection having been made
(5) Notwithstanding anything contained in any other law for the time being in force or any contract to the contrary, any person making an inspection under this section shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit, in respect of the following matters, namely-(i) the discovery and production of books of account and other documents at such place and such time as may be specified by such person. (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of the company at any place.
6. Where an inspection of the books of account and other books and papers of the company has been made under this section the person making the inspection shall make a report to the central government [or the securities and Exchange Board of India in respect of inspection made by its officers].
(7) Any officer authorised to make an inspection under this section shall have all the powers that a Registrar this under this Act in relation to the making of inquiries.
(8) If default is made in complying with the provisions of this section, every officer of the company who is in default shall be punishable with fine which shall not be less than [fifty] thousand rupees, and also with imprisonment for a term not exceeding one year.
(9) Where a director or any other officer of a company has been convicted of an offence under this section he shall, on and from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall be disqualified for holding such office in any company, for a period of five years from such date.]"
"S.234 Power of Registrar to call for information or explanation.
(i) Where, on perusing any document which a company is required to submit to him under this Act, the Registrar is of opinion that any information or explanation is necessary [with respect to any matter to which such document] purports to relate, he may, by a written order, call on the company submitting the document to furnish in writing such information or explanation within such time as he may specify in the order.
(2) On receipt by the company of an order under sub-section (1), it shall be the duty of the company, and of all persons who are the officer of the company, to furnish such information or explanation to the best of their power.
(3) On receipt of a copy of an order under sub-section (1), it shall also be the duty of every [person who has been an officer of the company to furnish such information or explanation to the best of his power.
[3A) If no information or explanation is furnished within the time specified or if the information or explanation furnished is, in the opinion of the Registrar, inadequate, the Registrar may by another written order call on the company to produce before him for his inspection such books and papers as he considers necessary within such time as he may specify in the order; and it shall be the duty of the company, and of all persons who are officer of the company to produce such books and papers.]
(4) If the company, or any such person as is referred to in sub-section (2) or (3) refuses or neglects to furnish any such information or explanation [or if the company or any such person as is referred to in sub-section (3A) refuses or neglects to produce any such books and papers],
[(a) the company and each such person shall be punishable with fine which may extend to [five thousand rupees and in the case of a continuing offence, with an additional fine which may extend to [five hundred] rupees for every day after the first during which the offence continues; and
(b) the court trying the offence may, on the application of the Registrar and after notice to the company, make an order on the company for production before the Registrar of such books and papers as in the opinion of the court, may reasonably be required by the Registrar for the purpose referred to in sub-section (1).]
[(5) On receipt of any writing containing the information or explanation referred to in sub-section (1), or of any book or paper produced whether in pursuance of an order of the Registrar under sub-section (3A) or of an order of the court under sub-section
(4) the Registrar may annex that writing book or paper, or where that book or paper is required by the company, any copy or extract thereof, to the document referred to in sub-section (1) and any writing or any book or paper or copy or extract thereof so annexed shall be subject to the like provisions as to inspection, the taking of extracts and the furnishing of copies, as that document is subject. (6) If such information or explanation is not furnished within the specified time or if after perusal of such information or explanation or of the books and papers produced whether in pursuance of an order of the Registrar under sub-section (3A) or of an order of the court under sub-section (4), the Registrar is of opinion that the document referred to in sub-section (1), together with such information or explanation or such books and papers disclosed an unsatisfactory state of affair or does not disclosed a full and fair statement of any matter to which the document purports to relate, the Registrar shall report in writing the circumstances of the case to the Central Government.]
(7) If it is represented to the Registrar of materials placed before him b y any contributory or creditor or any other person interest that the business of a company is being carried on in fraud of its creditors or of persons dealing with the company or otherwise for a fraudulent or unlawful purpose, he may, after giving the company an opportunity of being heard, by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order, within such time as he may specify therein, and the provisions of sub-sections (2), (3) [(3(A)], (4) and (6) of this section shall apply to such order.
(8) The provisions of the section shall apply mutatis mutandis to documents which a liquidator, or a foreign company within the meaning of section 591, is required to file under this Act."
"235. Investigation of the affairs of a company.
(1) The Central Government may, where a report has been made by the Registrar under sub-sction (6) of section 234, or under sub-section (7). of that section, read with sub-section (6) thereof, 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.
(a) in the case of a company having a share capital, an application has been received from not less than two hundred members or from members holding not less than one-tenth of the total voting power therein, and
(b) in the case of a company having no share capital, an application has been received from not less than one-fifth of the persons on the company's register of ; members. the tribunal may, after giving the parties an opportunity of being heard by order, declare that the affairs of the company ought to be investigated by an inspector or inspectors, and on such a declaration being made, the central government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to report thereon in such manner as the central Government may direct. "
"237. 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
(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, [in its opinion or in the opinion of the tribunal] there are circumstances suggesting
(i) that the business of the company is being conducted with intend to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to 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, or the manager of the company."
"250A Voluntary winding up of company, etc., not to stop investigation proceedings.
An investigation may be initiated under section 235, 237, 239 [or 247] notwithstanding that
(a) an application has been made for an order under section 397 or section 398; or
(b) the company has passed a special resolution for voluntary winding up, and no investigation so initiated shall be stopped or suspended by reason only of the fact that an application referred to in clause (a) has been made or a special resolution referred to in clause (b) has been passed.]"
9. Learned counsel appearing for appellant has vehemently contended before me that the proceedings which are initiated by the respondent before the company law board for investigation under section 237(b)(i) of the companies Act is totally without jurisdiction and non est. It has been further contended that the condition precedent prescribed under the said section having not been complied with by the company law board was not entitled in law to exercise jurisdiction under the provisions of section 237(b)(i) of the Companies Act. The learned counsel has further contended that on true and correct interpretation the company law board gets jurisdiction to pass an order of investigation only if the company is carrying on business with the intention to defraud its creditors, members and/ or carrying on business for fraudulent or unlawful purpose or in a manner oppressive to any of its members in a. praesentis. It is therefore contended that if the company is not carrying on business at present then irrespective of the fact that during the period when the company was carrying on business whether the company has conducted business defrauding the creditors or for a fraudulent or unlawful purpose or in a manner oppressive to any members the Company Law Board does not acquire jurisdiction to launch investigation under section 237(b)(i). It has been vehemently contended that the provisions under section 237(b)(i) must be strictly construed because it is an inroad in the freedom guaranteed by the constitution under Article 19(1)(g). It is contended that it is an interference with the right of the shareholders to carry on business as guaranteed by the constitution. It has been contended that section 237(b)(i) must be so strictly read that unless there is a compliance with the condition precedent prescribed thereon the tribunal cannot exercise power to launch investigation in the affairs of the company, It has been further contended that only in the last category prescribed under s. 237(b)(i) i.e. if the company is formed for any fraudulent and/or unlawful purpose that it is not necessary that the business of the company should be carried on at present moment when the investigations are ordered. It has been contended by the learned counsel for the appellant in alternative to the aforesaid submission that even if the provisions of section 237(b)(i) are not so strictly construed as urged by him then also it must be so construed that save and except the case where the business of the company is voluntarily closed or the company is voluntarily wound up then only on those cases s. 237(b)(i) would be applicable but in all other cases the provisions of section 237(b)(i) would not apply if the business of the company is not carried in praesentis. It has been further contended that it is immaterial that whether at the relevant time when the business it was carried on by the company was infact carried on for the purpose of defrauding the creditors or members and/ or carried on for fraudulent or unlawful purpose or it is carried on in a manner oppressive to any of its members and still the company law board will not permit the investigation by the central government under the provisions of section 237(b)(i) of the Companies Act. It has been strenuously urged by the learned counsel for the appellant that the power conferred on the central government under section 237(b)(i) is a draconian power interfering with the business of the company and such power must be not be permitted to be utilised save and except directly in accordance with law and therefore the said application for investigation when the business is not running in praesentis cannot be granted.
10. On the facts of the present case the learned counsel has contended that it is an admitted position that in respect of some of the appellants who are inter-alia carrying on business of share brokerage their share brokers card has been suspended and in some of the cases the said card is revoked and/or terminated by the concerned stock exchange and SEBI and some of the trading firms who were carrying on business as a share broker have come to a halt and therefore those companies are not carrying on any business in praesentis and thus the jurisdiction vested under the central government and or the company law board to investigate under section 237(b)(i) cannot be exercised in respect of these companies. It has been further contended that business of the various companies has also been closed because of the freezing of the bank accounts in parallel investigations which have been carried out by the SEBI, CBI and Department of Company Affairs. It has been therefore contended by the learned counsel for the appellant that even in respect of companies who are not share broking companies still their business has also come to a total halt and or for all practical purposes all these companies are defunct companies and exist only on paper. Thus according to the learned counsel for the appellant the company law board ought not to have passed the impugned order since it does not satisfy the jurisdictional requirements of section 237(b)(i) of the Companies Act. Thus the learned counsel for the appellant has contended that the argument that these appellants at the relevant time when they were carrying on business have committed a scam even if it is taken as true still the said scam cannot be the subject matter of investigation under section 237(b)(i) because of closure of their business for reasons beyond their control. The business of the appellants have been brought to a halt by an order of SEBI suspending and/or revoking the licence to carry on business of the company. Thus it is submitted that when power is exercised under section 237(b)(i) by the central government the company being already defunct companies and not running the business they cannot be subjected to investigation under the said section.
11. The learned counsel for the appellants has vehemently contended that the issue urged by him is directly or squarely covered by the constitution bench decision of the apex court in the case of Barium Chemicals Ltd and Anr. reported in 1966 CC page 639. He has drawn my attention to the following para and has contended that the apex court has clearly held that under section 237(b)(i) as a jurisdictional requirement for exercising of power of ordering investigation against a company it is necessary that the company must be carrying on business in praesentis and it is absolutely immaterial that the company has in past carried on the business for a fraudulent or unlawful purpose or for defrauding the creditors or any of the members. The said para reads as under :
"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 corse 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. (ii) members, or (iii)any other person
(b) that the business is being conducted (i) for a fraudulent purpose (ii)ffor an unlawful purpose ;
(c) that persons who formed the company or mange its affairs have been guilty of
(i) fraud, or
(ii) misfeasance or other misconduct-towards 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 Government. No jurisdiction, outside the section which empowers 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."
12. The learned counsel has vehemently contended that the judgement of the apex court as per majority decision laid down by Hidayatullah, J. is the lead judgment and holds that the provisions of section 237(b)(i) can only be exercised when the business is running in praesentis and does not apply when the business of the company has been closed down for any reasons whatsoever including the reasons which are beyond the control of the appellant themselves. The learned counsel has been at pain to convey that the issue which has been raised by him is no more res integra in view of the judgment of the constitution bench and has contended that the said judgement of the apex court is binding on me. According to the learned counsel for the appellant the aforesaid para in the judgment helds that the business of the company must be carried on in praesentis for the purpose which is mentioned in the said section for exercising power by the central government under section 237(b)(i).
13. He has further contended that the issue was further discussed in subsequent judgment of the apex court in the case of Rohtas Industries v. S.D. Agarwal and Ors. reported in 1969 (1) S.C.c. page 325. It has been contended that apex court in the aforesaid judgment has accepted the view taken by Hidayatullah, J as the correct view. He has relied upon para-6 of the said judgment. He has also relied upon para 11 where the apex court has approved the view of Hidyatullah, J. in the case of Barium Chemicals (supra). The said para 6 and 11 reads as under:
"6. The decision of this court in Barium Chemical's case (supra) which considered the scope of section 237(b) illustrates that difficulty. In that case Hidayatullah, J.,(our present chief justice) and Shelat, J. came to the conclusion that though the power under Section 237(b) is a discretionary power the first requirement for its exercise is the honest formation of an opinion that the investigation is necessary and the further requirement is that "there are circumstances suggesting" the inference set out in the section; an action not based on circumstances suggesting an inference of the enumerated kind will not be valid ; the formation of the opinion is subjective but the existence of the circumstances relevant to the inference of the enumerated kind will not be valid; the formation of the opinion is sine quo non or action must demonstratable ; if their existence is questioned, it has to be proved at least prima facie ; it is not sufficient to assert that those circumstances exist and give no clue to what they are, because the circumstances must be such as to lead to conclusions of certain definiteness; the conclusions must relate to an intent to defraud, a fraudulent or unlawful purpose, fraud or misconduct. In other words they held that although the formation of opinion is subjective but the existence of circumstances relevant to the inference as the sine qua non for action must be demonstratable ; if their existence is questioned, it has to be proved at least prima facie ; it is not sufficient to assert that those circumstances exist and give no clue to what they are, because the circumstances must be such as to lead to conclusions of certain definiteness; the conclusions must relate to an intent to defraud, a fraudulent or unlawful purpose, fraud or misconduct. In other words they held that although the formation of opinion by the central government is a purely subjective process and such an opinion cannot be challenged in a court on the ground of propriety, reasonableness or sufficiency, the authority concerned is nevertheless required to arrive at such an opinion from circumstances suggesting the conclusion set out in sub-clauses (i), (ii) and (iii) of section 237(b) and the expression "circumstances suggesting" cannot support the construction that even the existence of circumstances is a matter of subjective opinion. Shelat, J further observed that it s 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.
11. coming back to section 237(b) in finding out its true scope we have to bear in mind that that section is a part of the scheme referred to earlier and therefore the said provision takes its colour from sections 235 and 236. In finding out he legislative intent we cannot ignore the requirement of those sections. In interpreting section 237(b) we cannot ignore the adverse effect of the investigation on the company. Finally we must also remember that the section in question is an inroad on the powers of the company to carry on its trade or business and thereby an infraction of the fundamental right guaranteed to its shareholders under Article 19(1)(g) and its validity cannot be upheld unless it is considered that the [power in question is a reasonable restriction in the interest of general public. In fact the vires of that provision was upheld by majority of the judges constitution bench ion Barium chemicals' case principally on the ground that the power conferred on the central governments is not an arbitrary power and the same has to be exercised in accordance with the restraints imposed by law. For the reasons stated earlier we agree with the conclusion reached reached by Hidayatullah and Shelat, JJ in Barium Chemicals' case that the existence of circumstances suggesting that the company's business was being conducted as laid down in sub-clause (1) or the persons mentioned in sub-clause(2) were guilty of fraud or misfeasance or other misconduct towards the company or towards any of its members is a condition precedent for the government to form the required opinion and if the existence of those conditions is challenged, the courts are entitled to examine whether those circumstances were existing when the order was made. In other words, the existence of the circumstances in question are open to judicial review though the opinion formed by the government is not amenable to review by the courts. As held earlier the required circumstances did not exist in this case. " 14. Apart from the aforesaid two judgments of the apex court the learned counsel has in support of his contention has also relied upon the judgment of the Delhi High Court in the case Ashoka Marketing Ltd. v. Union of India reported in 1981 CC Vo. 51 page 634 and the judgment of the Calcutta High court in the case of New Central Jute Mills v. Deputy Secretary, Ministry of Finance, Department of Revenue and Company Law, and Ors. reported in 1970 CC Vol. 40 page 102. By relying upon the aforesaid two judgments the learned counsel has reiterated the submissions which are already set out in extentio hereinabove.
15. In the alternative to the above submissions the learned counsel has raised the issue of interpretation of section 237(b)(i) and it is contended that assuming that the judgment of the apex court did not hold that the running of a business in praesentis in the manner set out therein is a condition precedent still according to him on a plain and simple reading of the section an inescapable conclusion is that for the purpose of exercising the power under the said section the business must be a running business and not defunct or closed down business. On the other hand learned counsel Mr. Desai the learned Additional Solicitor General appearing for the respondent has contended that the provisions of section 237(b)(i) cannot be so restrictly interpreted. According to him it takes in its sweep even a part conduct of the business partially conducted even if the company has become defunct or it has suspended its business operation for any reasons whatsoever. It has been further contended by the learned counsel that the provisions of section 237(b)(i) in its opening portion provides that the power of the central government to appoint one or more persons as inspector to investigate the affairs of the company and to report thereon to the central government is a power conferred on the respondent in the public interest and such power of the central government ought to be given full effect for effecting investigation and cannot be so interpreted so as to defeat the provisions of the Act. It has been further contended that the word "is being conducted" is in a simple present tense but by using the words conducted in past tense it has included within its scope even the business which was carried out for fraudulent purposes in the past. Thus according to the learned Additional Solicitor General the central government would have jurisdiction to investigate irrespective of the fact that whether the company is running the business or not. The learned Additional Solicitor General has further contended that the court must give purposeful interpretation to the provisions of section 237(b)(i) and should not interepret the section which results in absurd consequences. According to the learned counsel the section cannot be interpreted in a manner which can provide a scope to do the things which are infact meant to be prevented by the provisions thereof. In so far as the aforesaid authorities are concerned, the learned counsel for the respondent has contended that the judgment of the apex court in the case of Barium Chemicals (supra) does not in any way or manner set out any such proposition of law as contended by the learned counsel for the respondent i.e. the company must be running the business in praesentis so as to attract the provisions of section 237(b)(i). The learned counsel has contended that the paras referred to by the learned counsel for the appellant did not carve out any such proposition of law as canvassed by the learned counsel for the appellant before this court and therefore the said argument ought not to be accepted. The learned counsel has further contended that the if the interpretation is given as suggested by the learned counsel for the appellant in most of the cases, then the company would commit fraud and carry on business for fraudulent or unlawful purpose and or to defraud the creditors and before the same can be detected or investigated they would close down the company and evade investigation or cases where due to criminal investigation if the business of the companies has come to a halt then in that event it would escape the investigation under section 237(b)(i) of the companies act. Further more it would restrict the power of government to take immediate remedial action of preventing further fraud being carried on by the company by carrying on business.
16. Alternatively the learned counsel solicitor general has contended that in the facts of the present case in fact the company is carrying on business in praesentis. It has been contended that the company is neither a defunct company nor has the company been wound up but it is merely affected by virtue of the various orders passed by the various authorities affecting the business of the company but is still in operation. It has been contended that it is admitted by the appellant themselves in the various documents which are set out on record which indicate that according to the appellant themselves the business is a running business and not closed down as claimed by the appellant himself and it has been contended by the learned counsel for the appellant that even if the section is interpreted as claimed by the learned counsel for the appellant still the order impugned herein is legal and valid and it satisfies all the requirements of section 237(b)(i) and this court in exercise of power under section 10(f) ought not to interfere with the said order passed by the company law board and the appeal should be dismissed.
17. While considering the rival contentions of he parties in so far as the first question of law framed by the petitioner is concerned i.e. the power under section 237(b)(i) can only be exercised if the company is carrying on business and does not apply if the company has closed down its business or by virtue of the orders passed by various authorities due to it has been forced to close down its business. I do not agree that the aforesaid issue is no longer a resintegra in view of the judgment of the apex court in the case of Barium Chemicals (supra). On going through the above judgment of the apex court, in which the apex court has considered the constitutional validity of section 237(b)(i), I do not find any such proposition of law laid down by the apex court that the power under section 237(b)(i) can only be exercised when the company was carrying on business in praesentis. The paras on which strong reliance has been placed by the learned counsel for the appellant in my opinion does not raise any such issue of law. In the said paras the apex court was dealing with the issue of formation of opinion of the central government and requirement of the material in support thereof while ordering investigation under s. 237(b)(i) of the Act. The paras clearly indicates that the court was considering the words in the opinion of the central government and was considering that whether such words suggest in any manner that there should be material in support. While considering the aforesaid issue the court has analysed the said sections and has broken in into four parts a, b, c, d therein. Such division of the section in four parts namely a, b, c and d is nothing else but division of the plain language of the section as it is. The learned counsel for the appellant has contended that the apex court while considering the section in parts (a) and (b) as used the words "business is being conducted" indicates that the court was of the opinion that the investigation cannot be ordered once the business has been closed down. I do not read any such proposition of law in the said para which has been set out in the said judgment nor do I find from the reading of the said judgment that any such issue was ever considered by the apex court. I therefore do not accept the contention of the learned counsel that the issue whether the investigation can be ordered only when the business is being conducted must be read in present tense and that the ratio of the aforesaid judgment in the case of Barrium Chemicals (supra) covers the issue. I therefore reject the contention of the appellants that this issue is squarely covered and no more resintegra by virtue of the judgment of the apex court in the case of Barium Chemicals(supra). I am of the opinion that it is now well settled law that the judgment is an authority only on such proposition of law which squarely arises in the cases which are squarely dealt with by the court and that is the only ratio of the judgment which is binding on me. I do not find any such ratio or proposition of law as agitated by the learned counsel for the appellant being decided by the apex court in the aforesaid judgment of Barium Chemicals (supra). I therefore do not accept the contention of the learned counsel for the appellant and reject the same.
18. Once I so hold that the issue is not covered by the judgment cited by the learned counsel, then I am required to consider the alternative argument of the learned counsel for the appellant i.e. on a plain and simple interpretation of section 237(b)(i) of the companies Act it is a condition precedent that business must be a running business ordering investigation under section 237(b)(i). The learned counsel for the appellant has contended that even on interpretation the section is clear and unambiguous. It uses the word "is being conducted" which is simple present tense. Thus according to the learned counsel for the appellant on plain and simple interpretation of the section itself it is clear that the power under section 237(b)(i) can be exercised by the authorities only if the business is conducted in praesentis. In so far as the arguments on the interpretation of section 237(b)(i) is concerned it is by now well settled that the interpretation of the section as a first principle must be on the basis of simple and plain language used in the section itself. However there is a caveat which has been well recognised by the various courts that if interpretation is likely to result in absurd consequences or it defeats the intention of the legislature then in that event purposive interpretation ought to be resorted to and interpretation should be such to advance the intention of the legislature rather than defeating the same. In my opinion the provisions of investigation under section 237(b)(i) are being introduced by the parliament with the intention to prevent persons who enter the business in the guise of corporate entities to carry on fraudulent business with a view to harm the public interest. Butterworth in his 5th edition on the company law while tracing out the background of the similar legislation i.e. English company Law has inter-alia considered the reason for introduction of such a legislation and while doing so it has stated as under :
". It is important to know the background of the legislation. It sometimes happens that public companies are conducted in a way which is beyond the control of the ordinary shareholders. The majority of the shares are in the hands of two or three individuals. These have control of the company's affairs. The other shareholders know little and or told little. They receive the glossy annual reports. Most of them throw them into the wastepaper basket. There is an annual general meeting but few of the shareholders attend. The whole management and control is in the hands of the directors. They are self-perpetuating oligarchy: and are virtually unaccountable. Seeing that the directors are the guardians of the company, the question is asked : Quis custodiet ipsos custodes-Who will guard the guards themselves ?"
19. Similar are the provisions under section 237(b)(i) of the companies act in India. Essentially the provisions are meant to see that the defrauding of the public at large is not being carried on under the guise of the corporate affairs. In my opinion even on plain and simple reading of the said section would indicate that the words used " is being conducted " are used in the context of the fraudulent or unlawful business conducted by the company in course of running of their business. It does not mean that once the business is conducted in unlawful and fraudulent manner and if it is closed down the power of the central government of ordering investigation under section 237(b)(i) stood revoked or ceased to have effect as contended by the learned counsel for the appellant. The word "is being conducted" has to be read alongwith the words "fraudulent or unlawful purpose" even if it is so read it is clear that the word "is being conducted" is used with the intention to indicate that when the business of the company was conducted it was conducted for unlawful purpose. Even otherwise I am of the opinion that to accept the contention of the appellant would be to make the said section nugatory and without any effect and toothless. It is because any person can conduct the business for fraudulent or unlawful purpose and before it is detected would close down the business of the company and infact escape the consequences as contemplated under section 237(b)(i) of the company. It is not uncommon that there are companies who are fly by night operators in a booming economy of India today. If such an interpretation is given to section 237(b)(i) then all these companies would commit fraud and would close down the business and consequently make the provisions a dead letters on the statue. Apart therefrom it is also difficult to interpret the section in a manner the learned counsel for the appellant has called upon me to do because while so interpreting it is necessary that the central government must detect and investigate all such cases of the company which are conducted in a fraudulent or unlawful purpose in a course when such conduct is being carried on by the company. I do not think this could be a legislative intention while enacting the said section 237(b)(i).
20. The principles of interpretation of statue are well settled. It is repeatedly held by the apex court that the interpretation must be to avoid absurdity and unrealistic result or consequences of such an interpretation. The maxwell has in his book interpretation of statues in the 10th edition as opined as under :
"If the choice is between two interpretation, the narrower of which would fails to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result."
21. The aforesaid rule of a meaningful and purposeful interpretation of the section to avoid the absurd consequence is by now well settled in the case of Mangin v. Inland Revenue Commissioner reported in 1971 the All Englands Law Reports page 179 Lord Donvan has Stated as Under:
". Thirdly, the object of the construction of a statute being to ascertain the will of the legislature, it may be presumed that neither injustice nor absurdity was intended. If therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted."
22. The said view is also recognised in large number of authorities in India, some of which can be briefly enumerated as under : In the case of Budhan Singh and Anr. v. Babi Bux and Anr. reported in AIR 1970 S.C. 1880 (V 57 C 401) in para 9 it is stated as under :
"9. Before considering the meaning of the word "held" in Section 9, it is necessary to mention that it is proper to assume that the law-makers who are the representatives of the people enact laws which the society considers as honest, fair and equitable. The object of every legislation is to advance public welfare. In other words, as observed by Crawford in his book on Statutory Constructions that the entire legislative process is influenced by considerations of justice and reason. Justice and reason constitute the great general legislative intent in every piece of legislation. Consequently, where the suggested construction operates harshly, ridiculously or in any other manner contrary to prevailing conceptions of justice and reason, in most instances, it would seem that the apparent or suggested meaning of the statute was not the one intended by the law makers. In the absence of some other indication that the harsh or ridiculous effect was actually intended by the Legislature, there is little reason to believe that it represents the legislative intent."
23. In the case of Nasiruddin v. State Transport Appellate Tribunal reported in AIR 1976 SC 331 where in the apex court has in para 26 as held as under :
"26. The conclusion as well as the reasoning of the High Court that the permanent seat of the High Court is at Allahabad is not quite sound. The order states that the High Court shall sit as the new High Court and the Judges and Division Bench thereof shall sit at Allahabad or at such other places in the United Provinces as the Chief Justice may, with the approval of the Governor of the United Provinces appoint. The word "or" cannot be read as "and". If the precise words used are plain and unambiguous they are bound to be construed in their ordinary sense. The mere fact that the results of a statute may be unjust does not entitle a court to refuse to give it effect. If there are two different interpretation of the words in an Act, the court will adopt that which is just, reasonable and sensible rather than that which is none of those things. If the inconvenience is an absurd inconvenience, by reading an enactment in its ordinary sense, whereas if it is read in a manner in which it is capable, though not in an ordinary sense, there would not be any inconvenience at all; there would be reason why one should not read it according to its ordinary grammatical meaning. Where the words are plain the court would not make any alteration."
24. In the case of Molar Mal v. Kay Iron Works (P) Ltd. reported in (2000) 444 SCC 285 while reconsidering the aforesaid principle the apex court has held as under :
". The courts will have to follow the rule of literal construction which rule enjoins the court to take the words as used by the legislature and to give it the meaning which naturally implies. But there is an exception to this rule. That exception comes into play when application of literal construction of the words in the statute leads to absurdity, inconsistency, or when it is shown that the legal context in which the words are used or by reading the statute as a whole, it requires a different meaning. If the expression "entitled to apply again" is given its literal meaning, it would defeat the very object for which the legislature has incorporated the proviso in the Act in as much as the object of that proviso can be defeated by a landlord who has more than one tenanted premises by filing multiple applications simultaneously for eviction and thereafter obtain possession of all those premises without the bar of the proviso being applicable to him. This could not have been the purpose for which the proviso is included in the Act. If such an interpretation is given then the various provisos found in sub-section (3) of Section 13 would become otiose and the very object of the enactment would be defeated. Therefore, the restriction contemplated under the proviso extends even up to the stage when the court or the tribunal is considering the case of the landlord for actual eviction and is not confined to the stage of filing of eviction petition only."
25. Thus in my opinion the true and correct interpretation of section 237(b)(i) would only mean that if the company while conducting the business has acted in a fraudulent or unlawful purpose then such companies will fall within the net of section 237(b)(i) irrespective of the fact that whether it is a running concern or close down subsequently for any reason whatsoever I am of the aforesaid opinion also because under the provisions of section 250(A) it is specifically provided that investigation may be initiated under section 237(b)(i) notwithstanding that the application is made under section 397 and 398 of the Companies Act or it has passed a special resolution for voluntary winding up of such a company. In my opinion if section 250(A) is read alongwith section 237(b)(i) it is without any doubt that the contention of the learned counsel for the appellant that no investigation can be carried out once the company has ceased to operate its business. In any event on a true and proper construction of the section I do not accept the contention of the learned counsel for the appellant that the business of the company should be conducted in praesentis for the purpose of ordering investigation by the central government under section 237(b)(i).
26. Even otherwise on facts the learned counsel for the respondent has been able to establish that the business of the company is not totally stopped though undoubtedly it has been seriously affected by virtue of the orders passed by the SEBI and stock exchange of suspension of the brokerage licence, suspension or freezer of bank account and collapse of Madhavpura Cooperative Bank and Global Trust Bank. The learned counsel has drawn my attention to the affidavit filed by the company before the company law board in which it has been stated as under :
"3(b) It is incumbent that in order to achieve this objective, the functioning of the Applicant/Respondent group of companies ought not to be cirppled which situation would inevitably result if the order dated 27.09.2004 passed by this Hon'ble Board is not amended for the purpose of determining the real question, as would be evident from the averments made hereinafter in this application."
6. It is stated in this connection that the following the details of payment made by the Applicant group of companies and value of Share/Property lying with the Bank :
PARTICULARS AMT(RS. IN CRORES)
By Cash/Deposits/Divident 27.34
By sale of stocks 15.18
Paid to Bank of India 28.92
It may be mentioned that out of the figures indicated above, even as recently as during the period ranging between 11.09.2004 and 04.11.2004, securities worth Rs.15,18,02,166.05(Rupees Fifteen Crores Eighteen Lacs Two Thousand One Hundred and Sixty Six and paise Five), held by the Ketan Parekh group with Madhavpura Mercantile Cooperative Bank Limited were liquidated towards discharging dues towards the said bank by the Ketan Parekh group.
7. It is also submitted that Shri Ketan V. Parekh has always cooperated with the Banks even admist his crisis. In spite of all the accounts frozen by various agencies and a ban on Shri Ketan V. Parekh and on his various Group of Companies from carrying out activities in the Capital markets,, the aforesaid amounts paid reflects clear intention on the part of Shri Ketan v. Parekh and his Group of companies towards liquidating dues of bankers, financial institutions, and creditors. Admist such a situation it would be contrary to public interest if efforts of the Ketan Parkeh group of companies to liquidate bank's dues are jeopardised in any manner.
10. Admist these fact finding investigations, to impose another investigation would have the effect of crippling the functioning of Ketan Parekh Group of companies and would adversely affect their capacities to liquidate dues of creditors which would be contrary to public interest."
27. Learned counsel for the respondent has also relied upon the balance sheet of the various companies which inter-alia undoubtedly indicates conduct of some business though by way of liquidation of the various assets of the company. However the learned counsel for the appellant has contended that liquidating the assets and or conducting the business of the company by calling meetings of the company cannot be deemed to be conducting the business of the company. He has relied upon the judgment of the apex court in the case of Bengal and Assam Investors Ltd. v. Commissioner of Income-tax, West Bengal, Calcutta AIR 1996 SCC 1514 (V 53 C 297) particularly para- 13 of the said judgment. The said para 13 of the said judgment reads as under :
13. Mr. Desai laid a great deal of stress on the argument that the very fact that a company is incorporated to carry on investment shows that the company is carrying on business. We are unable to agree with this contention. Bhagwati, J observed in Lakshminarayan Ram Gopal and Son Ltd v. Government of Hyderabad,
that "when a company is incorporated it may not necessarily come into existence for the purpose of carrying on a business". He further observed that "the objects of an incorporated company as laid down in the memorandum of association are certainly not conclusive of the question whether the activities of the company amount to carrying on of business."
28. While considering the aforesaid contention the apex court has held that there is difference between the incorporation of a company and conduct of the business of the company. In this case the company was only incorporated on the paper but no business of any nature was conducted by the company. The said judgment has no application in the facts of the present case where the business of the company in so far as statutory requirements are concerned of calling meetings, filing returns, preparing the balance sheet is running. It may be that actual trading in the stock markets or stock exchanges has come to a halt by suspension of the trading licence by the SEBI or the business has been substantially crippled by virtue of freezer of various bank accounts. I am of the opinion that this cannot be treated as business of the company 'is not carried on' and or the same 'is closed down' for reasons beyond the control of the appellant i.e. by virtue of the passing of the orders of various authorities such as SEBI,CBI and other central government authorities. The business of the company is conducted even today even though at a very low level. it cannot be said that the business of the company has ceased to be in operation. The word 'is being conducted' under section 237(b)(i) even if it is so interpreted as contended by the learned counsel for the appellant it should be and must mean that the business of the company has to come to a total stop and no activities of the company are carried on. In my opinion such situation arises only when the company is wound up either by voluntary winding up or compulsory winding up as provided under the Companies Act. In the aforesaid circumstances even on the facts of the present case I am of the opinion that the business of the company is being carried on and therefore the provisions of section 237(b)(i) squarely apply to the case which would mean that the order passed by the company law board is legal and valid and on this ground does not require any interference by this court.
29. This takes me to the second question of law framed by the learned counsel for the appellant that whether in the present case the central government has able to produce necessary material on evidence to establish that the ground exist for ordering such an investigation under section 237(b)(i). On the facts of the present case it is not in dispute that there has been a stock market collapse in the year 2001 and the appellants herein have indulged in large number of share dealings and trading. It is also not in dispute before me that the Madhavpura Cooperative Bank and Global trust Bank has collapsed in view of the stock market scam. However the appellants have denied their involvement in the scam. They have on the contrary contended that they are the victims of the collapse of the share market and not the beneficiaries. The respondents therein have produced before the company law board in support of the application for investigation under section 237(b)(i) a report of the joint parliamentary committee investigating said scam. The respondents have also produced the report and/ or order passed by the SEBI against the appellants and Ketan Parekh alleged moving spirit behind the 14 companies. The central government has also in support of the application relied upon the reports which are filed by the inspectors in the course of carrying out investigation under section 209(A). The central government has also relied upon large number of breaches of the provisions of the companies act by the various companies in support of investigation. In my view not only there is a material in the form of aforesaid reports, documents and orders but a more than prima-facie case has been made out for investigation of the appellant company. The Joint parliamentary committee has infact directed the investigation against these entities by the SEBI or the central government. However the learned counsel for the appellant canvassed that there is no material which can be used by the respondent in respect of the investigation because each of the authorities are entitled to conduct its own investigation on the basis of aforesaid report and therefore the same cannot be utilised for the purpose of ordering investigation by the central government under section 237(b)(i). I am not inclined to accept the contention of the learned counsel for the appellant for the simple reason that it is possible that the material can be common or identical in the course of various investigations embarked upon by the various authorities. It does not mean that the respondents are not entitled to use the material which have been unearthed or found in the course of the investigation by any other authority. The material in the present case is glaring. There was a serious collapse of the stock exchange in 2001. The SEBI on investigation has found that all the entitles have entered into typical type of transactions in concert with each other so as to ultimately result in collapse of the stock market. Consequently large amount of public fund has been eroded. Consequent upon the collapse of the Global Trust even UTI has been subjected to serious financial difficulties and was ultimately required to be bailed out by the government. These are very serious circumstances and there is a plethora of material to indicate that 14 of the entities who are subject to investigation under the provision of section 237(b)(i) have played some role the consequence of which has resulted as mentioned herein above. The learned counsel for the appellant further contends that there is no need for investigation when there is substantial material and therefore the power ought not to be exercised merely for the purpose of exercising under s. 237(b)(i). The aforesaid contention is merely stated to be rejected as devoid of any merits. In my opinion the central government has not only sufficient material but also has a strong prima-facie case for ordering investigation. It has been well settled by the various decisions of the apex court that the court ought not to interfere at this stage of investigation by the authorities. The investigation is not a trial of an offence. It is merely a fact finding venture. It is no doubt true that in the context of the companies it is a serious issue because it interferes with their rights to carry out free trading but it has been held that every right is coupled with reasonable restrictions and if the company has prima-facie carried out fraudulent activities then obviously it cannot complain about investigations carried out by the central government in exercise of statutory powers conferred under section 237(b)(i).
30. This leads me to the third question of law which has been raised by the learned counsel for the appellant.
31. It has been inter-alia contended that the power conferred under the provisions of section 237(b)(i) of the act must be sparingly exercised and cannot be utilised in causal manner. It has been contended by the learned counsel for the appellant that in respect of the so called security scam of 2001 there are already investigations undertaken by the SEBI, CBI and even the department of Company Affairs by ordering investigation under section 209(A). It has therefore been contended that on the same material and on the same allegations one more investigation ought not to be ordered by the central government nor the company law board ought to grant a sanction to such an investigation. It is not contended that the said exercise is in futility and the same is carried on simultaneously by the various authorities with a view to only affect the business of the company and thus the same should not be permitted.
32. Learned counsel for the appellant has taken me through the provisions of the SEBI Act and has contended that the purpose and scope of inquiry thereunder has been more extensive and the provisions are more harsh and effective and in view thereof the inquiry under section 237(b)(i) is meaningless and would achieve no purpose. It has been therefore contended that once there is an extensive inquiry undertaken by SEBI in exercise of powers conferred under the SEBI act and that the SEBI is supposed to be an expert authority in stock exchange transactions. It is neither necessary nor permissible to conduct inquiry by the department of company affairs by invoking powers under section 237(b)(i) of the companies Act. It has been urged by the learned counsel for the appellant that the inquiry ordered and sanctioned by the CBI, is merely to harass the appellant company and is not meant for achieving any objective and therefore the court should strike down the company law board order sanctioning the said inquiry. It has been further contended that the parallel CBI investigation is also already in progress. The Department of company Affairs is also conducting an inspection under section 209(A) and that various prosecutions are already launched. In view thereof it has been contended that no such investigation should be permitted by the central government in exercise of power under section 237(b)(i). On the other hand the learned counsel for the respondent has urged that the investigation is a must looking at the magnitude and the proposition of fraud which has been alleged to have been committed by all the sixteen entities and according to the central government the moving spirit behind these companies is Mr. Ketan Parekh. The learned counsel for the respondent company has drawn my attention to a resolution passed by the government of India, Department of Company Affairs being resolution dated 2.7.2003 and it has been contended that by the said resolution the government of India has set up a serious Fraud Investigation Office (SFIO) and it is required that the corporate frauds should be investigated by the said SFIO. It is also brought to my attention that under the said resolution the SFIO will be conferred with the power to investigate in the company because the investigation under section 237(b)(i) of the companies Act is entrusted to the SFIO. The learned counsel for the respondent has further contended that there are authorities and authorities which require to investigate the various aspects of fraud committed by the companies like the appellant herein. It has been contended that the SEBI under the SEBI Act has a restrictive power to investigate i.e. in respect of security transactions but when it comes to transaction in respect of banks and other institutions which are not within the purview and/ or jurisdiction of the SEBI and the same are required to be investigated by the Central Government through the appropriate authority and/or body. It has been contended that the inquiry under the different acts by the different authorities are in respect of their respective jurisdiction and spheres assigned to them under the various legislations and it cannot be stated in law that merely because the inquiry is in progress by one authority under one act it should automatically prevent the other authorities from conducting investigation under a separate statue.
33. I have considered these rival submissions of the parties and I am of the opinion that the jurisdiction and the power of the various investigating authorities derived from the jurisdiction vested in them by the various legislations or statutes, the authority which is doing the inquiry and or conducting the investigation is required to carry out investigation keeping in mind the legal provisions and legal limitations which are stipulated under the respective statute. Undoubtedly it can be that there may be an overlapping investigation but in my opinion such an eventuality cannot prevent any investigating authority from carrying out investigation in respect of their jurisdiction conferred on them under the statute. I am also of the further opinion that the investigation in respect of the corporate fraud can be initiated and considered by the central government under section 237(b)(i) of the companies Act. I have not been able to come across any provisions under the SEBI act in which any corporate fraud can be investigated by the SEBI. Undoubtedly it can be investigated under normal criminal law by the CBI. I am further of the opinion that merely because the material on the basis of which investigation is being undertaken is identical to the material which is subject matter of investigation by the other authority it can not be stated that both the authorities can not simultaneously investigate pursuant to power conferred on them under their respective statutes. I am of the opinion that every authority is entitled to investigate even may be in respect of the same material as well as from the angle and facet in which they have been asked to carry out investigation. It is possible that the SEBI may be investigating the same material on the ground of breach of the various provisions of the SEBI act and other security related legislations whereas the central government, department of company affairs can consider and/or investigate the fraud and/or breach of various provisions of law in the light and context of the provisions of the companies act may be in respect of the same material. However, I am of the opinion that the contentions advanced by the learned counsel for the appellant cannot be accepted particularly in view of the fact that every authority has been conferred various powers in their respective legislation. A similar issue aroused before the English Court under the identical provisions of investigation under the Companies Law and the Court of Appeal in the case of Re London United Investments Plc reported in 1992 BCLC 258 Equivalent to 1971 All England Law Reports page 849 it is held as under :
". The power of the secretary of state to appoint inspectors to investigate the affaris of a company and to report is an important regulatory mechanism for ensuring probity in the management of companies' affairs. That of course is in the public interest. Since the Secretary of State's powers under s 432(2) are exercisable where there are circumstances suggesting fraud, it is likely that in many cases where inspectors are appointed an investigation by the police or the Serious Fraud Office could also be appropriate. But the code under the 1985 Act is a seperate code even though it may overlap the field of criminal investigation."
34. Apart from the aforesaid position in law I am also of the of the further opinion that the central government having constituted the Serious Fraud Investigation Office and if it desires to carry out investigation in respect of the affairs of the aforesaid 14 appellant companies without any malafide intention then it is not possible to stall the investigation merely on the basis of contentions and arguments advanced by the learned counsel for the appellant that all the authorities cannot be permitted to carry the investigation simultaneously in respect of the very same material. I therefore reject the contention on behalf of the appellant in respect of question No. 3 which have been formulated. I am of the opinion that the answer to this question is that every authority is entitled to carry out investigation may be in respect of the same material in so far as they do not exceed the jurisdiction conferred on them in their respective statute. I therefore answer this question of law accordingly.
35. The learned counsel for the respondent has drawn my attention to the judgment of the apex court in the case of Delhi Development Authority v. Skipper Construction Co. (P) Ltd. and Anr. reported in 1996 4 SCC 622 and has brought to my attention that the supreme court has taken note of the fact that various frauds are committed by the companies defrauding the public at large by taking shelter of corporate entities. It has been contended by the learned counsel for the respondent by relying upon the aforesaid judgment that it is necessary to lift or pierce the corporate veils and to see who are the real men behind the veil who are involved in defrauding others under the guise of corporate entity. It has been contended by the learned counsel for the respondent that such an exercise can be undertaken by the SFIO while carrying out investigation under section 237(b)(i) of the companies Act and the court must not stole such an investigation. It has been contended by the learned counsel for the appellant that there are serious allegations in the present case and thus this court must refrain from exercising jurisdiction and interfering with the investigation at this stage. I find considerable substance in the contention advanced by the learned counsel for the respondent. It is well settled that the court must be reluctant in interfering in the matter where the same is still at investigating stage. The court cannot and should not usurp the jurisdiction vested in the central government to form an opinion and come to a conclusion as to whether the investigation is necessary or not Limited jurisdiction or power is conferred on the court is to ascertain whether there is a material in support of the opinion arrived at by the central government and/or the said exercise is not a malafide exercise of power. In the facts of the present case I do not consider that the exercise of the central government is malafide. There is a plethora of material and in view therein I do not desire to interfere with the investigation ordered by the central government in exercise of power conferred under section 237(b)(i) of the act.
36. In view thereof I find that there is no substance in the present appeals. I accordingly dismiss all the 14 appeals with cost quantified at Rs.10,000/- each per appeal.
At the request of the learned counsel for the appellant the statement of the learned counsel for the respondent to maintain status-quo is to continue till 29.4.2005.
In view of the dismissal of the appeals itself nothing remains in the company applications (L) No. 1030 of 2004 to 1043 of 2004 for ad-interim orders and the same is dismissed accordingly with no order as to costs.