Bombay High Court
Bakhtawar Construction Co. (P.) Ltd. vs Blossom Breweries Ltd. And Ors. on 4 May, 1998
Equivalent citations: [1999]95COMPCAS28(BOM)
Author: D.K. Deshmukh
Bench: D.K. Deshmukh
JUDGMENT D.K. Deshmukh, J.
1. By this appeal filed under Section 10F of the Companies Act, the appellant challenges the order, dated November 12, 1997, passed by the Company Law Board in Company Petition No. 36 of 1997 [since reported as Bakhtawar Construction Co. (P.) Ltd. v. Blossom Breweries Ltd. [1998] 91 Comp Cas 744 ; [1998] 1 Comp LJ 150 (CLB)]. That petition was filed by the appellant before the Company Law Board under Sections 248 and 250 of the Companies Act, The principal relief that was claimed by the appellant from the Company Law Board was that the Company Law Board should direct investigation to be made in terms of the provisions of Section 248 of the Companies Act in relation to respondent No. 1-company. It appears that before filing Company Petition No. 36 of 1997, the appellant had filed Company Petition No. 65 of 1996, under Section 248 read with Section 250 of the Companies Act. However, that petition was dismissed by the Company Law Board by its order, dated January 16, 1997 [since reported as Bakhtawar Construction Co. (P.) Ltd. v. Blossom Breweries Ltd. [1997] 88 Comp Cas 859 ; [1997] 2 Comp LJ 39 (CLB)]. In a writ petition filed before the Delhi High Court, that order of the Company Law Board was set aside and the Delhi High Court remanded the matter back for hearing before the Company Law Board. During the pendency of those proceedings, Company Petition No. 36 of 1997 was filed by the appellant under Section 248 read with Section 250 of the Companies Act, and, therefore, in view of the filing of the subsequent petition, the earlier petition filed under Section 247 read with Section 250 of the Companies Act which was Company Petition No. 65 of 1996 was withdrawn. According to the appellant, an investigation under Section 248 in relation to respondent No. 1-company was necessary because there were gross irregularities in the allotment of shares of respondent No. 1-company. The application filed by the appellant under Section 248 of the Companies Act has been rejected as not tenable by the Company Law Board by its order impugned and, therefore, the appellant has approached this court by way of this appeal.
2. Learned counsel appearing for the appellant submitted that the Company Law Board has rejected the appeal filed by the appellant because according to the Company Law Board, a direction under Section 248 of the Companies Act can be issued by the Company Law Board only if any other proceedings are pending before the Company Law Board. In the submission of learned counsel, the section has been misread by the Company Law Board. Learned counsel submitted that Section 248 of the Companies Act provides a substantive remedy for investigation into the ownership of any shares or debentures of the company and to make an order under Section 248, it is not necessary that some other proceedings are pending before "the Company Law Board. Learned counsel further submitted that the Company Law Board has also held that the result of the investigation cannot be used for ordering further investigation under Section 247, because the remedy of investigation under Section 247 has been given up by the appellant. In the submission of learned counsel, the reason given by the Company Law Board is not correct. In the submission of learned counsel, the question as to for what purpose the information which will be available as a result of the investigation is to be used has not yet arisen. In the submission of learned counsel, first, the Company Law-Board has to consider the material placed by the appellant before the Company Law Board on merits and it is only after being satisfied that the appellant has made out a case for investigation into ownership of the shares of respondent No. 1-company that the Company Law Board will make an order under Section 248 and it is only after the report of that investigation is before the Company Law Board that the question as to for what purpose that information is to be used would arise. In the submission of learned counsel, the remedy provided by Section 248 of the Companies Act is an end in itself, and it cannot be said that Section 248 has to be used only in aid of some other proceedings and the order to be passed in some other proceedings before the Board.
3. Learned counsel appearing for respondent No. 1 on the other hand submitted that a perusal of the provisions of Section 247 shows that under that section, the Company Law Board has power to issue a direction to the Central Government to appoint an inspector for investigating the affairs of a company. In the submission of learned counsel, however, under Section 248, the said investigation is to be held without appointment of an inspector. In the submission of learned counsel, even for making an order under Section 248, the Company Law Board has to be satisfied that an investigation is necessary. In the submission of learned counsel, therefore, the field in which Sections 247 and 248 operate is the same and as the appellant has given up the remedy under Section 247, its application under Section 248 was not tenable. Learned counsel further submitted that the remedy provided by Section 248 is a remedy for a purpose, viz., that the information that is collected, as a result of investigation under Section 248 is to be used by the Company Law Board for making an order in any proceedings that may be pending before it. In the submission of learned counsel, the provisions of Section 248 can be used by the Company Law Board in aid of its power to make a final order in proceedings pending before it. In the submission of learned counsel, Section 248-powers cannot be used by the Company Law Board merely for the purpose of investigation. Learned counsel further submitted that the Company Law Board was perfectly justified in rejecting the application filed by the appellant because except for seeking investigation, no further order was sought from the Company Law Board by the appellant.
4. Now, it is clear from the rival submissions made that it is the provisions of Section 248 of the Companies Act which fall for consideration in the present petition and it is the provisions of Sub-section (1) of Section 248 which are relevant for the purpose. Section 248(1) reads as under :
"248. Information regarding persons having an interest in company.--(1) Where it appears to the Central Government, or to the Company Law Board in any proceedings before it, that there is good reason to investigate the ownership of any shares in or debentures of a company and that it is unnecessary to appoint an Inspector for the purpose, the Central Government or the Company Law Board, as the case may be, may 'require' any person whom it has reasonable cause to believe-
(a) to be, or to have been, interested in those shares or debentures ; or
(b) to act, or to have acted, in relation to those shares or debentures, as the legal adviser or agent of someone interested therein ;
to give the Central Government or the Company Law Board, as the case may be, any information which he has, or can reasonably be expected to obtain, as to the present and past interests in those shares or debentures and the names and addresses of the persons interested and of any persons who act or have acted on their behalf in relation to the shares or debentures."
5. It is clear from the provisions of Section 248 that power of investigation into ownership of any shares or debentures of a company for good reasons, can be exercised either by the Central Government or by the Company Law Board. Now, first taking up the question whether Sections 247 and 248 operate in the same field or they operate in different fields, it is necessary to refer to the provisions of Section 247(1)(a) of the Act, which reads as under :
"247. Investigation of ownership of company.-(1) Where it appears to the Central Government that there is good reason so to do, it may appoint one or more inspectors to investigate and report on the membership of any company and other matters relating to the company, for the purpose of determining the true persons--(a) who are or have been financially interested in the success or failure, whether real or apparent, of the company ; or."
6. Perusal of the provisions of Section 247(1)(a) makes it clear that power is vested under that provision to the Company Law Board to issue directions to the Central Government for appointment of an inspector for investigation into the affairs of the company and that investigation is to be ordered as regards the membership of the company or other matters relating to the company for the purpose of determining the true persons who are or have been financially interested in the success or failure whether real or apparent of the company or who are or have been able to control or materially influence the policy of the company whereas under Section 248, the investigation can be ordered by the Central Government or by the Company Law Board to investigate ownership of any shares or debentures of a company. Thus, from a reading of these two provisions, it is clear that the area of enquiry under Section 247 is different and more wider than the area of enquiry under Section 248. It is further to be seen here that apart from the area of enquiry being different, even the method of enquiry is different. Under Section 247, an investigation has to be made by the inspector whereas under Section 248, an investigation has to be made merely by calling for information from the company. Thus, to my mind, it is clear that the areas in which these provisions operate are different and, therefore, withdrawal of proceedings initiated under Section 247 cannot in any case come in the way of maintaining the proceedings under Section 248.
7. Now, taking up the question whether the Company Law Board can issue directions under Section 248 without there being any other proceedings before it, in my opinion, it depends on the meaning to be attached to the words "in any proceedings before it" appearing in Subsection (1) of Section 248 of the Act. In the submission of learned counsel for respondent No. 1, these above-quoted words clearly indicate that an order under Sub-section (1) of Section 248 can be made by the Company Law Board only in case there are proceedings pending before it for some other relief than mere investigation into affairs of the company. However, in my opinion, such a meaning cannot be attached to these words. It is to be seen here that Section 248 creates the power to order investigation into the ownership of any shares or debentures of a company and this power is vested by Section 248 in the Central Government as also the Company Law Board. The content of the power of the Central Government and the Company Law Board under Section 248 is the same. To say that in case the Central Government exercises the power under Section 248 of the Act, then that power can be exercised by the Central Government as an end in itself and to say that, however, the Company Law Board cannot do it only because the words "in any proceedings before it" are used after the words "the Company Law Board". To my mind, it appears that the words "in any proceedings before it" have been used in Sub-section (1) of Section 248 of the Act to indicate that the powers can be exercised by the Company Law Board only in case proceedings were initiated before it invoking that power. Whereas the Central Government can invoke that power without anybody taking any proceedings before the Central Government invoking that power. It is further to be seen here that Section 248 is the provision which provides a remedy and, therefore, the provisions are to be so read as to advance the remedy and not to deny it. In my opinion, the question that is considered by the Company Law Board, viz., that the Company Law Board would not be in a position to use the information that is collected for any purpose, did not arise for consideration at that stage. In any case, in my opinion, there are various purposes for which the information can be used by the Company Law Board itself. A perusal of the various provisions of the Companies Act shows that the Company Law Board has been vested wide powers in controlling the affairs of the company incorporated under the Companies Act. One may read Section 237(1)(b) of the Act. Under that power, the Company Law Board can recommend to the Central Government for an order of investigation into the affairs of the company if as a result of investigation under Section 248, it is revealed that the business of the company is being conducted with an intention to defraud its creditors, etc. In any case, as stated above, the question is premature at this stage because the only question that arises at this stage is whether the application simpliciter seeking an order under Section 248 without seeking any further relief was tenable or not. In my opinion, such an application was tenable and can be entertained. So far as the observations made by the Company Law Board in relation to the provisions of Section 250 are concerned, a perusal of the provisions of Sections 247, 248, 249 and 250 shows that Section 250 vests powers in the Company Law Board to make orders for a limited period to facilitate holding of investigation ordered under the preceding sections. Section 250 does not contemplate any final orders being made by the Company Law Board. The orders that are to be made under Section 250 are always in aid of the investigation that is ordered under the preceding sections. Once the investigation is ordered by the Company Law Board under the preceding sections, then -the question may arise as to whether some interim orders in aid of the investigation are necessary, and in case such orders are necessary, recourse to Section 250 can be taken. The provisions of Section 250 are merely in the nature of conferring powers on the Company Law Board to make interim orders in aid of the investigation that is directed to be held by the Company Law Board.
8. In the result, therefore, the appeal succeeds and is allowed. The order impugned [since reported as Bakhtawar Construction Co. (P.) Ltd. v. Blossom Breweries Ltd. [1998] 91 Comp Cas 744 ; [1998] 1 Comp LJ 150 (CLB)] is set aside. Company Petition No. 36 of 1997 is remanded back to the Company Law Board for consideration and decision in accordance with law. The parties undertake to appear before the Company Law Board on May 18, 1998. The Company Law Board is directed to consider the application for interim relief filed by the appellant before it on that date or on any subsequent date. In view of the orders passed in the petition, interim applications do not survive and hence rejected.
9. Certified copy expedited.