Appeals No 488 and 489 of 1969
Appeals by special leave from the judgment and order dated November 4 1968 of the Delhi High Court in Letters Patent Appeal No 30 of 1968
AC Mitra section Ray BK Chakravarti HK Puri and BN Kirpal for the appellant in CA No 488 of 1969 and the respondent in CA No 489 of 1969
Jagdish Swarup Solicitor General V C Mahajan and SP Nayar for the respondents in CA No 488 of 1969 and the appellants in CA No 489 of 1969
179 The Judgment of the Court was delivered by Shah J
The Rampur Distillery Company Ltd hereinafter called the Rampur Company  is a manufacturer of industrial alcohol
In 1943 the Rampur Company appointed Govan Brothers its managing agent for 20 years
In July 1946 a group
of persons who may be referred to as
the Dalmia Group  assumed control over Govan Brothers
VH Dalmia who became Managing Director of Govan Brothers besides being a director of a number of other companies held important positions in several trade associations
On March 19 1953 information was lodged by the Registrar of Joint Stock Companies Delhi that V Ii
Dalmia and others had committed offences of criminal breach of trust
By virtue of section 330 of the  the manaing agency of the Rampur Company was to expire on August 15 1960 unless before that date the managing agent was re appointed for a fresh term in accordance with the provisions of the 
On December 10 1959 the Rampur Company reappointed Govan Brothers Managing Agent for ten years with effect from August 15 1960 and applied to the Central Government that the extension of the managing agency of Govan Brothers be approved
The Central Government granted extension for five years under section 326 of the with effect from August 15 1960
In the report of the Commission headed by Mr Justice Vivian Bose appointed to enquire into and report on the working of the Dalmia Jain Group of Industries  the dealings of VH DaImia in relation to the financial affairs of some of the companies of which he was a director was severely criticized
In the view of the Commission VH DaImia was in the year 1946 47 guilty of grossly improper conduct in relation to several companies of which he was a director
In May 1964 the police lodged criminal proceedings against VH Dalmia and 23 others in the Court of the District Magistrate Delhi charging them with being parties to a criminal conspiracy having for its objects the commission of criminal breach of trust of the assets of the Dalmia Jain Airways Ltd and committing offences of forgery and falsification of accounts and that criminal breach of trust was committed by them in respect of amounts running into crores of rupees
The proceedings so instituted are still pending
On September 23 1964 the Rampur Company passed another resolution appointing Govan Brothers Managing Agent for five years with effect from August 15 1965 and applied to the Central Government to accord approval to the appointment
This appli 180 cation was referred by the Central Government to the Company Law Board which was constituted under section 10E of the  with authority to
exercise the powers of the Central Government among others to deal with applications under section 326 of the 
The Campany Law Board extended the tenure of Govan Brothers till March 31 1967
Another application by the Rampur Company dated August 25 1966 for extension of the term of the managing agency upto August 1970 was rejected by the Board
The Rampur Company then moved a petition in the High Court of Delhi on June 10 1967 for an order quashing the decision of the Board and for an order extending the term of the managing agency till March 31 1970
A single Judge of the High Court granted the petition holding that the managing agent was a private limited company and the reasons for failure to extend the managing agency agreement of Govan Brothers being entirely personal to VH Dalmia were completely irrelevant in so far as the affairs of the Managing Agent company or of the petitioner Company Rampur Company were concerned In appeal against that order a Division Bench of the High Court observed that where a Managing Agent is a corporate body the acts and conduct of the Directors of that body become the object of scrutiny in determining whether such a corporate body may be considered to be a fit and proper person for appointment or reappointment as Managing Agent and that the enquiry must cover all relevant activities and actions of the Directors of the corporate body
The High Court accordingly set aside the order and remitted the case for a fresh decision
The learned Judge who heard the petition after remand proceeded to dismiss the writ petition
In appeal against the order the High Court observed that in determining whether a person was fit and proper to be appointed a managing agent his acts and activities in the past cannot be ignored altogether and coupled with other circumstances may provide a valid ground for not approving an appointment but since under section 3262b the Board has to consider the fitness and propriety of a managing agent at the date of the proposal the Board has also to take into consideration the subsequent conduct acts and activities of the person and the Board having failed to consider the entirety of the acts and activities of VH Dalmia the opinion formed by the Board was incomplete and not in accordance with the provisions of section 3262b of the 
The High Court accordingly set aside the order and directed the Board to take into consideration material circumstances namely the acts and activities of VH Dalmia during the years subsequent to 1947 in forming the requisite opinion under section 32623
181 Against that order two appeals have been preferred one by the Company Law Board and the other by the Rampur Company with special leave
Section 326 of the provides 1 In respect of any company to which neither the prohibition specified in section 324 nor applies a managing agent shall not be appointed or  reappointed a except by the company in general meeting and b unless the approval of the Central Government has been obtained for such appointment or reappointment
2 The Central Government shall not accord its approval under sub section 1 in any case unless it is satisfied a that it is not against the public interest to allow the company to have a managing agent b that the managing agent proposed is in its opinion a fit and proper person to be appointed or reappointed as such and that the conditions of the managing agency agreement proposed are fair and reasonable and c that the managing agent proposed has fulfilled any conditions which the Central Government require him to fulfil
 The Rampur Company in a general meeting resolved that the managing agency of Govan Brothers be continued till August 14 1970 and applied for the approval of the Company Law Board By sub section
2 of section 326 the Board is enjoined not to accord its approval unless it is satisfied that it is
not against the public interest to allow the Company to have a managing agent that the managing agent proposed is in its opinion a fit and proper person to be appointed or re appointed as such and that the conditions of the managing agency agreement proposed are fair and reasonable
The section uses the present tense
The satisfaction must be with reference to the three conditions existing in praesenti but in adjudging whether a person is fit and proper to be appoint past actings and conduct cannot be ignored
In considering whether a person is fit to be appointed a managing agent the Board is not restricted to a consideration of his acts conduct and activities proximate to the date of the application the Board has to consider his acts and activities past and present the interest of the share holders and the general interests of the public in allowing 182 the management to be continued by the Directors of the Company and other circumstances which have a heating on the question
The Board apparently restricted itself to the findings recorded by the Commission headed by Mr Justice Vivian Bose relating to the dealings of VH Dalmia with the companies of which he was a director between the years 1945 and 1947
The criticism by the Commission of the conduct of VH Dalmia suggested that there were serious grounds for complaint against him but these observations related to acts and omissions many years before the date on which the application was made
The Board had to consider whether Govan Brothers is a fit and proper person to be appointed managing agent on a review of all the relevant circumstances the criticism by the Commission the progress made by the Rampur Company while under the management of VH Dalmia and others since 1946 47 the interests of the shareholders the creditors and of the public generally and also that a complaint was pending in a Criminal Court against VH Dalmia and others charging them with committing serious offences
The Solicitor General appearing for the Union of India contended that by the use of the expression in its opinion occurring in section 3262b of the  it is meant that the subjectice satisfaction of the Central Government is determinative of the question whether the proposed person is fit and proper to be appointed managing agent and if the Board reached the conclusion as it has done in the present case on considerations which are not irrelevant that Govan Brothers is not a fit and proper person to be appointed managing agent the decision based on the satisfaction cannot be challenged before the High Court
The argument is that the existence of the satisfaction as well as the decision reached on that satisfaction are immune from the scrutiny of the Court
We are unable to agree
By sub section
2 of section 326 of the  the Central Government is invested with power to decide whether it is against the public interest to allow the Company to
have a managing agent whether the person proposed iS fit and proper to be appointed or reappointed managing agent whether the conditions of the managing agency agreement proposed are fair and reasonable and whether the managing agent proposed has fulfilled the conditions which the Central Government has required him to fulfil
Investment of that power carries with it a duty to act judicially ie to hold an enquiry in a manner consistent with rules of natural jusitice to consider all relevant matters to ignore irrelevant matters and to reach a conclusion without bias without predilection and without prejudice
The satisfaction contemplated by section 326 must therefore be the result of an objective appraisal of the relevant materials
The reason is clear
By Section 326 several restrictions upon the power of the Companies and individuals to carry on business are 183 imposed in the interest of the shareholder the creditors and in the larger interests cf the public
The order made by the Central Government under section 326 may result in serious detriment of the Company and the proposed managing agent but in the larger public interest if it is valid they have to suffer it
Exercise of the power conferred upon the Central Government is restrictive of valuable rights of the Company and of the proposed managing agent and severely restricts the liberty of contract
The scheme of the section implies investigation and a decision on the matters set out therein
Section 326 lays down conditions by sub section
1a in which the Central Government may override the resolution of the general body of shareholders in certain specified conditions
Upon the Central Government is imposed a duty not to accord approval to the appointment or reappointment of a proposed managing agent in the light of els
a b  c of sub section
Though the sub section is enacted in form negative in substance it confers power upon the Government subject to the restrictions imposed by els
a b  c to refuse to accord approval
Sub section 2 imposes upon the Central Government the duty not to accord approval to appointment or re appointment of a proposed managing agent unless the Government is satisfied that the managing agent is a fit and proper person to be appointed that the conditions of the managing agency agreement are fair and reasonable and that the managing agent has fulfilled the conditions which the Central Government required him to fulfil
Thereby the Central Government is not made the final arbiter of the existence of the grounds on which the satisfaction may be founded
The satisfaction of the Government which is determinative is satisfaction as to existence of certain objective facts
The recital about satisfaction may be displaced by showing that the conditions did not exist or that No reasonable body of persons properly versed in law could have reached the decision that they did
The Courts however are not concerned with the sufficiency of the grounds on which the satisfaction is reached
What is relevant is the satisfaction of the Central Government about the existence of the conditions in els
a b  c of sub section
2 of section 326
The enquiry before the Court therefore is whether the Central Government Was satisfied as to the existence of the conditions
The existence of the satisfaction cannot be challenged except probably on the ground that the authority acted mala fide
But if in reaching its satisfaction the Central Government misapprehends the nature of the conditions or proceeds upon irrelevant materials or ignores relevant materials the jurisdiction of the Courts to examine the satisfaction is not excluded
The power in our judgment is a quashi judicial power and not ad 184 ministrative it necessarily implies a duty arising from the nature of the act empowered to be done the object for which it is to be done the conditions in which it is to be done and its repercussion upon the power of the Company the shareholders the creditors and the general public for whose benefit the power is to be exercised
The Solicitor General appearing for the Board invited our attention to the judgment in The Barium Chemicals Ltd and Anr
vs The Company Law Board and Others1
But in that case Hidayatullah and Shelat JJ held that the action of the Board under section 237b was administrative
Shelat J with whom Hidayatullah J agreed observed at p 362 There is no doubt that the formation of opinion by the Central Government is a purely subjective process
There can also be no doubt that since the legislature has provided for the opinion of the government and not of the court such an opinion is not subject to a challenge on the ground of propriety reasonableness  or sufficiency
But the Authority is required to arrive at such an opinion from circumstances suggesting what is set out in sub clauses i ii or iii
If these circumstances were not to exist can the government still say that in its opinion they exist or can the Government say the same thing where the circumstances relevant to the clause do not exist  
But the expression circumstances suggesting  cannot support the construction that even the existence of circumstances is a matter of subjective opinion
That expression points out that there must exist circumstances from which the Authority forms an opinion that they are suggestive of the crucial matters set out in the three sub clauses
 Sarkar CJI and Mudholkar J did not agree with that view
Bachawat J expressed no opinion on the nature of the power conferred by section 237
But in Rohtas Industries Ltd vs
SD Agarwal Another2 in dealing with an application challenging the action of the Company Law Board under section 237b of the this Court held that the opinion formed is not open to challenge but the circumstances can
The view expressed by Sarkar CJ and Mudholkar J was disapproved
Some reliance was sought to be placed upon the observations made in Nakkuda Ali vs
MF De section Jayaratne3 in which the Judicial Committee observed 1 2  3 185 After all words such as these are commonly found when a legislature or law making authority confers power on a minister or official
However read they must be intended to serve in some sense as a condition limiting the exercise of an otherwise arbitrary power
But if the question whether the condition has been satisfied is to be conclusively decided by the man who wields the power the value of the intended restraint is in effect nothing
No doubt he must not exercise the power in bad faith but the field in which this kind of question arises is such that the reservation for the case of bad  faith is hardly more than a formality
Their Lordships therefore treat words in reg 62 where the Controller has reasonable grounds to believe that any dealer is unfit to be allowed to continue as a dealer  as imposing a condition that there must in fact exist such reasonable grounds known to the Controller before he can validly exercise the power of cancellation
 In Nakkuda Alli s case1 the Controller of Textiles in Ceylon made an order cancelling the appellant s licence to act as a dealer
The Controller acted under a Defence Regulation which authorised him to cancel a licence when the Controller has reasonable ground to believe that any dealer is unfit to be allowed to continue as a dealer
In the view of the Judicial Committee a condition imposed that there must in fact exist such reasonable grounds known to the Controller before he can validly exercise the power of cancellation but certiorari to correct the order did not lie and there was no other means for obtaining redress
That was a case under the Defence Regulations and the Judicial Committee was of the view in our judgment erroneously that the duty to act judicially arises only from an express provision to that effect
It was pointed out and we think rightly by Lord Reid in Ridge vs Baldwin2 that when an enactment requires an official to have reasonable grounds for the decision the law was not so defective that the aggrieved person cannot bring up the decision for review however seriously he may be affected and however obvious it may be that the official acted in breach of his statutory obligation
Again in Padfield and Others vs Minister of Agriculture Fisheries and Food and Others3 the Minister declined to refer a complaint to the Committee of Investigation established under the Agricultural Marketing Act 1958 that the price differential worked unfairly against the south east region of England where milk was more valuable and the cost of transport was less and the price of land was high
The Minister informed the applicants that the complaint raised wide issues and which he did not consider suitable 1 2 1964 AC 40
3  186 for investigation
He claimed that he had unfettered discretion
The House of Lords remitted the case with a direction that the Minister should consider the complaint
We are therefore unable to agree that because the exercise of the power depends upon satisfaction its exercise cannot be subjected to judicial review the Government being the final arbiter of the conditions in which the power may be exercised
But in dealing with a petition against an order made by the Board under section 326 of the  the High Court is not constituted a Court of Appeal over the judgment of the Board
The Court has merely to consider whether in arriving at its decision the Board has restricted itself to the enquiry contemplated to be made and has taken into consideration all the relevant circumstances and that its decision is not vitiated by irrelevant or extraneous matters
The High Court was therefore right in holding that in determining whether Govan Brothers is a person fit and proper to be reappointed managing agent the past conduct and actings which Were relevant to the issue had to be taken into account ie the Board had to consider the entire conduct and actings past and present of the Directors of Govan Brothers before rejecting the petition filed by the Rampur Company
The appeal filed by the Rampur Company must therefore fail
It must however be pointed out that the time during which the managing agency of Govan Brothers is to remain in operation is fast running out
The Solicitor General appearing on behalf of the Company Law Board and the Union of India has assured us that with the co operation of the Rarmpur Company the Board will take steps to dispose of the application within one month from the date on which the order reaches the Company Law Board
The appeals fail and are dismissed
There will be no order as to costs in this Court
PKPS Appeals dismissed


Summary:
Govan Brothers were since 1943 the managing agents of the Rampur Company
In May 1964 criminal proceedings which are still pending were lodged against VH Dalmia the managing director of Govan Brothers pursuant to the report of the Bose Inquiry Commission that VH Dalmia was in the year 1946 47 guilty of grossly improper conduct in relation to several companies of which he was a director
In September 1964 the company applied for approval under section 326 of the Companies Act of the reappointment of Govan Brothers as managing agents
The Company Law Board approved the extension of the tenure for three years
When approval was sought for another extension till 1970 the Board rejected the application
In considering whether Govan Brothers were fit and proper within the meaning of section 3262 b of the Act to be reappointed managing agents the Board restricted itself to the findings recorded by the Bose Commission relating to the dealings of VH Dalmia with the companies of which he was a director between the years 1945 and 1947
The company moved the High Court by a Writ Petition for an order quashing the decision of the Board and for an order directing the Board to extend the managing agency till 1970
The High Court set aside the Board s order and directed it to take into consideration the entirety of the acts and activities of VH Dalmia in forming the requisite opinion under section 3262 b
The Board and the company preferred appeals to this Court
On the question i whether the decision of the Board under the section based on its satisfaction is immune from the scrutiny of the court and ii whether the High Court should have given a direction to the Board to extend the period of the managing agency HELD Dismissing the appeals i By sub section
2 of section 326 the Central Government is invested with power to decide whether it is against the public interest to allow the company to have a managing agent whether the person proposed is fit and proper to be appointed managing agent whether the conditions of the managing agency agreement proposed are fair and reasonable and whether the managing agent proposed has fulfilled the conditions which the Central Government has required him to fulfill
The scheme of the section implies investigation and a decision on the matters set out therein
The power is a quasi judieial power and not administrative it necessarily implies a duty arising from the nature of the act empowered to be done the object for which it is to be done the conditions in which it is to be done and its repercussion upon the power of the company the shareholders the creditors and the general public for whose benefit the power is to be 178 exercised
The satisfaction contemplated by section 326 must therefore be the result of on objective appraisal of the relevant materials because exercise of the power conferred upon the Central Government is restrictive of valuable rights of the company and of the proposed managing agent and severely restricts their liberty of contract
The courts are not concerned with the sufficiency of the grounds on which the satisfaction is reached
The enquiry before the court is whether the Central Government was satisfied as to the existence of the conditions in els
a b and c of sub section
2 of section 326
The existence of the satisfaction cannot be challenged except probably on the ground that the authority acted mala fide
But if in reaching its satisfaction the Central Government misapprehends the nature of the conditions or proceeds upon irrelevant materials or ignores relevant materials the jurisdiction of the courts to examine the satisfaction is not excluded 182 F H 183 A E H 184 A B Barium Chemicals vs The Company Law Board
1966 Supp
SCR 311 Rohtas Industries vs
SD Aggarwal AIR 1969 SC 7Q7 referred to
Ridge vs Baldwin  and Padfield vs Minister of Agriculture   applied
The observations of the Judicial Committee in Nakuda Ali vs Jaya Ratne that the duty to act judicially arises only from an express provision to that effect disapproved
The section uses the present tense 
The satisfaction must be with reference to the conditions existing in praesenti but in adjudging whether a person is fit and proper to be appointed managing agent past actings and conduct cannot be ignored
The Board is not restricted to a consideration of his acts conduct and activities proximate to the date of the application it has to consider his acts and activities past and present the interest of the shareholders and the general interests of the public in allowing the management to be continued by the directors of the company and other circumstances which have a bearing on the question
181 G H 182 A ii In dealing with a petition against an order made by the Board under section 326 the High Court is not constituted a court of appeal
The Court has merely to consider whether in arriving at its decision the Board has restricted itself to the enquiry contemplated to be made and has taken into consideration all the relevant circumstances and that its decision is not vitiated by irrelevant or extraneous matters
186 B D