Case: Narayanlal Bansilal Vs. Maneck Phiroze Mistry &amp; Another

The facts which are necessary to state are very few. The appellant, who is also the petitioner, is the managing agent of a limited company called the Harinagar Sugar Mills Ltd. Onthe Registrar of Companies called for an explanation from the Harinagar Sugar Mills Ltd., and the Registrar stated in his letter that it had been represented to him under S. 137(6) of the Indian Companies Act that the business of the company was carried on in fraud and he had therefore to call upon the company to furnish the information which he required which was set out in the latter part of the letter. Onthe Registrar made a report to the Central Government. This report was made under S. 137(5) of the old Companies Act and the report was that the affairs of the company were carried out in fraud of contributories and he was of the opinion that the affairs of the company disclosed an unsatisfactory state of affairs. He pointed out that the appellant as the managing agent of the company was also the promoter of the company. He stated in his report that under a fictitious name of Bansilal Uchant Account the company was advancing money to the several farms owned by the appellant but ostensibly purchased from the companys funds. He also recorded that between the years ending September 1942 and 1951  Rs. 19,200/were paid for Harpur Farm and Rs. 39,300/were paid for Bhawanipur Farm, which showed that Uchant Account was mainly operated for purchasing such lands out of the funds of the company but for and on behalf of the appellant. The Registrar also further stated in this report that the managing agents were interested in Harinagar Cane Farm which is the principal property of the appellant, and there was no doubt that the managing agents were utilising the property of the company for their personal gain. On this report the Central Government passed an order onappointing the first respondent as an Inspector to investigate into the affairs of the company under S. 138(iv). In the operative part of this order it is stated that the Central Government, in exercise of the powers conferred by(iv) of S. 138 of the said Act, is hereby pleased to appoint Shri Maneck P. Mistry (i.e. the first respondent), F.S.A.A., F.C.A., Chartered Accountant, Bombay, as an Inspector to investigate into the affairs of the company from the elate of incorporation and point out all irregularities and contraventions in respect of the provisions of the Indian Companies Act, 1913, or any other law and report in the manner indicated in a separate communication sent to him. This separate communication dealt with the mode of inquiry and the memorandum states:"As provided by S. 141A if on an examination of the report the Central Government find that any person has been guilty of any offence in relation to the company for which he is criminally liable, Government will refer the matter to theor the Public Prosecutor."Then comes a direction to the Inspectors that they should bear in mind that for a successful prosecution the evidence in support of a charge must be clear, tangible and cogent. Inspectors were further asked that they should specify in their reports with reference to the evidence, either oral or documentary or both, collected during investigations on the following amongst other matters; and the material matters to which reference might be made are : What is the offence committed, quoting as far as possible the section contravened; the precise evidence, oral, documentary or both, which implicates each of the named accused and goes to prove the charge; and in case of misappropriation, the amount misappropriated. There is a further direction to the Inspectors, that they should make proper use of their rights available to them under S. 140 of the Act including the right to examine a person on oath. Questions should be so put to persons examined on oath as to bring out their admissions with reference to facts. Now, this memorandum was annexed to the order because this memorandum contains directions issued to all Inspectors appointed under the provisions of the Companies Act and a copy of it was sent to the first respondent for his guidance in the investigation which he was called upon to undertake pursuant to this order. Pursuant to the powers conferred upon him under this order, the first respondent wrote to the appellant a letter intimating to him that under(2) of S. 140 of the Indian Companies Act he will examine him on oath in relation to the business of the Company. Onthe Central Government accorded its approval under S. 239(2) of the new Companies Act (1 of 1956) to the first respondent exercising the powers of investigation into and reporting on the affairs of the appellant including his personal books and accounts and Messrs. Narainlal Bansilal, the managing agents of Harinagar Sugar Mills Ltd. It may be stated that the appellant is the proprietor of the firm of Narainlal Bansilal. After approval was accorded, the first respondent served upon the appellant four notices dated57 andThe four notices are substantially identical and it is sufficient to refer to the first one of them. The notice ofstates:"Now, therefore by virtue of the provisions contained in S. 240 of the Companies Act, 1956, I hereby call upon you to attend my office onat 3 P.M. at the offices of Messrs. Kalyaniwalla and Mistry, 32, Apollo Street, Fort, Bombay, for the purpose of being examined on oath in relation to the affairs of the said Company and I also hereby call upon you to produce to me all the books of account and papers relating to the said Company as mentioned below. Please take further notice that in default of compliance with the requisition aforesaid necessary legal steps will be taken without further reference to you."Then conies a list of books and papers to be produced and among them an the personal books of account of the appellant for the year 1933 upto date, books of account of Messrs. Narayanlal Bansilal, the managing agents of Harinagar Sugar Mills Ltd., for the years 1933 upto date, and books of account of Harinagar Cane Farm from 1934 upto date. The petition which the appellant filed and out of which this appeal arises, challenged these four notices as being bad in law, and the challenge was based on three grounds which were urged before the Court below and which have been very effectively and strongly urged by Mr. Manecksha before us. The three grounds which were urged were that the first respondent having been appointed under the old Act had no jurisdiction to exercise powers under the relevant provisions of the new Act. The second contention was that certain portions of S. 240 of the Companies Act, to which we will make reference at the proper time, offend against the provisions of Art. 20(3) of the Constitution, and" it was also urged that certain portions of Ss. 239 and 240 offend against the provisions of Art. 14 of the Constitution. The learned Judge rejected all the three contentions raised by the appellant and dismissed the petition. Hence this appeal.

Court's reasoning:
we have an Inspector appointed under S. 138 of the Act of 1913.He had carried on part of his investigation under S. 140. By reason of this section his appointment is to continue in force and if his appointment could have been made under the Act of 1956 it shall have effect as if it was made under this Act. Now, undoubtedly, under this Act an Inspector could have been appointed under S. 235, and therefore what S. 645 does is by a legal fiction to equate the appointment of the Inspector under S. 138 with his appointment under S. 235. Therefore, we must look upon the Inspector as being appointed under S. 235 if the legal fiction is to have full effect. Then, obviously, it is not necessary to make a fresh appointment. If it was necessary to make a fresh appointment, there was no need for the legal fiction. Therefore the law looks upon the Inspector, the first respondent, as being appointed under S. 235 after the Act of 1956 came into force, and if he is appointed under S. 235 then with the prior approval of Government under S. 239(2) he can exercise the powers under S.our opinion, S. 646 does not furnish any answer to the plain interpretation of S. 645 which, as already pointed out, does cover the case of an Inspector appointed under S. 138 of the old Act. We refuse to read S. 646 as being an exception to the provision made in S. 645 that all appointments made under the old Act should be deemed to be appointments made under the newit is nothing more than a reproduction in substance of S. 6 of the General Clauses Act. Having continued that appointment, according to the Advocate General, the latter part of S. 646 deals with the powers of the inspector and in dealing with that itwide enough to include the powers conferred upon the inspector under the new Act under S. 239. In view of what we have held with regard to the effect of S. 646, it is unnecessary to decide whether the expression "in relation to" is of such wide import as to cover the conferment of power upon an inspector under S.is again unnecessary for us to express any opinion on this argument as, the first answer given by the Advocate General is sufficient to dispose of the first contention of theArt. 20(3), as Mr. Manecksha has rightly pointed out, that limitation does not appear. The protection against this compulsion under our Constitution is general. It is not confined to any particular criminal case as would appear if Art. 20(3) were to be read by itself. But in construing Art. 20(3) we must adopt certain canons of construction. The first and the obvious one is to read the Article as a whole and not to divorce Cl. (3) of that Article from the rest of it. The second is that we must not overlook the fact that the Constitution makers in India had knowledge not only of the American Constitution but also the principles of English common law and also the exceptions engrafted upon those principles. Finally, we must give to this Article an interpretation which is for the greatest good of thethis case there is no doubt that the compulsion against which Article 20(3) affords protection is present because, as we have pointed out when we were looking at the scheme of the Act, under Section 240(5) there is provision for an obligation on the part of any person examined by an inspector or by the Court to answer questions put to him and the possibility of those answers being used in evidence against him and it is also clear that the he answers could be used in evidence against him although the answers may be of an. incriminatingis true, as pointed out by Mr. Manecksha in the various documents to which reference has already been made, that the appellant was charged with having misappropriated the funds of the company and having committed an offence under the Companies Act and also under the Indian Penal Code. In the sense that there was an allegation that he had done or omitted to do something which was against the law, undoubtedly he was accused of an offence. But it would be stretching the language too far to suggest that there was any formal accusation against the appellant. Nor would it be true to say that the accusation was either before a criminal Court or tribunal or was with reference to a criminal proceeding. Nor would it be true to suggest, looking to the provisions of the Criminal Procedure Code, that this accusation in the normal course would result in prosecution. It is fallacious to suggest that the only object of the inquiry and the only purpose of the report was to launch a prosecution under S. 242 of the Companies Act. It was left to the discretion of the Central Government under S. 242 to launch or not to launch a prosecution, and, as we shall point out in another context, the report of the Inspector and the inquiry held by him serve under the Companies Act many more important purposes than the mere prosecution of a defaulting managing agent or a defaultingAdvocate General has taken us through the provisions of the Public Servants (Inquiries) Act, 1850, and that Act does suggest from the language used in the various sections with regard to the framing of the charge and the person against whom the inquiry is being held as being described as an accused, that the inquiry was more or less similar to a criminal proceeding. It is also true that we do not find any provision in that Act which makes the accused a compellable witness, and therefore the element of compulsory testimonial which we find in the Companies Act is absent and to that extent no question with regard to Art. 20(3) would arise when an inquiry is being held against a publicis clear on an examination of the provisions of the Companies Act that the scope and nature of the inquiry is not investigation into an offence. The scope and nature of the inquiry is investigation into the affairs of the company. It is equally clear that the report is not made for the purpose of a prosecution being launched by the Central Government and that the function of the Inspector is to express an opinion on the way the affairs of the company are conducted in order that appropriate action may be taken which action may take different forms like applications under the different sections of the Companies Act to which reference has been made or a prosecution under S. 242 of the Companiesthe answer to that complaint isThe first is, as we have already stated, that this is not an investigation into an offence, in which case the rights of the accused are safeguarded by the provisions of the Criminal Procedure Code, and, as the Advocate General pointed out, in our opinion under the Companies Act when we come to actual prosecution the Legislature is at pains to provide that assistance should be given by everyone concerned for the purpose of the prosecution except the accused in the proceedings. Therefore, when we reach that stage, the safeguards rightly afforded by our Criminal Procedure Code are given to the person concerned. With regard to the Evidence Act, in terms the Act applies to Judicial proceedings. It does not apply to a proceeding which is not judicial. It is an adjectival law which can be qualified and modified by the substantive law of the country. It undoubtedly happens that in aproceeding a person who is being examined cannot claim the privilege of the benefit of S. 132. But even in a judicial proceeding it would be open to the Legislature to provide that the adjectival law should be altered if it can be done undoubtedly consistent with the provisions of Art. 20(3) of the Constitution.28. Having taken all the circumstances into consideration we have come to the conclusion that Art. 20(3) has no application to the facts of this case. There is no accusation in the sense in which we have construed that expression, viz., a formal accusation, and inasmuch as there is no accusation, the compulsion introduced by the provision of the Companies Act which is impugned is not a compulsion which can be struck down by this provision of the Constitution. We may also add that in giving this restricted meaning to the Constitutional safeguard, we have carefully weighed the rights of the individual against the interest of the public and of the State. In our opinion, it is the duty of the Court, to the extent that it can legitimately do without doing violence to the language used by the Constitution makers, to arrive at a solution which, while maintaining the rights of the individual as far as possible, does not overlook the rights which the public and the State are entitled toour opinion, it is impossible to urge that there is discrimination and that there is no proper classification on a rational basis, when an important system of law as the English system recognises these exceptions as pointed out both in Insolvency law and Company Law. Therefore, if our law makes a distinction between the rights of persons who are examined under the provisions of the Company Law and the rights of persons under other laws, it cannot be said that that classification is without a rational basis.