RAMPUR DISTILLERY COMPANY LTD. versus COMPANY LAW BOARD & ANR.

Citation: [1970] 2 S.C.R. 177 · Decided: 02-09-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed
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Judgment (excerpt)

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177 
RAMPUR DISTILLERY COMPANY LTD. 
v. 
COMPANY LAW BOARD & ANR. 
September 2, 1969 
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] 
Companies Act, 1956-S. 326(2) 
c/s. (a), (b) & 
(c)-Managing 
Agency-Approval by Central Government-Satisfaction of the govern-
ment as to the existence of conditions-Judicial review of-Power confer~ 
red by the section quasi-judicial-"Fit and proper" person in cl. (b)-
Releva11t circums.tances to be considered-Constitution of India, Art. 226 
-Jurisdiction of High Court in dealing with order passed under s. 326. 
Govan Brothers were since 1943, the managing agents of the Rampur 
Company. 
In May 1964 criminal proceedings which are still pending-
were lodged against V, H. Dalmia, the 
managing director of 
Govan 
Brothers, pursuant to the report of the Bose Inquiry Commission that 
V. H. 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 s. 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 scught for another extension till 1970 
the Bo_ard 
rejected the application. 
In considering whether Govan Brothers Were 
"fit and proper" within the meaning of s. 326(2) (b) of the Act to be 
reappointed managing agents the Bo3.rd restricted itself to the findings 
recorded by the Bose Commission relating10the dealings of V. H. 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 thie 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 V. H. Dalmia in forming the requisite opinion 
under s. 326(2) '(b). The Board and the company preferred appeals to 
this Court. On the question : (i) whether the decision of the Board under 
the sectiop. 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-s. (2) of s. 326, the Central Government is investe'1 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 rea~onable, and whether 
the managing ·agent proposed has fulfilled the conditions which the Cen-
tral Government has required him to fulfil. The scheme of the section im-
plies investigation and a decision on the matters set out therein. The power 
is a quasi-judicial power and not administrative : it necessarily implies a 
duty arising from the nature of the act empowered to be done, the object 
for whiCh H 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 
SUPREME COUP.T REPORTS 
[1970] 2 S.C.R. 
exercised. The satisfaction contemplated by s. 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-s, (2) of s. 326. The existence of the satisfaction cannot be challeng-
ed 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-C, E--H; 184 A-Bl 
Barium Chemicals v. The Company Law Board, [19661 Supp, S.C.R. 
311, Rohtas Industries v. S.
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