THE BARIUM CHEMICALS LTD. AND ANR. versus THE COMPANY LAW BOARD AND OTHERS

Citation: [1966] SUPP. 1 S.C.R. 311 · Decided: 04-05-1966 · Supreme Court of India · Bench: A.K. SARKAR · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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311 
THE BARIUM CHE.l\'IICALS L'.J.'D. AND ANR. 
v. 
THE COMPANY LAW BOARD AND· OTHERS 
May 4, 1966 
[A. K. SARKAR, C.J., M. HIDAYATULLAH, J. R. 
MUDHOilKAR, 
R. S. BACHAWAT AND J. M. SHELAT, JJ.] 
Companies Act, 1956, ss. lOE, 234, 235, 236 and 237-scope Of-
Whether s. 237(b) violative of Articles 14 and 19(1) (g) of the Con-
stitution. 
T~ Company Law Board was constituted under Section 10E 
of the Companies Aet, 1956, and the Central Government delegated 
some of its powers under the Act, including those under Section 237, 
to•the lil<Mrd. The Government also framed rules under Section 642(1) 
ritatl with. Section 1QE(5) called the Company Law Board (Procedure) 
Rules lml4 Rule 3 of which empowered the Chairman of the Board to 
distribute the business of the Board among himself and other member 
or members and to specify the cases or classes of cases which were 
to be considered jointly by the Board. On February 6, 1954, nnder 
the power vested in him by Rule 3 the Chairman passed an ordev 
s)!>eci]y!ng the cases that had to be considered jointly by himself 
and the only other member of the Board and distributing the re-
maining business betwee;-i h'mself and the member. 
Under 
this 
ol'der the business od' ordering investigations under Sections 235 and 
23'7 was allotted to himself to be performed by him singly, 
Oh May 19, 1965 an order was issued on behalf of the Company 
Law Board under Section 237(b) of the Compan'es Act, appointing 
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four inspectors to investigate the affairs of the appellant company, 
on the ground that the Board was of the opinion that there were 
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circumstances suggesting that the business of the appellant company 
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waB being condu·cted with intent to defraud its creditors, members or 
any other persons and that the persons concerned in the management 
of the affuirs of the company had in connection therewith been guilty 
of fraud, misfeasence and other misconduct towards the 
company 
and its members. 
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Soon afterwards the appellants filed a petition under Art. 22'6 of 
the Constitution for the issue of a wtit quashing the order of the 
Board on the grounds, inter alia, that the order had been iS5ued 
ma/a fide that there was no material on which such an order could 
have been made, etc. 
0ne of the affidavits filed in reply to the petition was by the 
Chl!ir'.lhan of the Company Law Board, in which it was contended, 
inter alia, that there was material on the basis of which the impugn-
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ed order was issued and he had himself examined this material and 
formed the necessary opinion within the meaning of sec. 237(b) be-
f0re the issue of the order; and that it was not competent for the 
court to go into the question of the adequacy or otherwise of such 
materi'al. In the course of replying to some of the allegations in the 
petition it was stated in paragraph 14 of the affidavit, however, that 
ft.Om memorand:a received from some ex-directors of the company 
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and other exammation it appeared, inter aliu, that there had been 
del'ay, bungling and faulty planning of the company's ma.in project 
re~ulting_ in double expenditure; that.the company had incurred hui!e 
losses; there had been a sharp fall m the price of the cdtnJ)any's 
T4S5SCI-22 
~12 
sUPR&llE OOURT REPORTS 
(1966) BUPP. S.C.R. 
shares; and some eminent persons had resigned from the Board of 
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D!rectors of the company because of differences with the Managing 
Director on account of the manner in which the affairs of the com-
pany were being conducted. 
The appellant's petition was dismissed by the High Court. 
In the appeal to this Court it was contended on behalf of the ap-
pellants: 
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(I) That the order was made made fide on account of the com-
peting interests of a firm in which the Mmister in charge of the de-
partment was interested and also because of his personal hostility 
against the second petitioner who was the managing director of the 
company; that the High Court had erred in deciding the petition on 
the footing that the first respondent Board was an independent au-
thority and that it was its Chairman who on his own had formed 
the requisite opinion and passed the order and therefore the motive 
or the evil eye of the Minister was irrelevant; the High Court also 
erred in failing to appreciate that even though the impugned order 
was by the Chairman, as under s. 10E(6) it had to receive and in 
fact received the Minister's agreement, if the Minister's mala fidea 
were establi
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