Raja Narayanlal Bansilal Vs. Maneck
Phiroz Mistry & ANR [1960] INSC 136 (31 August 1960)
GAJENDRAGADKAR, P.B.
SINHA, BHUVNESHWAR P.(CJ) WANCHOO, K.N.
GUPTA, K.C. DAS SHAH, J.C.
CITATION: 1961 AIR 29 1961 SCR (1) 417
CITATOR INFO :
R 1964 SC1552 (10) R 1967 SC 295 (10,72) RF
1969 SC 707 (42) RF 1970 SC 940 (13,14) F 1973 SC1196 (19) R 1978 SC1025
(34,35) RF 1981 SC 379 (67) D 1988 SC 113 (5)
ACT:
Company-Investigation into affairs
of-Inspector appointed under old Act, if can exercise powers under new Act Constitution-Testimonial
compulsion-Whether Provisions for Production of documents and evidence offend
guarantee-Equal protection of the law-If provisions for investigation and
Production of evidence offend guarantee-Indian Companies Act, 1913 (VII of
1913), S. 138 Companies Act, 1956 (1 of 1956), SS. 235, 239, 240, 645 and 646,
Constitution of India, Arts. 14 and 20(3).
HEADNOTE:
On November 15, 1954, the Registrar wrote to
the company of which the appellant was the Managing Agent under s. 137, Indian
Companies Act, 1913, that it had been represented to him that the business of
the company was carried on in fraud and called upon it to furnish certain
information. On April 15, 1955, the Registrar made a report to the Central
Government under s. 137(5) to the effect that in his opinion the affairs of the
company were carried on in fraud of contributories and they disclosed an
unsatisfactory state of affairs and that a case had been made out for an
investigation under s. 138. Thereupon, the Central Government, on November 1,
1955, appointed an Inspector to investigate the affairs of the company and to
report thereon. The Inspector was authorised under s. 140 to examine any person
on oath, and he wrote to the appellant that he would examine him on oath in
relation to the business of the company. On April 1, 1956, the Indian Companies
Act, 1913, was repealed by the Indian Companies Act, 1956, which conferred
wider and more drastic powers of investigation. On July 26, 1956, the Central
Government accorded approval under s. 239(2) of the new Act to the Inspector
exercising his powers of investigating into and reporting on the affairs of the
company. In May 1957 the Inspector served notices upon the appellant calling
upon him to attend his office on the date and the time specified for the
purpose of being examined on oath and to produce certain account books and
papers relating to the company. The appellant challenged the investigation and
contended : (i) that since the Inspector was appointed under the old Act he had
no jurisdiction to exercise the powers referable to the provisions of the new Act,
(ii) that s. 240 of the new Act which provided for the production of documents
and, evidence at such investigations offended Art. 20(3) of the Constitution,
and (iii) that S. 239 of the new Act which conferred powers on inspectors for
investigation and S. 240 offended Art. 14 of the Constitution.
418 Held, that the Inspector appointed under
S. 138(4) of the old Act must be deemed to have been appointed under s. 235 of
the new Act and had authority and power to issue notices under S. 240 of the
new Act. Section 645 of the new Act provided that the appointment of an
Inspector under the old Act shall, on repeal of the old Act and on coming into
force of the new Act, have effect as if it was made under the new Act. Section
646 which provided that nothing in the new Act shall affect the operation of S.
T38 of the old Act as respects inspectors was not an exception or proviso to S.
645 and the two sections being saving
sections had to be read as independent of and in addition to, and not as
exceptions to, each other.
Held, further that S. 240 of Indian Companies
Act, 1956, did not offend Art. 20(3) of the Constitution. For invoking the
constitutional right against testimonial compulsion guaranteed under Art. 20(3)
there must be at the relevant stage a formal accusation against the party
pleading the guarantee relating to the commission of an offence which may
result in a prosecution. The enquiry undertaken under S.
240 by the Inspector was in substance an
enquiry into the affairs of the company; at this stage there was no accusation,
formal or otherwise, against any specified individual. The mere fact that a
prosecution may ultimately be launched against the alleged offenders would not
retrospectively change the complexion or character of the proceedings held by
the Inspector when he makes the investigation.
Maqbool Hussain v. The State of Bombay,
[1953] S.C.R. 730, S. A. Venkataraman v. The Union of India, [1954] S.C.R.
1150, M. P. Sharma v. Satish Chandra,
District Magistrate, Delhi, [1954] S.C.R. 1077, Thomas Dana v. State of Punjab,
[1959] Supp. 1 S.C.R. 274 and Mohammed Dastagir v. The State of Madras, [1960]
3 S.C.R. 116, relied on.
Held, further that SS. 239 and 240 of the
Indian Companies Act, 1956, did not violate Art. 14 of the Constitution.
These sections denied the company and persons
in charge of the management of such companies the ordinary protection afforded
to witnesses under S. 132 of the Evidence Act and under S. 161(1) and (2) of
the Criminal Procedure Code. As they were entrusted with the financial
interests of a large number of citizens it was legitimate to treat such
companies and their managers as a class by themselves and to provide for
necessary safeguards and checks against abuse of power by the managers. The
basis of the classification is founded on an intelligible differentia which has
a rational relation to the object sought to be achieved.
Shri Ram Krishna Dalmia v. justice Tendolkar,
[1959] S.C.R.
297, applied.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 268 of 1959.
419 Appeal from the judgment and decree dated
September 3, 1958, of the former Bombay High Court in Appeal No. 28/1958.
A. V. Viswanatha Sastri, Ganpat Rai and I. N.
Shroff, for the appellant.
M. C. Setalvad, Attorney-General for India,
B. Sen and T. M. Sen, for the respondents.
1960. August 31. The Judgment of the Court
was delivered by GAJENDRAGADKAR J.-The appellant Raja Narayanlal Bansilal of
Bombay is the Managing Agent of a Limited Company named the Harinagar Sugar
Mills Limited. By virtue of the power conferred on him by s. 137 of the Indian
Companies Act, 1913 (VII of 1913), the Registrar wrote to the mills on November
15, 1954, that it had been represented to him under s. 137(6) that the business
of the company was carried on in fraud, and so he called upon the company to
furnish the information which he required as set out in a part of his letter
(Ex. A). On April 15, 1955, the Registrar made a report (Ex. AA) to the Central
Government under s. 137(5) of the said Act. This report showed that according
to the Registrar the affairs of the company were carried on in fraud of
contributories and they disclosed an unsatisfactory state of affairs. The
report pointed out that the appellant was the Managing Agent of the company as
well as its promoter, and that it was suspected that under a fictitious name of
Bansilal Uchant Account the company was advancing money to the several firms
owned by the appellant which were ostensibly purchased from the company's
funds. The report further stated that between the years ending in September,
1942 and 1951 about Rs. 19,200 were paid for Harpur Farm and Rs.;. 39,300 for
Bhavanipur Farm, and accounts disclosed that the Uchant Account was chiefly
operated upon for purchasing such lands out of the funds of the company though
the purchase in fact was for and on behalf of the appellant.
The Registrar also added that he had reason
to believe that the Managing 54 420 Agent was utilising the property of the
company in some cases for his personal gain, and concluded that, in his
opinion, a case had been made out for an investigation under s. 138.
On receiving this report, on November 1,
1955, the 'Central Government passed an order under s. 138(4) of the said Act
(Ex. B) appointing the first respondent Maneck P. Mistry, who is a Chartered
Accountant, as an inspector to investigate the affairs of the company from the
date of its incorporation. The said inspector was asked to point out all
irregularities and contraventions of the provisions of the said Act or any
other law, and make a full report as indicated in a communication which was
separately sent to him. This separate communication (Ex. BB) prescribes the
mode of enquiry which should be adopted by inspectors. It requires that while
investigating the affairs of companies the inspectors should bear in mind that
for a successful prosecution the evidence in support of a charge must be clear,
tangible and cogent, and that their reports should specify with reference to
the evidence collected during the investigations the points specified under
paragraph 2(a) to (e). In the course of their investigation the inspectors are
asked to make use of the powers available to them under s. 140 of the said Act
including the right to examine a person on oath. The investigation should be
conducted in private and the inspectors are not entitled to make public the
information received by them during the course of the investigation.
Pursuant to the powers conferred on him by
the said order respondent 1 wrote to the appellant intimating to him that he
would examine him on oath in relation to the business of the company under s.
140(2) of the said Act (Ex. C).
Meanwhile on April 1, 1956, the Companies Act
of 1913 (VII of 1913) was repealed by the Companies Act of 1956 (1 of 1956).
For the sake of convenience we would hereafter refer to the repealed Act as the
old Act and the Act which came into force on April 1, 1956, as the new Act. On
July 26, 1956, the Central Government purported to exercise its power under s.
239(2) of the new Act and 421 accorded approval to respondent 1 exercising his
powers of investigating into, and reporting on, the affairs of the appellant
including his personal books of accounts as well as the affairs of the three
concerns specified in the order.
These three concerns are M/s. Narayanlal
Bansilal, who are the Managing Agents of Harinagar Sugar Mills, the Shangrila
Food Pro ducts Limited and, Harinagar Cane Farm. It appears that the appellant
is the proprietor of the firm of Narayanlal Bansilal. After this order was
passed respondent 1 served upon the appellant the four impugned notices (Ex. E
collectively) on May 9, 1957, May 16, 1957, May 29, 1957 and June 29, 1957,
respectively. These notices are substantially identical in terms' and so it
would be sufficient for our purpose to set out the purport of one of them. The
first notice called upon the appellant to attend the office of respondent 1 on
the date and at the time specified for the purpose of being examined on oath in
relation to the affairs of the company, and to produce before respondent 1 all
the books of accounts and papers relating to the said company as mentioned in
the notice.
The appellant was further told that in
default of compliance with the requisition aforesaid necessary legal steps
would be taken without further reference to him. The notice contains a list of
twelve items describing the several documents which the appellant was required
to produce before respondent 1.
After these notices were served on the
appellant he filed a, petition (No. 201 of 1957) in the Bombay High Court and
prayed that the High Court should issue a writ of certiorari or any other
appropriate direction, order or writ under Art.
226 of the Constitution calling upon
respondent 1 to produce the records of the case relating to the notices in
question and to set aside the said notices, the proposed examination of the
appellant and the interim report made by him. It further prayed for a writ of
prohibition or any other appropriate direction, order or writ restraining
respondent 1 from making any investigation under the said notices and from
exercising any powers of investigation under s. 239 and/or s. 240 of the new
Act and/or 122 from investigating into the affairs of any persons or concerns
specified in the petition. The petitioner claimed these writs mainly on two
grounds. He first alleged that since respondent 1 had been appointed under the
old Act he had no jurisdiction to exercise powers referable to the relevant
provisions of the new Act. This ground assumed that the said relevant
provisions of the new Act are valid, but it is urged that the powers referable
to the said provisions are not available to respondent 1 since he was appointed
under the old Act. The other ground on which the writs were claimed challenges
the vires of ss. 239 and 240 of the new Act. This challenge assumed an
alternative form.
It is argued that s. 240 offends against the
constitutional guarantee provided by Art. 20(3) of the Constitution and it is
also urged that certain portions of ss. 239 and 240 offend against another
constitutional guarantee provided by Art. 14 of the Constitution. It is thus on
these three contentions that the petitioner claimed appropriate writs by his
petition before the Bombay High Court. These pleas were resisted by the Union
of India which had been joined to the proceedings as respondent 2. Mr. Justice
K. T. Desai, who heard the petition, rejected the contentions raised by the
petitioner, and held that no case had been made out for the issue of any writ.
This decision was challenged by the appellant before the Court of Appeal in the
Bombay High Court; the Court of Appeal agreed with the view taken by Desai, J.,
and dismissed the appeal. Thereupon the appellant applied for and obtained a
certificate from the High Court, and it is with the said certificate that he
has come to this Court by his present appeal. On his behalf Mr. Viswanatha
Sastri has raised the same three points for our decision.
Let us first examine the question whether or
not the first respondent has jurisdiction to exercise the powers under the
relevant provisions of the new Act. It is common ground that if respondent 1's
powers to bold the investigation in question are to be found in the relevant
provisions of the old Act and not those of the new Act the impugned notices
issued by him would be 423 without authority and jurisdiction. In dealing with
this question it is necessary to examine the broad features of the relevant
sections of the two Acts.
We will begin with the old Act. Section 137
of the old Act deals with investigation by the Registrar. Section 137(1) provides
that where the Registrar on' perusal of any document which a company is
required to submit to him is of opinion that any information or explanation is
necessary in order that such document may afford full particulars of the matter
to which it purports to relate he may, by a written order, call on the company
to furnish in writing the necessary information or explanation within the time
to be specified in the order. Section 137(5) requires the Registrar to make a
report in writing to the Central Government if no information is supplied to
him within the specified time, or if the information supplied to him appears to
him to disclose an unsatisfactory state of affairs, or does not disclose a full
and fair statement of the relevant matters. Thus s. 137(1) to (5) deal with the
investigation which the Registrar is empowered to make on a persual of the
document submitted to him by a company under the provisions of this Act.
Section 137(6) deals with a case where if it is represented to the Registrar on
materials placed before him by any contributory or creditor that the business
of a company is carried on in fraud or in fraud of its creditors or in fraud of
persons dealing with the company or for a fraudulent purpose, he may, after
following the procedure prescribed in that behalf, call for information or
explanation on matters to be specified in his order within such time as he may
fix, and when such an order is passed the provisions of s. 137(2) to (5) would
be applicable. This sub-section provides that if at the end of the
investigation the Registrar is satisfied that the representation on which he
took action was frivolous or vexatious he shall disclose the identity of the
informant to the company. This provision is obviously intended as a safeguard
against frivolous or vexatious representations in respect of the affairs of any
company. The provisions of this section are substantially similar to the
provisions of s. 234 of the new Act.
424 affairs of companies by inspectors,
authorises the Central Government to appoint one or more competent inspectors
to investigate the affairs of any company and report thereon in such manner as
the said ,Government may direct. The appointment of competent inspectors can be
made by the Central Government in four classes of cases as specified in s.
138(1) to (4). It would be relevant to refer to two of these cases. Under s.
138(1) a competent inspector can be appointed in the case of a banking company
having a share capital on the application of members holding not less than one-fifth
of the shares issued, and under s. 138(4) in the case of any company on a
report by the Registrar under s.
137(5). This section substantially
corresponds to s. 235 of the new Act.
The other sections of the old Act to which
reference must be made are ss. 140, 141 and 141A. Section 140(1) imposes upon
all persons who are. or have been officers of the company an obligation to
produce before the inspectors all books and documents in their custody or power
relating to the company.
Section 140(2) empowers the inspector to
examine on oath any such person, meaning a person who is or has been an officer
of the company in relation to the business of the company and to administer an
oath to him. Section 140(3) provides that if a person refuses to produce a book
or a document or to answer any question he shall be liable to a fine not
exceeding Rs. 50 in respect of each offence. Section 141 provides that on the
conclusion of an investigation the inspectors shall report their opinions to
the Central Government, and shall forward a copy of their report to the
registered office of the company ; and it also provides that a copy of the said
report can be delivered at their request to the applicants for the
investigation. Then we have s.
141A which deals with the institution of
prosecutions.
Section 141A(1) provides that if from any
report made under s. 138 it appears to the Central Government that any person
has been guilty of any offence in relation to the company for which he is
criminally liable the Central Government shall refer the 425 matter to the
Advocate-General or the Public Prosecutor.
Section 141A(2) lays down that if the law
officer who is consulted under (1) considers that there is a case in which
prosecution ought to be instituted he shall cause proceedings to be instituted
accordingly-, That in brief is the scheme of the relevant provisions of the old
Act.
We will now examine the scheme of the
relevant provisions of the new Act. It has already been noticed that ss. 234
and 235 of the new Act are substantially similar to ss. 137 and 138 of the old
Act. Section 239 of the new Act provides for the powers of the inspectors to
carry on investigation into the affairs of related companies or of managing
agent or associate. The sweep of the enquiry authorised by this section is very
much wider than that under the corresponding section of the old Act.
Sub-section (1) of this section authorises an inspector to investigate the
affairs of a company and also the affairs of any other body corporate or person
specified in cls. (a) to (d) if he thinks it necessary so to do. These clauses
include several cases of body corporate which may have any connection direct or
indirect, immediate or remote, with the affair of the company whose affairs are
under investigation. It is unnecessary for our purpose in the present appeal to
enumerate the said cases serially or exhaustively. It is conceded that the
three other persons who have been called upon by respondent 1 to produce
documents and give evidence fall within the purview of s. 239. As a result of
the provisions of s. 239(1) the inspector has to report not only on the affairs
of the company under investigation but also on the affairs of other bodies or
persons who have been compelled to give evidence and produce documents during
the course of the enquiry. The only safeguard provided against a possible abuse
of these extensive powers is that in the case of any body corporate or person
referred to in cls.
(b)(ii), (b)(iii), (c) or (d) of subs. (1)
the inspector shall not exercise his relevant power without first having
obtained the prior approval of the Central Government thereto.
Section 240 of the new Act imposes an
obligation 426 on the corporate bodies and persons in respect of which or whom
investigation is authorised by s. 239 to produce all books and papers and to
give all assistance in connection with the said investigation ; that is the
result of s.
240(1). Section 240(2) empowers the inspector
to examine on oath any of the persons referred to in sub-s. (1) in relation to
the relevant matters as specified. Section 240(3) deals with a case where a
person refuses to comply with the obligation imposed on him by s. 240(1) or (2)
; and it provides that in such a case the inspector may certify the refusal
under his hand to the court, and the court may thereupon enquire into the case,
hear witnesses who may be produced against or on behalf of the alleged
offender, consider any statement which may be offered in defence, and punish
the offender as if he had been guilty of contempt of the court. Section 240(4)
deals with a case where the inspector thinks it necessary for the purpose of
his investigation that a person whom he has no power to examine on oath should
be .examined, and it provides that in such a case he may apply to the court,
and the court may, if it thinks fit, order that person to attend and be
examined on oath before it on any matter relevant to the investigation.
This sub-section provides for the procedure
to be followed in examining such a witness. Section 240(5) lays down that notes
of any examination under sub-s. (2) or (4) shall be taken down in writing, and
shall be read over to or by, and signed by, the person examined, and may
thereafter be used as evidence against him. Having thus made elaborate
provisions for the production of documents and evidence in the course of the
investigation by the inspector, s. 241 deals with the inspectors' report and
provides that inspectors may, and if so directed by the Central Government
shall, make interim reports to that Government, and on the conclusion of the
investigation shall make a final report to it. Section 241(2) provides for the
supply of the copy of the said report to the several parties concerned as
specified in cls. (a) to (e).
That takes us to s. 242 which deals with
prosecution.
Section 242(1) provides inter alia that if
from 427 any report made under a. 241 it appears to the Central Government that
any person has in relation to the company been guilty of any offence for which
he is criminally liable, the Central Government may, after taking such legal
advice as it thinks fit, prosecute such person for the offence, and it imposes
on all officers, and agents of the company, except those prosecuted, to give
the Central Government all assistance in connection with the prosecution which
they are reasonably able to give. That broadly stated is the position with
regard to the relevant provisions of the new Act.
Mr. Sastri has drawn our pointed attention to
the fact that the scope and nature of the enquiry authorised by the new Act are
very much wider than under the old Act, and he has characterised the relevant
,powers conferred on the investigating inspectors as draconian. He, therefore,
contends that unless it is established that these powers are available to the inspector
appointed under the relevant provisions of the old Act the impugned notices
must be set aside; and his argument is that these powers are not available to
the inspector appointed under the old Act. The decision of this question will
depend mainly on the construction of ss. 645 and 646 of the new Act.
Section 644 provides for the repeal of the
enactments mentioned in Schedule XII; the old Act is one of the enactments thus
repealed. Ordinarily the effect of the repeal of the old Act would have been governed
by the provisions of s. 6 of the General Clauses Act (10 of 1897), but in the
case of the new Act the application of the said section is subject to the
provisions of ss. 645 to 657 of the Act; that is the effect of s. 658 which
provides that the mention of particulars in ss. 645 to 657 or in any other
provisions of this Act shall not prejudice the general application of s. 6 of
the General Clauses Act, 1897, with respect to the effect of repeals. In other
words, though s. 6 of the General Clauses Act will generally apply, its
application will be subject to the provisions contained in as. 645 to 657; this
position is not disputed.
It is now necessary to consider s. 645. It
reads thus:
55 428 "Nothing in this Act shall affect
any order, rule, regulation, appointment, conveyance mortgage, deed, document
or agreement made, fee directed, resolution passed, direction given, proceeding
taken, instrument executed or issued, or thing done, under or in pursuance of
any previous companies law; but any such order, rule, regulation, appointment,
conveyance, mortgage, deed, document, agreement, fee, resolution, direction, proceeding.
instrument or thing shall, if in force at the
commencement of this Act, continue to be in force, and so far as it could have
been made, directed, passed, given, taken, executed, issued or done under or in
pursuance of this Act, shall have effect as if made, directed, passed, given,
taken, executed, issued or done under or in pursuance of this Act." The
effect of this section is clear. If an inspector has been appointed under the
relevant section of the old Act, on repeal of the old Act and on coming into
force of the new Act, his appointment shall have effect as if it was made under
or in pursuance of the new Act. Indeed it is common ground that if s. 645 had
stood alone and had not been followed by s. 646 there would have been no
difficulty in holding that the inspector appointed under the old Act could
exercise his powers and authority under the relevant provisions of the new Act,
and the impugned notices would then be perfectly valid. Incidentally we may
refer to the provisions of a. 652 in this connection. Under this section any
person appointed to any office under or by virtue of any previous company law
shall be deemed to have been appointed to that office under this Act.
It is, however, urged that the authority of
the inspector which is in dispute is governed by s. 646.
This section provides:
"Nothing in this Act shall affect the
operation of section 138 of the Indian Companies Act, 1913 (VII of 1913), as
respects inspectors, or as respects the continuation of an inspection begun by
inspectors, appointed before the commencement of this Act; and the provisions
of this Act shall apply to or in relation to a report of inspectors appointed
under the said section 138 as they apply to or in relation to a report 429 of
inspectors appointed under section 235 or 237 of this Act." The argument
is that the expression " nothing in this Act " includes s. 645 and so
s. 646 should be read as an exception or proviso to s. 645; and if that is so,
all matters covered by s. 138 of the old Act must continue to be governed by
the said Act and not by any of the provisions of the new Act. We are unable to
accept this argument. In appreciating the effect of the provisions of s. 646 it
is necessary to bear in mind that it occurs in that part of the new Act which deals
with repeals and savings. Sections 645 to 648 are the saving sections, and
ordinarily and in the absence of any indication to the contrary these saving
clauses should be read as independent of, and in addition to, and not as
providing exceptions to, one another. It is significant that whereas s. 646
provides for the continuance of the operation of s. 138 it does not make a
corresponding provision for the continuance of the operation of a. 140 of the
old Act which deals with the powers of the inspector to call for books and to
examine parties. Besides, it may perhaps not be accurate to suggest that having
regard to the provisions of s. 645, s. 646 is wholly redundant. It would be
possible to take the view that cases falling under s.
138(1) of the old Act are intended to be
covered by s. 646 as they would not be covered by s. 645. In regard to the case
of a banking company covered by s. 138(1) s. 646 will come into operation and
that may be one of the reasons for which s. 646 was enacted. It may be that the
case of the banking company may also be covered by s. 35 of the Banking
Companies Act 10 of 1949, but since a. 138(1) applied to the said case until
the old Act was repealed the Legislature may-have, as a matter of caution,
thought it necessary to provide for the continuance of the operation of s. 138
by enacting s. 646. However that may be, we feel no difficulty in holding that
s: 646 should not be construed as a proviso to s.645 but as an additional
saving provision. The words used in s. 645 are so clear, and the policy and
object of enacting the said provision are in our opinion so emphatically
expressed, that it 430 would be unreasonable to hold that s. 646 was intended
to provide for such a radical exception to s. 645. Where the Legislature enacts
a saving section as a matter of abundant caution the argument that the
enactment of the said section was not wholly necessary cannot be treated as
decisive or even effective. Therefore, in our opinion, the High Court was right
in coming to the conclusion that the inspector appointed under s. 138(4) of the
old Act must by legal fiction, which is authorised by s. 645, be deemed to have
been appointed under s. 235 of the new Act, and if that is so, respondent 1 had
authority and power to issue the impugned notices under s. 240 of the new Act.
The challenge to the validity of the impugned notices on the ground that
respondent 1 had no authority to issue the said notices must, therefore, fail.
That takes us to the question as to whether
the relevant provisions of s. 240, which empower respondent 1 to issue the
relevant notices by which the appellant was called upon to give evidence and to
produce documents, offend against the fundamental constitutional right
guaranteed by Art.
20(3). It has been strenuously urged before
us that the main object of the present investigation is to discover whether the
appellant has committed any offenses, and so by compelling him to give evidence
and produce documents he is denied the constitutional protection against self
incrimination.
Article 20(3) provides that " no person
accused of any offence shall be compelled to be a witness against himself
". It may be assumed that the appellant is being compelled to be witness
against himself in the present proceedings;
but even so the question which arises for our
decision is whether the appellant can be said to be a person who is accused of
any offence as required by Art. 20(3). Mr. Sastri has contended that the words
" person accused of any offence " should not receive a narrow or
literal construction; they should be liberally interpreted because.
the clause, in which they occur enshrines a
fundamental constitutional right and the scope and reach of the said right
should not be unduly narrowed down. In support of this 431 general argument Mr.
Sastri has naturally relied on the historical background of the doctrine of
protection against self-incrimination; and he has strongly pressed into service
the decisions of the Supreme Court of the United States of America dealing with
the Fifth Amendment to the Constitution of the United States. The said
Amendment inter alia provides that " no person shall be compelled in any
criminal case to be a witness against himself ". It would be noticed that
in terms the Amendment refer to a criminal case, and yet it has received a very
broad and liberal interpretation at the hands of the Supreme Court of the
United States of America. It has been held that the said constitutional
protection is not confined only to criminal cases but it extends even to civil
proceedings (Vide: McCarthy v. Arndstein(1)). As observed by Mr. Justice
Blatchford in Charles Counselman v. Frank Hitchcock (2) " it is impossible
that the meaning of the constitutional provision can only be that a person
shall not be compelled to be a witness against himself in a criminal
prosecution against himself. It would doubtless cover such cases but it is not
limited to them.
The object was to insure that a person should
not be compelled, when acting as a witness in any investigation, to give
testimony which might tend to show that he himself had committed a crime. The
privilege is limited to criminal matters, but it is as broad as the mischief
against which it seeks to guard ".
In support of his plea that a liberal
interpretation should be put on an article which enshrines a fundamental
constitutional right Mr. Sastri has also invited our attention to the
observation made by Mr. Justice Bradley in Edward A. Boyd and George H. Boyd v.
United States (3).
Says Bradley, J., " illegitimate and
unconstitutional practices get their first footing in that way, namely by
silent approaches and slight deviations from legal modes of procedure. This can
only be obviated by adhering to the rule that constitutional provisions for the
security of person and (1) (1924) 69 L. Ed. 158. (2) (1892) 35 L. Ed. 1110.
(3) (1886) 29 L. Ed. 746,752.
432 property should be liberally construed
". The learned judge has also added that any compulsory discovery by
extorting the party's oath, or compelling the production of his private books
and papers, to convict him of crime or to forfeit his property, is contrary to
the principles of a free government, and is abhorrent to the instincts of an
American. It may suit the purposes of despotic power; but it cannot abide the
pure atmosphere of political liberty and personal freedom". In regard to
this eloquent statement of the law it may, however, be permissible to state
that under the English Law the doctrine of protection against self incrimination
has never been applied in the departments of Company Law' and Insolvency Law.
There is no doubt that under s. 15 of the English Bankruptcy Act when a public
examination of a debtor is held he is compelled to answer all questions as the
court may put, or allow to be put to him, and that the answers given have to be
signed by him and can be used against him in evidence (Vide: In Re: Atherton
(1)); similar is the position under s. 270 of the English Companies Act.
However, the general argument for the appellant is that in construing Art.
20(3) we may take some assistance from the broad and liberal construction which
has been placed on the apparently narrow and limited words used in the Fifth
Amendment to the Constitution of the United States of America..
Thus presented the argument is no doubt attractive,
and its validity and effectiveness would have had to be fully and carefully
examined if the question raised in the present appeal had been a matter of
first impression ; but the construction of Art. 20 in general and Art. 20(2)
and (3) in particular has been the subject matter of some decisions of this
Court, and naturally it is in the light of the previous decisions that we have
to deal with the merits of the appellants case in the present appeal. In
Maqbool Hussain v. The State of Bombay (2) this Court had occasion to consider
the scope and effect of the constitutional guarantee provided by Art. 20(2). A
person against whom proceedings (1) (1912) 2 K.B. 251.
(2) [1953] S.C.R. 730.
433 had been taken by the Sea Customs
Authorities under s. 167 of the Sea Customs Act and an order for confiscation
of goods had been passed was subsequently prosecuted before the Presidency
Magistrate for-an offence under s. 23 of the Foreign Exchange Regulations Act
in respect of the same act.
It was urged on, his behalf that the
proceedings taken against him before the Sea Customs Authorities was a
prosecution and the order of confiscation passed in the said proceedings wag a
punishment, and. so it was argued that the constitutional guarantee afforded by
Art. 20(2) made his subsequent prosecution under s. 23 of the Foreign Exchange
Regulation Act invalid. This plea was rejected. In dealing with the merits of
the plea this Court had to consider the meaning of the words " prosecuted
and punished " used in Art. 20(2). Article 20(2) provides that no person
shall be prosecuted and punished for the same offence more than once, and the
question raised was whether the proceedings before the Sea Customs Authorities
constituted prosecution, and whether the order of confiscation was punishment
under Art.
20(2). In construing Art. 20(2) this Court
considered Art.
20 as a whole and examined the interrelation
of the relevant terms used in the three clauses of the said article. " The
very wording of Art. 20 ", observed Bhagwati, J., " and the words
used therein" convicted ", " commission of the act charged as an
offence ", " be subjected to a penalty ", " commission of
the offence ", " prosecuted and punished ", " accused of
any offence " would indicate that the proceedings therein contemplated are
of the nature of criminal proceedings before a court of law or a judicial
tribunal.
and the prosecution in this context would
mean an initiation or starting of proceedings of a criminal nature before a
court of law or a judicial tribunal in accordance with the procedure prescribed
in the statute which creates the offence and regulated the procedure ".
Having thus construed Art. 20(2) in the light of the relevant words used in the
different clauses of the said article, this Court naturally proceeded to
enquire whether the Sea Customs Authorities acted as a judicial tribunal in
holding proceedings 434 against the person. The scheme of the relevant pro.
visions of the Act was then examined, and it was held that the said authorities
are not a judicial tribunal with the result that the "I adjudging
increased rate of duty or penalty and confiscation" under the provisions
of the said act did not constitute a judgment or order of a court or judicial
tribunal necessary for the purpose of supporting the plea of double jeopardy.
In the result the conclusion of this Court was that when the Customs
Authorities confiscated the gold in question the proceedings taken did not
amount to a prosecution of the party nor did the order of confiscation
constitute a punishment as contemplated by Art. 20(2).
This decision has been affirmed by this Court
in the case of S. A. Venkataraman v. The Union of India (1). In that case an
enquiry bad been made against the appellant Venkataraman under the Public
Servants (Inquiries) Act, 1850 (Act XXXVII of 1850). On receiving the report of
the enquiry commissioner opportunity was given to the appellant under Art.
311(2) to show cause, and, ultimately after consultation with the Union Public
Service Commission the appellant was dismissed by an order passed by the
President.
The order of dismissal was passed on
September 17, 1953.
Soon thereafter on February 23, 1954, the
police submitted a charge-sheet against him charging him with having committed
offenses under ss. 161/165 of the Indian Penal Code 'and s.
5(2) of the Prevention of Corruption Act. The
validity of the subsequent prosecution was challenged by the appellant on the
ground that it contravened the constitutional guarantee enshrined in Art.
20(2). The appellant's plea was, however, rejected on the ground that the
proceedings taken against him before the commissioner under the Inquiries Act
did not amount to a prosecution. The relevant provisions of the said act were
examined, and it was held that in an inquiry under the said Act there is
neither any question of investigating an offence in the sense of an act or
omission punishable by any law for the time being in force nor is there (1)
[1964] S.C.R. 1150.
435 any question of imposing punishment
prescribed by the law which makes that act or omission an offence. Mukherjea,
J., as he then was, who delivered the judgment of the Court, has referred to
the earlier decision in the case of Maqbool Hussain (1), and has observed that
" the effect of the said decision was that the proceedings in connection
with the prosecution and punishment of a person must be in the nature of a
criminal proceeding before a court of law or a judicial tribunal, and not
before a tribunal which entertains a departmental or an administrative enquiry
even though set up by a statute but which is not required by law to try a
matter judicially and on legal evidence ". Thus these two decisions can be
said to have considered incidentally the general scope of Art. 20 though both
of them were concerned directly with the construction and application of Art.
20(2) alone.
Article 20(3) was considered by the Full
Court in M. P. Sharma v. Satish Chandra, District Magistrate, Delhi (2).
The question about the scope and effect of
Art. 20(3) was raised in that case by a petition filed under Art. 32 of the
Constitution. It appears that the Registrar of the Joint Stock Companies, Delhi
State, lodged information with the Inspector-General, Delhi Special Police
Establishment, against the petitioners alleging that they had committed several
offenses punishable under the Indian Penal Code.
The lodging of this information was preceded
by an investigation into the affairs of the petitioners' company which had been
ordered by the Central Government under a. 138 of the old Act, and the report
received at the end of the said investigation indicated that a well-planned and
organised attempt had been made by the petitioners to misappropriate and
embezzle the funds of the company by adopting several ingenious methods. On
receipt of the said First Information Report the District Magistrate ordered
investigation into the offenses and issued warrants for simultaneous searches
at as many as thirty four places. By their petitions the petitioners contended
that the search warrants (1) [1953] S.C.R. 730. (2) [1954] S.C.R. 1077.
56 436 were illegal and they prayed that the
same may be quashed as being in violation of Art, 20(3). The plea thus raised
by the petitioners was ultimately rejected on the ground that the impugned.
searches did not violate the' said constitutional guarantee. Jagannadha das,
J., who spoke for the Court, observed that " since article 20(3) provides
for a constitutional guarantee against testimonial compulsion its words should
be liberally construed, and that there was no reason to confine the content of
the said guarantee to its barely literal import ". He, therefore, held
that the phrase " to be a witness " means nothing more than to
furnish evidence, and such evidence can be furnished through the lips or by
production of a thing or of a document or in other modes. He also pointed out
that the phrase was " to be a witness " and not " to appear as a
witness " and so the protection afforded was not merely in respect of
testimonial compulsion in the court room but may well extend to compel
testimony previously obtained from him. The conclusion of the Court on this
part of the construction was thus stated.
The constitutional guarantee " is
available to a person against whom a formal accusation relating to the
commission of an offence has been leveled which in the normal course may result
in prosecution ; whether it is available to other persons in other situations
does not call for a decision in this case ". Since the First Information
Report bad been recorded against the petitioners in that case it followed that
the first test that a formal accusation relating to the commission of an
offence must have been leveled was satisfied. The question which was then
considered was whether there was any basis in the Indian Law for the assumption
that a search or seizure of a thing or document is in itself to be, treated as
compelled production of the same; and it was held that there would be no
justification for treating the said search or seizure as compelled production;
that is why the challenge to the validity of the search warrants issued against
the petitioners was repelled.
The effect of this decision thus appears to
be that one of the. essential conditions for invoking the constitutional
guarantee enshrined in Art. 20(3) 437 is that a formal accusation relating to
the commission of an offence, which would normally lead to his prosecution,,
must have been leveled against the party who is being compelled to give
evidence against himself; and this conclusion, in our opinion is fully
consistent with the two other decisions of this Court to which we have already
referred.
There are two other subsequent decisions of
this' Court to which reference may be made. In Thomas Dana v. State of Punjab
(1), according to the majority decision " prosecution " in Art. 20(2)
means a proceeding either by way of indictment or information in a criminal
court in order to put an offender upon his trial. It would be noticed that this
conclusion is wholly consistent with the view taken by this Court in the case
of Maqbool Hussain (2) and S. A. Venkataraman (3). In Mohammed Dastaqir v. The
State of Madras (4) this Court had to consider Art. 20(3). The appellant in
that case had gone to the bungalow of the Deputy Superintendent of Police to
offer him a bribe which was covered in a closed envelope with a request that he
might drop the action registered against him. The police officer threw the
envelope at the appellant who took it up.
While the appellant was still in the bungalow
he was asked by the police officer to produce the envelope and he took out from
his pocket some currency notes and placed them on the table without the
envelope. The notes were then seized by the police officer and a rubber stamp
of his office was placed on them. On these facts it was urged that in relying
upon the evidence of compelled production of notes the prosecution had ,
violated the provisions of Art. 20(3). In support of this contention the
general observations made by this Court in the case of M. P., Sharma(5), were
strongly pressed into service. This Court, however, rejected the appellant's
arguments and held that the prosecution did not suffer from any infirmity. On
the facts it was found that though the offence had in fact been already
committed (1) [1959] Supp. 1 S.C.R. 274.
(2) [1953] S.C.R. 730.
(3) [1954] S.C.R. 1150.
(4) A.I.R. 1960 S.C. 756.
(5) [1954] S.C.R. 1077.
438 by the appellant, he had in fact not been
accused of it at the stage when the currency notes were produced by him; it was
also held that it could not be said that he was compelled to produce the said
currency notes, because he might easily have refused to produce them, ,and so
there was no occasion for him to invoke the constitutional protection against
self-incrimination.
What then is the result of these decisions ?
They show that in determining the complexion and reach of its respective
sub-clauses the general scheme of Art. 20 as a whole must be considered, and
the effect of the inter-action of the relevant words used 'in them must be
properly appreciated.
Thus considered the constitutional right
guaranteed by Art.
20(2) against double jeopardy can be
successfully invoked only where the prior proceedings on which reliance is placed
must be of a criminal nature instituted or continued before a court of law or a
judicial tribunal in accordance with the procedure prescribed in the statute
which creates the offence and regulates the procedure. It would be noticed that
the character of the said proceedings as well as the character of the forum before
which the proceedings are initiated or conducted are treated as decisive in the
matter. Similarly, for invoking the constitutional right against testimonial
compulsion guaranteed under Art. 20 (3) it must appear that a formal accusation
has been made against the party pleading the guarantee and that it relates to
the commission of an offence which in the normal course may result in
prosecution. Here again the nature of the accusation and its probable sequel or
consequence are regarded as important.
Thus we go back to the question which we have
already posed:
was the appellant accused of any offence at
the time when the impugned notices were served on him ? In answering this
question in the light of the tests to which we have just referred it will be
necessary to determine the scope and nature of the enquiry which the inspector
undertakes under s. 240 ; for, unless it is shown that an accusation of a crime
can be made in such an enquiry, the appellant's plea under Art. 20(3) cannot
succeed. Section 240 439 shows that the enquiry which the inspector undertakes
is in substance an enquiry into the affairs of the company concerned. Certain
documents are required to be furnished by a company to the Registrar under the
provisions of the new Act. If, on examining the said documents, the Registrar
thinks it necessary to call for information or explanation he is empowered to
take the necessary action under s.
234(1). Similarly, under s. 234(7) if it is
represented to the Registrar on materials placed before him by any contributory
or creditor or any other person interested that the business of the company is
carried on in the manner specified in the-said sub-section the Registrar
proceeds to make the enquiry. Thus the scope of the enquiry contemplated by s.
234 is clear; wherever the Registrar has reason to believe that the affairs of
the company are not properly carried on he is empowered to make an enquiry into
the said affairs. Similarly under s. 235 inspectors are appointed to
investigate' the affairs of any company and report thereon. The investigation
carried on by the inspectors is no more than the work of a fact-finding
commission. It is true that as a result of the investigation made by the
inspectors it may be discovered that the affairs of the company disclose not
only irregularities and malpractice but also commission of offenses, and in
such a case the report would specify the relevant. particulars prescribed by
the circular in that behalf If, after receiving the report, the Central
Government is satisfied that any person is guilty of an offence for which he is
criminally liable, it may, after taking legal advice, institute criminal
proceedings against the offending person under s. 242(1); but the fact that a
prosecution may ultimately be launched against the alleged offender will not
retrospectively change the complexion or character of the proceedings held by
the inspector when he makes the investigation. Have irregularities been
committed in managing the affairs of the company ; if yes, what is the nature
of the irregularities ? Do they amount to the commission of an offence
punishable under the criminal law ? If they do who is liable for the said
offence? These and 440 such other questions fall within the purview of the inspector's
investigation. The scheme of the relevant sections is that the investigation
begins broadly with a view to examine the management of the affairs of the
company to find out whether any irregularities have been committed or not. In
such a case there is no accusation, either formal or otherwise, against any
specified individual;
there may be a general allegation that the
affairs are irregularly, improperly or illegally managed; but who would be
responsible for the affairs which are reported to be irregularly managed is a
matter which would be determined at the end of the enquiry. At the commencement
of the enquiry and indeed throughout its proceedings there is no accused
person, no accuser and no accusation against anyone that he has committed an
offence. In our opinion a general enquiry and investigation into the affairs of
the company thus contemplated cannot be regarded as an investigation which
starts with an accusation contemplated in Art. 20(3) of the Constitution. In
this connection it is necessary to remember that the relevant sections of the
Act appear in Part VI which generally deals with management and administration
of the companies.
It is well-known, that the provisions of the
Act are modeled on the corresponding provisions of the English Companies Act.
It would, therefore, be useful to refer to the observations made by the House
of Lords in describing the character of the enquiry held under the
corresponding provisions of the English Act in the case of Hearts of Oak
Assurance Co. v. Attorney General (1). In that case Lord Thankerton said "
it appears to me to be clear that the object of the examination is merely to
recover information as to the company's affairs and that it is in no sense a
judicial proceeding for the purpose of trial of an offence;
it is enough to point out that there are no
parties before the inspector, that he alone conducts the enquiry, and that the
power to examine on oath is confined to the officers, members, agents and
servants of the company ". We ought, however, to add that the last (1)
1932 A.C. 392.
441 observation is no longer true about the
inspector's powers under s. 240 of the new Act. In the same case Lord Macmillan
observed that " the object of the enquiry manifestly is that the
Commissioner may either by himself directly or through the medium of a delegate
obtain the information necessary to enable him, to decide what action, if any,
he should take. The cardinal words of the section are those which empower the
Commissioner or his inspector to examine into and report on the affairs of the
society ".
Thus it is clear that the examination of, or
investigation into, the affairs of the company cannot be regarded as a
proceeding started against any individual after framing an accusation against
him. Besides it is quite likely that in some cases investigation may disclose
that there are no irregularities, or if there are they do not amount to the
commission of any offence; in such cases there would obviously be no occasion
for the Central Government to institute criminal proceedings under s. 242(1).
Therefore, in our opinion, the High Court was right in holding that when the
inspector issued the impugned notices against the appellant the appellant
cannot be said to have been accused of any offence; and so the first essential
condition for the application of Art. 20(3) is absent. We ought to add that in
the present case the same conclusion would follow even if the clause
"accused of any offence " is interpreted more liberally than was done
in the case of M. P. Sharma (1), because even if the expression 'accused of any
offence" is interpreted in a very broad and liberal way it is clear that
at the relevant stage the appellant has not been, and in law cannot be, accused
of any offence. Thus the tests about the character of the proceedings and the
forum where the proceedings are initiated or intended to be taken are also not
satisfied; but, as we have already indicated, such a broad and liberal
interpretation of the relevant expression does not appear to be consistent with
the tenor and effect of the previous decisions of this Court.
It is true that in his report the Registrar
has made (1) [1954] S.C.R. 1077.
442 certain allegations on which Mr. Sastri
has relied. He contends that the statements in the report do amount to
allegations of commission of offenses by the appellant.
What the Registrar has stated in his report
in this particular case cannot be relevant or material in deciding the vires of
the impugned section. The vires of the section can be determined only by
examining 'the relevant scheme of the Act, and we have already Been that such
an examination does not assist the appellants contention that Art. 20(3) is
contravened. Besides, what the Registrar has stated in his report can hardly
amount to an accusation against the appellant; it is a report submitted by him
to the Central Government, and it is only intended to enable the Central
Government to decide whether it should appoint an inspector.
It is not as if the investigation before the
inspector begins on the basis that the Registrar is the complainant who has
made an accusation against the appellant, or that the function of the
investigation is to find out whether the said accusation is proved or not. As
we have already seen an enquiry under s. 240 may require a large number of
persons to give evidence or produce documents but it cannot be said that any
accusation is made against any of the said persons. In fact three persons have
been served with similar notices in the present enquiry which shows that the
inspector desires to obtain relevant evidence from them as from the appellant.
How can it be said that an accusation has been made against the said three
persons, and that incidentally helps to bring out the real character and scope
of the enquiry. Therefore we do not think that the statements made in the
Registrar's report, on which Mr. Sastri relies can really assist us in deciding
the question of the vires of s. 240. It is also significant that the appellant
has not challenged the validity of the impugned notices on any ground relatable
to, or based on, the said report. The challenge is founded on. the broad and
general ground that S. 240 offends against Art. 20(3).
We may incidentally add that it was in
support of his argument based on the Registrar's report that 443 Mr. Sastri
sought to rely on the decision of the Calcutta High Court in Collector of
Customs v. Calcutta Motor and Cycle Co. (1). In that case certain notices had
been issued under s. 171A of the Sea Customs Act to certain persons to appear
before the customs officials and to produce certain documents. The High Court
took the view that " it appeared from the accusations made in the search
warrants at the instance" of the customs authorities and those made in one
of the notices by the customs authorities themselves, that the accusations of
criminal offenses could not be excluded " ; and so it was held that the
requirements of Art. 20(3) were satisfied and the protection under the said
article was available to the persons concerned. In our opinion this decision
does not assist the appellant. It proceeded on the finding that accusations of
criminal offenses could be held in substance to have been made against the
persons concerned, and it dealt with the other points of law on that
assumption. That being so, we think it unnecessary to discuss or consider the
said decision. Our conclusion, therefore, is that s. 240 does not offend
against Art. 20(3) of the Constitution.
That still leaves the challenge to the vires
of the said section under Art. 14 of the Constitution, though we ought to add
that Mr. Sastri did not seriously press his case under Art. 14, and we think
rightly. The argument under Art. 14 proceeds on familiar lines. It is urged
that the ordinary protection afforded to witnesses under s. 132 of the Indian
Evidence Act as well as the protection afforded to accused persons under s.
161(1) and (2) of the Criminal Procedure Code, have been denied to the
appellant in the investigation which respondent 1 is carrying on in regard to
the affairs of his company, and that violates equality before the law. The
scope and effect of Art. 14 have been considered by this Court frequently.: It
has been repeatedly held that what Art. 14,prohibits is class legislation; it
does not, however,, forbid reasonable classification for the purpose of
legislation. If the classification on which legislation is based is founded 57
444 on an intelligible differentia which distinguishes persons or things that
are grouped together from others left out of the group, and if the differentia
has a rational relation to the object sought to be achieved, then the
classification does not offend Art. 14 (Vide: Shri Ram Krishna Dalmia v. Justice
Tendolkar (1)). Now in the light of this test how can it be said that the
classification made by ss. 239 and 240 offends Art. 14 of the Constitution ? A
company is a creature of the statute. There can be no doubt that one of the
objects of the Companies Act is to throw open to all citizens the privilege of
carrying on business with limited liability. Inevitably the business of the
company has to be carried on through human agency, and that sometimes gives
rise to irregularities and malpractice in the management of the affairs of the
company. If persons in charge of the management of companies abuse their
position and make personal profit at the cost of the creditors, contributories
and others interested in the company, that raises a problem which is very much
different from the problem of ordinary misappropriation or breach of trust. The
interest of the company is the interest of several persons who constitute the
company, and thus persons in management of the affairs of such companies can be
classed by themselves as distinct from other individual citizens. A citizen can
and may protect his own interest, but where the financial interest of a large
number of citizens is left in charge of persons who manage the affairs of the
companies it would be legitimate to treat such companies and their managers as
a class by themselves and to provide for necessary safeguards and checks against
a possible abuse of power vesting in the managers. If the relevant provisions
of the Act dealing with enquiries and investigations of the affairs of the
companies are considered from this point of view there would be no difficulty
in holding that Art. 14 is not violated either by s. 239 or s. 240 of the new
Act.
The result is the appeal fails and is
dismissed with costs.
Appeal dismissed.
(1) [1959] S.C.R. 297.
Back
