JUDGMENT
T.V.R. Tatachari, J.
(1) This Letters Patent Appeal is against the judgment of S. N. Andley, J., dated 13-5-1968, in Civil Writ No. 1125 of 1967. The said writ petition was filed by the appellant herein, the Rampur Distillery and Chemical Company Limited, hereinafter referred to as the “appellant company”, praying for the issuance of a writ or direction in the nature of mandamus to the respondents herein, viz. (1) the Company Law Board; and (2) the Union of India, directing them to rescind, withdraw and/or cancel their decision and/or order nto to approve the extension of the term of the managing agency of the appellant’s managing agent, M/s Govan Brtohers (Rampur) Private Limited, beyond 31-3-1967, and to recall or cancel their communications, dated 23-1-1967, and 6-6-1967. It was also prayed that a writ of certiorari may be issued quashing the aforesaid decision and/or order of the respondents refusing to accord approval to the extension of the term of the appellant’s managing agent after 31-3-1967. The appellant further prayed for the issuance of a writ or direction in the nature of mandamus directing the respondent No. 1 to extend the term of the appellant’s managing agent up to 14-8-1970.
(2) The writ petition originally came up before S. N. Andley, J., and by an order, dated 23-2-1968, the learned judge allowed the writ petition and ordered that a writ of certiorari be issued quashing the orders of respondent No. 1 contained in their letters, dated 23-1-1967 and 6-6-1967, and that a writ of mandamus be also issued directing the respondent No. 1 to extend the term of managing agency of the appellant’s managing agent, M/s Govan Brtohers (Rampur) Private Limited, till 14-8-1970. The said order was passed solely upon a certain construction put by the learned Judge on clause (b) of sub-section (2) of section 326 of the Companies Act, 1956. The learned Judge took the view that “the context or the background against which the Company Law Board has to examine the question of appointment or re-appointment of the managing agent is the interest of the managed company and the affairs and activities of the managing agent itself qua the managed company”, and that the personal activities of one of the directors of the managing agent-company cannto be a relevant consideration for determining the fitness and propriety of the managing agent-company if the- said activities are personal to the director and have no connection whatsoever either with the managing agent-company or with the managed company.
(3) Against that order, the respondents herein preferred an appeal, Letters Patent Appeal No. 19 of 1968. A division Bench (I. D. Dua, CJ. and T. V. R. Tatachari, J.) took a different view regarding the said construction of section 326. The Division Bench held that the provision in section 326 should be construed broadly “so as to include all the relevant material which would throw helpful light in forming a satisfactory opinion as to whether the person proposed to be appointed or re-appointed as a managing agent is fit and proper for the job”, that “the language of section 326 should be so construed as to take within its sweep the activities of the directors of the managing agent corporate body which, though nto directly concerned with the functioning of the managing agent or of the managed company as such, may reasonably reflect his general character in respect of his integrity and efficiency in much the same manner as is done in the case of an individual for his appointment as a managing agent”, and that “holding the facts contained in the letter dated 6-6-1967 nto to be wholly irrelevant, we are of the view that those facts have to be considered on their own merits in the entire background of toher relevant circumstances for determining as to how far each fact is likely to have impact on the question of the managing agent being fit and proper for re-appointment.” Since the learned Single Judge had disposed of the writ petition solely on the interpretation of section 326 and had nto adjudicated upon toher points canvassed before him the Division Bench allowed the appeal and remanded the writ petition for a fresh decision on all the points arising in the case by the learned Single Judge in the light of the observations made in the Judgment of the Division Bench.
(4) After the remand, the writ petition was again heard by Andley J., and by his order, dated 13-5-1968, the learned Judge held that the decision of the respondents nto to extend the term of the appellant’s managing agent was justified in view of the pendency of a certain criminal prosecution launched in 1964 against V. H. Dalmia, who was the Managing Director of the managing agent company, and dismissed the writ petition. It is against that order that the present Letters Patent Appeal has been preferred.
(5) Shri S.N.Chopra, the learned counsel for the appellant-company, contended that the learned single judge, while holding that “the activities of V. H. Dalmia between 1945 and 1947 in relation to toher companies are nto relevant circumstances to determine whether he or the managing agent-company with which he is associated is a fit and proper person within the meaning of section 326 when during the course of the years since 1947 there is no allegation of any such activity in relation to any toher company and particularly when there is evidence on the record that the petitioner-company has shown better and better results during the course of the years”, erred in holding that the launching of a criminal prosecution in 1964, even though the said prosecution was in respect of the very same alleged activities of the years 1945-47, fulfills the requirement of proximity in terms of time, that the pendency of the prosecution was a relevant fact to determine the fitness of V. H. Dalmia and, therefore, of the managing agent-company, that the pendency of the prosecution leads a reasonable person to the conclusion that the person who is being prosecuted is nto a fit and proper person for the purposes of section 326, and that the order of the respondents could be justified on that ground alone. The learned counsel argued that the alleged activities on the basis of which prosecution was launched were only of the years 1945-47, that admittedly, there was no allegation of any such activity against Dalmia during the long period of about 20 years subsequent to 1947, that, on the toher hand, V. H. Dalmia occupied important posts including that of directorship in a number of Companies to the knowledge of the Central Government, that the learned single judge merely referred to the remtoeness of the alleged activities of 1945-47, but did nto refer to and consider the impact of the subsequent activities and-conduct of V. H. Dalmia during a long period of 20 years upon the question as to the fitness and propriety of the extension of term of managing Agency of M/s Govan Brtohers (Rampur) Private Limited, that the respondents also did nto take into consideration the said important circumstance and their decision nto to extend the term was vitiated thereby, and that this Court should, therefore, quash the said decision.
(6) For a proper appreciation of the above contentions of the learned counsel, it is necessary to refer to the relevant facts. The appellant-company is a public limited company. In or about 1943, M/s Govan Brtohers (Rampur) Private Limited, hereinafter referred to as “the managing agent-company”, were appointed as managing agent for a period of 20 years. In or about July, 1946, the Dalmia assumed control of the said managing agent- company, which had at that time 4 Directors, namely, V. H. Dalmia, Lalita Dalmia, N. H. Dalmia and M. H. Dalmia. V. H. Dalmia was also the Managing Director. In November, 1953, First Information Report was lodged in Delhi in respect of offences alleged to have been committed by V. H. Dalmia and certain tohers in 1946-47 under sections 120B and 409 of the Indian Penal Code. Admittedly, the said alleged offences were nto in respect of anything done by V. H. Dalmia in connection with the affairs of the managing agent-company. Ntohing further appears to have been done in pursuance of the First Information Report, except that in or about December, 1955, a Commission which came to be known as Vivian Bose Inquiry Commission was appointed to enquire into and report on the administration of certain companies said to the included in what was called Dalmia Jain Group of Companies. On 10-12-1958, the appellant-company passed a resolution appointing the managing agent-company as Managing Agent for a period of 10 years with effect from 15-8-1960, but the Central Government granted extension only for a period of 5 years, i.e. till 15-8-1965. In the meantime, the report of the Vivian Bose Commission was published in 1962. In that report, certain remarks were made against V. H. Dalmia.
(7) After the commencement of the Companies (Amendment) Act, 1963, the Company Law Board was constituted under section 10-E of the Act and the Central Government, by a ntoification in that behalf, delegated its functions, which were to be exercised by it, inter alia, under section 326 of the Companies Act, 1956, to the Company Law Board. Then, in May, 1964, pursuant to the First Information Report lodged in November, 1953, charge- sheets were filed by the Special Police Establishment against various persons including V. H. Dalmia in respect of the afore- said offences alleged to have been committed in or about 1946-47.
(8) The appellant-company, before the expiry of the extended term of the managing agency, passed a resolution on 23-9-1964, renewing the managing agency for a further period of 5 years with effect from 15-8-1965, subject to the approval of the Central Government under section 326 of the Act. The request for extension was referred to the Company Law Advisory Commission, and it is stated that the Advisory Commission disapproved the grant of the extension. But, by a letter (Annexure ‘C’), dated 28-5-1965, the Company Law Board granted an extension of the term of managing agency till 31-3-1966. It was stated in the said letter that “no further extension of the term of the managing agents would be allowed. I am, therefore, to suggest that appropriate steps be taken within the period of extension now granted to adopt an alternative form of management as allowed under the Companies Act, 1956, toher than that of managing agents or secretaries and treasurers.” In reply to the said letter, the appellant- company wrtoe a letter (Annexure ‘D’), dated 15-1-1966, to the Company Law Board praying that extension be granted for antoher year up to 31-3-1967. It was also stated in the said letter as under:- “WEwould, however, like to inform you that we are taking necessary steps to make provisions in our Articles of Association to provide for alternative form of management should the Government of India finally decide, on receipt of the report of the Managing Agency Inquiry Committee, nto to allow managing agency system in the business in which our company is engaged.”
On 12-7-1966, the Company Law Board approved a further extension of the term of the managing agent-company up to 31-3-1967, and the same was communicated by a letter (Annexure ‘E’) in which it was stated that the previous letter, dated 28-5-1965 may be treated as amended accordingly, and it was also added that “toher terms and conditions laid down in the said letter, dated 28-5-1965, shall remain unchanged.” Before the expiry of the said extension, the appellant-company made a fresh representation by a letter (Annexure ‘F’) dated 25-8-1966, asking for a further extension of the term up to 14-8-1970. In reply thereto, the Company Law Board sent a letter (Annexure ‘C’) dated 23-1-1967, in which it was stated that- “……AFTERcareful consideration of the facts and circumstances of the case, the Company Law Board regrets its inability to approve extension of the tenure of the managing agents of your company for a further term from 1-4-1967.”
It may be stated here that similar orders refusing extension of the term of the managing agents of toher Dalmia Group Companies, like Orissa Cement Limited, Dalmia Cement Limited, Dalmia Cement (Bharat) Limited, and Raza Buland Sugar Company Limited, were passed by the Company Law Board. The said companies filed writ petitions in the High Court of Delhi challenging the orders of the Company Law Board refusing to grant extension. The managing agent-company, viz. M/s Goven Brtohers (Rampur) Private Limited, was also the managing agent of the Raza Buland Sugar Company Limited.
(9) The writ petitions filed by the Orissa Cement Limited, Dalmia Cement (Bharat) Limited, and Dalmia Cement Limited, were writ petitions Nos. 223, 221 and 222 of 1966 respectively. They were heard by a Division Bench of this Court (Hegde, CJ. and T. V. R. Tatachari, J.), and they were all allowed on 23-3-1967 on the grounds that it was clear from the letters written by the Company Law Board to the said companies that what the Company Law Board had considered was only as to whether there was necessity for the companies to be continued to be managed by a Managing agent and nto whether the Managing Agents companies were fit and proper persons to be re-appointed as Managing Agents as required by the provision in section 326 of the Companies Act, that even though the Company Law Board was aware of the pendency of the prosecution launched in 1964 against two of the Directors of the Managing Agent company, viz. Dalmia Agencies Private Limited persuant to a First Information Report laid in November, 1953, in respect of an offence alleged to have been committed in 1946-47, it extended the term of Managing Agency on two occasions, but refused to accord approval for extension on the third occasion, that the Company Law Board was influenced by the report of the Managing Agency Inquiry Committee which was a wholly irrelevant consideration, that the justification put forward on behalf of the Government that the Company Law Board came to the conclusion that two of the directors of the Managing Agent-company were unfit to manage the company in view of the fact that a prosecution was pending against the two directors was only an after-thought, and that the impugned decision of the Company Law Board nto to extend the term of the Managing Agency was arbitrary or at any rate nto in accordance with section 326 of the Companies Act. It was also held that on the admitted facts in those cases it was nto necessary to direct the Company Law Board to re-examine the case de novo under section 326 of the Act. Accordingly, the Division Bench directed the Union of India and the Company Law Board to grant the approval prayed for by the petitioners-companies for extension of the term of their respective Managing agents for the period permissible under law. It was stated by the appellant-company in the present writ petition, out of which this appeal has arisen, that the Union of India and the Company Law Board filed a petition in the Supreme Court for Special Leave to appeal against the above mentioned judgment of the Division Bench, but that it was dismissed in limini.
(10) The writ petition filed by Raza Buland Sugar Company Limited was Civil Writ No. 40 of 1967. As already stated, M/s Goven Brtohers (Rampur) Private Ltd. was the Managing Agent of the petitioner company. The said writ petition was heard by H.R. Khanna, J. by his judgment, dated 3-4-1967, the learned Judge held that the aforesaid decision of the Division Bench was distinguishable on facts from the case before him, and, therefore, the petitioner-company before him would nto derive much assistance from the said decision of the Division Bench, that the impugned order in the case before him was, however, liable to be set aside because it suffered from an infirmity which had vitiated it altogether, namely, that the Government of India and the Company Law Board assumed, while refusing to grant extension of the term of the Managing Agent-Company, that Shri V. H. Dalmia, Director of the aforesaid Managing Agent, was a Director of Dalmia Jain Airways Ltd., which assumption was factually incorrect, that on the material on record it could nto be said as to whether the Board would have declined to accord approval to the grant of the extension if it had nto so assumed, and that in the circumstances the proper order was to allow the writ petition, set aside the impugned order, and to direct the Government of India and the Company Law Board to consider and decide afresh the application for the extension of the term of the Managing Agency. An order was passed accordingly by the learned Judge in that writ petition.
(11) It appears that the appellant-company made representations against the refusal by the Company Law Board contained in the letter, dated 23-1-1967, and on 6-6-1967, the Company Law Board informed the appellant-company that its request for extension of the term of its Managing Agent-company was rejected. In that letter, the reasons which pursuaded the Company Law Board to reject the application of the appellant-company for extension of the term of its Managing Agent-company, were set out. The said reasons were:-
(1)that V. H. Dalmia was a Director of Allenberry and Company Limited from 3-4-1945 to 3-11-1947, that he was the Managing Director of the said company from 15-5-1945 to 10-7-1947, that on 26-8-1946 a joint venture agreement was entered into between Dalmia Jain Airways Limited and Allenberry and Company Limited for the purchase of disposal vehicles and parts from the Director General of Disposals, that that was part of a scheme for diverting the funds invested by the public in Dalmia Jain Airways Limited for the personal use of Dalmia Jain Group, that one of the signatories to the agreement was V. H. Dalmia, that the Vivian Bose Commission termed the agreement “as one-sided and unfair” and also remarked that the way in which it was worked in practice made matters still worse;
(2)that V. H. Dalmia was a Director of Dalmia Cement and Paper Marketing Company Limited from 15-5-1943 to 21-10-1947, that a part of the profits in the joint venture account was transferred by a fraudulent manipulation of accounts to the benefit of Dalmia-Jain Group through Dalmia Cement and Paper Marketing Company Limited, that the Commission in considering the said transactions, commented that it had to draw the “inevitable conclusion” that the story put out by Shri V. H. Dalmia was ttoally false (page 306 of the Report);
(3)that V. H. Dalmia was a Director of S. S. B. Mills Limited and M. D. M. Company during the period between 10-10-1946 and 28-10-1947 that on 29-2-1948 a sum of about Rs. 1,40,000.00 was outstanding from D. C. P. M. to the aforesaid two companies put together that the loans were advanced without any security, that in discussing the said loan transactions the Commission observed that “it will be seen from the above that the loans to D. C. P. M. were made to enable the Group and later Shri R. Dalmia to retain control over toher companies and particularly to benefit Shri R. Dalmia who obtained large advances from D. C. P. M. in his own name even though he was nto a Director or an officer of D. C. P. M.”, and that the Commission was also nto satisfied that the loans were given in good faith;
(4)that in or about December, 1946, certain investments were made in Benett Coleman and Company’s shares by S. S. B. Mills Limited and M. D. M. Company Limited, which, in the opinion, of the Commission, were improper, that the Directors at that time included V. H. Dalmia, that the Commission observed in its Report that “in our opinion they ought to have looked into this matter and they should nto have allowed the purchases. We find it impossible to justify questionable investment that did nto leave enough money in the Mills to carry their day-to-day business” (page 684 of the Report); and
(5)that charge-sheets were filed against V. H. Dalmia and 23 tohers in the Court of the District Magistrate, Delhi, in May, 1964, in respect of offences under section 120B and 409 of the Indian Penal Code, that the charge against V. H. Dalmia and the tohers was that they were a party to a “Criminal conspiracy having for its objects the commission of criminal breach of trust of the funds and assets of the Dalmia Jain Airways Limited, and the offences of forgery and falsification of accounts which came into being in or about 1946 at Delhi and continued to exist till 1953, and that the criminal breach of trust was in respect of accountings running into crores of rupees. After setting out the above reasons, it was stated that in the light of the above facts relating to V. H. Dalmia who was one of the Directors of the company proposed to be reappointed as managing agent, the Board could nto be satisfied that the proposed managing agent was a fit and proper person for reappointment, and that it was, therefore, decided to reject the application for extention under section 326 of the Companies Act.
(12) Aggrieved by the said refusal, the appellant-company filed the writ petition out of which this appeal has arisen. As already stated, the writ petition was allowed on 23-2-1968 by S. N. Andley, J., and on a Letters Patent Appeal against the said order the matter was remanded by the Division Bench for disposal of the writ petition in the light of the construction put by the Division Bench on Section 326. After the remand, the learned Single Judge dismissed the writ petition holding that the decision of the respondents nto to extend the term of the Managing Agency was justified in view of the pendency of the prosecution launched against V. H. Dalmia. It is against the said order that the present Letters Patent Appeal has been filed by Rampur Distillary and Chemical Company.
(13) The reasons which persuaded the Company Law Board to refuse the extension were those set out in its letter, dated 6-6-1967. They were five in number, and we have already set out the said five reasons. Reasons I to 4 fall into one category. They relate to the alleged acts of V. H. Dalmia between 1945. and 1947 in relation to the affairs of toher companies regarding which comments were made in the Report of the Vivian Bose Commission. The 5th reason may be regarded as a second category. The said reason was the pendency of the criminal prosecution against V. H. Dalmia.
(14) The reasons in the first category, as already stated above, relate to the alleged acts of V. H. Dalmia between 1945 and 1947. As pointed out by the Division Bench in the Judgment, dated 22-3-1968, the said activities were “nto wholly irrelevant”, and they “have to be considered on their own merits in the entire background of toher relevant circumstances, for determining as. to how far each fact is likely to have impact on the question of managing agent being fit and proper for re-appointment”. The question then is as to what the impact of the said activities is? In the first instance, the said alleged activities of V. H. Dalmia, admittedly, were of the years 1945-47, i.e. about 20 years’ ago. They had happened, if at all, at such a remtoe period of time that it would nto be reasonable to assume that the nature, character and outlook of the person concerned as shown by the said activities at that time have remained the same even after the passage of such a long time. An argument was advanced before the learned Single Judge that in considering the question, 230 the same principles should .be followed as are followed in cases of preventive detention, and that what has to be seen in whether the facts or the activities on which the opinion as to the fitness of the person is based, are proximate in time. Reliance was placed upon the decision of the Supreme Court in Rameshwar Shah v. District Magistrate, Burdwan, (1) in which it was observed by the Supreme Court that it is- “necessary to bear in mind that the past conduct or antecedent history of the person on which the authority purports to act, are ordinarily proximate in point of time and should have a rational connection with the conclusion that the detention of the person is necessary”. It was contended on behalf of the respondents that the analogy of detention cases was nto apposite in so far as the consideration of the fitness and propriety of a managing agent-company is concerned. It may be that the analogy of preventive detention cases may nto strictly apply to cases like the one under corsideration. Yet, in my opinion, when certain acts or activities of the person concerned alleged to have been indulged in by him a long time ago, are relied upon as indicating the character and integrity of the said person, the fact that the said acts or activities were of a period in the remtoe past cannto be ignored altogether, and coupled with toher circumstances, may provide a valid ground for nto approving an appointment. However, under section 326,the respondents have to condsider the fitness and propriety of the proposed managing agent at the time they are called upon to do so. In doing so, the activities of the person in the past as showing his character and integrity at that time have, no doubt, to be taken into consideration. But, the Board has also to take into consideration the subsequent conduct, acts and activities of the person in order to see whether the character and integrity shown by the acts and activities in the past have since changed for the better or nto. The nature and character of a man is nto static, but is apt to change with the passage of time. It would be irrational and unreasonable to assume that a person who possessed certain character or nature of an undesirable type at a certain point of time would continue to have the same nature or character for all time to come. Therefore, in my opinion, when the respondents are to form an opinion as regards the fitness and propriety of a proposed managing agent for appointment or re-appointment, they should take into consideration nto only the past acts or activities of the concerned person which might show a character or nature of an undesirable type, but also his subsequent acts and activities which might show that his previous character and nature had since changed for the better.
(15) In the present case, it was stated in paragraph 6, 7 and 8 of the writ petition as follows:-
“6.The Managing Agency Company was British controlled till July 1946, when the controlling interest was acquired by Dalmia group and Shri V. H. Dalmia was appointed the Managing Director. The keen interest and consistent efforts put in by the said Managing Agents have established an all round increase in the activities of your petitioner which will appear inter alia from the comprative figures mentioned hereunder : As on As on 31-12-45 31-3-66 Daily production capacity (Gallons) . 1,800 10,000 Gross fixed assets (Rs. in lakhs). . 17.08 52.81 Net sales (Rs. in lakhs) . . . 9-34 30-53 Reserves (Rs. in lakhs) . . . 0-15 8-23 Net worth (Rs. in lakhs) . . . 20-10 28-23 (Rs. per share) . . . . . 10-07 14-12 Capital employed (in lacs). . . 25-59 58-17
7.Your petitioner has gained a lto during the term of the said Managing Agents and is likely to suffer heavily in its absence. 8. Shri V. H. Dalmia besides being a Director of the said Managing Agents is also a Director in a number of Companies and holds important positions in several trade associations and Governmental bodies. Particulars of such positions held by the said Shri V. H. Dalmia are:
COMPANIES Position 1. Goven Bros (Rampur) Private Ltd. . Managing Director 2. Hari Brtohers Private Limited . Do. 3. Dalmia Agencies Private Limited . Director. 4. The Shevaroy Bauite Products Com- pany Private Limited. . . Do. 5. Raza Buland Sugar Company Limited…… Do. 6. The Rampur Distillery & Chemical Company Limited . . . Do. 7. Dalmia Cement Limited . . Do. 8. Dalmia Cement (Bharat) Limited . Do. 9. Orissa Cement Limited. . . Do. 10. Bharat General Reinsurance Limited Do. 11. The Industrial Credit Company Limited ….. Do. 12. South Punjab Electricity Corporation Limited. …. Do. 13. Kaycee Industries Limited . . Do. (Also Chairman of the Board of Directors).
Trade Associations :
1. Cement/Manufacturers’ Association/ Member,Managing Committee.
2. Indian Sugar Mills Association Member, Main Committee & President, West U.P. Branch.
3. All India Organisation of Industrial Member, Managing Committee. Employees.
4. Cement Allocation & Cordinating Member, Governing body. Organization,
Past Associations:
“1.Was the President of All India Distillers’ Association.
2. Was Member of the First Wage Board for Cement Industry (Appointed by Government of India).
3. Was the Member of Sugar Bonus Committee (appointed by Government of Uttar Pradesh to consider the question of grant of bonus for the season 1965-66 to their workmen of the vacuum pan sugar factories of the State).”
The reply of the respondents in their counter-affidavit to the allegations in the above paragraphs was as under- “7.With reference to the statement made in paragraph 6 save and except that the Dalmia group acquired control of M/s. Goven Bros. in 1946, none of the toher statements, particularly the correctness of the ‘figures’ set out therein, are admitted. I may add that the improvement in the said ‘figures’ as claimed is attributable to the general improvement in the economic condition of the country and nto merely for the keen interest and consistent efforts put in by the managing agents. 8. With reference to paragraph 7 of the petition, it is denied that the company is likely to suffer heavily in the absence of its Managing Agents. 9. With reference to paragraph 8 of the petition, I do nto admit the allegations contained therein.”
(16) The appellant-company filed a rejoinder, and in paragraph 6 thereof the averments made in paragraph 7, 8 and 9 of the counter-affidavit of the respondents were answered. The said paragraph 6 in the rejoinder runs as under:- "WITHreference to paragraph 7, 8, and 9 of the said affidavit, I repeat and reiterate the statements contained in paragraphs 6, 7, and 8 of the petition and I deny all allegations contrary thereto or inconsistent therewith. Messrs. V. Sankar Aiyer and Co., Chartered Accountants and Auditors of the petitioners, have checked the correctness of the statements made in paragraph 6 of the petition and their certificate is annexed hereto and marked 'A'." A further affidavit was filed by the respondents in reply to the rejoinder, but there was no reference to the averments in paragraph 6 of the rejoinder.
(17) Thus, according to the appellant-company, the interest and efforts put in by the managing agent-company brought about in all round increase in the activities of the appellant-company between 1945-1966. The respondents merely stated in paragraph 7 of their counter-affidavit that the statements and the figures set out in paragraph 6 of the writ petition were nto admitted, and it was added that the improvement in the said figures was attributable to the general improvement in the economic condition of the country and nto merely because of the keen interest and consistent efforts put in by the managing agents. Such a vague and general reply cannto be regarded as an effective answer to the averment in the writ petition. The respondents did nto choose to give any reasons for their nto admitting the said figures. On the toher hand, in the rejoinder, the appellant-company averred that the correctness of the statements made in paragraph 6 of the writ petition was checked by M/s. V. Shanker lyer and Company, Chartered Accountants and Auditors, and their certificate was filed as annexure ‘A’ to the rejoinder. The learned Single Judge also stated in his judgment that there is evidence on the record that the appellant-company has shown better and better results during the course of the years. I have, therefore, no hesitation to accept broadly the statements and figures contained in paragraph 6 of the writ petition. They clearly show that there was (considerable improvement in the progress of the appellant-company during the management of the managing agent-company between 1945 and 1966.
(18) As regards the averments in paragraph 8 of the writ petition, there was hardly any denial by the respondents. The laconic statement in paragraph 9 of the reply of the respondents was that they did nto admit the allegations contained in paragraph 8 of the writ petition. Such a bald denial is no denial at all. In the absence of a specific and detailed denial, the averments in paragraph 8 of the writ petition have to be accepted as correct. It appears from the said averments that V. H. Dalmia has been a Director in a number of companies and has been holding important positions in several trade associations and governing bodies.
(19) It is, therefore, a matter for consideration as to whether the fact that V. H. Dalmia has been holding such important positions without any comment or criticism by any one from 1947, is a circumstance which would go a long way to outweigh any reflection upon his character and integrity by reason of his alleged acts or activities in the years 1945 to 1947, in connection with certain toher companies, and the comments regarding them in the report of the Vivian Bose Commission in considering the question as to the fitness of the managing agent-company for re-appointment. In the circumstances, the Company Law Board and the 2nd respondent erred in relying only upon the reasons 1 to 4 which formed the first category, without taking into consideration the subsequent acts and activities of V. H. Dalmia which show that he has been holding important positions without any comment or criticism by any one from 1947.
(20) As regards the 5th reason which forms the second category, the alleged acts or activities of V. H. Dalmia were of the years 1945-47. The first Information Report was lodged in 1953, and a charge sheet is said to have been filed in May, 1964, in respect of those offences. The matter is thus sub-judice, and all that has happened so far is only the filing of a charge sheet. It was averred in paragraph 29 of the writ petition that V. H. Dalmia had ntohing to do with the said alleged happenings, that he was aged about 19 years at that time, and was too young to be in any way connected with the said alleged happenings, and that he did nto take any part whatsoever with regard thereto. Shri Chopra, the learned counsel for the appellant-company, argued that the report of the Vivian Bose Commission was available with the Government in October, 1962, and the respondents were fully aware of the comments made in the said report, and in spite of the same, the respondents granted extension of the term of managing agency twice, and that it follows there from that the respondent did nto consider the managing agent-company as unfit at the time of the granting of the extensions. Shri Dipak Chaudhury, the learned counsel for the respondents, contended that this contention was urged in the writ petition which was heard by H. R. Khanna, J., that the learned Judge rejected the contention, and that it was nto, therefore, open to the appellant-company to raise the said contention again. It is true that the respondents explained that they granted the extensions, even after the report of the Vivian Bose Commission, as tentative measures, and Khanna, J. accepted the said explanation and came to the conclusion that the granting of the extensions did nto necessarily mean that the respondents admitted or considered that the managing agent-company was a fit and proper person for re-apointment. But, even if the granting of the extensions does nto by itself necessarily mean that the Government considered the managing agent-company as a fit and proper person for re-appointment, the fact still remains that the respondents, in fact, re-appointed the managing agent-company by extending the term of managing agency though for short periods, under section 326 of the Companis Act. Apart from this aspect, there is the question as to whether the mere launching of prosecution against the Managing Director of the Managing agent- company renders the said managing agent-company unfit for- re-appointment or renders the appointment improper. The answer to this question has to be in the nagative. The mere launching of prosecution against a person can at the most be an allegation against him, and unless and until the allegations or charges are proved and established in a court of law, they cannto in any way legally cast any reflection on the character or integrity of the person against whom the prosecution is launched. In this connection, reference may be made to section 283 of the Companies Act, the provisions in which indicate what constitutes the fitness of a person to be a Director. One of the provisions therein is to the effect that the office of a Director shall become vacant if he is convicted by acourt of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for nto less than six months. It thus provides that a Director need nto vacate his office even on a conviction unless the conviction is for an offence involving moral turpitude and the sentence is nto less than six months. When even conviction which does nto fall within the exception contained in section 283 does nto render a Director disqualified, would it be rational or reasonable to say that the mere launching of prosecution against a Director or a Managing Director of a Company would render it unfit and improper to appoint the company as managing agent of antoher company? In my opinion, it would nto be rational or reasonable to say so. I am unable to agree with the view taken by the learned Single Judge to the contrary. The contention of the respondents that the mere launching of prosecution against one of the Directors or the Managing Director of the managing agent-company renders the company an unfit and improper person for re-appointment, cannto, therefore, be accepted. The 5th reason, given by the Company law Board is nto thus a valid reason, and is nto one which by itself would lead reasonable person to form the opinion that the managing agent-company is nto a fit and proper person for re-appointment as managing agent.
(21) I have pointed out above that in forming the opinion as to the fitness and propriety of the managing agent-company for appointment or re-appointment, the Board should take into consideration nto only the alleged acts and activities of V. H. Dalmia in the period 1945-47, but also his acts and activities in the subsequent years. The Board did nto take into consideration the same at all. The learned single Judge also did nto advert to and consider the same. The omission to take into consideration the conduct and activities of V. H. Dalmia in the years subsequent to 1947 renders the opinion formed by the respondents an incomplete one, and the opinion cannto, therefore, be regarded as one formed in accordance with the provisions in section 326 of the Companies Act. As pointed out by the Supreme Court in Barium Chemicals Ltd. v. Company Law Board(2) the words “in the opinion of” do nto always lead to the construction that the process of entertaining “the opinion” is an altogether subjective process nto lending itself even to a limited scrutiny by the Court that such an opinion was nto formed on relevant facts or within the limits or within the restraints of the statue as an alternative safe-guard to rule of natural justice where the function is administrative. In Raman and Raman (P) Limited v. Shri Raman Vilas Service Limited, Judgment of the Supreme Court, dated 3-5-1968, in C.A. No. 1006 of 1965, the Supreme Court held that if a Tribunal failed to determine an important question on which its ultimate conclusion can be founded, the High Court in an appropriate case may issue a writ of certiorari vacating the order of the Tribunal. In that case, there was evidence which should have been but was nto taken into account by the Tribunal, and the High Court issued a writ of certiorari quashing the order of the Tribunal, and directed the Tribunal to hear and dispose of the appeal before it according to law. The Supreme Court held that the High Court rightly quashed the order of the Tribunal.
(22) In the present case, the respondents did nto take’, nto consideration material circumstances, namely, the acts and activities of V. H. Dalmia during the years subsequent to 1947, in forming the requisite opinion under section 326. Their opinion was, therefore, vitiated thereby, and their decision, based on such an infirm opinion, nto to grant the extension of the term of managing agency is liable, therefore, to be quashed by reason of this infirmity alone.
(23) For the foregoing reasons, I allow the appeal, set aside the order of Andley, J” dated 13-5-1968, allow the writ petition, quash the decision and/or order of the respondents contained in their letters, dated 23-1-1967, and 6-6-1967, refusing to extend the term of managing agency of M/s. Goven Brtohers (Rampur) Private Limited till 14-8-1970, and direct the respondents to re-consider the request or application of the appellant-company for the aforesaid extension in the light of the observations in this judgment and in accordance with law. The parties shall bear their own costs in the Letters Patent Appeal and in the writ petition
S.K. Kapur, J.
(24) I agree with the conclusion arrived at by my learned brtoher Tatachari, J. but would like to record my own reasons therefore. The five grounds on which the refusal to extend the term of the Managing Agency is based are contained in the letter dated 6th June, 1967, from the Company Law Board, and have been set out in the judgment of my learned brtoher. It has rightly been said that reasons 1 to 4 fall into one category and relate to the acts of V. H. Dalmia between the years 1945 and 1947. My learned brtoher has, in this connection observed:- “INdoing so, the activities of the person in the past as showing his character and integrity at that time have, no doubt, to be taken into consideration. But, the Board has also to take into consideration the subsequent conduct, acts and activities of the person in order to see whether the character and integrity shown by the acts and activities in the past have since changed for the better or nto.”
Tatachari, J., has further referred to the various positions held by V. H. Dalmia in the various companies as Managing Director and/or Director and/or Chairman of the Board of Directors. The position as a Managing Director is stated to have been held by V. H. Dalmia only in Goven Brtohers (Rampur) Private Limited. That being a private limited company, the approval of the Government was nto required for such appointment as section 269 of the Companies Act, 1956, is confined only to a public company or a private company which is subsidiary of a public company. So far as the position as a Director and/or Chairman of the Board of Directors is concerned, it was nto even alleged that permission of the Govenment was either required or granted. Similarly, the toher positions in various trade associations held by V. H. Dalmia can be of no avail to him inasmuch as permission of the Government does nto come in anywhere. From the fact that V. H. Dalmia was holding positions where the Government’s approval was neither taken nor required and from the fact that the company showed considerable progress during the past few years, my learned brtoher has arrived at the conclusion that:- “INthe circumstances, the Company Law Board and the 2nd respondent erred in relying only upon the reasons I to 4 which formed the first category, without taking into consideration the subsequent acts and activities of V. H. Dalmia which show that he has been holding important positions without any comment or criticism by any one from 1947.”
If the comments or criticism of the Government were nto called for vis-a-vis the toher assignments held by V. H. Dalmia, it may nto be, in my opinion, open to base a conclusion thereon particularly when this Court is nto sitting in appeal over the decision of the Company Law Board. The doctrine of proximity cannto be extended to such like cases in the same manner as it applies to cases under the Preventive Detention Act. An activity in the remtoe past can lead the authorities granting sanction under section 326 to the conclusion that the Managing Agent proposed is nto a fit or proper person to be appointed or re-appointed as such. Each case has to be judged on its own merits, and, when I say that, I mean that the nature of an activity even 20 years back may be relevant. The Government has to direct its attention primarily to section 326 and what it has to decide is: Is the Managing Agent proposed, in its opinion, a fit and proper person to be appointed ? The pae and in the light of those activities a decision has to be arrived at whether at the time of granting of sanction the Managing Agent is a fit and proper person. Merely because a person is alleged to have committed some illegal acts 20 years back may or may nto per se be a ground for rejecting the application for permission. At t same time, the nature of the activities may reflect at the future and render a person unfit for such appointment. Whereas I would nto be inclined to say that the past alleged activities stand wiped out by reason of the various offices held by V. H. Dalmia, I would nto be willing to uphold the impugned order because, to my mind, the order has been based merely on the ground of past activities of one of the directors of the managing Company without considering its reflection on the point of time when the sanction was asked for and on the Managing Company. Similarly, the fact that the company showed progress by itself may nto be enough to wipe out the past activities and the approach must again be whether and to what extent the progress is attributable to a particular individual and whether the progress made by the Managed Company outweighs the alleged illegal activities. That has again to be judged from the point of view of a reasonable prudent man and in the interest of the national economy and commercial expediency without losing sight of the public interest.
(25) With respect to the 5th reason, namely, the launching of a prosecution, it may per se be no ground for rejecting the application. The nature of the allegation in the criminal charge, backed by the findings of a high-powered commission, may, in a given case, provide a legitimate ground for declining an application. In this case, however, the criminal charge also relates to the activities more than 20 years back and the approach, while judging the application for permission in the context of the present, will have to be same, namely, is the Managing Agent a fit and proper person for such appointment at the crucial time ? The allegations about V. H. Dalmia being a party to the criminal conspiracy may have its shadow on the confidence of the public in the Managed Company and that may again be a relevant factor. Having regard to the limited area of objectivity for testing the validity of the impugned order, my approach would be: Could a reasonable man in the light of these facts come to the conclusion that the permission sought for should nto be granted? Temporary extensions granted to a Managing Agent to make alternative arrangements cannto be of any avail to the appellant and I would, therefore, nto subscribe to the view of my learned brtoher that:- “BUT,even if the granting of the extensions does nto by itself necessarily mean that the Government considered the managing agent-company as a fit and proper person for re-appointment, the fact still remains that the respondents, in fact, re-appointed the managing agent- company by extending the term of managing agency, though for short periods, under section 326 of the Companies Act.”
(26) In the result, while I agree with my learned brtoher that this appeal should be allowed, I base my conclusion on the fact that there is ntohing to show as to whether or nto the Central Government applied its mind to the requirements of section 326 of the Companies Act in judging whether or nto the proposed Managing Agent was a fit and proper person to be appointed at the relevant date. I, therefore, allow the appeal and quash the decision and/or order of the respondents contained in their letters dated 23-1-1967 and 6-6-1967, leaving the parties to bear their own costs.
(27) Order of the Court For the foregoing reasons, we allow the appeal, set aside the order of Andley, J., dated 13-5-1968, allow the writ petition, quash the decision and/or order of the respondents/contained in their letters, dated 23-1-1967 and 6-6-1967, refusing to extend the term of managing agency of M/s. Goven Brtohers (Rampur) Private Limited till 14-8-1970, and direct the respondents to re-consider the request or application of the appellant-company for the aforesaid extension in the light of the observations in the above judgments and in accordance with law. The parties will bear their own costs in the Letters Patent Appeal and in the Writ Petition.