WA/503/1999 of K.S.SUNDARAM Vs UNION OF INDIA REP BY ITS on 5 December 2003

:ORDER

The appellant/petitioner challenges the judgment of the learned single Judge, dismissing the writ petition, challenging the orderdated 21-6-1990 passed by the Union of India, first respondent herein, (inshort the "Government") whereby the Government refused to grant approval tothe appointment of the appellant as the Chairman and Managing Director of thesecond respondent company (in short "the company").

2. On 2-6-1988, a resolution came to be passed in the Annual General Meeting of the company, appointing the appellant as the Chairman andManaging Director with effect from 14-7-1988 upto 13-7-1992, i.e. for aperiod of four years. He was to get the remuneration of Rs.750 0/- per monthin addition to 1% commission on the net profits of the company and otherperquisites. As per the amended provisions of Sec.269 of the Companies Act,which amendment came into force from 1-6-19 88, an application dated 19-7-1988came to be made for approval under that section.

2.1. The Government called for some particulars from the company,

which were duly furnished. Thereafter, by communication dated 19-3-19 90, thecompany as also the appellant were called upon to show cause within thirtydays as to why the proposal of the company for reappointment of the appellantas the Chairman and Managing Director should not be rejected.2.2. In this detailed show cause notice, it was, inter alia,contended that one M/s. Tambraparani Enterprises, wherein the appellant, hiswife and son were the partners, was appointed as the Commission Agent under anagreement dated 10-7-1986 and had received huge commissions in the years 1986,1987 and 1988. It was urged that while making an application forreappointment, the appellant had failed to disclose his own interest in theaforesaid partnership firm against item No.7 in Form 25-A and this amounted toa misstatement, punishable under Sec.628 of the Companies Act. BY way ofsecond reason, it was stated that the Managing Director had misused hisfiduciary capacity in respect of the contracts with M/s.TambraparaniEnterprises which in turn had entered into a contract with M/s. TambraparaniDistempers for the manufacturing of distempers since the company parted withits machinery, technical knowhow and the research. It was alleged that thesale of assets of the company to M/s.Tambraparani Enterprises, which was onlya trading concern, was not above board. It was also suggested that advanceswere given of huge amounts to a concern called M/s. Madras Fabricatorswherein the wife of the appellant was holding 55% shares and, therefore, theappellant had misused his fiduciary capacity. Fourthly, it was stated thatthe expenses of the trip of the son of the appellant to Singapore wereunjustifiably borne by the company. It was also stated that the ColourTelevision and Video Cassette Recorded, imported in 1982, belonging to thecompany were installed at the residence of the appellant and it was lastlysuggested that he had incurred expenditure on account of gas and electricityconsumption amounting to approximately Rs.13,000/-, which was in excess of thelimits prescribed in the approval letter dated 29-4-1985 of the Government.2.3. On these counts, it was suggested that the Government wassatisfied that the appellant was not a fit and proper person to be appointedas the Chairman and Managing Director of the company.

3. A detailed reply is claimed to have been given by the appellant to this show cause notice on 16-4-1990. In this reply, theappellant claimed that there was no need for the approval of the Government and the application for approval was being withdrawn. Yet it seems theappellant had supplemented his reply by another communication dated 23-4-1990and also appeared in person before the Joint Secretary for a personal hearing.It seems that these communications of the appellant were sent by theGovernment to the company for its comments because obviously these twocommunications were sent not by the company but by the appellant himself. On24-5-1990, the company wrote to the Government and requested further threemonths' time to offer its' comments.

4. The Government passed the order on 21-6-1990, rejecting

the application. In that, the Government firstly came to the conclusion thatthe appellant was not a fit and proper person to be appointed as the Chairmanand Managing Director. It also came to the conclusion that the contention ofthe appellant that the approval was not at all necessary was also not correct.In that, it was pointed out that the company had suffered a loss in theprevious years and had also suffered the loss in two years of the threeprevious years thereto; that as per the company's letter dated 24-5-1990, thecompany had adequate profits either in the year 1987 or in any of the threeyears out of the four financial years immediately preceding the financialyears and as such condition (f) of Schedule XIII i.e. adequate profits testwas not satisfied.

5. This was challenged before the learned single Judge, who initially allowed the petition on the ground that the order was a nonspeakingorder. However, the petition was again posted at the instance of the thirdrespondent Association and ultimately the petition was dismissed by theimpugned judgment. It will be pertinent to note that by the order dated23-4-1991 on WMP No.26872 of 1990, the third respondent Association wasallowed to be impleaded as a party to the writ petition.

6. While assailing the impugned order passed by the learned single Judge, confirming the order dated 21-6-1990 passed by the Government,the learned senior counsel, Shri Harikrishnan, for the appellant firstlysubmitted that the approval of the Government was not at all necessary and,therefore, the order passed by the Government, refusing the approval waswholly without jurisdiction and a non est order.

6.1. The second limb of the argument was that even if the approval was found necessary, the Government had passed a bald order, withoutconsidering the contentions raised by the appellant in his detailed replywherein, he had answered every charge with the help of the documents. Learnedcounsel very heavily came down upon the said order as being arbitrary andbereft of any reasons. According to the learned counsel, this was a judicialor, as the case may be, quasi-judicial function on the part of the Governmentand as such it was obliged in law to consider the issue of approvalobjectively and give the reasons in support of its finding that the appellantwas not a fit and proper person.

6.2. Learned counsel also suggested that this finding brought stigma to the appellant apart from the fact that he might be required to sufferfinancially as he might be required to return all the monetary benefits which he had received during the period of his appointment as the Chairman andManaging Director of the company.

7. As against this, Mr. T. Arunan, learned Additional

Central Government Standing Counsel, appearing for the first respondent,argued that on a proper interpretation of Schedule XIII of the Companies Act,the approval of the Government is a must. He pointed out that under theamended provisions of Sec.269 of the Companies Act, any company in order to beexempted from the ritual of getting approval from the Government had tostrictly comply with the conditions of that section and, in this case, theSchedule XIII test was not passed by the company since it had not made profitseither in the previous years of the appointment or in any of the three yearsof the four years prior to that year.

7.1. As regards the second limb of the argument of Shri Harikrishnan, the learned standing counsel suggested that this was not a judicial orquasi-judicial function but was an administrative function on the part of theGovernment as it is the duty of the Government to act as the watchdog of theinterests of the shareholders of the Government. He further pointed out thatbefore taking the decision of refusing the approval, the Government had made athorough investigation and had gone to the extent of even affording thepersonal hearing to the appellant.

8. Shri Dulip Singh, learned counsel appearing on behalf of the company, supplemented the arguments of Shri Arunan by pointing out thatthe interpretation sought to be put on Sec.269 of the Companies Act andSchedule XIII thereto by the appellant was not correct and that in reality theapproval was a must. He also pointed out that the misuse of the financialpowers and the shaddy financial transactions were apparent on the face of therecord and was almost an admitted position. He also reiterated that thefunction under Sec.269 for granting of the approval was not a judicial orquasi-judicial function and that the procedure adopted by the Government forgiving the findings that it did was extremely fair.

9. Shri Prasad, learned counsel appearing on behalf of the third respondent association, also reiterated that the appellant had tried todrain the finances of the company and siphon them into the concerns in whichhe was personally interested and thereby the whole company was made afinancial wreck. He pointed out that the decisions taken by the appellant asManaging Director of the company were against the interests of the company andthereby the employees of the company had also to suffer.

10. In the beginning of the debate, learned senior counsel for the appellant made a grievance of the fact that though the learned singleJudge had dictated the judgment in the open court and thereby allowed thepetition holding the impugned order dated 21-6-1990 to be an order withoutreasons, the learned Judge then decided to re-hear the petition that too, atthe instance of the third respondent association which had no say in thematter. The learned Judge therefore erred in re-hearing the matter anddeciding the same.

11. We do not agree with this contention for the simple

reason that it was an admitted position that the third respondent wasimpleaded as a party and it is also an admitted position that during the firsthearing the third respondent was not heard at all as perhaps, there was nonotice to the third respondent of the hearing. The impleadment order was notchallenged further and that order became final between the parties.Therefore, the third respondent was bound to be given a reasonable opportunityof being heard. This is apart from the fact that before the learned Judge nogrievance seems to have been made regarding the course adopted by the learnedsingle Judge of rehearing the matter. We do not see any such grievance atleast from the order. We will, therefore, not accept the argument by thelearned senior counsel for the appellant that the learned single Judge erredin re-hearing the matter and deciding it afresh.

12. On the rival contentions raised by the parties, the questions to be decided would be:

1. Whether under the amended provisions of Sec.269 of the Companies Act, theapproval of the Central Government for the appointment of the appellant as theChairman and Managing Director of the company was necessary?2.If the answer the first question is in affirmative, whether the approval wasrightly rejected in that whether any prejudice has been suffered by theappellant on account of the absence of the reasons in the order?

13. We must first put on record that it was not seriously disputed that it is only the amended provisions of Sec.269 of the CompaniesAct which are applicable to the present controversy because the amendmentshave been made applicable with effect from 1-6-1988 and the resolutionappointing the appellant was passed on 2-6-1988. We will, therefore, proceedon the basis that it is the amended provisions of the Act which areapplicable. Learned senior counsel urged that the requirement of approval andthe procedure therefor was felt cumbersome and, therefore, Sec.269 of theCompanies Act was extensively amended. Subsection (1) of Sec.269 providesthat on the commencement of the Amendment Act 1988, every public company, or aprivate company which is a subsidiary of a public company, having a paid-upshare capital of a particular level would have a managing or whole-timedirector or a manager. Sub-section (2) of Sec.269 reads as under:On and from the commencement of the Companies (Amendment) Act, 1988, noappointment of a person as a managing or whole-time director or a manager in apublic company or a private company which is a subsidiary of a public companyshall be made except with the approval of the Central Government unless suchappointment is made in accordance with the conditions specified in Parts I andII of Schedule XIII (the said Parts being subject to the provisions of PartIII of that Schedule) and a return in the prescribed form is filed withinninety days from the date of such appointment.Sub-section (3) provides that such application seeking the approval shall bemade within ninety days of such appointment while subsection (4) provides thatthe Central Government shall not accord such approval if:

(a) the managing or whole-time director or the manager appointed is, in itsopinion, not a fit and proper person to be appointed as such or such appointment is not in the public interest; or (b) the terms and conditions of the appointment of managing or whole-timedirector or the manager are not fair and reasonable.

Sub-section (6) provides that if the appointment is not approved, the personso appointed shall vacate the office on the date on which he is communicatedthe decision by the Central Government. Sub-section (7) gives a suo motupower to the Central Government if it receives the information and on thatbasis is of the prima facie opinion that any appointment made undersub-section (2) without the approval of the Central Government has been madein contravention of the requirements of Schedule XIII, it shall be competentfor the Central Government to refer the matter to the Company Law Board forthe decision. Subsections (8), (9) and (10) speak about the powers of theCompany Law Board while deciding such reference.

14. From the reading of the aforesaid section, it is,therefore, necessary that if the case of the appellant that the approval wasnot necessary has to be accepted then, it would be for the appellant to showthat the appointment is made in accordance with the conditions specified inpart I and Part II of Schedule XIII which parts are also subject to theprovisions of Part IV of that schedule. It will, therefore, be necessary forus to consider the said Schedule.

15. Part I of Schedule XIII contains six clauses, viz. (a)to (f). We are concerned only with clause (f). For the sake of convenience,we will quote the provisions:

"SCHEDULE XIII

(See Sections 198, 269, 310 and 311)CONDITIONS TO BE FULFILLED FOR THE APPOINTMENT OF A MANAGING OR WHOLE-TIMEDIRECTOR OR A MANAGER WITHOUT THE APPROVAL OF THE CENTRAL GOVERNMENT

PART I

APPOINTMENTS

1. No person shall be eligible for appointment as a managing or whole-timedirector or manager of a company unless he satisfies the following conditions,namely:- (a) ... not relevant...

(b) ... not relevant... (c) ... not relevant...

(d) ... not relevant...

(e) ... not relevant...

(f) if the company had not suffered loss or had inadequate profits during thefinancial year immediately preceding the financial year in which theappointment is made (hereinafter referred to as the preceding financial year)or in any of the three financial years in the four financial years immediatelypreceding the preceding financial year."

It is this clause which is very heavily relied upon by the learned counsel tosuggest that the approval was not necessary. Learned counsel invited ourattention to a document on record, which is a letter dated 24-5-1990, sent bythe company to the Central Government in response to the Central Governmentletter dated 14th/15th May 1990. Learned counsel points out that in thatletter, the Government had provided the details of the loss or adequate profits furnished by the company under Sec.198. The portion relied upon bythe learned senior counsel is being re-produced here:

-------------------------------------------------------- Year ended Book Profit 198 Profit* Remuneration

-------------------------------------------------------- Rs. Rs. Rs.31-12-1987 452733 235456 93922 Minimum31-12-1986 2065032 2218714 110936 Minimum31-12-1985 2095601 343366 L 89404 Minimum31-12-1984 2737992 L 2738897 L 89897 Minimum31-12-1983 792906 430347(*This is even after adjusting the sitting fees)

--------------------------------------------------------

16. From this, learned counsel points out that since the

appointment was in the year 1988, the previous year of that appointment wouldbe 1987 during which the company had earned adequate profits. Learned counselfurther points out that the four preceding years would be 1 983, 1984, 1985and 1986. He points out that the company had not made adequate profits eitherin the year 1987 or in any of the three years out of the four financial yearsimmediately preceding the financial year i.e. 1983 ti 1986. He points outfurther that there is a clear-cut assertion in this letter that the companyhad made adequate profits in the year 1986. According to the learned counseleven if the company had made the adequate profits in any one of the fourpreceding years contemplated in clause (f) the company would not require theapproval of the Central Government.

17. On a plain reading of the language, we do not see as to how such an argument can be accepted. In order that there has to be anexemption, it must be proved that the company had not suffered loss or hadadequate profits during the previous year to the year in which the appointmentis made. In the present case, the appointment having been made in the year1988, the company should not have suffered loss or should not have earnedinadequate profits during the year 1987 and it is clearly suggested that inthe year 1987, the profits earned by the company were not adequate as per therules. So also, it must be established that it had not suffered loss orgenerated inadequate profits during any of the three financial years in thefour financial years immediately preceding the said year of 1987. The tableclearly suggests that it had suffered loss in two years i.e. 1984 and 1985and had generated inadequate profits in the year 1983. It is only in the year1986 that the company had made the adequate profits. However, the learnedcounsel urges that even if the company had earned adequate profits in any ofthe four preceding years of the year of appointment, Schedule XIII will notapply and necessarily, the appointment will not come within the mischief ofSec.269. For this purpose, learned counsel invites our attention to theCompany Law Board Circular No.3 of 1989 dated 13-4-1989. Our attention ismore particularly drawn to clause (1) which deals with the appointment andremuneration of the managerial personnel vide subsection (1) of Sec.269.Learned counsel then relied upon the following text:"(b) In so far as clause (f) is concerned, the company has to ensureat the time of appointment of its managerial personnel that it had notsuffered loss or had adequate profits during the financial year immediately preceding the financial year in which the appointment is made or in any of thethree financial years in the four financial years immediately preceding thefinancial year in which the appointment is made.In other words, the company must have earned adequate net profits

computed in the manner laid down in sections 349, 350 and 351 either duringfinancial year immediately preceding the year of appointment or during any ofthe three financial years out of four financial years immediately precedingthe preceding financial year.IllustrationWhere the appointment is made during the financial year 1990, approvalof the Central Government is not necessary if the profits were adequate-(1) during the financial year 1989, being the financial yearimmediately preceding the financial year in which appointment is made; or(2) in any of the three financial years out of four financial years,namely 1985, 1986, 1987 and 1988 (being the four financial years immediatelypreceding the "preceding financial year ).... ... ...

From this the learned counsel says that, relying on the second illustration,since the profit was adequate in the year 1986, there would be no applicationof Schedule XIII.

18. We fail to follow the argument because even as per clause (b) of Part I and the Illustration (2), on which heavy reliance is placed, therequirement of earning the adequate profits in any of the three financialyears is a must for taking the company out of the mischief of Sec.269(2).Perhaps, what is being done is the word "one" is being read into the secondillustration after the opening words "in any". That is simply not possible.The company not having made the adequate profits in three years out of thefour years immediately preceding the preceding year of appointment could nothave claimed the exemption of approval contemplated in Sec.269. The argument,therefore, is clearly incorrect. The subsequent argument of the learnedcounsel that the original application was withdrawn and, therefore, theCentral Government should not have acted upon the application made and thenotice issued by the Central Government, has to be rejected. In our opinion,the learned single Judge has correctly interpreted the provisions though thelearned single Judge was not armed with the subsequent circular to which wehave adverted earlier. If we accept the argument that the adequate profitsmade in any of the four preceding years of the preceding year in which theappointment is made is sufficient to take out the company out of the mischiefof Sec.269(2), we would be doing violence to the language of clause 1(f) ofSchedule XIII. The argument is, therefore, rejected and it is held that theCentral Government was right in holding that the approval of the CentralGovernment essential for the appointment of the appellant. We answer thefirst question accordingly.

19. Learned counsel then urged that even if that be so, the order was clearly bad as it is bereft of reasons. For this learned counselurged that the act of approval as required under Sec.269 is a judicial or atany rate quasi-judicial act. In support of his proposition, learned counselrelied on the Division Bench judgment of the Gujarat High Court in CIBATUL

LTD. AND OTHERS v. UNION OF INDIA (50 Company Cases 437). Learned counselsuggested that the power under Sec.269 has been held in the nature ofquasi-judicial power and, therefore, it must be shown before such an order ispassed that the relevant facts have been taken into consideration, a fair andproper opportunity is given, there has been an active consideration of all thefacts before the authority, which have also been brought by the concernedparties; lastly, such consideration must be writ large by way of reasons inthe order. Learned counsel was at pains to point out that in theaforementioned judgment, the Division Bench has relied on the reporteddecision of the Supreme Court in RAMPUR DISTILLERY AND CHEMICAL CO. LTD. v.COMPANY LAW BOARD (AIR 1970 SC 1789) where Sec.326 of the Companies Act fellfor consideration. It is pointed out that the language of Sec.326 of the Act,as it then stood, is almost pari materia with the provisions of Sec.269inasmuch as subsection (2) of the Sec.326 read as under:

"(2) The Central Government shall not accord its approval under subsection (1)in any case, unless it is satisfied- (a) that it is against the public interest to allow the company to have a managing agent;(b) that the managing agent proposed is, in its opinion, a fit andproper person to be appointed or reappointed as such, and that the conditionsof the managing agency agreement proposed are fair and reasonable; and

..."

It is pointed out by the learned counsel very painstakingly that the SupremeCourt had observed therein in the following words:

"Investment of power in the Central Government under Sec.326 carries with it aduty to act judicially, i.e. to hold an enquiry in a manner consistent withthe rules of natural justice to consider all relevant matters, to ignoreirrelevant matters, and to reach a conclusion without bias, withoutpredilection and without prejudice. The satisfaction contemplated by s.326must, therefore, be the result of an objective appraisal of the relevantmaterials. The recital about satisfaction may be displaced by showing thatthe conditions did not exist, or that no reasonable body of persons properlyversed in law could have reached the decision that they did."

20. In the aforementioned Division Bench judgment, the learned Judges ultimately went on to hold that this power is a quasi-judicialpower and not administrative power. It, therefore, went on to observe furtheron facts:

"The question whether a particular officer acted in a quasi-judicial manner ornot could be seen from the manner in which the order is passed. ... In fact,advocate for the petitioner No.2 approached the officer to pass a speakingorder and he refused to do so. It is well settled that when any person, in aquasi-judicial matter, passes an order without stating the reasoning by whichhe had come to that particular finding, the order itself is arbitrary on theface of it. The person against whom the order is passed is entitled to knowas of right as to under what circumstances and for what reasons his prayer wasbeing rejected. As soon as one tells him that his prayer is rejected and thathe is not bound to give reasons, the order passed is an order which isarbitrary and is required to be set aside. That order can never be sustainedin a State where the citizens are governed by law. Even a citizen who

approaches any authority who has a power to act judicially and he acts in aquasi-judicial manner where he is bound to take objective facts intoconsideration, the person against whom the order is passed is entitled to knowthat only the relevant factors were considered objectively, that irrelevantfactors were never entered the field, that the mind was applied and that witha proper reasoning the order was passed. It is quite likely that anotherperson may take a different view, but that is entirely a different matter. Ifthe court has no power of appeal over a quasi-judicial officer, the court maynot exercise that power but the court has certainly a power to examine as towhether the person had a power, whether the person exercised that powerjudicially, whether the power that was exercised was not exercised arbitrarilyand it was in a judicial manner in the sense it was made known that allrelevant factors were considered and irrelevant factors were never considered.This would be the essence as to how a quasi-judicial officer is expected tobehave and act. The order passed on the face of it should show that the orderwas passed after taking into consideration all the relevant objective facts.This is only possible if the order is a speaking order. If on the face of itthe order does not show any reason, the arbitrariness is writ large on it."The Court further observed in the same paragraph:"In this case it is more than clear that the officer who revised the proposalin regard to the reappointment of petitioner No.2 not only did not state anyreasons but he refused to pass a speaking order when he was requested to doit. We are, therefore, satisfied that the order passed is required to bestruck down."

21. When we look at the facts involved in the case, it is apparent that a request was made for re-appointment of a person as ManagingDirector for a period of five years on the settled terms. However, theGovernment of India sanctioned and gave approval for a period of two years andthe terms and conditions, which was set out by the company, were also revisedto a great extent, as regards the duration of appointment, the salarystructure, as was proposed, and also substantial reduction was made in thepayment of commission. Even the other terms of appointment were revisedperhaps owing to the guidelines which were then in existence. The Courtultimately held that those guidelines were illegal and we are not concernedwith that aspect of the matter. The Court, however, noted that the manner inwhich the impugned order was passed granting the approval, that too on thebasis of the revised terms and conditions of service, was ultimately incorrectinasmuch as the Central Government had not acted in a judicious manner. Itwas specifically noted that the advocate, who was representing the concernedappointee, had requested specifically the concerned officer to pass a speakingorder. However, that was not done and a bald order came to be passed,revising the terms and conditions. Therefore, the learned counsel suggestedthat the order passed by the Central Government, refusing the approval has tobe struck down. According to the learned counsel the order gives no reasonand as such amounts to an arbitrary order.

22. We will therefore test the impugned order on these lines. It is an admitted position that after the application was madeby the company for re-appointment of the appellant as the Chairman andManaging Director of the company, the Central Government thoroughlyinvestigated the affairs of the company. It is clear that a thorough

investigation was made into the affairs of the company and it is onlythereafter that the show cause notice came to be issued. The very language ofthe show cause notice suggests that a proper investigation was made into theaffairs of the company by the Central Government and its officers because,otherwise, it would not have been possible to frame those six reasons in thenature of findings which are to be found in the communication dated 19-3-1990.In its counter before the learned single Judge, the Central Government pointsout in paragraph 3 that the representation of the appellant was not onlyconsidered but his advocate representative was also allowed to make arepresentation in writing on the question of the necessity of the approval.It is reiterated that the facts stated in the show cause notice had not beencontroverted at all and as such, it was established that the appellant hadmisused his fiduciary position as the Managing Director of the company and,therefore, did not appear to be a fit and proper person to be re-appointed.In paragraph 8, it is specifically averred as under:

"It is wrong to suggest that the petitioner has given details to show thatgrounds relied by the respondent were factually incorrect. On the other hand,nothing on fact was denied, only a bald and general statement was made thatcharges made are not sustainable in law as in equity but that is the work ofcertain disgruntled employees who had engineered certain motivated andmalicious allegations."

It is pointed out in paragraph 9 that the representation of the appellant tothe show cause notice was heard by the Central Government by giving a hearingto the appellant-petitioner and his advocate. Again in paragraph 9, it isasserted that the facts stated in the show cause notice were not controverted.

23. We have already explained earlier that after the proposal was sent to the Central Government a thorough and completeinvestigation went on at the instance of the Central Government and querieswere put to the company regarding the financial transactions and the recordswere also examined. We find all this in the counters of the CentralGovernment as also the second respondent company, which claim has remainedunchallenged. It is clear that only on that basis, the Central Governmentwent to the extent of formulating its reasons as to why it was prima faciesatisfied about the fact that the appellant was not a fit and proper person tobe appointed as the Managing Director on the terms and conditions suggested inthe resolution. Even the language of the said show cause notice would suggestthat the Central Government was satisfied that the proposed Chairman andManaging Director is not a fit and proper person to be appointed. Six reasonsin the minute details were given and lastly, the company as also the appellantwere called upon to show cause. It is also very important to note that it isprecisely against those reasons that the appellant gave his reply by hiscommunication dated 16-4-1990 and also the subsequent communication. It isalso pertinent to note that from that reply it was deduced by the CentralGovernment and in our opinion correctly that all those facts and figures werepractically admitted by the appellant. Therefore, the Central Government hadformulated the reasons on the basis of its investigation and the earliercorrespondence and thereafter the notice dated 9-3-1990 came to be issued,giving a complete idea of the reasons probably with the sole idea to give anopportunity to the appellant to dispute the correctness or otherwise of thefacts stated therein. Not only this but, even the appellant was heard in

person and was allowed to be represented by an advocate. It is on thisbackdrop that we will have to examine the order passed to see whether it meetsthe requirement of the Supreme Court decision.

24. The impugned order is in the nature of a communication. In the opening portion, it refers to the correspondence andspecifically mentions the letter dated 24-5-1990, which was sent by theappellant after his letter dated 16-4-1990 by way of supplementing thatletter. The order then specifically mentions the facts as detailed in theshow cause notice of even number dated 9-3-1990 as also theregulations/submissions made by the proposed appointee in the letters dated16-4 -1990 and 24-5-1990. It also makes a reference to the explanationsfurnished and suggests that those explanations have not been found to besatisfactory. Then the letter records that the Central Government is notsatisfied that the appellant is not a fit and proper person to be appointedand as such his appointment will not be in the public interest. The secondpart of the communication deals with the objections raised by the appellantthat no approval of the Central Government is required. It refutes the claimsraised by the appellant.

25. Now it is, therefore, certain that the communication informs the appellant the material that it was taken intoaccount as also the replies given by the appellant of the reasons (factualassertions) by the Central Government. We have already seen that thoseallegations are laced with the minutest possible details. We have alreadypointed out in the earlier part of this judgment those reasons. We alsoexamined the replies given by the appellant and we find that there is nodenial to the facts asserted regarding the transactions entered into by thecompany with M/s. Tambraparani Enterprises, Tambraparani Distermbers andMadras Fabricators. What is tried to be done in the reply is only thejustification for those transactions and it has been asserted that the companywas benefited because of those transactions. If this is so, then, in ouropinion, if the Central Government makes a specific reference in the order tothe reasons given and the replies thereto and comes to the conclusion that itis not satisfied with those allegations, in our opinion, the adequate reasonshave been given and the order cannot be criticised that it is bereft of thereasons. Meticulous care had been taken to inform the appellant the reasonsfor which the approval was being contemplated to be refused. The CentralGovernment also took into account the precise defence raised, which was not inthe nature of the refusal of the facts stated in the notice dated 9-3-1990 butwas justification of those transactions and recorded that explanations are notsatisfactory. In our opinion, nothing more could have been required to bedone in the circumstances of the case. The nature of the allegations was suchthat the company entered into that transactions with the firms in which theappellant's wife and son were partners. Those partnership firms also notbeing a manufacturing firms, were given the contracts and in its turn, enteredinto agreements with another concern, majority shares of which also owned bythe wife of the appellant. It is also suggested that huge amounts were paidby way of commissions to the firms in which the appellant himself was apartner. Huge advances were given to a firm called Madras Fabricators inwhich the wife of the appellant was holding 55% shares and thereby the said firm made huge profits in the years 1987-88 when the second respondent companyitself went in loss. Huge amounts were sanctioned to foot the bills ofSingapore trip of the son of the appellant, properties of the company, viz.Colour Television and Video Cassette Recorder were enjoyed by the appellantnot in the company's premises but at his residence. So also, unauthorisedexpenditure were made on account of gas and electricity consumption chargesduring the period 1984-85 in excess of the limits prescribed by the approvalletter.

26. We have carefully seen the reply which does not

in any manner dispute any of these facts but, merely justifies the same on theground that firstly, it was made known to the shareholders and secondly, thatit was necessary in the interests of the company and that the company wasbenefited thereby. If the Central Government specifically records that it wasnot satisfied with these explanations, we do not think that anything more, byway of reasons, was required to be given. Therefore, this order passes thetests of reasonableness and judiciousness wherein the affected person, i.e.the appellant knows the reasons on which the decision has been taken. He alsohas been given a complete and full opportunity to defend himself inasmuch ashis explanations are also taken into account, which explanations are in thenature of admissions of the factum of the unauthorised expenditure and theshaddy transactions and all this has been done in a bona fide manner as it isnobody's case that the Central Government or any of its officers have acted inmala fide manner. We are, therefore, satisfied that the order is not suchwhich can be quashed on the grounds urged by the appellant. This is apartfrom the fact all this does not seem to have been addressed before the learnedsingle Judge. We have carefully seen the order of the learned single Judgeand we see no fault in it. Nor do we find any fault with the order passed bythe Central Government.

27. The appeal has no merits. It is dismissed with the costsof Rs.5,000/-. Connected CMP is closed.

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Secretary to GovernmentDepartment of Company AffairsMinistry of IndustryNew Delhi