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Gujarat High Court · body

2017 DIGILAW 1087 (GUJ)

Sachin Infra Management Ltd. v. Regional Director

2017-06-15

N.V.ANJARIA

body2017
JUDGMENT : 1. By filing the present petition, the petitioner company has challenged and prayed to set aside the order dated 26th July, 2007 passed by respondent No.1-Regional Director, Western Region, Ministry of Company Affairs, whereby petitioner's licence came to be revoked under Section 25(1) of the Companies Act, 1956. 2. In the impugned order, it was observed by respondent No.1 that its office had received various complaints stating that the petitioner company had not been carrying out its business as provided in the Memorandum of Association approved under Section 25 of the Companies Act, because of which sub-clause (b) of sub-section (8) of Section 25 was attracted requiring to cancel the licence. 3. It appears that respondent No.1 had granted the licence to the petitioner company by his order dated 05th April, 2006. It was provided and directed in the said order that the applicant Association be registered as a company with limited liability without addition of word limited/private limited, subject to the conditions stated in the order. Thereafter the petitioner was given certificate of incorporation on 14th June, 2006. 3.1 It is the say of the petitioner that after grant of licence on 05th April, 2006, it did not undertake any activity. The petitioner came to be awarded works relating to supply of water to the members of the society in the GIDC Industrial Estate in May, 2007. It is the case of the petitioner that notice dated 28th June, 2007 referred to about some complaints against the company, but copies of any such alleged complaints were not provided. On 06th July, 2007, the petitioner sent a reply to the notice pointing out inter alia that it had not started any activity and not entered the business till date, still however, followed the impugned order revoking licence under Section 25 of the Act alleging that petitioner had violated the provisions of the said Section. 4. Learned advocate Mr. Navin Pahwa submitted that the impugned order was passed without giving any opportunity, therefore it was in breach of natural justice. It was pointedly contended that the provision of Section 25 of the Act itself contemplate compliance of natural justice. Attempting to demolish the aforesaid contention, learned advocate for the respondents Mr. 4. Learned advocate Mr. Navin Pahwa submitted that the impugned order was passed without giving any opportunity, therefore it was in breach of natural justice. It was pointedly contended that the provision of Section 25 of the Act itself contemplate compliance of natural justice. Attempting to demolish the aforesaid contention, learned advocate for the respondents Mr. Niral Mehta argued that the powers were exercised for violation of Section 25(7) of the Act, but powers were exercised under clause (b) of sub-section (8) of Section 25, and therefore, was quite justified, as the said provision did not require notice to be given. He submitted that provision of clause (a) of sub-section (8) was found to have been contravened. He sought to highlight that it was only the Proviso to Section 25(7) which provided for giving of notice, and that sub-section (8) is independent not attached with requirement of notice. 5. In order to appreciate the only argument advanced on the count of breach of natural justice, adverting to the relevant provisions would be appropriate. Section 25 of the Companies Act, 1956 is in respect of power of the Central Government to dispense with 'Limited' in the name of charitable or other company. It only provides that where it is proved to the satisfaction of the Central Government that an association satisfies the conditions in sub- sections (1) to (3), the Central Government, may by licence, authorised the company by resolution to change its name including or consisting of omission of word 'Limited' or words 'Private Limited'. Sub-section (4) provides that a firm may be a member of any association or company licenced under this Section, but on the dissolution of the firm its membership of association or company shall cease. Sub-section (5) says that a licence may be granted by the Central Government on such condition and subject to such Regulations as it thinks fit. It further provides that those conditions and regulations will be binding to the licencee body. It is provided to be not necessary to use 'Limited' or 'Private Limited' by the licencee body as per sub-section (6). 5.1 Sub-sections (7) and (8) of Section 25 of the Act which are more relevant for the controversy, are reproduced herein-below. It further provides that those conditions and regulations will be binding to the licencee body. It is provided to be not necessary to use 'Limited' or 'Private Limited' by the licencee body as per sub-section (6). 5.1 Sub-sections (7) and (8) of Section 25 of the Act which are more relevant for the controversy, are reproduced herein-below. “(7) The licence may at any time be revoked by the Central Government, and upon revocation, the Registrar shall enter the word “Limited” or the words “Private Limited” at the end of the name upon the register of the body to which it was granted; and the body shall cease to enjoy the exemption granted by this Section: Provided that, before a licence is so revoked, the Central Government shall give notice in writing of its intention to the body, and shall afford it an opportunity of being heard in opposition to the revocation. 8(a) A body in respect of which a licence under this section is in force shall not alter the provisions of its memorandum with respect to its objects except with the previous approval of the Central Government signified in writing. (b) The Central Government may revoke the licence of such a body if it contravenes the provisions of clause (a); (c) In according the approval referred to in clause (a), the Central Government may vary the licence by making it subject to such conditions and regulations as that Government thinks fit, in lieu of, or in addition to, the conditions and regulations, if any, to which the licence was formerly subject. (d) Where the alteration proposed in the provisions of the memorandum of a body under this sub-section is with respect to the objects of the body so far as may be required to enable it to do any of the things specified in clauses (a) to (g) of sub-section (1) of section 17, the provisions of this sub-section shall be in addition to, and not in derogation of, the provisions of that section.” 5.2 Sub-section (7) provides for power of the Central Government to revoke licence at any time, is appended with a Proviso which, in express terms, provide that before a licence could be revoked, the Central Government shall give notice of its intention to revoke the licence in writing to the body and thereafter shall afford an opportunity of being heard to oppose the revocation. The right of hearing and principles of natural justice are explicitly incorporated in the provisions by means of the Proviso. According to sub-section 8(a), a body in respect of which licence is granted, is mandatory not to alter the provision of its Memorandum with regard to objects except without previous approval. As per clause (b), Central Government may revoke licence of such body if it contravenes provision of clause (a). 5.3 It would be immediately seen from the provisions mentioned above that sub-sections (7) and (8) both speak about revocation of licence. The impugned action of revocation of licence against the petitioner is in exercise of the aforesaid clause (b) of Section 25(8). The contention that in respect of exercise of powers under Section 25(8)(b), notice is not contemplated, plainly overlooks the position emerging from the two sub-sections where they both deal with revocation of licence. These provisions have conjoint and interactive reading. Though sub-section .(7) and sub-section (8) are engrafted as separate and different sub-sections, projection of the both is for same purpose-which is for revocation of licence. Revocation of licence is contemplated under sub-section (8)(b) if the licencee body contravenes provision of sub-section (8)(a) namely that it alters the provisions of its Memorandum with respect to its objects without prior permission of the Central Government. This being so, when sub-section (8)(b) also empowers the Central Government to revoke the licence, the requirement of notice and opportunity of being heard as per the Proviso to sub-section (7) has to also apply for an action under Section 25(8)(b) of the Act. 5.4 It is trite principle that when any action or decision entails civil consequences against a person, the need in law for compliance of natural justice and offering right to be heard arises. The connotation 'civil consequence' is not confined to adverse pecuniary effect or monetary loss. A loss or detriment to proprietary right or any right even having socio-economic content is also comprehended within the concept of 'civil consequences'. Right which is realm of commercial activity by a person is also to be encapsulated within the meaning of civil consequences. Seen in this context, the licence granted under Section 25 for exempting the word/s 'limited' or 'public limited' in the name of the company under Section 25 of the Companies Act, 1956 is to be viewed falling within the comprehension of civil consequences. Seen in this context, the licence granted under Section 25 for exempting the word/s 'limited' or 'public limited' in the name of the company under Section 25 of the Companies Act, 1956 is to be viewed falling within the comprehension of civil consequences. For getting such exemption, body or company has to satisfy certain requirements and has to abide by certain conditions, and the exemption provides to such body or company certain benefits whether tangible or non-tangible. When licence of such nature is revoked, it can be said to be entailing civil consequence requiring observance of principles of natural justice and availing opportunity of hearing fully to the affected body or persons. 6. The doctrine of reading the principles of natural justice in a provision where such observance is not expressly provided for, or where the provision is silent in that regard, has been developed with reference to entailment of civil consequence only. Where a person or body suffers due to an action or decision, giving him or it an opportunity of being heard, would lend reasonability to the action. In S.K. Bhargava v Collector, Chandigarh [ (1998) 5 SCC 170 ], the Supreme Court extended the concept of reading natural justice to the provision of Section 3 of the Haryana Public Moneys (Recovery of Dues) Act, 1979. The Supreme Court in S.K. Bhargava (supra) observed that even though Section 3 does not expressly provide for an opportunity of being heard, principles of natural justice must be read into it. The instances where the Supreme Court read into the provision, the natural justice, are several. The basic postulate being entailment of adverse or civil consequence by the action. In Sahara India (Firm), Lucknow v Commissioner of Income Tax, Central-I [ (2008) 14 SCC 151 ] the Supreme Court with reference to Section 142(2-A) of the Income-tax Act highlighted the well settled principles that an order entailing civil consequences would require observance of pre- decisional hearing even though the said provision did not provide for observance of natural justice and the Apex Court read into the provision. 6.2 Similarly, in S.L. Kapoor v Jagmohan [ (1980) 4 SCC 379 ] the Supreme Court dealt with the aspect of natural justice and reading the rule of giving hearing in the context of Section 238(1) of Punjab Municipal Act and held that the fact that with regard to question of disqualification of an individual member, Section 16 of the Act expressly provided for an opportunity to the member concerned whereas Section 28(1) did not provide for such an opportunity, would not lead to a necessary and automatic inference that the action under Section 238 did not require observance of rule of natural justice. 6.2.1 In S.L. Kapoor (supra) the Apex Court made following observations; “The requirements of natural justice are met only if opportunity to represent is given in view of proposed action. The demands of natural justice are not met even if the very person proceeded against has furnished the information on which the action is based, if it is furnished in a casual way or for some other purpose. This does not suggest that the opportunity need be a 'double opportunity' that is, one opportunity on the factual allegations and another on the proposed penalty. Both may be rolled into one. But the person proceeded against must know that he is being required to meet the allegations which might lead to a certain action being taken against him. If that is made known the requirements are met.”(para 16) 6.3 Viewed from any standpoint in the context of requirement of complying with the natural justice and principles of audi alter am partem, the impugned order is unsustainable in law. Thus in applying and action upon the provision of Section 25(8)(b) of the Companies Act, 1956, principles of natural justice shall have to be read into the exercise of said powers. 6.4 For the foregoing reasons and discussion, the impugned action of revocation of licence deserves to be set aside on the aforesaid ground alone without going into any other aspect. As a result, order dated 26th July, 2007 passed by respondent No.1-Regional Director, is hereby set aside. Except on the aspect of natural justice, this Court has not gone into any other aspect of the case. 7. Petition is allowed. Rule is made absolute.