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Judgment
Abhilasha Kumari, J.—This petition, under Article 226 of the Constitution of India, has been filed with the following prayers:
It is therefore prayed that this Hon''ble Court may be pleased to call for and examine the entire record relating to this case and by an appropriate writ, order or direction in the nature of Mandamus:
(i) To restore and relegate the Petitioner''s (Core promoters) nominee Shri Kailash R. Gupta as the M.D. Of NMCE by ousting Shri Anil Kumar Mishra to act as such and to restrain him from functioning as M.D. Of NMCE and the communication dated 04.05.2011 (Annexure 28) be declared to be illegal and the same be set aside.
(ii) The commencement and continuation of the enquiry u/s 8(2) read with Section 8(3) of the FCR Act may be declared to be ab initio void and the same may be declared to be held in an invalid exercise of the power and the entire proceedings held in this enquiry up till now including the show cause notice dated 21.06.2011 received on 22.06.2011 (Annexure 45) may be declared to be illegal, the same may not be allowed to continue further and the concerned Respondents be restrained from taking any action on that basis against the Petitioner or his Chairman cum Managing Director Kailash R. Gupta.
(iii) the direction (Annexure 49) restraining the Petitioners voting rights in respect of 29,32,680 equity shares may also be declared to be illegal and set aside.
(iv) To declare that the whole exercise in relation to the enquiry u/s 8(2) READ WITH Section 8(3) of the FCR Act is actuated with bias and malice of Respondent No. 2.
(v) that the Respondent Union of India may be directed to intervene in the matter.
(vi) in case any decision is taken to the prejudice of the Petitioner herein or its Chairman cum M.D. Shri Kailash R. Gupta during the pendency of this writ petition by any of the Respondents the same may also be declared to be illegal and set aside.
(vii) Pending the admission and final hearing of the instant petition, the Respondents be restrained from acting upon and given effect to the directions contained in the communication dated 04.05.2011 (Annexure 28) to stay the operation of Annexure 49 and the enquiry proceedings be stayed and the Respondents be also restrained from taking any action to the prejudice of the Petitioner herein or its Chairman cum Managing Director Shri Kailash R. Gupta during the pendency of the writ petition.
(vii)(a) Pending the admission and final hearing of the instant petition, the Respondents be restrained from acting upon and given effect to the directions contained in the communications dated 24.6.2011 (Annexure 51 and 52) and to stay the operation, implementation and execution of the same and the Respondents be also restrained from taking any action to the prejudice of the Petitioner herein or its Chairman cum Managing Director Shri Kailash R. Gupta and the director of the Petitioner, i.e. Ms. Poonam Verma, during the pendency of the instant writ petition.
(viii) An ex-parte ad-interim relief in terms of prayer (vii) above may kindly be granted;
(ix) any other and further relief as may be deemed just and proper in the facts and circumstances of the present case may kindly be granted.
(x) the writ petition may be allowed with costs.
The brief facts relevant for the decision of the petition are that the Petitioner herein is a Company registered under the Companies Act, 1956, dealing in export-import and trading in various commodities, and is a holding Company, carrying on trading activities and business of various commodities in accordance with the Forward Contracts (Regulation) Act, 1952, ("FCR Act" for short) and the Rules framed thereunder. In the year 2003, Shri Kailash R. Gupta, Chairman-cum-Managing Director of the Petitioner-Company, was appointed as Managing Director of Respondent No. 3 - National Multi Commodity Exchange of India Limited ("NMCE" for short). His term was extended for another three years, to last upto August 2011. Respondent No. 1 - Forward Markets Commission ("the Commission" for short) received a complaint pertaining to trading irregularities and abuse of its position by the Petitioner in the NMCE on 14.12.2010, wherein it was alleged that various irregularities were being committed by Respondent No. 3 and the intervention of the Commission was sought by way of issuance of directions to Respondent No. 3 to take immediate steps in order to curb the said irregularities. The said complaint pertained to trading irregularities and abuse of its position in the NMCE by the Petitioner-Company, which is an anchor promoter of NMCE. The Auditors appointed by the Commission for the audit of NMCE for the years 2006-07 and 2007-08 also pointed out various irregularities. The replies of NMCE were not found satisfactory. Based upon the findings of the Auditors and the contents of the complaint, the Commission, in exercise of powers conferred under Clause (2) of Section 8 of the FCR Act, read with Government of India Notification S.O. No. 1162 dated 04.05.1960 and Clause (4) of Section 8 of the FCR Act, ordered an enquiry into the affairs of NMCE, including inspection of Books of Accounts and documents. The statements of concerned officers of the NMCE were recorded under the powers conferred on the Commission by the provisions of Section 8(3)(a) and Section 8(3)(d) of the FCR Act on various dates. In the enquiry that was conducted, prima-facie, it was found that there was a gross and blatant misuse of the executive authority of the Managing Director of MMCE, Shri Kailash R. Gupta. Shri Kailash R. Gupta was asked to produce certain documents and information under the provisions of Section 8(3) of the FCR Act. Thereafter, evidence was recorded and on the basis of the statements made by various persons, Charges were framed against Shri Kailash R. Gupta. It is alleged that the acts of omission and commission committed by Shri Gupta have resulted in offences that attract various provisions of the Indian Penal Code, 1960, the Companies Act, 1956, the FCR Act, and Foreign Exchange Management Act, 1999, warranting action under the relevant provisions of the relevant statutes. Accordingly, a detailed show cause notice enumerating all the above facts dated 21.06.2011 has been issued to the Petitioner-Company through Shri Kailash R. Gupta, its Chairman-cum-Managing Director, u/s 4(b) of the FCR Act. It is this show cause that is under challenge in the petition. Apart from the show cause notice, the Petitioner has challenged the decision of the Commission suspending the voting rights of the Petitioner for 29,32,680 shares which it holds in NMCE on the ground that the Petitioner has purchased the shares with the names of NMCE. Further, the Petitioner is also aggrieved, by the directions of the Commission for maintenance of status-quo regarding Shri Anil Kumar Mishra who is, at present, the Managing Director and CEO of NMCE. Another ground of challenge is the direction of the Commission of filing FI Rs against certain persons.
Mr. S. B. Vakil, learned Senior Advocate with Mr. Paritosh Calla, learned advocate for the Petitioner, has submitted that:
(I) The Commission has no jurisdiction, power or authority to issue any directions for filing FI Rs against certain persons. Even assuming that the Commission has such jurisdiction, power or authority, the same cannot be exercised by the Chairman in absence of delegation of powers to him. That the directions are in contravention to the provisions of the Companies Act and Articles of Association of NMCE. It is further submitted that insofar as Respondent No. 3 is concerned, it is a joint venture Company of the Petitioner and the Central Warehousing Corporation. The Petitioner holds 30% shares in NMCE. Referring to the provisions of the FCR Act, it is submitted that as per Section 26 of the Act, the Commission can delegate its powers to the Chairman but if no such delegation is done, the Commission has to exercise its powers.
(II) Regarding the direction to suspend the voting rights, it is submitted by the learned Senior Advocate that the said direction is contrary to the provisions of Section 77 of the Companies Act. u/s 77(4) of the Companies Act, the only penal provision is regarding a fine of Rs. 10,000/- and it is a settled principle of law that if a specific criminal remedy is provided, then there can be no civil remedy or consequence. In this regard, reliance has been placed on Unity Company Private Ltd. Vs. Diamond Sugar Mills and Others,
(III) The learned Senior Advocate has further submitted that the suspension of the voting rights of the Petitioner has been done without application of mind by the Commission. On a prima-facie view, u/s 77 of the Companies Act, the ownership of the shares is not affected. It is further submitted that there is no delegation of powers of the Commission to the Chairman, therefore, the action of the Commission is without jurisdiction.
(IV) It is next contended that if the authority that has issued the show cause notice has no jurisdiction to do so, then the said notice, being without authority of law, can be successfully challenged before a Court of law. In support of this submission, reliance has been placed on Chief of Army Staff and Others Vs. Major Dharam Pal Kukrety, and Dahyaji Kalaji Parmar v. Dahiben wife of Iswarlal R. Vyas 1960 I GLR 260 and Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others,
(V) It is further urged that the petition does not purely challenge the show cause notice as three orders, namely, direction to file FI Rs, suspension of voting rights and maintenance of status-quo in respect of the Managing Director-cum-Chairman of NMCE have also been challenged. The Commission does not have the authority to give directions to file FI Rs and the direction regarding maintenance of status-quo regarding CEO and Chief Managing Director of NMCE is against the Articles of Association. The Commission has no jurisdiction or authority in the matter of removal of Managing Director or CEO of NMCE which is a matter government by Articles of Association and the Companies Act. Under the Articles of Association, only the Petitioner has right to remove the Managing Director and CEO of NMCE.
(VI) The Commission could also not have ordered directions for filing FI Rs against certain persons which are beyond the provisions of the Act.
On the above grounds, it is prayed by the learned Senior Advocate that interim relief as prayed for be granted.
Mr. P. S. Champaneri, learned Assistant Solicitor General of India, has appeared for the Union of India, on supply of an advance copy of the petition. He has opposed the grant of interim relief by referring to the show cause notice and submitting that it is only after a detailed enquiry that the show cause notice has been issued. The Petitioner has been asked to appear before the Commission, instead he has filed the present petition, which is premature at this stage. It is further submitted that the provisions of the FCR Act give ample power to the Commission to take action in the manner that has been done and the Petitioner can very well appear before the Commission and make his submissions, if he is aggrieved.
In the context of the submissions made by the learned advocates for the respective parties, the question that arises for consideration is, whether this Court should exercise jurisdiction under Article 226 of the Constitution of India in the present case, where the challenge is primarily directed against the show cause notice dated 21.06.2011.
The legal position in this regard may be examined. In Union of India (UOI) and Anr. v. Kunisetty Satyanarayana reported in (2006) 12 SCC 28 the Apex Court has lucidly summed up the legal position as under:
The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so. It is quite possible that after considering the reply to the show-cause notice or after holding an enquiry the authority concerned may drop the proceedings and/or hold that the charges are not established. It is well settled that a writ petition lies when some right of any party is infringed. A mere show-cause notice or charge-sheet does not infringe the right of anyone. It is only when a final order imposing some punishment or otherwise adversely affecting a party is passed, that the said party can be said to have any grievance.
Writ jurisdiction is discretionary jurisdiction and hence such discretion under Article 226 should not ordinarily be exercised by quashing a show-cause notice or charge-sheet.
No doubt, in some very rare and exceptional cases the High Court can quash a charge-sheet or show-cause notice if it is found to be wholly without jurisdiction or for some other reason if it is wholly illegal. However, ordinarily the High Court should not interfere in such a matter.
The principles of law laid down in the above-quoted judgment are applicable to the case in hand, as the Petitioner was called for personal hearing on 04.07.2011 at the time and date specified in the show cause notice. The Petitioner has also been permitted to inspect the documents demanded by him at the time and place mentioned in letter dated 24.06.2011. The Court is informed that at the request of the Petitioner, an adjournment has been granted by the Commission and the hearing of the show cause notice has been scheduled for 13.07.2011. A perusal of the contents of the show cause notice reveals that it is an extremely detailed one and has been passed after considering a plethora of oral and documentary evidence, as mentioned therein. The allegations against the Petitioner, in the form of Charges, have been enumerated in detail and the Petitioner has been called upon to show cause within a period of ten days from the receipt of the notice, why the alleged acts of omission and commission detailed in the notice should not be referred to other concerned Departments and Authorities, as may be relevant for appropriate action under the relevant statutes. An opportunity of personal hearing and of making written submissions has also been granted to the Petitioner. It is not disputed that the Petitioner has not yet appeared for personal hearing before the Commission and has sought time that has been granted till 11.07.2011. The documents are in the process of being supplied to the Petitioner and the written submissions on behalf of the Petitioner have also not been made. The allegations against the Petitioner would require a detailed reply based on evidence, as certain questions that are potentially disputed questions of fact, are involved. At this stage, no formal order has been passed against the Petitioner. It may be possible that after considering the reply to the show cause notice, some points may be considered in favour of the Petitioner after considering the explanation rendered, some Charges may even be dropped. The show cause notice has been issued on the basis of a complaint and it cannot be said that mere issuance of a show cause notice has resulted in the infringement of any legal or vested right of the Petitioner, as an opportunity of hearing has been provided to it.
At this stage, it may be helpful to examine the extra-ordinary circumstances that would not operate as a bar to the exercise of jurisdiction under Article 226 of the Constitution of India. In this regard, the observations of the Supreme Court in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, are relevant and are reproduced hereinbelow:
The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. The High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by the Supreme Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.
(Paras 14 and 15)
Therefore, the jurisdiction of the High Court in entertaining a writ petition under Article 226 of the Constitution, in spite of the alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation.
(Para 20)
Hence, the High Court was not justified in dismissing the writ petition at the initial stage without examining the contention that the show-cause notice issued to the Appellant was wholly without jurisdiction and that the Registrar, in the circumstances of the case, was not justified in acting as the "Tribunal"
(Para 21)
Prima-facie, it does not transpire from the record or the provisions of the FRC Act that that the Commission has no jurisdiction to issue the show cause notice to the Petitioner. An opportunity of hearing has been provided to the Petitioner, who has been called upon to furnish the reply to the show cause notice, as well as to appear personally with material in its support. It is therefore clear that the principles of natural justice have been complied with. The allegations made against the Petitioner are of a serious nature and it cannot be held at this stage that no explanation can be called for from the Petitioner. The Commission has been endowed with wide powers u/s 4(a) of the FCR Act, including the powers of a Civil Court under the Code of Civil Procedure, 1908, and proceeding before the Commission shall be deemed to be judicial proceedings within the meaning of Section 193 and 228 of the Code. As such, it does not transpire from the material on record that there has been a violation of the fundamental rights of the Petitioner, in issuing the show cause notice.
In Chhanalal A. Patel v. The State of Gujarat suprarelied upon by the Petitioner, a Division Bench of this Court has held that where there is an absence of jurisdiction apparent on the face of the proceedings, the Court should exercise its discretion and grant relief by issuance of a Writ, unless a strong case is made out for withholding the same. In the present case, as already stated hereinabove, it does not prima-facie appear from the provisions of the FRC Act that the Commission does not have jurisdiction to issue the show cause notice. As the Charges against the Petitioner are of a very serious nature, the Court does not think it appropriate to exercise discretion by grant of interim relief, before the Commission has had an opportunity to examine the explanation rendered by the Petitioner pursuant to the show cause notice, and before any formal order has been passed thereupon.
It has been urged by the learned advocate for the Petitioner that apart from the show cause notice, the Commission had no power to direct registration of an FIR. As already noted, the Commission is vested with wide powers and if there is evidence to indicate commission of a criminal offence, the concerned authorities cannot be precluded from taking appropriate action prescribed by law.
Insofar as the suspension of voting rights of the Petitioner with respect to 29,32,680 shares is concerned, this aspect finds mention in the show cause notice at running page 443 of the petition, and the Petitioner can offer its explanation regarding this aspect at the time of hearing of the show cause notice.
The order directing status-quo to be maintained insofar as the Managing Director and CEO of NMCE is concerned, also arises from the grounds mentioned and Charges contained in the show cause notice to which the Petitioner can furnish its explanation while appearing before the Commission.
Therefore, in the considered opinion of this Court, the case of the Petitioner does not fall within the parameters delineated by the Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks Mumbai suprafor interference at the stage of show cause notice. None of the extra-ordinary or exceptional contingencies, as contemplated in the said judgment, exist in the present case, so as to persuade the Court to entertain the petition at this stage.
The learned Senior Advocate for the Petitioner has, while addressing the Court, advanced arguments on the merits of the case, regarding on certain provisions of the Companies Act. As this Court does not consider it appropriate to interfere at this stage, the said arguments are not being specifically dealt with, as the issues raised in the show cause notice are yet to be examined and decided and order passed. To touch upon the merits of the case may prejudice the case of the Petitioner, therefore, this Court refrains from doing so.
On the facts, and in the circumstances of the case, the following order is passed:
It is open to the Petitioner to appear before the Commission as directed by the show cause notice dated 21.06.2011 and produce material in its support. It is an admitted fact that the Petitioner is already appearing before the Commission and seeking adjournments. The hearing of the show cause notice may be carried on by the Commission, without being influenced by the factum of filing of the present petition. It is further clarified that this Court has not entered into the merits of the case and nothing contained in this order may be construed as such.
As a result of the aforesaid discussion, the petition fails, and is rejected.