Subjective Satisfaction in India after Barium Chemicals

In one line

Indian courts have never accepted that "if the authority is satisfied" means "if the authority says so".

In the wording a student can write in an exam: where a statute makes the satisfaction or opinion of an authority the condition of a power, Indian courts hold that the formation of the opinion is subjective but that the existence of the circumstances on which it is founded is a condition precedent whose existence and relevance are open to judicial review, so that an opinion resting on no material, or on material that cannot rationally support it, is bad.

The two leading cases

Barium Chemicals Ltd. v. Company Law Board, AIR 1967 SC 295.

Facts. Section 237(b) of the Companies Act 1956 allowed an investigation into a company's affairs to be ordered if, in the opinion of the Central Government or the Company Law Board, there were circumstances suggesting that the business was being conducted to defraud creditors or members, or that the management was guilty of fraud or misfeasance. The Board's Chairman, acting alone under a distribution of business made under rules, appointed four inspectors to investigate the appellant company. The order recited the statutory formula, and the affidavit disclosed no material from which the circumstances could be inferred.

Held. The order was quashed. Although the formation of an opinion is subjective, the existence of circumstances suggesting the things named in the section is a condition precedent, and the existence of those circumstances is open to judicial review. If it is shown that the circumstances do not exist, or that they cannot rationally support the opinion, the order is bad. The satisfaction must be that of a reasonable authority on relevant material and cannot be a mere assertion.

Why it matters here. It is the Indian answer to Liversidge, and it is the case an examiner expects when the words in the opinion of appear in a problem.

Rohtas Industries Ltd. v. S.D. Agarwal, AIR 1969 SC 707.

Facts. An investigation into the affairs of a company controlled by a particular businessman led the Central Government to order an investigation under section 237(b)(i) and (ii) into the appellant company as well, in relation to its sale of preference shares in another company. The material placed before the Court did not establish the circumstances the section requires.

Held. The order was set aside. Sections 235 to 237 form a scheme, and an investigation under section 237 takes its colour from them: it is a serious step, likely to receive publicity and to damage a company's reputation and prospects, and should not be ordered except on good grounds. The formation of the opinion is subjective, but the existence of circumstances suggesting the statutory grounds is a condition precedent whose existence can be examined, and the circumstances relied on could not rationally support the opinion.