JAGANMOHAN REDDY - (1.) THIS appeal is by certificate against the judgment of the High Court of Bombay varying the judgment and decree passed against respondents 1 to 4 by the District Judge of Nagpur on an application under Section 235 of the Indian Companies Act 7 of 1913 - hereinafter called 'the Act'.
(2.) IT appears that in or about April 1949 the Industrial and Agricultural Engineering Company (C.P.) Ltd. - hereinafter referred to as 'the Company' was formed under the Act with its registered office situated at Nagpur. From the date of the Company's incorporation till 27/08/1952 one Shantilal Nemchand Shah respondent 5 was the Managing Director, while responents 1 to 4 were the Directors of the Company. On 27/08/1952, respondent 5 resigned as Managing Director and in his place two Directors C.V.Krishnamurthi respondent 2 and Mr. Ganpatram responent 3 were appointed Directors. These two new Directors were the employees and Directors of a concern known as Industrial and Agricultural Engineering Company (Bombay) Ltd. - hereinafter called 'the Bombay Company'. Respondent 4 T. K. Shamu is the cousin of respondent 1 Raghawa Desikachar. There was also a partnership firm consisting of respondent 1 and some others. The office of this partnership was located in the office of the Bombay Company. After 27/08/1952, responent 5 having resigned the office of Managing Director was only a shareholder and it transpired that as the Company was not making profits, the Directors called a meeting of the shareholders of the Company on 29/07/1954, in order to obtain a Special Resolution for voluntary liquidation of the Company. Even before this meeting took place, respondent 5 as shareholder of the Company filed an application on 26/07/1954 in the District Court at Nagpur against the Company, respondnets 1 to 4 and other parties praying for an order for compulsory winding up of the Company. The District Judge passed an order on 13/07/1955 directing compulsory winding up of the Company and appointed one K. S. Misra as the Official Liquidator of the said Company. The Official Liquidator Misra made a report to the District Court on 28/04/1956 asking the Court to pass an order for the public examination of respondents 1 to 4 - the Directors of the Company. The District Judge passed the order prayed for under Section 196 of the Act on 7/07/1956. Pursuant to the said order respondents 1 to 4 were examined by the Official Liquidator, and cross-examined by other parties. The Official Liquidator also asked for the examination of respondent 5 who however was directed by the District Judge to be present in the Court. But since the District Judge was not in a position to know why and for what purpose respondent 5 was to be examined he directed the Official Liquidator or Mr. Mani to make an application for that purpose. On 29/06/1957 the Official Liquidator stated that he did not want to examine respondent 5. Again on 10/07/1957 the Official Liquidator requested the Court to examine responent 5 and the learned Judge passed an order on the same day directing examination of respondent 5 at 3 P.M. on that day. On 11/07/1957, the Official Liquidator made an application that as the four Directors respondents 1 to 4 had illegally withheld or retained certain amounts specified therein they became liable to refund or repay the amounts with costs and with such interst as the Court deems fit. The items which were said to be withheld were as follows: JUDGEMENT_741_2_1974Html1.htm Thereafter the Official Liquidator applied for certain amendments to the application and for impleading respondents 1 to 4 - Directors of the Company in liquidation. The District Judge by his order dated 7/12/1967 allowed the application and accordingly the application dated 11/07/1956 was amended. Respondents 1 to 4 by their reply dated 27/12/1957, showed cause against the said application of the Official Liquidator and requested that they may be allowed to lead evidence in connection with the charges mentioned in the application of the Official Liquidator. They also requested that they be allowed to cross-examine respondent 5 Managing Director of the said Company. The District Judge, however, by his order dated 4/09/1958, rejected the application of respondents 1 to 4 and on 9/10/1958, he passed a decree against responents 1 to 4 for items (1), (2), (5) and (6), namely, for Rs.20,000.00; Rs.36,000.00; Rs.2,686/3.00 and Rs.1,30,000.00 with interest at 4 per cent p.a. The District Judge further directed the Official Liquidator to furnish a statement in respect of the amounts due on certain charges which was accordingly furnished by him on 23/10/1958. On Oc 25/10/1958, the District Judge ordered respondents 1 to 4 to pay further amounts of Rs.36,649-32 p and Rs.21,700-75p as per the report of the Official Liquidator. This order formed part of the decree dated 9/10/1958. Respondents 1 to 4 preferred an appeal to the High Court of Bombay which by an interlocutory judgment dated 25/01/1963 set aside the order made by the District Judge refusing respondents 1 to 4 permission to lead evidence and permission to cross-examine respondent 5. Accordingly the Bench ordered the case to be remanded to the City Civil Court at Bombay to record additional evidence in the said matter under O.41, R.27 Code of Civil Procedure and remit to it that evidence. On an application dated 11/02/1963, the Bench of the High Court by its order dated 12/02/1963, refused to allow respondents 1 to 4 to produce certain documents which were not produced by them at an earlier stage. Pursuant to the aforesaid orders dated 25/01/1963 and February 12, 1963 respondents 1 to 4 led the evidence of 11 witnesses including themselves and cross-examined respondent 5. They also filed certain documents. No evidence was led by the Official Liquidator or respondent 5. After the record of the evidence was transmitted to the High Court the Bench by its judgment D/-22-3-1963 passed a decree against respondents 1, 2 and 3 to pay to the Official Liquidator of the Company a sum of Rs.11,973/12.00 in respect of certain stock-in-trade, furniture, motor cycle, motor car sold by the said Company and a further sum of Rupees 2,686/8/3 being a part of the debt remitted by the said Company with interest on the aforesaid amounts at 6 per cent from 25/07/1954 until payment. The remaining claim of the Official Liquidator was set aside and the decree of the District Court was reversed to that extent.
(3.) THE first question that has been urged before us is whether the High Court of Bombay was right in directing additional evidence to be led by respondents 1 to 4 under O.41, R.27 Code of Civil Procedure. This Court has, in several decisions, laid down the circumstances in which an Appellate Court will be justified in directing additional evidence to be recorded for the disposal of the appeal. Order 41 R.27 Code of Civil Procedure under which additional evidence could be called for states thus: "(1) THE parties to an appeal shall not be entitled to produce additional evidence, whether oral or documentary in the Appellate Court. But if - (a) the Court from whose decree the appeal is preferred has refused to admit evidence which ought to have been admitted, or (b) the Appellate Court rquires any document to be produced or any witness to be examined to enable it to pronounce judgment, or for any other substantial cause, the Appellate Court may allow such evidence or document to be produced, or witness to be examined. (2) Wherever additional evidence is alloed to be produced by an Appellate Court, the Court shall record the reason for its admission". It is apparent that by the terms of the above rule, it is only where the Court has improperly refused to admit evidence or where the Appellate Court requires additional evidence to be recorded in order to enable it to pronounce judgment that it can make such an order. Under O.41 R.27 (1) (b) the Court may require additional evidence either to enable it to pronounce judgment or it may require additional evidence to be recorded for any other substantial cause. In Arjan Singh v. Kartar Singh, 1951 SCR 258 = (AIR 1951 SC 193) it was held that the legitimate occasion for admitting additional evidence in appeal is when on examining the evidence as it stands some inherent lacuna or defect becomes apparent, not where a discovery is made outside the court, of fresh evidence, and an application is made to import it. THE true test is whether the appellate court is able to pronounce judgment on the materials before it, without taking into consideration the additional evidence sought to be adduced. See also State of U. P. v. Manbodhan Lal, 1958 SCR 533 = (AIR 1957 SC 912) and Municipal Corporation for Greater Bombay v. Lala Pancham, (1965) 1 SCR 542 at p. 548 = (AIR 1965 SC 1008). THE learned Advocate for the appellant while admitting that the Appellate Court has power to record additional evidence, submits that the High Court did not go through the evidence, nor did it apply its mind as to whether the case was such that it could not pronounce judgment on the materials before it without taking into consideration the additional evidence sought to be adduced. This argument, however, ignores the provisions of O.41 R.27(1)(a) under which an Appellate Court can direct additional evidence to be recorded if the Trial Court had refused to allow or declined to record evidence which the party against whom the decree had been passed was prepared to produce before it. What we must, therefore, see is whether the District Judge had improperly rejected the request to record the evidence of the respondents and consequently whether the High Court was justified in directing additional evidence to be recorded. On a perusal of the record we have no doubt that the District Judge had improperly rejected the prayer of the respondents that they should be allowed to lead evidence in connection with the charges mentioned in the application filed by the Official Liquidator and that they should be allowed to cross-examine respondent 5. The Roznama dated 4/09/1958 shows that on that day the four respondents, namely respondents 1 to 4 represented by Mr. Amin, and the Official Liquidator in person appeared before the District Judge. The order made in those proceedings is as follows: "Mr. Amin for the respondents wanted that the petitioner should be put into the witness box so as to enable him to cross-examine the petitioner on the point of alleged misfeasance. From the record it appears that the petitioner was under cross-examination for a great length of time and it is on the material elicited in his evidence, as also on the record otherwise available here, that the charge of misfeasance is made. Mr. Amin's contention is that when the petitioner was cross-examined by Mr. Mani, Mr. Mani represented the four different companies and not these respondents. This may be so, but I do not think now I should allow another cross-examination of the petitioner when from the record it appears that a detailed and searching cross-examination was made of the petitioner... .Besides, there was no question of leading any evidence, since the case was fixed for argument from 21-1-58. The only part which the parties had to play was to point out the documents on which each relied for proving or disproving the alleged misfeasance. ... I do not think it is possible for me to put the hands of the clock behind by reverting to the stage of leading evidence, when this matter has been fixed for argument since 21-1-1958. Hence the request is rejected". ;