- (1.) THE facts giving rise to the present judge's summons dated 11th June, 1965, taken out by the applicant, Pravin Sankalchand Shah, for vacating the order passed by this court on 2nd March, 1963, directing private examination of several persons in so far as it relates to the applicant himself under section 477 of the Companies Act (1 of 1956) may be stated: The Colaba Land and Mills Co. Ltd. (hereinafter referred to as the company) was by an order dated 7th October, 1959, directed to be wound up and the official liquidator was appointed the liquidator of the company with all the powers. It appears that the company was ordered to be wound up, inasmuch as it was found that the affairs of the company had been mismanaged for a number of years, that the loss caused to the company as a result of such mismanagement ran into lakhs of rupees and that further investigation was necessary in order to bring to light the acts of mismanagement and frauds perpetrated during such mismanagement. ON 21st February, 1963, a judge's summons was taken out by the official liquidator applying for examination of several persons including the applicant whose names were listed in a schedule to the summons under section 477 of the Companies Act, 1956, and that application was supported by a signed statement of the official liquidator dated 8th February, 1963, under rule 243 (3) of the Companies (Court) Rules, 1959. In the signed statement it was held on 14th March, 1949, the managing agency agreement with M/s W. H. Brady Ltd. (the former managing agents of the company) was by a resolution terminated necessitating payment of large amounts to the said M/s W. H. Brady Ltd. , and it was further pointed out that the applicant was a director of the company at the material time and also a signatory to the requisition for calling the said extraordinary general meeting on 14th March, 1949, and further a liability to the tune of over Rs. 25 lakhs was shown against his name. The application was heard ex parte by Justice K. K. Desai and the learned judge by his order dated 22nd March, 1963, directed that the examination of persons mentioned in the schedule concerning the trade, dealings, property, books, papers and affairs of the company be held on 22nd April, 1963, and that each of them do bring with him and produce at the time all books, papers, deeds, writings and other documents in his custody or power relating to the company. Pursuant to the said order a summons under rule 243 (2) was served upon the applicant and other persons requiring them to attend this honourable court before the honourable judge taking company matters in court on 22nd April, 1963 bringing with them and producing at the same time such documents as were in their custody, possession and/or control in any way relating to or belonging to the company, but his private examination of Pravin S. Shah, the applicant and others stood adjourned to 24th June, 1963, and the applicant and others were accordingly informed about it. It further appears that owing to exigency of pressure of work the matter of private examination could not be taken up and was required to be adjourned form time to time and the last of such adjournments was on 16th September, 1963, when the learned judge was pleased to adjourn the matter until such date as he would be pleased to fix. However, on that day the learned judge directed the official liquidator to take out a misfeasance summons, restricted to the principal charges of malfeasance, misfeasance, breach of trust, breach of duty, etc. , such as the official liquidator could gather from the investigation report of the inspector appointed by the Central Government under section 235 (a) of the Companies Act and the investigation report subsequently made by the Companies Act and the investigation report subsequently made by th3e chartered accountants appointed by the official liquidator himself for a further investigation in pursuance of the order made by the learned judge in that behalf, and these directions for taking out misfeasance summons were given as the limitation period 5 years was about to expire. Accordingly, on 5th October, 1964, a misfeasance summons under section 543 (1) of the Companies Act read with rule 260 of the Companies (Court) Rules was taken out by the official liquidator and when the same came up for hearing before Mr. Justice Kantawala on 8th January, 1965 the learned judge gave directions under rule 261 and further fixed the hearing of the summons for 8th November, 1965. It may be stated that the applicant, Pravin S. Shah, whose private examination under section 477 has been ordered, is respondent No. 7 to the misfeasance summons and in respect of various dealings, including the termination of Brady's managing agency, a sum of Rs. 44 lakhs and old is claimed against him in the said summons. The private examination of the applicant and others, which was adjourned form time to time, was finally fixed on 14th June, 1965, but in the meanwhile he has taken out the present judge's summons on 11th June, 1965, for vacating the order passed on 2nd March, 1963, in so far as it relates to his private examination under section 477 of the Companies Act.
(2.) THE summons for vacating the order directing the applicant's private examination was pressed by Mr. Mehta on three of four grounds. In the first place, it was contended that beyond mentioning that the applicant was a signatory to the requisition calling the extraordinary general meeting on 14th March, 1949 (at which the resolution terminating M/s W. H. Brady's managing agency had been passed) and that he was a director of the company, the official liquidator had not indicated in his signed statement dated 8th February, 1963 how and in what manner the applicant was expected to furnish nay information or materials for the effective prosecution of the liquidation and, unless a person was capable of furnishing such an information concerning dealings or property or affairs of the company, his examination under section 477 could not be ordered. Secondly, it was contended that the order dated 2nd March, 1963, obtained ex parte by the official liquidator had been obtained by suppressing certain material facts or rather without placing all the materials and relevant facts before the court and in this behalf it was pointed out that two material facts were not placed before the court, viz. , (1) that prior to the extraordinary general meeting of the board that was held on 14th March, 1949, where the resolution sanctioning the termination of the managing agency was passed by the majority, a meeting of the board of directors had been held and at that meeting it had been stated that the opinion of an eminent counsel had been obtained and (2) both at the meeting of the board of directors as well as the extraordinary general meetings of the shareholders held on that day certain facts had been mentioned, viz. , that a shareholders by name Padamsi Morarji had already filed a suit in the High Court against the company and the directors and that the said shareholder had taken out a notice of motion for an injunction restraining the directors and the company form holding the said extraordinary general meeting and that the said notice of motion had been dismissed by the court on 11th March, 1949, after considering the various affidavits used in the said notice of motion. Mr. Mehta urged that had these facts been placed by the official liquidator before the learned judge, probably the order directing private examination of the applicant may not have been passed and, in view of these facts, which are now being put forward, the order directing private examination of the applicant should be vacated. Thirdly, Mr. Mehta urged that, since the passing of the order dated 2nd March, 1963, directing the private examination of the applicant and others under section 477, a supervening event had happened, viz. , the official liquidator had taken out a misfeasance summons on 5th October,1964, and an order from this court fixing 8th November, 1965, as the date of hearing of that summons had been obtained and what was urged was that the private examination under section 477 of the applicant, against whom a misfeasance summons on substantially the same facts has been taken out and is pending, would be oppressive and vexatious, inasmuch as he would be called upon to furnish information and materials in his private examination which would be used against him later on in the misfeasance summons. Mr. Mehta in fact urged that the applicant's private examination would serve no other purpose but afford the official liquidator an opportunity to secure incriminating information against the applicant in order to proceed effectively with the misfeasance summons against him and, therefore, such private examination of the applicant should be regarded as oppressive and vexatious. Lastly, it was contended that the applicant would be, so to say, compelled to give incriminating answers to questions touching the items or topics which are the subject matter of the misfeasance summons and these answers would be used against him in the misfeasance proceedings and that is opposed to all principles of natural justice and equity. In support of his contentions Mr. Mehta relied upon the decision of the Supreme Court in the case of Satish Churn Law v. H. K. Ganguly, [1962] 32 Comp. Cas. 97 (S. C.); [1962] 2 S. C. J. 200; [1962] 2 M. L. J. (S. C.) 74 and certain observations made by Mr. Justice J. C. Shah therein. On the other hand, Mr. Mody appearing on behalf of the liquidator, though he fairly conceded that it was open to the applicant to take out this judge's summons for the purpose of vacating the said order. He contended that since the applicant, Pravin S. Shah, was admittedly a director of the company at the most material period in the history of the company, especially at the time when the extraordinary general meetings was held at which the resolution terminating the managing agency of M/s Brady and Co. was passed, it could not be said that he could not furnish information concerning the trade, dealings, property or the affairs of the company. He. therefore, urged that the applicant could be regarded as a person capable of giving information under section 477 and, as such, the order directing his private examination should not be vacated. Mr. Mody further contended that the mere fact that a misfeasance summons had been taken out and that the same was pending against the applicant could not be pressed into service for the purpose of drawing an inference that the private examination of the purpose of drawing an inference that the private examination of the applicant would be oppressive or vexatious. He contended that the purpose or object of section 477 under which private examination is directed is entirely different form the purpose or object of section 543 (1) under which the misfeasance summons is taken out. He pointed out that since the applicant was a director of the company at the material time, information would be sought a at his private examination not only on items or topics which are the subject matter of the misfeasance summons but on other points concerning trade, dealings, property, books, papers and affairs of the company. Regarding the contention that the private examination would be oppressive and vexatious on the ground that the applicant might be compelled to give answers which might incriminate him or be detrimental to his interest and that his answers might be used against him in the misfeasance summons, Mr. Mody pointed out that in such a private examination under section 477 it was open to the applicant to claim protection from the court against such incriminating question and the court was always there to afford the necessary protection to him. He further urged that such a stage would only arise after the applicant's private examination is conducted for some time at the the proper time, if any incriminating question were put to him, he could always seek protection of the court. But simply because some incriminating questions might be asked of the applicant in his private examination, that is no ground for vacating the order directing his private examination. He, therefore, urged that no case had been made out by the applicant for coming to the conclusion that his private examination under section 477 should be regarded as oppressive or vexatious, and, therefore, the summons taken out by him was liable to be dismissed.
(3.) IN order to deal with the first two contentions of Mr. Mehta, it will be necessary to consider the provisions of section 477 of the Companies Act and its scope and object. The relevant provision is contained in sub- section (1) thereof which runs as follows: "section 477. Power to summon persons suspected of having property of company, etc.- (1) The court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in his possession any property or books or papers of the company, or known or suspected to be indebted to the company, or nay person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, property, books or papers, or affairs of the company. ";