GILL AND CO. (P.) LTD Vs. MADHAV MILLS LTD

JUDGEMENT

(1.) This matter has come up for public examination of (1) Hari das Mundhra, (2) Daulat Singhi, (8) Nandlal More, (4) Shivbux Mohatta and (5) Herbert Hill, directors of Shri Madhav Mills Ltd., which is hi liquidation (hereinafter referred to as 'the company'), under Section 478 of the Companies Act, 1956. The last -named director is abroad, but it was decided to proceed with the public examination of the other four directors who were present. Before the public examination of the said directors could be proceeded with, Mr. J.C. Bhatt who appeared on behalf of the said Mundhra (respondent No. 1 to the Misfeasance Summons) raised certain preliminary objections which were argued at great length, and the present Order relates to those preliminary objections. The facts necessary for the purpose of the present Order are that, on August 5, 1959, the company was ordered to be wound up. It may, at this stage, be mentioned that, according to the Official Liquidator, Haridas Mundhra was the director -in -charge of the said company till the date of the winding -up order. On December 20, 1960, the Official Liquidator made a preliminary report to the Court under Section 455(I) of the Companies Act. On April 26, 1962, an auditor by name Tandan was appointed by the Court to investigate into the affairs of the company. The Statement of Affairs which, under Section 454( -3) of the Act, should have been filed within 21 days from the date of the winding -up order, was actually filed by the said Mundhra only on September 28, 1903. This delay in the filing of the Statement of Affairs has been sought to be explained on behalf of the said Mundhra on the ground that, from January 17, 1961 to June 1, 1963, the said Mundhra was undergoing a sentence of imprisonment in jail in connection with some other matter. The said auditor Tandon made his reports on January 22, 1964 and June 28, 1964. On July 15, 1964, on a report filed by the Official Liquidator of the company, my brother K. K. Desai directed him to take out a Misfeasance Summons against the directors of the company, but authorized the Official Liquidator to keep the proceedings therein pending till the private and/or public examination of the directors were concluded. Pursuant to that order, the Official Liquidator filed a Misfeasance Summons, supported by the necessary affidavit, on August 3, 1964, but the same has not yet been served on any of the directors. My brother Kantawala, by his Order dated December 2, 1904 made on another report filed by the Official Liquidator, directed him 'to proceed to have the directors examined publicly' under the provisions of the Companies Act, and it is pursuant to that order that this matter has come up before me for public examination of the directors. On December 16, 1964, the requisite notice under Rule 250 of the Companies (Court) Rules, 1959, specifying the time and place when the public examination would be held, was issued. All the directors, except the said Haridas Mundhra, were served with that notice, but it is apparent from the facts on record that the said Mundhra evaded service of that notice and the Official Liquidator had ultimately to obtain on June 14, 1965 an order for substituted service of that notice on the said Mundhra by publication in the newspapers. Even thereafter, the said Mundhra failed to attend at the time and place appointed from time to time for holding the public examination. It so happened that Mundhra was required as a witness in a suit which was on my board, and after some drastic orders were made by me in regard to the same, his presence was secured to give evidence in that suit. The public examination in the present case was also on board on the same day, but after his evidence in the said suit was over, an application was made on behalf of Mundhra that the public examination should not be proceeded with till inspection of the voluminous record was taken by and on behalf of the said Mundhra. I granted that application, and thereafter further adjournments were taken from time to time, ostensibly also for the purpose of that inspection, on. an undertaking being given by the said Mundhra to be present at each date fixed for the public examination, and on his furnishing the bond of a Bombay resident to secure his presence. Mundhra, however, failed to attend, and it was only when another drastic order was made by me on September 10, 1969 directing the issue of a non -bailable warrant for the arrest of the said Mundhra under Rule 250 of the Companies (Court) Rules, 1959, and directing the head bailiff of the Sheriff of Bombay to go to Calcutta to execute that warrant, that the presence of the said Mundhra could be secured. Ultimately when the matter reached before me on October 13, 1969, Mr. Bhatt on his behalf raised certain preliminary objections. It may be mentioned that those objections have nothing to do with inspection of the record for which adjournments were applied for by the said Mundhra from time to time. Since those preliminary objections have been raised by counsel on his behalf, I am, however, bound to deal with the same.

(2.) THE preliminary objections raised by Mr, J. C. Bhatt on behalf of Mundhra were as follows : (I) In view of the fact that a Misfeasance Summons has already been taken out and the opening address of the learned Counsel on behalf of the Official Liquidator in the present case showed that the public examination of the directors was intended to be principally in respect of the matters to which that Misfeasance Summons related, it was, according to Mr. Bhatt, clear that the Order for public examination had been secured from my brother Kantawala on December 2, 1964 for a collateral purpose viz., of fishing out evidence to support the Misfeasance Summons, and the said Order dated December 2, 1964 directing the public examination of the directors must, therefore, be vacated. (II) The notice dated December 16, 1964, is void as being in violation of Article 20(3) of the Constitution in so far as it compelled the directors to be witnesses against themselves. (III) The fact that a Misfeasance Summons has already been taken out on August 3, 1964 is a bar (a) to any incriminating question being put to the directors in the course of their public examination in view of Article 20(3) of the Constitution and (b) to any question being put in the course of public examination which related to matters covered by the Misfeasance Summons because such questions would be outside the scope of Section 478 of the Companies Act and would be vexatious. (IV) If the directors concerned who are being publicly examined are compelled to answer any incriminating questions put to them, protection should be afforded to them under the proviso to Section 132 of the Indian Evidence Act.

(3.) TURNING to the facts of the present case in the light of these principles enunciated by the Supreme Court, it is quite clear that no case whatsover has been made out by Mr. Bhatt for vacating the said order dated December 2, 1964 for public examination of the directors. In this connection, it may be pointed out that under Section 543(2) of the Companies Act, an application for a misfeasance summons would be barred if it is made after five years from the date of the winding -up order or the appointment of the liquidator or the misapplication, misfeasance or breach of trust, whichever is longer. On the facts of the present case, the application for a misfeasance summons would have been barred on August 5, 1964. It was under those circumstances that the Liquidator had to apply to my brother K.K. Desai and obtain an order for taking out a misfeasance summons on July 15, 1964, and to proceed to take out such Summons on August 3, 1964 just before it would have become time -barred. In the course of his arguments on the point, unwarranted allegations were made by Mr. Bhatt against the Official Liquidator, but it is not necessary for me to deal with them. Suffice it to say that the Official Liquidator could not apply for a misfeasance summons earlier by reason of the fact that Mundhra had not filed his Statement of Affairs till September 28, 1963, and it was only after scrutinising the same and satisfying himself that it appeared that the directors had misapplied the property of the company or had been guilty of misfeasance or breach of trust in relation to the same, that he could make the application for a misfeasance summons. No order had, however, yet been obtained for the private and/or public examination of the directors of the company. It was under those circumstances that my brother K.K. Desai by his Order dated July 15, 1964 directed the Official Liquidator to take out a misfeasance summons, but to keep the same pending till the private and/or public examination of the director which might thereafter be ordered, was concluded. The order for public examination of the directors was then obtained from my brother Kantawala on December 2, 1964. It is impossible on these facts to take the view that the said Order dated December 2, 1964 was obtained for a collateral purpose, or by misleading the Court in regard to any facts. As pointed out by Mr. Desai on behalf of the Official Liquidator, it was clearly present to my brother K. K. Desai when he made the Order dated July 15, 1964 that public examination of the directors might have to follow on the taking out of the misfeasance summons which he directed, as the Order itself shows on the face of it. It is also apparent from the said Order of my brother K. K. Desai that it was in view of the fact that the public examination might relate to certain matters to which the misfeasance summons would relate, and there might be a certain amount of overlapping, that he directed that the misfeasance summons should be kept pending till the conclusion of the public examination of the directors that might thereafter be ordered. It is true that Mr. Desai on behalf of the Official Liquidator in his opening address referred copiously to the several heads dealt with in the affidavit of his client in support of the Misfeasance Summons and that, in regard to some of those heads, the Official Liquidator had stated in the affidavit that either all the directors, or one or the other of them, or Mundhra, had been guilty of misapplication, misfeasance or breach of trust in respect of the company's property. Mr. Desai has, however, made it clear that he referred to the said affidavit, in his opening address as a convenient way of bringing certain facts to the notice of the Court, but the public examination of the directors would not be confined solely to the items covered by the Misfeasance Summons, even though there may be a certain amount of overlapping between the two proceedings. He has also rightly pointed out that any of the creditors or eontribntories, or even the Court, would be entitled to put questions to the directors concerned in the course of public examination, as Sub -sections (3) and (4) of Section 478 clearly show. There is, therefore, no reason whatsoever to come to the conclusion that the public examination in the present case is intended to be held solely for the purpose of fishing out material for supporting the Misfeasance Summons, as Mr. Bhatt has contended. Reference may be made in this connection to a decision of my brother Tulzapurkar in the case of In re. Aruna Purshottam (1965) 68 Bom. L.R. 421 in which an identical objection was raised before the learned Judge, though the same was raised in regard to a, private examination which had been ordered under Section 477 of the Act. It was argued before him that once a misfeasance summons was taken out by the Official Liquidator, he should be taken to have crystallised all the allegations against the applicant, and a private examination under Section 477, which was inquisitorial in character and resorted to for the purpose of collecting information and material, should not be allowed to be held, and that the private examination of the applicant against whom a misfeasance summons on substantially the same facts was taken out and was pending, would be oppressive and vexatious in so far as he would be called upon to furnish information and materials which would be used against him later on in the misfeasance summons. In dealing with that contention, the learned Judge pointed out (at p. 428) that, whereas the step or proceeding contemplated under Section 477 was of exploratory nature, that is to say, it was a proceeding in the nature of inquiry and investigation for the purpose of collecting information on the subjects mentioned therein, the proceeding under Section 543 was a further step in ascertaining and assessing the amount that may be due or accountable by a delinquent director or officer of the company, and that there was nothing in either of the said sections or in any other provision of the Companies Act to warrant an inference that once a misfeasance summons was taken out under Section 543, private examination under Section 477 cannot take place. The learned Judge then referred to the observations of the Supreme Court in Satish Churn's case already cited above, and stated that in his opinion the Supreme Court did not want to lay down in that case as a proposition of law that once a liquidator had taken action against an officer of the company, he should not obtain an order for the private examination of such officer/ In the opinion of the learned Judge (at pp. 420 -430), for the purpose of having an order for private examination set aside, what had to be shown by a person who was affected by the order directing his public examination was that not only was an action at the instance of liquidator pending against him, but that his private examination was sought 'solely' for the purpose of facilitating the progress of that action against him, or for the purpose of harassing him. The learned Judge, therefore, declined to vacate the order for private examination. The case before my brother Tulzapurkar no doubt related to a private examination as Satish Churn's case before the Supreme Court did, but as already stated above, I do not think there would be any difference in regard to the principles which must be applied when an application is made to the Court for vacating an order for the private or public examination of directors or officers of the company. Mr. Bhatt has sought to rely on the observations of my brother Tulzapurkar which have been referred to above, but I am afraid there is nothing before me to hold that the public examination of the directors in the present case is being sought 'solely' for the purpose of securing material for the Misfeasance Summons, though that may be one of the results of the public examination. On the principles laid down by the Supreme Court in Satish Churn's case which have been applied by my brother Tulzapurkar in Aurna Purshottam's case, I have therefore no hesitation in rejecting the application of Mr. Bhatt for vacating the order for public examination dated December 2, 1964.