N. Swaminatha Iyer vs Brahmayya & Co., Official … on 12 July, 1954

Madras High Court
N. Swaminatha Iyer vs Brahmayya & Co., Official … on 12 July, 1954
Equivalent citations: AIR 1955 Mad 30, 1954 24 CompCas 443 Mad
Author: Rajamannar
Bench: Rajamannar, Somasundaram


Rajamannar, C.J.

1. This appeal against the order of panchapakesa Ayyar J. dated 29-4-1953 arises out of an application filed in the proceedings in the liquidation of the Hanuman Bank Ltd. The said Bank was directed to be wound up by this Court in 1947 and provisional liquidators were appointed on 15-8-1947. The appellant who was the applicant before the learned Judge in chambers was the President of the Board of Directors of the Bank at the time of the liquidation. He was elected to that office in 1938 and continued in it till 1947. The Official Liquidator applied in Appln. No. 1800 of 1949 for public examination of the appellant along with others, directors and other officers, under Section 196, Companies Act. On 7-6-1949 Rajagopalan J. passed an order ‘ex parte’ granting the application. On receiving notice of this order, the appellant filed an application, No. 2048 of 1949 for vacating the said order, or in the alternative, for postponement of the public examination till the disposal of a criminal case which was then pending against the appellant and others.

On 8-11-1949, Mack J. disposed of this application by directing the public examination to be postponed till after the conclusion of the preliminary inquiry in the criminal case and until a copy of the committal order, or of the discharge order is available for examination. The learned Judge ordered that if for any reason the preliminary inquiry in the criminal case is unduly protracted, it would be open to the liquidators to apply for the examination of the appellant, during the adjournment interval in the criminal case. But he definitely ruled that public examination of the applicants could not be dispensed with. The criminal proceedings took a protracted course. Though the trial commenced in 1948, charges were framed in 1951 and there were further proceedings in this court and before the Supreme Court. The Official Liquidator again renewed his application for public examination in Appln. No. 2077 of 1950.

On 13-6-1950, Basheer Ahmed Sayeed J. ordered the application and directed the public examination to be completed as early as possible, commencing from 10-7-1950. The appellant, on receiving notice of this order, filed an Appln. No. 2234 of 1950 for vacating the order or to postpone the public examination. On 18-7-1950 the Judge again passed orders refusing to vacate the order for public examination but postponing it till the criminal proceedings were over. Meanwhile, the Official Liquidators filed an application No. 2226 of 1950 under Section 235, Companies Act. This application they had to file because otherwise an application for misfeasance would have become time-barred, the provisional liquidators having been appointed on 17-8-1947. A similar application was also filed by a creditor, Appln. No. 3567 of 1950.

After a final termination of the criminal proceedings, the liquidators again moved the court in Appln. No. 4338 of 1952 for the public examination of the appellant and other persons. Ramaswami Goundar J: passed an order on that application on 15-10-1952 directing the public examination to continue. The appellant again filed another application to vacate the order directing public examination or in the alternative, for the postponement of the examination till the disposal of the misfeasance application. This application came On before Panchapakesa Aiyar J. The application was strongly opposed by the Official Liquidators, and the learned Judge, after elaborately considering all the points raised before him, dismissed the application.

2. Learned counsel for the appellant confined his argument mainly to one point, namely, that the court should not have exercised its discretion in the way it did in ordering public examination at the present stage when a misfeasance application filed by the provisional liquidators and another similar application filed by the creditor were pending disposal. Learned counsel conceded that there is nothing in Section 196 to indicate that once a misfeasance application had been filed the court would be divested of the power of directing public examination of a person in the position of the appellant. Nor do the two decisions of the English Courts cited by him, viz., — ‘In re North Australian Territory Co.’, (1890) 45 Ch D 87 (A) &– ‘In re Metropolitan Bank; Heiron’s case’, (1880) 15 Ch D 139 (B) lay down any general proposition that when proceedings have been commenced against the officers of a company by the Official Liquidator the Court should not direct a public examination of the persons against whom the proceedings had been commenced. _

3. In (1890) 45 Ch D 87 (A), the liquidator in the voluntary winding up of a company brought an action against another company and obtained an order for affidavit of documents; but the court refused an_ application of the liquidator for production of documents by that company or for the examination of the company’s secretary on interrogatories, on the ground that the application was premature. The liquidator then obtained an order under Section 115 of the Companies Act, 1862, for the examination of the Secretary of that company before an examiner. When an examination was proceeding in pursuance of this order, the secretary refused to answer a question. It was held that the witness was justified in refusing to answer that question because the action of the liquidator in obtaining an order under Section 115 was in effect circumventing an order of court in the action Two observations fail to be made with reference to this case, firstly, that It deals with that part of Section 115 of the Companies Act of 1862 which corresponds to Section 195 of the Indian Companies Act under which the court has power to direct even third persons to be examined. In that case, it was not any officer of the company in liquidation that was being examined, it was an officer of another company. There was also the important fact, and indeed the decision of the court ultimately appears to have been rested on this, that the court trying the action brought by the liquidator against other company had refused to order production of documents or examination of the company’s secretary on interrogatories at that stage of the action. It is in these circumstances, that the court of Appeal held that it was not a proper case to direct a public examination. As Cotton L.J. put it, it would be wrong to allow the liquidator by means of Section 115 to get by a side wind discovery and inspection which had been refused by the Judge trying the action. Certain observations made by Bowen L.J. were relied on by Mr. Ranganatha Sastri, learned counsel for the appellant, for instance, the following:

“In the first place, it must be observed that it is an extraordinary section. It is an extraordinary power; it is a power of an inquisitorial kind which enables the court to direct to be examined — not merely before itself, but before the examiner appointed by the court –some third person who is no party to a litigation. That is an inquisitorial power, which may work with great severity against third persons, and it seems to me to be obvious that such a section ought to be used with the greatest care, so as not unnecessarily to put in motion the machinery of justice when it is not wanted, or to put it in motion at a stage when it is not clear that it it wanted, and certainly not to put it in motion if unnecessary mischief is going to be done or hardship inflicted upon the third person who is called upon to appear and give Information.”

It is quite clear that these observations relate to the case of public examination of a third party and not to that of a person like the present appellant, a responsible officer of the company.

4. In (1880) 15 Ch D 139 (B), a voluntary liquidator applied to the court for an order under Section 115 of the Companies Act, 1862, to examine an officer of the company after he had brought an action on behalf of the company against him and had exhibited interrogatories which had been fully answered by him. It was held by the court of Appeal that an order under Section 115 should not be made in the case. The reason was that such an order would amount to unnecessarily harassing the defendant to whom interrogatories had already been directed and fully answered. Bramwell L. J. observed:

“It is unjust to say that this summons is a matter of right, for, when the sections to which we have been referred are considered, the court is to grant it if it appears to be just and beneficial. Now this liquidator was clearly entitled to come to the court for this examination before he brought the action, and he was also entitled to apply to the court after action brought; but the question now is, what are his rights after he has examined the defendant on interrogatories which have been sufficiently answered?”

5. And the answer the learned Lord Justice gave was that he was not entitled to the order that he sought. In our case, the facts are entirely different. Though the official Liquidators had been attempting time and again to have a public examination of the appellant and others, they had been successfully preventing such an examination. The Liquidators, to avoid the bar of limitation, had perforce to file the misfeasance application in August 1950. But that fact should not go against them. It must not be overlooked that if the public examination could not be held till now, it was entirely due to the conduct of the appellant and others, who were objecting, to it, pending this proceeding or that. It does not He in their mouth now to say that there should be no public examination whatever. Having successfully escaped such examination so far, the appellant and persons like him cannot now turn round and practically found a right on their own default. The learned Judge in our opinion exercised his discretion properly in directing public examination of the appellant. It appears that Bamaswami Goundar J. has made an order that the misfeasance applications would be posted after the public examination was over.

6. We see no reason to interfere with the order of the learned Judge. The appeal is dismissed with costs.

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