2003 (8) TMI 363 - SC - Companies Law

Whether the defence taken by the appellant would amount to contempt of court? Held that - Appeal allowed. When the appellant tried to explain his case in his evidence, the same was shut out on the basis that it is hearsay. An officer of bank who had no personal knowledge of the transactions in question, and was deposing on the basis of material on record, his evidence cannot be from his knowledge and necessarily has to be hearsay. Hence, the learned Judge was not justified in shutting out that part of the evidence. Therefore, set aside the order made by the learned Judge of the Special Court initiating the proceedings for contempt and convicting the appellant for the same. The entire proceedings in relation to contempt of court shall stand set aside.

Issues Involved:
1. Whether the defense taken by the appellant amounted to contempt of court.
2. Validity of the false statements made in the written statement.
3. Justification of the Special Court in rejecting the appellant's apology.
4. Examination of the appellant's explanation and evidence.

Detailed Analysis:

Issue 1: Whether the defense taken by the appellant amounted to contempt of court.
The Special Court held that taking up a false defense in the written statement and repeating the same in evidence amounts to contempt of court. The defense was considered false as it was based on documents that were not credible. The Court emphasized the growing tendency among parties to file any sort of defense irrespective of its truthfulness, urging courts to curb such tendencies.

Issue 2: Validity of the false statements made in the written statement.
The false statement alleged was detailed in paragraphs 5(e) to 5(l) of the written statement, involving transactions with the Bank of Karad Ltd. and Hiten Dalal. The Special Court found that the defense of "squaring off" transactions was not supported by any credible documents. The appellant's stand was based on hearsay evidence and was not allowed to be brought on record.

Issue 3: Justification of the Special Court in rejecting the appellant's apology.
The appellant tendered an unconditional apology, which the Special Court rejected, observing that such apologies are often not expressions of genuine remorse but rather attempts to escape liability after committing perjury or contempt. The Court noted that the appellant's explanations were based on hearsay and were not allowed to come on record.

Issue 4: Examination of the appellant's explanation and evidence.
The appellant, a Divisional Manager at Canbank Mutual Fund, claimed no personal knowledge of the transactions and verified the written statement based on records. These records included internal notes, committee reports, and affidavits. The Special Court concluded that the defense of "squaring off" was not correct based on independent documents. However, the appellant's explanations were not allowed on record as they were considered hearsay.

The appellant's counsel argued that the Special Court exceeded its contempt jurisdiction, especially since the appellant's stand was consistent with the plaint filed in a connected suit by CMF, which was yet to be tried. The verification in the written statement was based on information from records, not personal knowledge. The Court held that a false statement must be deliberate and knowingly false to constitute contempt. The appellant's evidence, based on records, was hearsay and should not have been shut out.

Conclusion:
The Supreme Court set aside the Special Court's order, stating that the appellant did not deliberately mislead the court. The verification was based on records and consistent with CMF's stand in a related suit. The appellant's explanations, though hearsay, were unjustly excluded. The appeal was allowed, and the contempt proceedings were quashed.

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