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Issues Involved:
1. Public examination of the appellants under Section 196 of the Indian Companies Act. 2. Allegations of fraud in the management and conduct of the company's affairs. 3. Jurisdiction and conditions for ordering public examination under Section 196. Detailed Analysis: 1. Public Examination of the Appellants under Section 196 of the Indian Companies Act: The appeals were filed against the orders of the District Court, Madurai, which directed the public examination of the appellants under Section 196 of the Indian Companies Act. The court had to determine whether the appellants, who were either directors or partners of the managing agency firm, should be subjected to public examination. 2. Allegations of Fraud in the Management and Conduct of the Company's Affairs: The official liquidator reported several instances of fraud, including: - Fraud in the collection of share capital and allotment of shares. - Fraud in the investment of the share capital amount. - Fraud in the purchase of lands and building materials. - Fraud in advancing monies for materials required for the mills. - Fraud in the sale of machinery, Government securities, furniture, livestock, etc. - Fraud in the disposal of monies obtained by such sales. - Fraud in the payment of premiums for financial aid. - Fraud in effecting a compromise with the architect and engineer. - Fraud in maintaining accounts. - Fraud in resolutions passed by the directors at the instance of the managing agents. The liquidator's report suggested that these fraudulent activities necessitated the public examination of the ex-directors and managing agents. 3. Jurisdiction and Conditions for Ordering Public Examination under Section 196: Section 196(1) of the Indian Companies Act allows the court to direct any person involved in the promotion, formation, or management of the company to attend a public examination if the official liquidator reports a fraud. The court reviewed several precedents, including Ex parte Barnes [1896] A.C. 146 (H.L.), which established that a preliminary finding of fraud is essential for jurisdiction. The court must be satisfied with a prima facie case of fraud based on the liquidator's report. In this case, the court found that the official liquidator's report contained 11 instances of fraud. Instances 1 to 10 related to the management and conduct of the company's affairs, implicating those in charge of the company. Instance 11 attributed fraud to all directors for passing resolutions at the instance of the managing agents. The court noted that directors merely attending meetings and passing resolutions could not be charged with fraud without evidence of dishonest motives or fraudulent intentions. However, partners of the managing agency firm, Narayanan Chettiar and Chinnan Chettiar, had a substantial nexus with the company's management, justifying their public examination. Separate Judgments: - Narayanan Chettiar and Chinnan Chettiar: The court upheld the lower court's order for their public examination, as they were partners of the managing agency firm and involved in the company's management. - M. U. Krishna Iyer and V.D.M.R.M.M. Muthiah Chettiar: The court found no prima facie case of fraud against them as they were merely directors without management involvement. The order for their public examination was not sustained. Conclusion: The court allowed C.M.A. 302 of 1970 in part, affirming the order for the public examination of Narayanan Chettiar and Chinnan Chettiar, but not for M.U. Krishna Iyer. C.M.A. 347 of 1970 filed by V.D.M.R.M.M. Muthiah Chettiar was allowed, exempting him from public examination. The respondent was awarded Rs. 250 from the company.
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