1975 (4) TMI 60 - SC - Companies Law

Order under section 195 of the Indian Companies Act, 1913, made by the District Judge, Jalgaon, on November 22, 1967, summoning the appellants before him for the purpose of examining them concerning the trade, dealings, affairs and property of the respondent-company questioned Held that - Appeal dismissed. The enquiry under section 195 must be just and beneficial for the purposes of the winding-up and must not be aimed at harassing or annoying the persons summoned for examination.

Summary

Issues:
1. Questioning the propriety of an order under section 195 of the Indian Companies Act, 1913.
2. Validity of the debenture trust deed and unattested hypothecation deed.
3. Allegations of the debenture trust deed being a sham document to defraud unsecured creditors.
4. Applicability of section 195 for summoning persons capable of giving information concerning the company.
5. Discretion of the court in exercising powers under section 195.
6. Request for court to determine questions for examination before the process starts.

Analysis:
The judgment concerns the appellants challenging an order under section 195 of the Indian Companies Act, 1913, summoning them for examination regarding the affairs of a company in liquidation. The court outlined the background where the appellants were involved in a debenture trust deed and a hypothecation deed with the company. The official liquidators alleged the trust deed was a sham document to defraud unsecured creditors. The District Judge, based on the official liquidators' application, summoned the appellants under section 195, considering them capable of providing crucial information about the company's affairs.

The High Court dismissed the appeal against the order, emphasizing the importance of ascertaining how the appellants, as secured creditors, dealt with the security and whether any surplus existed for unsecured creditors. The appellants contended that the application by the liquidators invoking section 195 was not maintainable. However, the Supreme Court found no merit in this argument, stating that the court's discretion to summon individuals under section 195 was not arbitrarily exercised in this case.

Regarding the request for the court to define the questions for examination beforehand, the Supreme Court held that it was within the discretion of the court conducting the winding-up proceedings to determine the scope of examination. The court stressed that the inquiry under section 195 should be just and beneficial for the winding-up process, avoiding harassment or vexation of the summoned individuals. Ultimately, the appeal was dismissed, affirming the validity of the order under section 195 and emphasizing the court's authority in conducting examinations for the benefit of the winding-up process.