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TMI Blog1938 (3) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on separate acts of misfeasance? It is necessary, in the first place, to examine the documents which have been filed. On 1st July 1935, a document entitled "application under section 235, Companies Act," was presented to the Court, and leave to file this application was given. This is the application now before the Court. It is the basis of the whole proceedings. In this application, the Official Liquidator is named as applicant and thirty-five person are named as defendants. Of these defendants, thirty-one had been Directors of the Peoples Bank of Northern India, Limited, (which I shall hereafter call the Bank), one had been Manager of the Bank, one Investment Officer and two were firms of auditors, who had been auditors of the Bank. At a later stage I shall discuss this document, in greater detail: it is sufficient now to state that it alleges against certain of the directors fraud and negligence in their duty to the Bank, against the remaining directors negligence in their duty to the Bank, against the officers breach of trust and collusion with the directors and against the auditors negligence in the performance of their duties and collusion with the directors. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the thirty-nine persons named, who are now the respondents before the Court. Notice was issued accordingly and copies of the application of 1st July 1935 with the amended particulars were served on the respondents. I do not think that it is necessary to examine the various sets of particulars in detail; they have not been discussed in detail in the arguments, but there are one or two points which I must mention. So far as the respondents' names in the application of 1st July are concerned, they contain further particulars of the statements in the application: it may be that they also contain in certain cases new charges, as for example, in the case of Sir Abdul Hamid in relation to advances made to contractors of Kapurthala State on State guarantee. It was argued that this, charge was not covered by the statements in the original application. It is not necessary now to examine this question; it is sufficient to distinguish charges made by the original application and, charges not included in it but contained only in the particulars. I may note that the original application, except in the striking out or the adding of names of respondents has not been formally amended. Issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows: "The procedure provided in this Code in regard to suits shall be followed, as far as it can be made applicable, in all proceedings in any Court of civil jurisdiction." A proceeding in a misfesance application is a proceeding in a Court of civil jurisdiction and the provisions of the Code have been applied to proceedings under the Companies Acts. In Bombay Burma Trading Co. v. Dorabji it was held that a petition under the Companies Memorandum of Association Act, 1895, is a proceeding within the section , and in Hindustan Bank Ltd. v. Mehraj Din, to an application to set aside an ex parts payment order made under the Companies Act of 1886, the provisions of Order 9, Rule 13 were applied by virtue of this section . That the section applies to proceedings under the Companies Act never appears to have been doubted. Only one case involving the construction of the section has gone as far as the Privy Council. In Thakur Prasad v. Fakirullah, the question at issue was, whether section 647 of the old Code (equivalent to section 141) made applicable to execution proceedings the procedure laid down in regard to suits: the only passage in the judgment of their Lordship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 235), was not a decree or order having the force of a decree. In the course of his judgment Burkit, J., said: "It is at least doubtful whether the result of proceedings can be considered to be an order, i.e. , as defined by the Code of Civil Procedure. The proceedings leading up to such an order, if it be an order, are not in the strict and technical sense judicial proceedings at all. No procedure is imposed at any stage, no person would be formally cited, no plaint need be filed; no party has a right to prove his case in such a way as he chooses. The whole power is in the Court, which may examine into the conduct of the person complained of, and after such examination may compel repayment or contribution by way of compensation. The word 'compel' seems to contemplate an order entirely distinct from an order adjudicating on the rights of the parties. It pre-supposes, not a formal adjudication but simply a conviction in the mind of the Court that such order as it is going to make is just. The Act contemplates no order by way of formal adjudication upon the matter of right. That which it authorizes is a compulsory, that is to say an execution, order." With great respect, I diss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were engaged in administering the Companies Acts. It is unnecessary to pursue this question further. There can be no doubt that the proceedings under section 235 are judicial. It is agreed by counsel for both the Official Liquidator and for the respondents that the winding up rules of this Court apply to the application which is now before me, I have already referred to Rule 77, which requires that the application should contain the particulars on which the claim is based and that a copy of the application with the grounds thereof should be served on every person against whom an order is sought, and further that when the application is made by the Official Liquidator, he may make a report to the Court stating any facts and information on which he proceeds, which are verified by affidavit or derived from sworn evidence in the proceedings. The requirement of the rule in respect of a supporting affidavit differs where the application is made by any other person than the Official Liquidator; in such a case the application shall be supported by affidavit to be filed by him. Rule 95 provides that the general practice of the Court shall in cases not provided for by the Companies Act or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess provision for its contents and the formalities connected with it are provided (or by the Companies Act and the rules made there under. Issue 2. Do the petitions which have been filed collectively or individually constitute a valid plaint or statement of claim? This issue with Issues 1 and 3 was framed at the instance of the respondents. The wording of this issue anticipated a complete affirmative to Issue 1. But an additional contention for the respondents was that even if the provisions of the Civil Procedure Code relating to plaints did not apply, there was, nevertheless, no valid application under section 235 before the Court. The validity of the application will have to be considered separately in the case of the respondents who were named in the application and in the case of the respondents named in the application of 16th July 1936, whose names were added to the list of respondents by an order of the same day. So far as the first class of respondents is concerned, the question is whether the allegations in the application against them are sufficient. I have not to consider the case against the auditors. Since the hearing began, a compromise has been effected between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before the Judicial Committee that fraud had not been alleged in a petition for winding up but only in an affidavit in support of the petition. Their Lordships refused at that stage to consider the objection, but said: "The allegations were made in the affidavit evidence and the whole matter was clearly fought in the High Court on those lines and apparently without any objection being taken, which, had it been taken, would no doubt have led to the necessary amendments being made in the petition." From this lust case no help is to be gained on the question of how much must be averred. In In re New Mashonaland Exploration Co., the liquidator took out a misfeasance summons against certain directors of the company applying for a declaration that the directors were liable to repay two sums of the company's money which had been paid by them to a third party. The summons stated no ground of liability nor any reason why the payments made were to be considered improper. It was stated in argument by counsel that the directors had been guilty of "a breach of trust in relation to the company." In his judgment, Vaughan Williams J., after referring to Palmer's Company Precedents and E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a very grave character. It is asserted that almost the major portion of the assets of the Bank amounting to two crores of rupees had, in the course of six years, been transferred by the directors, defendants 1 to 17, to their own pockets: the assets were then almost entirely represented by loans due by the directors or their businesses and were incapable of being realized even to such an extent as to avoid default by the Bank; these loans were made without authority, were ultra vires and either unsecured or inadequately secured and the directors connived at the making of the advances in this way. The remaining defendant-directors are charged with neglect of duty in that, having taken on themselves to resuscitate the Bank, they failed to make any effort to recover the assets. The two officers of the Bank, defendants, are charged with having aided and abetted the directors in taking unauthorized loans. The allegations seem to me to be ample to justify an examination into the conduct of these directors and officers. I hold that the application of 1st July 1935 complied with the rules and is a good application as against the persons named as defendants. On 16th July 1936 the names of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to avoid a charge of multifariousness is too wide. There might in some cases be separate and distinct charges against individual directors or groups of directors and it might be oppressive that in one trial such separate charges should be examined. The practice of this Court is to be found in the Civil Procedure Code from which, I think, it appears that there should not be a trial against several defendants unless relief is claimed in respect of or arising out of the same transaction or series of transactions and the right to it is alleged to exist against the defendants whether jointly, severally or in the alternative. It was conceded by Mr. Bannerjee in argument that though no provision of the Civil Procedure Code applied, it was a permissible argument that the rules contained in the Code to avoid embarrassment in this respect may be taken as rules of natural justice. As the nature of the claim against the various defendants has not been discussed further than I have indicated, I find it difficult to arrive at a conclusion on this question. As the case now stands, no good ground of objection has been shown against the joinder of the defendants who arc named as parties in the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 17th February 1938, deciding certain preliminary issues in proceedings under section 235, Companies Act, pending against the three appellants and a number of other directors and officers of the Peoples Bank of Northern India Limited (in liquidation). The Peoples Bank of Northern India was incorporated as a joint stock company under the Indian Companies Act in January 1925 and commenced business in April 1925. It suspended payment on 29th September 1931, and on 22nd December 1931 a scheme for its "resuscitation" was sanctioned under section 153 of the Act. Subsequently, the company was ordered to be compulsorily wound up on 25th May 1935, and an Official Liquidator appointed. On 1st July 1935, the Official Liquidator presented a petition under section 235, Companies Act against 35 persons praying that the Court may examine into their conduct and compel them, or such of them as may be liable, to repay or restore moneys or properties lost to the company, or to contribute such sum or sums to its assets by way of compenstion as may be just. Two of the present appellants, Lala Mulk Raj Bhalla and Pt. Shiv Kishen Kaul, were among the defendants named in this petition; appellant 3 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 17th February 1938 deciding these issues. On Issue 1 he held that the petition under section 235, Companies Act is "in the nature of a plaint," but that the provisions of the Civil Procedure Code are inapplicable to it, because express provisions for its contents and the formalities connected with it are provided for by the Companies Act and the rules made there under. On Issue 2 the finding was that the petition of 1st July 1935 complied with the rules framed for the presentation of such application under the Companies Act and is a good petition as against the persons named therein as defendants. As regards the defendants, whose names were added on the liquidator's application of 16th July 1937, the learned Judge held that the application was defective as it did not make any charges against them; and as the charges against them were mentioned for the first time in the documents filed on 22nd April 1937, the date of the application against these added defendants must be taken to be 22nd April 1937. As regards the plea of multifarious-ness to which Issue 3 related, it was held that no good ground of objection has been shown against the joinder of the defendants who were named as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able as it did not fall within section 104, Civil Procedure Code, it was held by the Full Bench that a party aggrieved from an order passed in the course of liquidation proceedings by the District Judge, in exercise of his jurisdiction under the Companies Act, is entitled under section 202 to appeal to the High Court, irrespective of the provisions of the Civil Procedure Code which restrict the right of appeal to specified orders, section 202 being wide enough to cover appeals against any order made in the matter of the winding up of a company, provided such an order finally decides the dispute between the parties or deprives the appellant of a substantial and important right, and is not a mere formal or interlocutory order. The decision completely meets the objection raised in this case before us. It was however contended that the law had not been correctly laid down by the Full Bench, and we were asked to have the matter reconsidered by a larger Bench. We have listened to interesting and able arguments by counsel for both sides; but after giving the matter careful consideration, we find ourselves in respectful agreement with the conclusion reached in the case cited. section 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany was held to be appealable under section 169, Companies Act of 1882, though the order was not appealable under the Civil Procedure Code. Similarly, in Amritsar National Banking Co. Ltd. v. Mohan Lal it was held that an appeal lay from an order passed by the District Judge under section 171, Companies Act, granting leave to a share-holder to proceed with his suit for declaration that he was not a share-holder of a company. It is admitted that such an order, being purely interlocutory and not covered by section 104 or Order 43, Civil Procedure Code, was not appealable under any provision of the law, except under section 169, Companies Act of 1882. Again, in De Souza v. S.B. Billimoria an order of a District .Judge refusing to allow inspection of notes of examination under section 196, Companies Act of 19T3 was held appealable under section 202 of the Act. The same view appears to have been taken in most of the other Courts. In Kesavaloo Naidu v. Murugappa Mudali it was held that the right of appeal conferred by section 169, Companies Act of 1882 "extends to all orders or decisions made or given in the matter of the winding up of a company, whether the winding up i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act at all. The execution of the payment order, as a decree, had been transferred to the District Judge Agra, under section 39 and section 40, Civil Procedure Code, and under section 42 all orders passed by the Court were "subject to same rules in respect of appeal as if the decree had been passed by itself." The course of appeal from the order of the Agra Court was therefore to be determined by the Civil Procedure Code and not the Companies Act, and there is no question that under the Code no appeal lay from the order rejecting the objection under Order 21, Rule 63. After giving the matter careful consideration, we hold that the order under appeal in this case is not of a merely formal or ministerial character but finally decides points between the parties relating to substantial and important rights and is therefore appealable under section 202, Companies Act. In this view of the case, it is not necessary to go into the further point argued before us by Mr. Badri Das that the order in question was also a "judgment" within Clause 10, Letters Patent. We accordingly overrule the preliminary objection. On the merits, it will be convenient to take up first the appeals of Lala Mulk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , further particulars were allowed to be filed at a later stage and they were supported by an affidavit sworn by the Official Liquidator on 22nd April 1937; and it was after this had been done that notice was issued to the appellants for the first time. The rules do not require that the affidavit should be filed along with the petition, or that, if it is not so filed, it cannot be received at a later date. We hold therefore that the proceedings against the appellants are not defective by reason of objections ( b ) and ( c ) mentioned above. The remaining objection is that the petition did not fully and adequately set out the particulars on which the claim is based. In the original petition 35 persons had been named as defendants, whom the Official Liquidator sought to make liable for alleged acts of misfeasance. The appellants, Pt. Shiv Kishan Kaul and Lala Mulk Raj Bhalla were among them, being Nos. (18) and (19) in the list. It is contended on their behalf that this petition does not contain any specific allegations on which a claim under section 235 could be based against them. In reply, the learned counsel for the liquidator referred us to paras. 10 and 12 of the petition whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he was not one of the defendants named in the original petition of 1st July 1936. He was first mentioned in the application of 16th July 1935, but that application merely asked that he be "added" as a defendant; it did not set out any allegations against him; nor did it disclose the basis of the claim on which it was sought to make him liable. In Schedule B, attached to the document presented on 22nd April 1937, a summary of the case against him was for the first time given (p. 54), and in the Schedule at p. 130 are found details of the amount in respect of which it was stated that he had committed acts of misfeasance. We have read with the assistance of counsel, the relevant clauses of the statement of claim but are unable to find that any case of fraud, breach of trust or negligence, is disclosed against him. We must therefore hold that so far as he is concerned, the applications taken individually or collectively, do not comply with the requirements of Rule 77 . This brings us to issue 3 in the case, as to whether the claim against the appellants should be tried jointly with the other defendants. It is conceded that neither Lala Mulk Raj Bhalla nor Pandit Shiv Kishan Kau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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