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TMI Blog1948 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e application before the learned Judge was under clause ( vi ) of section 162 of the Indian Companies Act on the ground that it is just and equitable that the company should be wound up by Court. Various reasons are alleged in the statutory affidavit filed in support of the application, which in essence, come to this, that the directors, far from working in harmonious co-operation are at loggerheads with the result that the business is at a standstill on account of the deadlock. The gravamen of the charge is mainly against the first respondent as well as the second respondent. In answer to the application, the respondents filed separate affidavits denying the charges levelled against them and further stated that the company is carrying on business properly and that substantial profits have been earned in addition to acquiring valuable goodwill. It is further alleged that the appellant, during the time he was managing director, had misappropriated large sums of money belonging to the company and committed acts of misfeasance as a result of which the shareholders had to convene a special meeting wherein the second respondent was elected as the managing director. The affidavits on eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed copies of the document would be alleviated by probably looking into the manuscripts themselves. The hearing was resumed on Thursday, the 13th November, with the petitioners' counsel reading the petition, the affidavit, the counter-affidavits and the reply affidavit. In this Court, the respondents' counsel stated that on 13th November, 1947 the applicants' counsel requested the Court for a further adjournment for the reason that the documents were not only not typed but that most of them had not even been translated into English. This was a reason quite different from what was given the previous day in support of the application for adjournment. Since the learned Judge does not make any mention about this request, we do not intend to rely upon this circumstance at all. As is seen from the judgment of the learned Judge, after having read the petition, the affidavit, the counter-affidavits and the reply affidavit, the applicants' counsel proceeded to make his submissions on the facts set forth in those pleadings and also argued questions of law. Thereafter, towards the close of the working day on 13th November, 1947, the applicants' counsel proceeded to call oral evidence in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been given it was not desirable or proper to adjourn the case at all. After consideration of the various provisions of the rules made under the Indian Companies Act, Clark, J., decided that there was no provision in the Indian Companies Act or the rules made thereunder, for the taking of oral evidence in winding-up applications. He therefore sought guidance from the procedure followed in the High Court of Justice in England and referred to Palmer's Company Precedents from which it was seen that in England oral testimony is permitted in support of a petition only by permitting the cross-examination of deponents where there is a conflict of evidence or when the evidence of some persons who decline to make an affidavit is required. As already stated, the application for cross-examination was not made at the earliest opportunity and so the learned Judge was not inclined to exercise his discretion in favour of the applicants. Mr. K. Krishnaswami Ayyangar, learned counsel for the appellant, strenuously urges that the procedure adopted by the learned Judge is wrong and unsupported by the precedents in this Court. It is contended that an application for winding-up is commenced by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition in Order 1, rule 4 (9), of the Original Side rules. Both the rules made under the Companies Act as well as the Original Side rules are silent with respect to the question whether oral evidence can be let in to substantiate an application for winding-up. It is undisputed that in the case of an original petition filed in a mofussil Court under many other statutes, for example, the Indian Succession Act, the Guardian and Wards Act or the Lunacy Act, the party is entitled to let in evidence both oral and documentary to prove his case. Section 141 of the Code of Civil Procedure lays down that the procedure provided in the 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. This is sufficient authority for the practice obtaining in the mofussil Courts that in original petitions evidence, oral and documentary, can be adduced. Does the same practice appear to have been followed on the original side of this Court, or is it different from what is obtaining in the mofussil Courts, in trying an issue raised by an original petition? The learned counsel for the appellant invited our attention to the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court or a Judge may, on the application of either party, order the attendance for cross-examination of the person making any such affidavit............and under Order XXXVIII, rule 20, any party or witness having made an affidavit, is bound on being served with a subpoena to attend before the examiner, or other officer of the Court, or a special examiner, for examination. A subpoena cannot issue under rule 20 until an order has been obtained for the examination of the witness..." From these observations it is sufficiently clear that both in England and in this country there is no inflexible rule or practice prohibiting the adducing of oral evidence or the cross-examination of the deponents of affidavits in matters like the present. We cannot agree with the learned Judge that such evidence is confined only to the cross-examination of the deponents of affidavits. Even the very first sentence from Palmer's Company Precedents quoted above suggests that sometimes occasion arises for obtaining oral evidence of witnesses and instances of such occasions are given thereafter. The correctness of the decision of the Division Bench of this Court in Sabapathy Rao v. Sabapathy Press C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tard and delay the progress of the application. The applicants had ample time to summon any witness whom they wanted to examine, or to take out subpoenas to the respondents for their attendance in Court for cross-examination. Though the application was filed on 28th August, 1947, the date fixed for hearing was the 27th October, 1947, nearly two months after the filing of the application, No steps were taken to summon any witness during this period of two months. There was some discussion at the Bar as to the stage at which such an application should be made and reference was made to rule 23 of the rules framed under the Companies Act. In the case in question, the first hearing must be deemed to be when the application came on initially on 28th October, 1947, and on that date at least when the learned Judge gave directions for the filing of counter-affidavits, the applicants ought to have intimated the Court that oral evidence was necessary. Even if the applicants were unaware of the defence that was going to be raised by the respondents on 28th October, 1947, they were perfectly aware of the allegations contained in the counter-affidavits on 5th November, 1947. At least on that day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elaboration in the statutory affidavit which is considered to be prima facie evidence enabling the Court to order the winding-up of the company. If the contents of the statutory affidavit disclose a prima facie necessity for winding up, then only it becomes obligatory for the respondents to let in any evidence contra. In In re Chapel House Colliery Co. [1883] 24 Ch. D. 239, at p. 267 , it is stated that the Court will not, as a rule, order a petition to stand over for a lengthened period as it would not be just to the company. Expedition is the very essence of winding-up proceedings, and the interests not only of the company, but an element of public policy in regard to commercial morality also, should be considered in the disposal of winding-up petitions. It is in this background and with this object, that the statutory affidavit is made prima facie evidence of the contents of an application for winding-up. In this connection it is not only pertinent but highly instructive to refer to a decision reported in In re The London Fish Market and National Fishing Company Ltd. 27 SJ 600. In that case before Chitty J., the petitioners asked the case to stand over in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... least on the first hearing day, i.e., on 28th October, 1947. As we have already stated that expeditious disposal of winding-up petition is a matter of prime importance, it is the duty of the parties to produce the necessary documentary evidence at the first hearing. The passage cited by him from Halsbury's Laws of England, Hailsham Edition, Volume 5, page 563, paragraph 904, showing that adjournments in such matters are of frequent occurence is of no help in the disposal of this petition. Our attention was invited to. the decision of Leach, C.J., and Lakshmana Rao, J., in O.S.A. No. 67 of 1943 where the learned Judges set aside an order of Bell, J., sitting on the Original Side in an application to rectify the register of a certain company by deleting therefrom the names of four persons as shareholders. Bell, J., on the Original Side, refused leave to cross-examine the persons who had sworn affidavits in support of the respondents' case and also did not allow oral evidence to be adduced. The Court of Appeal disagreed with him and directed oral and documentary evidence to be adduced as in an ordinary trial. We are unable to find any similarity between the circumstances mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, M.R., at page 430 observed as follows: "In those circumstances, supposing it had been a private partnership, an ordinary partnership between two people having equal shares, and there being no other provision to terminate it, what would have been the position? I think it is quite clear under the law of partnership, as has been asserted in this Court for many years and is now laid down by the Partnership Act, that that state of things might be a ground for dissolution of the partnership for the reasons which are stated by Lord Lindley in his book on Partnership at page 657 in the passage which I will read, and which, I think, is quite justified by the authorites to which he refers: 'Refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly co-operation have been held sufficient to justify a dissolution. It is not necessary, in order to induce the Court to interfere, to show personal rudeness on the part of one partner to the other, or even any gross misconduct as a partner. All that is necessary is to satisfy the Court that it is impossible for the partners to place that confidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are strictly the limits of the 'just and equitable' clause as found in the Companies Act. I think that in a case like this we are bound to say that circumstances which would justify the winding up of a partnership between these two by action are circumstances which should induce the Court to exercise its jurisdiction under the just and equitable clause and to wind up the company." Warrington, L.J., also refers to similar circumstances and holds that where there are only two persons interested and there are no shareholders other than these two, and where there are no means of overruling by the action of a general meeting of shareholders the trouble which is occasioned by the quarrels of the two directors and shareholders, the company ought to be wound up, if there exists such a ground as would be sufficient for the dissolution of a private partnership at the suit of one of the partners against the other. We are of opinion that there is a wide divergence between the circumstances in that case with those in the present one. Where two directors would not even speak to each other and they constitute the entire board of directors, the company has necessarily to be wound up. Here, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-affidavit of the seventh respondent as well as the fifth respondent show that they put the blame as much on the appellant as on the first respondent himself. It is unnecessary for the disposal of this application to dilate upon the mode of management followed by the first respondent. But even if his management has been unsatisfactory, the second respondent has already been elected managing director. But this election is questioned on the ground that no meeting was actually held or if at all any such meeting was held, it was illegal and against the rules. The learned Judge has carefully considered the various allegations made by the applicants and has refused to exercise his discretion to wind up the company because, in his opinion, the allegations are not sufficient to justify the winding up. Two things are clear, and they are that even during this period, despite the actions of a minority, the company has been earning profits and that it has accumulated something like a goodwill. Even so, the applicants contended that this incompatibility of good relations between two rival factions in the directorate would necessitate the dissolution of the company so that the minority may get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriation of a sum of Rs. 1,000 by the first respondent was wholly unfounded as it was not even made in the petition and that such a charge was never made before. We find it unnecessary, in the view we take, now that the first respondent is no longer the managing director, to give any definite finding on this charge. In regard to the charge that the first respondent was withholding accounts from his co-directors and shareholders the learned Judge has rejected the allegation made by the applicants and having carefully gone through his judgment we see no reason to differ from his conclusion. The learned Judge further found that the affairs of the company were not in a bad financial condition. We are satisfied that respondents 2 to 10 before us cannot be held guilty of any of the allegations of mismanagement or other improper acts made against the first respondent, especially since some of these respondents state that both the appellant and the first respondent are to be tarred with the same brush. In the counter-affidavit of the seventh respondent who is a well-educated Vysya gentleman having obtained a degree in the Andhra University, we find sufficient materials for coming to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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