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TMI Blog1965 (7) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... into lakhs of rupees and that further investigation was necessary in order to bring to light the acts of mismanagement and frauds perpetrated during such mismanagement. On 21st February, 1963, a judge's summons was taken out by the official liquidator applying for examination of several persons including the applicant whose names were listed in a schedule to the summons under section 477 of the Companies Act, 1956, and that application was supported by a signed statement of the official liquidator dated 8th February, 1963, under rule 243(3) of the Companies (Court) Rules, 1959. In the signed statement it was pointed out that at the extraordinary general meeting of the shareholders held on 14th March, 1949, the managing agency agreement with M/s. W. H. Brady Ltd. (the former managing agents of the company) was by a resolution terminated necessitating payment of large amounts to the said M/s. W.H. Brady Ltd., and it was further pointed out that the applicant was a director of the company at the material time and also a signatory to the requisition for calling the said extraordinary general meeting on 14th March, 1949, and further a liability to the tune of over Rs. 25 lakhs was shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned judge gave directions under rule 261 and further fixed the hearing of the summons for 8th November, 1965. It may be stated that the applicant, Pravin S. Shah, whose private examination under section 477 has been ordered, is respondent No. 7 to the misfeasance summons and in respect of various dealings, including the termination of Brady's managing agency, a sum of Rs. 44 lakhs and odd is claimed against him in the said summons. The private examination of the applicant and others, which was adjourned from time to time, was finally fixed on 14th June, 1965, but in the meanwhile he has taken out the present judge's summons on nth June, 1965, for vacating the order passed on 2nd March, 1963, in so far as it relates to his private examination under section 477 of the Companies Act. The summons for vacating the order directing the applicant's private examination was pressed by Mr. Mehta on three or four grounds. In the first place, it was contended that beyond mentioning that the applicant was a signatory to the requisition calling the extraordinary general meeting on 14th March, 1949 (at which the resolution terminating M/s. W. H. Brady's managing agency had been passed) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an order from this court fixing 8th November, 1965, as the date of hearing of that summons 'had been obtained and what was urged was that the private examination under section 477 of the applicant, against whom a misfeasance summons on substantially the same facts has been taken out and is pending, would be oppressive and vexatious, inasmuch as he would be called upon to furnish information and materials in his private examination which would be used against him later on in the misfeasance summons. Mr. Mehta in fact urged that the applicant's private examination would serve no other purpose but afford the official liquidator an opportunity to secure incriminating information against the applicant in order to proceed effectively with the misfeasance summons against him and, therefore, such private examination of the applicant should be regarded as oppressive and vexatious. Lastly, it was contended that the applicant would be, so to say, compelled to give incriminating answers to questions touching the items or topics which are the subject-matter of the misfeasance summons and these answers would be used against him in the misfeasance proceedings and that is opposed to all principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him in the misfeasance summons, Mr. Mody pointed out that in such a private examination under section 477 it was open to the applicant to claim protection from the court against such incriminating questions and the court was always there to afford the necessary protection to him. He further urged that such a stage would only arise after the applicant's private examination is conducted for some time and at the proper time, if any incriminating questions were put to him, he could always seek protection of the court. But simply because some incriminating questions might be asked of the applicant in his private examination, that is no ground for vacating the order directing his private examination. He, therefore, urged that no case had been made out by the applicant for coming to the conclusion that his private examination under section 477 should be regarded as oppressive or vexatious and, therefore, the summons taken out by him was liable to be dismissed. In order to deal with the first two contentions of Mr. Mehta, it will be necessary to consider the provisions of section 477 of the Companies Act and its scope and object. The relevant provision is contained in sub-section (1) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the court deems capable of giving information concerning promotion, formation, trade, dealings, property, books or papers or affairs of the company. It will be pertinent to note that, whereas in regard to the last three classes of persons, there are qualifying words, in regard to the first class of persons, viz ., any officer of the company, there are no qualifying words used. In other words, if a person to be summoned for examination under section 477 belongs to the last three classes of persons, such person must be known or suspected to have in his possession any property or books or papers of the company or known or suspected to be indebted to the company or must be one whom the court deems capable of giving information pertaining to the subjects mentioned therein, but an officer of the company could be summoned irrespective of whether he has in his possession any property, books or papers of the company or not, whether he is indebted to the company or not or whether or not the court deems him capable of giving information In the present case, since the applicant was admittedly a director of the company and, therefore, an officer of the company within- the meaning of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance in the contention of Mr. Mehta that the official liquidator had obtained the order dated 2nd March, 1963, ex parte without placing two most material facts (referred to by me in the earlier part of the judgment) before the court or that the court would not have passed the order directing the applicant's private examination if those facts had been placed before it. In the first place, on my construction of section 477 as indicated above, there was no necessity on the part of the official liquidator to place before the court any other fact except the fact that the applicant was a director and, therefore, an officer of the company in order to obtain the order in question Secondly, though it is true that these two facts had not been mentioned by the official liquidator in his statement dated 8th February, 1963, it cannot be said that simply because these facts were not mentioned by him to the learned judge, the official liquidator had deliberately suppressed those facts from the court. Further, even after considering these material facts which have been put forward by the applicant at this stage, I am unable to persuade myself to take the view that no useful information useful f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be necessary to consider side by side the provisions of section 477 and 543 of the Companies Act as also the objects underlying these two sections. In the earlier part of my judgment I have already referred to the provisions of section 477 and I have also indicated the object with which that section appears to have been enacted. Now section 543 runs as follows : "543 Power of court to assess damages against delinquent directors, etc. ( i ) If in the course of winding up a company, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, manager, liquidator or officer of the company ( a )has misapplied, or retained, or become liable or accountable for, any money or property of the company; or ( b )has been guilty of any misfeasance or breach of trust in relation to the company; the court may, on the application of the official liquidator, of the liquidator, or of any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, managing agent, secretaries and treasurers, manager, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjects mentioned in that section should cease. In fact, the opening words of section 477 clearly indicated that the examination thereunder could be applied for and directed "at any time after the appointment of a provisional liquidator or the making of a winding-up order". The test for making the order under the section, as has been held in many English cases and in the Supreme Court decision in Satish Churn Law v. H. K. Ganguly [1962] 32 Comp. Cas. 97 (SC) , is whether it is just and beneficial for the purposes of the winding up of the company. It is well settled that mere pendency of an action against an officer of the company is not sufficient to justify him in refusing to submit himself to the examination under the section. In Ex parie Leaver [1884] 51 Law Times 817 it has been held that the liquidator may properly apply for examination under section 115 of the English Companies Act, 1862 (similar to section 477 of our Act) for the purpose of ascertaining whether the proceedings should be continued against an officer of the company. So also In re Metropolitan Bank ( Heiron's case) [1880] 15 Ch D 139 it has been held that it is open to the liquidator to apply for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or otherwise liable to be vacated or modified for adequate grounds. In our view, there is no ground for holding that the order is liable to be vacated or modified. It was never even suggested in the High Court that the order for examination was per se oppressive or vexatious. This is not a case in which the order is sought to facilitate the progress of an action filed by the official liquidator against the appellant, nor is there reason to hold that the order is sought in aid of some collateral purpose a purpose other than effective progress of the winding up in the interest of the company." Relying upon these observations Mr. Mehta urged that if the order for private examination was going to facilitate the progress of an action filed by the official liquidator against the director or officer of the company, such order is liable to be vacated and according to Mr. Mehta, in the present case, since the misfeasance summons has already been taken out by the official liquidator against the applicant, his private examination under section 477 would facilitate the progress of the action taken against him. It is not possible to accept the interpretation which Mr. Mehta is seeking to pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amination is sought solely for the purpose of facilitating the progress of that action against him or that his private examination is sought for the purpose of harassing him. In the present case no materials have been brought on record by the applicant to show that his private examination was sought by the official liquidator either for harassing him or solely for the purpose of facilitating the progress of the misfeasance summons taken out against him. In fact, it may be pointed out that the order for private examination of several persons including the applicant was obtained by the official liquidator on 2nd March, 1963, while the misfeasance summons was taken out against the several persons, including the applicant on 5th October, 1964. That the Supreme Court did not want to lay down such a proposition of law, as is contended for by Mr. Mehta, will be clear from the further fact that the English decision reported as In re Metropolitan Bank ( Heiron's case ) [1880] 15 Ch D 139 , where it has been held that it is open to a liquidator to apply for such private examination either before or even after he has brought an action against an officer of the company, was cited and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the officer concerned by exhibiting interrogatories to him, any other attempt in the same direction by resorting to the provisions of the Companies Act, which entitle the liquidator to obtain private examination of the officer, would amount to harassment of the officer and in those circumstances private examination should not be ordered. In other words, it will appear clear that the liquidator's application seeking private examination of the officer concerned was held vexatious not because he had already filed an action against that officer, but because he had, prior to his application, exhibited interrogatories to that officer and that officer had fully answered them. In the present case no such harassment or harassment of any other kind has been shown. In my view, therefore, the mere fact that a misfeasance summons has been taken out against the applicant and that the same is pending and a mere possibility that items or topics which are the subject-matter of the misfeasance summons might crop up in his private examination, are no grounds for holding that the applicant's private examination would be oppressive or vexatious. As regards the last contention that the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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