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TMI Blog1971 (4) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement between the company and the said firm of Srinivasan and Company provided that the firm should be the managing agents of the mills for a period of 20 years. For locating the mills an extent of 30 acres of land was purchased and in some portions of those lands buildings were raised up to the roof level and in some portions up to the ground level. But, after some time, troubles arose between the three partners of the managing agency firm and as a result thereof one P. S. Thirumalai Iyengar was taken in as an additional partner of M/s. Srinivasan and Company and he took charge of the mill in June, 1948, as managing partner instead of P. S. Mani Iyer who was earlier in charge of the mill as the managing partner of the managing agency firm. After Thirumalai Iyengar took charge, he examined the accounts and found that some amounts belonging to the mills had been diverted by the three partners of the firm for purposes other than the affairs of the mills and, therefore, he obtained a promissory note for a sum of Rs. 1,78,000 from the then three partners of the managing agency firm towards their alleged liability, and he also filed a criminal complaint against the said three per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares. (2)fraud in the investment of the share capital amount; (3)fraud in the purchase of lands; (4)fraud in the purchase of building materials ; (5)fraud in advancing monies for purchase of materials, etc ., required for the mills; (6)fraud in the sale of machinery and Government securities, furniture, livestock, etc ., belonging to the mills; (7)fraud in the disposal of monies obtained by such sale; (8)fraud in the payment of premiums for the financial aid; (9)fraud in effecting compromise with Sri G. Srinivasa Iyer, architect and engineer; (10)fraud in maintaining accounts; and (11)fraud on resolutions passed by the directors at the instance of the managing agents. The official liquidator, therefore, prayed that the ex-directors and the managing agents were all to be publicly examined under the provisions of section 196 of the Indian Companies Act. This application of the official liquidator was opposed by the ex-directors and the managing agents of the company. The lower court directed the public examination of all the directors as also the partners of the managing agency firm under section 196 of the Indian Companies Act. Against that order, the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, or as to his conduct and dealings as director, manager or other officer thereof. " Section 177B(2) provides: "The official liquidator may also, if he thinks fit, make a further report, or further reports, stating the manner in which the company was formed and, whether in his opinion any fraud has been committed by any person in its promotion or formation, or by any director or other officer of the company in relation to the company since the formation thereof, and any other matter which in his opinion it is desirable to bring to the notice of the court." A conjoint reading of the above provisions shows that the official liquidator has to bring to the notice of the court any fraud that might have been committed by any person in the promotion, formation or management of the company, and the court is empowered to order public examination of the persons charged with fraud at the instance of the official liquidator. The provision with regard to the public examination was first introduced into English company law by the Companies (Winding up) Act of 1890 and sections 8(2) and 8(3) of that Act corresponded to sections 177B(2) and 196 of our Companies Act of 1913. The qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss he or they chose to tell the official receiver which of the three directors had been the actual perpetrator or perpetrators of any of the fraudulent acts in question. This would be a reductio ad absurdum which their Lordships find impossible of acceptance." Chagla C.J. in Fazal Ibrahim Rahimtoola v. Appabhai G. Desai [1950] 20 Comp Cas 8; AIR. 1949 Bom. 339 stated that looking to the whole scheme of the Act and of section 196, it is clear that section 196 only aims at those persons who are charged with fraud and not those persons who may be concerned with the working of the company and are not charged by the liquidator with fraud. In In re Indian States Bank Ltd. [1933] 3 Comp Cas 26; AIR. 1933 All 366, it has been held that the court before it passes an order for public examination must be satisfied that some facts are given in the application which entitle the court to find that there is a prima facie case of fraud against the particular person named, and that the general allegations of fraud in the management of the company may not be sufficient for ordering for the public examination of any person not directly implicated in the fraud, but that there is no neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions of the company will not be sufficient to base a charge of fraud. According to the learned judge the report of the official liquidator should be of such a nature that it will probabilise the opinion of the official liquidator that prima facie all the directors were concerned in the fraud, and that if it is made out, on facts, that all the directors were concerned in the fraud, it may not be necessary for the official liquidator to go further and state which of the directors committed a particular fraud and that, in the absence of any allegation of fraud, the court is not empowered to make an order for public examination. In this case, as pointed out in Topham foamy's Company Law, 13th edition, page 384, where the court makes an order that a person shall attend for public examination (the order being based on a report of the official liquidator that in his opinion a fraud has been committed), and an appeal is made against the order, the question to be considered is whether the report was so flimsy, so sketchy, or so unfair that the court exceeded its jurisdiction or erred in exercising its jurisdiction in making the order. In other words, in such case it has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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