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TMI Blog1979 (11) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... and the period which has been taken to pass the final order, are indeed far distressing and a point to ponder about the delays, calling for urgent steps if the system is to maintain its credibility. On July 28, 1970, the official liquidator filed a report under section 455(1) of the Companies Act, being C.P. 74-D/66, which he brought to the notice of the company judge together with the observations of the auditor. In the report the official liquidator has mentioned that payments were made and not accounted in the books of account, over-payments and double payments were made to the parties, preferential payments to creditors were made after the order for provisional winding up was passed; no securities were obtained by the company against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide his order dated August 29, 1972, directed that he considered it necessary to have the public examination of the appellant. Notice of that order having been sent to the appellant, he moved the company judge praying that the ex parte order, dated August 29, 1972, directing the public examination, be set aside. The learned judge has refused to set aside the order for public examination of the appellant and the matter has come up before us in appeal. There is difference of view as to the competency of an appeal against an order directing public examination: K. Joseph Augusti v. Official Liquidator, Palai Central Bank Ltd. [1963] 33 Comp. Cas. 126 (Ker.) and Chokkalingam Chettiar v. Official Liquidator, Nagarathar National Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is a prima facie case of fraud against the particular person named. (See [1933] 3 Comp. Cas. 366 ; AIR 1933 All. 366 In re Indian States Bank Ltd. ) . Where money is lent on shares in the bank, which is expressly prohibited by the articles, suggests fraud and, therefore, would justify the public examination and, therefore, the director is responsible. [See Chokkalingam Chettiar v. Official Liquidator, Nagarathar National Bank, [1943] 13 Comp. Cas. 263 ; [1943] 2 MLJ 499 (Mad.)]. In a matter under section 214(1) of the Companies' Ordinance of Uganda, which is equivalent to section 478 of our Act, the Privy Council observed that the need for a prima facie case was satisfied and that the charge in the report need not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was called for public examination was the director of the bank and took active part in the management of the bank. The court on these findings upheld the order of public examination. Reference to the various details mentioned in the report of the official liquidator here would show that no receipts were obtained for making the alleged payment and that the entries have been made in the day book but no entry is made in the hirers' ledgers and that the payments were not accounted for in the books of account and over-payments were made. Mention is also made of a good number of account sheets missing from the depositors' ledger and that fraudulent and preferential payments have been made to several creditors. It is specifically stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs had not participated in the managing director's fraudulent acts, they would be liable to reimburse to the company for the loss caused thereby. So, in that case, even on the official liquidator's showing, there was not even a suggestion of prima facie case against those directors. So, while refusing to call them, the prayer of the official liquidator to call the managing director was upheld. That case is clearly distinguishable. In the present case the managing director has been called, and there are serious allegations suggesting fraud and about his conduct, he being the managing director. One of the arguments strongly contended by Mr. Jain was that, as the appellant also had moved an application under section 478(7)( a ) for being e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued a direction for public examination. The application for exculpation under section 478(7)( a ) does not stop the operation of the order directing the public examination. All that a person gains by moving an application under sub-section (7) of section 478 is that after the public examination the court will go further and will have to decide whether the person concerned should be exculpated. If the court thus exculpates him it entitles the person concerned to be paid costs. This is an advantage which he gets by moving for exculpation. But it does not mean that public examination must be kept in abeyance. Moving an application is not an automatic stay of the operation of the order of public examination. The judge is seized of the matter a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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