TMI Blog1946 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 202 of the Indian Companies Act is established so far as this Court is concerned by the decisions in Kesavaloo Naidu v. Murugappa Mudali [1906] 30 Mad. 22 and Chockalingam Chettiar v. Official Liquidator, Nagarathar National Bank [1943] 13 Comp. Cas. 263 . The winding up of the company was ordered by the learned Judge on the Original Side of this Court in January, 1943, and further proceedings were to be in the Court of the District Judge of West Tanjore. On 3rd November, 1943, an application was filed under section 235 of the Indian Companies Act alleging various acts of misfeasance, etc ., on the part of the directors and the secretary and asking the Court to require the respondents to make good the loss occasione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied for the revival of the application praying that the directors and the Secretary should make good the losses to the company. On 20th February, 1946, the learned District Judge passed ex parte proceedings reviving the former application and directing notices to the respondents and he also passed a very unsatisfactory order authorising the liquidator to prosecute "any director, manager or other officer for any offence which might have been committed." This latter order has been set aside in our judgment in C.M.A. No. 197 of 1946, as being obviously defective. On 13th March, 1946, that is to say, nearly a month after this order for prosecution had been passed, LA. No. 96 of 1946 was preferred by two shareholders and one creditor askin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any past or present director, manager or other officer, or any member, of the company has been guilty of any offence in relation to the company for which he is criminally liable, the Court may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator either himself to prosecute the offender or to refer the matter to the registrar." This section does not in terms require the Court to make any particular enquiry or to give to the person who is to be prosecuted an opportunity to show cause before the Official Liquidator is directed to file a complaint. On the facts of the present case it would appear that in the Official Liquidator's own enquiry the directors and the secretary had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he necessity for treating this report as confidential since substantially everything it contained had necessarily to be made public as soon as the prosecution started. The effect of this rather misguided secrecy is certainly to make it more difficult for any one interested to challenge or support the correctness of the orders of the learned District Judge. Those orders themselves contain no statement of reasons whatever and they did not even contain sufficient materials to enable the Appellate Court without further research to satisfy itself that the learned District Judge did give due consideration to the materials available. There is, however, no provision in section 237 of the Companies Act requiring the Court to set forth its reasons wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to set aside the order of the District Judge and require him to draw up a fresh order with an adequate statement of his reasons. Mr. Jagadisa Aiyar for the appellant has strenuously argued on the authority of In re Northern Counties Bank, Ltd, [1883] 31 WR 546 that the question whether a prosecution should be directed in the matter of the alleged misdeeds of directors of the company is mainly a question whether having regard to the financial position of the company and the desires of the shareholders and creditors, it is reasonable to saddle the assets of the company with the costs of prosecution. We do not read the case cited as laying down such a drastic rule and in fact the learned Judge who decided the case has himself in a lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to, direct a prosecution without the assent, and even notwithstanding the dissent, of the class or many of the class at whose expense the prosecution would be instituted." Now what are the facts in the present case. The company in liquidation had already paid a dividend of As. 10 in the rupee. The liquidator had in cash approximately Rs. 4,000 out of which Rs. 2,500 was set aside for a further dividend of As. 2. It is not shown that the balance after this distribution of As. 2 would not suffice for the costs of these prosecutions. The opposition to the prosecution was not put forward until after the District Judge had in his defective order of the 20th February, 1946, come to-the conclusion that proceedings ought to be taken and then t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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