9911796707
TMI Blog1965 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... other persons. Respondents Nos. 2, 3 , 4, 6, 7, 8, 9 and 10 were either directors or ex-directors of the company. Respondent No. 5 was at the material time its general manager. It is not necessary to set out the various allegations of fraud, mismanagement, misconduct and misappropriation of the company's funds, on the part of the respondents. The petitioner, Union of India, had in the petition prayed for an order removing respondents Nos. 6, 7,8, 9 and 10 and all of them from the board of the company, for an order restraining respondent No. 3 and other respondents from interfering and intermeddling in the affairs of the company and its conduct and management; for an order removing respondent No. 5 from his employment and for a further direction to restrain him from acting in the course of his employment; for an order restraining respondent No. 5 from acting or functioning in any capacity under the company and from interfering or intermeddling with the affairs of the company ; and for an order directing the appointment of a special officer to manage and conduct the affairs of the company. The petitioner also prayed for certain interim reliefs pending the final disposal of the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in Case No. 1 of 1964, praying that the Union of India be directed to furnish better particulars in respect of certain averments made in the petition under section 388B. This application has been numbered as Application No. 17 of 1964. Similarly, on 1st December, 1964, Shri S.P Jain filed another application praying that the Union of India be directed to furnish further and better particulars in respect of certain averments made in Petition No. 9 of 1964. This application has been numbered as Application No. 38 of 1964. The Tribunal directed the Union of India to furnish the particulars. On 14th April, 1965, Mr. D. S. Dang filed an affidavit on behalf of the Union of India furnishing better particulars, both in Case No. 1 of 1964 and also in Petition No. 9 of 1964, The verification clause of the affidavit verifying the particulars is in the following terms: "I verify the particulars in both exhibits 'A' and 'B' hereto and state that the statements made therein are based on information which I believe to be true. Without prejudice I also disclose the source of information and the basis on which the particulars are given." The affidavit then proceeds to detail the sources of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well-settled law, are fatal and the defects cannot be cured nor the lacuna filled up by affidavits affirmed subsequently or by other evidence oral or documentary. Your petitioner submits that this hon'ble Tribunal should not have entertained or admitted the said application. Your petitioner further submits that this Hon'ble Tribunal has no jurisdiction to entertain, admit or proceed with the trial of an application which is not supported by an affidavit verified in accordance with the provisions of law. Your petitioner further submits that this Hon'ble Tribunal had no jurisdiction nor has it any jurisdiction to make any order in a case initiated illegally by such an application except to reject and dismiss it. The petitioner submits that it was an error to have admitted the said application and that to right a wrong, it is incumbent upon this Hon'ble Tribunal to forthwith reject the said application numbered as Case No. 9 of 1964 and vacate all orders passed therein." In short, the case of the respondent, Shri Jain, had been that the relevant provisions of law required that an application under section 398 containing grave allegations of fraud, misconduct, misappropriation, etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, he contends that the Union of India now is not entitled in law to lead any further evidence in proof of the averments made by them in the petition either by filing further affidavits or by tendering documentary or oral evidence. The petition, therefore, at any rate, is liable to be dismissed on merits. The arguments advanced by Mr. Mody relate to the construction of the relevant provisions of the Act, and principally rule 21 of the Companies (Court) Rules, 1959, framed by the Supreme Court of India after consulting the High Courts, hereinafter referred to as "rules" and Order 19, in general, and Order 19, rule 3, in particular. It would, therefore, be convenient at this stage to refer to the relevant provisions of the Act and the Rules as well as the regulations framed by the Tribunal in exercise of the powers conferred on it by subsection (5) of section 10B introduced in the statute book by the Companies (Amendment) Act, 1963 (53 of 1963), which came into force on 30th December, 1963. In the year 1956, Parliament, with a view to consolidate and amend the law relating to companies and certain other associations, passed an Act called " The Companies Act, 1956(1 of 1956)". It c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the Tribunal with a request that the Tribunal may inquire into the case and record a finding as to whether or not such a person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company. Now, the amendments which are required to be noticed under the Amending Act are the amendments to sections 397, 398, introduction of sections 10A to 10D on the statute book, and the introduction of sections 388B to 388E on the statute book. As a result of the amendments to sections 397 and 398, the powers of the court to grant relief under the said sections are enlarged. At the instance of the members who fulfil the requisite qualifications mentioned in section 399, or at the instance of the Union of India, the courts are empowered to grant relief in cases where the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members of the company, or in cases where the affairs of the company are conducted in a manner prejudicial to the public interest or in a manner prejudicial to the interest of the company or in cases where a material change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 and 398 are included as items (12) and (13) in this clause. Rule 17 provides that the forms set forth in Appendix I, where applicable, shall be used with such variations as circumstances may require. Clause (a) of rule 18 provides that: "Every affidavit shall be drawn up in the first person and shall state the full name, age, occupation and the place of abode of the deponent. It , shall be signed by the deponent and sworn to in the manner prescribed by the Code or by the rules and practice of the court. " Rule 21 provides: "21. Affidavit verifying petition.-Every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners, where there are more than one, and in case the petition is presented by a body corporate, by a director, secretary or other principal officer thereof; such affidavit shall be filed along with the petition and shall be in Form No. 3: Provided that the Judge or Registrar may, for sufficient reason, grant leave to any other person duly authorised by the petitioner to make and file the affidavit." The manner in which the said affidavit verifying the petition is to be sworn has been stated in Form No. 3 in the following terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions of rule 21 framed by the Supreme Court. In the form prescribed by regulation 4 for verifying the petition, the manner in which the affidavits are to be sworn is in identical terms with that of the form mentioned in rule 21. The provisions of regulation 10 correspond to Supreme Court rule 34; that of regulation No. 9 corresponds to rule 36. Regulation 1 of Chapter 20 provides that the provisions of the Code of Civil Procedure, 1908, inter alia, as indicated below, including the forms appended thereto, shall be applicable, so far as may be, to all proceedings before the Tribunal in respect of the following matters: "(ii) sections 28 and 32 and Order 16 in respect of enforcing the attendance of witnesses and requiring the deposit of their expenses; (iv) Order 18 in respect of examining witnesses on oath ; (v) Order 17 in respect of granting adjournments ;............. (vii) Order 26 in respect of issuing commissions for the examination of witnesses, and summoning and examining suo motu any person whose evidence appears to the Tribunal to be material. " Provisions of this regulation correspond to the provisions of section 10C of the Act. Rule 1 of Order 19 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition and on the affidavits filed that a case under section 398 is made out. The petition, therefore, was liable to be dismissed in limine. The Tribunal had no jurisdiction to entertain it. Therefore, the Tribunal was in error in making an order admitting it. At any rate, the Union of India now has no right to tender any further evidence either by filing affidavits of other persons or by tendering documentary or oral evidence. The petition, therefore, even on merits is liable to be dismissed without calling upon the respondents to file their affidavits in reply. In support of his contention, Mr. Mody placed reliance, and a very strong reliance, on certain observations made by Mr. Justice B. C. Mitra in In re Clive Mills Co. Ltd. [1964] 34 Comp. Cas. 731 and in In re Bengal Luxmi Cotton Mills Ltd. [1965] 35 Comp. Cas. 187. He has also referred to us observations in various English decisions to some of which Mr. Justice Mitra has referred in his judgments. He has also referred to us certain observations in Buckley on the Companies Acts (13th edition, at page 1029). Mr. Khambatta, appearing for the Union of India, contended that there is no positive provision in law that an affid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rule 21 in Form No. 3 is nothing but verification of the averments made in the petition. The verification of the contents of a pleading and evidence in proof of allegations made in the pleading are two distinct and separate terms well understood in the Civil Procedure Code. The relevant rule relating to the verification of a pleading is contained in rules 15(1) and (2) of Order 6, and it provides: "(1)Save as otherwise provided by any law for the time being in force, every pleading shall be verified at the foot by the party or by one of the parties pleading or by some other person proved to the satisfaction, of the court to be acquainted with the facts of the case. (2) The person verifying shall specify, by reference to the numbered paragraphs of the pleading, what he verifies of his own knowledge and what he verifies upon information received and believed to be true." The verification of a pleading is not confined only to facts within the personal knowledge of the person verifying the pleading. On the other hand, it is open to him to verify a pleading upon information received by him and believed by him to be true. It is true that the manner of verification of a pleading as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order, has to direct the attendance of the deponent for cross-examination if the opposite party so desires. There is a difference of opinion as to the meaning of the word "application" in rule 2 of Order 19. In some cases, it has been held that the expression "any application" in rule 2 means "interlocutory applications" ; while in others the expression is held to be wide enough to include substantive applications also. However, it appears from a recent decision of the Supreme Court in Khandesh Spinning & Weaving Mills Co . Ltd. v. R ashtriya Girni Kamgar Sangh, Jalgaon [1960] 2 SCR 841, 848, that the expression "application " includes a substantive application also. The question considered there was about the procedure that should be followed by the industrial courts constituted under the Bombay Industrial Relations Act, 1946. The question raised related to the procedure that should be followed in accepting evidence for determining the amount required for rehabilitation. It may be stated that section 118 of the said Act conferred on the industrial court some of the powers as are vested in civil courts. The material part of the said section is identically worded as are the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applications must be confined only to such facts as the deponent is able of his own knowledge to prove. On the other hand, it appears that verification of an affidavit simpliciter could be made by the deponent on his personal knowledge as well as on information received by him and believed by him to be true. An affidavit is only a written declaration on oath by the deponent. The position has been made clear even in the two decisions to which Mr. Mody has drawn our attention. In P admaba ti Dasi v. Rasik Lal Dhar [1909] ILR 37 Cal. 259, the question considered was whether the affidavit made in support of a petition by the respondent to the court of appeal for an order tha t the appellants should be directed to furnish security for the costs was sufficient. In the course of their judgment, Jenkins C.J. and Woodroffe J., after referring to the provisions of Order 19, rule 3, observed ; "... and every affidavit should clearly express how much is a statement of the deponent's knowledge and how much is a statement of his belief, and the grounds of belief must be stated with sufficient particularity to enable the court to judge whether it would be safe to act on the deponent's belief." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Order 19 in proof of facts. There is therefore no warrant to hold that it must be confined only to such facts as are within the personal knowledge of the deponent] The object of requiring a pleading or the contents of a petition to be verified is to ensure that false allegations are not freely and recklessly made therein. As pointed out by Mr. Justice Mody in Consolidated Foods Corporation's case (supra), the basic requirem ents of verification of a pleading is that the deponent must clearly disclose which of the statements in the affidavits are true to his knowledge and which of the statements are based on information and belief, disclosing the sources of his information and the grounds of belief with sufficient particularity, so as to enable the court to decide whether it would be safe to act on the deponent's belief. The verification of plaint or petition is required to enable the court to decide whether it should proceed with the petition or the plaint. All that is required at that stage is to ascertain that the allegations therein are not made recklessly but are made after due inquiry and with due care. That objective is achieved when the deponent clearly states the sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in substance the same as is the procedure prescribed by the Civil Procedure Code for trial of civil suits. A plaint is required to be verified at the foot of a pleading as provided in rule 15 of Order 6. A petition is required to be verified by an affidavit, but on the same basis as provided in rule 15. The mode of verification is different, but the quality of verification prescribed for a plaint as well as a petition is the same. After the plaint is received by court, a summons is issued to the other side. There is a similar provision after admission of a petition. After service of the summons with a copy of the plaint, the defendant is required to file his written statement by way of reply to the allegations in the plaint. Rule 34 requires a person who intends to oppose the petition to file his grounds in opposition or his affidavit in opposition within a certain time prescribed therein. It is thereafter that a suit or a petition comes up for hearing. Rule 36 relates to the powers of the court at the hearing of the petition. Section 10C introduced by the Amendment Act (53 of 1963) confers on the Tribunal some of the powers as are vested in a court under the Civil Procedure Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal knowledge, and that according to Mr. Mody is the scheme of the Rules framed under the Companies Act in general, and the import of rule 21 in particular. To accept the argument of Mr. Mody would necessarily involve reading more in rule 21 than it contains. The affidavit in verification has to be made by the petitioner, and, where there are more than one petitioner, by one of them. In the case of a corporate body being the petitioner, the affidavit is to be made either by a director or a secretary or other principal officer. The rule does not provide that in the event a petitioner is not able to verify the petition on personal knowledge, the petitioner should file supporting affidavits of persons having personal knowledge in respect of those facts. Further, the said provisions of section 10C and regulation (1) of Chapter 20, rule 1, empower the Tribunal to receive evidence either on affidavits or by examination of witnesses on oath before it. There is, therefore, no warrant to hold that the scheme as disclosed by the relevant provisions is that the allegations in a petition under section 397 or section 398 alleging fraud, misconduct, misappropriation, etc., must be supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information and belief, but also unless the deponent's statement is corroborated by some one who speaks from his own knowledge. " Placing reliance on these observations, Mr. Mody has argued that the affidavit on information, even if the source has been disclosed, is no evidence at all even for the purpose of issuing a summons against the respondent. The argument overlooks that the learned Chief Justice was not considering the question of maintainability of the petition, but was considering the question as to whether the petitioner had proved his case at the trial after both the parties had tendered their evidence. However, it may be pointed out that the other two learned judges have not gone to the extent the learned Chief Justice has gone. Lord Justice Rigby in his judgment observed: "I never pay the slightest attention myself to affidavits of that kind, whether they be used on interlocutory applications or on final ones, because the rule is perfectly general that, when a deponent makes a statement on his information and belief, he must state the ground of that information and belief." Lord Justice Vaughan Williams appears to have concurred with the view of Lord Justice Ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand, the learned judges were considering the question about the sufficiency of evidence tendered at the trial. It may also be pointed out that since such affidavits have been on the grounds of necessity held to be sufficient evidence to enable a court to grant reliefs, we fail to see why such an affidavit then should not be sufficient to enable a court to admit a petition and call upon the respondent to file his reply. Rule 30 of the Companies (Winding-up) Rules framed under the English Act is in the following terms: "30. Every petition shall be verified by an affidavit referring thereto. Such affidavit shall be made by the petitioner, or by one of the petitioners, if more than one, or, in case the petition is presented by a corporation, by some director, secretary, or other principal officer thereof, and shall be sworn after and filed . . . after the petition is presented, and such affidavit shall be sufficient prima facie evidence of the statements in the petition." The form prescribed for this affidavit is Form No. 9. It is in the following terms: " I, A B., of..., make oath and say that such of the statements in the petition now produced and shown to me, and marked wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed in limine, the petition would have been dismissed, because there was no affidavit on personal knowledge filed in support of the winding up petition. On the other hand, the earlier remarks of the learned judge "but it is sufficient to require an answer" indicates that if a petition is verified by a statutory affidavit, then that calls for an answer to the petition by the respondent. Mr. Mody argued that that may be so, because the aforesaid rule 30 framed under the English Companies Act says that it is prima facie evidence. Rule 21 of the rules framed by the Supreme Court does not say that the statutory affidavit prescribed by it is prima facie evidence of the allegation verified by the affidavit. Formerly, the rules framed by some of the High Courts were in identical terms as those of rule 30 of the said English rules. The omission of the clause "that it shall be prima facie evidence " is significant, and it indicates that no more a statutory affidavit on information only is sufficient to sustain the petition. The argument has little force. It is true that rule 21 framed by the Supreme Court does not say that "such affidavits shall be sufficient prima facie evidence of the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Indian Companies Act is section 397). The taxing master having refused to allow costs on an affidavit supplementing the statutory affidavit, the case came up in appeal against the order of the taxing master. After examining certain decisions, Wynn-Parry J. at page 413 of the report observed: "The result of the decided cases appears to be that, while the statutory affidavit is always necessary, it is not always sufficient .... and it is never sufficient where the petition is based on allegations of fraud. In such cases the facts of the alleged fraud must be stated on affidavit. ... The court has never attempted to state exhaustively the circumstances in which, apart from cases based on allegations of fraud, the statutory affidavit is to be regarded as insufficient. Each case must depend on its peculiar facts." The learned judge proceeded to examine the facts of the case before him, and then observed: "On the other hand, where the petition is grounded on an allegation that the affairs of the company require investigation, then, though no charge of fraud is made against any director or officer, it will probably be desirable in many, if not most, cases to supplement the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company require investigation or where the petitioner's case rests on documents, so that they can be exhibited. In the case of petitions under section 210, it is rarely wise or even possible to rely solely on the statutory affidavit. The meaning of the rule is that an affidavit as in the rule mentioned is always necessary, not that it is in all cases necessarily sufficient. " He also made reference to Atkin's Court Forms, vol. 1, page 81, to the following passage : "Evidence on proceedings by petition is usually, but not necessarily, given by affidavits, which must be intituled and sworn in the proceedings and must be filed. " Lastly, Mr. Mody referred to a decision of the Supreme Court in Kavalappara Kottaratkil Kochunni alias Moopil Nayar v. State of Madras [1959] Supp. 2 SCR 316, 337: "As we have already said, it is possible very often to decide questions of fact on affidavits. If the petition and the affidavits in support thereof are not convincing and the court is not satisfied that the petitioner has established his fundamental right or any breach thereof, the court may dismiss the petition on the ground that the petitioner has not discharged the onus that lay on him. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper case, the necessity of receiving oral evidence has not been excluded. A recent decision of the English courts brought to our notice by Mr. Khambatta in In re A. B. C. Coupler and Engineering Co. Ltd., [1962] 3 All. ER 68; 33 Comp. Cas. 207, 215indicates that in petitions alleging fraud and other grave charges, the proper course would be to examine the persons who are acquainted with the facts in court as witnesses, and the court should personally hear their evidence. This was a petition to wind up a company by the Board of Trade under section 169(3) of the Companies Act, 1948. Certain gave charges against the persons in management had been made. A statutory affidavit verifying the petition was sworn by an official of the Board of Trade. He also swore an affidavit exhibiting the report of the inspector saying that he believed the facts set out in the report to be true. The evidence tendered consisted only of the statutory affidavits and the reports of the inspectors. After examining the various earlier decisions -a majority of them we have already considered here-and after having considered the aforesaid passage from Buckley, the learned judge at page 73 of the report observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grant relief either at the instance of members in minority holding certain percentage of shares or at the instance of the Union of India where the oppression of the minority was complained of, or where the complaint was that the affairs of the company were conducted or likely to be conducted in such manner as were prejudical to the public interest or to the interest of the company. The Act has been further amended and trial of petitions under sections 397 and 398 has now been transferred to the Tribunal. The Tribunal has now also been conferred with further powers under section 388B. Under that section, the Union of India could state a case asking the Tribunal to record a finding that a person is not fit to hold the post of a director in a particular company or any other company. Section 10C further confers on the Tribunal certain powers which are exercisable by a civil court. The reading of section 10C, which also has been brought on the statute book by the said amending Act, discloses that the Tribunal is clothed with powers of discovery and investigation of the documents, enforcing the attendance of the witnesses, compelling production of documents, examining witnesses on oath, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples of the rules of evidence. If the averments in the pleadings are such that, but for them, an order cannot be made, persons who have personal knowledge of the facts stated must come forward and put what they have to say on affidavits. If other persons, having no personal knowledge of the facts, are set up to verify facts stated in petitions or affidavits, as being based on information supplied and believed to be true, the averments so verified cannot be relied on by the court. I must make it clear, however, that my views in this matter are confined to proceedings under sections 397 and 398 of the Companies Act, 1956, in which orders are asked for on the basis of charges laid in the petition and affidavits. These views should not be taken to apply to other proceedings under the Companies Act, 1956, or to interlocutory matters in other proceedings. In the petition and affidavits filed in proceedings under sections 397 and 398 of the Act, the provisions of Order 19, rule 3, sub- rule (1), must be strictly complied with, when serious charges of fraud, collusion, mismanagement, misappropriation and misapplication of funds, violations of the provisions of the Companies Act or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng enquiry into allegations made in the petition and supporting affidavits, if any, which by themselves do not constitute grounds for relief Sunder section 397 and section 398. " It is indeed true that the aforesaid observations fully support the contention raised by Mr. Mody on behalf of the appellant. With utmost respect, and for the reasons already recorded, we find considerable difficulty in concurring with these observations or taking a similar view as is taken by the learned judge. None of the English decisions, on which Mr. Mody has placed reliance, has gone to the extent the learned judge has gone. In this context we may point out that in two earlier Calcutta decisions, the view taken differs from that taken by the learned judge in Clive Mill's case (surpa) and Bengal Luxmi Cotton Mill's case (surpa). In Sarkar Estates Private Ltd. v. Kusumika Iron Works Private Ltd. [1962] 32 Comp. Cas. 575 , a Division Bench of the Calcutta High Court has held that: "The Company Rules which govern the practice and procedure of the matters relating to companies, which are dealt with in the original side of the Calcutta High Court, override the general provisions of the Civil Procedure C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute that the affidavit verifying the petition as well as the affidavit supplying further particulars have been sworn in accordance with the provisions of rule 21 of the Supreme Court Rules and the Form prescribed therein, as well as the Regulation and the Form prescribed therein. The source of information and the grounds of belief have been with sufficient particularity stated in the affidavit. The petitioner has thus fulfilled the requirements of law and the petition, therefore, for the reasons already stated, is not liable to be dismissed in limine. S imilarly, for reasons already stated, the petition is not liable to be dismissed on merits also at this stage merely on the ground that the affidavit verifying the petition or the affidavit supplying particulars have not been sworn on personal knowledge by Mr. Dang or have not been supported by affidavits of persons having personal knowledge of the facts alleged in the petition. We have already reproduced paragraph 11 of the affidavit furnishing further particulars, and in that affidavit Mr. Dang has stated that at the hearing evidence will be led in proof of the facts alleged in the petition. We have pointed out above the var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, on the other hand, contended that the petitioner is not entitled to argue that respondent No. 2 had waived his right to claim that the petition should be dismissed in limine inasmuch as the plea of waiver has not been raised by the petitioner in any of the affidavits which have been allowed to be taken on record. It appears that the Tribunal has allowed the counsel for the petitioner to argue the point of waiver inasmuch as it was of the opinion that the plea of waiver was raised by the counsel on the basis of the records in the petition. In our opinion, Mr. Mody is right in his contention that the plea of waiver must be expressly raised in the pleadings, and in absence of a plea, it should not be allowed to be raised in arguments. However, it is not necessary to go further in this matter inasmuch as the Tribunal has not decided this point, nor ha» the application been disposed of on this ground. On the other hand, the Tribunal has dismissed respondent No. 2's application on merits. For the reasons already stated, in our opinion, the Tribunal was right in dismissing respondent No. 2's aforesaid application No. 37 of 1965. In the result, for the reasons stated above, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
