TMI Blog1969 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. The facts necessary for the purpose of the present order are that on the 5th of August, 1959, the company was ordered to be wound up. It may at this stage be mentioned that according to the official liquidator, Haridas Mundhra was the director-in-charge of the said company till the date of the winding-up order. On the 20th of December, 1960, the official liquidator made a preliminary report to the court under section 455(1) of the Companies Act. On the 26th of April, 1962, an auditor by name Tandon was appointed by the court to investigate into the affairs of the company. The statement of affairs which under section 453(3) of the Act should have been filed within 21 days from the date of the winding-up order was actually filed by the said Mundhra only on the 28th of September, 1963. This delay in the filing of the statement of affairs has been sought to be explained on behalf of the said Mundhra on the ground that from 17th January, 1961, to 1st June, 1963, the said Mundhra was undergoing sentence of imprisonment in jail in connection with some other matter. The said auditor, Tandon, made his reports on the 22nd of January, 1964, and the 28th of June, 1964. On the 15th July, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to secure his presence. Mundhra, however, failed to attend, and it was only when another drastic order was made by me on 10th September, 1969, directing the issue of a non-bailable warrant for the arrest of the said Mundhra under rule 256 of the Companies (Court) Rules, 1959, and directing the head bailiff of the Sheriff of Bombay to go to Calcutta to execute that warrant that the presence of the said Mundhra could be secured. Ultimately when the matter reached before me on 13th October, 1969, Mr. Bhatt on his behalf raised certain preliminary objections. It may be mentioned that those objections have nothing to do with inspection of the record for which adjournments were applied for by the said Mundhra from time to time. Since those preliminary objections have been raised by counsel on his behalf, I am, however, bound to deal with the same. The preliminary objections raised by Mr. J.C. Bhatt on behalf of Mundhra were as follows: I.In view of the fact that a misfeasance summons has already been taken out and the opening address of the learned counsel on behalf of the official liquidator in the present case showed that the public examination of the directors was intended to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that under rule 243 of the Companies (Court) Rules, 1959, an application for the private examination of directors could be made ex parte and the company judge could make the order on such ex parte application if the preliminary test for making the same was satisfied, viz ., it was just and beneficial to the business of the company. The Supreme Court, however, pointed out that the power conferred by section 477 was a very wide power and the court must guard itself being made an instrument of vexation or oppression and that the order which was ex parte was not final but it was always open to the person concerned to apply for vacating or modifying the order "on the ground that it has been obtained without placing all the requisite material before the court or by mis-statement of facts or on other adequate grounds". Dealing with the same point, the Supreme Court further observed [1962] 32 Comp. Cas. 97 . 106 (SC) : "The court has made the order in exercise of the jurisdiction vested in it, and in the absence of any material to show that the order was made for a collateral purpose or by misleading the court, the appellant is not entitled to have the order vacated". The Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns on the 3rd of August, 1964, just before it would have become time-barred. In the course of his argument on the point, unwarranted allegations were made by Mr. Bhatt against the official liquidator but it is not necessary for me to-deal with them. Suffice it to say that the official liquidator could not apply for a misfeasance summons earlier by reason of the fact that Mundhra had not filed his statement of affairs till the 28th September, 1963, and it was only after scrutinising the same and satisfying himself that it appeared that the directors had misapplied the property of the company or had been guilty of misfeasance or breach of trust in relation to the same that he could make application for a misfeasance summons. No order had, however, yet been obtained for the private and/or public examination of the directors of the company. It is under those circumstances that my brother, K.K. Desai, by his order, dated 15th July, 1964, directed the official liquidator to take out a misfeasance summons but to keep the same pending till the private and/or public examination of the director which might thereafter be ordered was concluded. The order for public examination of the directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s connection to a decision of my brother, Tulzapurkar, in the case of In re Aruna Purshottam [1966] 68 Bom. LR 421 , in which an identical objection was raised before the learned judge though the same was raised in regard to a private examination which had been ordered under section 477 of the Act. It was argued before him that once a misfeasance summons was taken out by the official liquidator he should be taken to have crystallised all the allegations against the applicant and a private examination under section 477 which was inquisitorial in character and resorted to for the purpose of collecting information and material should not be allowed to be held and that the private examination of the applicant against whom a misfeasance summons on substantially the same facts was taken out and was pending would be oppressive and vexatious in so far as he would be called upon to furnish information and materials which would be used against him later on the misfeasance summons. In dealing with that contention, the learned judge pointed out that whereas the step or proceeding contemplated under section 477 was of an exploratory nature, that is to say, it was a proceeding in the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... una Purshotlam's case ( supra ), I have, therefore, no hesitation in rejecting the application of Mr. Bhatt for vacating the order for public examination, dated 2nd December, 1964. In view of the fact that I have come to the conclusion, for the reasons stated above, that the application of Mr. Bhatt for vacating the order, dated 2nd December, 1964, must be rejected on merits, it is not really necessary for me to deal with the objection that was sought to be raised by Mr. Desai to Mr. Bhatt's application on the ground of delay in making the same. As, however, in my opinion, Mr. Desai's contention on the ground of delay has substance in it, I will proceed to deal with the same also. In support of his contention Mr. Desai has relied on the statement in Buckley on the Companies Acts, 13th edition, page 566, where it is stated that: "An order for public examination may be made ex parte , leaving the person against whom it is made to move to discharge it if made without jurisdiction". It is further stated there that the motion to discharge must, however, be made with reasonable diligence and that two months' time has been held to be too much. In support of that contention Mr. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being in the nature of a preliminary objection to the holding of the public examination before me. The next preliminary objection of Mr. Bhatt with which I must proceed to deal is that the notice for public examination, dated the 16th December, 1964, is void as being in violation of article 20(3) of the Constitution in so far as it compelled the directors concerned to be witnesses against themselves. Mr. Bhatt has contended that the misfeasance summons and the affidavit in support thereof specifically accused one or the other or all of the directors concerned, of offences of a criminal nature and there is, therefore, a formal accusation of offences against them and the notice for public examination issued subsequent thereto must be held to come within the mischief of article 20(3) of the Constitution. In this connection, Mr. Bhatt has taken me through the misfeasance summons which, it may be stated, is in consonance with the statutory forms Nos. 120 and 121 of the Companies (Court) Rules, 1959, as well as the affidavit in support thereof and has contended that the same contain accusations of offences under section 630, or of offences for which action could be taken under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a judicial Tribunal on the accused and the plea under article 20(2) of the Constitution was, therefore, negatived by the Supreme Court. In doing so, Bhagwati J., who delivered the judgment of the court, however, considered the ambit of article 20 as a whole and not merely that of sub-article (2) of article 20. The judgment of Bhagwati J. in Maqbool Hussain's case ( supra ) has been so construed by the Supreme Court itself in the later decision in Narayanlal's case ( supra ) which will hereafter be discussed. After considering the terms of the different clauses of article 20, Bhagwati J. laid down as follows: "The very wording of article 20 and the words used therein: 'convicted', 'commission of the act charged as an offence', 'be subjected to a penalty', 'commission of the offence', 'prosecuted and punished ' , 'accused of any offence' would indicate that the proceedings therein contemplated are of the nature of criminal proceedings before a court of law or a judicial Tribunal and the prosecution in this context would mean an initiation or starting of proceedings of a criminal nature before a court of law or a judicial Tribunal in accordance with the procedure prescribed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them on the table without the envelope. The appellant had ultimately been convicted of the offence under section 165A of the Indian Penal Code by the High Court in appeal. The notes were seized by the police officer and his office rubber stamp seal was placed upon them. On further appeal to the Supreme Court, one of the questions which arose before that court was. whether there had been a violation of the provisions of article 20(3) of the Constitution. It was there held that even assuming that the appellant was accused of an offence he was not compelled to produce the currency notes and therefore the facts established did not attract the provision of article 20(3) of the Constitution. I must now deal with the decision of the Supreme Court in the case of Narayanlal Bansilal v. M.P. Mistry [1960] 30 Comp. Cas. 644 , 661, 663; [1961] 1 SCR 417; AIR [1961] SC 29 , in which the question of the interpretation of article 20(3) did arise on the facts which were somewhat similar to the facts of the present case. The respondent before the Supreme Court who was a chartered accountant was appointed inspector under the Companies Act to investigate into the affairs of the company from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairs are irregularly, improperly or illegally managed; but who would be responsible for the affairs which are reported to be irregularly managed is a matter which would be determined at the end of the enquiry. At the commencement of the enquiry and indeed throughout its proceedings there is no accused person, no accuser and no accusation against any one that he has committed an offence. In our opinion, a general enquiry and investigation into the affairs of the company thus contemplated cannot be regarded as an investigation which starts with an accusation contemplated in article 20(3) of the Constitution". Another decision of the Supreme Court to which I must refer is that in the case of State of Bombay v. Kathi Kalu [1962] 3 SCR 10; AIR [1961] SC 1808. The question which arose in that case was whether article 20(3) of the Constitution was infringed by compelling an accused person to give his specimen handwriting or signature or thumb-impression to the investigating officer or under orders of a court for the purpose of comparison under section 73 of the Indian Evidence Act, and whether the provisions of section 27 of the Evidence Act in regard to discovery also infringed ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of article 20(3). A similar question arose before the Supreme Court again in the case of Popular Bank v. Madhava Naik [1965] 35 Comp. Cas. 174 ; AIR [1965] SC 654 . The question was whether the order for public examination which, it may be stated, was applied for in that both under section 45G of the Banking Companies Act, 1949, as well as under section 478 of the Companies Act, was void as being violative of article 20(3) of the Constitution. It may be mentioned that the application made by the liquidator stated that it had also been made in respect of offences under various other sections of the Companies Act, including section 545, and section 45G of the Banking Companies Act. The Supreme Court referred to its own earlier decision in K. Joseph's case ( supra ) , just discussed by me, and held that, even though the application in the said ease contained allegations of the commission of offences under various sections of the Companies Act, that would not amount to an accusation within the meaning of article 20(3) of the Constitution. It further observed that for the purpose of deciding whether an accusation was made or not, section 45G of the Banking Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigate into it". In my opinion, the passage just quoted by me correctly sums up the ratio of the several decisions discussed by me above. I hold that in order to attract the applicability of article 20(3) of the Constitution, a formal accusation against the persons concerned must have been made either to the appropriate police officer who could in the normal course take action or to the court which is competent to entertain and try the same. Such court, in the context of the facts of the present case, would be the appropriate court indicated under section 2(11) of the Companies Act. Turning to the facts of the present case in the light of the above principles, the question that arises is whether it could be said that formal accusations of a criminal nature have been made in the present case to a court which is competent to entertain and try the same. In my opinion, there can be no doubt that the answer to that question must be in the negative since neither the company judge, nor this court, is competent to entertain and try the offence in question. The affidavit in support of the misfeasance summons contains allegations of offence which are of a criminal nature, but does not, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be rejected. I must hold that article 20(3) of the Constitution does not bar any such questions being put to the directors in the course of their public examination before me. That, however, leaves for my consideration the second part of this preliminary objection of Mr. Bhatt which is to the effect that a misfeasance summons having already been taken out on the 3rd of August, 1964, I should not allow any questions to be put in the course of public examination which relate to matters covered by that misfeasance summons or the affidavit in support thereof as the same would be outside the scope of section 478 and would be vexatious. It is the contention of Mr. Bhatt that a perusal of the misfeasance summons and the affidavit in support of it shows that the official liquidator is not groping in the dark for there are clear accusations made therein against one or the other of all the directors. It is the contention of Mr. Bhatt that the order for public examination was obtained after the misfeasance summons was taken out for the purpose de hors section 478 and that to allow any question to be put in the course of that public examination which were covered by the misfeasance summo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Joint Stock Companies, 41st edition, page 721, it is stated that a public examination is "a roving inquiry", not confined to a predetermined issue, so long as it relates to the promotion or formation or to the conduct and dealings of the person examined as an officer thereof. In Pennington's Company Law, 2nd edition, page 673, it is stated that the purpose of a public examination, unlike a private one, is to extract evidence from a delinquent director or promoter which may later be used against him in civil or criminal proceedings, and that it is, therefore, not surprising to find that the examination is of a far more rigorous character than a private examination. This passage makes it clear that the mere fact that the evidence obtained from the directors in the course of public examination is intended to be used against him in a misfeasance summons cannot vitiate any question put in the course of that public examination as being intended for a collateral purpose, as Mr. Bhatt has contended, since that is one of the purposes of a public examination. In the case of K. Joseph's case ( supra ) which has already been cited above in another context, the Supreme Court has laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation as well as the observation of the Supreme Court which I have referred to show that a public examination is a roving enquiry to discover facts in regard to the fraud alleged in the promotion or formation or the conduct of the business of the company or in regard to the conduct and dealings of the officers who are so examined. Those facts may or may not be covered by the misfeasance summons but a certain amount of overlapping between the facts elicited in the course of public examination and the facts relied upon for the purpose of the misfeasance summons under section 543 of the Companies Act is inevitable. The phrase "fishing inquiry" used by Mr. Bhatt for the purpose of impugning the public examination in the present case has, generally speaking, no doubt, an obnoxious connotation in law. It is, however, perfectly a proper term to apply to a public examination, so long as the public examination is not being used for a purpose collateral to section 478. In my opinion, the use of the phrase "fishing inquiry" is as germane to proceedings by way of public examination as it would be in proceedings in the fishing village. As stated by the Supreme Court in K. Joseph's case ( su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all incriminating questions that might be put to the directors under examination. Turning first to the terms of sub-section (5) of section 478, it enacts that the person who is being examined "shall answer all such questions as the court may put, or allow to be put, to him". These are words of the widest amplitude, and the only limitation on the court's power under that sub-section would be that it has to exercise its discretion judicially, and not arbitrarily or capriciously. In exercising those powers, all that the court would require to consider would, therefore, be whether the questions put or allowed to be put must be such as to subserve the purpose of section 478, and not a purpose collateral to it. In my opinion, the legislature has advisedly conferred these very wide powers on the court by sub-section (5) of section 478 because the very nature of liquidation proceedings would require incriminating questions to be put and answered without any reservation in regard to their future use in proceedings, civil or criminal. This view which I have taken is supported by the fact that in the corresponding section 196(7) of the Indian Companies Act, 1913, the words, "in civil proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-Browne's Handbook on Joint Stock Companies, 41st edition, page 720, and Pennington's Company Law, 2nd edition, page 674. For that statement of the law those standard English works rely upon the decision in the case of In re Paget [1927] 2 Ch. 85 which, it may be stated, was a case not of liquidation proceedings under the Companies Act but of bankruptcy proceedings. It is stated in the judgment in the said case that the section relating to the public examination of the bankrupt made it plain that the duty of the official receiver was a wide one and was to be exercised in the interests of the public and that the debtor was not entitled to refuse to answer the questions put to him on the ground that the answers thereto might incriminate him because the purpose of the Act was to secure a full and complete examination and disclosure of the facts relating to the bankruptcy in the interest of the public and not merely the interest of those who are the creditors or debtors. To the same effect principles laid down in the English decisions to which I have referred have no application to public examination under the Companies Act. I must, there fore, reject the distinctions which Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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