Teja Singh, J.
1. Jhabar Mai Chokham, who claims to be one of the shareholders and creditors of the Punjab Pictures Limited, a Company incorporated under the Indian Companies Act, applied to this Court under Sections 162, and 176, Companies Act for having the company wound up and for appointment of a Provisional Liquidator. The record shows that the petition was prepared and signed by the petitioner on 5th December, but was actually instituted in this Court on the 8th. It came up before a learned Judge in the presence of the petitioner's counsel on the 9th and the following order was made:
Praya that at least a month's time be granted as he wishes to put in further material to complete the petition. To come up after the winter vacation.
The Court remained closed first for X-mas vacation and then for the winter vacation from 24th December 1947 to 15th February 1948, both days inclusive and reopened on 16th February. On 25th February, the petitioner put in an affidavit and produced a few documents. The petition was placed before a learned Judge for admission on the same day and he ordered, notice of the petition and citation to issue to the shareholder and other Directors of the Company. The learned Judge also appointed L. Anand Ram Vigh, Advocate of Delhi, as a Provisional Liquidator and directed him to take charge of the assets of the business of the Company forthwith. The Company through its General Manager has preferred this appeal against the order of the learned Single Judge in so far as it relates to the appointment of the Provisional Liquidator.
2. It is admitted that the company was floated on 23rd February 1946 mainly for the purpose of Film Production and distribution with an authorised capital of Rs. 10,00,000, but the paid-up capital of the Company is only Rs. 99,350. It is also admitted that at first the Company had only four Directors including Jhabar Mal Chokhani, the petitioner, and R.L. Bhatnagar, the General Managar. The petitioner alleged inter alia that on the very day on which the Company was floated it purchased from him a picture called, 'Pehli Nazar' in consideration for a sum of Rs. 2,85,000 payable in three instalments, that one of the conditions was that all sums that would be received from the booking would be held in deposit in bank and after meeting publicity and other necessary expenses for the release of the picture, would be ear marked for making payment to the petitioner, that shortly after the Company had been granted commencement certificate, the Directors, other than the petitioner, entered into a secret arrangement among themselves with a view to place the entire management and control of the company in the hands of Bhatnagar, that they deprived the petitioner of the sum of Rs. 60,000 which was payable to him under the terms of the agreement, that on this the petitioner brought a suit against the Company for the recovery of the balance of the price of his picture, that during the pendency of that case the High Court of Lahore while deciding an appeal arising out of it gave certain directions to the Company which it had not complied with fully, that in spite of the fact that the majority of the shareholders were with the petitioner, Bhatnagar and the other Directors who belonged to his clique had been managing the affairs of the company and had been taking steps which were detrimental to the interest of the petitioner and that they were squandering the income of the company with the result that it was running at a loss and was unable to pay its debts.
3. On these allegations the petitioner submitted that it was just and equitable that the company be wound up, As regards the petitioner's prayer for the appointment of a Provisional Liquidator this is what was stated in the penultimate paragraph of his position:
There is serious apprehension that, unless a Provisional Liquidator is immediately appointed, the accounts will be tampered and such money and property as now remain will be misappropriated.
4. It, may here be mentioned that the respondent's counsel raised two preliminary objections: (1) that no appeal was competent and (2) that Mr. Bhatnagar who had filed the appeal had no power to do so. Both these objections have been disposed of by a separate ordur.
5. The appellant's counsel first of all contended that the order of the learned single Judge appointing a Provisional Liquidator was bad in law, inasmuch as it did not comply with the mandatory provisions of Section 175, Companies Act. The section reads as follows:
(1) For the purpose of conducting the proceedings in winding up a company and performing such duties in reference thereto as the Court may impose, the Court may appoint a person or persons other than the official receiver to be called an official liquidator or official liquidators.
(2) The Court may make such an appointment provisionally at any time after the presentation of a petition and before the making of an order for winding up hut shall before making any such appointment give notice to company, unless for reasons to be recorded it thinks fit to dispense with notice.
Counsel argued that according to subs, (a), be. fore the Court appoints a Provisional Liquidator it is bound to give notice to the company and if it is of opinion that the notice should be dispensed with it should record reasons in support of it. In view of the fact that the word used in the sub-section is 'shall' I am inclined to think that the counsel's contention is correct and since the learned Single Judge before making the order appointing a Provisional Liquidator neither gave notice to the company nor recorded reasons for dispensing with the notice, it must be set aside for this reason alone. The respondent's counsel while admitting that the issue of the notice to company was necessary, maintained that the mere fact that the learned Single Judge failed in this, did not, invalidate his order. He referred us in this connection to Hafiz Abdul Karim v. Sri Kissen Rai 11 Cal. 139, where additional evidence had been admitted by an appellate Court under Order 41, Rule 27, Civil P.C., but no reasons had been given by it why it regarded the admission of the additional evidence necessary. Now the relevant words of Order 41. Rule 27, Civil P.C., are:
Wherever additional evidence is allowed to be produced by an appellate Court, the Court shall record the reasons for its admission.
And when they are read in conjunction with the rest of the rule they cannot be taken to mean that the Court cannot admit additional evidence without recording reasons. Different, however, is the case with Section 176 and the words used in Sub-section (2) are not only more emphatic but are liable to the construction that unless the Court for reasons to be recorded deems it proper to dispense with the notice, no appointment of a Provisional Liquidator can take place before notice is given to the company.
6. Then it was urged by the appellant's learned Counsel that even, on merits the petitioner had not brought any material on record which would justify the appointment of a Provisional Liquidator at this stage. After hearing the parties' counsel at considerable length and on going through the petition, the affidavit and the few documents that the petitioner produced on 25th February, I am of the opinion that this contention must also prevail. Serious though some of the allegations contained in the petition were, ins my view, none of them justified the appointment of a Provisional Liquidator. It is not denied that the company had all along been functioning and it was carrying on business in the ordinary course Placing the entire management and the conduct' of such a company in the hands of a Provisional Liquidator is in effect to put a stop to its baseness and it is well settled law that before such; drastic step can be taken, the Court must be satisfied that it is absolutely necessary to do so. This aspect of the question was considered by Rattigan, J. of the Punjab Chief Court in Peoples Bank of India Ltd. v. Narain Das Bhagwan Das A.I.R. (1) 1914 Lah. 117. This is what he observed:
The power to appoint a provisional liquidator, which is given to the Court by Section 134, is general and so far as the terms of the section go absolutely unqualified But this discretionary power must obviously be exercised reasonably and in accordance with principles laid down by the Court. Company law is more, or less in its infancy in this country, and I have not been referred to any decision of a High Court or Chief Court in India bearing upon the point before me On the other hand there are several leading authorities reported in the English Law Reports which enunciate the rales to be observers by the Court when it is called upon to appoint a provisional liquidator.
The learned Judge then referred to the leading authority, Ex parte Emmerson In re London Hambuig and Continental Exchange Bank, (1880) 2 Eq. 231 and quoted the following observation from the judgment of Lord Romilly, M.R.:
It is perhaps convenient that I should state what my practice is with reference to the Appointment of provisional liquidators. Where there is no opposition to the winding up, I appoint a provisional liquidator as a matter of course, on the presentation of the petition, But where there is an opposition to it, I never do, because I might paralyse all the affairs of the Company, and afterwards refuse to make the winding up order at all. But when the Directors themselves apply or do not oppose the winding up, then, I appoint the provisional liquidator.
7. I have mentioned above, that though the petitioner stated a number of foots in support of his prayer for the winding up of the Company so far as the appointment of a Provisional Liquidator is concerned, ho alleged only two things, one, that accounts would be tampered with and second, that such money and property as was in the hands of the Company would be misappropriated, As I read the petition and the affidavit I cannot help forming the impression that these were mere allegations unsupported by any kinds of details and I am not prepared to attach [any value to them, more so, when I find that similar allegations made by the petitioner in his civil suit which went up in appeal to the Lahore High Court, were spurned by the learned Judge who disposed of the appeal and his prayer for the appointment of a receiver during the pendency of that case was rejected. A perusal of the High Court order would go to show that some of the allegations made by him in that case were withdrawn by his counsel and some were found to be false.
8. It is correct that the learned Judge while refusing to appoint a receiver gave certain directions with a view to ensure that proper accounts were kept and that copies of account be sent to the petitioner occasionally, but this cannot be a ground for appointment of a Provisional Liquidator, even though it be assumed that the Company neglected to comply with some lot the directions. I wish further to point out that the petitioner could not have been very serious regarding the apprehensions that unless a Provisional Liquidator was appointed the company would tamper with the accounts or would misappropriate the funds, otherwise his counsel would never have allowed such a long time to [elapse between the filing of the petition and the date on which they enable' the Court to pass orders by putting in affidavit and other documents. My impression is that the anxiety of the petitioner is to secure the payment of the money that is said to be due to him for the price of the picture Pehli Nizar and his efforts to have the Company placed in the charge of a Provisional Liquidator is to exert undue pressure upon the Directors. He adopted similar tactics when he instituted his previous civil suit at Lahore but failed in them.
9. Accordingly I would accept the appeal and set aside the order of the learned Single Judge appointing the Provisional Liquidator. Though I am inclined to think that the principal reason, why the order appealed from was made without notice to the Company, was that the petitioner's counsel either deliberately or otherwise, did not bring to the notice of the learned Single Judge the provisions of Section 175, Companies Act, I consider that it is proper to leave the parties to bear their own costs in this appeal.
10. Since both parties are here and the Provisional Liquidator is also present, I would direct them all to appear before the learned Single Judge tomorrow and to obtain his directions for the disposal of the account books and other documents that the Official Liquidator has taken possession of. The Official Liquidator was summoned to produce certain documents in this Court on the nth instant. He states that since it was not possible for him to reach here on that day he came on the following day. I have no doubt that he is entitled to his travelling expenses on that account. The amount of expenses as well as the amount of remuneration due to him for this work that he has done so far will be settled by the learned Single Judge.