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Official Liquidator Vs. Krishna Kamath and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberCivil Misc. Petn. No. 113 of 1958
Judge
Reported inAIR1959Ker388
ActsCompanies Act, 1956 - Sections 478; Banking Companies Act, 1949 - Sections 45, 45G and 45G(7)
AppellantOfficial Liquidator
RespondentKrishna Kamath and ors.
Appellant Advocate Mani J. Meenattur, Adv.
Respondent Advocate P. Govindan Nair,; P.K. Kurian,; K. Sukumaran,;
Excerpt:
company - public examination - section 478 of companies act, 1956 and sections 45, 45g and 45g (7) of banking companies act, 1949 - whether petitioners liable to public examination - as per section 478 (1) when liquidator reported that fraud had been committed by person court may require that person to attend and publicly be examined - as such court had jurisdiction to examine only individual persons incriminated - liquidator's report disclosed prima facie case of fraud regarding petitioners no. 13, 14 and 15 - such petitioners were officers of company - as such liable to public examination under section 478 - petitioner no. 16 was not officer of company and not liable to public examination under section 478 or section 45g. - - 215 as demanding that, you ought not to subject any one..........of the alleged fraud. they are all officers of the company and are in the circumstances liable to public examination under section 478 of the companies act.2. counter petitioner 16, so far as the report says, was only the cashier of the alleppey office. if that be so he is not an officer of the company, nor is he a promoter, director or auditor of the company. he is not therefore liable to public examination either under section 478 of the companies actor under section 45g of the banking companies act.3. of the remaining counter petitioners, counter petitioners 1 to 8 were directors of the company; and counter petitioners 12 and 17 officers thereof, the former being its general manager and the latter the agent of its kuthiathode office. they arc therefore persons coming within the scope.....
Judgment:
ORDER

Raman Nayar, J.

1. So far as counter petitioners 13, 14 and 15 are concerned the Liquidator's report discloses a prima facie case of fraud by each one of them. Counter Petitioner 13 was first the General Manager and then the Secretary of the Banking Company in liquidation; and counter petitioners 14 and 15 were agents of the Alleppey office of the company at the time of the alleged fraud. They are all officers of the company and are in the circumstances liable to public examination under Section 478 of the Companies Act.

2. Counter Petitioner 16, so far as the report says, was only the Cashier of the Alleppey office. If that be so he is not an officer of the Company, nor is he a promoter, director or auditor of the company. He is not therefore liable to public examination either under Section 478 of the Companies Actor under Section 45G of the Banking Companies Act.

3. Of the remaining counter petitioners, counter petitioners 1 to 8 were directors of the company; and counter petitioners 12 and 17 officers thereof, the former being its General Manager and the latter the agent of its Kuthiathode office. They arc therefore persons coming within the scope either of Section 478 of the Companies Act or Section 45G of the Banking Companies Act, in the case of counter petitioners 1 to 8 of both. But the report while alleging acts and omissions in general, many of them amounting to fraud, does not attempt to attribute these acts and omissions to any individual person or to say that any act or omission of that particular person caused loss to the company. Section 478 of the Companies Act expressly states that it is only that person against whom fraud is alleged that the court may, after considering the report, summon for public examination.

It is not as if on a prima facie case of fraud by any person whatsoever, all the persons mentioned in Section 478 are liable to public examination; such examination can only be of the particular person who has committed the fraud. But it has been argued on the strength of, Calcutta City Bank Ltd., In re, (S) AIR 1957 Cal. 508, that in view of the different wording of Section 45G of the Banking Companies Act, there need be no act or omission leading to loss by the individual person summoned for examination, that so long as there is an act or omission leading to loss by any of the persons mentioned, all such persons irrespective of whether or not they were responsible for the act or omission, are liable to public examination.

I think this is putting the case too high. In the first place the court has to be of opinion that the person concerned should be publicly examined and I venture to say that a court will not come to that opinion unless it thinks that the person was in some way or other responsible for the act or omission. The wording of Section 45G of the Banking Companies Act is. so far as this matter is concerned, similar to the wording of S. 196 of the Indian Companies Act, 1913 and Section 8 of the English Companies (Winding-lip) Act, 1890. In Ex parte Barnes, (1898) A.C. 146, the House of Lords held that, under the latter provision, a general finding of fraud would not be enough and that the individual person, sought to be examined must be incriminated.

The spirit of this decision was explained in re Civil, Naval and Military Outfitters Ltd., (1899) 1. Ch. 215 as demanding that, you ought not to subject any one to a public examination unless you are satisfied on the report that the official receiver has come to the conclusion, and upon some substantial grounds, that a charge of fraud is disclosed by the facts against the person whom it is sought to examine such a charge that he may understand what it is from which he will have to exculpate himself and with which it is sought to incriminate him'. (And the decision contains no such disclaimer regarding its authority as a precedent as seems to be suggested in (S) AIR 1957 Cal, 508. On the contrary what was emphasized was that the defective report of the receiver in that case, which was however held to meet the bare requirements of the law, was not to be regarded as a precedent for future reports). These cases have been followed by the Indian Courts in construing Section 196 of the Indian Companies Act, 1913 (See for example In re Indian State Bank Ltd., AIR 1933 All. 366 where it was observed that the words that the court 'may direct that any person shall attend before the court ......... and be publicty examined' appearing in the section do not justify the court, on a general allegation of fraud, in making an order for the public examination of 'any person' not directly implicated in the report of the liquidator, and that the report must state some facts which entitle the court to find that there is a prima facie case against the particular person named for examination).

It was only in 1956 that the Indian Legislature (following the English Companies Act of 1948) resolved the ambiguity in Section 196 of the Indian Companies Act, 1913 by providing in Section 478(1) of the Companies Act, 1956 that when the liquidator has reported that a fraud has been committed by a person the court may require that person to attend and be publicly examined, thus making it clear that it is only the individual persons incriminated that the court has jurisdiction to so examine Section 45G of the Banking Companies Act was enacted earlier on the model of the Companies Act then in force, and no argument based on the difference in language between that section and Section 478(1) of the Companies Act, 1956, the 'any person' of the former, arid the 'that person' of the latter, is available.

On the ether hand the proviso to Sub-section (7) of Section 45G of the Banking Companies Act, which says that the Court may allow costs to a person publicly examined who is exculpated from any charge made or suggested against him, necessarily implies that only a person against whom some charge (and unlike a case falling under Section 478 of the Companies Act the charge need be only of an act or omission leading to loss and need not necessarily be one of fraud) has been made or suggested can be so examined. With due respect I think that the statement in the Calcutta case already referred to that where there is a loss 'that creates a prima facie case for public examination of the directors who were responsible for the management at the relevant time', is too wide. Even in the case of a banking company it would not be proper to assume that every loss must be the result of some act or omission on the part of one or more of the persons mentioned in Section 45G and that every director at the time must have been party to that act or omission.

4. There will be a public examination of Cr.Petitioners 13, 14 and 15 under Section 478 of the Companies Act on 20-11-1958. (Notice under Rule 23Qby publication in one issue each of the Indian Express and Malaysia Rajyam), So fall as the remaining Cr. Petitioners are concerned I call for a further report or reports from the liquidator (whichhe may in his discretion submit either before orafter examination of Cr. petitioners 13, 14 and 15)expressly implicating each one of them whom heseeks to subject to a public examination with theacts or omissions leading to the loss or acts of fraudas the case may be, together with the groundstherefor, and such particulars that he may understand what it is from which he will have to exculpate himself. And in the case of Cr. PetitionerNo. 16 the report, if any, will further explain howhe is an officer of the company. Call on 20-11-58.


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