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Chokkalingam Chettiar Vs. in Re: the Nagarathar National Bank (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai
Decided On
Reported inAIR1944Mad87; (1943)2MLJ499
AppellantChokkalingam Chettiar
RespondentIn Re: the Nagarathar National Bank (In Liquidation)
Excerpt:
- - on 17th april, 1943, the district judge called for further details, which were furnished by the official liquidator on 22nd april, 1943. on that date, he apparently being satisfied that materials existed justifying such public examination, passed the order now under appeal......and sircar and sen in their work on ' the companies act ' (at page 541) give an order, directing public examination of directors as one of the orders which are appealable. we are not prepared to say that section 202 is not wide enough to cover the order now under appeal.3. one of the complaints of the appellant is that this order was passed ex parte; but there does not appear to be anything in the rules which requires notice of applications under section 196 of the act to be given to directors before the court can pass an order directing their public examination.4. the official liquidator put in an application on 12th april, 1943, in which he expressed his opinion that a fraud had been committed by the directors and that a public examination of them should be held. on 17th april, 1943,.....
Judgment:

Horwill, J.

1. This is an appeal against the ex parte order of the District Judge of Ramnad at Madura on 22nd April, 1943, read with an order dated 16th July, 1943, that the appellant and other directors of the Nagarathar National Bank, Limited in liquidation should be examined on 5th August, 1943.

2. A preliminary objection has been taken that no appeal lies. Although it is not quite clear from Section 202 of the Companies Act that an order. such as this is contemplated under that section, its terms are very wide; and Sircar and Sen in their work on ' The Companies Act ' (at page 541) give an order, directing public examination of directors as one of the orders which are appealable. We are not prepared to say that Section 202 is not wide enough to cover the order now under appeal.

3. One of the complaints of the appellant is that this order was passed ex parte; but there does not appear to be anything in the rules which requires notice of applications under Section 196 of the Act to be given to directors before the Court can pass an order directing their public examination.

4. The Official Liquidator put in an application on 12th April, 1943, in which he expressed his opinion that a fraud had been committed by the directors and that a public examination of them should be held. On 17th April, 1943, the District Judge called for further details, which were furnished by the Official Liquidator on 22nd April, 1943. On that date, he apparently being satisfied that materials existed justifying such public examination, passed the order now under appeal. The. appellant says that he resigned on 7th March, 1938, and is not therefore responsible for anything that happened after that date. We find, however, that amongst the charges laid by the Official Liquidator against the directors is that they allotted shares in consideration of promissory notes executed by the shareholders. It is argued that an allegation of this sort is much too vague to fix responsibility on the appellant, who is one of the directors and whose name does not specifically appear in the Official Liquidator's report in that paragraph, though it does appear in the heading as one of the directors. Ordinarily, orders are passed by the directors as a body allotting shares; and the appellant does hot allege that he was not a party to the allotment of such shares. On the contrary, in the counter which he sought to file after the Judge had already passed orders in this matter, he says in paragraph 3:

Except in the case of Govindan Chettiar no promissory notes were accepted by the directors in lieu of cash on allotment of shares.

5. This sentence seems to indicate that the appellant was a party to the allotment of shares to Govindan Chettiar and is sufficient to establish a prima facie case that the appellant was a party to the issue of shares in consideration of promissory notes.

6. It is argued that even if this be the case, it would not amount to fraud. It is however a circumvention of the provisions of the Act and is contrary to the provisions of the Articles of Association. The lending of money on the shares of the bank is expressly prohibited by Article 4 of the Articles of Association. It may be true that this in itself would not be sufficient to prove fraud,; but it suggests fraud and would therefore justify the public examination of the appellant.

7. If it is true that the appellant resigned on 7th March, 1938, and that his resignation was effective from that date, then he would not be liable for anything that happens subsequently; and the learned District Judge will no doubt confine his examination to such matters as may be relevant to the charges that appear against him.


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