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V. Rangaswami Achari Vs. Mandhai Viswa Brahmana Sarvajana Sahaya Nidhi Ltd. and ors. (In Voluntary Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberCompany Application Nos. 120 and 121 of 1967
Judge
Reported in[1967]37CompCas730(Mad)
ActsCompanies Act, 1956 - Sections 515
AppellantV. Rangaswami Achari
RespondentMandhai Viswa Brahmana Sarvajana Sahaya Nidhi Ltd. and ors. (In Voluntary Liquidation)
Appellant AdvocateS. Padmanabhan, Adv.
Respondent AdvocateS.V. Venkatasubramaniam, Adv. for the first respondent and ;C. Jose Ukkur, Adv. for the second respondent
DispositionApplications dismissed
Excerpt:
.....to the registrar. as above has been well brought out by bowen l. i am satisfied that, as matters stand, there are no justifiable reasons for me to hold that the 2nd respondent is a person who is unfit to be a voluntaryliquidator of the nidhi. i am also not satisfied that in the interests of the liquidation, he should be removed......the 2nd respondent is the voluntary liquidator appointed by its members at an extraordinary general meeting held on february 26, 1967. the case of the applicant is that the 2nd respondent, who was the secretary, and the 3rd respondent, who was the president-director prior to its voluntary liquidation, mismanaged the nidhi and did not keep proper accounts for the same, did not furnish the annual returns to the registrar as required under the indian companies act, and did not hold the annual general body meeting of the nidhi for the years 1963, 1964 and 1965. about the second week of july 1966, the 2nd respondent is said to have filed a return in the prescribed form before the registrar of companies stating that a general body meeting of the nidhi was held on july 11, 1966, and that.....
Judgment:

Ramaprasada Rao, J.

1. Mandhai Viswa Brahmana Sarvajana Sahaya Nidhi Ltd., the 1st respondent, is in voluntary liquidation. The 2nd respondent is the voluntary liquidator appointed by its members at an extraordinary general meeting held on February 26, 1967. The case of the applicant is that the 2nd respondent, who was the secretary, and the 3rd respondent, who was the president-director prior to its voluntary liquidation, mismanaged the Nidhi and did not keep proper accounts for the same, did not furnish the annual returns to the Registrar as required under the Indian Companies Act, and did not hold the annual general body meeting of the Nidhi for the years 1963, 1964 and 1965. About the second week of July 1966, the 2nd respondent is said to have filed a return in the prescribed form before the Registrar of Companies stating that a general body meeting of the Nidhi was held on July 11, 1966, and that the balance-sheets and profit and loss accounts for the years 1963, 1964 and 1965 were passed. The case of the applicant is that no such general body meeting was held and the returns that were sent by the 2nd respondent were false and in this behalf the Registrar was also apprised of the position. The applicant has sent several reminders to the Registrar including a complaint to the Company Law Board, New Delhi, as well. The applicant's further grievance is that the extraordinary general meeting said to have been convened on February 26, 1967, was not properly convened, that the election of the 2nd respondent as the voluntary liquidator of the Nidhi by the members present at the said meeting ought not to be implemented and that, in any event, for the reasons stated in his application, the 2nd respondent ought not to continue as such voluntary liquidator. He has also catalogued many other grievances in his application. But at the time of the hearing, learned counsel for the applicant rested his contention for the removal of the 2nd respondent as the voluntary liquidator on the only ground that he cannot be deemed to be a fit and proper person to hold such an office of trust since he was a party to a fraud in that false returns were sent to the Registrar as set out above. The applicant has also categorically stated in his application as well as through his counsel that he is not questioning the voluntary winding up of the Nidhi, but he was very particular that for the reasons stated above, the 2nd respondent ought not to be continuedas the voluntary liquidator of the Nidhi, as, according to him, he is a person who is unfit to hold the office. The 2nd respondent has filed counter affidavits, both in his capacity as voluntary liquidator and in his personal capacity. In the counter affidavit filed by him as the voluntary liquidator he states that he was so elected as voluntary liquidator at a meeting properly convened for the purpose and that the present application for his removal as voluntary liquidator is motivated as the applicant himself, by acts of misfeasance and malfeasance indulged in by him during the time when he was president and cashier of the Nidhi, has rendered himself unfit to safeguard his interests and is therefore apprehensive that some definite and defined action is certain to be taken against him by the voluntary liquidator if things were to move as they are. In order to avert any forestalling action against him, the applicant is said to have filed this application. The 2nd respondent states that the applicant has been prosecuted in a criminal court for such acts of mismanagement and that he made a part payment of the amounts misappropriated by him and promised to pay the balance thereafter and it was on such a varthamanam letter given by him he was discharged in the criminal case. The 2nd respondent also states that at the extraordinary general meeting held on February 26, 1967, he was elected unanimously as the voluntary liquidator, that the applicant was also present at the said meeting and he would not sign the minutes book and deliberately avoided signing the same. The 2nd respondent has given fuller details in the counter affidavit filed by him in his personal capacity. He says that the applicant himself was a party to the meeting held on February 26, 1967, in which he was elected as the voluntary liquidator of the Nidhi. He also says that it was a fact that he sent returns prepared by the other office-bearers of the Nidhi; but those returns were sent by him at the time when he was not keeping good health for about 11/2 years. As he was not completely posted with the affairs of the Nidhi at that time, he believed the persons who brought for his signature the prescribed forms and he was a party to that impugned document bona fide and not with the intention of creating any false report or a false document in connection with the affairs of the Nidhi. The second respondent alleges that, as the Nidhi was not profitably running due to internal dissensions brought about at the instigation of the applicant and three of his men, the applicant was unable to hold the post of a director, and he had to stay out from that office. In fact, when the applicant was the chairman of a meeting held on May 22, 1966, it was resolved that the Nidhi should be wound up voluntarily. The 2nd respondent states that for the meeting held on February 26, 1967, valid notices were sent to all the shareholders including the applicant and his three partisans and that the latter attended the said meeting. The 2nd respondent's case is that the applicant and his threefollowers attended the meeting to create some confusion therein, but as police bandobust was arranged by him, there was no confusion and pandemonium was thus avoided. It is unnecessary for me to set out the answers to the various other charges made by the applicant in his affidavit as set forth in the counter affidavits of the 1st and 2nd respondents, as the applicant himself is not pressing the same before me. The applicant filed a reply to these allegations. He denies that he was at any time found guilty of any criminal breach of trust and states that no amounts are due by him to the Nidhi even though the 2nd respondent's case is that in accordance with the books of the Nidhi large sums are still due and owing by him. The applicant states that, even assuming that the explanation offered by the 2nd respondent in the matter of signing of the returns and sending them to the Registrar is acceptable, it only goes to affirm that the 2nd respondent can easily be led by others and therefore is not a fit and proper person to continue as voluntary liquidator. The applicant would also add that the meeting dated February 26, 1967, was not held properly and that the signatures of the members were obtained later in the minutes book, and therefore the 2nd respondent ought not to be allowed to continue in his present office. In the rejoinder filed by the 2nd respondent, the facts are reiterated once again and there is no fresh material to be considered.

2. From the affidavits filed in this case, it is clear that there have been bickerings and internal dissensions in this Nidhi, and particularly between the 2nd respondent on the one hand and the applicant and his three followers on the other. It is not in dispute that there was an earlier criminal complaint against the applicant as regards the mismanagement of the affairs of the Nidhi and indeed it was practically compounded before the applicant could be discharged. It is not necessary for me to trace the relevant merits and demerits of the applicant vis-a-vis the 2nd respondent, but suffice it, however, to say that, on a fair reading of the affidavits filed by the respective parties, it appears to me that this application filed by the applicant to remove the 2nd respondent from the office of voluntary liquidatorship is not bona fide, but is motivated by some malice on account of certain actions which were taken against him when the 2nd respondent was the secretary of the Nidhi and possibly because the applicant entertains an apprehension in his mind that the 2nd respondent will pursue legitimately action against him in accordance with law for the dues said to be due and owing by him to the Nidhi and in connection with the other affairs of the Nidhi. It is with this background that we should consider this application filed by the applicant for the removal of the 2nd respondent as voluntary liquidator who has been so elected unanimously or by a majority of votes at a meeting held on February 26, 1967.

3. The applicant is seeking to remove the 2nd respondent, the voluntary liquidator, duly appointed by the members at a duly constituted meeting therefor, on the ground that prior to his appointment as secretary he sent a return to the Registrar of Companies which is admittedly not true. The 2nd respondent duly explained the circumstances under which he had to send such returns to the Registrar. Though his explanation was duly served on the Registrar no steps appear to have been taken against the alleged delinquent. For what one knows, whether any action is going to be taken at all is not clear. The explanation of the 2nd respondent is that he is illiterate, and when he was sick, other officers of the Nidhi took his signatures on the prescribed forms and he was not therefore a conscious party to the forwarding of such false returns to the Registrar. He swears that he was giddy and such ailment prevented him from having a probe into details. Before a person could be condemned, he should be given an opportunity, 'audi alteram partem. It cannot be predicated at this stage, in the absence of better and acceptable material that the applicant is unfit to continue as voluntary liquidator. The charges levelled against him have not been enquired into and no mala fides on his part can therefore be assumed. In my opinion, to tarnish a person's personality, something more tangible is required. In a case where a similar explanation was offered by an officer of a company, Govinda Menon J., in Natesan, In re, : (1949)1MLJ438 observed :

' Unless there are false statements in the balance-sheets of material particulars wilfully made by the auditor and the directors knowing them to be false they cannot be held guilty of an offence under Section 282 of the Companies Act.........

One cannot attribute any wilful negligence or dishonesty to directors who are men of position and responsibility if they depend upon and trust the permanent officials and the managing director of the company so far as working of the company is concerned in signing the balance-sheets.........'

4. Though the applicant projected certain other charges against the 2nd respondent, to support his case under Section 515 of the Companies Act, his learned counsel stated that he is resting his contention on the only ground that the 2nd respondent forwarded incorrect returns to the Registrar, and therefore he should be deemed to be a person not fit and proper to be the voluntary liquidator of the Nidhi. No charge has been filed against the 2nd respondent and the matter has not been enquired into on the date when he was unanimously appointed as the voluntary liquidator. It is still, as I said, at large. The applicant himself is not disputing that the meeting called by members to wind up the Nidhi voluntarily was regularly called and held that the second respondent was elected as voluntary liquidator. In those circumstances, can it be fairly said that the 2nd respondent is nota man of due and proper character, and unfit to hold the office of trust bestowed on him by the members Courts are loath to interfere with the scheme of self-determination by the members of a company. For such an inroad to be made and particularly resulting in the removal of a voluntary liquidator appointed by the members, weighty evidence is required. Excepting for the bare uncorroborated version of the applicant, there is no proof as at present of any deliberate overt act on the part of the 2nd respondent, to avoid his statutory duties now thrust on his shoulders by reason of the choice of the members of the Nidhi. The 2nd respondent's case is, that he was physically and mentally weak when he signed the impugned returns and forwarded them to the Registrar.

5. In such circumstances, can it be said that the applicant has 'shown cause', to remove the voluntary liquidator? The expression 'on cause shown' is not to be understood as an equivalent or substitute for 'if the court thinks fit'. Though an element of discretion is apparent in Section 515 of the Act, yet such judicial discretion should be judiciously exercised. It is not every act in the past of the voluntary liquidator that should be weighed, tested and scrutinised to find a case for his removal. In cases where companies resort to voluntary liquidation, it should not be forgotten that it is a decision arrived at by the members in the exercise of their sound judgment. No doubt, the rule of majority prevails on all such occasions. The members are interested in liquidating their Nidhi and conserving its available resources at the least expense, so that the creditors may be paid and if possible the shareholders get what little they can. While thus considering their own interest which primarily looms large in their minds, it-is injudicious to expect that the general body of members will entrust such management of the affairs in the hands of some one whom they cannot trust or believe. It is not every unfitness in the man that comes up for a microscopic examination, when the matter is taken up before the court for removal of the voluntary liquidator. The unfitness should go to the root of the matter and should be apparent from the record. If the general body of members themselves were prepared to ignore the past, excuse the faults and repose confidence on one amongst them, and elect him as voluntary liquidator, I am afraid that such a voluntary decision arrived at in a worthy democratic way ought not to be lightly interfered with by courts exercising discretionary jurisdiction under Section 515 of the Indian Companies Act, 1956. Interpreting similar words in Section 141 of the English Companies Act, 1862, Jessel, M.R. in In re Sir John Moore Gold Mining Company, [1879] 12 Ch.D. 325 observed :

' I should say that, as a general rule, they point to some unfitness, of the person--it may be from personal character, or from his connectionwith other parties, or from circumstances in which he is mixed up--some unfitness in a wide sense of the term.'

6. Even the learned Lord would say unfitness of a wide nature is the sine qua non for exercise of such a discretion. In fact, the inherent circumspection in such interpretation of Jessel M. R. as above has been well brought out by Bowen L. J. in In re Adam Eyton Limited : Ex parte Charlesworth, (1887) 36 Ch.D. 299:

' In many cases, no doubt, and very likely, for anything I know in most cases, unfitness of the liquidator will be the general form which the cause will take upon which the court in this class of case acts, but that is not the difinition of due cause shewn. In order to define 'due cause shewn' you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation. '

7. Therefore, it is necessary to have a wider perspective. In the instant case, it cannot be disputed that the general body of members chose the 2nd respondent even though he is 69 years of age and although he is said to have indulged in some laches prior to the liquidation. It is not to be forgotten that such laches were fresh in the mind of the members when they appointed him. As a matter of fact, the members first and foremost had the interest of the liquidation at heart and were prepared to condone the erstwhile shortcomings of the 2nd respondent. They did not want to brand him as an unfit person. In fact, nothing has been suggested against him to reflect on his character and conduct as a voluntary liquidator.

8. If, therefore, it is clear that the members at a general meeting held for the purpose and in exercise of their inherent right to determine for themselves whether liquidation should follow and who is to be the liquidator and having really, substantially and honestly decided to liquidate the Nidhi and to have the 2nd respondent as the voluntary liquidator, then, unless there are compelling reasons to set at naught the bona fide decision so arrived at legitimately in exercise of their right of self-determination, courts ought not to remove a liquidator so appointed. A bare suspicion, a mere complaint and a suspicious retrospect of past events, by themselves cannot be accepted as sufficient within the meaning of the expression ' on cause shown ' in Section 515 of the Companies Act and courts will not encourage the vindication and ventilation of party feelings to achieve an object and to serve their ends. I am satisfied that, as matters stand, there are no justifiable reasons for me to hold that the 2nd respondent is a person who is unfit to be a voluntaryliquidator of the Nidhi. I am also not satisfied that in the interests of the liquidation, he should be removed. Company Application No. 120 of 1967 is therefore dismissed ; but there will be no order as to costs.

9. Company Application No. 121 of 1967 is also dismissed.


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